HomeMy WebLinkAboutRESO 9599160322 sdl 6053686
Resolution No. 9599
Resolution of the Council of the City of Palo Alto Approving the
FY 2017 Wastewater Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto assesses the financial position of its
utilities with the goal of ensuring adequate revenue to fund operations. This includes making
longterm 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. It 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 a
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 2017 Wastewater Utility Financial
Plan.
SECTION 2. The Council hereby approves the transfer of $3.95 million in FY 2016 from
the Rate Stabilization Reserve to the Operations Reserve, as described in the FY 2017
Wastewater Utility Financial Plan approved via this resolution.
/ /
/ /
/ /
/ /
/ /
DocuSign Envelope ID: 6F8953A7-8742-4598-A542-1CB0D8659C0F
160322 sdl 6053686
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act a project under Public Resources Code
Section 21065, and therefore, no environmental assessment is required.
INTRODUCED AND PASSED: June 13, 2016
AYES: BURT, DUBOIS, FILSETH, HOLMAN, KNISS, SCHARFF, SCHMID, WOLBACH
NOES:
ABSENT: BERMAN
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Senior Deputy City Attorney City Manager
Director of Utilities
Director of Administrative Services
DocuSign Envelope ID: 6F8953A7-8742-4598-A542-1CB0D8659C0F
FY 2017 WASTEWATER
COLLECTION UTILITY
FINANCIAL PLAN
FY 2017 TO FY 2026
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 2 | P a g e
FY 2017 WASTEWATER COLLECTION
UTILITY FINANCIAL PLAN
FY 2017 TO FY 2026
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.................................................................................. 5
Section 3: Detail of FY 2017 Rate and Reserves Proposals ....................................................... 5
Section 3A: Rate Design ............................................................................................................... 5
Section 3B: Current and Proposed Rates..................................................................................... 6
Section 3C: Bill Impact of Proposed Rate Changes...................................................................... 7
Section 3D: Proposed Reserve Transfers ..................................................................................... 7
Section 4: Utility Overview.................................................................................................... 7
Section 4A: Wastewater Utility History....................................................................................... 7
Section 4B: customer base ........................................................................................................... 8
Section 4C: Collection System ...................................................................................................... 9
Section 4D: Cost Structure and Revenue Sources ........................................................................ 9
Section 4E: Reserves Structure................................................................................................... 10
Section 4F: Competitiveness ...................................................................................................... 11
Section 5: Utility Financial Projections ................................................................................. 11
Section 5A: FY 2011 to FY 2015 Cost and Revenue Trends ........................................................ 11
Section 5B: FY 2015 Results....................................................................................................... 12
Section 5C: FY 2016 Projections................................................................................................. 13
Section 5D: FY 2017 – FY 2026 Projections ................................................................................ 13
Section 5E: Risk Assessment and Reserves Adequacy ............................................................... 14
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 3 | P a g e
Section 5F: Alternate Scenarios ................................................................................................. 16
Section 5G: LongTerm Outlook................................................................................................. 18
Section 6: Details and Assumptions ..................................................................................... 18
Section 6A: Wastewater Treatment Costs................................................................................. 18
Section 6B: Operations .............................................................................................................. 18
Section 6C: Capital Improvement Program (CIP)....................................................................... 19
Section 6D: Debt Service............................................................................................................ 21
Section 6E: Other Revenues ....................................................................................................... 22
Section 7: Communications Plan .......................................................................................... 22
Appendices ......................................................................................................................... 23
Appendix A: Wastewater Collection Financial Forecast Detail.................................................. 24
Appendix B: Wastewater Collection Utility Capital Improvement Program (CIP) Detail.......... 25
Appendix C: Wastewater Collection Utility Reserves Management Practices .......................... 26
Appendix D: Sample of Wastewater Collection Outreach Materials......................................... 29
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 4 | P a g e
SECTION 1: DEFINITIONS AND ABBREVIATIONS
CCF The standard unit of measurement for water delivered to water customers, equal to
one hundred cubic feet, or roughly 748 gallons. When water usage is used to assess
wastewater charges for commercial customers, it is measured in CCF.
CIP Capital Improvement Program
CPAU City of Palo Alto Utilities Department
FOG Fats, oils, and grease. When flushed into the sewer system, these materials
accumulate in parts of the sewer system and create blockages.
O&M Operations and Maintenance
RWQCP Regional Water Quality Control Plant, the wastewater treatment plant owned and
operated by the City of Palo Alto that serves Palo Alto and several surrounding
communities.
UAC Utilities Advisory Commission
SECTION 2: EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City of Palo Alto’s Wastewater Collection Utility
for the next ten years. It 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 2A: OVERVIEW OF FINANCIAL POSITION
Overall costs in the Wastewater Collection Utility are expected to rise by about 5% per year
from fiscal year (FY) 2016 to FY 2026. The primary driver is wastewater treatment costs, which
are projected to rise by 7% in FY 2017 and 6% per year thereafter, with other costs rising at
roughly 3% to 4% per year. The costs for the Wastewater Collection Utilityare shown in Table 1
below.
Table 1: Expenses for FY 2015to FY 2026
Expenses
($000)
FY
2015
(act.)
FY
2016
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Treatment
Costs 8,589 9,012 9,855 10,446 11,073 11,737 12,442 13,188 13,980 14,818 15,707 16,650
Operations 3,684 6,044 6,261 6,466 6,670 6,881 7,097 7,320 7,795 7,904 8,150 8,404
Capital
Projects 4,067 4,985 4,852 4,996 5,144 5,297 5,455 5,617 5,784 5,955 6,132 6,315
TOTAL 16,340 20,041 20,968 21,908 22,887 23,916 24,993 26,125 27,558 28,678 29,990 31,368
Expenses continue to be higher than revenues, and the Rate Stabilization Reserve has been
drawn down in lieu of having larger rate increases. To ensure that revenues cover these rising
costs and reserves remain healthy, the financial plan includes the rate trajectory shown in Table
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 5 | P a g e
2. The table also shows rate projections from last year’s Financial Plan. Note that the rate
increase for FY 2017 is the same as projected in the FY 2016 Financial Plan.
Table 2: Projected Wastewater Collection Rate Trajectory for FY 2017 to FY 2026
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Current Plan 9% 10% 9% 7% 6% 4% 4% 4% 4% 4%
FY 2016 Plan 9% 9% 9% 6% 6% N/A N/A N/A N/A N/A
The FY 2016 Financial Plan projected that reserves would fall nearly to the minimum reserve
levels. However, as costs are increasing fasterthan projected last year, higher rate increases are
required to keep pace.
The Wastewater Collection Utility’s Rate Stabilization Reserve is being used to spread the
projected cost increases over several years. The FY 2016 Financial Plan proposed a $2 million
transfer from the Rate Stabilization Reserve, but staff recommends increasing this to $3.95
million. This Financial Plan projects that the Rate Stabilization Reserve will be exhausted by FY
2017.
Table 3: Transfers To/(From) Reserves for FY 2016 to FY 2026 ($000)
Reserve FY 2016 FY 2017 FY 2018 to FY 2026
Rate Stabilization (3,950) (342)
Operations 3,950 342
SECTION 2B: SUMMARY OF PROPOSED ACTIONS
Staff proposes the following actions for the Wastewater Collection Utility in FY 2016:
1. Transfer $3.95 million from the Rate Stabilization Reserve to the Operations Reserve.
See Section 3D: Proposed Reserve Transfers for more details.
Staff proposes the following actions for the Wastewater Collection Utility in FY 2017:
1. Increase the Wastewater Collection rates as shown in Section 3B: Current and Proposed
Rates. The changes are projected to increase average system revenues by 9% effective
July 1, 2016.
2. Transfer $342,000 from the Rate Stabilization Reserve to the Operations Reserve. See
Section 3D: Proposed Reserve Transfers for more details.
SECTION 3: DETAIL OF FY 2017 RATE AND RESERVES PROPOSALS
SECTION 3A: RATE DESIGN
The Wastewater Collection Utility’s rates are evaluated and implemented in compliance with
the cost of service requirements and procedural rules set forth in the California Constitution
(Proposition 218). Current rates were structured based on staff’s annual assessment of the
wastewater utility’s financial position, as well as the methodology from the January 2011
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 6 | P a g e
Wastewater Collection Utility Cost of Service & Rate Study completed by Utility Financial
Solutions (Staff Report 1399). Staff plans to review and update this cost of service study in 2 to
3 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 3B: CURRENT AND PROPOSED RATES
The current rates were adopted July 1, 2015, when the City increased sewer rates by 9%.
CPAU’s sewer rates for commercial customers are based on the previous winter’s water use.
This closely approximates nonirrigation water consumption, which represents actual sewer use.
CPAU has three sewer rate schedules: one for residents (S1), one for commercial customers
(S2), and a special schedule for restaurants (S6), which discharge higher than average amounts
of grease and oil and, therefore, have a greater impact on the sewer system. Residential
customers are billed a monthly service charge, while commercial customers are billed based on
their dry month water usage (January through March). Restaurant customers are billed monthly
based on water usage. CPAU also maintains a rate schedule for industrial dischargers (S7), but
there are currently no customers required to be on this rate schedule.
Table 4, below, summarizes the current and proposed rates for all customer classes.
Comparisons with neighboring communities are discussed in Section 4F: Competitiveness.
Table 4: Sewer Rates (Current and Proposed)
Current
(7/1/2015)
Proposed
(7/1/2016)
Change
$/mo.%
Monthly Service and Minimum Charges ($/month)
S1 (Residential) Service charge $31.95 $34.83 $2.88 9%
S2 (Commercial),
S6 (Restaurant)
Minimum $31.95 $34.83 $2.88 9%
Quantity Rates: based on winter water usage (average for January March bill
period)
S2 (Commercial) $/CCF 6.16 6.71 0.55 9%
S6 (Restaurant) $/CCF 9.52 10.38 0.86 9%
S7 (Industrial) $/CCF 2.83 3.08 0.25 9%
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 7 | P a g e
SECTION 3C: BILL IMPACT OF PROPOSED RATE CHANGES
Table 5below shows the impact of the proposed July 1, 2016 rate changes.
Table 5: Impact of Proposed Sewer Changes
Current
(7/1/2015)
Proposed
(7/1/2016)
Change
$/mo. %
Residential $ 31.95 $ 34.83 $ 2.88 9%
General Commercial (14 CCF) 86.24 93.94 7.70 9%
Restaurant (56 CCF)533.12 581.28 48.16 9%
SECTION 3D: PROPOSED RESERVE TRANSFERS
In the FY 2016 Financial Plan, several transfers between reserves were approved. Funds related
to CIP’s in the Reappropriations Reserve were transferred to the CIP reserve, to comply with
updated accounting practices. Staff also proposed a $2 million transfer from the Rate
Stabilization Reserve to the Operations Reserve.
In this FY 2017 Financial Plan, staff recommends an additional $1.95 million transfer from the
Rate Stabilization Reserve in FY 2016. This will leave a small amount, $342,000, to transfer in FY
2017, which will result in a zero balance in the Rate Stabilization Reserve at the end of FY 2017.
These transfers are included in the financial projections in this Financial Plan, and will enable
CPAU to maintain adequate Operations Reserve levels while moderating the pace of increase in
Wastewater Collection rates. The impact of these transfers on reserves levels can be seen in
Appendix A: Wastewater Collection Financial Forecast Detail.
SECTION 4: UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It is intended as general
background information and to help readers better understand the forecasts in later sections.
SECTION 4A: WASTEWATER UTILITY HISTORY
The Wastewater Utility commenced operation in 1899 to serve Palo Alto and Stanford. In its
first three decades the system grew to 60 miles of sewers. Raw sewage was discharged into
Mayfield Slough at the edge of the Bay. In the 1930s, at the behest of the State Department of
Health, Palo Alto built the South Bay’s first wastewater treatment plant. At that time the sewer
system served 20,500 Stanford and Palo Alto residents and a cannery. The plant was upgraded
twice in the 1940s and 1950s to increase capacity.1 At the same time, the postwar population
and industrial boom in the 1950s required rapid expansion of the sewer system. In the first half
of the 1960s Palo Alto’s area doubled, as did wastewater flows, overwhelming the capacity of
several of the utility’s “trunk lines,” which are the largest diameter main sewer lines carrying
wastewater to the treatment plant. This prompted the City, in 1965, to perform the first of its
1 Long Range Facilities Plan for the Regional Water Quality Control Plant, August 2012, Carollo Engineers, pp 21
through 22
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 8 | P a g e
sewer master plans to identify needed capacity improvements. At that point the Wastewater
Utility’s system comprised more than 150 miles of sewer mains.2
In 1968 the City signed agreements with the Cities of Mountain View and Los Altos to build a
new regional treatment plant, the RWQCP, which is still in operation today. Since 1940 the City
had been providing treatment services to the East Palo Alto Sanitary District through an existing
agreement, and was also serving Stanford University by transporting wastewater across the
City’s sewer system to the treatment plant. Both of these organizations became partners in the
RWQCP as well. At the same time the Town of Los Altos Hills became the sixth partner as it
signed an agreement with the City to connect the Town’s sewer system to the City’s sewer
system to carry wastewater to the new RWQCP. The current agreements for the RWQCP
extend through 2035.3
In the 1980s the City directed increased attention to the condition of its sewer system,
performing a series of studies of groundwater inflow and infiltration into the system. The study
found high rates of infiltration, estimating that as much as 40% of the water going to the
RWQCP from Palo Alto’s system was groundwater and stormwater rather than wastewater.4 In
some parts of Palo Alto the land surface had subsided due to groundwater pumping by the
water utility, and though that practice had ceased many years earlier as the water utility
switched to the Hetch Hetchy Regional Water System, parts of the city had already subsided
two to five feet. This subsidence had damaged several parts of the sewer collection system,
leading to reduced slopes for sewer mains that caused reductions in capacity. In response to
these studies the City commenced an accelerated sewer system rehabilitation program.5 At
that point the sewer system comprised over 190 miles of mains.6
A Master Plan study in 1988 recommended a variety of capacity expansions, and in the 1990s
the City completed about half of them. However, a 2004 Master Plan update found that the
accelerated sewer rehabilitation plan started in the early 1990s had substantially reduced
infiltration, easing the capacity problems that had led the to the recommended capacity
increases in the 1988 study. Several of the outstanding projects were canceled and replaced
with a different set of projects.7 At the same time the City updated its hydraulic model and
developed greater capacity to do system planning in house.
SECTION 4B: CUSTOMER BASE
The City of Palo Alto’s Wastewater Collection Utility provides sewer service to the residents and
businesses of Palo Alto. It is distinct from the Wastewater Treatment Utility, which provides
treatment services for surrounding communities in addition to Palo Alto. Nearly 23,300
customers are connected to the sewer system, approximately 21,450 (92%) of which are
residential and 1,850 (8%) of which are nonresidential. Residential customers pay a flat fee for
2 Wastewater Collection and Storm Drainage, 1965, Brown and Caldwell Consulting Engineers, pp 4, 67, 143
3 Long Range Facilities Plan for the Regional Water Quality Control Plant, August 2012, Carollo Engineers, pg 22
4 Wastewater Collection System Master Plan – Capacity Assessment , January 2004, MWH Americas, Inc., pg ES2
5 CMR 183:90, Infrastructure Review and Update, March 1, 1990
6 Master Plan of the Wastewater Collection System, December 1988, Camp Dresser & McKee, Inc., pg 12
7 Wastewater Collection System Master Plan – Capacity Assessment , January 2004, MWH Americas, Inc., pg ES3
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 9 | P a g e
service. Nonresidential customers are billed for sewer service based on their metered winter
water usage. There is little variability in revenues for this utility.
SECTION 4C: COLLECTION SYSTEM
The Wastewater Collection Utility delivers all the wastewater it collects to the Regional Water
Quality Control Plant (RWQCP) operated by the City of Palo Alto under a partnership agreement
with several surrounding communities. Palo Alto is responsible for 37% to 40% of the
wastewater sent to the RWQCP. The cost of running the RWQCP is contained in the
Wastewater Treatment Utility and is not described in detail in this Financial Plan, but since
these costs are a major driver of CPAU’s sewer rates, there is some discussion of future trends
in treatment costs in Section 7A. Treatment costs make up nearly half of the Wastewater
Collection Utility’s expenses as shown in Table 1 above.
To collect wastewater from its customers and deliver it to the RWQCP, CPAU owns roughly
18,100 sewer laterals (which collect wastewater from customers’ plumbing systems) and 217
miles of sewer mains (which transport the waste to the treatment plant). These laterals and
mains, along with the associated manholes and cleanouts, represent the vast majority of
infrastructure used to collect wastewater in Palo Alto. CPAU conducts a sewer rehabilitation
and replacement program to replace mains over time as they deteriorate or to increase
capacity. For more discussion of this program, see Section 7C. CIP expense accounts for
roughly a quarter of the utility’s expenditures.
In addition to its CIP, CPAU performs various maintenance activities on the sewer system.
These include inspecting and repairing sewer laterals, responding to sewer overflows, regularly
cleaning sections of the system heavily impacted by fats, oils, and grease (FOG), and building
and replacing sewer laterals for new or redeveloped buildings. The utility also shares the costs
of other operational activities (such as customer service, billing, equipment maintenance, and
street restoration) with the City’s other utilities. These maintenance and operations expenses,
as well as associated administration, debt service, rent, and other costs, make up another
quarter of the utility’s expenses.
SECTION 4D: COST STRUCTURE AND REVENUE SOURCES
In FY 2015, treatment costs represented nearly half of the Wastewater Collection Utility’s costs
(53%), followed by Operations (25%) and Capital costs (22%). These expenditures are shown in
Figure 1. The utility’s revenue in FY 2015, shown in Figure 2, came primarily from sewer charges
(86%), with the remainder coming mainly from capacity and connection fees and other sources
(14%).
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 10 | P a g e
Figure 1: Cost Structure (FY 2015) Figure 2: Revenue Structure (FY 2015)
SECTION 4E: RESERVES STRUCTURE
CPAU maintains six reserves for its Wastewater Collection Utility to manage various types of
contingencies. These are summarized below, but see Appendix C: Wastewater Collection 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 and is anticipated to be empty
unless a major onetime CIP expenditure is expected in future years. It also acts as a
contingency reserve for the CIP. This type of reserve is used in other utility funds
(Electric, Gas, and Water) as well.
Rate Stabilization Reserve: This reserve is intended to be empty unless one or more
large rate increases are anticipated 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 Water) as well.
Operations Reserve: This is the primary contingency reserve for the Wastewater
Collection Utility, and is used to manage yearly variances from budget for operational
costs. This type of reserve is used in other utility funds (Electric, Gas, and Water) as well.
Unassigned Reserve: This reserve is for any funds not assigned to the other reserves
and is normally empty.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 11 | P a g e
SECTION 4F: COMPETITIVENESS
Table 6 shows the monthly sewer bills for residential customers compared to what they would
be in surrounding communities. The annual sewer bill for a Palo Alto customer is $383 under
current rates, 32% lower than the average neighboring community. Palo Alto has the third
lowest bill of the group.
Table 6: Residential Monthly Sewer Bill Comparison
Palo Alto
Neighboring Communities Neighboring
Community
Average
Menlo
Park
Redwood
City
Mountain
View Los Altos
Santa
Clara Hayward
31.95 81.08 74.95 28.80 32.01 37.94 28.93 47.29
Based on rates as of February 2016
If the proposed rate change discussed in Section 3B: Current and Proposed Rates) is adopted by
Council, and assuming other agencies do not change their sewer rates, Palo Alto would be 26%
lower than the average neighboring community and retain the third lowest bill.
Table 7 compares the sewer bills for two classes of commercial customers to what they would
be under surrounding communities’ rate schedules. Note that other communities often have
specific rates for industrial customers that discharge high intensity wastewater, such as food
processors or chemical or electronics manufacturers, but Palo Alto does not currently have any
customers that require these special rates. Palo Alto is less competitive with surrounding cities
with regards to commercial sewer rates, but is not the most expensive jurisdiction.
Table 7: Commercial Monthly Sewer Bill Comparison
Palo Alto
Neighboring Communities Neighboring
Community
Average
Menlo
Park
Redwood
City
Mountain
View Los Altos
Santa
Clara Hayward
General
Commercial
$86.24 $125.58 $74.95 $52.78 $44.82 $60.06 $61.18 $69.90
Restaurant $533.12 $626.08 $686.78 $412.16 $121.68 $537.60 $463.12 $474.57
Based on rates as of February 2016
SECTION 5: UTILITY FINANCIAL PROJECTIONS
SECTION 5A: FY 2011 TO FY 2015 COST AND REVENUE TRENDS
Figure 3 shows the Wastewater Collection Utility’s actual expenses and revenues for the past
five years and projections through FY 2026. For FY 2011 through FY 2015, Operations costs
grew at about the pace of inflation, at around 2% per year. Capital Investment expenses
actually saw a slight contraction over this period, but this was partially due to backlogged
projects necessitating a short term lowering of CIP budgets. Treatment costs during this time
rose by 4% annually on average.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 12 | P a g e
Since the revenue for this utility is very stable, revenue changes closely follow rate changes. The
other large revenue item of note is the continued connection and capacity fees from new
construction. These fees have grown dramatically since FY 2010, and it is uncertain when this
trend may dampen.
Figure 3: Wastewater Collection Utility Expenses,Revenues and Rate Changes
Actual Costs through FY 2015 and Projections through FY 2026
SECTION 5B: FY 2015 RESULTS
Forecast sources of funds for FY 2015 were higher than projected by $137,000, but expenses
related to Administration and Customer Service activities came in well below expected budget.
Total FY 2015 expenses were $16.15 million compared to projections of $18.64 million in the FY
2016 Financial Plan. Table 8 summarizes the variances from forecast.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 13 | P a g e
Table 8: FY 2015, Actual Results vs. Financial Plan Forecast
Net Cost/
(Benefit)
Type of
change
Admin and customer service costs lower than projected (1,985,000) Cost savings
Connection, capacity fees and other revenues were
higher than forecasted
(489,000) Revenue increase
Sales revenues lower than forecast 352,000 Revenue decrease
Operations, capital and other cost savings (502,000) Cost savings
Net Cost / (Benefit) of Variances ($2,625,000)
SECTION 5C: FY 2016 PROJECTIONS
There are no notable changes from the FY 2016 budget identified at this time.
SECTION 5D: FY 2017 – FY 2026 PROJECTIONS
Staff has prepared a forecast of costs and revenues through FY 2026. As shown in Figure 3
above (and, in more detail, in Appendix A: Wastewater Collection Financial Forecast Detail), the
Wastewater Collection Utility’s total costs are projected to increase by roughly 4.4% per year on
average for FY 2016 through FY2026. The majority of this increase is borne by projected
treatment cost increases. The treatment plant itself is facing the need for major upgrades in
coming years, both due to age of equipment and constantly changing environmental
regulations. While the costs of the plant are shared among member agencies, Palo Alto is still
expected to see average cost increases of 6.3% per year over the forecast horizon.
Revenues are shown by the red line in Figure 3, and what is notable here is that costs have
been generally higher than revenue. While some relief was experienced during times of lower
CIP expenditures, this trend of undercollection continues into the future, resulting in a rapid
reduction of reserves. A path of 9% and 10% annual rate increases in the near term, decreasing
to more inflationary increases in outer years, is required to keep reserves from dropping too
low. Figure 4 below shows the relative drop in reserves, only showing slowing replenishment
after the projected 10% increase in FY 2018.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 14 | P a g e
Figure 4: Wastewater Collection Reserves Projections
SECTION 5E: RISK ASSESSMENT AND RESERVES ADEQUACY
The Wastewater Collection Utility currently has one contingency reserve, the Operations
Reserve, and this Financial Plan maintains reserves within the approved guideline levels
throughout the forecast period, as shown in Figure 5 below. Reserve levels also exceed the
short term risk assessment for the utility.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 15 | P a g e
Figure 5: Operations Reserve Adequacy
Staff performs an annual assessment of risks for the Wastewater Collection Utility. For this
evaluation, staff estimates the revenue shortfall due to:
1. the maximum observed budgettoactual variance in one year during the past five years;
2. an increase of 10% in system improvement CIP expenditures for the year; and
3. an increase of 10% in treatment costs.
Table 9 summarizes the risk assessment calculation for the Wastewater Collection Utility
through FY 2021. The Operations Reserve is projected to be adequate to manage these levels
of risk over the entire forecast period.
Table 9: Wastewater Collection Risk Assessment
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
Total Revenue ($000) 17,505 19,249 20,989 22,474 23,832
Max. Historical BudgettoActual variance 3% 3% 3% 3% 3%
BudgettoActual Risk ($000) 525 577 630 674 715
System Rehabilitation CIP Budget ($000) 4,458 4,590 4,726 4,867 5,011
CIP Contingency @10% ($000) 446 459 473 487 501
Treatment Budget ($000) 9,855 10,446 11,073 11,737 12,442
Treatment Cost Contingency @10% ($000) 986 1,045 1,107 1,174 1,244
Total risk assessment value ($000) 1,957 2,081 2,210 2,335 2,460
Projected Operations Reserve Level ($000) 3,386 2,837 3,048 3,780 4,793
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 16 | P a g e
SECTION 5F: ALTERNATE SCENARIOS
At its February 2016 meeting, the UAC suggested that staff prepare two alternate scenarios for
rate increases. The first (“Target”) scenario keeps the Operations Reserve at or near the Target
level during the forecast period. The second (“Minimum”) scenario tries to mitigate rate
increases and get as near to the minimum reserve level as possible for a few years before
moving to Target level. Rate trajectories for both alternate scenarios as well as the proposed
rate adjustments are shown in Table 10below.
Staff also modeled a scenario with no wastewater rate increase in FY 2017. This scenario
decreases the Operations Reserve to the Risk Assessment value, and requires a 25% in FY 2018
to keep reserves at that value for one more year, before net revenue growth starts.
Table 10: Projected Wastewater Rate Trajectory for FY 2017 to FY 2026
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Proposed 9% 10% 9% 7% 6% 4% 4% 4% 4% 4%
Target 16% 9% 4% 4% 5% 5% 4% 6% 4% 4%
Minimum 5% 19% 6% 5% 5% 5% 5% 4% 4% 4%
The Target scenario, represented in Figure 6 below, requires a 16% rate increase (larger than
the proposed 9% increase) in FY 2017, but reduces the rate increase slightly in FY 2018. The
Minimum scenario, represented in Figure 7 below, allows a lower rate increase in FY 2017, but
requires a significant rate increase (19%) in FY 2018.
Staff recommends a 9% wastewater rate increase in FY 2017 to smooth the rate increases over
the next two years while keeping the Wastewater Collection Operations Reserve at healthy
levels.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 17 | P a g e
Figure 6: Operations Reserve at Target Level
Figure 7: Operations Reserve at Minimum in FY 2017 and FY 2018
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 18 | P a g e
SECTION 5G: LONG TERM OUTLOOK
In the longer term (5 to 35 years) the primary factor that could lead to increased costs for the
Wastewater Collection Utility are major upgrades at the RWQCP, a share of which will be
allocated to the utility as part of treatment costs. These upgrades includes replacement or
rehabilitation of the parts of the facility that pump raw sewage to the main treatment works
(the headworks), separate out primary sludge (the primary settling tank), process sludge (the
biosolids facility), and treat wastewater (the fixed film reactors). Upgrades to the laboratories
and operational buildings are planned as well. In addition, the 72inch regional trunk sewer line
flowing into the plant needs to be evaluated and rehabilitated.
SECTION 6: DETAILS AND ASSUMPTIONS
SECTION 6A: WASTEWATER TREATMENT COSTS
Treatment expenses represent the Wastewater Collection Utility’s share of the costs of
operating the RWQCP. Per the partnership agreements between Palo Alto and its partner
agencies, these charges are assessed based on a formula that takes into account the total
amount of wastewater delivered, the amount of organic material in it, its ammonia content,
and the total suspended solids it is carrying. The Wastewater Collection Utility’s assessed share
of the RWQCP’s revenue requirement fluctuates in the 38% to 40% range. Mountain View is
the other large agency served by the RWQCP (39% of the revenue requirement for FY 2014)
with the smaller agencies (Stanford, Los Altos, East Palo Alto, and Los Altos Hills) making up the
remainder of the flow to the treatment plant.
Due to the ongoing drought and reduced wastewater flows to the plant, concentrations of
chemicals and solids have increased. The amount of chemicals needed to counteract and treat
this more concentrated wastewater increases and the cost of those chemicals has gone up in
recent years. Therefore, FY 2017 treatment costs are projected to increase by 7%, while over
the forecast horizon in general treatment costs are expected to rise by 6% per year. The longer
term cost increases are primarily due to increased CIP spending by the RWQCP.
Based on detailed project cost projections provided by RWQCP staff, treatment costs are likely
to continue to increase by roughly 5% per year through at least 2030. Two of Palo Alto’s
comparison cities, Mountain View and Los Altos, are partners in the RWQCP and will see similar
increases, but other comparison agencies may not.
SECTION 6B: OPERATIONS
Operations costs include the Customer Service, Distribution Operations, Engineering, and
Allocated Charges categories in Appendix A: Wastewater Collection Financial Forecast Detail.
Debt service, rent, and transfers are also included in this category. Customer Service costs are
primarily related to the call center and collections on delinquent accounts. The Distribution
Operations category includes preventative and corrective maintenance on sewer mains and
laterals, investigation of sewer overflows, regular cleaning of heavily impacted sections of the
sewer system, and services shared with other utilities (such as street restoration and
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 19 | P a g e
equipment maintenance). Allocated Charges include the costs of accounting, purchasing, legal,
and other administrative functions provided by the City’s General Fund staff, as well as shared
communications services and Utilities Department administrative overhead and billing system
maintenance costs.
Operations costs are projected to increase by 3% per year, on average, over the forecast period.
Underlying these projections are salary and benefit, consumer price index, and other cost
projections used in the City’s longrange financial forecast.
SECTION 6C: CAPITAL IMPROVEMENT PROGRAM (CIP)
The Wastewater Collection Utility’s CIP consists of the following programs:
The Sewer System Replacement/Rehabilitation Program, under which the Wastewater
Collection Utility replaces aging sewer mains.
Customer Connections, which covers the cost when the Wastewater Collection 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.
Ongoing Projects, which covers the cost of replacing degraded manholes and sewer
laterals, as well as the cost of capitalized tools and equipment.
The Sewer System Replacement and Rehabilitation Program funds the replacement of
deteriorating sewer mains and projects to increase capacity in various parts of the sewer
system. The sewer system consists of over 217 miles of mains, and CPAU uses a variety of tools
to establish which sections are in need of replacement. Maintenance statistics (such as records
of the location and number of sewer overflows on the system) and videotape of sewer mains
during regular cleaning can reveal areas with large amounts of deteriorating pipe. CPAU uses a
scoring system to prioritize which mains to replace first, and coordinates with the Public Works
street maintenance program to avoid cutting into newly repaved streets. A major goal of the
program is to minimize groundwater and rainwater infiltration. As mains deteriorate they
begin to allow groundwater and rainwater to infiltrate the system. Some level of infiltration is
expected on any sewer system, but if there is too much, the combined flow of wastewater and
groundwater/rainwater can overwhelm the capacity of various parts of the sewer system.
Reducing infiltration can reduce the need to expand the system to accommodate increased
flow. To achieve this goal, deteriorating mains are either repaired with a plastic lining or
replaced. CPAU replaces or repairs approximately 25,000 feet of main per year, or 2.5% of the
system.
The CIP program also funds sewer capacity improvements. CPAU uses a hydraulic model, data
from various flow meters on the system, and land use data to identify sections of the system
that are being overloaded. When sewer mains are operating at or above their capacity on a
regular basis it will increase the likelihood of sewer overflows. CPAU also does occasional
comprehensive master planning studies to identify necessary capacity improvements. The most
recent study, in 2004, identified eight projects, three of which have been completed. The
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 20 | P a g e
remaining four projects are low priority projects and will be scheduled and planned as the need
arises.
Over the last few years, main replacement costs have been increasing for Wastewater as well
as the Gas and Water utilities. The replacement cost per linear foot has increased by between
25 and 50% in some cases. Several factors may be contributing to this. Economic recovery in
the Bay Area, as well as a greater focus on infrastructure improvement by many municipal
agencies and utilities could be creating high demand for contractors in this field. There may be
ongoing greater costs for newer, more leak resistant pipe materials. Should these trends prove
to be less than shortterm phenomena, wastewater main replacement budgets may need to be
increased by $1.5 to $1.7 million more per year to maintainthe current pace of replacement.
Since the last master plan study was updated over a decade ago, and due to these escalating
costs, staff is considering a new wastewater collection system master plan study, tentatively
planned for 2016, to evaluate the current state of the sewer system and determine the optimal
rate of main replacement in future years. The process may reveal a need for a higher or lower
replacement, or possibly target areas for more urgent focus. In the case that prices remain high
and the updated plan shows a need for similar rates of replacement that CPAU had previously
planned, CIP costs will rise.
Customer Connections costs are projected to increase steadily by around 3% each year through
the end of the forecast period. Ongoing projects are seeing a temporary surge in FY 2016 but
are expected to drop by $200,000 in FY 2017, then resume a path of cost increases similar to
Customer Connections. Actual expenses for these projects fluctuate annually depending on
how many defective laterals and manholes are discovered during routine maintenance, as well
as how much development and redevelopment is going on that prompts the replacement or
upgrade of sewer laterals. It is worth noting that property owners pay a fee for sewer lateral
replacement or expansion during redevelopment, so when the number of projects increases, so
does fee revenue.
Projected CIP spending is displayed in Table 11 for the 5year financial forecast period.
Table 11: Projected CIP Spending
Aside from Customer Connections, the CIP plan for FY 2017 to FY 2021 is funded by sewer rates
and capacity fees. The details of the plan are shown in Appendix B: Wastewater Collection
Utility Capital Improvement Program (CIP) Detail.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 21 | P a g e
SECTION 6D: DEBT SERVICE
The Wastewater Collection Utility currently pays its share of one bond issuance, the 1999 Utility
Revenue Bonds, Series A, which is due to be retired in 2024. This $17.7 million issuance
refinanced various earlier Storm Drain, Wastewater Treatment, and Wastewater Collection
Utility bond issuances. The Wastewater Collection Utility’s share of the issuance was roughly
$1.9 million. This amount represented the second refinancing of the remaining principal of a
1990 bond issuance which itself was a refinancing of a 1985 issuance that financed a variety of
improvements to the sewer system. The cost of debt service for the Wastewater Collection
Utility’s share of this bond issuance for the financial forecast period is roughly $128,000 per
year as shown in Table 12 below.
Table 12: Wastewater Collection Utility Debt Service ($000)
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
1999 Utility Revenue Bonds, Series A 128 128 128 128 128 128
The 1999 Utility Revenue Bonds include two covenants stating that 1) the Wastewater
Collection Utility will maintain a debt coverage ratio of 125% of debt service, and 2) that the
City will maintain “Available Reserves”8 equal to five times the annual debt service. The current
financial plan maintains compliance with both covenants throughout the forecast period.
Compliance with covenant one is shown below in Table 13, below. Due to the small size of the
annual debt service payment for these bonds, the Wastewater Collection Utility’s Operations
Reserve alone more than satisfies the second covenant at more than 30 times annual debt
service throughout the forecast period.
Table 13: Debt Service Coverage Ratio ($000)
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
Revenues 19,565 21,359 23,099 24,647 26,007 27,026
Expenses (Excl. CIP
and Debt Service) (16,388) (17,184)(18,015) (18,891) (19,810) (20,779)
Net Revenues 3,177 4,175 5,084 5,756 6,197 6,247
Debt Service 128 128 128 128 128 128
Coverage Ratio 2482% 3262% 3972% 4497% 4841% 4880%
The Wastewater Collection Utility’s reserves (but not its net revenues) are also considered
security for the Storm Drain and Wastewater Treatment Utilities’ shares of the debt service on
the 1999 bonds. Throughout the term of the bonds there remains a small risk that the
Wastewater Collection Utility’s reserves could be called upon to make a debt service payment
on behalf of one of those utilities if it cannot meet its debt service obligations. Staff does not
foresee this occurring based on the current financial condition of those utilities. If the
Wastewater Collection Utility’s reserves were used this way, any amounts advanced would
have to be repaid by the borrowing utility.
8 Available Reserves as defined in the 1999 Utility Revenue Bonds included reserves for the Water, Wastewater
Treatment, Wastewater Collection, Refuse, Storm Drain, Electric, and Gas Utilities
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 22 | P a g e
One other bond series is secured by the net revenues (but not the reserves) of the Wastewater
Collection Utility. The 1995 Series A Utility Revenue Bonds issued for the Storm Drain utility
was secured by the net revenues of the City’s “Enterprise,” which was defined as the City’s
water, gas, wastewater, storm drain, and electric utilities, and are senior to the 1999 bonds
referenced above. Debt service payments of roughly $680,000 per year are made on the 1995
Series A bonds by the City’s Storm Drain Utility, and staff does not currently foresee any risk of
that utility being unable to make payment.
SECTION 6E: OTHER REVENUES
The utility has seen substantial increases in connection and capacity fee revenues in recent
years, offsetting the need for increased sales revenue in the past, and these are assumed to
continue, albeit slightly reduced from current levels. Income from interest and transfers in are
projected to remain steady through the forecast horizon.
SECTION 7: COMMUNICATIONS PLAN
The FY 2017 Wastewater Collection Utility communications strategy covers three primary areas:
rates, operations and infrastructure, and safety. Communication about wastewater rate
adjustments will highlight the important infrastructure and operations upgrades that are
occurring at the Regional Water Quality Control Plant to improve wastewater collection utility
services. To keep customers apprised of the status and accomplishments of CIP projects, a
network of project web pages are maintained and updated as needed. Traffic is driven to the
website via ads in publications, newspaper inserts, social media and email blasts.
An important communications topic for the wastewater utility is avoiding sewer backups due
to FOG (fats, oil and grease) and trash being dumped down drains and toilets. Safety topics are
emphasized yearround. Staff continues its outreach goal of educating customers about the
utility’s gassewer line crossbore inspection program, including the importance of calling
Utilities first when there is a sewer backup. Staff ran a successful campaign featuring one of
our primary sewer repair crewmen to highlight this issue.
Promotional activity about wastewater utility maintenance and safety operations includes use
of bill inserts, ads in local print publications, website pages, email blasts and social
media. While print materials and website pages feature prominently, CPAU is increasing the
outreach emphasis on use of direct mail, social media and digital advertising including videos
and short commercials on the local television channels. Staff is also attending more community
safety/emergency preparation events and neighborhood meetings.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 23 | P a g e
APPENDICES
Appendix A: Wastewater Collection Financial Forecast Detail
Appendix B: Wastewater Collection Utility Capital Improvement Program (CIP) Detail
Appendix C: Wastewater Collection Utility Reserves Management Practices
Appendix D: Sample of Wastewater Collection Outreach Materials
(SGY7MKR)RZIPSTI-( * % %'&( '*
DocuSign Envelope ID: 6F8953A7-8742-4598-A542-1CBOD8659COF
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
APPENDIX A: WASTEWATER COLLECTION FINANCIAL FORECAST DETAIL
City of Palo Alto
2011 2012 1
2013 2014 '
2015 '
2016
FINANCIAL
2017
PROJECTIONS
WOOD)
2018 ' 2019 2020 2021
2022
2023 ;
2024
2025 '
2026
Wastewater Collectio n
FiscalYear
1
2
x CH ANG E IN RETAIL R ATE
0% 0.0 1
50% i. 0.0%
0.0 %
9056
9.0%
10.0X_;
9.0:!
7.0X 6.0%
4.0J
4.0/
4.0:±
4-U/
4.0/.'
3
PROJECTED CHANGE IN RETAIL SALES REVENUE
-
715
: -
-
1,352:
1 ,450 i
1,757 i
1 ,733 i
1 ,474
1 ,3.52:
956:
594 i
1 ,033 i
1 ,075 i
1 ,118
5
RETAIL SA LES R EVEN UE
14,287
14 094 1
15,019
14 588 1
14,658 1
16139 1
17,529 1
19,272 1
21,012
22,497
23,855
24,827
25,819 1
26,851
27,924 `
29,040
5
CONNECTION AND CAPA CITY FEES
1 ,081
989:
1,609
1 703:
1 392:
1 402 1
1 ,445:
1 ,487:
1 ,519 1
1,578
1,578:
1,578
1,578 I
1,578
1 578 ,
1,578 ;
O THER I TR ANSFERS IN
307
264
545
361 1
753:
271 1
241:
271:
241 1
271
241 1
271
241 € 271
241 (
271
8
INTER EST
454
494
(211)
339 1
315 1
295 1
351 1
326 I
327 1
301
333 1
351
438 I.
513
529 i
545
9
TO TAL SOURCES OF FUNDS
16,129:
15 841
16,963
16 991 1
17119:
18,106 1
19,565 i
21 ,359:
23,099 !
24,647
26,007:
27,026:
28,075 i
29,212
30,271 1
31,434 1
10
•
11
P URC HA SESIC HARGES OF UTILITIES (TR EATM
7,414
8,895
8,314
6,863 1
8589 1
9,01 2 1
9,855:
10,446:
11,073
11,737
12,442:
13,188:
13,980:
14,818:
15,707 1
16,650
12
ALLOCA TED C HARGES (CIPlOPERM1TIN6)
1 ,787
791
1,926
2,359 1
1 ,062 I
2,363 1
2,442 I
2,518 ':
2,594 1
2,673
2,753:
2,836
2,921 1
3,010
3,101 I
3,194 1
CUSTOMER SERVICE
281
72
1
133 1
(324);
499
504 I
509 i
513:
518
523
528:
533 1
538:
544 i
549 :
13
D ISTR IBUTION OPERA TIONS
2,227:
2,466 1
2,617
2;570:
2,646 1
2,725:
2,837 1:
2941 1
3,043 '
3,150
3,258 1
3,370
3,486:
3,606 ':
3,730 ?
3,859 1
ENGIN EERING (O PER ATING)
195
258 1
271
310
319 1
328 1
342 1
355 1
368
381
394 1
408
423 1
438 1
453:
469
14
DEB T SERVIC E
128
128:
128
129 !
51 :
128:
128 i
128 i
128 1
128
129:
129
129 i
15
R ENT
115
106 1
110
217 1
223:
293 1
300 I
308 1
316
324
333 1
341
350
359 1
369 1
378
16
OTHER/ TRANSFERS OUT
267
88 1
147
241 1
106:
108:
108:
108:
108:
108
108:
108
108 € 108:
108 :
108
17
CAPITA L IMPROVEMENT FUNDING
4,630
4 274 '
4,094
989 ':
3,477 1
4 985
4852 ':
4,996 1
5,144
5,297
5,455 ':
5,617 1
5,784 =
5,955 ':
6,132 '
6,315
A LLOWA NC E FOR UNSPENT CAP ITAL FUND S
-
-
(400);
(400);
(400):
(400);
(400)
(400);
(400);
(155)'
(154)1
(154)1
(154);
18
TO TAL USES OF FUNDS
17,044
17 079 {
17,610
13,81
16150 !
20.041 1
20,968:
21 908 !
22;887 !
23,916
24,993 1
26,125:
27558 F
28,678:
29,990 '
31,368 1
11
•
20
IN TO I (OUT OF) RES ERVES
(91 4)
(1 ,238):
(647)
3180 1
969:
(1,935 1
(1,402)1
(549):
212:
731
1,013:
902:
517 f
534:
282 i
66
21
24
END ING COMMITMENTS E. R EA PPROPR IATII
10 250 11 044
11,228
8,31 2 1
8,291
8291
8,291:
8291 € 8,291
8,291
8,291
8,291
8291
8,291
8,291
8,291
23
ENDING PLA NT R EPLAC EMENT R ESER VE
1 ,000 1,000
1,000
-
- •
-
-
-
-
-
-
-
-
-
-
-
ENDING CIP RESERVE
- -
-
-
2,551 :
2,551 1
2,551 1
2,551 :
2,551 :
2,551
2,551
2,551
2,551 1
2,551 :
2,551 1
2,551
22
ENDING RATE STAB ILIZATION RESERVE
5;858 ': 4,751 '
4,904
4556 1
4,292 ':
342 1
- I
-
-
-
-
-
- I
-
- I
-
ENDIN G OP ERA TIO NS RESERVE
- -
-
3,728 1
2,431 1
4 446 1
3,386 i
2,837 i
3,048
3,780
4,793
5,695
6„212 i
6,746
7,027 i
7,093
25
UNASSIGNED RESERVES
- -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26
RISK A SSESSMEN T VA LUE
1,615: 1,879:
2_736:
2,230
2,722 € 2_676:
3-043 € 3-221:
3_403
3,530
3,727
27
28
OPERATIO NS RESER VE GUIDELINES
29
MIN (60 DAYS TREATMENT/O&M EXP )
2,156 1 2,156 1
2,253 1,915 1
2,083 !
2,541 1
2,715 '
2,846 ':
2,982
3,126
3,278 1
3,437
3,605 ':
3,760 '
3,947 '
4,144 1
TARGET (105 DAYS TREA TMENT/O&M E
1 815 1 1,879
1 681 3 352 1
3 646 1
4 446 1
4,751 i
4,980 1
5,219
5,471
5,736
6,015.
6,308 1
6,581:
6,907:
7,251 .
30
MAX (150 D AYS TREATMEN TIOi M EXP)
4 311 1 4 311
4,506: 4,788 1
5,208 :
6,352 !
. 6,787 `:
7,115:
7,456:
7,816
8,194
8,592:
9,012:
9,401 1
9,867 `
10,359
31
•
February 2016
24IPage
DocuSign Envelope ID: 6F8953A7-8742-4598-A542-1CBOD8659COF
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
APPENDIX B: WASTEWATER COLLECTION UTILITY CAPITAL IMPROVEMENT PROGRAM (CIP) DETAIL
Pr J2ufP rier-b*nw
Reapp)-up'relitedd f
*1it edfiD'rmardfro rn
_ PrelieL4l 2O s
C,u1M 6tehm.
F urdin g
ii utglat
Arm ipditletti
Fte rairingin
Sperling, CIPR esrwe
C urrebtYear Fond Ccirrrnitrin erdm FY 2017. FY 201B FY2019 Fr 2020 FY 2021
SEWER SYS 1 EM1 REH A61 LITATION AND AUGMENTATI ON
(`h R{/ A) PRC]G RAM
WC -07004 SSW- Project 20
39,293
-
-
39,293
-
-
-
-
-
WC -08L112 SSR/A- Project 21
157,847
(151,847)
-
-
-
-
-
-
-
'C-09001 035/A- Projec t 22
'�WC-10002
(42,912)
-
42,912
(176)
(176)
-
-
-
-
-
235/A- Project 23
982,203
-
-
-
982,263
224,253
-
-
-
-
WC -11000 033/A- Project 24
2,340,130
206,084
(206,084)
(200,554)
2,139,576
2,032,231
-
-
-
-
WC -12001 SSR/A- Project 25
2,686,175
528,246
(528,246)
(164,950)
2,521,225
2,046,281
-
-
-
-
WC -13001 335/A- Project 26
3,163,649
268,014
(268,014)
(200,567)
2,963,082
2,705 ,906
-
-
-
-
WC -14001 235/A- Projec t 27
216,417
3,358,13 3
(268{133)
(79,938)
3,226,479
1
-
-
-
-
WC -15001 SSR/A- Projec t 28
330,000
-
-
330,000
-
3,183,000
-
-
-
-
WC -16001 SSR/A- Project 29
-
-
-
-
-
327,849
3,278,490
-
-
-
WC -17001 335/A -Project 30
-
-
-
-
-
-
337,684
3,376,845
-
-
WiC-19001 535/A- Projec t 31
-
-
-
-
-
-
347,815
3,478,150
-
WC -20000 SSR/A- Project 32
-
-
-
-
-
-
-
-
-
358,249
3,582,495
WC -21000 SSR/A-Projec t 33
-
-
-
-
-
-
-
-
-
-
360,997
Su bto tal,S ewerRehab./Augrnerdation
9,536,862
4,690,477
(1 ..,379,412)
(646,185)
12,201,742
7:008,672
3,510,849
3,616,174
3,724,660
3,835,399
3,951,492
O NGO ING PRO TECTS
WC -13002 Fus ion O.. Gen. Equip./Tools
78,132
50,000
(78,132)
-
50,000
-
50,000
50,000
50,000
50,000
50,000
WC -15002 WW System Improvements
435,981
232,000
(377,717)
-
290,264
216,120
239,000
246,000
253,000
260,000
259,000
WC -99013 Sewe r/Manhole Rehab.
621,917
600,000
(506)
-
1,221,411
1,015,451
618,000
636,540
655,536
675,305
595,564
Su bto tal. O roir Projects
1,136,030
882,000
(456,355)
-
1,561,675
1:231 ,571
907,000
932,540
958,636
985,305
1,014,564
CUSTOM ER CONNECTION S (FEE FUNDED)
WC -80020 3ewerSystemExtensions
210,275 I
383,000 I
(305,227)
(173,204)
114,844
57,994
394,000
405,820
417,995
430,534
443,450
5ubtotaI,Custo rnerConnectio re
210,275
383,000
x'05,227)
(173,204)
114,844
57,994
394,000
405,820
417,995
430,534
443,450
+GRAND TO TAL
10,883,167
5,955,477
12,140,994)
(819,389)
13,878,261
8.298,237
4,811,849
4,954,534
5,101,291
5,252,239
5,409,507
Fu rriirgSources
Connection/Capacity Fees
383,000
(305,227)
394,000
405,820
417,995
430,534
443,450
Funded by Rates and Other Revenue
5,572,477
(1,835,767)
4,417,849
4,548,714
4,683,296
4.821,704
4,966,056
6/30/2015
C IP-RELATED RESERVES DETAIL
(Actual)
9/30/201 c
Reappropriations
2,700,167
5,580,024
Commitments
8,183,000
8,295,237
February 2016
25
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 26 | P a g e
APPENDIX C: WASTEWATER COLLECTION UTILITY RESERVES
MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Wastewater
Collection 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, if the Financial Plan delivered in
conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY
2015 to FY 2019 would be 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 Wastewater Collection 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 reappropriated from previous years, as described in
Section 4 (Reserve for Reappropriations)
c) For cash flow management and contingencies related to the Wastewater Collection
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 Wastewater
Collection Utility at that time.
Section 4. Reserve for Reappropriations
At the end of each fiscal year the Reserve for Reappropriations will be set to an amount
equal to the amount of all remaining capital and noncapital budgets, if any, that will be re
appropriated to the following fiscal year in accordance with Palo Alto Municipal Code
Section 2.28.090.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 27 | P a g e
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 Wastewater Collection Utility
Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the
Financial Planning Period.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 28 | P a g e
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 Wastewater Collection Utility’s Fund Balance not
included in the reserves described in Section 3Section 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 105 days of O&Mand commodity expense
Maximum Level 150 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 Wastewater Collection 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 Wastewater Collection
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
Wastewater Collection 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 Wastewater Collection 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 2020, 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.
(SGY7MKR)RZIPSTI-( * % %'&( '*
WASTEWATER COLLECTIONUTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 29 | P a g e
APPENDIX D: SAMPLE OF WASTEWATER COLLECTION OUTREACH
MATERIALS
(SGY7MKR)RZIPSTI-( * % %'&( '*
'IVXMJMGEXI3J'SQTPIXMSR
)RZIPSTI-H * % %'&( '*7XEXYW 'SQTPIXIH
7YFNIGX 4PIEWI(SGY7MKRXLIWIHSGYQIRXW 6)73 ;EWXI[EXIV*MRERGMEP4PERTHJ6)73 40%2*=
7SYVGI)RZIPSTI
(SGYQIRX4EKIW 7MKREXYVIW )RZIPSTI3VMKMREXSV
'IVXMJMGEXI4EKIW -RMXMEPW /MQ0YRX
%YXS2EZ )REFPIH
)RZIPSTI-H7XEQTMRK )REFPIH
8MQI>SRI 98'
4EGMJMG8MQI 97
'EREHE
,EQMPXSR%ZI
4EPS%PXS'%
OMQFIVP]PYRX$GMX]SJTEPSEPXSSVK
-4%HHVIWW
6IGSVH8VEGOMRK
7XEXYW 3VMKMREP
%1
,SPHIV /MQ0YRX
OMQFIVP]PYRX$GMX]SJTEPSEPXSSVK
0SGEXMSR (SGY7MKR
7MKRIV)ZIRXW 7MKREXYVI 8MQIWXEQT
%Q]&EVXIPP
%Q]&EVXIPP$'MX]SJ4EPS%PXSSVK
7IRMSV(ITYX]'MX]%XXSVRI]
'MX]SJ4EPS%PXS
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7IRX %1
:MI[IH %1
7MKRIH %1
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
%GGITXIH %1
-( H IGFHIJ G HIE
0EPS4IVI^
0EPS4IVI^$'MX]SJ4EPS%PXSSVK
'LMIJ*MRERGMEP3JJMGIV
'MX]SJ4EPS%PXS
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7MKRIHYWMRKQSFMPI
7IRX %1
:MI[IH 41
7MKRIH 41
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
2SX3JJIVIHZME(SGY7MKR
-(
)H7LMOEHE
IHWLMOEHE$GMX]SJTEPSEPXSSVK
%'1
'MX]SJ4EPS%PXS
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7MKRIHYWMRKQSFMPI
7IRX 41
:MI[IH %1
7MKRIH %1
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
2SX3JJIVIHZME(SGY7MKR
-(
.EQIW/IIRI
NEQIWOIIRI$GMX]SJTEPSEPXSSVK
'MX]1EREKIV
'MX]SJ4EPS%PXS
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7IRX %1
:MI[IH %1
7MKRIH %1
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
%GGITXIH 41
-( JIEE GFFH EG I
7MKRIV)ZIRXW 7MKREXYVI 8MQIWXEQT
4EXVMGO&YVX
TEXVMGOFYVX$GMX]SJTEPSEPXSSVK
1E]SV
'MX]SJ4EPS%PXS
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7MKRIHYWMRKQSFMPI
7IRX %1
:MI[IH %1
7MKRIH %1
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
2SX3JJIVIHZME(SGY7MKR
-(
&IXL1MRSV
&IXL1MRSV$'MX]SJ4EPS%PXSSVK
'MX]'PIVO
'MX]SJ4EPS%PXS
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7IRX %1
:MI[IH %1
7MKRIH %1
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
2SX3JJIVIHZME(SGY7MKR
-(
-R4IVWSR7MKRIV)ZIRXW 7MKREXYVI 8MQIWXEQT
)HMXSV(IPMZIV])ZIRXW 7XEXYW 8MQIWXEQT
%KIRX(IPMZIV])ZIRXW 7XEXYW 8MQIWXEQT
-RXIVQIHMEV](IPMZIV])ZIRXW 7XEXYW 8MQIWXEQT
.ERIX&MPPYTW
.ERIX&MPPYTW$'MX]SJ4EPS%PXSSVK
'PEMQW-RZIWXMKEXSVW
'MX]SJ4EPS%PXS
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7IRX %1
'SQTPIXIH %1
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
%GGITXIH %1
-( HJI J JFFJ G
.YH]2K
.YH]2K$'MX]SJ4EPS%PXSSVK
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7IRX 41
'SQTPIXIH %1
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
2SX3JJIVIHZME(SGY7MKR
-(
.ERMGI7ZIRHWIR
.ERMGI7ZIRHWIR$'MX]SJ4EPS%PXSSVK
)\IGYXMZI%WWMWXERXXSXLI'MX]1EREKIV
'MX]SJ4EPS%PXS
7IGYVMX]0IZIP )QEMP%GGSYRX%YXLIRXMGEXMSR
2SRI
9WMRK-4%HHVIWW
7IRX %1
'SQTPIXIH %1
)PIGXVSRMG6IGSVHERH7MKREXYVI(MWGPSWYVI
2SX3JJIVIHZME(SGY7MKR
-(
'IVXMJMIH(IPMZIV])ZIRXW 7XEXYW 8MQIWXEQT
'EVFSR'ST])ZIRXW 7XEXYW 8MQIWXEQT