HomeMy WebLinkAboutStaff Report 13660
City of Palo Alto (ID # 13660)
Utilities Advisory Commission Staff Report
Meeting Date: 3/2/2022
City of Palo Alto Page 1
Title: Staff Recommendation That the Utilities Advisory Commission
Recommend the City Council Adopt a Resolution Approving the Fiscal Year
2023 Water Utility Financial Plan, Including Reserve Transfers, and 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)
From: Director of Utilities
Lead Department: Utilities
RECOMMENDATION
Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council:
1. Adopt a resolution (Attachment A):
a. Approving the Fiscal Year (FY) 2023 Water Utility Financial Plan (Linked Document);
b. Approving a transfer of up to $13.964 million from the Capital Improvement
Program (CIP) Reserve to the Operations Reserve in FY 2022; and
c. Increasing Water Utility Rates Via the Amendment of 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)
EXECUTIVE SUMMARY
The FY 2023 Water Utility Financial Plan includes projections of the utility’s costs and revenues
for FY 2022 through FY 2027. Costs are projected to rise by about 4% per year over the next
several years. Some capital projects were deferred in FY 2017 through FY 2021 leading to lower
capital costs than budgeted. Many of these deferred capital projects are anticipated to be
completed in FY 2022 and FY 2023, and a combination of funds from the Operations, CIP, CIP
Reappropriations and Commitments reserve balances are available to provide funding.
Additionally, the effects of the COVID-19 pandemic tended to increase overall water use in Palo
Alto, primarily from the residential sector. This, together with higher temperatures, led to
higher revenues than forecasted in FY 2020 and FY 2021. During the first half of FY 2022, water
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use in Palo Alto declined approximately 8% overall relative to FY 2020 levels as customers have
responded to state, regional and local calls for water conservation during the ongoing drought.
However, Water Utility reserve levels remain healthy at year end FY 2021: the CIP Reserve is at
the maximum guideline level of $10.7 million and the Operations Reserve is also at the
maximum guideline level of approximately $14 million with an additional $7 million above the
maximum that is considered unassigned. There is also $9 million available in the Rate
Stabilization Reserve at year end FY 2021. These reserve levels not only have allowed the Water
Utility to hold rates flat for two years (FY 2021 and FY 2022), but also now allow the Water
Utility to use these reserves to mitigate distribution rate increases (rates that cover the cost to
deliver water within the City) to under 5% annually from FY 2023 through FY 2027 despite the
ongoing drought conditions and the expected impact to water sales and revenue while still
funding essential capital investments.
Customers have a separate commodity rate for purchased water from the San Francisco Public
Utilities Commission (SFPUC) relative to the rest of the distribution-related portion of the
volumetric rates. This commodity charge passes-through SFPUC rate increases to customers
(Resolution 9844). The pass-through commodity rate is currently $4.10 per hundred cubic feet
(CCF), and it has remained at $4.10 since FY 2017. On November 23, 2021, the SFPUC declared a
local water shortage emergency by Resolution No. 21-0177 calling for voluntary system-wide
10% water use reductions. SFPUC serves retail customers in San Francisco as well as Palo Alto
and 25 other Wholesale Customers in the Bay Area. Wholesale Customers’ collective voluntary
water purchase cutback level is 13.7% from FY 2020 levels while Palo Alto’s voluntary water
purchase cutback level is 8% from FY 2020 levels. (Staff plans to request approval from Council
for specific measures to implement these cutbacks in Palo Alto via a separate staff report).
As a result of these expected drought-related water purchase cutbacks, SFPUC provided a
preliminary estimated range of wholesale rate increases from 15.1% to 25.1% for FY 2023 for
the W-25 wholesale rate for agencies with long-term contracts; SFPUC could impose one or the
other of the two rates at the end of the range, or potentially a rate in between. The current rate
of $4.10/CCF would increase on or around July 1, 2022 to between $4.72/CCF and $5.13/CCF.
The SFPUC will not determine its final wholesale customer rate for FY 2023 until May or June,
2022. If SFPUC’s final rate for FY 2023 does increase, Palo Alto will notify customers 30 days in
advance of the pass-through rate increase via their billing statements. This commodity rate
estimate is higher than SFPUC’s previous estimates, and SFPUC reports that the reason for the
change is the ongoing drought conditions and expected reductions in wholesale customer
water use collectively. The total water rate increase range for Palo Alto customers is between
9% to 13% at the SFPUC commodity increase levels of 15.1% and 25.1%, respectively. This is
equivalent to a monthly water bill increase of between $7.77 and $11.46 for residential
customers with annual median water usage at the SFPUC commodity increase levels of 15.1%
and 25.1%, respectively.
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BACKGROUND
Every year staff presents the UAC with Financial Plans for the Electric, Gas, Water, and
Wastewater Collection Utilities. The Financial Plans recommend rate adjustments required to
maintain the financial health of these enterprises. These Financial Plans include a
comprehensive overview of the operations of each enterprise, 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 Reserve
Management Practices describing the reserves for each utility and the management practices
for those reserves.
All of the City’s potable water comes from the SFPUC’s Hetch Hetchy Regional Water System.
This same system serves San Francisco and other Bay Area cities. San Francisco operates the
system, 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, including the City, are frequently referred
to as the “wholesale customers” (as compared to the SFPUC’s “retail customers” in San
Francisco). The Bay Area Water Supply and Conservation Agency (BAWSCA) represents the
wholesale customers and negotiates with the SFPUC on their behalf. BAWSCA also 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 Regional Water 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). 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 Program (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 Regional Water System. One of the goals is
to achieve the capability to return to service within 24 hours after a major earthquake.
Although much of the work is complete (the program was 98.9% complete as of September
2021), some of the projects are still under construction and bond financing of WSIP projects
over the next several years will continue to drive wholesale rates up. The program has greatly
improved the resiliency of the Hetch Hetchy Regional Water System but has also led water
supply costs to approximately double.
CPAU’s operational costs for the water utility have increased by approximately 6.2% per year
over the last five years; operations and maintenance costs and resource management costs
were the main reasons for the increase, driven primarily by increases in salaries and benefits.
1 For a video summary of BAWSCA’s activities, see https://vimeo.com/283596665/5619ce2c11
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Capital costs have fluctuated from year to year. This Financial Plan projects increases in capital
and operational costs that align as much as possible with the City’s Budget and Long-Range
Financial Forecast and average approximately 3% per year over the next five years.
The UAC reviewed the preliminary financial forecasts at its December 1, 2021 meeting (UAC
Report #13659). The Finance Committee reviewed the preliminary financial forecasts at its
February 1, 2022 meeting (Staff Report 13839).
DISCUSSION
Staff’s annual assessment of the financial position of the City’s water utility is completed to plan
for 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, which was updated in 2015, and the 2015 Drought
Rate memorandum completed by Raftelis Financial Consultants, and the 2019 update titled
“Proposed FY 2020 Water Rates,” (see Attachment Q to staff report 10295.2)
Proposed Actions
1. Increase rates by 4% for 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); and
2. Transfer up to $13.964 million from the CIP Reserve to the Operations Reserve in FY
2022.
The FY 2023 Water Utility Financial Plan describes these proposed actions in detail. Tables 1
through 3 below illustrate the current and proposed rates under this Financial Plan. The rates
shown below are in addition to the pass-through commodity rate that is charged to customers
based on SFPUC supply charges. The pass-through commodity rate is currently $4.10 per CCF.
However, with SFPUC’s proposed rate increase range of 15.1% to 25.1%, the current rate would
increase on or around July 1, 2022 to between $4.72/CCF and $5.13/CCF, with no additional
increase projected in the SFPUC meter charge.
2 A cost of service study (COS) is a study using industry-standard techniques to determine how the costs of running
the utility should be recovered from its customers; charges to each customer are set in proportion to the cost of
serving that customer.
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Table 1: Current and Proposed Water Consumption Charges
Current
(7/1/2019)
Proposed
(7/1/2022)
Change
($/CCF)
Change (%)
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 2.56 2.67 0.11 4%
Tier 2 Rates 5.97 6.21 0.24 4%
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 3.61 3.76 0.15 4%
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 3.61 3.76 0.15 4%
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 5.50 5.72 0.22 4%
Table 2 and Table 3 show the current monthly service charges for rate schedules W-1, W-4 and
W-7.
Table 2: Current and Proposed Monthly Service Charges for Residential W-1
Meter
Size
Monthly Service Charge ($/month
based on meter size)
Change
Current
(7/1/2019)
Proposed
(7/1/2022)
$ %
5/8” 20.25 21.06 0.81 4%
3/4” 20.25 21.06 0.81 4%
1” 20.25 21.06 0.81 4%
1 ½” 65.40 68.02 2.62 4%
2” 101.17 105.22 4.05 4%
3” 214.44 223.02 8.58 4%
4” 381.37 396.63 15.26 4%
6” 780.79 812.03 31.24 4%
8” 1,436.57 1,494.04 57.47 4%
10” 2,271.20 2,362.05 90.85 4%
12” 2,986.60 3,106.07 119.47 4%
Table 3: Current and Proposed Monthly Service Charges for W-4 and W-7
Meter
Size
Monthly Service Charge ($/month
based on meter size)
Change
Current
(7/1/2019)
Proposed
(7/1/2022)
$ %
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5/8” 17.71 18.42 0.71 4%
3/4” 23.67 24.62 0.95 4%
1” 35.59 37.02 1.43 4%
1 ½” 65.40 68.02 2.62 4%
2” 101.17 105.22 4.05 4%
3” 214.44 223.02 8.58 4%
4” 381.37 396.63 15.26 4%
6” 780.79 812.03 31.24 4%
8” 1,436.57 1,494.04 57.47 4%
10” 2,271.20 2,362.05 90.85 4%
12” 2,986.60 3,106.07 119.47 4%
Table 4 shows the current and proposed monthly service charges for rate schedule W-3.
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
(7/1/2019)
Proposed
(7/1/2022)
$ %
2” $4.17 $4.34 0.17 4%
4” $25.81 $26.85 1.04 4%
6” $74.96 $77.96 3.00 4%
8” $159.74 $166.13 6.39 4%
10” $287.27 $298.77 11.50 4%
12” $464.02 $482.59 18.57 4%
Bill Impact of Proposal
Table 5 and Table 6 show the impact of the proposed July 1, 2022 rate changes on the median
residential, commercial and irrigation bills including the SFPUC commodity pass-through rate
increase of 15.1% and 25.1%.
Table 5: Impact of Proposed Water Rate Changes on Residential Bills
Usage
(CCF/mo.)
Bill under
Current
Rates
(7/1/2019)
Bill under
Proposed
Rates SFPUC
15.1% Rate
Increase
(7/1/2022)
Change Bill under
Proposed
Rates SFPUC
25.1% Rate
Increase
(7/1/2022)
Change
$/mo. % $/mo. %
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4 $46.89 $50.62 $3.73 8% $52.26 $5.37 11%
(Winter
median) 7 $70.28 $76.33 $6.05 9% $79.20 $8.92 13%
(Annual
median) 9 $90.42 $98.19 $7.77 9% $101.88 $11.46 13%
(Summer
median)
14 $140.77 $152.84 $12.07 9% $158.58 $17.81 13%
25 $251.54 $273.07 $21.53 9% $283.32 $31.78 13%
Table 6: Impact of Proposed Water Rate Changes on Commercial Bills
Usage
(CCF/mo.)
Bill under
Current
Rates
(7/1/2019)
Bill under
Proposed
Rates SFPUC
15.1% Rate
Increase
(7/1/2022)
Change Bill under
Proposed
Rates SFPUC
25.1% Rate
Increase
(7/1/2022)
Change
$/mo.
%
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual
median)
12 $110.23 $120.18 $9.95 9% $125.10 $14.87 13%
(Annual
average)
64 $511.15 $561.14 $49.99 10% $587.38 $76.23 15%
Irrigation (W-7) (1 ½” meters)
(Winter
median) 9 $151.80 $161.98 $10.18 7% $165.67 $13.87 9%
(Summer
median)
37 $420.60 $454.30 $33.7 8% $469.47 $48.87 12%
(Winter
average)
56 $603.00 $652.66 $49.66 8% $675.62 $72.62 12%
(Summer
average)
199 $1,975.80 $2,145.58 $169.78 9% $2,227.17 $251.37 13%
Median quantities of water use are expected to decrease from pre-drought levels, however, as
calls for water conservation continue. Customers who conserve will experience less of a bill
increase than those customers who are not reducing water consumption.
FY 2023 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
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Table 4 shows the projected rate adjustments over the next five years and their impact on the
annual median residential water bill for 5/8” customers. These projected rate adjustments
include the impact of the range of projected changes to the pass-through commodity rate.
Given the uncertainty surrounding drought water demand forecasts these projections are
highly uncertain beyond FY 2024.
Table 7: Projected Rate Adjustments, FY 2023 to FY 2027 (5/8” meter)
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Water Utility (SFPUC 15.1% rate
increase in FY 2023) 9% 9% 3% 2% 0%
Estimated Monthly Bill $98.19 $107.03 $110.25 $112.46 $112.46
Estimated Bill Impact ($/mo)1 $7.77 $8.84 $3.22 $2.21 $0
Water Utility (SFPUC 25.1% rate
increase in FY 2023) 13% 4% 0% 5% 0%
Estimated Monthly Bill $101.88 $105.96 $105.96 $111.26 $111.26
Estimated Bill Impact ($/mo)1 $11.46 $4.08 $0 $5.30 $0
1) estimated impact on median residential water bill for customers with 5/8” meter, which is
currently $90.42.
Figures 1 and 2 below illustrate the projected increases in the Water Utility’s costs between FY
2022 and FY 2027.
Figure 1: Projected FY 2022 and FY 2027 costs
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Figure 2: Percentage of Total Cost Increase From FY 2022 to FY 2027
Attributed to Supply, Capital, and Operations Costs
The “Capital” bars on Figure 1 reflect the capital program contributions to the CIP Reserve.
Additionally, this Financial Plan includes one-time transfers to the CIP Reserve to fund seismic
reservoir replacement work. There are CIP funds available for projects that were budgeted in FY
2021 and prior years that are carried forward or reappropriated to FY 2022 and will be used to
offset the new CIP funding needs.
The cost of water is a major driver for the increase in the water utility’s costs (and therefore
rates) over the next several years. Wholesale water costs are adopted by the SFPUC, and
generally have changed on an annual basis. Wholesale rates are projected to increase annually
on average by 6% per year from FY 2023 to FY 2027. The SFPUC is currently engaged in a $4.8
billion Water System Improvement Program (WSIP) for regional projects. As of September 30,
2021, 45 of the 52 regional projects were complete or in close-out while 5 of the regional
projects were under construction.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
3 First Quarter FY 2021 - 2022 WSIP Regional Quarterly Report,
https://sfpuc.org/sites/default/files/documents/Q1FY22_WSIP_Regional_Qtrly_Report.pdf; two projects do not
include construction: Long-Term Mitigation Endowment and Watershed and Environmental Improvement
Program.
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each WSIP project is completed, wholesale customers must start paying the debt service costs
within 3 to 4 years. For most of those costs, funded with bond financing, the costs will be paid
off over approximately 30 years. The currently estimated WSIP completion date is June 30,
2023, as adopted by the SFPUC in April of 2020.
As WSIP projects are completed, SFPUC is pursuing a suite of other capital improvement work;
dam safety improvements and Mountain Tunnel repairs are rate increase drivers during the
next 10-year timeframe. Future and in-progress construction work will require bond funding,
and the SFPUC’s financial plans show debt service cost for the water enterprise growing by 32%
between FY 2021 and FY 2026, and by 40% by FY 2028.4 Initial wholesale rate increase
projections are 6% per year on average through FY 2027 to cover increasing costs, primarily
debt service from ongoing capital investments.
Changes in usage due to drought, or recovery from drought, can 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 water usage by all users of the Regional Water System. The FY 2023
financial plan calculates rate impacts based upon the January 2022 rate range provided by
SFPUC. However, the forecast is highly uncertain beyond FY 2024 because of the uncertainty
surrounding drought assumptions.
The SFPUC has been accumulating funds in its Wholesale Customer Balancing Account due to a
variety of factors, including: SFPUC sold more wholesale water than the sales projection it used
for rate setting, there were cost savings in the wholesale revenue requirement due to the
SFPUC’s debt refinancing, and BAWSCA’s annual review of the wholesale revenue requirement
resulted in credits applied to the balancing account. The SFPUC has been returning these funds
to wholesale customers by using them to offset the required revenues from wholesale
customers and holding rates constant since FY 2017. Because of the water use reductions
expected during the ongoing drought conditions and calls for voluntary conservation (10%
system-wide and 13.7% for the wholesale customers collectively), all of the available funding in
the balancing account (approximately $86 million at year end FY 2021) is expected to be
returned to wholesale customers in FY 2022 and FY 2023 ($43 million during the current fiscal
year and an additional $43 million in FY 2023). Without the use of the balancing account,
SFPUC’s rate range would be higher.
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 bid prices than were seen in the past. Several factors go into main replacement cost,
such as location as well as the length of main segments. Consistent with the FY 2022 Financial
Plan, this plan includes larger main replacement construction projects every other year instead
4 FY 2018-19 & FY 2019-20 Adopted SFPUC Budget,
https://sfwater.org/modules/showdocument.aspx?documentid=13147
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of smaller projects annually. This main replacement schedule will allow CPAU to meet its main
replacement needs and addresses challenges in the current construction market while
optimizing current staffing resources. Larger main replacement construction projects every
other year are anticipated to attract more contractors to bid on the larger projects.
Capital Projects & Reserves
Higher bid cost and delays in project schedules resulted in a deferment of main replacement
projects in FY 2017 through FY 2021, temporarily lowering CIP expenditures. This resulted in the
Operations Reserve being filled to the maximum guideline level. For example, at year end FY
2021, an estimated $7 million was above the maximum guideline level in the Operations
Reserve, and was assigned to the Operations Reserve. The funds will be used to cover water
utility operational and capital costs in FY 2022 and FY 2023. The capital budget includes one-
time seismic water system upgrades and/or replacements for the Corte Madera, Park and Dahl
reservoirs to improve earthquake resistance. This work will improve protection from water loss
at these reservoirs in a seismic event.
This Plan updates the transfer proposals due to project cost increases and available reserve
balances. Specifically, the proposed transfer from the Operations Reserve to the CIP Reserve is
$3.5 million in FY 2023 (see lines 6 and 8 in Table 8). $4 million is projected to be transferred in
FY 2026 from the Operations and Rate Stabilization Reserves to the CIP Reserve (see lines 6, 7
and 8 in Table 8). FY 2024 and FY 2026 transfers from the Rate Stabilization Reserve to the
Operations Reserve will manage the trajectory of future year rate increases and provide
sufficient funding for the seismic reservoir retrofits/replacements (see line 7 in Table 8).
Staff will request Council approval for the transfers in future Financial Plans, if needed, once the
year-end FY 2022 reserve balances are known. The Operations Reserve levels are projected to
be sufficient to support these transfers, together with the FY 2024 and FY 2026 transfers from
the Rate Stabilization Reserve to the Operations Reserve described above.
Line 12 of Table 8 shows the anticipated CIP Reserve transfers in FY 2022 through FY 2027 from
the CIP Reserve to the Operations/Unassigned Reserve. Line 10 of Table 8 shows the
anticipated CIP Reserve transfers, or capital program contributions, in FY 2022 through FY 2027
from the Operations/Unassigned Reserve to the CIP Reserve. There is also approximately $10.4
million in CIP that was budgeted in FY 2021 or prior years that is reappropriated or carried
forward from previous years and is currently in the CIP Reappropriations and CIP Commitments
Reserves. See Appendix B of the Water Utility Financial Plan for detailed information.
The CIP Reserve aims to stabilize uneven annual funding associated with ongoing CIP projects
including water main replacements that are scheduled to occur every other year, and is a
source for one-time or immediately needed projects. In June 2020 Council approved consistent
annual funding from the Operations to the CIP Reserves (Resolution 9904) and in June 2021
approved a transfer of up to $13.24 million from the Operations Reserve to the CIP Reserve in
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FY 2022 (Resolution 9974); $5 million of this was for one-time costs associated with reservoir
replacements/rehabilitations. This Financial Plan projects that a capital program contribution of
$8.24 million in FY 2022 (see line 9 of Table 8) from the Operations Reserve to the CIP Reserve
will be sufficient based upon actual and projected revenue and expenses as well as FY 2021
year-end reserve balances.
Withdrawals from the CIP Reserve for use on capital projects require Council action.5 This
Financial Plan therefore requests Council approval to transfer up to $13.964 million from the
CIP Reserve to the Operations Reserve to pay for estimated CIP in FY 2022. This figure is the
portion of planned CIP that will not be paid for through funds collected in prior years
(essentially the FY 2022 Capital budget, less funds available in the Reappropriations and
Commitments Reserves), shown in line 12 of Table 8 . The need for each of the transfers will be
re-evaluated once the year end reserve balances for FY 2022 are known. Figure 3 shows the CIP
Reserve year end balances.
Rate Stabilization Reserve
The Rate Stabilization Reserve is projected to be used to buffer distribution rate increases as
SFPUC initiates a series of large wholesale supply rate increases beginning in July 2022. In June
2020, Council approved a transfer of $5 million from the Operations Reserve to the Rate
Stabilization Reserve, bringing the balance in the reserve to $9.07 million. CPAU expects to
transfer $6 million from the Rate Stabilization Reserve to the Operations Reserve in FY 2024
and an additional $3 million in FY 2026. The use of the Rate Stabilization Reserve balances in
this way, together with the cost and revenue projections in this Financial Plan, is expected to
hold CPAU water rate increases to 5% or less annually over the next five years, while continuing
to fund essential capital work. This Financial Plan projects that the Rate Stabilization Reserve
will be exhausted by the end of FY 2026. Figure 4 illustrates the year end reserve balances for
FY 2021 (actual) and projected through FY 2027.
5 See Section 5(b) of the Water Utility Reserves Management Practices; Appendix C to the attached Water Financial
Plan.
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Figure 3: Actual FY 2021 and Projected Capital Reserve Balances FY 2022 to FY 2027
Figure 4: Actual Reserve Levels for FY 2021 and Projections through FY 2027
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Table 8: Operations & Unassigned, Rate Stabilization and CIP Reserves Starting and Ending
Balances, Revenues, Transfers To/(From) Reserves and Capital Program Contribution
To/(From) Reserves Projected for FY 2022 to FY 2027 ($000)
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Starting Balance
(1) Operations/Unassigned 20,774 17,926 10,981 11,179 10,102 9,747
(2) Rate Stabilization 9,069 9,069 9,069 3,000 3,000 -
(3) CIP 10,707 4,983 2,961 2,741 7,635 1,916
Revenues
(4) Total Revenue 45,917 50,538 56,639 58,912 60,627 60,972
(5) Transfers In 568 580 591 603 615 628
Transfers
(6) Operations/Unassigned - (3,500) 2,569 - (1,000) -
(7) Rate Stabilization - - (6,069) - (3,000) -
(8) CIP - 3,500 3,500 - 4,000 -
Capital Program
Contribution
(9) Operations/Unassigned (8,240) (8,487) (8,742) (9,004) (9,004) (9,004)
(10) CIP 8,240 8,487 8,742 9,004 9,004 9,004
Expenses
(11) Total Expenses other than
CIP (40,820) (45,797) (49,966) (50,689) (50,688) (49,926
)
(12) Planned CIP (13,964) (14,010) (12,462) (4,109) (18,723) (3,980)
(13) Transfers Out (273) (278) (894) (900) (906) (911)
Ending Balance
(1)+(4)+(5)+(6)
+(9)+(11)+(13) Operations/Unassigned 17,926 10,981 11,179 10,102 9,747 11,505
(2)+(7) Rate Stabilization 9,069 9,069 3,000 3,000 - -
(3)+(8)+(10)+
(12)* CIP 4,983 2,961 2,741 7,635 1,916 6,940
Operations Reserve
Guideline Levels
(14) Minimum 6,755 7,574 8,361 8,480 8,481 8,357
(15) Maximum 13,510 15,148 16,721 16,961 16,962 16,714
* Planned CIP (item 12) is reflected as an expense in the CIP Reserve and does not include CIP
funded through Reappropriations or Commitments reserves. This Financial Plan requests
Council approval to transfer the Planned CIP of $13.964 million from the CIP Reserve to the
Operations Reserve.
Water Bill Comparison with Surrounding Cities
Table 9 compares water bills for residential customers to those in surrounding communities as
of October 2021 (under current the City’s current water rates). Palo Alto customers have some
of the highest monthly bills of the group, although bills for smaller water users are lower than
in some surrounding communities. It is unclear at this time what water rate changes may be
implemented in surrounding communities for FY 2023 The average community rate calculated
in the following table is the mean of the six surrounding communities listed. These communities
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are the same six that Palo Alto compares itself to in the annual budget across Water,
Wastewater, Gas and Electric industries.
Table 9: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of January, 2021
Palo
Alto
Menlo
Park
Mountain
View Hayward Redwood
City
Santa
Clara Los Altos
Average of
Surrounding
Communities
4 $46.89 $50.83 $38.80 $39.80 $54.04 $26.76 $44.03 $42.38
(Winter
median) 7 $70.28 $73.43 $60.07 $61.34 $76.09 $46.83 $61.87 $63.27
(Annual
median) 9 $90.42 $88.49 $74.25 $75.70 $90.79 $60.21 $73.77 $77.20
(Summer
median) 14 $140.77 $129.34 $109.70 $119.80 $138.94 $93.66 $106.07 $116.25
25 $251.54 $229.75 $230.19 $216.82 $267.39 $167.25 $192.06 $217.24
*Based on the FY 2013 BAWSCA survey, the percentage 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. Los Altos
does not receive water supply from SFPUC.
Changes from Last Year’s Financial Plan
Table 10 shows rate projections from the last two Financial Plans for FY 2021 and FY 2022 as
well as the expected impact of SFPUC’s range of rate increases for wholesale rates when
combined with Palo Alto’s distribution rate increase. If SFPUC’s rate increase is 25.1% in FY
2023, the rate forecast is more variable with an overall rate increase for Palo Alto customers
that is higher in FY 2023, and similar in FY 2026 to last year’s projection, but lower in FY 2024
and FY 2025. Given the magnitude and range of the SFPUC wholesale rate increase as well as
the uncertainty regarding drought conditions, the water rate forecast is highly uncertain in FY
2024 and beyond.
Table 10: Proposed and Projected Water Revenue Changes for FY 2023 to FY 2027
Projection FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
Current low range (SFPUC Rate
Increase 15.1% in FY 2023)
9% 9% 3% 2% 0%
Current high range (SFPUC Rate
Increase 25.1% in FY 2023)
13% 4% 0% 5% 0%
FY 2022 Plan 5% 5% 5% 5% -
FY 2021 Plan 5% 5% 5% - -
Table 11 and Table 12 show the proposed water rate increases broken out into the needed
increases to commodity revenues, to cover the costs of purchasing water from SFPUC at both
ends of its preliminary estimated range and separately the distribution revenue increases to
pay for the upkeep of Palo Alto’s water distribution system.
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Table 11: Proposed Commodity and Distribution Water Rate Changes FY 2023 to FY 2027 if
SFPUC Wholesale Rate Increase is 15.1% in FY 2023
Projection FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
Commodity Rate (SFPUC Wholesale Rate) 15% 15% 2% 0% 0%
Distribution Rate 4% 4% 4% 4% 0%
Total Rate 9% 9% 3% 2% 0%
Table 12: Proposed Commodity and Distribution Water Rate Changes FY 2023 to FY 2027 if
SFPUC Wholesale Rate Increase is 25.1% in FY 2023
Projection FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
Commodity Rate (SFPUC Wholesale Rate) 25% 5% -4% 5% 0%
Distribution Rate 4% 4% 4% 4% 0%
Total Rate 13% 4% 0% 5% 0%
This plan uses the Rate Stabilization Reserve and CIP Reserve to stabilize rates while
anticipating a series of large wholesale water rate increases and funding needed for water CIP
budgets.
NEXT STEPS
The Finance Committee will consider the recommended water rate changes in March or April.
Assuming the Finance Committee supports the proposed rate adjustments, staff will send
notification of the potential rate increases to customers as required by Article XIIID of the State
Constitution (added by Proposition 218) expected in April 2022. The City Council will consider
the proposed Financial Plans and amended rate schedules with the FY 2023 budget, expected in
June, at which time the public hearing required by Article XIIID of the State Constitution will be
held.
RESOURCE IMPACT
Staff projects estimated revenue for the Water Utility in FY 2023 to increase within the range of
approximately 9% ($3.9 million), if the SFPUC wholesale rate increase is 15.1%, to 13% ($5.6
million), if the SFPUC wholesale rate increase is 25.1%, as a result of the proposed rate changes.
The City is also a water customer, and staff projects required general fund cost for water
service to increase in FY 2023 by approximately $0.21 million if the SFPUC wholesale rate
increase is 15.1%, up to approximately $0.26 million if the SFPUC wholesale rate increase is
25.1% as a result of the proposed rate changes. See the FY 2023 Water Utility Financial Plan for
a more comprehensive overview of the projected cost and revenue changes for the next five
years.
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POLICY IMPLICATIONS
The proposed water rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans. Staff developed the water rate
adjustments 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 2023 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:
• Attachment A: Resolution
• Attachment B: Water Rate Schedules
• Attachment C: Presentation
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Attachment A
6056604
* NOT YET APPROVED *
Resolution No.__________
Resolution of the Council of the City of Palo Alto Approving the
FY 2023 Water Utility Financial Plan and Reserve Transfer, and
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. 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.
C. 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.
D. On , 2022, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
E. As required by Article XIII D, Section 6 of the California Constitution and applicable law,
notice of the 2022 public hearing was mailed to all City of Palo
Alto Utilities water customers by ____, 2022.
F. 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:
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Attachment A
6056604
SECTION 1. The Council hereby adopts the FY 2023 Water Utility Financial Plan.
SECTION 2. The Council hereby approves a transfer from the Capital Improvement Program
Reserve to the Operations Reserve of up to $13,964,000 in FY 2022 as described in the FY 2023
Water Utility Financial Plan.
SECTION 3. 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,
2022.
SECTION 4. 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,
2022.
SECTION 5. 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, 2022.
SECTION 6. 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, 2022.
SECTION 7. 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, 2022.
SECTION 8. 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.
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Attachment A
6056604
SECTION 9. 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.
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6056604
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SECTION 10. The Council finds that the adoption of this resolution approving the Financial
Plan and Reserve transfers 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 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.
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
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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 7-1-202219
dated 7-1-20198 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to separately metered single-family residential dwellings receiving WaterService 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 inch ................................................................................... $ 20.2521.06 For 1 1/2 inch meter .................................................................................................. 65.4068.02
For 2-inch meter ........................................................................................................ 101.17105.22 For 3-inch meter ........................................................................................................ 214.44223.02 For 4-inch meter ........................................................................................................ 381.37396.63 For 6-inch meter ........................................................................................................ 780.79812.03 For 8-inch meter ........................................................................................................1,436.571,494.04
For 10-inch meter ......................................................................................................2,271.202,362.05 For 12-inch meter .......................................................................................................2,986.603,106.07
Per Hundred Cubic Feet
Volumetric Rates: (To be added to Service Charge, applicable to all pressure zones.) Per Month
Commodity Rate: Water Delivery Charge from SFPUC ....................................................................................$4.104.72
Distribution Rate:
Tier 1 usage ........................................................................................................................$2.562.67 Tier 2 usage (All usage over 100% of Tier 1) .......................................................................5.976.21
Attachment B
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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 7-1-202219
dated 7-1-20198 Sheet No W-1-2
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.43. 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 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. 3. Calculation of Usage Tiers
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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 7-1-202219
dated 7-1-20198 Sheet No W-1-3
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.
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}
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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 7-1-202219
dated 7-1-20198 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. Volumetric Rate: (per hundred cubic feet) Commodity Rate: Water Delivery Charge from SFPUC ........................................................................$4.104.72
Distribution Rate: .................................................................................................................$3.613.76 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.65. 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:
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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 7-1-202219
dated 7-1-20198 Sheet No W-2-2
1. Monthly charges shall include the applicable monthly Service Charge in addition to usage billed at the commodity rate.
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. 3. 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. 4. 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. 5. 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.
6. 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.
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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 7-1-202219
dated 7-1-20198 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 .......................................................................................................$4.174.34 4-inch connection .......................................................................................................25.8126.85
6-inch connection ....................................................................................................... 74.9677.96
8-inch connection .......................................................................................................159.74166.13 10-inch connection .....................................................................................................287.27298.77 12-inch connection .....................................................................................................464.02482.59
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.
6.b
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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 7-1-202219
dated 7-1-20198 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}
6.b
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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 7-1-202219
dated 7-1-20198 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 .................................................................................... $ 17.7118.42 For 3/4-inch meter .................................................................................... 23.6724.62 For 1-inch meter .................................................................................... 35.5937.02 For 1 ½-inch meter .................................................................................... 65.4068.02
For 2-inch meter .................................................................................... 101.17105.22
For 3-inch meter .................................................................................... 214.44223.02 For 4-inch meter .................................................................................... 381.37396.63 For 6-inch meter .................................................................................... 780.79812.03 For 8-inch meter ....................................................................................1,436.571,494.04
For 10-inch meter ....................................................................................2,271.202,362.05
For 12-inch meter ....................................................................................2,986.603,106.07 Per Hundred Cubic Feet
Volumetric Rates: (to be added to Service Charge, applicable to all pressure zones) Per Month
Commodity Rate: Water Delivery Charge from SFPUC ...................................................... $ 4.104.72
Distribution Rate: ........................................................................................... 3.613.76
Drought Surcharges (deactivated):
6.b
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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 7-1-202219
dated 7-1-20198 Sheet No W-4-2
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.32. 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. 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.
6.b
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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 7-1-202219
dated 7-1-20198 Sheet No W-4-3
{End}
6.b
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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 7-1-202219
dated 7-1-20198 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 .................................................................................... $ 17.7118.42
For 3/4-inch meter .................................................................................... 23.6724.62
For 1-inch meter .................................................................................... 35.5937.02 For 1 1/2 inch meter .................................................................................... 65.4068.02 For 2-inch meter .................................................................................... 101.17105.22 For 3-inch meter .................................................................................... 214.44223.02
For 4-inch meter .................................................................................... 381.37396.63
For 6-inch meter .................................................................................... 780.79812.03 For 8-inch meter ....................................................................................1,436.571,494.04 For 10-inch meter ....................................................................................2,271.202,362.05 For 12-inch meter ....................................................................................2,986.603,106.07
Per Hundred Cubic Feet Volumetric Rates: (to be added to Service Charge, applicable to all pressure zones) Per Month
Commodity Rate:
Water Delivery Charge from SFPUC ............................................... $ 4.104.72 Distribution Rate: ........................................................................................... 5.505.72
6.b
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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 7-1-202219
dated 7-1-20198 Sheet No W-7-2
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.32. 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. 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}
6.b
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March 2, 2022 www.cityofpaloalto.org
WATER UTILITY FINANCIAL PLAN AND PROPOSED RATE CHANGES FOR FY 2023
Attachment D •
CITY OF
PALO ALTO
6.c
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2
AGENDA
•Cost structure and drivers
•Overview and bill impacts of rate proposal
•Projections of costs, revenue, and reserves
•Main Scenario
•Alternate Scenario (Drought Worsens)
•Bill comparisons to neighboring utilities
•Recommendation
~CITY OF
~PALO ALTO
6.c
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3
WATER UTILITY COST STRUCTURE
Cost to distribute water within
Palo Alto, including:maintaining
and replacing water
infrastructure, customer service,
billing, administration, etc.
Cost to bring
water to
Palo Alto
Supply
$21.6 million
43%
~CITY OF
~PALO ALTO
■ Debt Service
■ Capital Investment
□ Operations
~ Water Supply
Distribution
$28.4 million
57%
6.c
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WATER OPERATIONS & CAPITAL COST DRIVERS
Operating
•Health, retirement, and associated overhead costs
continue to increase
•Planned increase in costs for rental of generator backup
at pumping stations and for emergencies
•Drought water sales reductions
Capital
•Construction costs have not declined
•Large one-time costs for reservoir rehabilitation
~CITY OF
~PA ILO ALTO
6.c
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WATER SUPPLY COST DRIVERS
•Projected Range for Water Supply Rate Increase:
•15% to 25% in FY 2023
•Primary Driver is Drought Reductions in Water Use
•Water System Improvement Program (WSIP)
•2002: advocacy by wholesale customers results in AB 1823
requiring SFPUC to adopt and implement the WSIP
•In 2010 construction began -$4.8B, one of the largest water
projects in the nation
•Level of service goal: return to service in 24 hours after an
earthquake
~CITY OF
~PA ILO ALTO
6.c
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WATER SUPPLY COST DRIVERS
•WSIP spending 96% complete as of Jan 2019
•“Upcountry” system in the Sierras still needs work.
•Wholesale customers (via BAWSCA) advocating for
improvements in long-term capital planning
•Necessary and improves reliability, but supply costs will
increase in the future as a result
~CITY OF
~PA ILO ALTO
6.c
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7
WATER RATE PROPOSAL
FY 2023: 8.6% -12.7% Overall Rate Increase
•FY 2023 4% distribution rate increase & 15% -25%
SFPUC commodity rate increase
•FY 2021 year-end Operations Reserve at maximum
guideline levels FY 2022 10% voluntary rationing, FY
2023 recovery year
•Future rate projections 4% annually FY 2024-2026, 0% in
FY 2027 for distribution rate increases, pass-through
SFPUC increases
•Use of CIP Reserve, Rate Stabilization Reserve to mitigate
increases
~CITY OF
~PALO ALTO
6.c
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8
ALTERNATE SCENARIO –DROUGHT WORSENS
FY 2023: 9.0% -13.0% Overall Rate Increase
•FY 2023 5% distribution rate increase & 15% -25%
SFPUC commodity rate increase
•FY 2022 10% voluntary rationing, FY 2023 20%
mandatory rationing FY 2024 recovery year
•Future rate projections 5% annually FY 2024 –FY 2026,
0% in FY 2027
•Rate Stabilization Reserve funding earlier
~CITY OF
~PALO ALTO
6.c
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9
ESTIMATED RESIDENTIAL BILL CHANGES
Usage
(CCF/mo.)
Bill under
Current
Rates
(7/1/2019)
Bill under
Proposed
Rates SFPUC
15.1% Rate
Increase
(7/1/2022)
Change Bill under
Proposed
Rates SFPUC
25.1% Rate
Increase
(7/1/2022)
Change
$/mo. % $/mo. %
4 $46.89 $50.62 $3.73 8% $52.26 $5.37 11%
(Winter
median) 7 $70.28 $76.33 $6.05 9% $79.20 $8.92 13%
(Annual
median) 9 $90.42 $98.19 $7.77 9% $101.88 $11.46 13%
(Summer
median)
14 $140.77 $152.84 $12.07 9% $158.58 $17.81 13%
25 $251.54 $273.07 $21.53 9% $283.32 $31.78 13%
• C ITV 01
PALO
ALTO
6.c
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10
ESTIMATED COMMERCIAL BILL CHANGES
Usage
(CCF/mo.)
Bill under
Current
Rates
(7/1/2019)
Bill under
Proposed
Rates SFPUC
15.1% Rate
Increase
(7/1/2022)
Change Bill under
Proposed
Rates SFPUC
25.1% Rate
Increase
(7/1/2022)
Change
$/mo.
%
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual
median)
12 $110.23 $120.18 $9.95 9% $125.10 $14.87 13%
(Annual
average)
64 $511.15 $561.14 $49.99 10% $587.38 $76.23 15%
Irrigation (W-7) (1 ½” meters)
(Winter
median) 9 $151.80 $161.98 $10.18 7% $165.67 $13.87 9%
(Summer
median)
37 $420.60 $454.30 $33.7 8% $469.47 $48.87 12%
(Winter
average)
56 $603.00 $652.66 $49.66 8% $675.62 $72.62 12%
(Summer
average)
199 $1,975.80 $2,145.58 $169.78 9% $2,227.17 $251.37 13%
• C ITV 01
PALO
ALTO
6.c
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11
WATER COST AND REVENUE PROJECTIONS
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Attachment: Attachment C: Presentation (13660 : FY 2023 Water Financial Plans and Rates)
12
WATER OPERATIONS RESERVE PROJECTIONS
$18
$16
$14
$12
$10
V,
C
0 $8
~ $6
$4
$2
$0
• C ITV 01
PALO
ALTO
------------------------------------------------------------------------------------------------------------------------------------· -
-··-··-··-·· -··-··-··-··-··
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Actual Projected
-Reserve
Maximum/Minimum
- -Reserve Target
-Reserve (Year-End)
-Risk Assessment
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13
WATER CIP RESERVE PROJECTIONS
• C ITV 01
PALO
ALTO
.,,
C:
.52
14 ---------------------------------------------------------------------------------------------------------------------·
12
10
4
2
0
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
l?ZLJ Capital Reserve
Ending Balance
-Min/Max
Guideline
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14
ALTERNATE: WATER COST AND REVENUE PROJECTIONS
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• C ITV 01
PALO
ALTO
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$50
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$10
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Rate Changes
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15
ALTERNATE: WATER OPERATIONS RESERVE PROJECTIONS
• CITY 01
PALO
ALTO
$18 -------------------------------------------------------------------------------------------------------------------------
$16 ------------------------------------------------------------
--------------------------------------
-Reserve
$14
$12
$10
______ _,_,_,_, __ __
--------------------------------------------------------,-------------------------------------------------------Maximum/Minimum .,.,.
V,
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♦-··-··-·· . -.
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$0 -----.------r-----.------r-----.------r-----,
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Actual Projected
- -Reserve Target
-Reserve (Year-End)
-Risk Assessment
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16
MONTHLY WATER BILL COMPARISON
Single-Family Residential
Palo Alto is 14% above
comparison city average
200
180
_ 160
~ 140
V)
·-120 C(l
> 100
£ 80
C
0 60 ~ 40
20
0
~CITY OF
~PA ILO ALTO
I
Palo Alto Redwood Menlo Park Mountain
City (Cal Water) View
Hayward Santa Clara
-Low (4 CCF) -Med (8 CCF) -High (18 CCF) -Average at 8 CCF
Bold indicates 100% of Water Supply from SFPUC
6.c
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17
MONTHLY WATER BILL COMPARISON
Commercial Palo Alto is 2% above
comparison city average
-V).
3000
2500
~ 2000
co
> 1500
..c .....,
25 1000
~
500
0 ---Palo Alto Redwood Menlo Park Mountain
City (Cal Water) View
-12 CCF -64 CCF -300 CCF
Bold indicates 100% of Water Supply from SFPUC
~CITY OF
~PA ILO ALTO
-Hayward -■ Santa Clara
-Average at 64 CCF
6.c
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18
RECOMMENDATION
Staff requests that the Utilities Advisory Commission (UAC)
recommend that the Council:
1. Adopt a resolution approving:
a. FY 2023 Water Utility Financial Plan
b. Up to a $13.964 million transfer from the Capital
Improvement Projects Reserve to the Operations Reserve
in FY 2022
c. Increasing Water Utility Rates Via the Amendment of
Rate Schedules W-1, W-2, W-3, W-4, and W-7
~CITY OF
~PALO ALTO
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