HomeMy WebLinkAboutStaff Report 13960
City of Palo Alto (ID # 13960)
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 Gas Utility Financial Plan, Including Proposed Transfers, and Increasing
Gas Rates by Amending Rate Schedules G-1 (Residential Gas Service), G-2
(Residential Master-Metered and Commercial Gas Service), G-3 (Large
Commercial Gas Service), and G-10 (Compressed Natural Gas Service)
From: Director of Utilities
Lead Department: Utilities
Recommendation
Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council adopt
a resolution (Attachment A):
a. Approving the fiscal year (FY) 2023 Gas Utility Financial Plan (Linked Document); and
b. Transferring up to $3 million from the Operations Reserve to the CIP Reserve in FY 2022; and
c. Transferring up to $2.766 million from the Rate Stabilization Reserve to the Operations Reserve
in FY 2022; and
d. Increasing gas rates by amending Rate Schedules G-1 (Residential Gas Service), G-2 (Residential
Master-Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service), and G-10
(Compressed Natural Gas Service) (Attachment B).
Executive Summary
The FY 2023 Gas Utility Financial Plan includes projections of the utility’s costs and revenues for
FY 2023 through FY 2027. Gas utility costs are made up of supply-related costs (30 percent of
costs in FY 2021), which are collected through a supply rate that varies monthly, and
distribution-related costs (70 percent of costs in FY 2021), which are collected through a
distribution rate that is typically adjusted not more than one time per year. Distribution rates
were last increased on July 1, 2021, which resulted in a roughly 3 percent increase in the total
system average gas rate (the supply rates plus the distribution rates). This Financial Plan
projects overall gas costs to increase from FY 2022 through FY 2027 at about 2% per year on
average. Commodity prices have increased markedly in the last few months and are projected
to increase by about 3% per year going forward, although weather and/or economic forces can
shift this course rapidly.
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The proposed FY 2023 Gas Utility Financial Plan includes an increase in distribution rates
effective July 1, 2022 and will result in a 4 percent increase to the total system average gas rate
if supply rates remain unchanged. Additional 4 percent increases to the total system average
gas rate are projected over the next three years. Capital Improvement Project (CIP)
expenditures for the last several years were lower than normal while the City was completing
the Upgrade Downtown project, and much of this increase is due to the Gas Utility resuming
ongoing main replacement projects and the cross-bore safety verification program.
The City’s natural gas rates are based on the 2019 Natural Gas Cost of Service and Rates Study,
updated with current and proposed operating costs. With the onset of the COVID-19
pandemic, usage amongst businesses dropped to reflect people working and staying at home
rather than going to the workplace, as well as restrictions to business operations. Businesses
have been operating at minimum staffing conditions or fully remote while the pandemic
continues. City of Palo Alto staff have endeavored to reduce cost increases, and some capital
project work has been moved out or restructured to keep costs from rising too much during
this time. However, costs related to the Gas Utility’s resumption of main replacement projects
and the cross-bore safety verification program are increasing. In order to move towards full
cost recovery while minimizing rate impacts in light of pandemic-related economic challenges,
staff recommends a distribution rate increase to all customer classes of 6%, which staff
estimates will result in a 4% system average rate increase, if supply rates remain unchanged. If,
after the pandemic, usage and/or spending looks to be moving in a different direction, staff will
suggest a re-balancing of rates at that time.
While staff is recommending that the distribution component of the rates be increased by 6%,
distribution rates comprise about 70% of the overall rate, which consists of commodity (supply)
and distribution components. Supply-related costs include the cost of the natural gas itself, gas
transmission, and gas environmental charges. It’s not possible to precisely predict commodity
rates, which make up approximately 30% of overall retail gas rates. Market prices are
monitored monthly and automatically incorporated into monthly supply rate adjustments,
which are passed directly to customers as a line item on their utility bills.
Because it is not possible to exactly predict what supply rates will be during the planning
horizon, the overall rate increases (commodity plus distribution) referenced in this report
assume that the commodity portion of the overall rate remains unchanged. The net effect is a
proposed 4% overall rate increase. Recent market indications have led staff to project supply
cost increases of about 3% per year for the forecast horizon, but these circumstances could
change based upon market conditions, as well as trends in the cost of environmental offsets
and PG&E’s revised projections for transmission costs.
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Table 1: Revenue and Rate Increases by Customer Class
Cost of Service Analysis
FY 2023
Rate Increase
needed for
Distribution
Charges
Assumed
Commodity Rate
Changes
Net Rate Increase for
Combined Commodity
and Distribution
Charges
G1 - Residential 6% 0% 4%
G2 - Small Commercial 6% 0% 4%
G3 - Large Commercial 6% 0% 4%
TOTAL 6% 0% 4%
Figure 1 below shows the primary drivers for the proposed rate change, which are split about
60/40 between increasing operating and capital improvement expenses. The increases are
discussed in greater depth in the attached FY 2023 Gas Financial Plan.
Figure 1: Allocation of 6% Distribution Rate increase
Background
Every year staff presents the UAC with Financial Plans for its Electric, Water, Gas, and
Wastewater Collection Utilities and recommends any rate adjustments required to maintain
their financial health. These Financial Plans include a comprehensive overview of the utility’s
operations, both retrospective and prospective, and are intended to be a reference for UAC and
Council members as they review the budget and staff’s rate recommendations. Each Financial
Plan also contains a set of Reserves Management Practices describing the reserves for each
utility and the management practices for those reserves.
The City’s gas is purchased from a variety of marketers who source gas from throughout the
Western United States and Canada. The City pays Pacific Gas and Electric (PG&E) to transport
the gas across its gas transmission system to Palo Alto, which is then delivered to customers
through Palo Alto’s gas distribution system.
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The Gas Utility’s costs are divided into two main categories: gas supply costs (which includes
the cost of the gas itself, the cost of transmitting the gas to Palo Alto, and environmental costs1)
and the costs of running the business and operating the distribution system. As noted above,
gas supply costs vary with the market, and the costs are passed through to customers through a
gas supply rate component that varies monthly.
The UAC reviewed preliminary financial forecasts at its December 1, 2021 meeting.
Discussion
Staff’s annual assessment of the financial position of the City’s gas utility is completed to ensure
adequate revenue to fund operations, including reserves, and to ensure that the City’s rates
comply with cost-of-service requirements set forth in the California Constitution and applicable
statutory law. The assessment includes making long-term projections of market conditions, of
costs associated with the physical condition of infrastructure, and of other factors that could
affect utility costs. Rates are then proposed that will be adequate to recover projected costs.
Proposed Actions for FY2022 and FY 2023:
The FY 2023 Gas Utility Financial Plan includes the following proposed actions:
1. Amend gas rate schedules (Attachment B) to increase distribution rates by 6 percent,
resulting in an estimated 4 percent increase on overall rates, and increasing the cap on
the Transportation charge to $0.25/therm from $0.15/therm; and
2. Transfer up to $3 million from the Operations Reserve to the CIP Reserve in FY 2022;
and
3. Transfer up to $2.766 million from the Rate Stabilization Reserve to the Operations
Reserve in FY 2022.
These proposed actions are described in more detail below and in the FY 2023 Gas Financial
Plan (Linked Document).
Proposed Gas Rates
Staff proposes to adjust gas rates as shown in Table 2 and Table 3 below, effective July 1, 2022.
These changes are projected to increase the distribution rate by 6% resulting in a total system
average gas rate (total of supply and distribution) by roughly 4 percent for all classes. These
rate changes are included in the proposed amended rate schedules in (Attachment B).
1 These are the costs of complying with the State’s Cap and Trade system and procuring offsets under the City’s
Carbon Neutral Gas program.
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Table 2: Current and Proposed Monthly Service Charges
Rate Schedule
Monthly Service Charge
($/month) Change
Current (as of
7/1/21)
Proposed for
FY 2023 ($) (%)
G-1 (Residential) $10.89 $11.54 $0.65 6%
G-2 (Small Commercial) 100.85 106.90 6.05 6%
G-3 (Large Commercial) 461.43 489.12 27.69 6%
G-10 (CNG) 68.21 72.30 4.09 6%
Table 3: Current and Proposed Gas Distribution Charges
Change
Current (as of
7/1/21)
Proposed
for FY 2023 ($) (%)
G-1 (Residential)
Tier 1 Rates $0.5290 $0.5607 $0.0317 6%
Tier 2 Rates 1.3526 1.4338 0.0812 6%
G-2 (Residential Master-Metered and Small Commercial)
Uniform Rate 0.6948 0.7365 0.0417 6%
G-3 (Large Commercial)
Uniform Rate 0.6879 0.7292 0.0413 6%
G-10 (Compressed Natural Gas)
Uniform Rate 0.0113 0.0120 0.0007 6%
Another component of the City’s supply cost is the Transportation Charge, which is the cost that
PG&E charges CPAU for transporting gas to Palo Alto via PG&E’s pipelines. This charge applies
to Palo Alto and other cities and agencies who procure natural gas for resale. In October 2016
Council adopted a resolution listing this pass-through of PG&E’s Gas Transportation Rate
separately on the City’s gas rate schedules, and setting a cap of $0.15/therm on this rate.
Effective January 1, 2022, PG&E increased their G-WSL rate up to $0.15/therm. The
transportation charge continues to increase as PG&E collects costs related to improving storage
facilities, decommissioning older facilities, increased costs resulting from wildfire mitigation,
accounting for and greenhouse gas mitigation costs. Based on PG&E’s estimates, prices are
going to continue to escalate between 6 to 22% between 2023 and 2026, so staff is
recommending raising the cap on the Transportation Charge to $0.25/therm. Current and
historic per therm rates for the Transportation Charges are posted on the City Utilities website.
Bill Impact of Proposed Rate Changes
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Table 4 shows the impact of the proposed July 1, 2022, rate changes on residential bills for
various usage levels. The average increase for the residential class is roughly 4 percent based on
last year’s commodity prices. As the price of commodities changes monthly, the actual increase
may be higher or lower than the 4% average. Table 4 shows a representative Winter period
(November thru March) and Summer period (April through October) bill comparison:
Table 4: Impact of Proposed Gas Rate Changes on Residential Bills
Usage
(Therms/month)
Bill under
Current Rates
Bill under
Proposed Rates
Change
$/mo. %
Winter (Using November 2021 commodity prices)
30 $ 55.62 $ 57.22 $ 1.60 2.9%
54 (median) 91.40 93.76 2.36 2.6%
80 146.63 152.79 6.16 4.2%
150 308.64 320.48 11.84 3.8%
Summer (Using October 2021 commodity prices)
10 $ 25.47 $ 26.44 $ 0.97 3.8%
18 (median) 37.13 38.35 1.22 3.3%
30 62.31 64.41 2.10 3.4%
45 96.53 99.85 3.31 3.4%
Table 5 shows the impact of the proposed July 1, 2022 rate changes on various representative
commercial customer bills. The overall increases for the G-2 and G-3 classes are projected to be
about 4 percent on an annual basis assuming commodity prices stay flat.
Table 5: Impact of Proposed Gas Rate Changes on Commercial Bills
(Using December 2021 commodity prices)
Usage
(Therms/month)
Bill under
Current Rates
Bill under
Proposed Rates
Change
%
500 870 897 3.1%
5,000 7,792 8,007 2.8%
10,000 15,483 15,906 2.7%
50,000 77,029 79,121 2.7%
FY 2023 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 6 shows the projected rate adjustments over the next five years and their impact on the
annual median residential gas bill (54 therms per month in winter, 18 therms per month in
summer).
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Table 6: Projected Rate Adjustments, FY 2023 to FY 2027
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Gas Utility 4% 4% 4% 4% 3%
Estimated Bill Impact ($/mo)* $1.70 $2.09 $2.17 $2.26 $1.76
* estimated impact on median residential gas bill, which is currently $50.45 for CY 2021
One of the main drivers for the increase in the Gas Utility’s short-term costs (and therefore
rates) over the next several years are increases in CIP expenditures needed to maintain a safe
and reliable system. FY 2017 included replacements of gas mains on University Avenue, a
project that has evolved into the Upgrade Downtown project, involving a coordinated
replacement of several different types of infrastructure to avoid multiple disruptions to the
business district. This was a multi-year planning effort, completed in 2019, which did not allow
for design of other new projects. Also, as government agencies regionally and nationally spend
more on infrastructure improvement, contractor bids for underground construction have risen
greatly from where they were in years past.
This Financial Plan addresses these challenges in a way that will allow City of Palo Alto Utilities
(CPAU) to meet its gas main replacement (GMR) targets. The next phase of the GMR program
will be the replacement of all Polyvinyl Chloride (PVC) mains with Polyethylene (PE) mains.
CPAU installed PVC pipes from the early 1970s to mid-1980s. Some of the City’s PVC pipe is
approaching 50 years of service, and according to industry data, PVC pipes have a much higher
leakage rate than PE mains after 20 years of service due to potential disbandment of fittings
and joints. This Financial Plan includes approximately $7 to 9 million every other year for main
replacement construction instead of $5 to 6 million annually. This shift to larger main
replacement construction projects every other year will slightly lengthen the amount of time
needed to replace all PVC pipes in the system but will ideally attract more contractors and
better bid pricing on the larger projects. Additionally, this gas main replacement project will be
staggered with water and wastewater (water and wastewater construction every even year and
gas construction every odd year), which will ease scheduling difficulties for staff coverage of
inspections. This arrangement is likely to be a short-term solution (3-5 years) until project
capacity can be increased and upward pressure on utility rates has eased.
Table 7 below shows the reserve balance changes for each reserve from FY 2022 and projected
through FY 2027.
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Table 7: Operations, Rate Stabilization and CIP Reserve Starting and Ending Balances,
Revenues, Transfers To/(From) Reserves, Capital Program Contribution To/(From) Reserves,
and Reserve Guideline Levels for FY 2022 to FY 2027 ($000)
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Starting Reserve Balances
1 Operations Reserve 11,981 11,569 8,017 8,842 8,653 10,436
2 CIP Reserve 3,820 6,820 3,820 4,820 1,820 4,320
3 Cap and Trade 5,905 7,427 9,660 12,260 15,165 18,353
4 Rate Stabilization 2,766 - - - - -
Revenues
5 Total Revenues 45,209 47,890 50,223 52,360 54,541 56,805
6 Cap and Trade 1,522 2,232 2,600 2,905 3,188 3,540
Transfers
7 Operations Reserve (234) 3,000 (1,000) 3,000 (2,500) 2,000
8 CIP Reserve 3,000 (3,000) 1,000 (3,000) 2,500 (2,000)
9 Cap and Trade
10 Rate Stabilization (2,766)
Expenses
11 Non-CIP Expenses (40,713) (44,225) (44,138) (45,252) (46,108) (47,221)
12 Planned CIP (4,674) (10,217) (4,261) (10,297) (4,150) (10,150)
Ending Reserve Balances
1+5+7+11+12 Operations Reserve 11,569 8,017 8,842 8,653 10,436 11,870
2+8 CIP Reserve 6,820 3,820 4,820 1,820 4,320 2,320
3+6+9 Cap and Trade 7,427 9,660 12,260 15,165 18,353 21,892
4+10 Rate Stabilization - - - - - -
Operations Reserve Guidelines
13 Minimum 7,016 7,270 7,255 7,439 7,651 7,762
14 Maximum 14,033 14,540 14,511 14,877 15,301 15,525
CIP Reserve Guidelines
15 Minimum 1,725 1,920 1,775 1,989 1,856 1,909
16 Maximum 8,627 9,601 8,874 9,946 9,280 9,547
Figures 2 below illustrates the projected long run changes in the Gas Utility’s costs. Cost
increases over the FY 2018 to FY 2027 time period are mainly from supply costs, followed by
operations and capital expenses.
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Figure 2: FY 2018, FY 2023 and FY 2027 costs
Over the longer term, gas commodity costs are the most variable factor in customer gas bills,
being subject to market forces. Prices have risen dramatically in the current winter months, and
are projected to increase by about 3% percent per year between FY 2023 and 2027.
Operations costs are projected to increase by about 2 percent annually, due to inflation and
salary and benefit increases. A large one-time increase in costs to pay for phase two of a cross-
bore safety verification program occurs in FY 2023. The cross-bore safety program ensures that
gas pipelines have not crossed through sewer laterals, which is rare but possible during
trenchless installation. This is referred to as a “cross-bore,” and while they are very rare, if they
exist, they pose a risk of gas leaks if a plumber uses a cutting tool to clear a sewer line and
accidentally cuts the gas line. The project will video inspect, determine, and repair any
unintended conflicts between gas service pipelines and sewer laterals. Phase two of this
program is estimated to require $1 million per year in FY’s 2022 and 2023, although the project
may require additional funding depending on what inspections show.
The COVID pandemic has resulted in gas usage decreasing by about 8 to 10%, similar as what
has been seen in electric. Declines have come mainly in the commercial sectors as a result of
many businesses operating with remote staffing. It is uncertain how long this trend will last.
Staff worked with Northern California Power Agency (NCPA), the City’s electric load forecaster,
to incorporate UCLA’s Anderson School GDP forecast into its electric load forecast for Palo Alto,
which estimates the economic trend impacts to last through December 2022. The same
recovery pattern was used in Figure 3 below to forecast various possible levels of gas usage
recovery. As seen with prior economic and drought gas usage declines, it is likely that
consumption will not return to pre-conservation/pandemic levels but will likely stabilize closer
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to the longer-run historical decline in gas usage. Further changes, such as the voluntary
replacement of gas appliances with electric appliances, building electrification of new
construction as mandated by the 2019 Reach Code, and customer behavior are also expected to
lower long run usage, and this forecast will be revised accordingly as more customers adopt
these measures.2 Staff has also done a preliminary analysis of the impacts of Sustainability and
Climate Action Plan (S/CAP) goals on gas use and presented it to the UAC in January of 2021.3
The usage scenario used to develop the proposed rates is shown in Figure 3. It is too early in the
winter heating season to draw conclusions regarding the trend. However, rapidly declining gas
consumption will put upward pressure on rates, as a generally increasing cost to operate and
distribute gas will be spread across fewer units of sale.
Figure 3: Forecast Gas Consumption
Gas Bill Comparison with Surrounding Cities
Table 8 presents winter and summer residential bills for Palo Alto and PG&E at several usage
levels for commodity rates in effect as of October 2021 (to illustrate a summer month bill) and
November 2021 (to illustrate a winter month bill). The annual gas bill for the median residential
customer for calendar year 2021 was $605, about 12% lower than the annual bill for a PG&E
customer with the same consumption. PG&E’s distribution rates for gas have increased
substantially to collect for needed system improvements for pipeline safety and maintenance.
The bill calculations for PG&E customers are based on PG&E Climate Zone X, an area which
includes the surrounding communities.
2 The City’s Sustainability and Climate Action Plan (S/CAP) is currently being updated. As building
electrification goals in the S/CAP are updated, they will be modeled in this load forecast.
3 January 6, 2021 UAC Meeting, Discussion of Projected Electrification Impacts on Gas Utility System Average
Rates: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/utilities-
advisory-commission/archived-agenda-and-minutes/agendas-and-minutes-2021/01-06-2021-special/01-06-21-
uac-item-1.pdf
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Table 8: Residential Monthly Natural Gas Bill Comparison ($/month)
Season
Usage
(therms) Palo Alto PG&E Zone X
%
Difference
Winter
(November
2021)
30 $ 55.62 62.48 -11.0%
(Median) 54 91.40 116.08 -21.3%
80 146.63 182.76 -19.8%
150 308.64 362.30 -14.8%
Summer
(October 2021)
10 $ 25.47 19.52 30.5%
(Median) 18 37.13 36.48 1.8%
30 62.31 65.69 -5.1%
45 96.53 102.20 -5.5%
Table 99 shows the monthly gas bills for commercial customers for various usage levels for rates
in effect as of December 2021. Bills for CPAU customers at the usage levels shown can vary
from 11% lower to 8% higher for commercial customers than for PG&E customers. This is a
substantial improvement over the calendar year 2013 bill comparison, when commercial gas
bills for CPAU customers were 27% to 44% higher than for PG&E customers. This is primarily
attributable to PG&E’s higher distribution rates as the commodity rates for CPAU and PG&E are
very similar, both being based on spot market gas prices.
Table 9: Commercial Monthly Average Gas Bill Comparison
(for Rates in Effect December 2021)
Usage (therms/mo)
Gas Bill ($/month) %
Difference Palo Alto PG&E
500 870 938 (7%)
5,000 7,792 8,786 (11%)
10,000 15,483 16,008 (3%)
50,000 77,029 71,217 8%
Timeline
The Finance Committee is scheduled to review the FY 2023 Gas Financial Plan in April 2022. The
City Council will consider adopting the Financial Plan and rate adjustments as part of the FY
2023 budget review and adoption process. If Council approves the proposed rate changes, they
will become effective July 1, 2022.
Resource Impact
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Normal year sales revenues for the Gas Utility are projected to increase by roughly 4 percent or
$1.5 million as a result of the proposed rate increases, not including fluctuations in commodity
revenue/cost. The impact to the City’s General fund, based on prior sales trends, is estimated to
be about $17,000. The FY 2023 Budget is being developed concurrent with these rates and,
depending on the final rates, adjustments to the budget may be necessary at a later time. See
the attached FY 2023 Gas Financial Plan for a more comprehensive overview of projected cost
and revenue changes for the next five years.
Policy Implications
The proposed gas rate adjustments are consistent with Council-adopted Reserve Management
Practices that are part of the Financial Plan and were developed using a cost-of-service study
and methodology consistent with the California constitution and industry-accepted cost of
service principles.
Stakeholder Engagement
The UAC reviewed preliminary financial forecasts at its December 1, 2021 meeting, and the
Finance Committee reviewed the preliminary forecasts at its February 1, 2022 meeting. Staff
and the UAC’s recommendation on the FY 2023 gas rate increases will go to the Finance
Committee in April and be presented to City Council in June during the budget adoption
process.
Environmental Review
The Utility Advisory Commission’s review and recommendation to Council on the FY 2022 Gas
Financial Plan and rate adjustments does not meet the California Environmental Quality Act’s
definition of a project, pursuant to Public Resources Code Section 21065, thus no
environmental review is required.
Attachments:
• Attachment A: Resolution
• Attachment B: Gas Rate Schedules
• Attachment C: Presentation
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Attachment A
* NOT YET APPROVED *
6055597
Resolution No. _________
Resolution of the Council of the City of Palo Alto Approving the Fiscal
Year 2023 Gas Utility Financial Plan, Including Proposed Transfers,
and Increasing Gas Rates by Amending Rate Schedules G-1
(Residential Gas Service), G-2 (Residential Master-Metered and
Commercial Gas Service), G-3 (Large Commercial Gas Service), and G-
10 (Compressed Natural Gas 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, including reserves.
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. 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. 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.
C. On ____, 2022, the City Council heard and approved the proposed rate increase
at a noticed public hearing.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby adopts the FY 2023 Gas Utility Financial Plan.
SECTION 2. The Council hereby approves the transfer of up to $2.766 Million from
the Rate Stabilization Reserve to the Operations Reserve, and up $3 Million from the
Operations Reserve to the CIP Reserve, as described in the FY 2023 Gas Utility Financial Plan
approved via this resolution.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-1 (Residential Gas Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule G-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 G-2 (Residential Master-Metered and Commercial Gas Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule G-2, as amended, shall
become effective July 1, 2022.
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Attachment A
* NOT YET APPROVED *
6055597
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-3 (Large Commercial Gas Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule G-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 G-10 (Compressed Natural Gas Service Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule G-10, as amended, shall become effective
July 1, 2022.
SECTION 7. The City Council finds as follows:
a. Revenues derived from the gas rates approved by this resolution do not exceed the
funds required to provide gas service.
b. Revenues derived from the gas rates approved by this resolution shall not be used
for any purpose other than providing gas service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 8. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 9. The Council finds that approving the Financial Plan 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 assessment is required. The Council finds that
changing gas 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.
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Attachment A
* NOT YET APPROVED *
6055597
//
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
8.a
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UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-1 Sheet No G-1-1
dated 7-1-20201 Effective 7-1-20212
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from City of Palo Alto
Utilities:1. Separately-metered single-family residential Customers.2.Separately-metered multi-family residential Customers in multi-family residentialfacilities.
B.TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES:Per Service
Monthly Service Charge: ...............................................................................................$10.8911.54
Tier 1 Rates: Per Therm
Supply Charges: 1. Commodity (Monthly Market Based) .......................................... $0.10-$2.00 2.Cap and Trade Compliance Charge ............................................ $0.00-$0.25 3. Transportation Charge ................................................................. $0.00-$0.
1525
4. Carbon Offset Charge .................................................................. $0.00-$0.10
Distribution Charge:....................................................................................... $0.52905607
Tier 2 Rates: (All usage over 100% of Tier 1)
Supply Charges: 1.Commodity (Monthly Market Based) .......................................... $0.10-2.00 2.Cap and Trade Compliance Charge ............................................. $0.00-$0.25 3. Transportation Charge ................................................................. $0.00-$0.1525
4. Carbon Offset Charge .................................................................. $0.00-$0.10
Distribution Charge:.........................................................................................................................................................................................................$1.35261.4
338
O CITYOF
PALO ALTO
UTILITIES
Attachment B
RESIDENTIAL GAS SERVICE
8.b
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RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-2 Sheet No G-1-2
dated 7-1-20201 Effective 7-1-20212
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will change in response to changing market conditions, retail sales volumes and the quantity of allowances required. The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse
gases produced in the burning of natural gas. The Carbon Offset Charge will change in response to changing market conditions, changing sales volumes and the quantity of offsets purchased within the Council-approved per therm cap. The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto,
accounting for delivery losses to the Customer’s Meter. The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. 2. Seasonal Rate Changes: The Summer period is effective April 1 to October 31 and the Winter period is effective from November 1 to March 31. When the billing period includes use in both the Summer and the Winter periods, the usage will be prorated based on the number of days in each
seasonal period, and the charges based on the applicable rates for each period. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.
O CITYOF
PALO ALTO
UTILITIES
8.b
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RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-3 Sheet No G-1-3
dated 7-1-20201 Effective 7-1-20212
3. Calculation of Usage Tiers Tier 1 natural gas usage shall be calculated and billed based upon a level of 0.667 therms per day during the Summer period and 2.0 therms per day during the Winter period,
rounded to the nearest whole therm, based on meter reading days of service. As an example, for a 30 day bill, the Tier 1 level would be 20 therms during the Summer period and 60 therms during the Winter period months. For further discussion of bill calculation and proration, refer to Rule and Regulation 11. {End}
O CITYOF
PALO ALTO
UTILITIES
8.b
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RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-1 Effective 7-1-20212
dated 7-1-20201 Sheet No G-2-1
A. APPLICABILITY: This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto
Utilities:
1. Commercial Customers who use less than 250,000 therms per year at one site. 2. Master-metered residential Customers in multi-family residential facilities. B. TERRITORY: This schedule applies anywhere the City of Palo Alto provides Gas Service. C. UNBUNDLED RATES: Per Service Monthly Service Charge: ...........................................................................................$100.85106.90 Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-$2.00 2. Cap and Trade Compliance Charges ........................................... $0.00-0.25 3. Transportation Charge ................................................................. $0.00-$0.1525 4. Carbon Offset Charge .................................................................. $0.00-$0.10
Distribution Charge: .................................................................................................. $0.6948 7365 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. The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.
The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and
Trade Compliance Charge will change in response to changing market conditions, retail sales
volumes and the quantity of allowances required.
O CIT Y OF
PALO ALTO
UTILITIES
8.b
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RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-2 Effective 7-1-20212
dated 7-1-20201 Sheet No G-2-2
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases
produced in the burning of natural gas. The Carbon Offset Charge will change in response to
changing market conditions, changing sales volumes and the quantity of offsets purchased within the Council-approved per therm cap. The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto,
accounting for delivery losses to the Customer’s Meter.
The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. {End}
O CIT Y OF
PALO ALTO
UTILITIES
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LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES Issued by the City Council
Supersedes Sheet No G-3-1 Effective 7-1-20212
dated 7-1-20201 Sheet No G-3-1
A. APPLICABILITY: This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto
Utilities:
1. Commercial Customers who use at least 250,000 therms per year at one site. 2. Customers at City-owned generation facilities. B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service. C. UNBUNDLED RATES: Per Service
Monthly Service Charge: $461.43489.12
Per Therm Supply Charges:
1. Commodity (Monthly Market Based) .................................................... $0.10-$2.00
2. Cap and Trade Compliance Charges ...................................................... $0.00-0.25 3. Transportation Charge .......................................................................... $0.00-$0.1525 4. Carbon Offset Charge ........................................................................... $0.00-$0.10
Distribution Charge: .....................................................................................................$0.68797292 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. The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.
O CIT Y OF
PALO ALTO
UTILITIES
8.b
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LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES Issued by the City Council
Supersedes Sheet No G-3-2 Effective 7-1-20212
dated 7-1-20201 Sheet No G-3-2
The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap
and Trade Compliance Charge will change in response to changing market conditions,
retail sales volumes and the quantity of allowances required. The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases produced in the burning of natural gas. The Carbon Offset Charge will change in response
to changing market conditions, changing sales volumes and the quantity of offsets
purchased within the Council-approved per therm cap. The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto, accounting for delivery losses to the Customer’s Meter.
The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. 2. Request for Service A qualifying Customer may request service under this schedule for more than one account
or meter if the accounts are located on one site. A site consists of one or more contiguous
parcels of land with no intervening public right-of- ways (e.g. streets). 3. Changing Rate Schedules Customers may request a rate schedule change at any time to any applicable City of Palo Alto full-service rate schedule.
{End}
O CIT Y OF
PALO ALTO
UTILITIES
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COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-10-1 Effective 7-1-20212
dated 7-1-20201 Sheet No. G-10-1
A. APPLICABILITY: This schedule applies to the sale of natural gas to the City-owned compressed natural gas (CNG) fueling station at the Municipal Service Center in Palo Alto. B. TERRITORY: Applies to the City’s CNG fueling station located at the Municipal Service Center in City of Palo Alto. C. UNBUNDLED RATES: Per Service Monthly Service Charge: ...............................................................................................$68.2172.30 Per Therm Supply Charges:
Commodity (Monthly Market Based) ................................................................ $0.10-$2.00 Cap and Trade Compliance Charges .............................................................. $0.00 to $0.25 Transportation Charge ................................................................................... $0.00-$0.1525 Carbon Offset Charge ........................................................................................ $0.00-$0.10
Distribution Charge .......................................................................................................$0.01130120 D. SPECIAL CONDITIONS 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. The Commodity charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to
cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will change in response to changing market conditions, retail sales volumes and the quantity of allowances required.
O CIT Y OF
PALO ALTO
UTILITIES
8.b
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COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-10-2 Effective 7-1-20212
dated 7-1-20201 Sheet No. G-10-2
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases produced in the burning of natural gas. The Carbon Offset Charge will change in response to changing market conditions, changing sales volumes and the quantity of offsets purchased within the Council-
approved per therm cap.
The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto, accounting for delivery losses to the Customer’s Meter.
The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall
within the minimum/maximum range set forth in Section C. {End}
O CIT Y OF
PALO ALTO
UTILITIES
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March 02, 2022 www.cityofpaloalto.org
GAS UTILITYFINANCIAL PLAN ANDPROPOSED RATECHANGESFOR FY 2023
Attachment D •
CITY OF
PALO ALTO
UTILIT
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•FY 2023 Proposal:
•4% overall increase for FY 2024 with no cost reductions.
•Estimates continued sales decline of 10% through 2022.
•Future Years:
•4% increases each year for FY 2024 through FY 2026
Gas Rate Options
~CITY OF
~PALO ALTO
8.c
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3
•Rate Design:
•About one-third of the rate is “supply-related:” gas supply, transmission, and
environmental charges. These rates vary monthly according to market-driven
costs that are passed directly to customers
•About two-thirds of the rate is set based on the City’s costs for maintaining its
gas distribution system (gas mains, services, related equipment). These rates
are being discussed here tonight.
Gas Rate Design
~CITY OF
~PALO ALTO
8.c
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Gas Utility Cost Structure
Gas Distribution (in
green): The cost to
distribute gas within
Palo Alto, including:
maintaining and
replacing gas
infrastructure, customer
service, billing,
administration, etc.
*Gas Supply (in blue): All
pass-through
*
*
*
~CITY OF
~PA ILO ALTO
Capital
Investment
$5.6 million
13%
Distribution
$19.1 million
46%
~Gas Supply
■ Distribution
--
Gas Supply
$10.4 million
25%
Gas Environmental
$2.4 million
6%
Gas Transmission
$4. 7 million
11%
~ Gas Environmental ■ Gas Transmission
I;;! Capital Investment
8.c
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Long Term Cost Trends
Annualized Increase,
FY18-FY23:
Annualized Increase,
FY23-FY27:
Supply,
Transmission,
Environmental:
9%/yr
Supply,
Transmission,
Environmental:
3%/yr*
Distribution:
4%/yr
Distribution:
1%/yr
Capital:
-2%/yr
Capital **
1%/yr
* Forecast is uncertain and will vary with the markets
** FY 2023 and 2027 CIP are an average of two years due to
staggered main replacement schedule.
-V')
60
50
c: 40 --0
~ 30 --
10
~CITY OF
~PA ILO ALTO
FY 2018 FY 2023 (Projected)* Fy 2027 (Projected)*
Gas Supply, Environmental, and Transmission Costs
D Capital Investment**
Gas Operations
8.c
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Gas Supply Cost Drivers*
•Gas supply –some volatility in gas
market prices. Gas prices have risen in
recent years as supplies have become
tighter, demand has increased
•PG&E gas transmission rates continue to
rise to fund safety investments
•Cap and trade costs continue to rise (as
intended by design)
•Carbon Neutral Gas Plan
* All of the above costs are pass-through and not
included in the distribution rate increase
~CITY OF
~PA ILO ALTO
8.c
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7
Gas Distribution Cost Trends
Annualized
Increase,
FY18-FY23:
Gas Capital:
-2.9%/yr*
Gas
Operations:
3.8%/yr
Annualized
Increase, FY23-
FY27:
Gas Capital:
3.7%/yr*
Gas
Operations:
1.4%/yr
* Due to staggered main replacement projects, costs are averaged over two years
-
35
30
25
~ 20
0
·-15 ~ -V). 10
s
FY 2018 FY 2023 (Projected)* Fy 2027 (Projected)*
■ Debt Service □ Operations ~ Capita Investment
~CITY OF
~PA ILO ALTO
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8
Gas Distribution Cost Drivers
•Health, retirement, and associated
overhead costs continue to increase
•Underground construction costs have
increased substantially as well
•Temporary funding ($1.07M/yr) for two
years for crossbore investigations (FY 22
& FY 23)
~CITY OF
~PALO ALTO
8.c
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9
FY 2023 Preliminary Gas Cost and Revenue Projections
Cos
t
/
R
e
v
e
n
u
e
$60
$50
$40
$20
$10
~CITY OF
~PA ILO ALTO
$0
Rate changes (excluding supply-related rate changes)
8% 0% 4% 5% 2% 3% 4% 4% 4%
r---co 0) 0 y-C'\11 ("j') v LO
~ "I'""" ~ N ,N N N N C\I 0 0 0 0 ,o o , 0 0 0 N N N N 'N N N N N
Actualls Projections
4% 3%
-Revenue
□ Capital
II nvestme nt
□ Gas Supply
□ Operations
■ Transfers
■ Debt Service
(0 It---N ,C',J
0 ,o
N ,N
8.c
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10
Projected Gas Operating Reserve Projections
$16
$14
$12
$10
~$8
C:
0 ·-
-
$4
$2
---. . --------. . .. ___. ..
FY 2021 FY 2022
~CITY OF
~PA ILO ALTO
------
. . --
__.-. • • -· · -· · ---. ----. . ----___.,, . .......... .--
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
-Reserve (Year-End)
-Reserve Maximum
- -Reserve Target
-Reserve Minimum
-Risk Assessment
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11
Estimated Bill Changes
Residential
Commercial
Residential
--
Usage Bill under Bill under
(Therms/ month) Cuirrent Rates Proposed IRates
Winter (Using November 2021 commodity prices)
30 $ 55.62 $ 57.22
54 (med ia n} 91.40 93.76
80 146.63 152.79
150 308 .64 320.48
Summer (Using October 2021 commodity prices)
10 $ 25.47
18 (med ia n} 37.13
30 62.31
45 96.53
~CITY OF
~PALO ALTO
$ 26.44
38.35
64.41
99.85
Change
$/mo. %
$1.60 2.9%
2.36 2.6%
6.16 4.2%
11.84 3.8%
$0.97 3.8%
1.22 3.3%
2.10 3.4%
3.31 3.4%
Usage Bill under Bill under Change
(Therms/month} Current Rates Proposed Rates %
500 870 897 3.1%
5,000 7,792 8,007 2.8%
10,000 15,483 15,906 2.7%
50,000 77,029 79,121 2.7%
8.c
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12
Current Bill Comparisons
Residential
Commercial
Residential
Usage
Season (therms)
30
Winter (Med ian} 54
(November
2021) 80
150
10
Summer (Med ian} 18
(October 2021) 30
45
~CITY OF
~PALO ALTO
Palo Alto
$ 55.62
91.40
146.63
308.64
$ 25.47
37.13
62.31
96.53
%
PG&E Zone X Difference
62.48 -11.0%
116.08 -21.3%
182.76 -19.8%
362.30 -14.8%
19.52 30.5%
36.48 1.8%
65.69 -5.1%
102.20 -5.5%
Gas Bill ($/month) %
Palo Alto PG&E Difference
500 870 938 (7%)
5,000 7,792 8,786 (11%)
10,000 15,483 16 008 , (3%)
50,000 77,029 71,217 8%
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13
Monthly Residential Bill Comparison
Palo Alto median was
14.4% below PG&E
(FY 2021 data)
$180
$160
$140
$120
$100
$80
$60
$401
$20
$-
PG&E Palo Alto
Summer Summer
-Low (8 Thm) -Median (18Thm)
-High (28 Thm) -Average (22 Thm)
~CITY OF
~PA ILO ALTO
PG&E Pa lo Alt o
-Lov.r (25 Thm} -Median (54 Thm)
-High (93 Thm) -Ave-rage (68Thm)
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14
RECOMMENDATION
Staff requests that the UAC recommend that the Council:
•Adopt a resolution approving:
•The Fiscal Year 2023 Gas Financial Plan
•Up to a $3 million transfer from the Operations Reserve to the CIP
Reserve in FY 2022
•Up to a $2.766 million transfer from the Rate Stabilization Reserve to the
Operations Reserve in FY 2022
•Adopt a resolution approving a 6% distribution rate (4% overall) increase to
Gas Utility Rates
~CITY OF
~PALO ALTO
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