HomeMy WebLinkAboutStaff Report 14201
City of Palo Alto (ID # 14201)
Utilities Advisory Commission Staff Report
Meeting Date: 6/8/2022 Report Type:
City of Palo Alto Page 1
Title: Informational Update on Utilities' Quarterly Financial Report for Q2 of
FY2022
From: Director of Utilities
Lead Department: Utilities
Recommendation
This report is for information only. No action is required.
Executive Summary
Attached are the Q2 Fiscal Year (FY) 2022 financial results for the City’s electric, gas,
wastewater, water, and fiber utilities (Attachment A). This report on the utility financial
positions is released when the City closes its accounting books for the quarter, which occurs
after income and expenses are reconciled.
Items of special interest in this report are summarized below:
Electric Utility
Sales for FY 2022 are expected to be 3.8% lower than projected in the FY 2022 Financial Plan
due to residential electric use making up a larger share of revenue than commercial use, as
compared to typical pre- pandemic levels. Expenses are expected to be higher than projected
due to poor hydroelectric conditions. Electric Reserves are expected to be within guideline
ranges at year end. Implementation of the Hydro rate Adjuster will help mitigate higher costs.
Gas Utility
Sales are expected to be 1.5% higher than projected in the FY 2022 Financial Plan. Expenses
have increased due to rising natural gas market prices, however, those higher market prices are
passed through to customers each month. The Gas Operations Reserve is expected to be near
the target level at year end. In addition, $2.3 million was moved to a Cap and Trade reserve to
separate it from the Operations Reserves.
Water Utility
Water sales, revenue, and costs are expected to be lower than expected due to drought-related
conservation. Water Operations Reserves Plan. Reservoir work and water main replacement
projects have required increased funding. The Water Operations Reserve is expected to be
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City of Palo Alto Page 2
within the guideline range by the end of FY 2023.
Wastewater Collection Utility
Wastewater revenues are expected to be 3.1% lower than projected in the FY 2022 Financial
Plan due to the effects of the pandemic. Expenses are expected to be 2.4% higher than forecast
due to increases in salaries and benefits. The Wastewater Collection Operations Reserve is
projected to be below the target guideline at year end.
Fiber Optic Utility
Fiber revenues are projected to be $3.7 million or 14% lower than FY 2022 forecast of $4.3M
due to consolidation and closure of businesses during the pandemic. The Fiber Network Rebuild
CIP project has been placed on hold pending results of the engineering designs by Magellan.
Most of the consulting work will be completed in FY 2022. The Fiber Optic Utility Rate
Stabilization Reserve is expected to remain unchanged at $33.3 million at the end of FY 2022.
Attachments:
• Attachment A: FY22-Q2 Financial Report
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Utilities Quarterly
Financial Update
Second Quarter of Fiscal Year 2022
June 2022
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Utilities Quarterly Financial Update
Second Quarter of FY 2022
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Table of Contents
Utility Financial Summary ...................................................................................................... 2
Electric Utility Overview ................................................................................................................................ 2
Gas Utility Overview...................................................................................................................................... 2
Wastewater Collection Utility Overview ....................................................................................................... 3
Fiber Optic Utility Overview .......................................................................................................................... 3
Residential Bill Comparisons ......................................................................................................................... 6
List of Tables
Table 1: Utilities Financials, FY 2022 Projected ............................................................................................ 5
Table 2: Operations Reserves, FY 2022 Projected ($,000) ............................................................................ 5
Table 3: Residential Electric Bill Comparison ($/month) .............................................................................. 6
Table 4: Residential Natural Gas Bill Comparison ($/month) ....................................................................... 6
Table 5: Residential Water Bill Comparison ($/month) ................................................................................ 6
Table 6: Residential Wastewater Collection (Sewer) Bill Comparison ($/month) ........................................ 6
Table 7: Median Residential Overall Bill Comparison ($/month) ................................................................. 7
Table 8: FY 2022 Q2 Utilities Fund Reserve Report (‘000) ............................................................................ 8
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Utility Financial Summary
This section describes the unaudited actual financial results for the second quarter of fiscal year (FY) 20221 for
all Utilities funds. The Council-adopted long-term Financial Plans for the Electric, Gas, and Water Funds and the
Financial Plan for the Wastewater Collection Fund for FY 2021 – FY 2022 during the budget review process.
Electric Utility Overview
Total electric sales volume projected at the end of FY 2022 is 0.7% lower than sales volume forecasted in the FY
2022 Financial Plan. Sales revenue is projected to be lower by $6.6 million, or 3.8%. The difference between unit
sales and revenues lies in Covid-related customer class shifts, with residential use now accounting for a larger
share of sales than before the pandemic. Expenses are expected to be about $10 million, or 6.1% higher than
forecasted in the FY 2022 Financial Plan. This is mainly due to increases in electric supply purchase costs resulting
from both higher sales and poorer hydro conditions.
The Electric Operations Reserves are projected to remain within guideline ranges through FY 2022 but were low
at the end of FY 2021. Because of this, staff did not make the projected $1 million repayment of a 2018 short
term $10 million loan from the Electric Special Projects (ESP) reserve ($5 million outstanding). In anticipation of
continued dry conditions, $4 million was moved to the Hydro Stabilization Reserve. Due to the very poor hydro
conditions in California and projected higher electric purchase cost, up to $15 million of the available Hydro
Stabilization Reserve may be used to help offset costs. Council approved implementing the Hydro Rate adjuster
mechanism at the $0.013/kwh level effective April 1, 2022.
The Electric Utility CIP Reappropriation and Commitment Reserves totaled a projected $30.1 million at the end
of Q2 FY 2022.
Gas Utility Overview
Gas sales volume is projected to be 1.5% higher at the end of FY 2022 than forecasted in the FY 2022 Financial
Plan. Sales revenue is projected to be higher by $2.9 million or 6.6%, mostly due to higher than expected gas
market commodity prices, but this revenue is offset by higher expenses due to gas commodity purchase costs.
These costs are passed through directly on customer bills, which do not impact reserves. Non-supply costs were
$550k lower, primarily the result of lower than projected administrative costs.
The Gas Operations Reserve was near the target level at the end of FY 2021 and is projected to remain within
guideline ranges during FY 2022. In addition, $2.3 million was moved to a Cap and Trade reserve in FY 2021 to
separate it from the Operations Reserves. These funds are restricted for carbon reduction efforts per AB32. The
Gas Utility CIP Re-appropriation and Commitment Reserves totaled $3.8 million at the end of Q2 FY 2022.
Water Utility Overview
Total water sales volume projected for FY 2022 is 4.2% lower than forecasted in the FY 2022 Financial Plan due
to the water supply emergency declared by SFPUC, ongoing record dry conditions, and the voluntary water use
reductions projected for the upcoming irrigation season. Sales revenue is similarly expected to be 4.8% lower
1 Fiscal Year 2022 runs from July 2021 to June 2022
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than forecasted in the FY 2022 Financial Plan. Staff projects water purchase costs to be 5% lower than forecasted
in the FY 2022 Financial Plan. Staff projects operating expenses other than water purchases and CIP to be 2%
higher than forecasted in the FY 2022 Financial Plan primarily as a result of increases in salaries and benefits and
rent. However, a one-time $5 million transfer from the Operations Reserve to the CIP Reserve that the FY 2022
Financial Plan forecasted to be needed in FY 2022 is no longer expected to be needed due to updated CIP
forecast.
The Water Operations Reserve was above the reserve guideline levels at the end of FY 2021 and is within
guideline levels at the end of Q2, FY2022. The Operations Reserve level dropped $9.5 million during Q1 and Q2
of FY 2022 in part due to anticipated CIP funding needs. This can be seen by the increase in CIP
Reappropriations/Commitments reserves of $11.8 million during the same time period, bringing the projected
end of FY 2022 CIP Reappropriations/Commitments Reserve to $21.9 million. Capital funding needs in FY 2022
are primarily for the ongoing seismic reservoir replacement estimated at $6.6 million in FY 2022 and Water Main
Replacement 28 estimated at $10.8 million in FY 2022. Staff projects the Operations Reserve to return to levels
above the reserve guideline at the end of FY 2022 as construction on Water Main Replacement 28 continues
into FY 2023. Reserve transfers together with expected revenues and expenses are projected to bring the
Operations Reserve to approximately target levels by the end of FY 2023. The need for further transfers will be
re-evaluated at the end of FY 2022 when the year-end reserve balances are known.
Wastewater Collection Utility Overview
Wastewater revenues for FY 2022 are projected to be 3.1% lower than forecasted in the FY 2022 Financial Plan.
This is, in part, due to expected reductions in non-residential sewer usage due to the impacts of the COVID-19
pandemic and lower expected connection and capacity fees and interest income. Wastewater expenses are
projected to be 2.4% higher than projected in the FY 2022 Financial Plan. Although treatment costs were
approximately $0.2 million lower than forecasted in the FY 2022, Financial Plan operations costs such as salaries
and benefits are expected to be approximately $0.7 million higher. The expense comparison in Table 1 includes
the $2.2 million transfer from the Operations Reserve to the Capital Reserve in the actual expenses for FY 2022.
The Wastewater Collection Operations Reserve was within the guideline range at the end of FY 2021 and
dropped below the minimum guideline level of $4.1 million at the end of Q2, FY 2022. This is because funds
were transferred to the CIP Reappropriations/Commitments reserve during Q1 and Q2, primarily to fund
Sanitary Sewer Main Replacement 30 (SSR 30).. SSR 30 was approved by Council on December 13, 2021 and is
scheduled to begin in FY 2022 with a total cost of $4.6 million. Correspondingly, the Wastewater Collection CIP
Reappropriation and Commitment Reserves increased by $4.3 million, bringing the total CIP Reappropriation
and Commitment Reserves to nearly $6 million at the end of Q2, FY 2022. At year end FY 2022, if the projected
Operations Reserve remains below guideline levels due to the CIP needs of the Collection system, Staff will
request Council authorization to transfer funds from the CIP Reserve to replenish the Operations Reserve.
Fiber Optic Utility Overview
Total fiber retail revenues for FY 2022 are projected to be $3.7 million or 14% lower than FY 2022 forecast of
$4.3M due to consolidation and closure of businesses during the pandemic. Even though the City has received
an uptick of new dark fiber service connections, new revenue only partially offsets the high number of
disconnections in FY 2021. Other revenues were $0.1 million lower than projected due to lower than projected
interest income. Fiber expenses were 10% or $0.6 million lower than forecast due to lower than projected
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administrative and capital costs. The projected ending FY 2022 Fiber Optic Utility Rate Stabilization Reserve is
expected to remain the same at $33.3 million. In FY 2021, $2.4 million was encumbered for the Magellan
contract to complete the network engineering designs for the City backbone and FTTH, community engagement,
and updated FTTH business plan. The majority of the consulting work will be completed in FY 2022.
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Table 1: Utilities Financials, FY 2022 Projected
Sales Volumes
Revenue
$,000
Expense
$,000
Net Reserve Change
$,000
Electric Utility
FY 2022 Financial Plan 812,790 MWh 173,486 (188,797) (15,311)
FY 2022 Projected 807,182 MWh 166,853 (199,134) (32,281)
Change from Financial Plan (5,608 MWh)
(0.7%)
(6,633)
(3.8%)
(10,337)
5.5%
(16,970)
Gas Utility
FY 2022 Financial Plan 25,426,000 Therms 43,856 (44,292) (436)
FY 2022 Projected 25,813,000 Therms 46,731 (47,357) (626)
Change from Financial Plan 387,000 Therms 2,875 (3,065) (190)
1.5% 6.6% 6.9%
Water Utility
FY 2022 Financial Plan 4,508,000 CCF 48,817 (50,148) (1,332)
FY 2022 Projected 4,320,000 CCF 46,485 (49,333) (2,848)
Change from Financial Plan (188,000 CCF) (2,332) 815 (1,516)
(4.2%) (4.8%) (1.6%)
Wastewater Collection Utility
FY 2022 Financial Plan N/A 21,452 (21,733) (281)
FY 2022 Projected N/A 20,793 (22,247) (1,454)
Change from Financial Plan N/A (659) (514) (1,173)
(3.1%) 2.4%
Fiber Optic Utility
FY 2022 Financial Plan N/A 5,215 (3,304) 1,911
FY 2022 Projected N/A 4,515 (2,712) 1,803
Changes from Financial Plan N/A (700)
(13.4%)
(592)
(17.9%)
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Table 2: Operations Reserves, FY 2022 Projected ($,000)
Electric
Gas Water
Wastewater
Collection Fiber*
FY 2022 Beginning 29,903 11,981 20,773 6,578 33,343
FY 2022 Changes (18,372) (3,614) (9,483) (4,461) (325)
FY 2022 Ending (Projected) 11,531 8,367 11,290 2,117 33,018
Reserve Minimum 31,900 8,100 9,700 4,100 500
Reserve Maximum 63,700 16,200 19,400 10,100 1,100
* For Fiber Optics, the Reserve is the Rate Stabilization (not the Operations) Reserve
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June 2022
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Residential Bill Comparisons
Table 3: Residential Electric Bill Comparison ($/month)
As of April 2022
Season Usage (KWh/mo) Palo Alto * PG&E Santa Clara Roseville
Winter
(Oct - May)
300 $45.17 $94.40 $39.22 $60.03
453 (Median) 75.11 142.54 59.95 76.37
650 115.82 219.54 86.65 104.80
1200 229.49 436.54 161.17 190.63
*Includes Hydro Rate Adjuster of $0.013/kwh, effective April 1, 2022
Table 4: Residential Natural Gas Bill Comparison ($/month)
As of April 2022
Season
Usage (therms
per month) Palo Alto
Menlo Park, Redwood City,
Mountain View, Los Altos, and
Santa Clara (PG&E Zone X)
Roseville
(PG&E Zone S)
Summer
(Apr - Oct)
15 $31.70 $29.49 $30.86
18 (Median) 35.86 36.74 38.11
30 60.75 65.71 67.08
45 93.91 101.92 103.29
Table 5: Residential Water Bill Comparison ($/month)
As of April 2022
Usage CCF/month Palo Alto
Menlo
Park
Redwood
City
Mountain
View Santa Clara Hayward
4 $46.89 $54.03 $54.04 $38.80 $26.76 $39.80
(Winter median) 7 70.28 77.71 76.09 60.07 46.83 61.34
(Annual median) 9 90.42 93.50 90.79 74.25 60.21 75.70
(Summer median) 14 140.77 136.35 138.94 109.70 93.66 119.80
25 251.54 241.76 267.39 230.19 167.25 216.82
Based on the FY 2013 BAWSCA survey, the fraction of SFPUC as the source of potable water supply was
100% for Palo Alto, 95% for Menlo Park, 100% for Redwood City, 87% for Mountain View, 10% for Santa
Clara and 100% for Hayward.
Table 6: Residential Wastewater Collection (Sewer) Bill Comparison ($/month)
As of April 2022
Palo Alto Menlo Park Redwood City Mountain View Los Altos Santa Clara Hayward
$43.32 $104.58 $89.28 $46.40 $40.83 $44.53 $37.17
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Table 7: Median Residential Overall Bill Comparison ($/month)
As of April 2022
Utility and Usage Palo Alto
Menlo
Park
Redwood
City
Mountain
View
Santa
Clara Hayward
Electricity (453 kWh/mo) $75.11 $142.54 $142.54 $142.54 $59.95 $142.54
Gas (18 th/mo) 35.86 36.74 36.74 36.74 36.74 36.74
Water (9 CCF/mo) 90.42 93.50 90.79 74.25 60.21 75.70
Wastewater 43.32 104.58 89.28 46.40 44.53 37.17
TOTAL 244.71 377.36 359.35 299.93 201.43 292.15
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Table 8: FY 2022 Q2 Utilities Fund Reserve Report (‘000)
Beginning Changes to Current IP r-ojected
Reserve Balance Reserves Reseive Balance
as of 7/01/21 Summary as of 12/31/2021
(FY 2022) (FY 2022)
Electricity
SuppRy/Dist Operations $ 29,903 5 (18,372) $ 11,531
CIP :Reappm/Commit 12,469 17,632 30,101
Hydro Stabiliization, 15,400 15,400
CIP Reserve 880 880
Rate Sta bilirzation, --
Public Benefit 3,028 3,028
ESP 46,665 46,665
Low Carbon Fuel Standard 6,944 6,944
Cap & Trade 1,189 1,189
GASB 68 Pension Rsrv (34,213) (34,21'3)
GASB 75 OPEB Rsrv (13,233) (13,233)
All Others 5,449 3,615 9,064
Net Capital Investment 209,851' (408) 209,443
Total $ 284,332 $ 2,467 $ 286,799
Gas
Operations Reserve 5 11,981 5 (3,614) $ 8,367
CIP Reserve 3,820 3,820
Rate Sta bilirzation, 2,766 (1,510) 1,256
Cap & Trade 4,542 4,542
CIP Reappm/Commit. 7,112 1,502 8,614
GASB 68 Pension Rsrv (14,792} (14,792)
GASB 75 OPIEB Rsrv (5,849), (5,849)
All Others 2,474 1,307 3,781
Net Capital Investment 107,440 720 108,160
Total 5 119,494 $ (1,595) 5 117,899
Water
Ope rations Reserve 5 20,773 s (9,482) $ 11,291
CIP Reserve 10,707 10,707
Rate Sta bilirzation, 9,069 9,069
CIP Reappm/Commit. 10,147 11,801 21,948
GASB 68 Pension Rsrv (14,143) (14,143)
GASB 75 OPIEB Rsrv (4,054) (4,054)
All Others 3,391 1,144 4,535
Net Capital Investment 105,676 963 106,639
Total 5 141,566 $ 4,426 5 145,992
Fiber Optic
Rate Sta bilirzation, $ 33,343 s (325) $ 33,018
CIP Reappm/Commit. 2,055 (42) 2,013
GASB 68 Pension Rsrv (2,238) (2,238)
GASB 75 OPIEB Rsrv (1) (1)
All others 1,332 286 1,618
Net Capital Investment 9,310 277 9,587
Total $ 43,801 $ 196 $ 43,997
Wastew ater Collection
Operations Reserve $ 6,578 s (4,461) $ 2,1'.1'7
CIP Reserve 3,1 78 3,178
Rate Sta bilirzation, 342 342
CIP Reappm/Commit. 830 5,138 5,968
GASB 68 Pension Rsrv (8,368} (8,368)
GASB 75 OPIEB Rsrv (2,236} (2,236)
All others 428 124 552
Net Capital Investment 92,639 (1,153) 91,486
Total $ 93,391 s (352) $ 93,039
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