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Home My WebLink AboutStaff Report 2302-0949Item No. 4. Page 1 of 2 1 6 9 6 Utilities Advisory Commission Staff Report From: Dean Batchelor, Director Utilities Lead Department: Utilities Meeting Date: May 3, 2023 Staff Report: 2302-0949 TITLE Staff Recommendation That the Utilities Advisory Commission Recommend the City Council Adopt the Proposed Operating and Capital Budgets for the Utilities Department for Fiscal Year 2024 RECOMMENDATION Staff recommends the Utilities Advisory Commission recommend the City Council adopt the Proposed Operating and Capital Budgets for the Utilities Department for Fiscal Year 2024. EXECUTIVE SUMMARY Linked and referenced below are the FY 2024 Proposed Operating and Capital budgets for the Utilities Department. Due to the number of pages of the CIP budget, staff only printed the CIP overview and five year forecast of each utility for FY 2024– FY 2028. The entire Utilities CIP budget for FY 2024 – FY 2028 with the individual project pages can be downloaded and viewed in full from the links below: Preliminary Proposed Utilities Capital Budgets for FY 2024 - FY 2028: ➢Electric CIP1 ➢Fiber Optic CIP2 ➢Gas CIP3 ➢Water CIP4 1 Proposed FY24 Electric CIP https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/reports/city-manager-reports-cmrs/attachments/electric_cip_8987.pdf 2 Proposed FY24 Fiber Optic CIP https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/reports/city-manager-reports-cmrs/attachments/fiberoptics_cip_9000.pdf 3 Proposed FY24 Gas CIP https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/reports/city-manager-reports-cmrs/attachments/gas_cip_8997.pdf 4 Proposed FY24 Water CIP https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/reports/city-manager-reports-cmrs/attachments/water_cip_8988.pdf Item No. 4. Page 2 of 2 1 6 9 6 ➢Wastewater CIP5 The entire Utilities Operating budget for FY 2024 can be downloaded and viewed in full from the link below: ➢Preliminary Proposed Utilities Operating Budgets for FY 2024 6. City Council will not be receiving their copies of the Operating and Capital Budgets until Monday, May 01, 2023. Please refrain from discussing the preliminary proposed budget materials with Council or the public until Tuesday, May 02, 2023. ATTACHMENTS Attachment A: UAC – FY24 Budget Presentation APPROVED By: Dean Batchelor, Director of Utilities Staff: Alexandra Harris, Senior Business Analyst Anna Vuong, Senior Business Analyst Catherine Elvert, Communications Manager Dave Yuan, Strategic Business Manager Jonathan Abendschein, Assistant Director of Utilities 5 Proposed FY24 Wastewater Collection CIP https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/reports/city-manager-reports-cmrs/attachments/wastewatercollection_cip_8998.pdf 6 FY24 Preliminary Utilities Operating Budget https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/reports/city-manager-reports-cmrs/attachments/utilities_operating_8991.pdf MAY 3, 2023 www.cityofpaloalto.org Utilities Advisory CommissionPreliminary Proposed FY 2024 UtilitiesOperating and Capital Budgets BUDGET REQUEST PROCESS 2 Submits Request DEPT HR OMB CMO UAC FC Approves Request Council Preliminary Requests Recommended Requests General review process for staffing, budget, and project changes PROPOSED NEW PROJECTS 3 •New Infrastructure projects•Electric Grid Modernization -$25M in FY 2024; •$200M -$300M total estimated cost •Fiber-to-the-Premises (FTTP) -$20M in FY 2024; •Dec 19, 2022 Council Approval (ID#14800) •$100M -$120M total estimated cost •Grants update •Natural Gas Distribution Infrastructure Safety and Modernization (NGDISM) Program •Gas Main Replacement Project “GMR25” (application in progress) ~$9M•Electric Grid Resilience and Innovation Partnership (GRIP) Program •Smart Grid AMI project (application submitted) ~ $11M •Grid modernization project (application in progress) ~ $100M –$150M Projected Change in Residential Median Bill 4 ELECTRIC MAY 4, 2022 www.cityofpaloalto.org ELECTRIC ACCOMPLISHMENTS & INITIATIVES 6 Accomplishments •Launched the Advanced Heat Pump Water Heater (HPWH) Program •Implemented on-bill financing program for HPWH •Installed over 700 electric advanced metering infrastructure (AMI) meters as part of the beta phase of the AMI rollout. •Completed high-level grid modernization study. •Construction started for new physical security and lighting at nine electric substations. Initiatives •Apply for Department of Energy’s Grid Resilience and Innovation Partnerships (GRIP) grants •Develop and implement an electric grid modernization plan •Complete cost of service study •Launch new outage management system (Go Live June/July 2023) ELECTRIC PRELIMINARY OPERATING BUDGET EXPENSES 7 Allocated Charges $12.05 M 4% Contract Services $12.98 M 5% Equity Transfer $15.12 M 6% Other Expenses $7.05 M 3% Rent & Debt Service $15.36 M 6% Salary & Benefits $33.74 M 13% Utility Purchase $118.31 M 45% Capital Improvement Program $47.57 M 18% ELECTRIC FUND FY 2024 $262.19M EXPENSES ELECTRIC PRELIMINARY CAPITAL BUDGET EXPENSES 8 FY 2023 Estimates $32.3M Total FY 2024 $54.9M Total FY 2025 $45.1M Total FY 2026 $63.8M Total FY 2027 $65.9M Total FY 2028 $60.7M Total 523 - Electric Fund - Underground Districts (Rebuild)$3.3M $5.8M $6.8M $2.2M $2.0M $1.8M 523 - Electric Fund - Underground Districts $0.2M $0.0M $0.0M $0.1M $3.0M $0.0M 523 - Electric Fund - Grid Modernization $0.0M $25.0M $25.0M $50.0M $50.0M $50.0M 523 - Electric Fund - System Improvements $20.6M $9.9M $6.3M $4.8M $4.9M $5.2M 523 - Electric Fund - Substation Improvements $2.8M $11.5M $4.4M $4.0M $3.3M $1.1M 523 - Electric Fund - Customer Connections $5.5M $2.7M $2.7M $2.7M $2.7M $2.7M $0.0M $10.0M $20.0M $30.0M $40.0M $50.0M $60.0M $70.0M Current Year Estimates & 5-Yr Capital Improvement Plan 2024-28 ELECTRIC FUND HIGHLIGHTS 9 •Revenues of $265.0M; increase $79.1M or 43% •$30M Retail Sales (21% base increase offset by deactivation of hydroelectric rate adjuster) •$25M Debt Financing for Grid Modernization •$24M Central Valley Project Settlement •Expenses of $262.2M; increase $42.5M or 19% •$21M Capital Improvement including $12.5M Reappropriated Funds to FY24 •$3.8M Substation Physical Security; $1.5M Foothills Fire Mitigation; $1.1M Substation Breaker Replacement; $1.0M Coleridge/Cowper/Tennyson 4/12kV Conversion •$17M Commodity Purchases Residential Electric Bill Comparison 10 Season Usage (kwh) Palo Alto PG&E Santa Clara Winter 300 57.74 94.11 39.31 453 (Median) 94.42 143.32 60.09 650 143.94 221.07 86.85 1200 282.18 438.13 161.54 Summer 300 57.74 97.76 39.31 (Median) 365 72.31 123.41 48.14 650 143.94 235.88 86.85 1200 282.18 452.94 161.54 Palo Alto Residential Median is 49% below PG&E FIBER MAY 4, 2022 www.cityofpaloalto.org FIBER ACCOMPLISHMENTS & INITIATIVES 12 Accomplishments •Completed detailed engineering design of City’s fiber backbone and fiber-to-the-premises network. •Over 3,600 residents and businesses completed the Palo Alto Fiber internet survey and over 700 residents submitted a $50 deposit. •Council approved construction of a new fiber backbone for the Electric Utility and a phased buildout of the FTTP network supporting City departments, dark fiber leasing customers, and a new internet service provider (ISP) business. Initiatives •Add fiber in the Foothills to improve City communications and community internet •Identify additional funding sources such as federal and state grants, debt-financing, and cost sharing construction with other CIP projects. •Issue construction bids and proposals related to fiber backbone expansion and FTTP ~ July 2023 FIBER PRELIMINARY OPERATING BUDGET EXPENSES 13 Allocated Charges $0.88 M 3% Contract Services $0.24 M 1% Other Expenses $0.12 M 0% Rent & Debt Service $0.08 M 0% Salary & Benefits $2.35 M 6% Capital Improvement Program $33.07 M 90% FIBER FUND FY 2024 $36.75M EXPENSES FIBER FUND HIGHLIGHTS 14 •Revenues of $4.6M; increase $0.2M or 5.1% •$0.2M Return on Investment •Projected investment percentage increasing from 2.2% to 2.4% •Expenses of $36.7M; increase $32.2M or 707.5% •$31M Capital Improvement Program •$20M Fiber-to-the-Premises •$13M Fiber Backbone Rebuild (estimated total costs $26M) •$0.7M Salaries and Benefits •4 new FTEs (Assistant Director, Fiber; Senior Network Engineer; Outside Plant Manager; Sales and Marketing Manager) FIBER EXPANSION PLAN 15 •Council Approved Fiber Expansion Plan in Dec 2022 •Build new fiber backbone for Electric Utility ~ $26M •Phase buildout of FTTP –Phase 1 ~ $20M •City Staff •California Environmental Quality Act (CEQA) study •Issue and award construction and service RFPs •Hire internal staff to execute project and manage vendor contracts •Magellan Contract Amendment •Program Management •Network Operations and Technical Support •Electrical Make Ready Engineering GAS MAY 4, 2022 www.cityofpaloalto.org GAS ACCOMPLISHMENTS & INITIATIVES 17 Accomplishments •Completed inspection of 1,480 sanitary sewer laterals for the presence of a natural gas crossbores in two years,under the Phase III Crossbore Gas Safety Program. Found 1 crossbore. •Completed construction for Gas Main Replacement 23 •Completed construction of Gas Main Replacement 24A (Stanford Shopping Center) •Finalized designs of the Gas Main Replacement 24B Initiatives •Gas decommissioning study •Evaluate natural gas commodity hedging strategies for winter rates •Apply for Natural Gas Distribution Infrastructure Safety and Modernization grant GAS PRELIMINARY OPERATING BUDGET EXPENSES 18 Allocated Charges $5.84 M 9% Contract Services $2.63 M 4% Equity Transfer $7.71 M 12% Other Expenses $2.97 M 4% Rent & Debt Service $1.5 M 2%Salary & Benefits $12.9 M 19% Utility Purchase $29.95 M 44%Capital Improvement Program $4.01 M 6% GAS FUND FY 2024 $67.50M EXPENSES GAS PRELIMINARY CAPITAL BUDGET EXPENSES 19 FY 2023 Estimates $14.8M Total FY 2024 $6.9M Total FY 2025 $7.2M Total FY 2026 $5.8M Total FY 2027 $7.8M Total FY 2028 $5.8M Total 524 - Gas Fund - Gas Main Replacements $12.2M $4.7M $5.3M $4.0M $6.0M $4.0M 524 - Gas Fund - System Improvements $1.3M $1.4M $1.1M $1.1M $1.1M $1.1M 524 - Gas Fund - Customer Connections $1.3M $0.8M $0.8M $0.7M $0.7M $0.7M $0.0M $2.0M $4.0M $6.0M $8.0M $10.0M $12.0M $14.0M $16.0M Current Year Estimates & 5-Yr Capital Improvement Plan 2024-28 GAS FUND HIGHLIGHTS 20 •Revenues of $66.9M; increase $19.6M or 43% •$19.8M Retail Sales (8% overall rate increase includes 21% distribution rate increase) •Fund ongoing capital and operating expenses •Replenish reserves •Projected bill impact of -13% compared to FY 2023 •Natural gas commodity price is a monthly pass-through to customers •Forecast of -36% decrease of commodity price •Expenses of $67.5M; increase $6.2M or 10% •$9.8M Natural Gas Commodity Purchases •($5.9M) Capital Improvement –alternating Gas Main Replacement CIP year Residential Gas Bill Comparison 21 Palo Alto median residential bill is about 11% below PG&E’s median bill (based on CY 2022 data) WASTEWATER MAY 4, 2022 www.cityofpaloalto.org WASTEWATER ACCOMPLISHMENTS & INITIATIVES 23 Accomplishments •Completed design and construction bid for Wastewater Collection Replacement Project 31 Initiatives •Sewer Master Plan Study •Replace overflow monitoring units at 39 manhole locations throughout the City •Complete Wastewater Collection Replacement Project 30 •Begin construction on Wastewater Collection Replacement Project 31 WASTEWATER PRELIMINARY OPERATING BUDGET EXPENSES 24 Allocated Charges $3.27 M 13% Contract Services $0.25 M 1% Other Expenses $0.75 M 3% Rent & Debt Service $0.53 M 2% Salary & Benefits $6.55 M 26% Utility Purchase $12.43 M 49% Capital Improvement Program $1.61 M 6% WWC FUND FY 2024 $25.38M EXPENSES WASTEWATER PRELIMINARY CAPITAL BUDGET EXPENSES 25 FY 2023 Estimates $12.6M Total FY 2024 $2.2M Total FY 2025 $3.2M Total FY 2026 $5.2M Total FY 2027 $3.3M Total FY 2028 $5.2M Total 527 - Wastewater Collection Fund - System Improvements $12.2M $1.8M $2.8M $4.7M $2.8M $4.8M 527 - Wastewater Collection Fund - Customer Connections $0.5M $0.5M $0.5M $0.5M $0.5M $0.5M $0.0M $2.0M $4.0M $6.0M $8.0M $10.0M $12.0M $14.0M Current Year Estimates & 5-Yr Capital Improvement Plan 2024-28 WASTEWATER COLLECTION FUND HIGHLIGHTS 26 •Revenues of $23.8M; increase $2.1M or 9.6% •$2.0M Retail Sales (9% rate increase) •Acceleration of Sewer Main Replacement from 1 mile to 2.5 miles beginning in FY 2026 to stay within 100 year life expectancy of main pipes •Maintain reserves above minimum guideline of $3.3M (60 days of operations and maintenance and commodity expense) •Expenses of $25.4M; increase $0.7M or 2.9% •$0.6M Treatment Plant Charges •Rehabilitation of Regional Water Quality Control Plant ~ $300M Sewer Bill Comparison 27 Palo Alto Residential Menlo Park Redwood City Santa Clara Mountain View Los Altos Hayward 44.62 106.67 89.28 46.82 50.1 42.05 38.58 Palo Alto Residential Median is 28% below comparison city average Non-Residential Palo Alto Menlo Park Redwood City Santa Clara Mountain View Los Altos Hayward Commercial 116.62 144.34 117.74 75.74 156.66 72.23 87.92 Restaurant 696.08 1,216.88 1,128.40 718.48 718.48 288.90 660.80 Palo Alto Commercial Median is 7% above comparison city average Palo Alto Restaurant Median is 12% below comparison city average WATER MAY 4, 2022 www.cityofpaloalto.org WATER ACCOMPLISHMENTS & INITIATIVES 29 Accomplishments •Began community engagement and development of OneWater Plan •Complete cost/benefit analysis of replacement or rehabilitation of Park Reservoir (June 2023) Initiatives •Start construction for Park Reservoir (capacity of one million gallons) •Replace overflow monitoring units at 39 manhole locations throughout the City •Complete construction of Water Main Replacement Project 28 WATER PRELIMINARY OPERATING BUDGET EXPENSES 30 Allocated Charges $6.09 M 8% Contract Services $0.73 M 1% Other Expenses $1.83 M 2% Rent & Debt Service $6.91 M 9% Salary & Benefits $11.62 M 15% Utility Purchase $25.35 M 33% Capital Improvement Program $24.89 M 32% WATER FUND FY 2024 $77.41M EXPENSES WATER PRELIMINARY CAPITAL BUDGET EXPENSES 31 FY 2023 Estimates $14.4M Total FY 2024 $26.2M Total FY 2025 $4.3M Total FY 2026 $18.9M Total FY 2027 $4.8M Total FY 2028 $13.1M Total 522 - Water Fund - Water Main Replacements $9.1M $10.3M $0.4M $8.9M $0.9M $8.9M 522 - Water Fund - System Improvements $4.2M $15.0M $2.9M $9.0M $2.9M $3.1M 522 - Water Fund - Customer Connections $1.1M $0.9M $1.0M $1.0M $1.0M $1.1M $0.0M $5.0M $10.0M $15.0M $20.0M $25.0M $30.0M Current Year Estimates & 5-Yr Capital Improvement Plan 2024-28 WATER FUND HIGHLIGHTS 32 •Revenues of $53.6M; increase $3.0M or 6% •$2.2M Retail Sales (6%/5% overall rate increase) •11.6% SFPUC commodity rate increase/ revised down to 9.6% as of April 6, 2023 •2% distribution rate increase •$0.6M Other Revenue •Technical budget alignment: Customer Connection and Capacity fees ~ $1.0M •Expenses of $77.4M; increase $13.1M or 20% •$9.4M Capital Improvement Reappropriatons •$6.9M Seismic Rehabilitation; $3.3M Water System Improvement (Emergency Generators and Facilities Lighting) •$2.0M SFPUC commodity rate increase Single-Family Residential Water Bill Comparison 33 Palo Alto is 14% above comparison city average Commercial Water Bill Comparison 34 Palo Alto is 5% above comparison city average STAFFING MAY 4, 2022 www.cityofpaloalto.org STAFFING -Vacancies and Recruitments Division Authorized FTE Vacancies Active Recruitments % Vacancy Administration 19.5 5 3 26% Customer Support Services 22 2 2 9% Electric Engineering 28 8 6 29% Electric Operations 74 23 13 31% Resource Management 25 5 2 20% WGW Engineering 22 4 3 18% WGW Operations 63 10 5 16% Grand Total 253.5 57 34 22% 36 STAFFING (continued) Movement by Calendar Year (CY) CY 2022 JAN -MAR 2023 Hires 24 6 Promotions 15 8 Retirements 5 0 Separations 23 8 37 STAFFING RECRUITMENT AND RETAINMENT STRATEGIES 38 •Continue benchmark market alignment •Flexible and Remote Work Schedule –in place •New Apprentice and Training Programs –ongoing •Cross Training –ongoing (Meter Reading) •Succession Planning •Career Fairs •Hiring and Retention bonus •Flexibly Staffed recruiting Not started •Employee or Subsidized Housing •Childcare PROPOSED STAFFING REQUESTS 39 FY 2024 STAFFING REQUESTS (Net Change +4.5 regular FTEs and +.04 hourly FTEs) •Assistant Director, Palo Alto Fiber (+1.0 FTE) •Manager Information Technology (Sr. Network Engineer/Architect) (+1.0 FTE) •Manager Utilities Telecommunications (Outside Plant Mgr, Palo Alto Fiber) (+1.0 FTE) •Manager Utilities Telecommunications (Sales and Marketing Mgr, Palo Alto Fiber) (+1.0 FTE) •Senior Fiber Market Analyst (+1.0 FTE) •Utilities Program Assistant II (+0.5 FTE) •Journey Level Laborer (+0.04 FTE) •Reclassify Utility System Operator to Senior Utility System Operator (Net 0.0 FTE) •Meter Reader (-1.0 FTE) *New Classifications STAFF RECOMMENDATION TO UAC FOR APPROVAL 40 Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council approve proposed FY2024 Utilities Operating Budget. Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council approve proposed FY2024 Utilities Capital Budget. CITY OF PALO ALTO PROPOSED FY 2024 RATES –RESIDENTIAL BILL IMPACT 42 1 User Tax is additional 5 percent of electric, gas, and water bill Utility FY 2023 Bill (Rates Effective Jan 1, 2023) FY 2024 Bill (Projected)Change Change % Electric $83.09 $78.89 -$4.20 -5% Gas $64.86 $70.06 $5.20 8% Wastewater $44.62 $48.62 $4.00 9% Water $98.46 $104.36 $5.90 6% Refuse $50.07 $50.07 $0.00 0% Storm Drain $15.98 $16.78 $0.80 5% Utility User Tax¹$12.32 $12.67 $0.35 3% Total Monthly Bill $369.40 $381.49 $12.04 3%