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HomeMy WebLinkAboutStaff Report 227-08 CMR: 227:08 Page 1 of 4 TO: HONORABLE CITY COUNCIL ATTN: FINANCE COMMITTEE FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: MAY 13, 2008 CMR: 227:08 SUBJECT: UTILITIES ADVISORY COMMISSION RECOMMENDATION TO APPROVE PROPOSED INCREASES IN UTILITY ELECTRIC, WATER, GAS, AND WASTEWATER CONNECTION FEES AND WATER AND WASTEWATER CAPACITY FEES RECOMMENDATION Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee recommend that the City Council adopt the attached resolution to: a) Approve utility connection fee increases in electric schedule E-15, gas schedule G-5, water schedule W-5, and wastewater schedule S-5 effective August 1, 2008; b) Approve 100% capacity fee increases in water schedule W-5 and wastewater schedule S-5 effective August 1, 2008 and; c) Approve a 50% increase in capacity fees in water schedule W-5 and wastewater schedule S-5 to take effect on July 1, 2009 for FY 2009-10, and a 40% increase in capacity fees in schedule W-5 and S-5 to take effect on July 1, 2010 for FY 2010-11. BACKGROUND The Water, Gas, Wastewater and Electric Utilities have established fees to recover the costs associated with the connection of new customers to the existing systems. There are two fees charged, a connection fee and a capacity fee. The connection fee recovers the capital cost of building new facilities to connect the customer to the system. These fees are collected for electric, water, gas, and wastewater utilities. In addition to the connection fees, the water and wastewater utilities collect capacity fees for adding new water and wastewater loads to existing water distribution and wastewater collection systems. The capacity fees are calculated as an equity (buy-in) charge for adding the new loads and help pay for improving the water distribution and wastewater collection systems to meet current and future demands. CMR: 227:08 Page 2 of 4 Per the April 25, 2005 Finance Committee’s recommendation to periodically review the capacity fees, the Utilities Department contracted with the consulting firm of Black and Veatch to perform a study of the City’s water and wastewater capacity fees. Black and Veatch has completed its study of the City’s capacity fees and compared the City’s existing fees to other similarly sized public utilities. DISCUSSION Capacity Fees On July 1, 2005, the City instituted utility capacity fees for connecting to the water distribution and wastewater collection systems in conformance with California Government Code Section 66000. The capacity fees were set up for new developments to buy into existing water distribution and wastewater collection systems, and to recover the proportionate cost of system improvements required to serve the new customer or increased loads of existing customers. These are one time fees paid before the water or wastewater services are upgraded or installed. Utility capacity fees received are placed in a special fund and used exclusively for water and sanitary sewer capital improvement projects. The equity method (buy-in method) of calculating capacity fees is widely accepted for cities with nearly built out utility systems such as Palo Alto. Black and Veatch’s study (see Attachment I) determined that current capacity fees should be increased by $15,150 for a typical new single family house. However, staff recommends a phase-in of calculated capacity fee increases over several years to manage the impact of the increase to developers (see table below). Staff proposes an initial increase of the capacity fees of 100%, followed by a 50% increase in the second year and an approximately 40% increase in the third year to reach the Black and Veatch capacity fee recommendations. Staff also recommends setting up a long term contract with Black and Veatch to update the capacity fees study prior to each capacity fee increase. Residential capacity fees for water and sewer are proposed to increase as follows: FY2008-09 FY2009-10 FY2010-11 Current 1st year 2nd year 3rd year Typical new single family home $4,750 $9,500 $14,250 $19,900 Typical single family home remodel $1,050 $2,100 $3,150 $4,127 These larger capacity fees will mainly impact developers of new residential single-family and multi- family dwellings, and hotel construction. Commercial construction is impacted to a far lesser extent than residential construction because the number of fixture units (sinks, toilets bathtubs, showers), which is a factor in determining the amount of the fee, are fewer per square foot of development. All property owners are given capacity fee credits for any existing water and sewer services connected to their properties. The Black and Veatch capacity fee study looked at implementing capacity fees for new gas services. In its review of gas distribution companies, Black and Veatch could not find other gas utilities charging capacity fees for new gas services, therefore, staff recommends against charging gas capacity fees at this time. Connection Fees CMR: 227:08 Page 3 of 4 The Utilities Department provides new service connections to its distribution network to meet new customers’ needs for gas, water, wastewater and electric services. Staff periodically performs a cost of service study to determine if connection costs (service installation, inspection and engineering) of these new connections are fully recovered by the connection fees. The recent staff review of these costs indicates that current fees do not fully recover Utilities’ direct and indirect costs for installing services and an increase in fees is necessary to more fully achieve total cost recovery. The connection fees were updated to include the increased costs associated with wages, material, and transportation. Connection fees increased, on average, 8% over the previous fees established in 2005. In addition to updating the connection fees to take into account inflation and wage increases, staff recommends charging 1.5 times the standard fee for work required to be performed outside of regular work hours. To implement these fee increases, Council needs to adopt a resolution in a public meeting. Gov. Code 66016 requires that prior to increasing the fee, the City must hold at least one public meeting to listen to any oral or written presentation on the fee. After the resolution is adopted by Council, the City must wait no less than 60 days before putting the new fees into effect. RESOURCE IMPACT The estimated first year increase in annual capacity fee revenues is approximately $500,000 in the Water Fund and $200,000 in the Wastewater Fund. The estimated increase in annual connection fee revenues is approximately $90,000 in the Gas Fund, $50,000 in the Water Fund, $20,000 in the Wastewater Fund and $12,000 in the Electric Fund. POLICY IMPLICATIONS These recommendations do not represent a change in current City policies. ENVIRONMENTAL REVIEW Approval of this contract does not require review under the California Environmental Quality Act (CEQA) because it does not meet the definition of a “project” pursuant to California Public Resources Code Section 21065. CMR: 227:08 Page 4 of 4 ATTACHMENTS Attachment A: Proposed Utility Rate Schedule G-5 Attachment B: Proposed Utility Rate Schedule W-5 Attachment C: Proposed Utility Rate Schedule S-5 Attachment D: Proposed Utility Rate Schedule E-15 Attachment E: Redlined Utility Rate Schedule G-5 with Proposed Changes Attachment F: Redlined Utility Rate Schedule W-5 with Proposed Changes Attachment G: Redlined Utility Rate Schedule S-5 with Proposed Changes Attachment H: Redlined Utility Rate Schedule E-15 with Proposed Changes Attachment I: Development of Water, Wastewater, and Gas Capacity Fees; report prepared by Black and Veatch Attachment J: Draft Resolution Amending Utility Rate Schedules E-15, G-5, W-5, AND S-5 Attachment K: Draft Utilities Advisory Committee Meeting Minutes of April 2, 2008 PREPARED BY: Roland Ekstrand, Senior Project Engineer Patrick Valath, Senior Electric Project Engineer Roger Cwiak, WGW Engineering Manager REVIEWED BY: ___________________________________ TOMM MARSHALL, Assistant Director, Utilities Engineering DEPARTMENT HEAD: ___________________________________ VALERIE O. FONG Director of Utilities CITY MANAGER APPROVAL: ___________________________________ STEVE EMSLIE/KELLY MORARIU Deputy City Managers