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HomeMy WebLinkAboutStaff Report 187-09TO: FROM: ATTENTION: DATE: SUBJECT: BUDGET FY 2010 -FY 2011 HONORABLE CITY COUNCIL CITY MANAGER FINANCE COMMITTEE MARCH 31, 2009 DEPARTMENT: UTILITIES CMR: 187:09 Utilities Advisory Commission Recommendation that Finance Committee Recommend Council Adoption of a Resolution Adopting a Wastewater Collection Rate Increase and Amending Utilities Rate Schedules S-1 and S-2 RECOMMENDATION Staff and the Utilities Advisory Commission (UAC) recommend that Finance Committee recommend that City Council adopt the attached resolution to: (a) Approve a 5 percent increase to wastewater collection retail rates effective July 1, 2009, which will increase annual revenues by $684,000; and (b) Approve changes to the Wastewater Collection Utility Rate Schedules (S-1 and S-2), as attached. BACKGROUND Wastewater Collection Utility rates have been unchanged since the budget processes for Fiscal Year (FY) 2007 when a five percent revenue increase was approved by the City Council effective July 1, 2006. The Wastewater Collection Fund's revenue requirement consists of a number of components including: treatment cost, distribution system operations, Capital Improvement Program (CIP) projects, funding of the Wastewater Collection Rate Stabilization Reserve (WW-RSR) the Emergency Plant Replacement Reserve, and debt service. Any change in one or more of these components, or a change in retail revenue levels, can trigger the need for a rate adjustment. During the budget process, staff forecasts customer revenues and utility expenses in order to quantify the annual revenue requirement. CMR: 187:09 Page 1 of 5 DISCUSSION Revenues and Expenses Table 1 below shows the estimated revenues and expenses for the Wastewater Collection Fund for FY 2010 and FY 2011, actual revenues and expenses for FY 2008, and the budgeted revenues and expenses for FY 2009. TABLE 1- Wastewater Collection Fund Sources and Uses of Funds $000 Fiscal Year A Actual 2008 B Adopted 2009 C Proposed 2010 % CHANGE IN RETAIL RATE PROJECTED CHANGE IN RETAIL SALES REVENUE 0.0% 0.0% 5.0% 684 Utilities Retail Revenue Service connection charges and capacity fees Other Revenues & Transfers In Interest plus gain or loss on investment Total Sources of Funds Treatment Distribution Operating Budget Debt Service Payments (Prin & Int) Rent Other Transfers Out Capital Improvement programs Operating Encumbrances & reconciliation Total Uses of Funds Into/ (Out of) Reserves 13,997 1,386 428 818 16,628 7,056 4,315 129 86 482 3,943 181 16,191 437 13,667 889 301 470 15,326 7,539 4,163 129 109 517 3,949 16,404 (1.078) 14,323 901 301 207 15,732 7,933 4,329 129 112 517 4,026 17,046 (1,314) D Planned 2011 5.0% 719 15,040 913 301 156 16,410 8,330 4,503 129 115 517 4,043 17,637 (1,227) E 2012 F 2013 G 2014 15.0% 5.0% 5.0% 2,263 868 911 17,239 925 301 137 18,602 8,747 4,683 129 119 517 4,150 18,344 258 18,165 938 301 151 19,555 9,184 4,870 129 122 517 4,263 19,085 470 19,074 951 301 173 20,499 9,643 5,065 129 126 517 4,421 19,900 598 Based on the five-year financial projections, staff projects total use of funds of $17.0 million in FY 2010 for the Wastewater Collection Fund. This is primarily driven by the expected $7.9 million in treatment costs, $4.3 million in operating costs, and $4.0 million in CIP costs. Staff identified a total cost savings of $0.1 million in Operating costs mainly as a result of holding salaries and benefits unchanged from FY 2009 levels, and targeting a five percent reduction in some controllable costs such as travel, meetings, office supplies and other general expenses. As staff is currently assessing these and other possible adjustments to the proposed FY 2010 operating budget, these adjustments have not been reflected in the figures presented in Table 1. They are reflected as part of the discussion in the section below on reserves. Reserves and Risk Assessment Table 2 below summarizes the end -of -year balances for the WW-RSR, the risk assessment level and the reserve guidelines. Staff is proposing a reduction to the existing RSR Minimum and Maximum Reserve Guideline Levels (CMR:180:09). The annual risk assessment of the Wastewater Collection Fund is determined by assessing the short-term risks to the Wastewater Collection Fund. A report of this assessment was reviewed by the UAC at its February 2009 meeting. The reserve guidelines were established to manage risks over the longer term. CMR: 187:09 Page 2 of 5 TABLE 2: Wastewater Collection Reserve Balance, Guideline Levels and Risk Assessment Level ($M Water Rate Stabilization Reserve FY 2009 FY 2010 FY 2011 Estimated End of Year Balance 4.8 3.5 2.3 Risk Assessment Level 1.7 1.7 1.9 Reserve Minimum Level 2.7 2.2 2.3 Reserve Maximum Level 6.8 4.3 4.5 After the proposed five percent rate increase, the WW-RSR balance is forecast to be $3.5 million at the end of FY 2010, which is above the minimum guideline level as well as the short-term risk assessment level. With the additional budget savings of $0.1 million identified, the expected year end balance could be $3.6 million. The final reserve balance levels will be determined after the completion of the Wastewater Collection Budget which will be presented to the UAC at its May 2009 meeting. Allocation of the Proposed Revenue Increase Due to the billing system migration project, staff is not proposing any structural changes to the current rate schedules for FY 2010. An overall rate increase of five percent will be applied to the existing rates for each customer type. The large commercial customers (those who use over 250,000 gallons per month) would experience different overall bill increases for each individual customer, as their charges are based on their individual water flows and the components of their discharges. While the water flow period and corresponding final charges will not be known until after March, the increase for large commercial customers is expected to be approximately five percent. Table 3 below shows the impact of the proposed rates increase on customer bills. TABLE 3: Impact of Rate Increase on Customer Bills Customer Current Rate Proposed Rate Proposed Monthly Increase ($) Proposed Monthly Increase (%) Residential $23.48 $ 24.65 $1.17 5.0% Commercial ($ per CCF) 4.83 5.07 0.24 5.0% Restaurants ($ per CCF) 8.85 9.29 0.22 5.0% Comparison of Palo Alto Wastewater Collection Rates and Surrounding Cities For several years, Palo Alto's retail wastewater collection rates have generally been on par with surrounding areas. Table 4 below, which compares monthly wastewater collection bills using rates as of January 1, 2009 for Mountain View, Redwood City, Santa Clara and Menlo Park, indicates that the average residential customer in surrounding cities pays approximately 17 percent more than the average Palo Alto residential customer. At this time, the certainty or magnitude of other jurisdictions' upcoming rate changes is not known. CMR: 187:09 Page 3 of 5 TABLE 4 — Monthly Residential Wastewater Collection Bill Comparison (rates in effect as of Jan. 1, 2009) Wastewater Palo Alto Mountain View Redwood City Santa Clara Menlo Park Average Benchmark (%) Diff. Residential $23.48 $23.05 $41.01 $12.76 $33.33 $27.54 17.3% Difference from CPAU -1.8% 74.7% -45.7% 42.0% 17.3% Proposition 218 Wastewater Collection Rate Increase Procedure: Proposition 218 amended the California Constitution and set forth procedural requirements public agencies must follow in order to enact or increase a property -related fee. Since Proposition 218 applies to the wastewater collection service rate increases and customer charges described here, the City must provide written notice by mail to wastewater collection customers subject to the proposed fees, followed by a public hearing held not less than 45 days after notice is mailed. The notice must include the amount of the fee, the basis upon which the fee was calculated, the reason for the fee, and the date, time and location of the public hearing. If written protests against the proposed fees are not presented by a majority of customers, the City may impose the fee. ALTERNATIVES Staff evaluated the impact of a zero percent rate adjustment for FY 2010. Under this scenario, future rate adjustments had to be significantly higher in order to collect the required revenues due to the expected cost increases outlined in this report. This alternative was rejected in favor of a more steady increase, which attempts to avoid large rate jumps. COMMISSION REVIEW AND RECOMMENDATIONS On March 4, 2009, the UAC voted unanimously (5-0), to recommend that the City Council: (a) Approve a 5 percent increase to retail Wastewater Collection rates effective July 1, 2009, which will increase annual revenues by $684,000; and (b) Approve changes to the Wastewater Collection Utility Rate Schedules (S-1 and S-2), as attached. In its discussions, one commissioner asked whether costs could be reduced by deferral of any of the planned CIP projects. Staff responded that it has recently completed videotaping of the wastewater system and has identified areas that need to be repaired to prevent spills or sewage backups. The notes from the UAC meeting are provided as Attachment D. RESOURCE IMPACT Approval of this rate proposal will increase the Wastewater Collection Fund retail sales revenues by approximately $684,000 for FY 2010. POLICY IMPLICATIONS This recommendation does not represent a change to current City policies. CMR: 187:09 Page 4 of 5 ENVIRONMENTAL REVIEW The City is raising wastewater collection utility rates for funding requirements due to capital projects planned to maintain service within existing facilities, treatment cost increases and other operational cost increases. An increase in wastewater collection rates to meet operating expenses and financial reserve needs is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Section 21080(b)(8) and Title 14 of the California Code of Regulations Section 15273(a)(1) and (3). ATTACHMENTS A. Resolution B. Wastewater Collection Fund FY 2010 Rate Adjustment Financial Projections C. Wastewater Rate Schedules: S-1 and S-2 D. Draft Notes from the March 4, 2009 UAC meeting PREPARED BY: DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: IPEK CONNOLLY /\� Utilities, Sr. Resource Planner JANE O. RATCHYE Utilities Assistant Dire't. , Resource Management 44, VALERIE F4N Director of Utiliti JAM ENE City . nager Z( CMR: 187:09 Page 5 of 5 ATTACHMENT A NOT YET APPROVED Resolution No. Resolution of the Council of the City of Palo Alto Adopting a Wastewater Rate Increase and Amending Utility Rate Schedules S-1 and S-2 WHEREAS, 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 and the fees and charges therefore; and WHEREAS, pursuant to Article XIIID Sec. 6 of the California Constitution, on June 9, 2008, the Council of the City of Palo Alto held a public hearing to consider all protests against the proposed water rate increases; and WHEREAS, the total number of written protests presented by the close of the public hearing was less than fifty percent (50%) of the total number of customers and property owners subject to the proposed water rate increases. NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule S-1 (Domestic Wastewater Collection and Disposal Service) is hereby amended to read in accordance with sheet S-1-1, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July 1, 2009. SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule S-2 (Commercial Wastewater Collection and Disposal Service) is hereby amended to read in accordance with sheet S-2-1, and S2-2 attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July 1, 2009. SECTION 3. The Council finds that the revenue derived from the authorized adoption enumerated herein shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. /1 090324syn 6050701 1 NOT YET APPROVED SECTION 4. The Council finds that an increase in wastewater collection rates to meet operating expenses and financial reserve needs 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)(1) and (3). INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Deputy City Attorney City Manager Director of Utilities Director of Administrative Services 090324 syn 6050701 2 R E s E R v E s ATTACHMENT C ILli'f:. % CHANGE IN RETAIL RATE WASTEWATER REVENUE REVENUE: RATE ADJUSTMENT PRORATION IMPACT TOTAL ADJUSTED REVENUE DISCOUNTS/UNCOLLECT. INTEREST OTHER REVENUE FROM RESERVES: RATE STABILIZATION Actual Adopted Fiscal Year; 2008 2009 0.0% 0.0% 14,137. 13,687 0 0 0• 0 Proposed 2010 13,687 684 (29) 14,137 13,687 14,343 (141) (20) 818 470 1,632 : 1,190 12 TOTAL FINANCIAL RESOURCES 16,447 16,523 OPERATING EXPENSES TREATMENT 7,056 7,539 CUSTOMER DESIGN & CONN. (CiP) 878 949 SYSTEM IMPROVEMENT (CIP) 3,065 3,000 OPERATIONS & MAINT, OTHER ADMIN 2,619 ' 2,697 ALLOCATED CHARGES: COST PLAN CHARGES & OTHER 819 785 UTILITIES ADMINISTRATION 877 681 TOTAL MAJOR ACTIVITIES 15,314 15,651 DEBT SERVICE 129 129 TRANSFERS: CIP TO GENERAL FUND & OTHER 482 517 RENT 86: 109 SUB -TOTAL TRANSFER 567 625 28 29 30 31 32 TOTAL REVENUE REQUIREMENT 33 34 35 36 TOTAL RESERVES -BALANCE 37 38 39 40 41 42 43 RESERVE ADDITIONS: PLANT REPLACEMENT RATE STABILIZATION TOTAL RESERVE ADDITIONS: RESERVES BALANCES PLANT REPLACEMENT RATE STABILIZATION Short Term Risk Assessment Value Long Term Rate Stabilization Guidelines RSR Minimum RSR Maximum 215 119 222 0 437 119 (20) 207 1,202 17,046 7,933 1,041 2,985 2,805 817 708 16,288 517 112 629 16,447 16,523 17,046 881 1,000 6,026 4,829 6,907 5,829 4,5'14 3,2 Planned 2011 2012 5.0% 15.0% 14,371 15,090 719 2,263 (30) (94) 15,060 17,259 18,185 129 129 129 129 129 2013 17,353 868 (36) (20) (20) 156 137 1,214 1,226 17,637 18,602 8,330 8,747 973 990 3,070 3,160 2,917 3,034 850 884 736 766 16,876. 17,579 517 517 115 119 632 635 0 0 0 258 0 258 17,637 18,602 1,000 1,000 2,288 2,546 1,700 1,698 2,827 2,737 7,069 = 6,844 2,263 2,603 4,527 5,206 (20) 151 1,239 2014 18,221 911 (38) 19,094 (20) 173 1,252 19,555 20,49 9,184 1,008 3,255 3,155 919 796 18,317 517 122 639 0 470 470 9,643 1,068 3,353 3,281 956 828 19,129 517 126 643 0 598 598 19,555 20,499 1,000 3,016 4,015 ATTACHMENT C DOMESTIC WASTEWATER COLLECTION AND DISPOSAL UTILITY RATE SCHEDULE S-1 A. APPLICABILITY: This schedule applies to each occupied domestic dwelling unit. B. TERRITORY: This schedule applies everywhere the City of Palo Alto provides wastewater service. C. RATES: Per Month Each domestic dwelling unit $23.4824.65 D. SPECIAL NOTES: 1. Any dwelling unit being individually served by a water, gas, or electric meter will be considered as continuously occupied. 2. For two or more occupied dwelling units served by one water meter, the monthly wastewater charge will be calculated by multiplying the current wastewater rate by the number of dwelling units. 3. Each developed separate lot shall have a separate service lateral to a sanitary main or manhole. [End) CITY OF PALO ALTO UTILITIES Issued by the City Council Effective 4-1-7 1 2-0052009 Sheet No S-1-1 Supersedes Sheet No S-1-1 dated 711-1 20062008 CITY OF PALO ALTO UTILITIES COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL UTILITY RATE SCHEDULE S-2 A. APPLICABILITY: This schedule applies to all establishments other than domestic dwelling units. B. TERRITORY: This schedule applies everywhere the City of Palo Alto provides wastewater services. C. RATES: 1. Restaurants (A) Minimum charge per connection per month $23.1824.65 (B) Quantity Rates: Based on metered water, per 100 cubic feet $8:85929 2. Any establishment discharging sewage in excess of 25,000 gallons or quality equivalent of sewage per day as determined by metered water usage and sampling. (A) Collection System Operation, Maintenance, and Infiltration Inflow: $3,529.86706.35 per million gallons ($2.6477 per 100 cubic feet of metered water). (B) Advanced Waste Treatment Operations and Maintenance Charge: $2,307.10122.46 per million gallons ($1.782 per 100 cubic feet of metered water). (C) $ 247.56 per 1000 pounds of COD (D) $ 596.62 per 1000 pounds of SS (E) $ 3,983.85 per 1000 pounds of NH3 (F) $ 14,781.25 per 1000 pounds of toxics* *Toxics include sum of chromium, copper, cyanide, lead, nickel, silver, and zinc. 3. All Other Establishments CITY OF PALO ALTO UTILITIES Issued by the City Council Effective -147 1 2-4042009 Sheet No S-2-1 Supersedes Sheet No S-2-1 dated 711 1-20062008 CITY OF PALO ALTO UTILITIES COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL UTILITY RATE SCHEDULE S-2 (A) Minimum Charge per connection per month $23.4824.65 (B) Quantity Rates: Based on metered water per 100 cubic feet $ 483507 D. SPECIAL NOTES: 1. Upon application from establishments maintaining extensive irrigated landscaping, the monthly charge will be based upon the average water usage for the months of January, February and March. If a water meter is identified as exclusively serving irrigation landscaping, such meter will be exempted from sewer charge calculations. 2. Sewage metering facilities may be required, in which case service will be governed by terms of a special agreement. 3. Charges for large discharges (25,000 gallons per day or greater) will be determined on the basis of sampling as outlined in Utilities Rule and Regulation 23C. However, for purposes of arriving at an accurate flow estimate, discharge meters, if installed, can be utilized to measure outflow for billing purposes. Annual charges will be determined and allocated monthly for billing purposes. 4. Dischargers of Unmetered Contaminated Groundwater Quantity rates for collection and treatment of the contaminated groundwater will be based on the same rates applicable to metered usage for customers discharging less than 25,000 gallons of sewage per day. Discharge permits are issued by the Environmental Compliance Manager at the Water Quality Control Plant, 2501 Embarcadero Way, Palo Alto. 5. Industrial Waste Discharge Fee The following fees will be required for the issuance of an Industrial Discharge Permit, including any Exceptional Waste Permits (This fee may be reduced to $250 for a one-time batch discharge permit).: (A) Small, non -categorical facilities $250 (B) Non -categorical / small categorical with only minor pollutant concerns $750 (C) Categorical or Significant Industrials Users with ability to impact the RWQCP $1,250 {End] CITY OF PALO ALTO UTILITIES Issued by the City Council Effective 4-1-7 1 24042009 Sheet No S-2-2 Supersedes Sheet No S-2-2 dated -711 1 20062008 CITY OF PALO ALTO UTILITIES ATTACHMENT D EXCERPTS from Draft Minutes of UAC Meeting of March 4th, 2009 ITEM 5: ACTION ITEM: Rates Proposals for Fiscal Year 2010 Senior Resource Planner Ipek Connolly reviewed where we are in the budget process. In February, the UAC reviewed the long-term financial projections and this month, it will review the proposed rate adjustments for FY 2010. The rate proposals will be considered by the Council Finance Committee on March 31. The budget will be considered by the UAC in May and by the Finance Committee on May 19. Council adoption of the budget is scheduled for June 8. Connolly listed the assumptions used to prepare the financial projections used to develop the rate projections. The assumptions that have changed since the UAC saw the financial projections in February include the proposed changes in the equity transfer method (Item #4 discussed tonight), and additional savings identified in supply and distribution operating budgets. Savings estimates for operating budgets total $354,000. In addition, although labor negotiations are not complete for FY 2010, if there were no cost increases for salaries and benefits for FY 2010 compared to FY 2009, then savings would total $1,326,000. These savings are not incorporated into the cost projections at this time, but can be considered. Chair Dawes asked Director Fong if she had looked closely at headcount. Fong responded that she has looked closely, but that there are many regulatory compliance and reporting requirements that require staff to complete. These include the Department of Transportation, the Federal Energy Regulatory Commission, the California Energy Commission, State and County Department of Health, Regional Water Quality Control Board, and the California Public Utilities Commission. In addition, she scrutinizes the justification to fill any vacancy and noted that there is a rigorous city- wide process that any vacancy must go through before filling. Commissioner Waldfogel felt that the director should look at all programs and cut the lowest value projects and programs. Connolly presented the impact on the average residential total bill for gas, water, electricity and wastewater if the proposed rate adjustments were adopted by Council. Although water, wastewater, and electric rates are proposed to be increased, the proposed gas rate decrease cancels almost all the other rate increases so that, on an annual basis, the average residential bill will increase only 7 cents per month. Chair Dawes asked if staff had done any benchmarking or examination of best practices for utilities. He asked if NCPA has started a study to help the member agencies institute best management practices. Fong said that this much coordination between agencies, including the evaluation of pooled resources where feasible and bulk buying of supplies with other agencies. Commissioner Waldfogel said that across the board, there is a need to acknowledge the state of the economy with salary cuts, layoffs, drop in the value of homes and investments. He advised that Utilities must ensure that all the fat is cut off and that we need to proceed to cut into the bone at this point. 5b. Wastewater Collection: Senior Resource Planner Ipek Connolly presented the Wastewater Collection Fund costs and revenue projections and staff's recommended wastewater rate increase for FY 2010 of 5%. After the proposed rate increase, the Wastewater Collection Fund Rate Stabilization Reserve would be between the minimum and maximum guideline levels. She noted that the recommended wastewater rate increase would be applied evenly across all customer groups. Commissioner Waldfogel asked if any wastewater collection system CIP projects could be deferred. Assistant Director Tomm Marshall replied that recently all wastewater collection lines have been videotaped and there are areas that have been identified that are in need of repair. Marshall noted that there are liabilities that the City would face if projects were deferred, including the cost of lawsuits for sewer backups and fines from regulatory agencies for noncompliance with regulations or sewage spills. ACTION: Commissioner Rosenbaum moved the staff recommendation to recommend that Council: 1) approve a 5 percent increase to wastewater retail rates effective July 1, 2009, which will increase annual revenues by $684,000; and 2) approve the changes to the Wastewater Collection Utility Rate Schedules (S-1 and S-2), as proposed. Commissioner Keller seconded the motion. The UAC voted to approve the motion unanimously (5-0).