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HomeMy WebLinkAboutStaff Report 189-09TO: ATTN: FROM: DATE: SUBJECT: BUDGET FY 2010 -FY 2011 HONORABLE CITY COUNCIL FINANCE COMMITTEE CITY MANAGER MARCH 31, 2009 DEPARTMENT: UTILITIES CMR: 189:09 Utilities Advisory Commission Recommendation that Finance Committee Recommend to Council to Eliminate the Residential Customer Discounts for Water Service, Approve Rate Assistance Program Changes, and Adopt a Resolution Amending the Utilities Rate Schedule C-4 "Residential Rate Assistance Program" RECOMMENDATION The Utilities Advisory Commission recommends that the Finance Committee recommend that Council: a. Eliminate residential customer discounts for water service; b. Approve changes to the Utilities Rate Assistance Program (RAP) to help low-income customers mitigate utility cost increases resulting from the elimination of discounts for water service; and c. Adopt a resolution amending Rate Schedule C-4 "Residential Rate Assistance Program" which will codify the recommended program changes. BACKGROUND California electric and gas regulation requires investor -owned utilities to offer discounts to low- income customers, and publicly -owned utilities are encouraged to do the same. In addition, all California electric utilities are required to fund low-income efficiency programs through a mandated surcharge on the electric bill, also known as the Public Benefits Fund charge. The Current Rate Assistance Program The City of Palo Alto Utilities' Rate Assistance Program (RAP) currently offers discounts to low-income customers totaling 20% off of the monthly charges for electric, natural gas, water and storm drain services. The applicable Utility Users Taxes are not discounted. For Fiscal Year (FY) 2008, the number of accounts participating in RAP, and the discounts applied, are broken down as follows: CMR: 189:09 Page 1 of 5 Utility RAP Accounts Total CPAU Accounts (rounded) Percentage of Total CPAU Accounts Total RAP Discounts* Water 588 19,600 3% -$99,114 Gas 1,103 23,600 4.7% -$194,149 Electric 1,338 28,700 4.7% -$166,928 Storm Drain 543 15,500 3.5% -$15,105 Total: -$475,297 * RAP discounts are identified as a negative number, since they represent lost utility revenue. DISCUSSION Proposed Changes to the Rate Assistance Program (RAP) Based on legal advice, staff recommends eliminating RAP for the water utility. Because the elimination of the 20% discount for water service will add additional hardship to low-income Utilities customers, staff proposes changes to RAP to address both the short- and long-term needs of these customers. Changes in Discount Levels In the short-term, staff proposes increasing the level of electric and natural gas discounts from the current 20% discount to 25%. This change will partially offset the annual $99,000 loss of discount from the Water Fund with a combined annual $92,000 increase in discounts from the Electric ($42,000) and Gas ($50,000) Funds. Residential Energy Assistance Program (REAP) Mandatory Participation To address the long-term needs of low-income customers, staff proposes a program change to require RAP participants be automatically enrolled in the Utilities Residential Energy Assistance Program (REAP). This program, jointly funded out of the current Electric and Gas Public Benefits Programs, recognizes that low-income customers are not able to participate in traditional utility rebate programs due to lack of capital for the balance of the cost of efficiency measures. For example, low-income customers, while potentially aware of the high energy use and monthly cost of an old refrigerator, may not be able to afford to replace that appliance even with the help of a rebate from the utility. REAP addresses that problem by providing information on energy and water efficiency measures free of charge to low-income participants. The information component includes an on -site visit by a trained efficiency specialist who provides water and energy educational materials for the resident; completes a home energy analysis to identify cost-effective efficiency measures, and performs a natural gas leak safety inspection. Once identified, the eligible measures for free installation or replacement currently include: CMR: 189:09 Page 2 of 5 • refrigerators (and recycling of the old refrigerator); • weather-stripping for doors, windows and attic access hatches; • caulking, duct sealing and testing; • minor plumbing repair to mitigate water leaks; • minor wall repair to mitigate air leaks; • installation of compact fluorescent lighting inside the home; • replacement of incandescent fixtures with hard -wired fluorescent fixtures both inside and outside the home; • repair or replacement of furnaces (wall or central), depending on the amount of repair required by the old furnace; and • low -flow showerheads and faucet aerators. It is proposed that all new RAP participants be required to participate in REAP at some time during the course of their first year in RAP. Existing participants will be scheduled to participate in REAP within 12 months of approval for program participation. Higher RAP subsidies for electric and gas service will initially reduce each Fund's annual operating revenues, but the program change requiring participation in REAP will result in long- term financial savings for all customers. The installed efficiency improvements will reduce commodity purchase costs, resulting in savings for all customers. Low-income customers will save money through reduced energy bills by participating in REAP. Customers paying for RAP through slightly increased electric and natural gas rates will see a long-term reduction in the overall amount spent on customer discounts from the increased energy efficiency and lower energy bills of each low-income participant. Other Changes Other changes to the Utilities Rate Schedule C-4 "Rate Assistance Program" include clarification of language regarding identification of qualifying residences, and requirements for proof of customer annual household "income", rather than proof of customer financial "need." There is a new requirement that application for RAP participation must be made annually, since customer financial circumstances can change over time. BOARD/COMMISSION REVIEW AND RECOMMENDATIONS At its meeting on October 1, 2008, the Utilities Advisory Commission (UAC) voted unanimously (4- 0) to recommend that Council: a) eliminate residential customer discounts for water and storm drain service, b) approve changes to the Utilities Rate Assistance Program (RAP) to help low-income customers mitigate utility cost increases resulting from the elimination of discounts for water and storm drain service, and c) adopt a resolution amending Rate Schedule C-4 "Residential Rate Assistance Program." The excerpted minutes from the UAC's October 1, 2008 meeting are included as Attachment C. At the November 5, 2008 UAC meeting, staff noted that that it would defer bringing the proposed RAP change to Finance Committee for review and to the Council for approval until the review of the FY 2010 budget. This would permit a coordinated notice to customers of the change to the RAP discount charges with changes to the water rates in accordance with CMR: 189:09 Page 3 of 5 Proposition 218 requirements. The excerpted minutes from the UAC's November 5, 2008 meeting are included as Attachment D. ALTERNATIVES Alternative funding was investigated to replace the recommended elimination of the water subsidy for RAP. Since the only permissible funding of the subsidy would come from the General Fund, this alternative is not recommended because of other General Fund priorities. The alternative of increasing the electric and natural gas discounts, but limiting REAP participation to a voluntary effort, was considered but is not recommended because it may not reduce the cycle of dependence upon RAP by improving the energy efficiency of the existing Palo Alto housing stock. An opportunity to control energy bills will be lost and a continuing level of subsidization will be required if a low-income customer declines to implement the REAP efficiency measures, moves out of the residence, and another low-income RAP customer moves in to the same premise. Another alternative considered was the expansion of the existing ProjectPLEDGE program. That program is funded by voluntary monthly donations by Utilities customers, rather than providing a subsidy funded through rates. This alternative was not selected because of the very limited customer donations to ProjectPLEDGE (approximately $10,000 per year), and because ProjectPLEDGE was created to offer Utilities bill payment assistance after an unusual customer crisis, rather than to provide for long-term customer financial assistance or to allow for ongoing program participation. ProjectPLEDGE assistance is restricted to once per fiscal year. RESOURCE IMPACT No additional staff resources are required to implement the recommended changes. The financial impacts of terminating the 20% RAP discount for water would increase the annual revenues of the Water Fund by approximately $100,000. The financial impacts of increasing the electric and gas RAP discounts from 20% to 25% would decrease the Electric Fund annual revenue by approximately $42,000 and decrease the Natural Gas Fund annual revenue by approximately $50,000. POLICY IMPLICATIONS This policy is new and requires Council adoption. ENVIRONMENTAL REVIEW Adoption of this resolution amending Utility Rate Schedule C-4 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). CMR: 189:09 Page 4 of 5 ATTACHMENTS A. Resolution B. Rate Schedule C-4 C. Excerpted Final Minutes from the October 1, 2008 UAC meeting D. Excerpted Final Minutes from the November 5, 2008 UAC meeting PREPARED BY: JANE RATCHY Utilities Assistant Dir tor, Resource Management DEPARTMENT APPROVAL: VALERIE Director of CITY MANAGER APPROVAL: p. F»EG itilities CMR: 189:09 Page 5 of 5 ATTACHMENT A NOT YET APPROVED Resolution No. Resolution of the Council of the City of Palo Alto Amending Utility Rate Schedules C-4 of the City of Palo Alto Utilities Rates and Charges 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 C-4 (Residential Rate Assistance Program) is hereby amended to read in accordance with sheets C-4-1 and C-4-2, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective on July 1st, 2009. SECTION 2. The Council finds that the revenue derived from the authorized adoption enumerated herein shall be used only for the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. SECTION 3. The Council finds that the adoption of this resolution amending Utility Rate Schedule C-4 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: APROVED: City Clerk Mayor APPROVED AS TO FORM: Deputy City Attorney City Manager Director of Administrative Services Director of Utilities 090324 syn 6050704 ATTACHMENT B RESIDENTIAL RATE ASSISTANCE PROGRAM UTILITY RATE SCHEDULE C-4 A. APPLICABILITY: This schedule applies to residential premises that qualify for participation in the Utilities Residential Rate Assistance Program. Residential premises within the city limits of Palo Alto may include a single-family dwelling, a multi -family dwelling, a mobile home, or trailer home. The residential dwelling must be served either (i) by a separately metered utility service(s), (ii) master -metered accounts that provide utility electric or gas services to applicable tenant dwellings in qualifying subsidized housing communities, or (iii) be within a mobile home or trailer park, having electric or gas utility service sub -metered by the landlord -owner. B. RATES: The Rate Assistance Program provides residential customers with a discount of twenty-five percent (25%) on electric and natural gas rates, and twenty percent (20%) on storm drainage charges listed in the applicable City of Palo Alto Utilities Electric, Natural Gas and Storm Drain Rate Schedules. C. SPECIAL CONDITIONS: 1. Application for participation in the Rate Assistance Program (RAP) must be made annually, although there is no maximum length -of -term for program participation. 2. Customer participation in the RAP is limited to residential electric, natural gas, and storm drain services. 3. Residents may qualify for participation in the RAP for either medical or economic reasons: To qualify for medical reasons, a resident must annually provide a physician's letter certifying the medical condition of the resident and the medical necessity as a result of that condition of either (i) special medical equipment requiring substantial electricity or gas, or (ii) special environmental temperature needs. To qualify for economic reasons, residents must meet United States Department of Housing and Urban Development (HUD) Guidelines for low income. In order to remain on the program, the City requires that a resident provide proof of annual household income. Residents participating in RAP based on economic reasons will be eligible to receive a 25 percent discount on gas and electric, and 20% discount on storm drainage charges. Residents participating in RAP based on medical reasons will be eligible to receive a 25 percent CITY OF PALO ALTO UTILITIES Issued by the City Council Effective 7-1-2009 CITY OF PALO ALTO Supersedes Sheet No.C-4-1 dated 6-1-2005 Sheet T UTILITIES RESIDENTIAL RATE ASSISTANCE PROGRAM UTILITY RATE SCHEDULE C-4 discount on the applicable gas, and/or electric charges. 4. A condition of participating in RAP, customers must enroll and participate in the Utilities Department "Residential Energy Assistance Program (REAP)". REAP provides free customer educational materials, efficiency assessment of the residence, installation of eligible weatherization measures, repair or replacement of eligible appliances, and a natural gas leak safety inspection. Customer failure to participate in REAP will disqualify current and future participation in the Rate Assistance Program. 5. Participation in the RAP is limited to the primary residence of the customer, with one qualifying residence per individual customer. 6. The 25 percent discount in electric and gas charges and the 20 percent discount in the storm drain charges do not relieve the customer of the obligation to pay the Utility Users Tax. Such tax will be computed on the gross utility charges before the application of the discount. 7. Participation in the RAP does not relieve the customer from the obligations to pay utility charges when due, or meet the requirements of any Utilities Department Rule and Regulation. 8. It is unlawful to knowingly provide incorrect information in connection with a RAP application. Such violation could result in a $1,000 fine or six months in jail, or both. D. The procedures for qualification and interpretation of the provisions of this Rate Schedule, or other Rules and Regulations applicable to the Rate Assistance Program shall be made by the City Manager or designee whose determination shall be final. (End) CITY OF PALO ALTO UTILITIES Issued by the City Council Effective 7-1-2009 Supersedes Sheet No. C-4-1 dated 6-1-2005 Sheet N CITY OF PALO ALTO UTILITIES ATTACHMENT C FINAL UTILITIES ADVISORY COMMISSION EXCERPT MINUTES OF OCTOBER 1, 2008 ITEM 4: ACTION ITEM: Recommendation to Eliminate the Residential Customer Discounts for Water and Storm Drain Service to Comply with the Requirements of Proposition 218, Approve Rate Assistance Program Changes, and Adopt a Resolution Amending the Utilities Rate Schedule C-4, "Residential Rate Assistance Program" Assistant Director Tom Auzenne gave a brief summary of the action item before the UAC. The UAC was being asked to recommend that Council: (a) eliminate the 20 percent rate discounts for water and storm drain service provided by the Rate Assistance Program (RAP); (b) approve 3 program changes to the Rate Assistance Program to help low income customers mitigate the effects of the loss of the water and storm drain discounts by: 1) ensuring proper program eligibility by requiring annual application for participation; 2) increasing the electric and natural gas discounts from 20 percent to 25 percent; and 3) requiring RAP customers to participate in the Utilities Residential Energy Assistance Program (REAP), which provides qualifying low income households with free weatherization services, appliance replacement, lighting upgrades and other free services designed to reduce their water and energy consumption and utility bills. (c) Adopt a resolution amending Rate Schedule C-4 to implement these changes in the program. Recent interpretation of Proposition 218 by the City Attorney's Office required the elimination of the water and storm drain discount. Commissioner Melton stated that Prop 218 leaves little negotiating room, but he wondered why the discount has had so many more electric and gas customers than water customers. Auzenne said that apartment dwellings often have a master meter for water service and individual meters for electric and gas. Commissioner Keller wondered whether RAP customers remain on the program year after year. Auzenne noted that this is the case for RAP, but that Project Pledge is a once per year option and is used more for emergency, short-term difficulties. Auzenne said that the customers' income levels often do not increase; however, the addition of the REAP service should help their expenses to go down, thus decreasing the transfer from other customers. Commissioner Waldfogel commented that the proposal made sense and asked if the City Attorney had seen or approved of the plan. Auzenne indicated that the City Attorney was aware. Rosenbaum moved and Waldfogel seconded the recommendation. ACTION: The Commission voted unanimously (4-0) to approve the motion. Utilities Advisory Commission Minutes Approved on: November 5, 2008 Page 1 of 1 ATTACHMENT D FINAL UTILITIES ADVISORY COMMISSION EXCERPT MINUTES OF NOVEMBER 5, 2008 ITEM 4: INFORMATION ITEM: Update on the October 1, 2008, Staff Recommendation to Eliminate the Residential Customer Discounts for Water and Storm Drain Service to Comply with the Requirements of Proposition 218, Approve Rate Assistance Program Changes, and Adopt a Resolution Amending the utilities Rate Schedule C-4 "Residential Rate Assistance Program" Director Fong gave a quick overview of this informational item which had been earlier reviewed by the UAC at its October meeting. Fong noted the purpose of the November update was to inform the UAC that Utilities would not take any further action on the rate assistance program discount for the Storm Drain since the UAC does not review Storm Drain activities. Instead, the elimination of the discount for the Storm Drain Utility should not have been included in the October memorandum to the UAC, and Public Works would pursue any further actions. Additionally, the elimination of the rate assistance discount for the Water Utility would not be presented to the Finance Committee or Council until sometime in 2009 when the balance of any rate changes would be considered by the Finance Committee and Council in the context of the Fiscal Year 2009-10 and 2010-11 budgets. This would permit a rate hearing on the matter since is conceivable that the elimination of a long-standing discount to water rates may be construed as a rate increase by some customers Commissioner Waldfogel expressed extreme discomfort with the delay in presenting the matter to the Finance Committee and Council by a few months and asked that the matter be returned to the UAC prior to going to the Finance Committee and Council. Chair Dawes explained that having the rate hearings in the context of Proposition 218 made sense to him and that he was not troubled with the delay since the delay did not represent a change in content, only in timing. No other Commissioners spoke in support of Commissioner's Waldfogel's request to have the UAC re -visit staff's recommendation. Utilities Advisory Commission Minutes Approved on: December 3, 2008 Page 1 of 1