HomeMy WebLinkAboutStaff Report 1399City of Palo Alto (ID # 1399)
Finance Committee Staff Report
Report Type:Meeting Date: 3/1/2011
March 01, 2011 Page 1 of 11
(ID # 1399)
Title: Wastewater Utility Rate Changes
Subject: Wastewater Utility Rate Adjustments
From:City Manager
Lead Department: Utilities
Recommendation
Staff requests that the Finance Committee recommend that the City Council adopt a resolution
to:
1.Amend Wastewater Collection Utility Rate Schedules S-1 and S-2, as attached;
2.Amend Special Wastewater Utility Rule and Regulation 23, as attached.
The recommended rate structure changes will trigger the notice and protest hearing
procedures under Proposition 218.
Executive Summary
This report discusses the projected costs and revenue requirements for the Wastewater
Collection Fund for Fiscal Years (FY) 2012 through FY 2016, as well as recommended rate and
regulation revisions for FY 2012.
Staff assessed major cost drivers and expected costs, the short-term risks, reviewed reserve
guidelines, and determined the revenue requirements for the Wastewater Collection Fund for
the next five years. The financial forecast shows that no additional revenue increase is needed
in FY 2012, while revenue increases of 5% in FY 2013, followed by revenue increases of 7% per
year for FY 2014 and FY 2015 and 5% in FY 2016 may be required. Staff requests the F inance
Committee recommend adoption of revenue neutral rate schedule adjustments for FY2012 at
this time. The required revenue increases for FY 2013 through FY 2016 are provided for
information purposes and are subject to change. W ith the projected revenue increases, the
balance of the Wastewater Collection Rate Stabilization Reserve (WW-RSR) covers the short-
term risk assessment value and is within the Council-approved reserve guideline levels for the
long-term forecast horizon.
In October 2010 and November 2010 staff brought to the Utilities Advisory Commission (UAC)
and the Finance Committee respectively, an assessment of existing rate structures with respect
to the cost to serve distinct customer classes within the City of Palo Alto (City). Staff
recommends, in concurrence with the discussions and the direction provided by the UAC and
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the F inance Committee during these meetings, a re-allocation of revenue collection by rate
class. The revenue neutral rate structure adjustments will not have any overall resource impact
but will result in an average revenue increase of $1.0 million or 13% from residential customers,
and an average revenue decrease of $1.0 million or 15% from business customers. At its
February 2, 2011 meeting, the UAC unanimously accepted staff ’s recommendation.
If approved by Council, the impact of the revisions will be a $3.26 increase on a residential
customer ’s monthly wastewater collection charge of $24.65, effective July 1, 2011. Commercial
customers in general will see a reduction in their bills in varying amounts depending on
customer class and individual water usage levels.
Background
Wastewater Collection Utility rates have been unchanged since a five percent revenue increase
was approved by the City Council effective July 1, 2009.
The Wastewater Collection Fund’s revenue requirement consists of a number of components
including: Wastewater treatment cost, collection system operations, Capital Improvement
Program (CIP) projects, prudent funding of the Wastewater Collection Rate Stabilization Reserve
(WW-RSR), the Emergency Plant Replacement Reserve, and debt service payments. Any change
in one or more of these components, can trigger an adjustment to the revenue requirement.
During the budget process, staff forecasts customer load, revenues and utility expenses to
quantify the annual revenue requirement. Changes to forecasted revenues or expenses are
reflected in adjustments to the budget during the mid-year budget adjustment process.
In FY 2010, staff hired Utility F inancial Solutions, LLC, an external consulting firm, to conduct a
cost of service analysis (COSA). COSAs are conducted to review utility rate structures and the
alignment of revenues by customer class with the cost of providing service to each customer
class. COSAs also fulfill Proposition 218’s requirements for determining the proper allocation of
costs to customers. Based on the results of the COSA, and a review of Wastewater Collection
Utility rate structures, staff analyzed various alternative rate structures to ensure equitable rates
for all customer classes. Staff discussed with the UAC at its October 2010 meeting and the
Finance Committee at its November 2010 meeting various alternatives to Wastewater
Collection Rate structures in order to meet certain rate making objectives, and
recommendations from those meetings are incorporated in this report.
Discussion
Financial Projections
Table 1 shows actuals, budgeted and projected financial information for the Wastewater
Collection Fund for FY 2010 –FY 2016.
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Table 1
Five-Year Financial Plan –Projected Costs (in $thousands)
Cost Drivers
Total expenses for the Wastewater Collection Fund are projected to increase from their
budgeted levels of $16.9 million in FY 2011 to $18.8 million in FY 2016, which is a 2.1% average
annual increase.
Treatment costs account for almost half of the total costs, about $7.5 million in FY 2011, and
are projected to increase by 2% per year reaching $8.6 million in FY 2016. Annual CIP costs and
Operations cost account for roughly 25% each, with CIP costs projected to increase at a higher
rate of 2.3% annually based on planned project schedules as the Wastewater Collection Utility
continues its system replacement projects. Staff projects a long-term cost increase of 1% per
year in other operating expenditures such as operations, maintenance and administration
costs, allocated cost plan and Utilities administration charges, rents, and other transfers. This
conservative assumption reflects the current expectations for the economic activity for the
region. Depending on the final outcome of budgetary decisions, final Operating Budget
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proposals will be determined and presented to the Finance Committee at its May 2011
meeting.
Revenue Projections
Retail Sales constitute the largest source of revenue for the Wastewater Collection Fund. In FY
2010, total Retail Sales were $14.5 million. This was 0.9% or $133,000 higher than budgeted.
Retail Sales revenues are generally stable for the Wastewater Collection Fund because
residential rates, which make up 53% of sales revenues, consist of fixed service charges per
month. Since commercial wastewater rates are partially based on water usage, there is some
effect on the Wastewater Collection Fund revenues when water use declines.
Other revenues include service connection and capacity fees of $0.7 million per year, increasing
incrementally per year, and transfers in of $0.4 million. Interest and gains on investments
totaled $0.7 million in FY 2010, which was slightly higher than budget. Interest is projected to
decrease to around $0.3 million over the next few years, based on an assumed 3% annual
return on investment.
Revenue Requirement
Based on the City’s Annual Financial Report (CAFR) for FY 2010, the WW-RSR ended the fiscal
year with a balance of $6.8 million, which is above both the maximum reserve guideline level of
$4.4 million and the annual risk assessment value of $1.7 million.
The revenue requirement of the Wastewater Collection Fund is the total amount of revenue
the utility must collect in order to meet the utility’s operations and maintenance (O&M)
expenses, debt service payments and rate-financed CIP expenditures. This revenue is collected
through wastewater rates, and may be supplemented by revenues from service connection and
capacity fees, interest income, transfers in from other funds, and other miscellaneous
revenues.
The Wastewater Collection Fund has a revenue shortfall of $1.7 million and $2.1 million in FY
2012 and FY 2013 respectively. Given healthy reserves in FY 2011, staff recommends no overall
revenue adjustment for FY 2012. For FY 2013, staff projects a possible increase of 5%, which
might be proposed depending on updated financial projections as part of the FY 2013 budget
process.
Reserves and Risk Assessment
Palo Alto’s City Council establishes the guidelines for Rate Stabilization Reserves. The Council
reviews reserve adequacy periodically and adjusts the guidelines as needed. The WW-RSR
Guidelines were lowered in June 2009 (CMR:281:09) from 50% and 20% to 30% to 15% of sales
revenues for maximum and minimum reserve levels, respectively. Table 2 summarizes the
minimum and maximum guideline levels for the WW-RSR for FY 2011, FY 2012 and FY 2013. As
required by the RSR guidelines, staff performs an annual assessment of short-term risks for the
fund. Staff estimates the revenue shortfall due to the maximum observed budget to actual
variance in one year during the past ten years plus a variance of 10% of planned CIP
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expenditures for the budget year. These figures are provided in Table 2 below as “Risk
Assessment”.
Table 2: Wastewater Collection Rate Stabilization Reserve Guideline Levels and Short-Term
Risk Assessment ($M)
The WW-RSR balance is forecast to be $4.1 million at the end of FY 2012, which is above the
minimum guideline level as well as the short-term risk assessment level. For FY 2013, balances
are projected to remain above the minimum guideline and short-term risk assessment levels, if
cost and revenue projections remain relatively consistent with financial forecasts. The final
reserve balance levels will be determined after the completion of the Wastewater Collection
Budget that will be presented to the Finance Committee at its May 2011 meeting.
Cost of Service Analysis (COSA)
As mentioned earlier, staff hired UFS in October 2009 to conduct a COSA for the Wastewater
Collection Utility. UFS has experience in completing over 300 COSA’s for municipal utilities
around the nation. The analysis involved an in-depth review of utility financial data, customer
class load profiles, and the specific costs associated with providing utility services. It was
conducted based on industry-recognized procedures involving functional classification of utility
assets and expenses, and allocation of costs to customer classes based on the cost to provide
the services. Specific customer class attributes included quantity of service and/or resource
consumed; variability of use during the year; and, peak demands created on the system by each
class.
The result of the study is a recommended adjustment to rate schedules to accurately align
future revenues collected from each customer class with the costs attributable to serving that
class. The original study used financial data prepared for the FY 2011 long-range forecasts that
were presented to the Finance Committee in March 2010. The study also relied on billing data
for all of FY 2008 and part of FY 2009. The original study results were updated with FY 2010
customer usage data as it became available in September 2010. Table 3 presents the summary
of updated COSA results for the Wastewater Collection Utility. Attachment E and F provide the
Technical Memorandum for the updated results and the original Cost of Service Study,
respectively.
Wastewater Rate Stabilization
Reserve
FY 2011 FY 2012 FY 2013
Estimated End of Year Balance 5.8 4.1 2.7
Risk Assessment 1.8 1.9 2.0
Minimum Level Guidelines 2.2 2.2 2.3
Maximum Level Guidelines 4.3 4.3 4.5
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Table 3: Summary of COSA Results
Rate
Schedule
Customer
Class
Projected
Revenue
Cost of Service COSA
Adjustment
S-1 Residential $7,603,522 $8,613,594 13.3%
S-2 Commercial 3,769,359 3,454,739 -8.3%
S-2 Restaurant 1,021,042 896,895 -12.2%
S-2 Industrial 1,977,427 1,406,122 -28.9%
Total $14,371,350 $14,371,350 0%
Wastewater Collection Utility Customer Profile and Revenue Collection
As of June 2010, the City of Palo Alto’s Wastewater Collection Utility had approximately 22,200
wastewater service accounts. Table 4 provides the distribution of accounts by customer class.
While approximately 93% of customer accounts are residential, this represents 53%of
revenues. The remaining 47% of revenues are collected from commercial customers on the S-2
rates schedule. Approximately 58% of revenues are collected through fixed monthly charges
and 42% through volumetric charges.
Table 4 –Number of Accounts and Billing Water Consumption
Rate
Schedule
Customer
Class
Number of
Customers
Total Billing
Water
Consumption
S-1 Residential 20,687 1,542,480(1)
S-2 Commercial 1,283 729,930(2)
S-2 Restaurant 160 107,907
S-2 Industrial 15 290,940(3)
Total 22,232 2,825,505
(1) Represents annual indoor water consumption based on 5 ccf1 per
month per customer, adjusted to include approximately 5400
apartment dwellings
(2) Represents annual water consumption for 1,283 customers and winter
water consumption for 87 customers.
(3) Represents primarily winter water consumption.
1 ccf stands for hundred cubic foot and is a measure of water use.
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Current Rate Schedules and Recommended COSA Alignments
Current wastewater collection rates for residential customers consist of a fixed monthly
customer charge (service charge), which is based on an average monthly discharge level of 5 ccf
of water. For commercial and restaurant customers, there are two components: a fixed
monthly minimum charge (similar to the residential monthly charge), and a variable rate based
on water usage. Industrial rates are similar in structure to commercial rates, but in addition
have a surcharge rate based on the results of periodic sampling of water discharge performed
by the Environmental Compliance Division (ECD) of the Regional Water Quality Control Plant.
Table 5 shows current Wastewater Collection rates by customer class, and Table 6 shows the
COSA results allocating costs to their appropriate customer class.
Table 5 -Current Wastewater Collection Rates
(*) Industrial rates include surcharges presented to the right of the table.
COD = Chemical Oxygen Demand, SS = Suspended Solids, NH3 = Ammonia
Table 6 –COSA Results
Rate Design
Staff presented three rate design objectives to the UAC at its meeting in September 2010 and
to the Finance Committee at its meeting in October 2010. The objectives presented were to
adjust rate schedules to:
·reflect updated COSA,
·provide effective price signals to promote water conservation, and
·avoid rate/bill shock and financial hardship.
Staff reviewed alternative rate structures with respect to collection of revenues in terms of
fixed monthly service charges versus minimum monthly service charges for business customers.
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Fixed monthly service charges result in a lower volumetric rate and greater revenue stability.
Another rate structure revision considered was the elimination of the separate surcharge for
industrial customers.
Based on discussions held with the UAC in October 2010 and with the Finance Committee in
November 2010, other than necessary cost of service adjustments, there do not appear to be
any major structural problems with the wastewater collections rate structures as they exist
currently. Revenue streams do not appear to be as volatile as the Water Fund under the
current regime of minimum charges with business customers. This is largely due to having
monthly fixed charges for residential customers. In order to maintain revenue stability and
recover costs appropriately, it is proposed to continue with the monthly fixed charges for
residential customers. For the commercial and restaurant customers it is also proposed to
remain with the current rate structures in terms of the monthly minimum charges along with
the volumetric charges, as this type of a rate structure will provide a greater degree of incentive
for water conservation.
At the UAC’s October 2010 meeting, staff recommended the removal of the industrial
surcharges as a separate billing component, as the result of analysis showing that the few
customers on this rate schedule have discharges that do not vary significantly in strength from
other, non-surcharged commercial customers. Currently the rate schedule specifies that any
customer using, on average, more than 25,000 gallons per day will be subject to these
surcharges. The number of customers on this schedule has decreased from previous years, with
changes in industry types and the shrinking wastewater volumes. Customers discharging, or
with the potential to discharge, toxics are monitored and regulated under separate programs
operated by the ECD.
Concern was expressed by some Commissioners on the complete removal of the industrial
surcharges from the schedule, as there could be a need to assess these kinds of charges to
customers later identified by the ECD as entities in need of regular monitoring and cost
recovery for excessive discharges. To alleviate these concerns, staff proposes to change the
conditions for the rate to remove the size definition and leave the surcharge rates in place. Any
customers potentially subject to this rate may be evaluated by the ECD regarding the quantity
and/or quality of their discharges. Dischargers may be subject to this rate schedule on the
recommendation of the ECD. Future customers subject to these surcharges would be informed
of the change and would be able to work with the ECD to mitigate or capture the offending
contaminants.
Additionally, the City may rely on provisions of the Sewer Use Ordinance (SUO, Chapter 16.09
of the PAMC). The SUO includes provisions that prohibit discharges of toxics or of any wastes
that result in extra cost of collection, treatment, or disposal. Customers unable to mitigate
these discharges through treatment or pollution prevention efforts and wishing to discharge
wastes containing concentrations deemed to result in extra cost of collection, treatment, or
disposal will be placed on a monitoring program and the City shall be compensated for any
costs it incurs in authorizing such discharge, including any expense in determining whether such
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discharge is compatible with the sanitary sewer system and is in compliance with the
pretreatment requirements.
The ECD has confirmed that there are currently no customers who would be eligible for the
surcharge rate under the proposed conditions, and as such, all existing customers designated as
industrial would become part of the commercial class. The industrial surcharge rates will
remain unchanged at this time with the proposed changes to the applicability of this rate
schedule. Additionally, fees for Industrial Waste Dischargers have been changed to reflect that
the permit term is now five years instead of three. The cost per year remains the same.
Attachment B shows the required changes to the language of Wastewater Collection Rate
Schedule S-2, and Attachment C shows the same for Utility Rule and Regulation 23 (Special
Wastewater Utility Regulations).
The resulting rate proposal is shown in Table 7.
Table 7 –Proposed FY 2012 Rates
(*) Industrial rates include surcharges presented to the right of the table.
COD = Chemical Oxygen Demand, SS = Suspended Solids, NH3 = Ammonia
Comparison of Wastewater Collection Rates in Palo Alto and Surrounding Cities
For several years, Palo Alto's retail wastewater collection rates have generally been on par with
surrounding areas. Table 8, which compares monthly wastewater collection bills using rates as
of January 1, 2011 for Mountain View, Redwood City, Santa Clara and Menlo Park, indicates
that the average residential customer in surrounding cities pays approximately 49 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.
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Table 8 –Monthly Residential Wastewater Collection Bill Comparison
(rates in effect as of Jan. 1, 2011)
Waste
water
Palo
Alto
Mountain
View
Redwood
City
Santa
Clara
Menlo
Park
Average
Benchmark
Residential $24.65 $24.20 $48.72 $19.40 $54.17 $36.62
Difference from CPAU -1.8%97.6%-21.3%119.7%48.6%
It should be noted that Palo Alto’s proposed residential rate increase to $27.91 would continue
to be lower than the average benchmark level.
Proposition 218 Water 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 service rate increases and customer charges
described here, the City must provide written notice by mail to water 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 a majority of
customers submit written protests against the proposed fees, the City may not impose the fee.
Alternatives
Staff evaluated alternative revenue-neutral rate changes based on COSA recommendations.
One alternative was to use fixed monthly service charges instead of the minimum monthly
service charges for business customers. This alternative was rejected in favor of the proposed
rate adjustment due to the ability of the current rate structure to provide greater incentive for
water conservation.
Board/Commission Review and Recommendations
The UAC considered staff’s recommendation at its February 2, 2011 meeting. The UAC clarified
that although there is no total revenue increase, 93% of customers (residential customers) will
see a rate increase.
The UAC voted unanimously to recommend that the City Council approve staff’s recommended
Wastewater Collection Utility Rate Adjustments. Draft minutes from the UAC’s February 2,
2011 meeting are provided as Attachment G.
Resource Impact
Approval of this rate proposal will result in no significant retail sales revenue changes to the
Wastewater Collection Fund for FY 2012.
March 01, 2011 Page 11 of 11
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Environmental Review
The restructuring of wastewater 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).
Policy Implications
This recommendation does not represent a change to current City policies.
Attachments:
·Attachment A: WW Utility Rate Schedule S-1 effective 7-1-2011 (PDF)
·Attachment B: WW Utility Rate Schedule S-2 effective 7-1-2011 (PDF)
·Attachment C: Utility Rule 23 effective 07-1-2011 (PDF)
·Attachment D: Draft Resolution for Wastewater July 1 2011 (PDF)
·Attachment E: Wastewater Technical Memorandum (PDF)
·Attachment F: Wastewater Cost of Service Report (PDF)
·Attachment G: Draft UAC Minutes (DOCX)
Prepared By:Ipek Connolly, Sr. Resource Planner
Department Head:Valerie Fong, Director
City Manager Approval: James Keene, City Manager
DOMESTIC RESIDENTIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No S-1-1 dated 11-1-20087-1-2009 Sheet No S-1-1
A. APPLICABILITY:
This schedule applies to each occupied domestic residential dwelling unit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides wastewater service.
C. RATES:
Per Month
Each domestic dwelling unit..................................................................................................
$24.6527.91
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}
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No S-2-1 dated 11-1-2008 7-1-2009 Sheet No S-2-1
A. APPLICABILITY:
This schedule applies to all establishments other than domestic residential 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..................................................
$24.6527.91
(B) Quantity Rates:
Based on metered water, per 100 cubic feet.................................................. $9.29
8.31
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 requiring special
discharge monitoring as defined in Rule and Regulation 23, Section D.
(A) Collection System Operation, Maintenance, and Infiltration Inflow:
$3,706.351,978.61 per million gallons ($2.771.48 per 100 cubic feet of metered water).
(B) Advanced Waste Treatment Operations and Maintenance Charge:
$2,422.41,336.906 per million gallons ($1.821.00 per 100 cubic feet of metered
water).
(C) $ 247.56 per 1000 pounds of COD1
(D) $ 596.62 per 1000 pounds of SS2
(E) $ 3,983.85 per 1000 pounds of NH3 3
1 COD stands for Chemical Oxygen Demand
2 SS stands for Suspended Solids
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COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No S-2-2 dated 11-1-2008 7-1-2009 Sheet No S-2-2
(F) $ 14,781.25 per 1000 pounds of toxics*4
*Toxics include sum of chromium, copper, cyanide, lead, nickel, silver, and zinc.
3. All Other Establishments
(A) Minimum Charge per connection per month
$24.6527.91
(B) Quantity Rates: Based on metered water per 100 cubic feet...................................................$ 5.07 4.75
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 as defined under Section C(.3) of this rate scheduleapplicable 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
3 NH3 stands for Ammonia
4 Toxics include sum of chromium, copper, cyanide, lead, nickel, silver, and zinc
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COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No S-2-3 dated 11-1-2008 7-1-2009 Sheet No S-2-3
The following fees, as defined in section 16.09.010 of the Palo Alto Municipal Code, 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 ........................................................$250425
(B) Non-categorical / small categorical with
only minor pollutant concerns .....................................................$1,250750
(C) Categorical or Significant Industrials Users
with ability to impact the RWQCP..............................................
$1,2502,100
{End}
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 1
A. GENERAL
In addition to the general requirements outlined in Rule and Regulation 18 for Utility Service
Connections and Facilities on Customers’ Premises, the following is required:
B. HAULED LIQUID WASTE
The discharge of hauled liquid wastes is regulated by the Palo Alto Municipal Code 16.09.110. The
following Rules and Regulations are to implement this Provision.
1. PURPOSE
To provide a means of treating certain waste prohibited from entering the Wastewater
system, City of Palo Alto Public Works Department operates a Hauled Liquid Waste
Treatment Site at the Regional Water Quality Control Plant (RWQCP). Certain wastes may
be hauled to this site for treatment and disposal.
2. WASTES ACCEPTABLE FOR TREATMENT
a. Hauled septic tank wastes
b. Portable toilet pumpings
c. Grease Trap wastes
3. HOURS OF OPERATION
Hours of operation for the Liquid Waste Hauler’s Treatment Site shall be as established by
the Manager, Water Quality Control.
4. WASTE IDENTIFICATION
The hauler must provide a liter sample, taken in the presence of a waste treatment plant
operator, of the contents of each tank to be discharged. The nature and source of the waste
will be verified before the truck is permitted to unload. If laboratory analysis indicates that
the material is not as represented (septic tank waste or toilet piping from a domestic source)
the hauler’s permit may be revoked.
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 2
5. HAULING OPERATIONS
a. To discharge at the Regional Water Quality Control Plant, a hauler must:
1. Obtain a Trucker’s Discharge Permit from the Manager, Water Quality
Control;
2. File with CPAU a Certification of insurance and a hold harmless clause:
3. Post a bond or cash deposit with CPAU’s appropriate division.
b. The Trucker’s Discharge Permit shall be issued for twelve-month periods and is
revocable for the violation of any of these Rules. The fee for Trucker’s Discharge
Permits shall be as stated in CPAU Rate Schedule S-4.
c. Insurance policies in force with limits of liability shall not be less than those
specified below as follows:
Coverage for Which Limits of
Insurance is Afforded Liability
Worker’s Compensation & Compensation
Employer’s Liability Statutory
Bodily Injury Liability $1,000,000 each Person
except automobile including $1,000,000 each occurrence
the following coverages:
Coverage for Which Limits of
Insurance is Afforded Liability
Protective, Completed Operations,
Board Form Contractual and
Personal Injury
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 3
Property Damage Liability $1,000,000 each occurrence
except automobile including
the following coverages:
Protective, Completed Operations,
Board Form Contractual and
Personal Injury
Property Damage Liability $1,000,000 each occurrence
except automobile including
the following coverages:
Protective Completed Operations
and Board Form Contractual
Bodily Injury & Property Damage $1,000,000 each Person
Liability Automobile $1,000,000 each occurrence
d. The hauler must agree to save and hold harmless CPAU, its officers, agents, and
employees from any liability of any nature whatsoever caused in whole or in part, by
the negligence of the hauler, or his agents, or employees, arising out of such
operation.
6. BILLING
Waste Haulers will be billed directly for grease, septic tank and portable toilet wastes.
7. REFUSAL OF WASTES
CPAU reserves the right to reject any Load of hauled waste under the following conditions:
a. If the waste is not properly identified
b. If there is not sufficient storage capacity at the plant for the Load
c. For reasons of public health or safety at the discretion of the Manager, Water Quality
Control Plant.
d. If the Load contains waste materials not authorized by these Regulations.
C. MAINTENANCE OF THE WASTEWATER COLLECTION SYSTEM
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 4
Depending on whether the City’s Wastewater main is located in the public right of way or in an
easement, the Customer may be responsible for a portion of the lateral or the entire lateral. (A
lateral is the pipe connecting a building’s plumbing system with the City's Wastewater main.)
1. CITY WASTEWATER MAIN IN THE PUBLIC RIGHT OF WAY
If the City’s Wastewater main is located in the public right of way, the Customer is
responsible for the upper portion of the lateral, from their home or structure up to and
including the connection to the City Wastewater cleanout box, as shown on the diagram
below. In cases where a cleanout at the property line does not exist, the City is responsible
for the portion of the lateral between the property line and the Wastewater main.
2. CITY WASTEWATER MAIN IN AN EASEMENT
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 5
City Wastewater mains located in easements are often, but not always, located at the rear of
the property rather than under the public street. If the City Wastewater main is located in an
easement, CPAU will be responsible for the maintenance of the Wastewater main. The
Customer is responsible for maintaining the Wastewater lateral including but not limited to:
clearing any stoppages and any clean up related to lateral backups. The diagram below
illustrates the Customers area of responsibility.
3. CUSTOMER RESPONSIBILITY REGARDLESS OF LOCATION OF CITY
WASTEWATER MAIN
These rules apply no matter where the City’s Wastewater main is located.
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 6
a. If Wastewater maintenance results from a violation of the Municipal Code and/or these
Regulations, CPAU may assign responsibility to the user, and refuse to perform such
maintenance.
b. The Customer will be responsible for replacing non-plastic Wastewater laterals when
building a new structure or constructing additions/remodels that have a value greater
than 50% of the current value of the existing structures on the lot. Reconnection to a
City Wastewater lateral will only be allowed on existing plastic pipe laterals meeting
current WGW Utility Standards. All laterals constructed of non-standard pipe materials
must be replaced, per the WGW Utility Standards, from the main up to and including the
cleanout at the property line at the fees listed in Rate Schedule S-5, or by the Customer’s
contractor at the Customer’s expense.
c. Private sewer mains and laterals are the responsibility of the Customer or Property
Owner up to and including the connection to the City Wastewater main or manhole.
d. The Customer will be responsible for the on-site Wastewater Collection System in
accordance with the Municipal Code, including:
1. Preventing storm Water, roof or yard drainage, basement, foundation or under-
drainage from being discharged into the Wastewater Collection System, unless a
permit is granted by Regional Water Quality Control Plant. In addition, any
plumbing or piping that is connected or could be connected that would allow the
future discharge of storm Water or ground Water into the Wastewater Collection
System is prohibited.
2. Maintaining the condition of the on-site Wastewater Collection System so that it
is water tight and does not allow the infiltration of groundwater.
3. Keeping the clean-out box at ground level and visible. If after a 30 day notice from
CPAU the Customer has not made the clean-out box accessible, CPAU may
remedy the inaccessibility by performing the work and charging the Customer the
actual cost incurred.
4. Installing, maintaining, and ensuring proper usage of Grease Control Devices in
accordance with the Sewer Use Ordinance 16.09.103. If the source of grease
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 7
contamination in the Wastewater Collection System can be linked to a particular
Customer, the Customer may be held responsible for cleaning the Wastewater
System, including any associated costs or damages incurred by the City.
5. Limiting the Water inflow rate to the Wastewater Collection System during fire
system testing to 30 GPM. Higher flushing rates must be diverted to a detention
tank to limit the flow rate to 30 GPM.
6. Limiting Wastewater ejector pumps usage so that the following conditions are met:
The pump(s) output capacity may not exceed 100 GPM. The Wastewater lateral
must change to a 4” gravity flow lateral at least 20’ from the City-owned clean out.
The velocity in the 4” gravity flow lateral must not exceed 3 feet per second. The
tank and float shall be set up such that the pump run time does not exceed 20
seconds or 33 gallons pumped during each cycle.
7. Installing an approved backwater valve per the latest adopted version of the
California Plumbing Code 710.0 when the fixtures or drains connected to the
Wastewater system are less than one foot above the next upstream Wastewater
main manhole cover. The upstream Wastewater main manhole rim elevation shall
be shown on the plans.
4. NOTIFICATION TO CPAU
If a Wastewater stoppage occurs, the Customer shall notify CPAU. CPAU will then
determine if the stoppage is in the portion of the system maintained by CPAU or the
Customer. CPAU will clear stoppage from the property line or clean out to the main.
D. SAMPLING OF INDUSTRIAL DISCHARGES IN EXCESS OF 25,000 GALLONS PER DAY
In order to properly apportion costs of operation and maintenance of the RWQCP to the large
industrial or commercial users who, as determined by the Environmental Compliance Division of the
RWQCP, are dischargers of chemicals or effluent of a content and/or quality as to require special
monitoring and charges, it is essential to determine both the quantity and quality of Wastewater
produced by each user discharging 25,000 gallons per day or its equivalent so identified.
The following is adopted as a fair and equitable method of developing the necessary criteria:
Formatted: No underline
Formatted: No underline
Formatted: No underline
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SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 8
1. FLOW
The quantity Charge shall be based upon the metered Water served to the industrial or
commercial user being billed under Section D of this Rule. Exceptions will be made for the
following:
a. For Customers with one or more cooling towers, the volume of evaporated Water
associated with cooling (inflow less outflow) may be used to offset flow calculations
for Wastewater billing. To be eligible for such offsets, the Customer must comply
with the following items:
1. Inflow Water data
(a) Customer must have inflow Water Meter(s) on all cooling
tower inlet(s);
(b) Meter(s) must be annually certified by County Department of
Weights and Measures;
(c) Proof of Certification(s) must be submitted to Utilities along
with annual Meter Reads;
2. Outflow Water data
(a) Five (5) cycles of concentration will be assumed for outflow
calculations;
(b) Customers whose cycles of concentration are greater than five
(5) and who want to have this reflected in their calculations
must have outflow Meter(s) installed;
(c) Outflow Meter(s), if installed and used for purposes of
calculation, must be annually certified by County Department
of Weights and Measures;
(d) Proof of Certification(s) must be submitted to Utilities along
with annual Meter Reads;
3. Data acquisition and submittal
(a) Customer is responsible for reading and recording each inflow
Meter(s) flow (and each outflow Meter, if applicable) on a
monthly basis;
(b) Meter Reads should be performed at approximately the same
time each month;
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 9
(c) The following data, at a minimum, must be recorded at each
reading:
i. Date of read
ii. Inflow read(s) for each inflow Meter
iii. Outflow read(s) for each outflow Meter (if applicable)
(d) The City of Palo Alto reserves the right to periodically review
Customer's Meter(s) for accuracy;
4. Participation rules and restrictions
(a) Customer must have six (6) months of data in the first year to
be eligible for participation;
(b) Customer must annually submit twelve (12) months of data
thereafter;
(c) Inflow data (and outflow data, if applicable) must be
submitted to the Utilities Customer Service Division
annually by May for consideration in calculations for July
(the start of the City's fiscal year);
b. In cases where the user has extensive landscape irrigation and summer
monthly consumption exceeds the average monthly consumption of January,
February, and March by more than 50 percent (50%), the average of the
January, February, and March consumption shall be used for calculating
wastewater discharge for the remaining months of the year.
c. If an outflow Meter has been installed, such metered outflow will be used to
determine flow in lieu of recorded water meter consumption.
2. CHEMICAL OXYGEN DEMAND, SUSPENDED SOLIDS, AMMONIA
a. Measurements of the concentration of these constituents shall be taken from
24-hour composite samples collected periodically for each industrial
discharger being billed under Section D of this Rule discharging in excess of
25,000 gallons per day to the wastewater collection system.
1. The constituent concentrations found in these samples and previous
samples shall be averaged to provide the basis for establishing the
Wastewater Treatment Charge to be levied to the discharger being
sampled.
SPECIAL WASTEWATER UTILITY REGULATIONS
RULE AND REGULATION 23
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 67-1-20101
Sheet No 10
2. All samples shall be analyzed at the laboratory of the RWQCP.
Treatment Charges will be based upon the quantity and concentration
found in the waste stream monitored.
b. If an establishment’s piping configuration, or other physical considerations,
render representative Effluent sampling prohibitively complex or infeasible,
then CPAU shall set the establishment’s level of sewage effluent constituents
for billing purposes at the average effluent levels of industries in CPAU, or
where feasible, at the average effluent constituent levels of similar
establishments.
c. Sampling results are intended to provide an estimate of the quality of
Effluent discharge by the facility. Sampling results can vary significantly
depending on the facility processes operating on the day of sampling. If the
annual sampling results in combination with the flow data indicate a revised
annual bill to the Customer, the amount of the increase or decrease shall not
exceed 25 percent. The 25 percent limitation is independent of any change in
rates or Charges to Rate Schedule S-2.
(END)
*NOT YET APPROVED*
110126 dm 6051529
Resolution No. _________
Resolution of the Council of the City of Palo Alto Amending
Wastewater Collection Utility Rate Schedules S-1 and S-2
and Rule and Regulation 23 Governing Special Wastewater
Utility Regulations
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
_, 2011, the City of Palo Alto held a public hearing to consider all protests against the
proposed wastewater collection rate amendments; 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 wastewater collection rate amendments;
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, 2011.
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 sheets S-2-1 and S-2-2, attached hereto and incorporated
herein. The foregoing Utility Rate Schedule, as amended, shall become effective July 1,
2011.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rule and Regulation 23 (Special Wastewater Utility Regulations) as amended, attached
hereto and incorporated herein, is hereby approved and adopted. The foregoing Utility Rule
and Regulation, as amended, shall become effective July 1, 2011.
SECTION 4. 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.
//
//
//
//
//
//
*NOT YET APPROVED*
110126 dm 6051529
SECTION 5. The Council finds that a restructuring of 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:
___________________________ ___________________________
Senior Deputy City Attorney City Manager
___________________________
Director of Utilities
_____________________________
Director of Administrative Services
DATE: January 10, 2011
PREPARED FOR: City of Palo Alto Utilities – Wastewater Department
PREPARED BY: Mark Beauchamp, CPA/Utility Financial Solutions
SUBJECT: Cost of Service with Updated Billing Units
Purpose
The purpose of this technical memorandum (TM) is to compare the results of the original cost of service
study with updated billing statistics for 2010. The original study was based on fiscal years 2008 and 2009
usage patterns for each customer class. This update used the original costs with updated usage patterns using
2009 and 2010. This memorandum compares the summary results of original study with the updated usage
patterns.
Wastewater Cost of Service Results:
Table One – Comparison of Original Study Results with Updated Study
Customer Class Original Study
With Updated Billing
Statistics Original Study
With Updated
Billing
Statistics
Single Family Homes 6,675,767$ 6,676,392$ 13% 13%
Apartment Complexes 1,937,021 1,937,202 13% 13%
Commercial Rate 3,351,688 3,454,739 -8% -8%
Restaurant Rate 1,001,843 896,895 -14% -12%
Industrial Rate 1,405,030 1,406,122 -29% -29%
Totals 14,371,350$ 14,371,350$
Percent Change to Meet Cost of ServiceDollar Difference
The update of the usage patterns had minimal impact on the cost of service results with the most significant
impact on the Restaurant Rate where the results changed from a 14% decline to a 12% decline in rates to
meet cost of service results.
Page Two – Updated Wastewater Study Results
The table below is the updated cost of service results for the monthly customer and usage charges:
Table Two – Comparison of cost based charges
Description Cost Based Monthly
Customer Charge
Cost Based
Volume Rate
Cost of Service
Flat Charge
Current Minimum
Charges
Current Flat
Charge
Current Volume
Rate
Single Family Homes 27.91$ 24.65$ 24.65$
Apartment Complexes 27.91 24.65 24.65
Commercial Rate 47.24 3.70 24.65 - 5.07$
Restaurant Rate 47.24 7.31 24.65 - 9.29
Industrial Rate 283.42 4.68 24.65 - 4.50
Cost of Service Charges Current Charges
1
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
WASTEWATER COLLECTION COST OF SERVICE & RATE STUDY
Fiscal Year 2011
2
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
TABLE OF CONTENTS
Section Page No.
Introduction 3
Utility Revenue Requirements 4
Cost of Service Summary 6
Cost-Based Rates 7
Cost-Based Surcharges 10
Significant Assumptions 11
Accountants Compilation Report 16
3
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
INTRODUCTION
This report was prepared to provide the City of Palo Alto Utilities (CPAU) Department
with a wastewater collection cost of service study and a comprehensive examination of its
existing rate structure and revenue requirements by an outside party. Utility Financial
Solutions was contracted to review revenue requirements and the cost of providing
service to customers of the Wastewater Collection Utility. This report identifies revenue
requirements and cost of service for the Wastewater Collection Utility, the specific
purpose of the study includes:
1) Determine Wastewater Collection Utility’s revenue requirements for Fiscal Year
2011 based on budget and financial projections provided by Palo Alto staff
2) Determine revenue requirements
3) Analyze and explain differences in each method
4) Allocate utility’s revenue requirements to customer classes
5) Identify the cost to provide service to customer classes
6) Determine surcharge rates for high strength discharges
5) Review the current Wastewater Collection Utility rate structures and propose
alternative rate structures
6) If possible; propose rate structures to encourage conservation and efficient use of
resources
This report is structured in the following manner:
• Introduction
• Utility Revenue Requirements for Fiscal Year 2011
• Cost of Service Summary
• Recommended Rate Adjustment
• Cost of Service Components
• Significant Assumptions Used in Analysis
• Recommendations
• Compilation Report
4
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
UTILITY REVENUE REQUIREMENTS
CPAU’s financial projections were used to evaluate the current and projected financial
statements. The table below is the accrual basis revenues and expenses for CPAU’s
Wastewater Collection Utility. (Cash basis is listed on page five of this report). CPAU’s
projected rate adjustments are incorporated into the financial projection with rate
adjustments of 0.0% for FY 2011 and 5% per year for FY 2012 – FY 2015. The projected
operating income for FY 2011 is $1.45 million and is projected to increase to $2.7 million
in FY 2015.
Table One – Projected Financial Statements FY 2011 – FY 2015
Projected
FY 2011
Projected
FY 2012
Projected
FY 2013
Projected
FY 2014
Projected
FY 2015
RATE ADJUSTMENT 0.0% 5.0% 5.0% 5.0% 5.0%
REVENUES
SALES REVENUES 14,371$ 15,060$ 15,813$ 16,604$ 17,434$
DISCOUNTS / UNMETERED (15) (15) (15) (15) (15)
OTHER / OP TRANS IN 393 393 393 393 393
CONNECTION FEES / CAPACITY FEES 730 740 750 761 771
TOTAL REVENUES 15,479$ 16,178$ 16,941$ 17,743$ 18,583$
EXPENSES
DISTRIBUTION 10,133 10,462 10,803 11,157 11,525
CUSTOMER SUPPORT SERVICES 289 292 295 298 301
A LLOCATED CHARGES 1,355 1,369 1,382 1,396 1,410
TRANSFERS 679 680 682 683 684
DEPRECIATION EXPENSE 1,571 1,675 1,782 1,892 2,006
TOTAL O&M EXPENSES 14,027$ 14,478$ 14,944$ 15,426$ 15,925$
OPERATING INCOME 1,452$ 1,700$ 1,997$ 2,317$ 2,658$
NON OPERATING INCOME AND EXPENSES
INTEREST INCOME 552$ 221$ 194$ 177$ 171$
INTEREST EXPENSE (65) (62) (58) (55) (51)
TOTAL OTHER OPERATING INCOME AND EXPENSES 487$ 159$ 135$ 122$ 120$
NET INCOME 1,939$ 1,859$ 2,132$ 2,439$ 2,778$
5
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
UTILITY REVENUE REQUIREMENTS
The table below is the projected cash flows and cash reserve from FY 2011 – FY 2015.
The projected cash available at the end of FY 2011 is $5.9 million (excluding cash
committed to previous CIP programs). Cash is projected to decline each year ending at
approximately $4.3 million in FY 2015.
Table Two – Projected Cash Balance
Projected
FY 2011
Projected
FY 2012
Projected
FY 2013
Projected
FY 2014
Projected
FY 2015
A dd Net Income 1,939$ 1,859$ 2,132$ 2,439$ 2,778$
A dd Back Depreciation Expense 1,571 1,675 1,782 1,892 2,006
Debt Service Principal 65 68 71 74 77
Cash Available from Operations 3,446$ 3,467$ 3,844$ 4,257$ 4,706$
Estimated Annual Capital Additions 4,160 4,271 4,387 4,549 4,686
Net Cash from Operations (714)$ (804)$ (543)$ (292)$ 20$
Beginning Cash Balance 6,629$ 5,915$ 5,111$ 4,568$ 4,276$
Ending Cash Balance 5,915 5,111 4,568 4,276 4,296
6
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE SUMMARY
The purpose of a cost of service study is to allocate costs between estimated discharges
(Volume Costs) and customer service costs (Customer Costs). The cost of service study
was based on recognized procedures from the American Public Works Association.
Volumetric Costs are costs that tend to vary with the quantity of wastewater treated, as
well as costs associated with the collection system.
Customer Costs are costs associated with serving customers regardless of their usage or
discharge characteristics. Customer Costs include the operation and maintenance
expenses related to meter reading, billing and collection costs. Customer Costs are
allocated on the basis of characteristics such as meter sizes installed on a typical
customer in each rate class.
Table Three below shows the total revenue projected to be received by each customer
class compared with the cost of providing the service.
Table Three - Cost of Service Summary by Customer Class
.
Customer Type Cost of Service
FY 2011 Base
Projected Revenues Difference
Percent
Change
Single Family Homes 6,675,767$ 5,898,541$ 777,226$ 13%
A partment Complexes 1,937,021 1,711,503 225,518 13%
Commercial Rate 3,351,688 3,624,791 (273,103) -8%
Restaurant Rate 1,001,843 1,159,086 (157,243) -14%
Industrial Rate 1,405,030 1,977,427 (572,397) -29%
Totals 14,371,350$ 14,371,350$ -$ 0.0%
7
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE SUMMARY
COST BASED M ONTHLY C USTOMER C HARGES AND VOLUMETRIC C HARGES
An ideal cost-based rate would include a monthly customer charge to recover costs that
do not vary with usage; this consists of cost for billing & collections, and customer
specific collection-related expenses. The cost included in the customer charge
component includes the following items:
1. Budgeted costs for customer service related expenses
2. Sixty six percent of the distribution operation and maintenance expenses. (Ratio
established consistent with treatment plant allocation of costs between flow
(usage component) as compared with total charges of the wastewater treatment
plant)
3. Administrative cost allocated as a percent of total costs
4. Reduced by other revenues allocated as a percent of total costs
5. Reduced by CIP contributions from customers
The volumetric rates (based on units discharged by each customer) are designed to
collect expenses related to treating the wastewater, chemicals, sludge handling and
common collection system related expenses. Table Four shows cost based monthly
customer charges and volumetric charges compared with current rates.
Table Four – Cost Based Monthly Customer Charges Compared with Current Rates
Description Cost Based Monthly
Customer Charge
Cost Based
Volume Rate
Cost of Service
Flat Charge
Current Minimum
Charges
Current Flat
Charge
Current Volume
Rate
Single Family Homes 27.90$ 24.65$ 24.65$
Apartment Complexes 27.90 24.65 24.65
Commercial Rate 47.21 3.71 24.65 - 5.07$
Restaurant Rate 47.21 7.28 24.65 - 9.29
Industrial Rate 283.28 4.68 24.65 - 4.50
Cost of Service Charges Current Charges
In addition to the charges summarized in Table Four, industrial customers are subject to
additional charges based on the strength of their discharges. The Wastewater Treatment
plant monitors “permitted industries” for high strength pollutants. Permitted Industries
include only a limited number of customers with wastewater flows greater than 25,000
gpd.
The Wastewater Treatment Plant is recommending to discontinue monitoring the
permitted industries going forward. They have observed no significant strength
differences exist between customers in the indus trial rate class. Discontinuing monitoring
permitted industries will result in the elimination of surcharges and result in the full cost
recovery on a volume of discharge basis rather than using both volume and strength of
discharge.
8
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE SUMMARY
DISCUSSION OF C USTOMER CLASSES AND COST OF SERVICE COMPARISONS
Residential Class (Rate Schedules S-1 and S2L)
S1 – Rate Schedule for Single Family Homes
S2L – Rate Schedule for Apartment Complexes
The City currently charges all residential customers a flat rate of $24.65/month, but the
cost to service a residential customer averages $27.90/month based on a discharge of
5.0 ccf’s per month. A number of alternative wastewater rate structures exist to bill
residential customers. One method is to bill based on the customer’s metered water
during the winter period in an attempt to approximate each customer’s discharge into the
Wastewater Collection system. Another method is to bill residential customers based on
metered water use, which would provide an extra incentive to use water as efficiently as
possible. These alternative methods would not be representative of the actual discharge
into the treatment system for residential customers since outdoor irrigation would
overstate the actual discharge for many residential customers. It is recommended that
the practice of billing on a flat rate for residential customers continue. The cost of
service study has identified the need for a 13% increase in the residential and apartment
complex rates.
Commercial Class (Rate Schedule S2O)
Currently, commercial customers are charged a volume based rate of $5.07 per ccf of
metered water used. There is also a minimum charge of $24.65 per month. The cost to
provide this service varies based on capacity to serve the customers typically defined by
Residential Equivalent Units, actual discharge, and strength of discharge 1. On average,
the cost of service has identified a decrease fr om current rates for this customer class of
8 percent. The cost-based rates for the commercial class of customers would include a
monthly customer charge of $47.21 and a volumetric charge of $3.71 per ccf of metered
water used.
Restaurant Class (Rate Schedule S2R)
Currently, restaurant customers are charged a volume based rate of $9.29 per ccf of
metered water used. There is also a minimum charge of $24.65 per month. Restaurants
discharge higher than average strength of grease and oil. As a result previous rate
designs assigned a weighting factor of approximately two times the average commercial
rate to recover additional costs related to removing grease in the collection system.
Many restaurants have installed grease traps to collect and remove the grease prior to
discharge into the collection system. As a result of the investments made by restaurants,
the cost to provide service has decreased an d the cost of service study identified a
reduction of 12% from current rates. The cost-based rates for the commercial class of
customers would include a monthly customer charge of $47.21 and a volumetric charge
of $7.28 per ccf of metered water used.
1 See significant assumptions on page 10.
9
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE SUMMARY
Industrial Class (Rate Schedule S2XL)
Customers in this class are considered “permitted industries” and require a discharge
permit from the Wastewater Treatment Plant and special monitoring of the strength of
wastewater discharged. This is required as part of grants issued to municipal treatment
systems in the 1970’s and requires customers be charged on a “uniform user charge
system”. Customers in this rate class are charged based on volume of usage discharged
to recover the cost of collection and a portion of the treatment costs based on volume
and pounds of Chemical Oxygen Demand (COD), Total Suspended Solids (TSS), and
Ammonia Nitrogen (NH3) discharged into the system. To meet cost of service
requirements a 29% decrease in rates would be required for the industrial class if
monitoring and surcharges continue.
The Palo Alto Wastewater Treatment Plant recommends discontinuing the monitoring of
specific discharges by the “permitted indus tries”, and eliminating charging based on
strength of discharge as they see no cost difference based on flows vs strength of
discharge for the group of customers in this class. The change is due to the fact that a
substantial number of industrial customers subjected to the surcharges either closed
facilities or greatly reduced the strength of wastewater discharged into the collection
system. Currently only a limited number of industrial customers are subjected to the
surcharges.
If surcharges are eliminated a reduction of $672,000 in revenues from the industrial class
would occur. In order to meet cost of service, an increase of 8% is needed on the current
non-surcharge related rate components for the industrial class.
10
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE SUMMARY
CHARGES FROM THE P ALO A LTO WASTEWATER T REATMENT P LANT
In review of the allocation of charges from the wastewater treatment plant to users of the
system a number of weaknesses were noted.
• The charge does not include a capacity component for each participant, (i.e. a
maximum capacity of the system that each participant is entitled and cannot be
exceeded). The current system charges participants based on each user’s
discharge into the system. As a result excess capacity is charged evenly to all
participants, but eventually the excess capacity is used by higher growth
communities. This type of rate structure results in mature communities with little
or no growth subsidizing higher growth communities.
• The current charges are allocated based 34% on flow, 22% on COD, 22% on TSS
and 22% on Ammonia nitrogen. This is a methodology for allocating costs to
participants but may not be directly related to the cost of providing the treatment
and was confirmed in discussion with the Wastewater Treatment Plant.
If the opportunity exists to review the contract, the City of Palo Alto should review the
methodology for sharing the cost between participants.
COST BASED SURCHARGE R ATES
As stated above the cost to treat COD, TSS, and NH3 are based on the methodology
established in the wastewater treatment contract. The surcharge rates were established
using the methodology the wastewater treatment plant uses to charge CPAU. Table Five
below shows the cost-based surcharge rates compared to the current surcharge rates.
Table Five – Cost Based Surcharge Rates
Current Rate Cost of Service
COD 0.25$ 0.25$
TSS 0.60$ 0.59$
NH3 3.98$ 4.88$
Note: Based on the Wastewater Treatment Plant’s recommendation to eliminate
monitoring, these rates may no longer be needed.
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CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
SIGNIFICANT ASSUMPTIONS
This section outlines the procedures used to develop the cost of service and rate design
for the Wastewater Collection Utility and the related significant assumptions.
The cost to provide service to each customer class varies based on capacity required to
serve the class and the strength of the wastewater discharged. A number of steps are
required to estimate the capacity requirements of each customer class:
1. Maximum Volume per Meter Size is the maximum amount of flow that can pass
through the meter and is determined using a volumetric flow calculation 2.
2. Residential Equivalents is the maximum volume of a residential customer
compared with the maximum volume of the commercial and/or industrial class.
(Example Commercial maximum volume of 3.14/residential maximum volume of
0.44 = 7.11)
3. Volume Weighted Average Number of Customers is the adjusted number of
customers representing the capacity requirements associated with each customer
class and is calculated by multiplying the actual number of customers in each
class by the residential equivalents
The table below shows the projected and adjusted number of customers for each class
and the cost of service monthly customer charge.
Table Six – Projected Customers and Monthly Customer Charge
Customer Class
Water
Meter Size
Maximum
Volume per
Meter
Residential
Equivalents
Number of
Customers
Volume
Weighted
Number of
Customers
Monthly
Customer
Charge
Single Family Homes 3/4 0.44 1.00 19,941 19,941 6.64$
Apartment Complexes 3/4 0.44 1.00 5,786 5,786 6.64
Commercial Rate 2.00 3.14 7.11 1,240 8,820 47.21
Resturant Rate 2.00 3.14 7.11 165 1,173 47.21
Industrial Rate 4.00 12.56 42.67 14 608 283.28
Totals 27,146 36,328
2 Volumetric Flow Calculation = Maximum Volume per Meter (area calculation) = Pi
(r)squared. R = Diameter divided by 2
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CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
SIGNIFICANT ASSUMPTIONS
P ROJECTED VOLUME AND R EVENUES
Budget projections were us ed to determine Wastewater Collection Utility revenue
requirements for FY 2011. The flat rate classes, S1 and S2L are estimated based on
number of customers in the class and assuming an average discharge of 5 ccf per month.
Table Seven - Projected Unit Sales and Current Rate Revenues
Customer Type CCF Discharged Projected Revenues Assumption on CCF Discharged
Single Family Homes 1,196,459 5,898,541$ Estimated using 5 CCF/Customer
Apartment Complexes 347,161 1,711,503 Estimated using 5 CCF/Customer
Commercial Rate 714,949 3,624,791 Metered
Resturant Rate 124,767 1,159,086 Metered
Industrial Rate 290,043 1,977,427 Metered
Totals 2,673,379 14,371,350$
F ORECASTED O PERATING EXPENSES
Forecasted expenses were provided by the CPAU.
Table Eight – Palo Alto Projected 2011 Financials
Projected FY 2011
Cash Basis
REVENUES
Base Sales 14,371,350$
TOTAL REVENUES 14,371,350$
EXPENSES
Operations 8,943,458$
Collection 6,704,457
Support Services 288,796
Total Transfers 808,543
TOTAL EXPENSES 16,745,253$
Reserve Funding (714,386)$
Other Operating Revenue and Expenses (1,659,517)
Total Revenue Requirement 14,371,350$
13
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
SIGNIFICANT ASSUMPTIONS
ALLOCATION OF C OSTS TO FUNCTIONAL C OMPONENTS
Table Nine is the summary of allocation percentages used in the Cost of Service study.
Costs were allocated to each class of customers based on cost-causation and allocation
factors were developed for each of the cost centers identified as shown in this table.
Table Ten shows the percent of costs by cost parameter (Volume, COD, TSS, and NH3)
used by the wastewater treatment plant to allocate costs to each of the wholesale
participants. Table Eleven is the revenue requirement by cost center allocated to each
cost components. (Volume, COD, TSS, and NH3)
The table below is the allocation percentages for each cost component allocated to each
cost center. The allocation percentages were developed based on analysis of the cost
sharing methodology at the treatment plant combined with assumptions on distribution
allocations between the collection system component and customer component. This
assumed allocation was also used in previous studies. The debt service allocation
percentages were also developed based on how previous costs were allocated.
14
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
SIGNIFICANT ASSUMPTIONS
Table Nine - Allocation Percentages
Collection
System Plant COD TSS Phos NH3 Cust
FUND LEVEL
OPERATIONS (MGT SALARY) 34%22%22% 0% 22% 0%
TREATMENT 34%22%22% 0% 22% 0%
CITY COST PLAN CHARGES 34%22%22% 0% 22% 0%
UTILITY CHARGES 34%22%22% 0% 22% 0%
LANDFILL CHARGES TO O/DEPTS 34%22%22% 0% 22% 0%
OTHER CHARGES 34%22%22% 0% 22% 0%
DISTRIBUTION SYSTEM:
ADMINISTRATION 34%0%0% 0% 0% 66%
ENGINEERING 34%0%0% 0% 0% 66%
OPERATION & MAINTENANCE 34%0%0% 0% 0% 66%
CUSTOMER SUPPORT SERVICES
ADMINISTRATION 34%0%0% 0% 0% 66%
CUSTOMER SERVICE 100%
METER READING 100%
RATES 34%0%0% 0% 0% 66%
DEBT SERVICE & TRANSFERS
DEBT SERVICE 11%22%17%17% 0% 17% 17%
CIP DEBT SERVICE
TRANSFERS:
CIP TO GENERAL FUND 34%0%0% 0% 0% 66%
OTHER 34%0%0% 0% 0% 66%
RENT 34%0%0% 0% 0% 66%
TOTAL TRANSFERS
EXPENSE OFF-SETS
INTEREST 34%0%0% 0% 0% 66%
OTHER 100%0%0% 0% 0% 0%
CIP REIMBURSEMENTS 0%0%0% 0% 0% 100%
DISCOUNTS/UNCOLLECTABLES 11%22%17%17% 0% 17% 17%
PRORATION IMPACT 70%0%0% 0% 0% 30%
A llocation Percentages
15
CITY OF PALO ALTO WASTEWATER COLLECTION UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
SIGNIFICANT ASSUMPTIONS
DETERMINATION OF W ASTEWATER TREATMENT ALLOCATION
Cost for treatment was allocated through review of the cost sharing methodology and
discussions with wastewater treatment personnel and are listed in the table below:
Table Ten – Treatment Costs from Wastewater Plant
Volume COD TSS NH3 Totals
Percent of Costs by Cost Parameter 34.0% 22.0% 22.0% 22.0% 100.0%
The table below is the results of the classification process identified above broken down
by cost center.
Table Eleven - Revenue Requirements by Cost Center
Total $ Flow $ COD $ TSS $ NH3 Cust $
TREATMENT AND FUND OPERATIONS $8,943,458 $3,040,776 $1,967,561 $1,967,561 $1,967,561 $0
DISTRIBUTION 2,544,457 865,115 - - - 1,679,341
SUPPORT SERVCIE AND ADMIN 288,796 - - - - 288,796
RENT AND TRANSFERS OUT 808,543 273,827 21,597 21,597 21,597 469,926
RESERVE AND CAPITAL 3,445,614 1,897,845 - - - 1,547,769
TOTAL EXPENSES 16,030,867$ 6,077,563$ 1,989,158$ 1,989,158$ 1,989,158$ 3,985,832$
EXPENSE OFF-SETS 1,659,517 575,552 (2,506) (2,506) (2,506) 1,091,483
RECOVERY FROM RATES 14,371,350$ 5,502,011$ 1,991,664$ 1,991,664$ 1,991,664$ 2,894,349$
CUSTOMER USAGE INFORMATION
Usage patterns for customer classes was based on monthly number of customers;
monthly volumetric charges; pounds of BOD, TSS, NH3 discharged by industrial
monitored customers and monthly water meter readings.
16
Utility Financial Solutions
185 Sun Meadow Ct.
Holland, MI 49424
Phone: 616-393-9722
Fax: 616-393-9721
ACCOUNTANTS' COMP ILATION REPORT
City of Palo Alto Utilities Department
The accompanying forecasted statements of revenues and expenses of the City of Palo
Alto Wastewater Utility were provided by CPAU.
The purpose of this report is to assist management in determining the cost to service
each customer class. This report should not be used for any other purpose.
A compilation is limited to presenting, in the form of a forecast; information represented
by management and does not include evaluation of support for any assumptions used in
projecting revenue requirements. We have not audited the forecast and, accordingly, do
not express an opinion or any other form of assurance on the statements or assumptions
accompanying this report.
Differences between forecasted and actual results will occur since some assumptions
may not materialize and events and circumstances may occur that were not anticipated;
some of these variations may be material. Utility Financial Solutions has no responsibility
to update this report after the date of this report.
This report is intended for information and use by the Utilities Department for the
purposes stated above. This report is not intended to be used by anyone except the
specified parties.
UTILITY FINANCIAL SOLUTIONS
Mark Beauchamp, CPA, CMA, MBA
Holland, MI
August 25, 201
ATTACHMENT G
EXCERPTED DRAFT MINUTES OF UTILITIES ADVISORY COMMISSION
Meeting of February 2, 2011
ITEM 2: ACTION: Proposed Wastewater Collection Utility Rate Adjustments and Long Term Financial
Projections
Commissioner Foster asked for clarification that, although there is no total revenue increase, 93% of
customers will see a rate increase. Senior Resource Planner Ipek Connolly stated that residential
customers would have an increase and confirmed that residential did account for 93% of customers.
Commissioner Waldfogel clarified that these were cost of service adjustments.
Commissioner Waldfogel asked for alternative motions. Commissioner Foster stated that while he was not
happy with increases for the residential customers while other classes of customers were getting a
decrease, and based on time, he was done with comments. No further discussions were held.
ACTION:
Commissioner Cook made a motion to recommend Council approval of the Wastewater Collection Utility
Rate Adjustments. Commissioner Eglash seconded the motion. The motion carried unanimously (7-0).