HomeMy WebLinkAboutStaff Report 2812
City of Palo Alto (ID # 2812)
Finance Committee Staff Report
Report Type: Action ItemsMeeting Date: 5/17/2012
May 17, 2012 Page 1 of 13
(ID # 2812)
Summary Title: Gas Utility Rate Adjustments
Title: Utilities Advisory Commission Recommendation to Adopt a Resolution
Amending Gas Utility Rates Effective July 1, 2012
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission request that Finance Committee recommend that
the City Council adopt a resolution:
1. Amending Utility Rate Schedules G-1, G-2, G-3, G-4, G-10, G-11, G-12, and Utility Rules
and Regulations 2 and 5, as attached, effective July 1, 2012; and
2. Repealing Utility Rate Schedule G-6 as of July 1, 2012.
Executive Summary
If approved by Council, the impact of the proposed gas rate adjustments is a decrease of $12.32,
or 22%, for a typical residential customer’s monthly gas utility bill (averaged between the
summer and winter seasons). This is based on the gas market price forecast for Fiscal Year (FY)
2013 as of November 15, 2011, which is when the budget submission for FY 2013 was prepared.
Since that time, gas market prices have fallen significantly. For example, if the gas supply price
for March 2012 was used, the typical residential customer’s monthly gas utility bill would
decrease by $18.03, or 33%. The actual impact on an individual customer will vary depending
on customer class, individual customer gas usage levels, as well as market price conditions in
the month gas is delivered to the customer.
The proposed gas rates implement Council direction to adjust gas supply rates monthly for all
customers based on the monthly market price. Based on FY 2013 budget projections, gas
supply rates are expected to decrease by 35%, but the actual decrease is unknown since supply
rates will vary every month based on the spot market price of gas. Gas distribution rates, on
the other hand, will increase by 25% due to the realignment of costs between the supply and
distribution gas rates in accordance with the cost of service study. Based on the FY 2013 budget
projections, the overall gas utility rates will decrease by 9.9%.
May 17, 2012 Page 2 of 13
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The City engaged a consultant to review and update the gas utility cost of service study,
including the changes resulting from the move to market price -based retail commodity rates.
Proposed rate changes for the gas utility are based on the recommendations from the updated
cost of service study.
The Utilities Advisory Commission reviewed and recommended Council approval of the
proposed gas rates at its May 2 meeting.
Background
In November 2011 Council directed staff to develop market price-based, monthly-adjusted gas
supply rates. Staff prepared a timeline to implement the new rates by July 1, 2012 (Staff Report
2427). The new supply rate will be adjusted every month a nd will be based on the monthly
market price for natural gas. In April 2012, the Finance Committee reviewed the long-term
financial projections for the gas utility that showed a total revenue requirement decrease of
9.9%, or $4.3 million, for FY 2013, consisting of an expected 35% decrease in supply sales
revenue and a 25% increase in distribution sales reven ue. Those revenue projections are based
on forward gas prices as of November 15, 2011 when budget estimates were due. Since gas
commodity rates will change monthly, the revenue estimates and system average rate could be
higher or lower than the budget projection. For example, forward gas prices as of February 14,
2012 are 15% lower than those on November 15, 2011.
The last change to Gas Utility rates was a 10.0%, or $4.6 million per year, revenue requirement
decrease that went into effect on July 1, 2009. Since that time, revenues for the gas utility as a
whole have covered costs. However, since July 1, 2009, supply costs decreased and distribution
costs increased and the rate stabilization reserve balances were maintained within reserve
guideline levels by transfers from the Gas Supply Rate Stabilization Reserve (G -SRSR) to the Gas
Distribution Fund Rate Stabilization Reserve (G-DRSR) of $6.0 million in FY 2011 and $8.0 million
in FY 2012.
Discussion
Gas Utility Customer Profile and Revenue Collection
The City of Palo Alto Utilities’ (CPAU’s) Gas Utility has approximately 24,000 gas service
accounts. Table 1 provides the distribution of revenue by rate schedule and rate component as
well as the distribution of accounts by customer segment.
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Table 1: Sales Revenue and Number of Accounts (FY 2012)
Revenue Source
Residential
G-1
Residential
Master-
Metered
(RMM)/
Commercial
G-2
Large
Commercial
G-3
Municipal
G-6
Comp-
ressed
Natural
Gas
(CNG)
G-10
Total
Volumetric Charge
($/yr)
17,431,618 18,074,075 4,919,988 407,477 50,759 40,883,916
Service Charge ($/yr) 1,367,100 970,200 70,908 21,879 3,732 2,433,819
Total Revenue ($/yr) 18,798,718 19,044,275 4,990,896 429,356 54,491 43,317,735
Number of Accounts 21,700 2,310 19 33 1 24,063
Approximately 90% of customer accounts fall into the residential classification (G-1 rate
schedule) representing 43% of revenues. The remaining 57% of revenues are collected
primarily from master-metered multi-family/ small commercial customers (G2 rate schedule)
and large commercial accounts (G-3 rate schedule) with a small amount of revenues coming
from municipal and compressed natural gas (CNG) accounts (G -6 and G-10 rate schedules,
respectively). Currently, about 6% of the retail rate revenue is collected through fixed mo nthly
service charges and 94% through volumetric, or usage-based, charges.
Cost of Service Analysis (COSA)
CPAU hired Utility Financial Solutions, LLC to update a cost of service analysis utilizing the most
recent data available for customer gas usage (FY 2011) and associated costs for the Gas Fund.
The analysis included a review of utility financial data, customer class load profiles and the
specific costs associated with providing utility services. The study was conducted based on
industry-recognized methodologies for the functional classification of utility assets and
expenses, and allocation of costs to customer classes based on the cost to provide the service.
Specific customer class attributes included quantity of service and resource consumed;
variability of use during the year; and peak demands created on the system by each class.
The results of the study indicate that adjustments to rate schedules are required to accurately
align future revenues collected from each customer class with the costs attributable to serving
that class. The cost of service and rate study report is provided in Attachment D. Summary
results are presented in the following sections. The proposed adjustment to gas rates is
consistent with the COSA results.
Current Rate Schedules and Recommended COSA Alignments
The study compared required revenue collection with current revenue collection. The results
are presented in Table 2. The column entitled “Difference” indicates the required rate
adjustment by customer class with an overall revenue decrease of 9.9%, or $4.2 million, for FY
2013.
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Table 2: Required Revenue Collection based on COSA versus Current Rates (FY 2013)
Rate Schedule – Customer Class Cost of Service Current Difference
G1 – Residential $ 15,460,855 $ 18,589,631 (16.8%)
G2 – RMM and Commercial 17,055,771 19,534,961 (12.7%)
G3 – Large Commercial 5,392,930 3,912,976 37.8%
G6 – Municipal 413,906 484,388 (14.6%)
G10 – CNG 31,565 29,740 6.1%
Total $ 38,355,026 $ 42,551,695 (9.9%)
Current gas utility rate schedules consist of a monthly customer charge and volumetric rates for
unbundled cost components. The monthly customer charge varies by rate schedule. The
unbundled cost components consist of the Commo dity Charge, Administrative Fee, PG&E Local
Transportation Charge, and Palo Alto Local Distribution Charge.
The volumetric commodity charge for residential customers (G -1) varies based on usage tier.
The residential tiered rates are also referred to as “inverted block rates” where usage in the
first tier has a lower rate than usage in the second tier. The cost of service study (Attachment
D) provides an explanation of how the cost-based tiered rates were developed. Essentially, the
tiers are based on the higher costs that are imposed on the system by higher demands. The
industry standard practice to allocate distribution costs is called the “base -extra capacity”
method, which is establishes how much infrastructure has been built to serve the customer
classes’ peak load. Based on this method, the first tier rate was developed by applying the peak
usage of the G-1 class assuming the system was used at full capacity consistently throughout
the year, resulting in an average rate at full capacity. The second tier is established to recover
the remaining distribution costs.
For non-residential customers a single volumetric rate is used, as these customers have largely
varying usage characteristics. This makes a single volumetric rate the more effective
mechanism by which to recover the costs of the demands they place on the system. The
Commodity Charge for customers on G-3 and G-10 rate schedules is based on the market price
for natural gas that varies on a monthly basis. The Commodity Charge for all other customers
(pool customers) is a fixed rate adjusted as needed. The current charges under existing rate
schedules are shown in Table 3.
May 17, 2012 Page 5 of 13
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Table 3: Existing Gas Utility Rate Schedules
Schedule – Customer Class Customer
Charge
($/month)
Commodity
Charge
($/therm)
Admin
Fee
($/therm)
PG&E
Local
Transpor-
tation
($/therm)
Palo Alto
Local
Distribution
Charge
($/therm)
G1 – Residential 5.25 Tier 1: 0.7095
Tier 2: 1.2815
0.0227 0.0212 0.6338
G2 – RMM and Commercial 35.00 0.8321 0.0227 0.0212 0.4781
G3 – Large Commercial 311.00 Market-based 0.0227 0.0212 0.2884
G6 – Municipal 55.25 0.8321 0.0227 0.0212 0.4897
G10 –CNG 55.25 Market-based 0.0227 0.0212 -
Proposed Changes to Customer Charge
Customer charges are determined based on allocated costs for customer service, metering,
billing, credit and collections and a portion of the operations and maintenance costs of the gas
distribution system. Based on COSA results, proposed changes to the monthly customer charge
by rate class are presented in Table 4. Staff recommends changing the name of this charge
from “Customer Charge” to “Service Charge” as this better represents the nature of this charge.
Table 4: Proposed Changes to Customer Charge
Schedule – Customer Class Current
Customer Charge
($/Month)
Proposed
Service Charge
($/Month)
% Change Change
($/month)
G1 – Residential 5.25 9.88 88.2% 4.63
G2 – RMM and Commercial 35.00 74.86 113.9% 39.86
G3 – Large Commercial 311.00 361.18 16.1% 51.18
G6 – Municipal * 55.25 N/A N/A N/A
G10 – CNG 55.25 50.65 (8.3%) (0.40)
* G-6 rate schedule is proposed to be repealed and G-6 customers moved to the G-2 rate.
Proposed Changes to Commodity Charge
Commodity charges for all customers will be based on the monthly market price, which is the
natural gas Bidweek Price Index1 for delivery at PG&E Citygate2, accounting for delivery losses
to the customer’s meter. Currently, the commodity charge for the G-1 rate schedule has tiered
pricing, while the G-1 distribution charge is flat (no tiers). Since the commodity charge will be
the same for all customers, it is proposed that the G -1 distribution rate have tiered pricing. The
change is explained in more detail under the Proposed Changes to Distribution Charges section
below. Proposed changes to the Commodity Charge by rate class are presented in Table 5.
1 Bidweek Price Index is the price reported in “Natural Gas Intelligence (NGI)’s Bidweek Survey”, California
“PG&E Citygate” under column “avg.” for the calendar month.
2 PG&E Citygate is the point at which PG&E’s Backbone Transmission System connects to the PG&E’s Local
Transmission System.
May 17, 2012 Page 6 of 13
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Table 5: Proposed Changes to Commodity Charge
Schedule – Customer Class Current
Commodity Charge
($/therm)
Proposed
Commodity Charge
($/therm)
% Change
G1 – Residential Tier 1: 0.7095
Tier 2: 1.2815
Market- based N/A
G2 – RMM and Commercial 0.8321 Market- based N/A
G3 – Large Commercial Market-based Market- based 0
G6 – Municipal * 0.8321 N/A N/A
G10 – CNG Market-based Market- based 0
* G-6 rate schedule is proposed to be repealed and G-6 customers moved to the G-2 rate.
Proposed Changes to Administrative Fee and PG&E Local Transportation Charge
Currently, the administrative fee is $0.0227 per therm for all rate classes. Based on the COSA, a
charge of $0.0074 per therm is proposed. The change reflects the alignment of administrative
costs with expected costs associated with commodity and non-commodity-related areas.
Administrative costs to be recovered through the administrative fee represent the revenue
requirement to cover only the commodity-related administrative and overhead costs. Staff
proposes changing the name of this charge from “Administrative Fee” to “Administrative
Charge” for consistency purposes.
Currently, PG&E Local Transportation Charge is $0.0212 per therm for all rate classes. Based on
the COSA, a charge of $0.0685 per them is proposed. The increase includes expected increases
in PG&E’s transportation charges, costs to monitor and intervene in gas regulatory proceedings
at the California Public Utilities Commission, and non-commodity related administrative and
overhead costs. Staff proposes changing the name of this charge from “PG&E Local
Transportation Charge” to “Transportation Charge” for consistency.
Proposed Changes to Palo Alto Local Distribution Charge
Palo Alto Local Distribution Charges are based on costs of maintaining and operating the gas
distribution system, excluding those recovered through the monthly customer charge. Based
on COSA results, proposed changes to the Palo Alto Local Distribution Charge by rate class are
presented in Table 6. Staff proposes changing the name of this charge from “Palo Alto Local
Distribution Charge” to “Distribution Charge” as this better represents the nature of this
charge.
May 17, 2012 Page 7 of 13
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Table 6: Proposed Changes to Palo Alto Local Distribution Charge
Schedule – Customer Class Current
Palo Alto Local
Distribution Charge
($/therm)
Proposed
Distribution Charge
($/therm)
% Change
G1 – Residential Tier 1: 0.6338
Tier 2: 0.6338
System Avg: 0.6338
Tier 1: 0.3883
Tier 2: 0.9037
System Avg: $0.5961
Tier 1: (38.7%)
Tier 2: 42.6%
System Avg: (5.9%)
G2 – RMM and Commercial 0.4781 0.5638 17.9%
G3 – Large Commercial 0.2884 0.5562 92.8%
G6 – Municipal * 0.4897 N/A N/A
G10 – CNG - - N/A
* G-6 rate schedule is proposed to be repealed and G-6 customers moved to the G-2 rate.
Proposed Changes to G-1 Residential Tiers
As presented in Tables 5 and 6, the tier structure for G-1 that is currently part of the commodity
rate component is proposed to be part of the distribution rate component. Usage tier size and
definitions of the usage seasons are changed as discussed below. Proposed rates for the G -1
distribution tiers are based on COSA results. Current G-1 bundled volumetric rates are
$1.3872/therm for tier 1 and $1.9592/therm for tier 2, for a tier price diff erential of
$0.5720/therm. The proposed G-1 tier differential based on the COSA is $0.5154/therm.
Proposed Changes to Seasonal Definition and G-1 Residential Tier Blocks
The seasons for tier usage blocks consist of “summer” and “winter” as defined by he ating
demands on the system. Currently, the summer season is from May 1 through October 31, and
winter season is from November 1 through April 30. Staff recommends a change to the
definition of summer and winter seasons based on the review of residential customer seasonal
consumption patterns using FY 2011 billing data. Staff recommends changing the definition so
that the summer season is from April 1 through October 31 and the winter season is from
November 1 through March 31. The change is that the mo nth of April is changed from “winter”
to “summer.”
Staff recommends a change in the definition of usage tier blocks for residential customers
based on median usage by season. For the proposed seven-month summer season (April
through October), 50% of G-1 consumers use 18 therms/month or less, making the current
summer tier of 20 therms/month (0.66 therms per day for a 30 day billing period) adequate.
For the five-month winter season (November through March), the median customer usage is 56
therms/month and the current tier 1 winter usage block is 96 therm/month (3.2 therms per day
for a 30 day bill). Therefore, staff recommends revising the winter tier 1 level to 2 therms per
day, or 60 therms for a 30 day billing period. The revised season and tier defi nitions are very
close to the PG&E’s baseline levels of 17.7 therms/month for summer (April through October)
and 60.6 therms/month for winter (November through March).
May 17, 2012 Page 8 of 13
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Table 7 provides a summary of current and proposed gas utility rate schedules.
Table 7: Current and Proposed Gas Rates
Distribution Charges Current Rates Proposed Rates % Change
Service Charge (per Month per Service)
Customer
Charge
Service
Charge
G1 – Residential $ 5.25 $ 9.88 88.2%
G2 – Residential Master-Metered and Commercial 35.00 74.86 113.9%
G3 – Large Commercial 311.00 361.18 16.1%
G6 – Municipal * 55.25 N/A N/A
G10 – Compressed Natural Gas 55.25 50.65 (8.3%)
Distribution Charge (per therm)
Palo Alto Local
Distribution
Charge
Distribution
Charge
G1 – Residential
Tier 1 $ 0.6338 $ 0.3883 (38.7%)
Tier 2 0.6338 0.9037 42.6%
Average: 0.6338 0.5961 (5.9%)
G2 – Residential Master-Metered and Commercial 0.4781 0.5638 17.9%
G3 – Large Commercial 0.2884 0.5562 92.9%
G6 – Municipal * 0.4897 N/A N/A
G10 – Compressed Natural Gas 0 0 N/A
Supply Charges Current Rates Proposed Rates % Change
Administration Charge (per therm)
Administrative
Fee
Administrative
Charge
All Customer Classes $ 0.0227 $ 0.0074 (67.4%)
Transportation Charge (per therm)
PG&E Local
Transportation
Charge
Transportation
Charge
All Customer Classes 0.0212 0.0685 223.1%
Commodity Charge (per therm)
Commodity
Charge
Commodity
Charge
G1 – Residential
Tier 1 $ 0.7095 Market-based (N/A)
Tier 2 1.2815 “ (N/A)
G2 – Residential Master-Metered and Commercial 0.8321 “ (N/A)
G3 – Large Commercial 0.4522 “ (N/A)
G6 – Municipal * 0.8321 (N/A) (N/A)
G10 – Compressed Natural Gas 0.4522 “ (N/A)
* G-6 rate schedule is proposed to be repealed and G-6 customers moved to the G-2 rate.
May 17, 2012 Page 9 of 13
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As a result of the proposed changes to gas rate schedules, revenue collection through the fixed
service charges would increase from 5.5% currently to 12.4% in FY 2013.
Discontinuance of G-6 (Municipal Gas Rates)
The cost of service study identified that municipal accounts do not have distinctly different
usage patterns compared to other commercial accounts, and therefore, staff recommends
discontinuing the G-6 schedule and moving all customers currently on that schedule to G-2,
effective July 1, 2012. The resource impact of this change will be a reduction in revenues of
$15,000 for the gas utility.
Proposed Changes to other Gas Rate Schedules
There are other gas rate schedules (G-4, G-11 and G-12) that currently do not have any
customers on them, but that have been utilized in the past and may be utilized in the future.
Similar changes to language are also proposed to those rate schedules for consistency, and to
update existing language based on current conditions.
Proposed Changes to Utility Rules and Regulations (UR&R)
Modifications are also proposed to UR&R 2 (Definitions and Abbreviations) and UR&R 5 (Service
Contracts) that are related to the changes to language proposed for various rate s chedules as
discussed above. Specifically, the changes in UR&R 2 include the addition of definitions for
“Bidweek Price Index” and “PG&E Citygate”. The changes in UR&R 5 include the deletion of
sub-sections of Section C, contract pricing guidelines, that are no longer relevant.
Customer Bill Impact of Proposed Rate Changes
Table 8 below shows the impact of the proposed rate adjustment on customer bills based on
various consumption levels in different seasons. In calculating expected commodity charges
under the proposed rates, the March 2012 G-3 commodity charge ($0.2936/therm) was used to
give an indication of commodity charges under current market conditions.
May 17, 2012 Page 10 of 13
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Table 8: Impact of Proposed Rate Increase on Customer Bills
Rate
Schedule Usage
Current
Monthly Bill
Proposed
Monthly Bill
Increase
(Decrease)
Increase
(Decrease)
Therms $ $ $ %
Residential Customers (separately metered)
G-1
Summer
10 19.12 17.46 (1.66) (8.7%)
(Median) 18 30.22 23.52 (6.70) (22.2%)
45 81.97 56.87 (25.11) (30.6%)
G-1
Winter
30 46.87 32.61 (14.25) (11.8%)
(Median) 54 80.16 50.80 (29.36) (36.6%)
150 244.22 169.94 (74.28) (30.4%)
Residential Master-Metered and Commercial Customers
G-2 500 712 542 (171) (24.0%)
G-2 10,000 13,576 9,408 (4,168) (30.7%)
G-3 50,000 31,606 46,646 15,040 47.6%
Table 8 shows that the decrease is smaller in percentage terms for residential customers who
use less gas, due to the service charge increase, the reduction in the winter tier 1 usage block
and the slight reduction in the difference between the volumetric rates for Tier 1 and Tier 2.
Since G-3 customers already have market-based commodity rates that change monthly, they
will therefore mainly be impacted by the distribution and transportation rate increases.
Comparison of Palo Alto Gas Rates and Surrounding Cities
For several years, Palo Alto's retail gas rates have generally been higher than those in
surrounding areas. The tables below compare monthly gas bills using relative PG&E rates as of
March 1, 2012 for Mountain View, Redwood City, Santa Clara and Menlo Park. For Palo Alto
proposed charges, the March 2012 G-3 commodity charges were used. Table 9 indicates that
the median residential customer in surrounding cities pays 26.6 percent less during the summer
months and 1.9 percent more during the winter months compared to the median Palo Alto
residential customer based on rates in effect March 1, 2012. For an average annual bill for the
median customer, the difference is 9.3 percent in favor of the PG&E customers in surrounding
cities.
May 17, 2012 Page 11 of 13
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Table 9: Monthly Gas Bill Comparison (rates in effect as of March 1, 2012)
Season
Monthly
Usage
Palo
Alto
Current
Palo Alto
Proposed
(March 2012 G-3
Commodity Rate)
Menlo Park, Redwood
City, Mountain View
and Santa Clara (PG&E
Zone X)
PG&E Over/
(Under)
Palo Alto
Proposed
Therms $ $ $ %
Residential Customers
Summer
10 19.12 17.46 9.59 (45.1%)
(Median) 18 30.22 23.52 17.25 (26.6%)
45 81.97 56.87 50.96 (10.4%)
Winter
30 46.87 32.61 28.76 (11.8%)
(Median) 54 80.16 50.80 51.76 1.9%
150 244.22 169.94 170.00 0.0%
Commercial Customers
Summer
500 712 542 442 (18.4%)
10,000 13,576 9,408 6,412 (31.8%)
50,000 31,606 46,646 29,499 (36.8%)
Winter
500 712 542 479 (11.6%)
10,000 13,576 9,408 6,877 (26.9%)
50,000 31,606 46,646 31,107 (33.3%)
Gas Reserve Guidelines
The changes to the gas purchasing strategy caused by the move to market -based, monthly-
varying rates prompt a need to review the Gas Rate Stabilization Reserve guidelines. However,
the City Auditor is currently undergoing an audit of all Utilities reserves and changes are likely
to result from that review. Therefore, proposed changes to the Gas Fund reserves are being
delayed until the completion of the audit, which is expected by July 2012.
Potential Changes to the Rate Assistance Program (RAP)
Proposition 26 may require the modification or restructuring of the RAP for the gas utility. Due
to concerns related to Proposition 218, Council eliminated the 20% discount for water service
for low income customers as of July 1, 2009 (CMR: 189:09). Proposition 26 poses similar
concerns for the gas utility and staff plans to return to the Finance Committee with a
recommendation on changes to the 25% RAP discount for gas service for low -income
customers. Staff is working with the City Attorney’s office to determine the nature and scope
of any required changes to the RAP.
Commission Review and Recommendation
The Utilities Advisory Commission (UAC) reviewed the proposed rate adjustments on May 2,
2012. The UAC noted that the tiered rate structure shifted from the commodity rate to the
distribution rate. The majority of the UAC expressed support for the tiered rate structure, but
May 17, 2012 Page 12 of 13
(ID # 2812)
one commissioner questioned whether the cost of service study provided sufficient justification
for the tier price differential for the G-1 rate, especially for summer usage.
The UAC asked why, even after the proposed rate adjustment, bills in PG&E territory would still
generally be lower than CPAU’s. Staff explained that it reviewed PG&E’s cost structure and
determined that PG&E’s expenditures for infrastructure in the last several years have been
much lower (per account, per therm delivered, and per mile of distribution system pipeline)
than CPAU’s CIP-related expenditures.
The UAC voted to recommend that the City Council: 1) amend Utility Rate Schedules G-1, G-2,
G-3, G-4, G-10, G-11, and G-12, and Utility Rules and Regulations 2 and 5, as attached, effective
July 1, 2012; and 2) repeal Utility Rate Schedule G-6 as of July 1, 2012. Commissioner Melton
seconded the motion. The motion carried (3-1) with Commissioner Waldfogel opposed and
Commissioners Keller and Eglash absent.
The draft excerpted notes from the UAC’s May 2, 2012 meeting are provided as Attachment E.
Resource Impact
Approval of the proposed rate adjustments will increase the retail sales revenues from the Gas
Distribution Fund by approximately $4.5 million per year and will increase retail sales revenues
from the Gas Supply rate components which do not vary monthly (Administration and
Transportation charges) by approximately $1 million per year. The impact to the Gas Supply
Fund retail sales revenue will depend on monthly market prices since they are tied to the
Commodity Charge. For FY 2013 budget projections, the Gas Supply Fund ret ail sales revenues
are projected to decrease by $9.6 million per year, resulting in a net revenue decrease to the
Gas Utility of $4.1 million per year.
Policy Implications
The proposed rate changes implement Council direction to implement market price-based,
monthly-adjusted gas supply rates.
Environmental Review
The restructuring of gas rates to meet operating expenses, purchase supplies, meet financial
reserve needs, obtain funds for capital projects and maintain charter -authorized intra-city
transfers 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).
Attachments:
Attachment A: Resolution Gas Rates and Rules July 1 2012 (PDF)
Attachment B: Utility Rate Schedules G-l, G-2, G-3, G-4, G-6, G-10, G-ll and G-12 (PDF)
Attachment C: Utility Rule and Regulation 2 and 5 (PDF)
Attachment D: Gas Utility Cost of Service and Rate Study (FY 2013) (PDF)
May 17, 2012 Page 13 of 13
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Attachment E: Excerpted UAC Draft Minutes of May 2, 2012 (PDF)
Prepared By: Ipek Connolly, Sr. Resource Planner
Department Head: Valerie Fong, Director
City Manager Approval: ____________________________________
James Keene, City Manager
*Not Yet Approved*
120504 dm 6051727a
ATTACHMENT __
Resolution No. _________
Resolution of the Council of the City of Palo Alto Amending Utility
Rate Schedules G-1, G-2, G-3, G-4, G-10, G-11 and G-12,
Repealing Utility Rate Schedule G-6 and Amending Utility Rules
and Regulations 2 and 5
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 G-1 (Residential Gas Service) is hereby amended to read in accordance with
sheets G-1-1 and G-1-2, attached and incorporated. Utility Rate Schedule G-1, as amended, shall
become effective July 1, 2012.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-2 (Residential Master-Metered and Commercial Gas Service) is hereby
amended to read in accordance with sheet G-2-1, attached and incorporated. Utility Rate
Schedule G-2, as amended, shall become effective July 1, 2012.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-3 (Large Commercial Gas Service) is hereby amended to read in accordance
with sheets G-3-1 and G-3-2, attached and incorporated. Utility Rate Schedule G-3, as amended,
shall become effective July 1, 2012.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-4 (Large Commercial Gas Transportation Service) is hereby amended to read in
accordance with sheet G-4-1, attached and incorporated. Utility Rate Schedule G-4, as amended,
shall become effective July 1, 2012.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-10 (Compressed Natural Gas Service) is hereby amended to read in accordance
with sheet G-10-1, attached and incorporated. Utility Rate Schedule G-10, as amended, shall
become effective July 1, 2012.
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-11 (Large Commercial Fixed-Term Commodity Gas Service) is hereby
amended to read in accordance with sheets G-11-1 and G-11-2, attached and incorporated.
Utility Rate Schedule G-11, as amended, shall become effective July 1, 2012.
SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-12 (Large Commercial Custom Commodity Gas Service) is hereby amended to
read in accordance with sheets G-12-1 and G-12-2, attached and incorporated. Utility Rate
Schedule G-12, as amended, shall become effective July 1, 2012.
*Not Yet Approved*
120504 dm 6051727a
SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-6 (Municipal Gas Service) is hereby repealed. Section 5 of Resolution 8949,
adopted June 15, 2009, Section 27 of Resolution 8868, adopted October 20, 2008, Section 3 of
Resolution 8828, adopted June 9, 2008, Section 5 of Resolution 8724, adopted June 11, 2007,
Section 5 of Resolution 8618, adopted June 12, 2006, Section 5 of Resolution 8536, adopted
June 20, 2005, Section 3 of Resolution 8490, adopted December 13, 2004, Section 3 of
Resolution 8436, adopted June 28, 2004, Section 3 of Resolution 8305, adopted June 16, 2003,
Section 1 of Resolution 8175, adopted June 17, 2002, and Section 2 of Resolution 8132, adopted
March 11, 2002, each amending Utility Rate Schedule G-6 (Municipal Gas Service), is hereby
amended to delete all references to the foregoing Municipal Gas Service.
SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rule and Regulation 2 (Definitions and Abbreviations) is hereby amended to read in accordance
with sheets 1 thru 21, attached and incorporated. Utility Rule and Regulation 2, as amended,
shall become effective July 1, 2012.
SECTION 10. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rule and Regulation 5 (Service Contracts) is hereby amended to read in accordance with sheet 1,
attached and incorporated. Utility Rule and Regulation 5, as amended, shall become effective
July 1, 2012.
SECTION 11. 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.
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*Not Yet Approved*
120504 dm 6051727a
SECTION 12. The Council finds that the Gas Utility Proposed Rate Adjustment staff
report and Gas Utility Cost of Service Study presented to the Council on June 18, 2012, attached
and incorporated herein, are based on staff’s and Utility Financial Solutions, LLC’s thorough and
detailed examination of the City Utilities Department’s revenue requirements, financial
projections, and customer class characteristics. The Council further finds that the incorporated
documents adequately demonstrate that the proposed gas rates do not exceed the reasonable costs
to the City to provide gas service to its customers.
SECTION 13. The Council finds that the adoption of this resolution changing gas rates
to meet operating expenses, purchase supplies, meet financial reserve needs, obtain funds for
capital projects and maintain charter-authorized intra-city transfers 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). After
reviewing the Gas Utility Proposed Rate Adjustment staff report and Gas Utility Cost of Service
Study presented to Council on June 18, 2012, the Council finds that sufficient evidence has been
presented setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Sr. Deputy City Attorney City Manager
___________________________
Director of Utilities
_____________________________
Director of Administrative Services
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-200912
Supersedes Sheet No G-1-1 dated 117-1-20089 Sheet No G-1-1
A. APPLICABILITY:
This schedule applies to separately- metered single-family residential dwellings receiving natural
gas service from the City of Palo Alto Utilities. This schedule also applies to separately individually-
metered residential dwellings services in a multi-family complex.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides natural gas service.
C. UNBUNDLED RATES: Per Service
Monthly Customer Service Charge: ..................................................................................$9.885.25
Commodity Rate: (To be added to Customer Charge)
Tier 1 Rates: Per Therm
Supply Charges:
1. Commodity Charge(Monthly Market Based)..............................$0.10-$2.007095
2. Administrative Fee .............................................................................$0.00740227
3. PG&E Local Transportation .............................................................$0.06850212
4. Palo Alto Local
Distribution Charges:...........................................................................................$0.38836338
Tier 1 Rate Total ............................................................$1.3872
Tier 2 Rates: (All usage over 100% of Tier 1)
Supply Charges:
1. Commodity Charge (Monthly Market Based).............................$0.10-2.001.2815
2. Administrative Fee .............................................................................$0.00740227
3. PG&E Local Transportation..............................................................$0.06850212
4. Palo Alto Local
Distribution Charges:...........................................................................................$0.90376338
D. SPECIAL NOTES:
1. Calculation of Cost Components
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-200912
Supersedes Sheet No G-1-2 dated 117-1-20089 Sheet No G-1-2
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Ccustomer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
The Commodity charge is based on the monthly natural gas Bbidweek pPrice Iindex for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s meter. The
Commodity charge will fall within the minimum/maximum range set forth in Section C.
2. Seasonal Rate Changes:
The Summer period is effective AprilMay 1 to October 31 and the Winter period is effective
from November 1 to MarchApril 301. When the billing period includes use in both the
Summer and the Winter periods, the usage will be prorated based on the number of days in
each seasonal period, and the charges based on the applicable rates for each period therein.
For further discussion of bill calculation and proration, refer to Rule and Regulation 11.
3. Calculation of Usage Tiers
Tier 1 natural gas usage shall be calculated and billed based upon a level of 0.667 therms per
day during the Summer pPeriod and 3.22.0 therms per day during the Winter pPeriod,
rounded to the nearest whole therm, based on meter reading days of service. As an example,
for a 30 day bill, the Tier 1 level would be 20 therms during the Summer pPeriod months and
96 60 therms during the Winter pPeriod months. For further discussion of bill calculation
and proration, refer to Rule and Regulation 11.
4. Special Conditions
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
{End}
RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-200912
Supersedes Sheet No G-2-1 dated 711-1-20089 Sheet No G-2-1
A. APPLICABILITY:
This schedule applies to non-residential Ccustomers who use less than 250,000 therms per year at a
single address. This schedule may include servicealso applies to master-metered residential services
in multi-family residential facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides natural gas service.
C. UNBUNDLED RATES: Per Service
Monthly Customer Service Charge: ..............................................................................$74.8635.00
Commodity Rate: (To be added to Customer Charge)
All year-round delivered commodity: Per Therm
Supply Charges:
1. Commodity Charge (Monthly Market Based)....................... $0.10-$2.008321
2. Administrative Fee .............................................................................$0.00740227
3. PG&E Local Transportation..............................................................$0.06850212
:
4........................................................................................................................................Palo Alto
Local Distribution Charges: ............................................................................................$0.56384781
Total per therm ....................................... $1.3541
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Ccustomer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
The Commodity charge is based on the monthly natural gas Bbidweek Pprice Iindex for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s meter. The
RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-200912
Supersedes Sheet No G-2-2 dated 711-1-20089 Sheet No G-2-2
Commodity charge will fall within the minimum/maximum range set forth in Section C.
PG&E Local transportation charge is equal to the cost of transporting gas from
the PG&E’s City Gate to the Palo Alto City Gate.
2. Special Conditions
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
{End}
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 37-1-20112
Supersedes Sheet No G-3-1 dated 73-1-200911 Sheet No G-3-1
A. APPLICABILITY:
This schedule applies to service for large commercial Ccustomers who use at least 250,000 therms
per year at one site and have retained gas direct access eligibility. This schedule also applies to
City- owned generation facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides natural gas service.
C. UNBUNDLED RATES: Per Service
Monthly Customer Service Charge: $361.18311.00
Commodity Rate: (To be added to Customer Charge)
Per Therm
Supply Charges:
1. Commodity Charge (Monthly Market Based).......................................$0.10-$2.00
2. Administrative Fee Charge ...............................................................$0.02270.0074
3. PG&E Local Transportation Charge..................................................$0.02120.0685
Distribution Charge:
1. Palo Alto Local
Distribution Charges: ................................................................................................$0.28840.5562
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Ccustomer’s bill
statement, the bill amount may be broken down into appropriate components as calculated
under Section C.
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 37-1-20112
Supersedes Sheet No G-3-2 dated 73-1-200911 Sheet No G-3-2
(A) Commodity Charges
The cCommodity charge is based on the monthly natural gas Bbidweek Pprice Iindex for
delivery at PG&E Citygate, accounting for delivery losses to the Ccustomer’s meter. The
Ccommodity charge will fall within the minimum/maximum range set forth in Section C.
(B) Administrative feeCharge
The Administrative fee is equal to the allocable administrative and overhead costs
incurred by the City in providing the gas service.
(C) PG&E Local Transportation Charge
PG&E LocalT transportation charge is equal to the cost of transporting gas from
the PG&E’s City Gate to the Palo Alto City Gate.
2. Special Conditions
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons, or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
32. Request for Service
A qualifying Ccustomer may request service under this schedule for more than one account
or meter if the accounts are located on one site. A site consists of one or more shall be
defined as one or more utility accounts serving contiguous parcels of land with no
intervening public right-of- ways (e.g. streets) and have a common billing address.
43. Changing Rate Schedules
Customers may request a rate schedule change at any time to any applicable City of Palo
Alto full-service rate schedule. Customers served under this rate schedule may elect Gas
Direct Access at any time.
{End}
LARGE COMMERCIAL GAS TRANSPORTATION SERVICE
UTILITY RATE SCHEDULE G-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No G-4-1 dated 117-1-20089 Sheet No G-4-1
A. APPLICABILITY:
This schedule applies to gas transportation service for large commercial customers who use at least
250,000 therms per year, have retained gas direct access eligibility, and who utilize a Gas Service
Provider to procure natural gas.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides natural gas service.
C. UNBUNDLED RATES: Per Service
Monthly Customer Service Charge: ..........................................................................$311.00361.18
Per Therm Charges: (To be added to Customer Charge Per Therm
Supply Charge:
PG&E Local Transportation..........................................................................$0.02120.0685
Distribution Charge:
Palo Alto Local
Distribution Charges:.................................................................................................$0.28840.5562
D. SPECIAL NOTES:
1. Specific terms and conditions shall be covered by separate agreement between the City and
Gas Service Provider.
2. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as calculated
under Section C.
(A) PG&E Local Transportation
PG&E Local transportation charge is equal to the cost of transporting gas from the
LARGE COMMERCIAL GAS TRANSPORTATION SERVICE
UTILITY RATE SCHEDULE G-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No G-4-2 dated 117-1-20089 Sheet No G-4-2
PG&E’s City Gate to the Palo Alto City Gate.
32. Request for Service
(A) Qualifying customers may request service under this schedule for more than one
account or meter if every account meets the minimum usage requirement of 250,000 therms
per year.
(B) Qualifying customers may request service under this schedule for more than one
account or meter if the accounts are located on one site. A site consists of one or more shall
be defined as one or more utility accounts serving contiguous parcels of land with no
intervening public right-of-ways (e.g. streets) and have a common billing address.
43. Changing Rate Schedules
Qualifying customers may request a rate schedule change at any time during the year to any
applicable full service rate schedule.
{End}
MUNICIPAL GAS SERVICE
UTILITY RATE SCHEDULE G-6
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2009
Supersedes Sheet No G-6-1 dated 11-1-2008 Sheet No G-6-1
A. APPLICABILITY:
This schedule applies to service buildings and facilities owned and/or operated by the City of Palo
Alto and not currently served under G-11 or G-12.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides natural gas service.
C. UNBUNDLED RATES: Per Service
Monthly Customer Charge: $55.25
Per Therm Charges (To be added to Customer Charge Per Therm
Supply Charges:
1. Commodity Charge............................................................................ $0.8321
2. Administrative Fee............................................................................. $0.0227
3. PG&E Local Transportation.............................................................. $0.0212
Total Supply Charges......................................................................... $0.8760
Distribution Charge:
1. Palo Alto Local Distribution $0.4897
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as calculated
under Section C. PG&E Local transportation charge is equal to the cost of transporting gas
from the PG&E’s City Gate to the Palo Alto City Gate.
MUNICIPAL GAS SERVICE
UTILITY RATE SCHEDULE G-6
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2009
Supersedes Sheet No G-6-2 dated 11-1-2008 Sheet No G-6-2
2. Special Conditions
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
3. Changing Rate Schedules
Customers served under this rate schedule are not eligible for gas direct access and cannot
request a rate schedule change to any full-service rate applicable to customers who are
eligible for gas direct access (i.e. G-3, G-11, or G-12).
{End}
COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 37-1-20112012
Supersedes Sheet No. G-10-1 dated 73-1-20092011 Sheet No.G-10-1
A. APPLICABILITY:
This schedule applies to the sale of natural gas to the City-owned compressed natural gas (CNG) fueling
station at the Municipal Service Center in Palo Alto
B. TERRITORY:
Applies to location at the Municipal Service Center in City of Palo Alto.
C. RATES: Per Service
Monthly Customer Service Charge: ..............................................................................$55.2550.65
Per Therm Charges (To be added to Customer Charge) Per Therm
Supply Charges:
Commodity Charge (Monthly Market Based)...................................................$0.10-$2.00
Administrative Fee ........................................................................................$0.02270.0074
PG&E Local Transportation .........................................................................$0.02120.0685
D. SPECIAL CONDITIONS
1.Service under this schedule is subject to discontinuance in whole or in part in case of actual or
anticipated shortage of natural gas resulting from insufficient supply, inadequate transmission or
delivery capacity of facilities.
1. The actual bill amount is calculated based on the applicable rates in Section C above and adjusted
for any applicable discounts, surcharges and/or taxes.
(A) Commodity Charges
The Ccommodity charge is based on the monthly natural gas Bbidweek Pprice Iindex for delivery at
PG&E Citygate, accounting for delivery losses to the customer’s meter. The Ccommodity charge
will fall within the minimum/maximum range set forth in Section C.
(B) Administrative fee
The Administrative fee is equal to the allocable administrative and overhead costs
incurred by the City in providing the gas service.
(C) PG&E Local Transportation
COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 37-1-20112012
Supersedes Sheet No. G-10-1 dated 73-1-20092011 Sheet No.G-10-2
PG&E Local transportation charge is equal to the cost of transporting gas from the
PG&E’s City Gate to the Palo Alto City Gate.
{End}
LARGE COMMERCIAL FIXED-TERM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-11
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No. G-11-1 dated 7-1-20072009 Sheet No. G-11-1
A. APPLICABILITY:
This schedule applies to large commercial customers Customers who use at least 250,000 therms per
year at one site and have retained gas direct access eligibility.
B. TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the CityThis
schedule applies everywhere the City of Palo Alto provides natural gas service.
C. RATES: Per Service
Monthly Customer Service Charge: $311.00361.18
Per Therm Charges (To be added to Customer Charge Per Therm
Supply Charges:
1. Commodity Charge ................................................................................$0.20-$2.00
2. Administrative Fee ............................................................................$0.02270.0074
3. PG&E Local Transportation..............................................................$0.02120.0685
Distribution Charges:
1. Palo Alto Local Distribution ..............................................................$0.28840.5562
D. TERM: 12 Months or 24 Months
E. SPECIAL CONDITIONSNOTES:
1. Calculation of Cost ComponentsService under this schedule is subject to discontinuance in
whole or in part, for operational reasons, or if the City experiences supply or capacity
shortages. The City will exercise reasonable diligence and care to furnish and deliver
continuous service and a sufficient quantity of gas to customers, but does not guarantee
continuity of service or sufficiency of quantity. The City shall not be liable for any damage
caused by interruption of service, if the interruption of service is caused by an act of God,
Fire, Strikes, riots, war, or any other cause that is beyond the City’s control.
The Commodity charge shall be fixed for a 12 or 24-month term. The other components of
the rate: Monthly Service Charge, Supply Charges, and Distribution Charges may be
modified periodically with the Council's approval.
The Commodity charge shall be based upon the Customer class average load shape, a risk
LARGE COMMERCIAL FIXED-TERM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-11
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No. G-11-1 dated 7-1-20072009 Sheet No. G-11-1
premium, and market prices. The Commodity charge will fall within the range set in Section
C, Part 1 of this Schedule and will be for gas delivered to PG&E City Gate.
2. Request for Service
Qualifying customers Customers may request service by submitting a completed Gas Service
(G-11) Form. Once both parties have agreed on all required terms, they may execute the
form, which will govern CPAU’s provision of service for the stated term. who choose to be
charged under this rate schedule are required to sign a letter with CPAU committing to a
price and term and to adhere to rules and regulations set forth in CPAU Rule and Regulation
No. 5 (Contracts). The letter shall indicate the estimated gas consumption over the term of
the contract rate. This consumption shall be served solely by CPAU.
LARGE COMMERCIAL FIXED-TERM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-11
(Continued)
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No. G-11-2 dated 7-1-20072009 Sheet No. G-11-2
2. The Commodity Charge shall be fixed for a 12 or 24-month term. The other components of
the rate: Administrative Fees, Transportation Charges, Distribution Charges and Monthly
Customer Charges may be modified periodically with the Council's approval.
3.The Commodity Charge component of this rate and the term will be set at the time when the
customer signs a letter acknowledging the term and price agreed upon with CPAU. The
Commodity Charge shall be based upon the customer class average load shape, a risk
premium, and market prices. The Commodity Charge will fall within the range set in
Section C, Part 1 of this Schedule and will be for gas delivered to PG&E City Gate.
4.The Administrative Fee is equal to the allocable administrative and overhead costs incurred by the
City in providing the gas service.
6. PG&E Local transportation charge is equal to the cost of transporting gas from PG&E City
Gate to the Palo Alto City Gate.
5.Total monthly charge = therms used during the month X (Commodity Charge + Administrative
Fee + PG&E Local Transportation Charge + Palo Alto Local Distribution Charge) +
Monthly Customer Charge.
3. Changing Rate Schedules
The customer must remain on this term rate for the term indicated on the Confirmation
ScheduleGas Service (G-11) Form, providing the customer Customer continues to receive
distribution services from the CityCPAU. The Gas Service (G-11) Formconfirmation
Schedule shall indicate the Customer's approximate gas usage (load) over the term of the
contract. This load usage shall be served solely by CPAU.
8.Qualifying customers may request service under this schedule for more than one account or meter
if the accounts are located on one site. A site shall be defined as one or more utility accounts
serving contiguous parcels of land with no intervening public right-of- ways (e.g. streets)
and have a common billing address.
9.A customer Customer may renew service under this rate schedule with a 30-day advance
notice. The Commodity Charge charge for the renewed term of service will be based on the
published fixed-term commodity charge at the time service is renewed. Customers electing
not to renew service under this rate schedule will be returned to an applicable full-service
LARGE COMMERCIAL FIXED-TERM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-11
(Continued)
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No. G-11-2 dated 7-1-20072009 Sheet No. G-11-2
gas rate schedule of their choice. If no choice is made, the customer Customer will be placed
on G-3.
{End}
LARGE COMMERCIAL CUSTOM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-12
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No. G-12-1 dated 7-1-20072009 Sheet No. G-12-1
A. APPLICABILITY:
This schedule applies to large commercial customers Customers who use at least 250,000 therms per
year at one site and have retained gas direct access eligibility.
B. TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the CityThis
schedule applies everywhere the City of Palo Alto provides natural gas service.
C. RATES: Per Service
Monthly Customer Service Charge: $311.00361.18
Per Therm Charges (To be added to Customer Charge Per Therm
Supply Charges:
1. Commodity Charge ................................................................................$0.20-$2.00
2. Administrative Fee ............................................................................$0.02270.0074
3. PG&E Local Transportation..............................................................$0.02120.0685
Distribution Charges:
1. Palo Alto Local Distribution ..............................................................$0.28840.5562
D. TERM: Up to 5 years
E. SPECIAL CONDITIONSNOTES:
1. Calculation of Cost ComponentsService under this schedule is subject to discontinuance in
whole or in part, for operational reasons, or if the City experiences supply or capacity
shortages. The City will exercise reasonable diligence and care to furnish and deliver
continuous service and a sufficient quantity of gas to customers, but does not guarantee
continuity of service or sufficiency of quantity. The City shall not be liable for any damage
caused by interruption of service, if the interruption of service is caused by an act of God,
Fire, Strikes, riots, war, or any other cause that is beyond the City’s control.
The Commodity charge shall be based upon the Customer usage shape and size, term, and
market prices. The other components of the rate: Monthly Service Charge, Supply Charges,
and Distribution Charges may be modified periodically with the Council’s approval.
Rate options may include, but are not limited to, commodity rate caps, collars, forward
strips, and trigger rates. Pricing for such products, including any necessary fees, will fall
within the Commodity Charge range set forth in Section C, Part 1 of this Schedule.
LARGE COMMERCIAL CUSTOM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-12
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No. G-12-1 dated 7-1-20072009 Sheet No. G-12-1
A rate cap is defined as a floating rate with a guaranteed maximum price.
A rate collar is defined as a floating rate with maximum and minimum rate levels. Forward
strips are defined as a set rate for a set term calculated by taking the average rate over a
specified period of time. A rate trigger is a mechanism wherein the customer could set a
specific rate level and if the market rate reaches that level, the customer rate is automatically
set at that level.
LARGE COMMERCIAL CUSTOM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-12
(continued)
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No. G-12-2 dated 7-1-20072009 Sheet No. G-12-2
2. Request for Service
Qualifying customers Customers may request service by submitting a completed Gas Service
(G-12) Form. Once both parties have agreed on all required terms, they may execute the
form, which will govern CPAU’s provision of service for the stated term.who choose to be
charged under this rate schedule are required to sign a contract and confirmation schedule
with CPAU and adhere to rules and regulations set forth in CPAU Rule and Regulation No. 5
(Contracts).
Qualifying customers may request service under this schedule for more than one account or
meter if the accounts are located on one site. A site consists of one or more contiguous
parcels of land with no intervening public right-of- ways (e.g. streets).
3.The Commodity Charge shall be based upon the customer load shape and size, term, and
market prices. The other components of the rate: Administrative Fees, Transportation
Charges, Distribution Charges and Monthly Customer Charge may be modified
periodically with the Council’s approval.
4.The Commodity Charge component of this rate and the term will be set at the time when the
customer signs the Contract. Rate options available under Contract may include, but are
not limited to, commodity rate caps, collars, forward strips, and trigger rates. Pricing for
such products, including any necessary fees, will fall within the Commodity Charge
range set forth in Section C, Part 1 of this Schedule. A rate cap is defined as a floating
rate with a guaranteed maximum price. A rate collar is defined as a floating rate with
maximum and minimum rate levels. Forward strips are defined as a set rate for a set term
calculated by taking the average rate over a specified period of time. A rate trigger is a
mechanism wherein the customer could set a specific rate level and if the market rate
reaches that level, the customer rate is automatically set at that level.
5.The Administrative Fee is equal to the allocable administrative and overhead costs incurred by the
City in providing the gas service.
6.PG&E Local transportation charge is equal to the cost of transporting gas from PG&E City Gate to
the Palo Alto City Gate.
7.Total monthly charge = therms used during the month X (Commodity Charge + Administrative
LARGE COMMERCIAL CUSTOM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-12
(continued)
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092012
Supersedes Sheet No. G-12-2 dated 7-1-20072009 Sheet No. G-12-2
Fee + PG&E Local Transportation Charge + Palo Alto Local Distribution Charge) +
Monthly Customer Charge.
3. Changing Rate Schedules
The customer Customer must remain on this term rate for the term indicated on the
Confirmation ScheduleGas Service (G-12) Form so long as, providing the customer
Customer continues to receive distribution services from the CityCPAU. The Gas Service
(G-12) Formconfirmation Schedule shall indicate the Customer's approximate gas usage
(load) over the term of the contract. This load usage shall be served solely by CPAU.
8.Qualifying customers may request service under this schedule for more than one account or meter
if the accounts are located on one site. A site shall be defined as one or more utility accounts
serving contiguous parcels of land with no intervening public right-of- ways (e.g. streets)
and have a common billing address.
10.A customer Customer may request a renewal of this rate with a 30-day advance written
notice to CPAU. The commodity charge for the renewed period will be based on the market
prices and other pricing factors that exist at the time the rate is renewed. Customers electing
not to renew the Contract will be returned to an applicable full-service gas rate schedule of
their choice. If no choice is made, the customer Customer will be placed on G-3.
{End}
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 1
A. ABBREVIATIONS
AMR - Automated Meter Reading
AER - Advance Engineering Request
Btu - British Thermal Unit
ccf - Hundred Cubic Feet
CEC - California Energy Commission
CPAU - City of Palo Alto Utilities
CPUC - California Public Utilities Commission.
DA - Direct Access
ERU - Equivalent Residential Unit
ESP - Energy Service Provider
FERC - Federal Energy Regulatory Commission
GDA - Gas Direct Access
GSP - Gas Service Provider
GSPA - Gas Service Provider Agreement
kVar - Kilovar
kVarh - Kilovar-hours
kW - Kilowatt
kWh - Kilowatt-hour
MW - Megawatt
MMBtu - One million Btus.
NEC - National Electric Code, Latest Version
NRTL - Nationally Recognized Testing Laboratory
PAMC - Palo Alto Municipal Code
PSIG - Per square inch gauge
PST - Pacific Standard Time
RWQCP - Regional Water Quality Control Plant
UUT - Utilities Users Tax
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 2
B. GENERAL DEFINITIONS
Account
The identification number in CPAU’s billing system for Utility Services.
Agency
Any local, county, state or federal governmental body or quasi-governmental body, including, without
limitation, the CPUC, the FERC and any joint powers agency, but excluding the City and any board,
commission or council of the City.
Applicant
An individual, corporation, partnership, Agency, or other legal entity or authorized agent of same, requesting
CPAU to supply any or all of the following:
1. Electric Service
2. Water Service
3. Gas Service
4. Wastewater Collection
5. Refuse and Recycling Collection
6. Storm and Surface Water Drainage Service
7. Fiber Optics Service
Or, an entity submitting an Application for Interconnection pursuant to Rule 27.
Application (for Interconnection of Generating Facilities)
An approved standard form (Load Sheet) submitted to CPAU for Interconnection of a Generating Facility.
Bidweek Price Index
The price reported in Natural Gas Intelligence “NGI’s Bidweek Survey”, California “PG&E Citygate” under
the column “avg.” for the calendar month.
Billing Period
Also “service period” or “billing cycle”. The normal Billing Period for CPAU Customers is approximately
30 days, with variations occurring due to staff availability, holiday scheduling, field verification of Meter
readings, or any other billing-related issues requiring additional investigation prior to issuance of the bill..
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 3
British Thermal Unit
Also “Btu”. The standard sub-unit of measurement comprising a Therm of natural Gas. One (1) Therm
equals 100,000 Btu.
Business Day
Any day, except a Saturday, Sunday, or any day observed as a legal holiday by the City.
Certification Test
A test pursuant to Rule 27 that verifies conformance of certain equipment with approved performance
standards in order to be classified as Certified Equipment. Certification Tests are performed by NRTLs.
Certification; Certified; Certificate
The documented results of a successful Certification Test.
Certified Equipment
Equipment that has passed all required Certification Tests.
Charge
Any assessment, cost, fee, surcharge or levy for Utility Service other than a Tax, including metered and
unmetered Utility Service, capacity, connections, construction, penalties, and mandated or required
Customer financial obligations for Service.
Charter
The Charter of the City of Palo Alto.
City Attorney
The individual designated as the City Attorney of the City under Section 2.08.120 of Chapter 2.08 of Title 2
of the Palo Alto Municipal Code, and any Person who is designated the representative of the City Attorney.
City’s Collector
The Person(s) authorized under Section 5.20.040 of the Palo Alto Municipal Code to provide collection,
removal and disposal of solid waste and Recyclable Materials pursuant to one or more written contracts with
the City.
City Manager
The individual designated as the City Manager of the City under Section 2.08.140 of Chapter 2.08 of Title 2
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 4
of the Palo Alto Municipal Code, and any Person who is designated the representative of the City Manager.
City of Palo Alto, or City
The government of the City of Palo Alto, a chartered City and a municipal corporation duly organized and
validly existing under the Laws of the State of California, with a principal place of business located at 250
Hamilton Avenue, Palo Alto, County of Santa Clara. For the purposes of these Rules and Regulations, the
term “City” may include services provided by both the City of Palo Alto Utilities Department and the City of
Palo Alto Public Works Department.
City of Palo Alto Public Works Department (Public Works)
The City Department responsible for providing Refuse and Recycling, Wastewater Treatment and Storm and
Surface Water Drainage Utility Services. Other Utility Services such as Water, Gas, Electric, Wastewater
Collection, and Fiber Optics are provided by the City of Palo Alto Utilities Department.
City of Palo Alto Utilities Department (CPAU)
The City Department responsible for providing Water, Gas, Electric, Wastewater Collection and Fiber Optic
Utility Services. Other Utility Services such as Refuse and Recycling, Wastewater Treatment and Storm and
Surface Water Drainage are provided by the City of Palo Alto Public Works Department.
Code
The words "the Code" or "this Code" shall mean the Palo Alto Municipal Code.
Commercial Service
Commercial Utility Service is provided to businesses, non-profit organizations, public institutions, and
industrial Customers. The term also applies to Utility Services through Master Meters serving multi-family
Residential dwellings and common areas of multi-family facilities.
Compostable Materials
Organic materials designated by the City as acceptable for collection and processing.
Cubic Foot of Gas (cf)
The quantity of Gas that, at a temperature of sixty (60) degrees Fahrenheit and a pressure of 14.73 pounds
per square inch absolute, occupies one cubic foot.
Curtailment
The act of reducing or interrupting the delivery of natural Gas.
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 5
Customer
The Person, corporation, Agency, or entity that receives or is entitled to receive Utility Service(s) from the
City of Palo Alto, or in whose name Service is rendered for a particular Account as evidenced by the
signature on the Application, contract, or agreement for Service. In the absence of a signed instrument, a
Customer shall be identified by the receipt of any payment of bills regularly issued in the name of the
Person, corporation, or Agency regardless of the identity of the actual user of the Utility Service(s).
Dark Fiber
A Fiber Optic cable provided to end-users or resellers by CPAU without any of the light transmitters,
receivers, or electronics required for telecommunications over the Fiber. Infrastructure for Fiber Optic
activation is provided by the reseller or end-user.
Dark Fiber Infrastructure
Components of the CPAU Fiber Optic Distribution System required to provide Service to Customers
(licensees), that are attached, owned, controlled or used by the City, located overhead or underground within
the Public Right-of-Way, the Public Utility Easements and Leased Service Properties.
Dedicated Distribution Transformer
A Distribution Transformer that is dedicated to serving a single premise.
Demand
The highest rate of delivery of Electric energy, measured in Kilowatts (kW) or kilovolt amperes (kVA)
occurring instantaneously or registered over a fixed time period (normally fifteen minutes unless otherwise
specified within a monthly billing cycle).
Demand Charge
An electrical Charge or rate that is applied to a metered Demand reading expressed in Kilowatts to compute
a Demand Charge component of a Customer’s Electric bill.
Demarcation Point
The Demarcation Point for a project shall be the Customer side of the panel onto which the CPAU Fiber
terminates within the Customer Premises, unless otherwise specified in the Proposal for Dark Fiber Services.
Direct Access (DA)
The election by a Customer to procure its Gas Supply Services, from an Energy Service Provider, other than
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 6
CPAU. In this situation, a Customer deals directly with an ESP for commodity supply, while distribution
and applicable transmission services would continue to be provided by CPAU.
Direct Access Service Request (DASR)
The form required to initiate Direct Access Service.
Distribution Services
Includes, but is not limited to, Utility Service provided by the Distribution System and other Services such as
billing, meter reading, administration, marketing, and Customer Services. Does not include Services directly
related to the Interconnection of a Generating Facility as per Rule 27.
Distribution System
The infrastructure owned and operated by CPAU which is capable of transmitting electrical power, other
than Interconnection Facilities, or transporting Water, Wastewater, or Gas within the City of Palo Alto. The
Electric Distribution System transmits power from the City’s Interconnection with PG&E to CPAU’s Meter
located on the Customer’s Premises. The Gas Distribution System transports Gas from PG&E receiving
stations to CPAU’s Meter located on the Customer Premises. The Water Distribution System transports
Water from the San Francisco Water Department receiving stations and CPAU wells to the meter located on
the Customer Premises. The Wastewater Collection System transports sewage from the Customer’s
Premises to the Water Quality Control Plant.
Distribution and Transmission Services
Services provided by CPAU to effect the physical delivery of Energy Services provided by the Energy
Services Provider from the Point of Receipt to the Direct Access Customer’s Service Address.
Effluent
Treated or untreated Wastewater flowing out of a Wastewater treatment facility, sewer, or industrial outfall.
Electric, Electric Service
Utility Service provided to residents and business owners in the City of Palo Alto consisting of generation,
transmission, and distribution of electrical power for retail use. Electric Service is provided by the City of
Palo Alto Utilities Department.
Emergency
An actual or imminent condition or situation, which jeopardizes CPAU’s Distribution System Integrity.
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 7
Emergency Service
Electric Service supplied to, or made available to, Load devices which are operated only in Emergency
situations or in testing for same.
Energy Services
Energy commodity and any applicable ancillary Services used to generate and transport such commodity
from its origin to the City’s Point of Receipt. May also mean the sale of value added Services associated or
related to the Provision and/or usage of energy commodity.
Equivalent Residential Unit (ERU)
This is the basic unit for computing storm and surface water drainage fees. All single-family Residential
properties are billed the number of ERU’s specified in the table contained in Utility Rate Schedul e D-1,
according to parcel size. All other properties have ERU's computed to the nearest 1/10 ERU using this
formula: No. Of ERU = Impervious Area (sq. ft.) / 2,500 sq. ft.
Fiber Optic, Fiber Optic Service
A solid core of optical transmission material. Fiber Optic Service that is provided by the City of Palo Alto
Utilities Department is referred to as Dark Fiber.
Fiber Optic Backbone
The high-density portion of the Dark Fiber Infrastructure installed and owned by the City.
Force Majeure
The occurrence of any event that has, had or may have an adverse effect on the design, construction,
installation, management, operation, testing, use or enjoyment of the City’s Utility Services, which is beyond
the reasonable control of the parties and which event includes, but is not limited to, an Act of God, an
irresistible superhuman cause, an act of a superior governmental authority, an act of a public enemy, a labor
dispute or strike or a boycott which could not be reasonably contemplated by the City or Customer affected
thereby, a defect in manufactured equipment (including, but not limited to, the Dark Fibers), fire, floods,
earthquakes, or any other similar cause.
Full Service; Fully Bundled Service
Provision by CPAU of both Distribution and Transmission Services and Energy or Gas
Commodity Services to its Customer(s).
Function
Some combination of hardware and software designed to provide specific features or capabilities. Its use, as
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 8
in Protective Function, is intended to encompass a range of implementations from a single-purpose device to
a section of software and specific pieces of hardware within a larger piece of equipment to a collection of
devices and software.
Gas
Any combustible Gas or vapor, or combustible mixture of gaseous constituents used to produce heat by
burning. It shall include, but not be limited to, natural Gas, Gas manufactured from coal or oil, Gas obtained
from biomass or from landfill, or a mixture of any or all of the above.
Gas, Gas Service
Utility Service provided to residents and business owners in the City of Palo Alto consisting of procurement,
transmission, and distribution of Gas for retail use. Gas Service is provided by the City of Palo Alto Utilities
Department.
Gas Direct Access (GDA)
The election by a Customer to procure its natural Gas, and related natural Gas Services, from a Gas Service
Provider, other than CPAU. In this situation, a Customer obtains natural Gas commodity directly from a
GSP, but local transmission of the natural Gas commodity is effectuated by CPAU in accordance with the
terms of CPAU’s Natural Gas Service Agreement with PG&E. Also, Distribution Services would continue
to be provided by CPAU.
Gas Direct Access Service Request (GDASR)
The form required to initiate Gas Direct Access Service.
Gas Service Provider (GSP)
The Person who procures, schedules, nominates and arranges transport of natural Gas to Gas Direct Access
Customers, including its successors and assigns.
Gas Service Provider Agreement (GSPA)
The contract between CPAU and the Gas Direct Access Customer’s Gas Service Provider that establishes
the terms and conditions under which Gas Services may be provided to the Gas Direct Access Customer.
Generating Facility
All Generators, electrical wires, equipment, and other facilities owned or provided by Producer for the
purpose of producing Electric power. This includes a solar or wind turbine electrical generating facility that
is the subject of a Net Energy Metering and Interconnection Agreement and Rule and Regulation 29.
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 9
Generator
A device converting mechanical, chemical or solar energy into electrical energy, including all of its
protective and control Functions and structural appurtenances. One or more Generators comprise a
Generating Facility.
Gross Nameplate Rating; Gross Nameplate Capacity
The total gross generating capacity of a Generator or Generating Facility as designated by the
manufacturer(s) of the Generator(s).
Initial Review
The review by CPAU, following receipt of an Application, to determine the following: (a) whether the
Generating Facility qualifies for Simplified Interconnection; or (b) if the Generating Facility can be made to
qualify for Interconnection with a Supplemental Review determining any additional requirements.
Inspector
The authorized Inspector, agent, or representative of CPAU.
Interconnection; Interconnected
The physical connection of a Generating Facility in accordance with the requirements of the City’s Utilities
Rules and Regulations so that Parallel Operation with CPAU’s Distribution System can occur (has
occurred).
Interconnection Agreement
An agreement between CPAU and the Producer providing for the Interconnection of a Generating Facility
that gives certain rights and obligations to effect or end Interconnection. For the purposes of the City’s
Utilities Rules and Regulations, the Net Energy Metering and Interconnection Agreement, and the Power
Purchase Agreements authorized by the City Council may be considered as Interconnection Agreements for
purposes of defining such term.
Interconnection Facilities
The electrical wires, switches and related equipment that are required in addition to the facilities required to
provide Electric Distribution Service to a Customer to allow Interconnection. Interconnection Facilities may
be located on either side of the Point of Common Coupling as appropriate to their purpose and design.
Interconnection Facilities may be integral to a Generating Facility or provided separately.
Interconnection Study
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 10
A study to establish the requirements for Interconnection of a Generating Facility with CPAU’s Distribution
System.
Internet Exchange
Any Internet data center for telecommunications equipment and computer equipment for the purposes of
enabling traffic exchange and providing commercial-grade data center services.
Interstate Transportation (or Transmission)
Transportation of Gas on a pipeline system under the regulation of the FERC.
Island; Islanding
A condition on CPAU’s Electric Distribution System in which one or more Generating Facilities deliver
power to Customers using a portion of CPAU’s Distribution System that is electrically isolated from the
remainder of CPAU’s Distribution System.
Junction
A location on the Dark Fiber Infrastructure where equipment is installed for the purpose of connecting
communication cables.
Junction Site
The area within the Transmission Pathway at which a Junction is located.
Kilovar (kVar)
A unit of reactive power equal to 1,000 reactive volt-amperes.
Kilovar-hours (kVarh)
The amount of reactive flow in one hour, at a constant rate of Kilovar.
Kilowatt (kW)
A unit of power equal to 1,000 watts.
Kilowatt-hour (kWh)
The amount of energy delivered in one hour, when delivery is at a constant rate of one Kilowatt; a standard
unit of billing for electrical energy.
Law
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 11
Any administrative or judicial act, decision, bill, Certificate, Charter, Code, constitution, opinion, order,
ordinance, policy, procedure, Rate, Regulation, resolution, Rule, Schedule, specification, statute, tariff, or
other requirement of any district, local, municipal, county, joint powers, state, or federal Agency, or any
other Agency having joint or several jurisdiction over the City of Palo Alto or City of Palo Alto Utilities or
Public Works Customers, including, without limitation, any regulation or order of an official or quasi-
official entity or body.
Licensed Fibers
One or more fibers comprising a part of the Dark Fiber Infrastructure that are dedicated to the exclusive use
of the Customer under the Provisions of the Dark Fiber License Agreement, Proposal to Dark Fiber Services
Agreement and the Utilities Rules and Regulations.
Licensed Fibers Route
A defined path of Licensed Fibers that is identified by specific End Points.
Load(s)
The Electric power Demand (kW) of the Customer at its Service Address within a measured period of time,
normally 15 minutes or the quantity of Gas required by a Customer at its Service Address, measured in
MMBtu per Day.
Main Wastewater Line
Any Wastewater line not including a building connection (Service) sewer.
Master-metering
Where CPAU installs one Service and Meter to supply more than one residence, apartment dwelling unit,
mobile home space, store, or office.
Meter
The instrument owned and maintained by CPAU that is used for measuring either the Electricity, Gas or
Water delivered to the Customer.
Metering
The measurement of electrical power flow in kW and/or energy in kWh, and, if necessary, reactive power in
kVar at a point, and its display to CPAU as required by Rule 27.
Metering Equipment
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 12
All equipment, hardware, software including Meter cabinets, conduit, etc., that are necessary for Metering.
Meter Read
The recording of usage data from Metering Equipment.
Minimum Charge
The least amount for which Service will be rendered in accordance with the Rate Schedule.
Momentary Parallel Operation
The Interconnection of a Generating Facility to the Distribution System for one second (60 cycles) or less.
Nationally Recognized Testing Laboratory (NRTL)
A laboratory accredited to perform the Certification Testing requirements under Rule 27.
Net Energy Metering
Net Energy Metering means measuring the difference between the electricity supplied through CPAU’s
Electric utility Distribution System and the electricity generated by the customer-generator’s facility and
delivered to CPAU’s Electric utility Distribution System over a specified twelve-month period.
Net Generation Metering
Metering of the net electrical power of energy output in kW or energy in kWh, from a given Generating
Facility. This may also be the measurement of the difference between the total electrical energy produced by
a Generator and the electrical energy consumed by the auxiliary equipment necessary to operate the
Generator.
Net Nameplate Rating
The Gross Nameplate Rating minus the consumption of electrical power of a Generator or Generating
Facility as designated by the manufacturer(s) of the Generator(s).
Non-Islanding
Designed to detect and disconnect from an Unintended Island with matched Load and generation. Reliance
solely on under/over voltage and frequency trip is not considered sufficient to qualify as Non-Islanding.
Occupied Domestic Dwelling
Any house, cottage, flat, or apartment unit having a kitchen, bath, and sleeping facilities, which is occupied
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 13
by a Person or Persons.
Parallel Operation
The simultaneous operation of a Generator with power delivered or received by CPAU while Interconnected.
For the purpose of this Rule, Parallel Operation includes only those Generating Facilities that are
Interconnected with CPAU’s Distribution System for more than 60 cycles (one second).
Performance Test, Performance Tested
After the completion of any Fiber Interconnection work, the City will conduct a Performance Test of each
Fiber constituting a part of the proposed leased fibers to determine its compliance with the Performance
Specifications.
Performance Specifications
These specifications will include, but not be limited to, criteria relating to end-to-end optical time domain
reflectometer data plots that identify the light optical transmission losses in each direction along the leased
fibers whenever the testing is possible, measured in decibels at a wavelength of 1310 or 1550 nanometers
for singlemode Fiber, as a Function of distance, measured in kilometers.
Person
Any individual, for profit corporation, nonprofit corporation, limited liability company, partnership, limited
liability partnership, joint venture, business, family or testamentary trust, sole proprietorship, or other form
of business association.
PG&E Citygate
The PG&E Citygate is the point at which PG&E’s backbone transmission system connects to PG&E’s local
transmission system.
Point of Common Coupling (PCC)
The transfer point for electricity between the electrical conductors of CPAU and the electrical conductors of
the Producer.
Point of Common Coupling Metering
Metering located at the Point of Common Coupling. This is the same Metering as Net Generation Metering
for Generating Facilities with no host load.
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 14
Point of Delivery (POD)
Unless otherwise specified, the following definitions apply: For Electric, that location where the Service
lateral conductors connect to the Customer’s Service entrance equipment; for overhead Services, the POD is
at the weather-head connection; for under-ground Services, the POD is located at the terminals ahead of or at
the Meter; for multiple Meter arrangements with connections in a gutter, the POD is at the Meter terminals
(supply-side); for multiple Meter arrangements in a switchboard, the POD is typically at the connectors in
the utility entrance section; for Natural Gas, the POD is the point(s) on the Distribution System where the
City delivers natural Gas that it has transported to the Customer.
Point of Interconnection
The electrical transfer point between a Generating Facility and the Distribution System. This may or may
not be coincident with the Point of Common Coupling.
Point of Receipt
The designated location at which CPAU receives Gas supplied by a GSP on behalf of a GDA Customer. The
Point of Receipt for Gas will be designated in the GSPA.
Point of Service (POS)
Where CPAU connects the Electric Service lateral to its Distribution System. For Fiber Optics Service, this
is where CPAU connects the Fiber Service to the backbone. This point is usually a box located in or near the
street or sidewalk and can be in the Public Right-of-Way. This point is at a mutually agreed upon location
established at the time of installation.
Pole Line
Overhead wires and overhead structures, including poles, towers, support wires, conductors, guys, studs,
platforms, cross arms braces, transformers, insulators, cutouts, switches, communication circuits, appliances
attachments, and appurtenances, located above ground and used or useful in supplying Electric,
communication, or similar or associated Service.
Power Factor
The percent of total power delivery (kVA) which does useful work. For billing purposes, average Power
Factor is calculated from a trigonometric function of the ratio of reactive kilovolt-ampere-hours to the
Kilowatt-hours consumed during the billing month.
Premises
All structures, apparatus, or portion thereof occupied or operated by an individual(s), a family, or a business
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 15
enterprise, and situated on an integral parcel of land undivided by a public street, highway, or railway.
Primary Service
CPAU Electric distribution Service provided to a Customer’s Premises at a voltage level equal to or greater
than 1000 volts.
Producer
The entity that executes an Interconnection Agreement with CPAU. The Producer may or may not own or
operate the Generating Facility, but is responsible for the rights and obligations related to the Interconnection
Agreement.
Proposal for Dark Fiber Services
A project-specific Service agreement that acts as a supplemental document for the Dark Fiber License
Agreement. This Service agreement shall include the proposed Interconnection fees, applicable Fiber
licensing fees, term of the Service, and summary of licensed Fiber elements.
Protective Function(s)
The equipment, hardware and/or software in a Generating Facility (whether discrete or integrated with other
Functions) whose purpose is to protect against Unsafe Operating Conditions.
Provision
Any agreement, circumstance, clause, condition, covenant, fact, objective, qualification, restriction, recital,
reservation, representation, term, warranty, or other stipulation in a contract or in Law that defines or
otherwise controls, establishes, or limits the performance required or permitted by any party.
Prudent Utility Practices
The methods, protocols, and procedures that are currently used or employed by utilities to design, engineer,
select, construct, operate and maintain facilities in a dependable, reliable, safe, efficient and economic
manner.
Public Right-of-Way
The areas owned, occupied or used by the City for the purposes of furnishing retail and/or wholesale
Electricity, Gas, Water, Wastewater, Storm and Surface Water Drainage, Refuse and recycling or
communications commodity and/or distribution Service, and the means of public transportation, to the
general public, including but not limited to, the public alleys, avenues, boulevards, courts, curbs, gutters,
lanes, places, roads, sidewalks, sidewalk planter areas, streets, and ways.
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 16
Public Utility Easements
The areas occupied or used by the City for the purpose of providing Utility Service to the general public, and
all related Services offered by the City’s Utilities Department and/or Public Works Department, the rights of
which were acquired by easements appurtenant or in gross, or are other interests or estates in real property,
or are the highest use permitted to be granted by the nature of the City’s interest in and to the affected real
property. This term incorporates all public Service easements for Utility Services that have been recorded by
the City with the Recorder of the County of Santa Clara, California.
Public Works Department
See City of Palo Alto Public Works Department.
Rate Schedule
One or more Council-adopted documents setting forth the Charges and conditions for a particular class or
type of Utility Service. A Rate Schedule includes wording such as Schedule number, title, class of Service,
applicability, territory, rates, conditions, and references to Rules.
Recyclable Materials
Materials designated by the City as acceptable for recycling collection and processing.
Residential Service
Utility Service provided to separately metered single family or multi-family, domestic dwelling.
Rules and Regulations
See Utilities Rules and Regulations
Scheduling Coordinator
An entity providing the coordination of power schedules and nominations to effect transportation and
distribution of Gas, Electric power and energy.
Secondary Service
CPAU Electric distribution Service provided to a Customer’s Premises at a voltage level less than 1000
volts.
Service(s)
Utility Services offered by the City of Palo Alto include Electric, Fiber Optics, Gas, Water, Wastewater
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 17
Collection services provided by the Utilities Department (CPAU); and Refuse and Recycling, Wastewater
Treatment, and Storm and Surface Water Drainage Services provided by the Public Works Department.
Service Address
The official physical address of the building or facility assigned by CPAU’s Planning Department, at which
Customer receives Utility Services.
Service Charge
A fixed monthly Charge applicable on certain Rate Schedules that does not vary with consumption. The
Charge is intended to recover a portion of certain fixed costs.
Service Drop
The overhead Electric Service conductors from the last pole or other aerial support to and including the
splices, if any, connecting to the service entrance conductors at the building or other structure. Or, in the case
of Fiber Optic Drops, the overhead Fiber Optics cable from the last pole or other aerial support to the
building or other structure to and including the termination box.
Services or Service Lines
Facilities of CPAU, excluding transformers and Meters, between CPAU’s infrastructure and the Point of
Delivery to the Customer.
Service Territory
The geographic boundaries within the City of Palo Alto limits served by the physical Distribution System of
the CPAU.
Short Circuit (Current) Contribution Ratio (SCCR)
The ratio of the Generating Facility’s short circuit contribution to the short circuit contribution provided
through CPAU’s Distribution System for a three-phase fault at the high voltage side of the distribution
transformer connecting the Generating Facility to CPAU’s system.
Simplified Interconnection
An Interconnection conforming to the minimum requirements as determined under Rule 27, Section I.
Single Line Diagram; Single Line Drawing
A schematic drawing, showing the major Electric switchgear, Protective Function devices, wires,
Generators, transformers and other devices, providing sufficient detail to communicate to a qualified
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 18
engineer the essential design and safety of the system being considered.
Special Facilities
See CPAU’s Rule and Regulation 20 governing Special Facilities.
Splice
A point where two separate sections of Fiber are physically connected.
Standard Refuse Container
A Standard Refuse Container shall have the meaning described in the Palo Alto Municipal Code. A
Standard Container shall also include a wheeled container with a capacity of not to exceed 32 gallons.
Standby Service
Back-up Energy Services provided by CPAU.
Storm and Surface Water Drainage
Utility Service provided to residents and business owners in the City of Palo Alto.
Storm and Surface Water Drainage Service is provided by the City of Palo Alto Public Works Department.
Supplemental Review
A process wherein CPAU further reviews an Application that fails one or more of the Initial Review Process
screens. The Supplemental Review may result in one of the following: (a) approval of Interconnection;
(b) approval of Interconnection with additional requirements; or (c) cost and schedule for an Interconnection
Study.
System Integrity
The condition under which a Distribution System is deemed safe and can reliably perform its intended
Functions in accordance with the safety and reliability rules of CPAU.
Tax
Any assessment, Charge, imposition, license, or levy (including any Utility Users Tax) and imposed by any
Agency, including the City.
Telemetering
The electrical or electronic transmittal of Metering data in real-time to CPAU.
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 19
Temporary Service
Service requested for limited period of time or of indeterminate duration such as, but not limited to, Service
to provide power for construction, seasonal sales lots (Christmas trees), carnivals, rock crushers or paving
plants. Temporary Service does not include Emergency, breakdown, or Standby Service.
Therm
A Therm is a unit of heat energy equal to 100,000 British Thermal Units (Btu). It is approximately the
energy equivalent of burning 100 cubic feet (often referred to as 1 ccf) of natural Gas. Since Meters measure
volume and not energy content, a Therm factor is used to convert the volume of Gas used to its heat
equivalent, and thus calculate the actual energy use. The Therm factor is usually in the units therms/ccf. It
will vary with the mix of hydrocarbons in the natural Gas. Natural Gas with a higher than average
concentration of ethane, propane or butane will have a higher Therm factor. Impurities, such as carbon
dioxide or nitrogen lower the Therm factor.
Transfer Trip
A Protective Function that trips a Generating Facility remotely by means of an automated communications
link controlled by CPAU.
Transmission Pathway
Those areas of the Public Right-of-Way, the Public Utility Easements and the Leased Service Properties in
which the Dark Fiber Infrastructure is located.
Trap
Any approved equipment or appliance for sealing an outlet from a house-connection sewer to
prevent the escape of sewer Gas from a main line through a building connection (service) sewer.
Underground Utility District
An area in the City within which poles, overhead electric or telecommunication wires, and associated
overhead structures are prohibited or as otherwise defined in Section 12.04.050 of the PAMC.
Unintended Island
The creation of an Island, usually following a loss of a portion of CPAU’s Distribution System, without the
approval of CPAU.
Unsafe Operating Conditions
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 20
Conditions that, if left uncorrected, could result in harm to personnel, damage to equipment, loss of System
Integrity or operation outside pre-established parameters required by the Interconnection Agreement.
Utilities Department
See City of Palo Alto Utilities Department.
Utilities Director
The individual designated as the Director of Utilities Department under Section 2.08.200 of Chapter 2.08 of
Title 2 of the Palo Alto Municipal Code, and any Person who is designated the representative of the director
of utilities.
Utility(ies) Rules and Regulations, Rules and Regulations
The compendium of Utilities Rules and Regulations prepared by the City’s Utilities and Public Works
Departments and adopted by ordinance or resolution of the Council pursuant to Chapter 12.20 of the Palo
Alto Municipal Code, as amended from time to time.
Utility(ies) Service(s), Service(s)
Electric, fiber optics, water, gas, wastewater collection services provided by the City of Palo Alto Utilities
Department (CPAU) and Refuse and Recycling, Wastewater Treatment and Storm and Surface Water
Drainage services provided by the City of Palo Alto Public Works Department.
Utilities User Tax (UUT)
City of Palo Alto Tax imposed on Utility Charges to a Water, Gas, and/or Electric Service user. This may
include Charges made for Electricity, Gas, and Water and Charges for Service including Customer Charges,
Service Charges, Standby Charges, Charges for Temporary Services, Demand Charges, and annual and
monthly Charges, as described in Chapter 2.35 of the Palo Alto Municipal Code.
Wastewater
Utility Service provided to residents and business owners in the City of Palo Alto. Wastewater Utility
Services include collection and treatment of Wastewater. Wastewater Collection Service is provided by the
City of Palo Alto Utilities Department, and Wastewater Treatment Service is provided by the City of Palo
Alto Public Works Department.
Water
Utility Service provided to residents and business owners in the City of Palo Alto for retail use. Water
Service is provided by the City of Palo Alto Utilities Department.
DEFINITIONS AND ABBREVIATIONS
RULE AND REGULATION 2
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 21
Water Column (WC)
Pressure unit based on the difference in inches between the heights of water columns as measured in a
manometer. 6” WC = 0.217 psi; 7” WC = 0.25 psi.
Yard Trimmings
Yard Trimmings means those materials defined in Section 5.20.010 of the Palo Alto Municipal Code.
(END)
SERVICE CONTRACTS
RULE AND REGULATION 5
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 1
A. TYPES OF SERVICE CONTRACTS
For all Utility Services provided, the City may require a written agreement for new or existing
Customers. Contracts may apply to standard Service offerings or custom or special Services. The
following is an illustrative list of special Services that may be the subject(s) of a contract. Additional
Services may require contracts at the discretion of the Director of Utilities.
1. Line Extensions
2. Temporary Service
3. Special Facilities
4. Utility Service to special districts and institutions
5. Work performed for other agencies at their expense
6. Transporting Gas to Customers on behalf of Gas Service Providers (GSP)
7. Transmission service
8. Special Metering and/or Billing Services
9. Special Energy Services
10. Long-term Service agreements greater than 3 years
11. Loans and leases to Customers to finance efficiency improvements or to improve power
reliability at a Customers’ site
12. Standby Service
13. Purchase, lease, installation, connection or maintenance of on-site or distributed generation
14. All Fiber Optic Services
B. CONTRACT APPLICATION PROCEDURES
1. Customers shall complete and execute applicable form(s) or letter(s) as necessary.
2. Depending on the type of Service contract and at the request of CPAU, Customers shall
request consideration for a special contractual agreement in writing to the Director of
Utilities and/or the Director of Public Works specifying their objectives, including the
desired term of the contract.
3. Customers shall pay all applicable fees and deposits.
4. Customers shall comply with the City’s insurance requirements.
C. CONTRACT PRICING GUIDELINES
SERVICE CONTRACTS
RULE AND REGULATION 5
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 76-1-20102
Sheet No 2
1. Revenues realized from each contract will, at a minimum, recover all applicable costs over
the term of the contract.
2. Rate arrangements differing from those offered in the current and successor Rate Schedules
will not shift costs to the other Customers in the short-or long-term.
3. For Electricity and Gas contracts, only the commodity portion of the rate will be established
by contract under custom commodity rates and fixed-term commodity rates. All other Rate Schedule
cost components such as Electric distribution, Gas transportation, administrative fees, public
benefits, Tax, and other non-bypassable Charges may be changed by Council action at any time and
will be equivalent to the corresponding Charges contained on applicable full-service Rate Schedules.
(END)
Executive Report
CITY OF PALO ALTO UTILITIES
Gas Utility Cost of Service Study
April 2012
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Contents
City of Palo Alto
Gas Utility Cost of Service Study Page 1
TABLE OF CONTENTS
Executive Summary ........................................................................................................................................6
System Description ................................................................................................................................................... 6
Changes to Gas Supply Procurement and Retail Rate Making ................................................................................. 7
Financial Plan ............................................................................................................................................................ 7
Gas Supply Fund Center ............................................................................................................................................ 7
Gas Distribution Fund Center ................................................................................................................................... 8
Cost of Service Analysis ............................................................................................................................................. 9
Proposed Rate Design ............................................................................................................................................. 10
Customer Impact .................................................................................................................................................... 11
Gas Utility Financial Plan ..............................................................................................................................13
System Description ................................................................................................................................................. 13
Gas Utility Rate Schedules ...................................................................................................................................... 13
Changes to Gas Supply Procurement and Retail Rate Making ............................................................................... 14
Gas Accounts and Usage Characteristics ................................................................................................................ 14
Gas Supply Fund Center Revenue Requirement ..................................................................................................... 15
Projected Statement of Revenues, Expenditures and Cash Flows ......................................................................... 15
Projected Cash Flow and Reserve Balances ............................................................................................................ 16
Development of Minimum Cash Reserve Target .................................................................................................... 17
Gas Distribution Fund Center Revenue Requirement ............................................................................................ 18
Projected Cash Flow and Reserve Balances ............................................................................................................ 19
Financial Targets ..................................................................................................................................................... 20
Debt Coverage Ratio ............................................................................................................................................... 21
Target Operating Income ........................................................................................................................................ 21
Funding of Depreciation Expense ....................................................................................................................... 21
Contents
City of Palo Alto
Gas Utility Cost of Service Study Page 2
Interest Expense on Outstanding Debt ............................................................................................................... 22
Infrastructure Replacement Costs ...................................................................................................................... 22
Minimum Cash Reserve Levels ............................................................................................................................... 23
Working Capital Requirements ........................................................................................................................... 23
Investment in Assets ........................................................................................................................................... 24
Debt Service Payments ....................................................................................................................................... 24
Capital Improvement Program ........................................................................................................................... 24
Minimum Recommended Cash............................................................................................................................... 25
Summary of Financial Targets ................................................................................................................................. 26
Cost of Service Analysis ................................................................................................................................28
Cost of Service to be Allocated ............................................................................................................................... 28
Classification of Gas Supply Fund Expenses into Functional Cost Components ..................................................... 28
Classification of Gas Distribution Fund Expenses into Functional Cost Components ............................................ 29
Allocation Factors ................................................................................................................................................... 31
Development of Allocators ..................................................................................................................................... 32
Total Sales Allocator ........................................................................................................................................... 32
Average & Excess Allocator................................................................................................................................. 32
Distribution Sales ................................................................................................................................................ 33
Weighted Services .............................................................................................................................................. 33
Meter Costs ......................................................................................................................................................... 34
Weighted Service Distribution ............................................................................................................................ 34
Distribution Expenses ......................................................................................................................................... 34
NBV Allocator ...................................................................................................................................................... 34
Summary of Allocation Factors ............................................................................................................................... 35
Allocation of Costs to Customer Classes ................................................................................................................. 35
Summary of Revenue Requirements into Cost Categories ..................................................................................... 36
Projected Billing Units by Customer Class .............................................................................................................. 36
Contents
City of Palo Alto
Gas Utility Cost of Service Study Page 3
Development of Unit Costs ..................................................................................................................................... 36
Gas Supply Fund – Proposed Changes .................................................................................................................... 37
Gas Supply Fund Cost Breakdown Compared with Current Rates ......................................................................... 38
Gas Distribution Fund – Proposed Changes............................................................................................................ 38
Gas Distribution Fund - Cost Breakdown Compared with Current Rates ............................................................... 38
Cost of Service for Residential Tiers ................................................................................................................... 39
Cost of Service Results (Combined Gas Supply Center & Distribution Center Funds) ........................................... 41
Customer Rate Changes ...............................................................................................................................42
G-1 Rate Design....................................................................................................................................................... 42
G-1 – Customer Impacts ..................................................................................................................................... 43
G-2 Rate Design....................................................................................................................................................... 43
G-2 – Customer Impacts ..................................................................................................................................... 44
G-3 Rate Design....................................................................................................................................................... 44
G-3 – Customer Impacts ..................................................................................................................................... 45
G-6 Rate Design....................................................................................................................................................... 46
G-6 – Customer Impacts ..................................................................................................................................... 46
G-10 Rate Design .................................................................................................................................................... 47
Summary of Revenue Collection with Current and Proposed Rate Schedules by Fund Center and Rate Class ..... 47
Accountant’s Compilation Report ................................................................................................................... i
Contents
City of Palo Alto
Gas Utility Cost of Service Study Page 4
LIST OF FIGURES
Figure 1 – Gas Supply Fund Projected Cash Balances ....................................................................................8
Figure 2 – Gas Distribution Fund Projected Cash Balances ...........................................................................9
Figure 3 – Comparison of Projected Cash Balances with Recommended Minimum Cash Reserves ..........26
Figure 4 – Impacts on G-1 Customers at Varying Usage Levels ...................................................................43
Figure 5 – Impacts on G-2 Customers at Varying Usage Levels ...................................................................44
Figure 6 – Impacts on G-3 Customers at Varying Usage Levels ...................................................................45
Figure 7 – Impacts on G-6 Customers at Varying Usage Levels ...................................................................47
LIST OF TABLES
Table 1 – Number of Customers under Current Rate Schedules ...................................................................6
Table 2 – Existing Customer Rate Schedules .................................................................................................7
Table 3– Summary of Cost of Service by Customer Class ............................................................................10
Table 4 – Proposed Cost of Service Rates ....................................................................................................11
Table 5 – Impact of Proposed Rate Adjustment on Residential Bills ...........................................................11
Table 6 – Impact of Proposed Rate Adjusment on Commercial Bills ..........................................................12
Table 7 - Current and Proposed Rates by Rate Class ...................................................................................12
Table 8 – Number of Customers under Current Rate Schedules .................................................................13
Table 9 – Existing Customer Rate Schedules ...............................................................................................14
Table 10 – Projected Gas Consumption by Customer Class (therms) .........................................................14
Table 11 –Supply Fund Projected Statement of Revenues, Expenditures and Cash Flows .........................16
Table 12 – Supply Fund Projected Cash Balances ........................................................................................17
Table 13 – Supply Fund Minimum Cash Reserves Compared with Projected Cash Reserves .....................18
Table 14 –Projected Statement of Distribution Fund Income and Expenses (FY 2013 – FY 2017) .............19
Table 15 – Distribution Fund - Statement of Cash Flows .............................................................................20
Table 16 – Debt Coverage Ratios .................................................................................................................21
Table 17 – Depreciation Expense Projection ...............................................................................................22
Table 18 – Projected Interest Expense ........................................................................................................22
Table 19 – Inflation Adjusted Asset Replacement .......................................................................................23
Contents
City of Palo Alto
Gas Utility Cost of Service Study Page 5
Table 20 – Distribution Fund - Projected Income and Targeted Income Comparison ................................23
Table 21 – Debt Service Payment Schedule .................................................................................................24
Table 22 – Distribution Fund Minimum Cash Reserves - FY 2013 – FY 2017 ...............................................25
Table 23 – Distribution Fund - Targeted and Projected Cash Reserves .......................................................26
Table 24 – Revenue Requirement by Fund ..................................................................................................28
Table 25 – Gas Supply Fund - Classification into Functional Cost Components ..........................................29
Table 26 – Reconciliation of Cash and Utility Basis ......................................................................................30
Table 27 – Gas Distribution Fund - Classification into Functional Cost Components ..................................31
Table 28 – Total Sales Allocator ...................................................................................................................32
Table 29 – Allocation Factors Used to Distribute Expenses .........................................................................35
Table 30 – Allocation of Costs to Each Customer Class ...............................................................................35
Table 31 – Customer Class Revenue Requirement by Classification ...........................................................36
Table 32 – Projected Billing Units (FY 2013) ................................................................................................36
Table 33 – Charges by Therm and by Customer per Month ........................................................................37
Table 34 – Gas Supply Fund Cost of Service ................................................................................................37
Table 35 – Current Supply Charges ..............................................................................................................38
Table 36 – Cost of Service Supply Charges...................................................................................................38
Table 37 – Gas Distribution Fund Cost of Service ........................................................................................38
Table 38 – Cost of Service and Current Rate Comparison ...........................................................................39
Table 39 – Residential First Tier Calculation ................................................................................................40
Table 40 – Residential Second Tier Calculation ...........................................................................................40
Table 41 – Cost of Service Summary Results (Supply and Distribution Funds Combined) ..........................41
Table 42 – G-2/G-6 Billing Components .......................................................................................................41
Table 43 – Proposed G-1 Rate Design ..........................................................................................................42
Table 44 – Proposed Tier One Levels (therms) ............................................................................................43
Table 45 – Proposed G-2 Rate Design ..........................................................................................................44
Table 46 – Proposed G-3 Rate Design ..........................................................................................................45
Table 47 – Proposed G-6 Rate Design ..........................................................................................................46
Table 48 – Proposed G-10 Rate Design ........................................................................................................47
Table 49 – Summary of Revenue Collection with Current and Proposed Rate Schedules ..........................48
Section 1
Executive Summary
City of Palo Alto
Gas Utility Cost of Service Study Page 6
Executive Summary
Utility Financial Solutions (UFS) was contracted to provide the City of Palo Alto Utilities Department
(CPAU) with a cost of service and rate study for its Gas Utility. The purpose of the study includes:
1) Determine the Gas Utility’s revenue requirements for Fiscal Year (FY) 2013 based on financial
projections provided by Palo Alto staff ;
2) Allocate utility’s revenue requirements to customer classes and identify the cost to provide
service to each customer class; and,
3) Review the current Gas Utility rate structures and, if necessary, propose revisions to current rate
structures based on cost of service.
This executive summary provides an overview of the study and includes major findings and
recommendations. The report is structured in the following manner:
Financial Plan
Cost of Service Analysis
Customer Impact
System Description
The City’s Gas Utility serves 23,700 customers over an area of approximately 26 square miles. Total gas
consumption in the city in FY 2011 was 30.9 million therms. The Gas Utility is responsible for operations
and maintenance of the system, and purchases all of its gas from out side suppliers.
Gas utility currently has customers under five rate schedules as presented in Table 1.
Table 1 – Number of Customers under Current Rate Schedules
Schedule Rate Class
Number of
Customers
G-1 Residential 21,700
G-2 Commercial 2,310
G-3 Large Commercial 19
G-6 Municipal 33
G-10 Compressed Natural Gas (CNG)1
Gas utility rate schedules consist of a monthly customer charge and volumetric rates for various cost
components. The monthly customer charge varies by rate class. The cost components consist of the
Commodity Charge, Administrative Fee, PG&E Local Transportation Charge, and Palo Alto Local
Distribution Charge. The volumetric Commodity Charge for residential customers (G-1) is tiered. The
Commodity Charge for customers on G-3 and G-10 rate schedules is based on the market price for
natural gas that varies on a monthly basis. The Commodity Charge for all other customers (pool
Section 1
Executive Summary
City of Palo Alto
Gas Utility Cost of Service Study Page 7
customers) is a fixed rate adjusted as needed. The current charges under existing rate schedules are
shown in Table 2.
Table 2 – Existing Customer Rate Schedules
Schedule Rate Class
Customer
Charge
($/Month)
Commodity
Charge
($/therm)
Administrative
Fee
($/therm)
PG&E Local
Transportation
Charge
($/therm)
Palo Alto Local
Distribution
Charge
($/therm)
G-1 Residential 5.25$ Tier 1:0.7095$ 0.0227$ 0.0212$ 0.6338$
Tier 2:1.2815
G-2 Commercial 35.00 0.8321 0.0227 0.0212 0.4781
G-3 Large Commercial 311.00 Market Based
($0.10 - $2.00)
0.0227 0.0212 0.2884
G-6 Municipal 55.25 0.8321 0.0227 0.0212 0.4897
G-10 Compressed Natural Gas (CNG)55.25 Market Based
($0.10 - $2.00)
0.0227 0.0212 -
Changes to Gas Supply Procurement and Retail Rate Making
For the last ten years a portion of Palo Alto’s residential and small commercial customer gas supply
needs have been met through purchases of gas at fixed and capped prices. While this “laddering”
strategy was successful in achieving relatively stable gas supply costs, the downside was that, during
times of declining market prices, Palo Alto’s costs and resulting rates were higher than Pacific Gas and
Electric’s (PG&E’s) gas supply rates, which change on a monthly basis mirroring the fluctuating market
price of gas. The City Council directed the staff to implement gas retail commodity rates based on market
prices in November 2011. This change required a review of the costs and revenues of the Gas Supply and
Gas Distribution Fund Centers to ensure that revenues will cover costs. The utility plans to change to a
monthly market price-based gas supply rates effective July 1, 2012. Gas distribution rates will continue
to remain stable month-to-month and will change as needed (typically, no more than annually) as in the
past. The change also necessitates a review of utility financial plan , an assessment of the need for
financial reserves, and a cost of service study to ensure costs are aligned with revenues from each
customer class.
Financial Plan
To develop gas rates, UFS used the revenue requirements projected by the City in its long range financial
projections and presented to the Utilities Advisory Commission in March 2012 and Finance Committee in
April, 2012.
Gas Supply Fund Center
The utility is moving toward market-based pricing for its commodity rates for all customer classes and
plans to propose adjustments to the other two existing rate components, namely the Administrative Fee
and PG&E Local Transportation charge based on projected costs for those operations. CPAU also plans
to propose revisions to its Gas Supply Rate Stabilization Reserve (G-SRSR) guidelines due to the changes
planned for its retail supply rate making. UFS reviewed the projected statement of revenues,
Section 1
Executive Summary
City of Palo Alto
Gas Utility Cost of Service Study Page 8
expenditures and cash flows and assessed minimum cash reserve requirements for the Gas Supply Fund
based on its review of working capital requirements. Figure 1 shows total cash available and
recommended minimum cash reserves established in this study for the Gas Supply Fund. CPAU
projected revenues and expenses for the Gas Supply Fund are expected to result in cash reserves
meeting and exceeding the minimum cash reserve targets established in this study for the period from
FY 2013 – FY 2017. Recommended minimum cash reserves are discussed in detail in Section 2 of this
report.
Figure 1 – Gas Supply Fund Projected Cash Balances
Gas Distribution Fund Center
CPAU projects to increase the Gas Distribution Fund Center revenues by 25% starting in FY 2013 with the
following adjustments planned for FY 2014 – FY 2017:
FY 2014 – No rate adjustment
FY 2015 – 3%
FY 2016 – 4%
FY 2017 – 3%
These adjustments are included in the five year financial planning horizon as outlined in Table 14. UFS
reviewed the projected statement of income and expenses for the Gas Distribution Fund cash flows and
Section 1
Executive Summary
City of Palo Alto
Gas Utility Cost of Service Study Page 9
reserve balances. UFS also reviewed other financial metrics such as debt coverage ratio, target operating
income and minimum cash reserve requirements for the Gas Distribution Fund. Figure 2 shows total
cash available and recommended minimum cash reserves established for the Gas Distribution Fund in
this study. Based on UFS’s assessment, the Gas Distribution Fund falls short of the recommended
minimum cash reserve targets established in this study for the period from FY 2013 – FY 2017.
Recommended minimum cash reserves are discussed in detail in Section 2 of this report.
Figure 2 – Gas Distribution Fund Projected Cash Balances
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
Projected
2013
Projected
2014
Projected
2015
Projected
2016
Projected
2017
Projected Cash Balance Compared with Minimum & Maximum Reserve Guideline
UFS Recommended Minimum Cash Reserves
CPAU Minimum D-RSR Plus EPR Reserve Guidelines
CPAU Maximum D-RSR Plus EPR Reserve Guidelines
Projected Cash Reserves
Cost of Service Analysis
To develop rates that recover revenues from each customer class consistent with the costs imposed on
the system by the customer class, UFS conducted a cost of service analysis. The analysis was performed
consistent with industry standards using the base-extra capacity method. The gas system is designed to
serve individual demand characteristics of its customers.
Based on the analysis of customer usage characteristics and the demands imposed on the gas
distribution system by each customer class, UFS recommends that the City make certain adjustments to
Section 1
Executive Summary
City of Palo Alto
Gas Utility Cost of Service Study Page 10
future revenue collection by rate class. Table 3 summarizes cost of service results for each customer
class compared with the revenue collected using current rates. The % change indicates required
adjustment to current rates based on cost of service study results. The results show a 17% decrease in
G-1 (Residential) customer class rates is required to achieve cost of service results. The G-3 (Large
commercial customer) shows a required rate increase of 38%. Other customer classes will see
adjustments varying between -13% and +6%. It should be noted that these rate adjustments are for the
bundled rates which include both the supply and the distribution cost components and therefore
depend on projected costs for the gas market prices for the supply commodity component at the time of
budget preparation in November 2011. In actual fact, gas supply commodity rates will be based on
market prices at the time of delivery and therefore the actual average rate adjustment will be different
than the average bundled rate adjustment shown in this chart.
Table 3– Summary of Cost of Service by Customer Class
Customer Class Cost of Service
Utility Basis
Projected
Revenues
% Adjustment
Required
G-1 15,460,855$ 18,589,631$ -16.8%
G-2 17,055,771 19,534,961 -12.7%
G-3 5,392,930 3,912,976 37.8%
G-6 413,906 484,388 -14.6%
G-10 31,565 29,740 6.1%
Total 38,355,026$ 42,551,695$ -9.9%
Proposed Rate Design
Based on the review of CPAU’s rate structures, UFS recommends modifying the current tiered structure
for residential customers on the G-1 rate schedule. Tiered rate structure is established to implement a
cost-based rate structure that supports resource efficiency. Residential tiers are currently implemented
for the supply commodity rate component. Since commodity rates will be based on market prices which
will be the same for all customer classes, UFS recommends establishing tiers on the distribution rate
component for the residential rate schedule G-1. The residential class is relatively homogeneous with
similar load profiles and usage characteristics. Other rate classes may also have similar load profiles but
not similar usage characteristics. For example, the G2 rate class can consist of low use gas customers
and high use gas customers making it impractical to implement a tiered rate structure that is both
effective and cost-based. For this reason, tiers are recommended to be developed for the residential
class only.
Based on a review of the residential load profiles, it is recommended to shorten the current winter
heating season from six months (November thru April) to five months (November thru March) and
increase the current summer period to seven months (May through October). It is also recommended
the first level tier be set at approximately the average1 residential usage during each season. Based on
a review of the residential class’ average usage, it is recommended to set the summer tier at 20 therms
1 Average median monthly usage for the season
Section 1
Executive Summary
City of Palo Alto
Gas Utility Cost of Service Study Page 11
per month and the winter tier at 60 therms per month. If the average usage was used consistently
throughout the year the distribution infrastructure would be used more efficiently resulting in lower
distribution investments and rates. However the distribution system is constructed to serve the peak
demand created by the customers and the additional cost to operate, maintain and construct these
additional facilities are allocated to consumption amounts that are above the average usage. The
resulting tier price differential is $0.515/therm compared to the current tier price differential of
$0.572/therm.
UFS also recommends eliminating the municipal rate schedule G-6 as the customer profile for municipal
accounts is not significantly different from the non-municipal business accounts. Table 4 shows cost of
service rates for the gas utility.
Table 4 – Proposed Cost of Service Rates
Schedule Rate Class
Customer
Charge
($/Month)
Commodity
Charge
($/therm)
Administrative
Charge
($/therm)
Transportation
Charge
($/therm)
Local Distribution
Charge ($/therm)
G-1 Residential 9.88$ Market Based 0.0074$ 0.0685$ Tier 1:0.3883$
Tier 2:0.9037
G-2 Commercial 74.86 Market Based 0.0074 0.0685 0.5638
G-3 Large Commercial 361.18 Market Based 0.0074 0.0685 0.5562
G-6 Municipal N/A N/A N/A N/A N/A
G-10 Compressed Natural Gas (CNG)50.65 Market Based 0.0074 0.0685 -
Customer Impact
The impact of cost of service-based rates for residential customers (G-1) at various usage levels for
summer and winter periods is provided in Table 5 and commercial customers under utility rate
schedules G-2 and G-3 is shown in Table 6. These impacts assume that the supply component of the
rate will be $0.4522/therm, the forward market price as of November 2011 when the budget was
prepared.
Table 5 – Impact of Proposed Rate Adjustment on Residential Bills
Season Usage (Therms)
Current
Monthly
Bill
Proposed
Monthly Bill
Amount of
Proposed
Change
Percent
Increase
(Decrease)
10 19.12 19.04 (0.08) -0.4%
Summer 18 Median 30.22 26.38 (3.84) -12.7%
45 81.97 64.00 (17.97) -21.9%
30 46.87 37.37 (9.49) -20.3%
Winter 54 Median 80.16 59.37 (20.79) -25.9%
150 244.22 193.73 (50.49) -20.7%
Section 1
Executive Summary
City of Palo Alto
Gas Utility Cost of Service Study Page 12
Table 6 – Impact of Proposed Rate Adjusment on Commercial Bills
Schedule
Usage
(Therms)
Current
Monthly Bill
Proposed
Monthly Bill
Amount of
Proposed
Change
Percent
Increase
(Decrease)
G-2 500 712 621 (91) -12.8%
G-2 10000 13,576 10,995 (2,581) -19.0%
G-3 50000 39,534.09 54,576 15,042 38.0%
The decrease in monthly gas bills is smaller in percentage terms for residential customers who use less
gas, due to the service charge increase, the reduction in winter tier allowances, and the slight reduction
in the difference between the volumetric rates for tier 1 and tier 2. Customers who are currently on
utility rate schedule G-2 are expected to see higher reductions than those under G-3 as G-3 customers
already have commodity prices that change monthly based on market prices, and will therefore mainly
be impacted by the distribution and transportation rate increases.
Table 7 summarizes current and proposed rates and % change for each customer class.
Table 7 - Current and Proposed Rates by Rate Class
Rate Component and Customer Class Current Rates Proposed Rates Change
Customer Charge ($/Month):
G-1 Residential 5.25$ 9.88$ 88%
G-2 Small Commercial 35.00$ 74.86$ 114%
G-3 Large Commercial 311.00$ 361.18$ 16%
G-6 Municipal 55.25$ Same as G-2 35%
G-10 CNG 55.25$ 50.65$ -8%
Administrative Fee ($/therm):
All Customers 0.0227 0.0074 -67%
Transportation ($/therm):
All Customers 0.0212 0.0685 223%
Distribution ($/therm)
G-1 Residential 0.6338 Tier 1: 0.3883
Tier 2: 0.9037
Tier 1: -39%
Tier 2: 43%
G-2 Small Commercial 0.4781 0.5638 18%
G-3 Large Commercial 0.2884 0.5562 93%
G-6 Municipal 0.4897 Same as G-2 15%
Commodity Charge ($/therm):
G-1 Residential Tier 1: 0.7095
Tier 2: 1.2815 Market Based N/A
G-2 Small Commercial 0.8321 Market Based N/A
G-3 Large Commercial Market Based Market Based None
G-6 Municipal 0.8321 Same as G-2 N/A
G-10 CNG Market Based Market Based None
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 13
Gas Utility Financial Plan
System Description
The City’s Gas Utility serves 23,700 customers over an area of approximately 26 square miles. The City’s
average daily consumption of gas in FY2011 was 111,500 therms per day in the winter (November
through April) and 58,200 therms per day in the summer (May through October). This represents a total
of 30.9 million therms of gas for the year as a whole. The Gas Utility is responsible for operations and
maintenance of the system, and purchases all of its gas from outside suppliers.
Gas Utility Rate Schedules
Gas utility currently has customers under five rate schedules as shown in Table 82.
Table 8 – Number of Customers under Current Rate Schedules
Schedule Rate Class
Number of
Customers
G-1 Residential 21,700
G-2 Commercial 2,310
G-3 Large Commercial 19
G-6 Municipal 33
G-10 Compressed Natural Gas (CNG)1
Gas utility rate schedules are unbundled into supply- and distribution-related charges and consist of a
monthly customer charge and volumetric rates for various cost components. The monthly customer
charge varies by rate class. The cost components consist of the Commodity Charge, Administrative Fee,
PG&E Local Transportation, and Palo Alto Local Distribution. The volumetric commodity charge for
residential customers (G-1) is tiered3. The Commodity Charge for customers on G-34 and G-105 rate
schedules is based on market price6 for natural gas that varies on a monthly basis. The Commodity
Charge for all other customers (pool customers) is a fixed rate adjusted as needed and is based on
average cost of natural gas purchased over a three year period following a laddering strategy. The
charges under existing rate schedules are shown in Table 9.
2 Gas Utility also has other custom rates applicable to large customers that have direct access eligibility. No customers are
currently on these rate schedules.
3 Tier 1 is defined as 20 therms per month during the sum mer months of May through October and 96 therms per month
during the winter months of November through April, based on a 30 day bill. Tier 2 is applicable to the rest of the
customer’s monthly gas consumption.
4 G-3 rate schedule applies to service for large commercial customers who use at leastt 250,000 therms per year at one site
and have retained gas direct access eligibility. This schedule also applies to City owned generation facilities.
5 G-10 rate schedule applies to the sale of natural gas to the C ity-owned compressed natural gas (CNG) fueling station at the
Municipal Service Center in Palo Alto.
6 Market rate is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, accounting for delivery
losses to the customer’s meter.
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 14
Table 9 – Existing Customer Rate Schedules
Schedule Rate Class
Customer
Charge
($/Month)
Commodity
Charge
($/therm)
Administrative
Fee
($/therm)
PG&E Local
Transportation
Charge
($/therm)
Palo Alto Local
Distribution
Charge
($/therm)
G-1 Residential 5.25$ Tier 1:0.7095$ 0.0227$ 0.0212$ 0.6338$
Tier 2:1.2815
G-2 Commercial 35.00 0.8321 0.0227 0.0212 0.4781
G-3 Large Commercial 311.00 Market Based
($0.10 - $2.00)
0.0227 0.0212 0.2884
G-6 Municipal 55.25 0.8321 0.0227 0.0212 0.4897
G-10 Compressed Natural Gas (CNG)55.25 Market Based
($0.10 - $2.00)
0.0227 0.0212 -
Changes to Gas Supply Procurement and Retail Rate Making
For 10 years a portion of Palo Alto’s residential and small commercial customer gas supply needs have
been met through purchases of gas at fixed and capped prices. While this “laddering” strategy was
successful in achieving relatively stable gas supply costs, the downside was that, during times of
declining market prices, Palo Alto’s costs and resulting rates were higher than PG&E’s gas supply rates,
which change on a monthly basis mirroring the fluctuating market price of gas. The City Council directed
the staff to implement gas retail commodity rates based on market prices in November 2011. This
change, to be implemented in rates effective on July 1, 2012, required a review of the costs and
revenues of the gas supply and gas distribution units to ensure that revenues will cover costs. The utility
plans to change to a monthly market price-based gas supply commodity rates. Gas distribution rates will
continue to remain stable month-to-month and will change as needed (typically, no more than annually) as
in the past. The change also requires an assessment of the need for, and purpose of, financial reserves.
Gas Accounts and Usage Characteristics
Customer accounts and usage information for FY 2011 are used as the basis for projecting the gas utility
sales revenues during the study period. The projections are based on the Gas Utility’s long-range
financial plan. Both number of gas accounts and projected sales volumes are expected to remain
relatively stable. Table 10 is the historical and projected gas consumption for CPAU and by customer
class.
Table 10 – Projected Gas Consumption by Customer Class (therms)
Description FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Purchases 31,859,634 31,453,769 31,484,765 31,494,381 31,495,291 31,503,289
Loss Factor 3.3%3.2%3.2%3.0%3.0%3.0%
Total Sales 30,799,885 30,447,249 30,477,253 30,545,144 30,545,975 30,553,683
G-1 Sales 11,456,925 11,466,461 11,463,405 11,457,038 11,447,512 11,440,569
G-2 Sales 13,931,984 13,696,267 13,718,859 13,737,475 13,752,282 13,770,175
G-3 Sales 4,956,537 4,887,279 4,897,713 4,953,575 4,949,457 4,946,455
G-6 Sales 338,469 338,751 338,660 338,472 338,191 337,986
G-10 Sales 115,969 58,490 58,615 58,583 58,534 58,499
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 15
As can be seen in Table 10, residential customers use 37% of total gas provided by the City, commercial
customers use 45%. Additionally large commercial customers that are on market-based rates use 16%,
municipal accounts make up only 1% and the City’s CNG facility makes up a very small fraction, 0.4%, of
total sales. Neither the number of customer accounts nor the gas consumption is expected to change
significantly for the foreseeable future.
In preparation for direct access prior to FY 1999, the City has unbundled its gas utility accounts and rate
structures into Gas Supply and Gas Distribution functions. Financial plans for the two fund centers in this
report are therefore provided in separate sections for the Supply and Distribution Fund Centers.
Gas Supply Fund Center Revenue Requirement
Revenue requirements and projections for the period from FY 2013 to FY 2017 were provided by CPAU.
The Gas Utility Gas Supply Fund is anticipating a change in rate stru cture that would result in gas supply
commodity procurement costs being a direct pass through to all customer classes. CPAU gas supply
commodity procurement charges are currently collected through a fixed rate for the G -1 (Residential),
G-2 (Commercial) and G-6 (Municipal) classes and are a pass-through charge for the G-3 (Large
Commercial) and G-10 (CNG) customer class. Other gas supply related charges include Administrative
Fee and PG&E Local Transportation charge.
Table 11 details the projected financial statements for the Gas Supply Fund Center. The Gas Supply Fund
Center is anticipating a transfer from existing cash reserves of $1.033 million in FY 2013 to fund the
current supply commitments at fixed forward prices. In the subsequent years (FY 2014 to FY 2017) no
significant operating reserve transfers are anticipated.
Projected Statement of Revenues, Expenditures and Cash Flows
The statement of changes in cash flows is identified in Table 11.
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 16
Table 11 –Supply Fund Projected Statement of Revenues, Expenditures and Cash Flows
Projected
2013
Projected
2014
Projected
2015
Projected
2016
Projected
2017
Market Based Commodity Revenues 13,717,197 15,002,557 16,679,921 17,764,611 18,565,520
PG&E Local Transport 646,118 2,262,103 2,397,898 2,014,746 1,591,026
Rate Change 1,615,294 135,726 (383,664) (423,097) 63,641
Proration Impact (67,304) (5,655) 15,986 17,629 (2,652)
Administrative Fee Revenue 691,834 117,648 121,181 124,848 127,295
Rate Change (574,222) 3,529 3,635 2,497 3,819
Proration Impact 23,926 (147) (151) (104) (159)
Total Revenues 16,052,843$ 17,515,761$ 18,834,806$ 19,501,130$ 20,348,489$
Expenses
Commodity Purchases 14,813,936 15,021,656 16,587,734 17,723,722 18,550,452
PG&E Transportation 1,472,458 1,650,273 1,267,970 843,726 868,697
Allocated Administration & Overhead 226,802 231,338 235,964 240,684 245,497
General Management and Overhead 517,973 528,333 538,899 549,677 560,671
Alternate Energy Programs 199,920 203,918 207,997 212,157 216,400
Rent, Other Transfers 41,068 41,890 42,727 43,582 44,454
Total O&M 17,272,157$ 17,677,408$ 18,881,292$ 19,613,548$ 20,486,171$
Operating Income (1,219,314)$ (161,646)$ (46,486)$ (112,417)$ (137,681)$
Other Revenue & Expenses
Interest Income 175,026 144,027 143,829 147,079 148,449
Other Revenue 11,000 11,000 11,000 11,000 11,000
Total Other Income & Expenses 186,026$ 155,027$ 154,829$ 158,079$ 159,449$
Net Change in Cash Reserves (1,033,288)$ (6,619)$ 108,343$ 45,662$ 21,768$
*Proration impact – when rates are modified, often at the beginning of a month, part of a customer’s charges is billed at the previous rates and part on the
new rates. The proration impact quantifies this timing difference.
Projected Cash Flow and Reserve Balances
Table 12 shows Gas Supply Fund projected cash reserves, and the current Gas Supply Rate Stabilization
Reserve minimum and maximum guideline levels. Cash reserves are projected to remain stable for the
period from FY 2013 – FY 2017 within a range of $4.8 - $5.0 million.
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 17
Table 12 – Supply Fund Projected Cash Balances
Projected
2013
Projected
2014
Projected
2015
Projected
2016
Projected
2017
Net Cash From Operations (1,033,288)$ (6,619)$ 108,343$ 45,662$ 21,768$
Beginning Cash Balance 5,834,201 4,800,913 4,794,294 4,902,637 4,948,299
Ending Cash Balance 4,800,913$ 4,794,294$ 4,902,637$ 4,948,299$ 4,970,066
Total Cash Available 4,800,913 4,794,294 4,902,637 4,948,299 4,970,066
UFS Recommended Minimum Cash Reserves 4,193,131 4,291,945 4,590,368 4,770,833 4,986,338
CPAU Minimum G-SRSR Guidelines 4,071,598 4,167,982 4,463,926 4,641,862 4,854,787
CPAU Maximum G-SRSR Guidelines 8,143,197 8,335,965 8,927,852 9,283,724 9,709,575
Development of Minimum Cash Reserve Target
CPAU plans to propose revisions to its current reserve guidelines. Current reserve guidelines were
developed to provide a rate stabilization reserve for the Gas Supply Fund. CPAU is modifiying its rate
structures and changing to a market price pass through for gas supply procurement charges for all
customer classes. With the change in commodity rate setting, certain risks will now be passed on to
customers thus reducing the need for reserves. Previous cash reserve guidelines included the
assessment of risk and market uncertainty that are no longer required and included the following items:
1) Market price volatility
2) Load uncertainty
3) Supplier default
There is, however, still a need to maintain some level of reserves for the Gas Supply Fund to ensure
prudent financial management of the utility. This section describes the recommended methology and
assumptions to establish minimum cash reserve targets for the Gas Supply Fund. The methodology
involves establishing working capital requirements for the Gas Supply Fund.
Working Capital Requirements – A timing difference exists between when expenses are incurred and
paid and revenues are received from customers. Establishing a minimum cash reserve helps to en sure
cash exists to pay expenses in a timely manner. CPAU reviewed the monthly cash flows for the purchase
of gas commodity and transportation charges and established that 25% of the annual costs was
required as minimum cash. This corresponds to a 90 day working capital lag time.
In addition to this, UFS reviewed the monthly cash flows for internal operating expenses for the Gas
Supply Fund to identify the working capital requirements and a 45 day working capital lag time was
identified for these expenses. These lag times are consistent with standard working capital
requirements in the utility industry for the type of expenditure considered.
Table 13 details the result of the minimum cash reserve target with a comparison to projected reserves.
CPAU’s cash reserves are projected to exceed the minimum guidelines as established by UFS.
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 18
Table 13 – Supply Fund Minimum Cash Reserves Compared with Projected Cash Reserves
Projected
2013
Projected
2014
Projected
2015
Projected
2016
Projected
2017
Expense
Gas Purchases and PG&E Transportation 16,286,394 16,671,929 17,855,704 18,567,448 19,419,149
Supply Operations Expense 985,763 1,005,478 1,025,588 1,046,100 1,067,022
Minimum Cash Reserve Percents
Gas Purchases and PG&E Transportation 25%25%25%25%25%
Supply Operations Expense 12%12%12%12%12%
Miniumum Cash Reserve
Gas Purchases and PG&E Transportation 4,071,598$ 4,167,982$ 4,463,926$ 4,641,862$ 4,854,787$
Supply Operations Expense 121,532 123,963 126,442 128,971 131,551
Recommended Minimum Cash Reserves 4,193,131$ 4,291,945$ 4,590,368$ 4,770,833$ 4,986,338$
Projected Cash Reserves 4,800,913$ 4,794,294$ 4,902,637$ 4,948,299$ 4,970,066$
Gas Distribution Fund Center Revenue Requirement
Revenue requirements and projections for the period from FY 2013 to FY 2017 were provided by CPAU.
Table 14 shows the projected financial statements for the Distribution Fund Center over the five year
projection period. To help ensure the anticipated rate adjustments are properly funding expenses and
replacement cost of infrastructure, an accrual basis financial statement was prepared. An operating
income of $4.4 million is projected in FY 2013 compared with a target operating income of $3.7 million.
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 19
Table 14 –Projected Statement of Distribution Fund Income and Expenses (FY 2013 – FY 2017)
Projected Rate Adjustments - CPAU 25.0%0.0%3.0%4.0%3.0%
Revenue
Projected
2013
Projected
2014
Projected
2015
Projected
2016
Projected
2017
Sales Revenues 17,807,372 22,265,142 22,266,730 22,941,008 23,848,867
Rate Adjustment 4,451,433 668,002 917,624 715,466
Pro-ration Impact (185,493) - (27,833) (38,234) (29,811)
Service Connections & Transfers 720,000 730,000 752,000 789,600 812,000
Discounts and Uncollectables (250,000) (250,000) (250,000) (250,000) (250,000)
Total Revenues 22,543,312$ 22,745,142$ 23,408,898$ 24,359,997$ 25,096,522$
Expenses
Allocated Administration & Overhead 3,049,823 3,110,819 3,173,036 3,236,497 3,301,227
Engineering Support & Administration 857,957 875,116 892,619 910,471 928,680
Gas Operations 3,648,985 4,762,365 3,817,212 3,893,557 3,971,428
Customer Service & Administration 722,940 737,399 752,147 767,190 782,534
Meter Reading 274,764 280,259 285,864 291,581 297,413
Billing and Collections 365,598 372,910 380,368 387,975 395,735
Gas Demand Side Management 1,334,349 1,452,677 1,577,307 1,629,749 1,682,115
General Fund Transfers 5,994,800 6,395,775 6,622,707 6,860,944 7,104,311
Other Transfers 178,472 182,042 185,683 189,396 193,184
Rent 169,787 169,787 169,787 169,787 169,787
Depreciation 1,855,620 2,044,000 2,215,010 2,382,025 2,562,597
Total O&M 18,453,095$ 20,383,149$ 20,071,740$ 20,719,173$ 21,389,010$
Operating Income 4,090,217$ 2,361,993$ 3,337,159$ 3,640,824$ 3,707,512$
Interest Income 536,614 468,431 358,492 353,211 356,948
Other Revenues and Transfers 84,680 84,680 84,680 84,680 84,680
Interest Expense 296,725 281,545 265,953 249,865 227,755
Total Other Income & Expenses 324,569$ 271,566$ 177,220$ 188,026$ 213,873$
Net Income 4,414,786$ 2,633,559$ 3,514,379$ 3,828,850$ 3,921,384$
*Slight rounding differences exist between CPAU’s projections and Table 14.
**Proration impact – when rates are modified, often at the beginning of a month, part of a customer’s charges is billed at the previous rates and part on
the new rates. The proration impact quantifies this timing difference.
Projected Cash Flow and Reserve Balances
CPAU uses the “Cash Basis” for determination of revenue requirements. This method is appropriate for
CPAU’s conditions and works well when annual Capital Improvement Program (CIP) costs are steady and
appropriate system infrastructure investments are carrie d out. UFS used the “Utility Basis” for cash flow
and balance projections presented in this section. This method was preferred because it generally
ensures capital replacements are consistently funded regardless of annual CIP plans and leads to more
stable revenue requirements and customer rates. Under the “Utility Basis” the statement of cash flows
and cash balances are projected to help ensure cash is available to fund the projected capital
improvements. CPAU’s projected cash reserves at the end of FY 2013 are $6.5 million. Cash reserves
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 20
are anticipated to decrease slightly over the projection period to $4.8 million in FY 2017. Table 15 shows
the Distribution Fund Center statement of cash flows for the period f rom FY2013 – FY2017 and includes
the projected balances for the Emergency Plant Replacement and Gas Distribution Rate Stabilization
Reserves (G-DRSR).
CPAU plans to revise its current reserve guidelines. In the Financial Targets discussion below, UFS
provided suggested minimum levels of cash reserves that CPAU may consider.
Table 15 – Distribution Fund - Statement of Cash Flows
Projected
2013
Projected
2014
Projected
2015
Projected
2016
Projected
2017
Add Net Income 4,414,786$ 2,633,559$ 3,514,379$ 3,828,850$ 3,921,384$
Add Back Depreciation Expense 1,855,620 2,044,000 2,215,010 2,382,025 2,562,597
Subtract Debt Principal 506,000 519,750 536,250 552,750 574,750
Cash Available from Operations 5,764,406$ 4,157,809$ 5,193,139$ 5,658,126$ 5,909,232$
Estimated Annual Capital Additions 7,706,000 5,377,200 5,537,535 5,616,905 6,112,892
Net Cash From Operations (1,941,594)$ (1,219,391)$ (344,396)$ 41,221$ (203,660)$
Projected Account Balances
Plant Replacement 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
G-DRSR Reserve 5,570,934 4,351,543 4,007,146 4,048,367 3,844,706
Total Cash Available 6,570,934 5,351,543 5,007,146 5,048,367 4,844,706
Financial Targets
When evaluating the financial condition of utilities, UFS reviews three financial metrics:
Debt Coverage Ratio
Target Operating Income
Minimum Cash Reserve levels
Debt Coverage Ratio – Revenue bonds require that the system generates sufficient cash flows to meet
the debt obligations. For CPAU a 1.25 coverage ratio is required which means the cash flows from
operations have to exceed 1.25 times the debt service payment. If the Debt Coverage ratio is not
achieved, the bonds are in technical default that may result in Bond Rating Agencies lowering the bond
ratings of CPAU and resulting in higher interest rates for future debt issuances.
Target Operating Income – Target operating income helps ensure the replacement costs of assets
installed to provide service to customers are properly funded in the current rates. When the target
operating income is achieved both depreciation expense and the inflationary increase in asset
replacement costs are properly funded in current charges to customers. This helps ensure funds exist to
replace assets that are being used by customers today.
Minimum Cash Reserves – Minimum cash reserves are often established to help ensure the utility has
the funds available to pay expenses in a timely fashion and fund future capital improvement programs.
If a utility falls below the minimum cash requirements it may result in payment of expenses or capital
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 21
improvement programs delayed until sufficient cash exists to pay the expenditure. Cash reserves are
also a significant factor when Bond Rating Agencies review the financial condition of a utility.
Each of these factors is discussed below.
Debt Coverage Ratio
Debt coverage ratio for CPAU is mandated by covenants established in the Utility Revenue Refunding
Bonds, 2011 Series A documentation and must be maintained to ensure CPAU maintains its bond rating
and has the capacity to issue additional revenue bonds. CPAU’s required coverage ratio is 1.25 times the
debt service payment. This is compared with the cash generated by operations to ensure the coverage
requirement is achieved each year. To help ensure coverage is ach ieved during period of low sales a
0.20 safety factor is typically added to the coverage requirement for a minimum targeted coverage ratio
of 1.45.
Table 16 shows the projected debt coverage ratios of CPAU’s Gas Distribution Fund Center. The Gas
Utility is a low debt operation with a debt to equity ratio of 0.15. This means that 15% of the current
equity is financed through debt. CPAU’s Gas Distribution Fund Center is exceeding the debt coverage
requirement in each year as shown in Table 16.
Table 16 – Debt Coverage Ratios
Projected
2013
Projected
2014
Projected
2015
Projected
2016
Projected
2017
Add Net Income 4,414,786$ 2,633,559$ 3,514,379$ 3,828,850$ 3,921,384$
Add Depreciation Expense 1,855,620 2,044,000 2,215,010 2,382,025 2,562,597
Add Interest Expense 296,725 281,545 265,953 249,865 227,755
Cash Available for Debt Service 6,567,131$ 4,959,104$ 5,995,341$ 6,460,741$ 6,711,737$
Principal and Debt for Debt Coverage Purposes 802,725$ 801,295$ 802,203$ 802,615$ 802,505$
Projected Debt Coverage Ratio (Covenants)8.18 6.19 7.47 8.05 8.36
Minimum Debt Coverage Ratio 1.45 1.45 1.45 1.45 1.45
Target Operating Income
The optimal target for setting rates is the establishment of a target operating income that ensures not
only operating expenditures are covered but also infrastructure replacement costs are properly funded.
A target operating income for municipal utilities considers the following items in addition to operating
expenditures:
1) Funding of depreciation expense
2) Interest expense on outstanding debt
3) Infrastructure replacement costs
Funding of Depreciation Expense
Depreciation expense is considered an operating expense for purposes of accrual basis accounting and
represents the annual cost due to wear that occurs on the infrastructure. Depreciation expense was
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 22
projected by UFS using CPAU construction estimates and current depreciation rates. Table 17 shows the
projected depreciation expense used for the Distribution Fund Center.
Table 17 – Depreciation Expense Projection
Year
Depreciation
Expense
2013 1,855,620$
2014 2,044,000
2015 2,215,010
2016 2,382,025
2017 2,562,597
Interest Expense on Outstanding Debt
Interest expense represents the annual cost of issuing debt. Targeted operating income helps ensure
interest expense incurred for infrastructure replacements is funded from current ratepayers. The
projected interest expense was provided by CPAU and is included in Table 18.
Table 18 – Projected Interest Expense
Year Interest Expense
2013 296,725$
2014 281,545
2015 265,953
2016 249,865
2017 227,755
Infrastructure Replacement Costs
The cost to replace an asset in the syste m increases each year due to inflationary pressures. For
municipal utilities the replacement cost of infrastructure is recovered from customers on an annual
basis. Table 19 is the additional revenue requirements to fund the asset replacement costs and is based
on anticipated inflation rates of 3.26%7
7 Inflation rate assumed in the analysis is the twenty year annual change in Engineering News Record’s Construction Cost
Index for the period from 1992 – 2011.
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 23
Table 19 – Inflation Adjusted Asset Replacement
Year
Asset
Investments
Asset Inflation -
Percent
Inflation Adjustment -
Dollars
2013 88,564,802$ 3.26%2,887,031$
2014 95,550,802 3.26%3,114,760
2015 100,928,002 3.26%3,290,046
2016 106,465,537 3.26%3,470,558
2017 112,082,442 3.26%3,653,657
CPAU’s projected operating income over the next five years compares favorably with the targets
established in this report with only a modest variation of approximately $600,000 for this time period.
This indicates the current rate track is sufficient to support the capital replacement costs of CPAU . Table
20 compares the projected operating income with targets for Fiscal Years Ending 2013 through 2017.
Table 20 – Distribution Fund - Projected Income and Targeted Income Comparison
Fiscal Year
Ending Targeted Projected
2013 3,183,756$ 4,090,217$
2014 3,396,305 2,361,993
2015 3,555,998 3,337,159
2016 3,720,423 3,640,824
2017 3,881,412 3,707,512
Total 17,737,894$ 17,137,704$
Operating Income
Minimum Cash Reserve Levels
To help ensure timely completion of capital improvements, enable the utility to fund large unexpected
expenditures, and to help ensure adequate cash exists to buffer any substantial rate adjustments for
customers a minimum cash reserve target is currently established . Minimum cash reserves attempts to
quantify the minimum amount of cash the utility should keep in reserves . The actual cash reserves may
vary above the minimum but should not fall below the minimum established targets. The methodology
used in this report is based on certain assumptions related to percent of operation and maintenance,
rate base, capital improvements, and debt service. Listed below is a general assessment and discussion
of significant factors that may affect CPAU’s need for cash reserves in its Dist ribution Fund Center.
Working Capital Requirements
A timing difference exists between when expenses are incurred and revenues received from customers.
Establishing a minimum cash reserve helps to ensure cash exists to pay expenses in a timely manner.
The timing difference was discussed with CPAU and a 45 day working capital lag time was identified as
appropriate for the distribution fund center activities. This is a standard working capital requirement in
the utility industry.
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 24
Investment in Assets
Catastrophic events may occur requiring cash reserves to replace the damaged assets. Some examples
of catastrophic events include ice storms, earthquakes, wind storms, floods, or tornadoes. Sometimes
the costs of catastrophic events may be covered from FEMA; however FEMA reimbursements can take
between 6 months to 2 years to recover the funds and often at only 65% - 75% of the cost of asset
replacements. Cash reserves are often combined with emergency funding from banks or bonding
agencies to fully fund a catastrophic event. The utility should maintain reserves to help ensure cash
exists to start the repair and replacement process until adequate financing can be arranged. The age of
Utility assets is used to help identify CPAU’s exposure to catastrophic events and damages. Older
systems are more susceptible to damage compared with a newer or well-maintained system. In
reviewing CPAU’s gas infrastructure, the system is 31% depreciated indicating a relatively new system
with limited exposure to catastrophic events due to age. This is compared with typical utilities that have
an average age between 47% - 55% depreciated. We included 1% of the total investment in
infrastructure to be included in the minimum cash reserve determination . UFS age related standards are
listed below:
Utility less than 50% depreciated = 1% of Historical Investments
Utility between 47% - 55% depreciated = 2% of Historical Investments
Utility Over 55% depreciated = 3% of Historical Investments
Debt Service Payments
Debt service payments do not occur evenly throughout the year. It is typical for these payments to occur
every six months. To ensure adequate cash reserves exist to fund the debt service payment , utilities
often review the amounts and timing of the debt service payments to help ensure the largest debt
service payment is in reserves at all times. For CPAU the largest debt service payment occurs in May and
is 82% of the annual debt service payment. Table 21 is the payment schedule for the outstanding Utility
Revenue Refunding Bonds, 2011 Series A of the Gas Utility Distribution Fund Center.
Table 21 – Debt Service Payment Schedule
Payment Dates Amount
Percent of Total
Payment
11/29/12 148,363 18%
05/29/13 654,363 82%
Debt Service Payment 802,725 100%
Capital Improvement P rogram
Some capital improvements are funded through bond is suances and some through cash reserves. The
establishment of a minimum cash reserve level helps to ensure timely replace ment or construction of
assets. UFS reviewed the five year capital improvement program of CPAU and included 20% (average
year) of the five year capital plan as representative of annual CIP expenditure requirements. (If debt is
issued to finance capital improvements, the anticipated debt issuance is often subtracted from the five
year capital amount; CPAU does not plan to issue debt over the five year projection.)
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 25
Minimum Recommended Cash
The minimum recommended cash reserve for FY 2013 is $8.9 million and increases to $9.4 million in FY
2017. CPAU has two separate reserves in the Gas Distribution Fund Center: Gas Distribution Rate
Stabilization Reserve (G-DRSR) and Emergency Plant Replacement (EPR) Reserve. These reserves
combined will be referred to as Cash Reserves in this report. CPAU’s current policy for G-DRSR
establishes both a minimum and a maximum reserve requirement equal to 15% and 30% of budgeted
distribution sales revenue. Additionally, CPAU’s current policy for EPR is set at $1,000,000 which
represents the deductible on the insurance policy for plant equipment. Using the assumptions discussed
above, Table 22 compares the projected cash reserves in CPAU’s G-DRSR and EPR with recommended
minimum cash reserves established in this study. Figure 3 shows projected cash reserves,
recommended minimum cash reserves and CPAU’s minimum and maximum G-DRSR plus EPR levels.
Table 22 – Distribution Fund Minimum Cash Reserves - FY 2013 – FY 20178
Projected
2013
Projected
2014
Projected
2015
Projected
2016
Projected
2017
Inputs
Operation & Maintenance Expense 16,597,475 18,339,150 17,856,730 18,337,147 18,826,413
Historical Rate Base 88,564,802 93,942,002 99,479,537 105,096,442 111,209,334
Current Portion of Debt Service Reserve 801,295 802,203 802,615 802,505 802,505
Five Year Capital Improvements - Net of bond proceeds 26,642,135 26,642,135 26,642,135 26,642,135 26,642,135
Minimum Cash Reserve Percents
Operation & Maintenance Expense 12%12%12%12%12%
Historical Rate Base 1%1%1%1%1%
Current Portion of Debt Service Payment 82%82%82%82%82%
Five Year Capital Improvements - Net of bond proceeds 20%20%20%20%20%
Minimum Cash Reserve Calculations
Operation & Maintenance Expense 2,046,264$ 2,260,991$ 2,201,515$ 2,260,744$ 2,321,065$
Historical Rate Base 885,648 939,420 994,795 1,050,964 1,112,093
Current Portion of Debt Service Payment 653,197 653,937 654,273 654,183 654,183
Five Year Capital Improvements - Net of bond proceeds 5,328,427 5,328,427 5,328,427 5,328,427 5,328,427
Recommended Minimum Cash Reserves 8,913,536$ 9,182,775$ 9,179,010$ 9,294,319$ 9,415,768$
Projected Cash Reserves 6,570,934$ 5,351,543$ 5,007,146$ 5,048,367$ 4,844,706$
Figure 3 compares projected cash balances with minimum cash reserve levels established in the formula
above and CPAU’s current GDRSR minimum and maximum reserve guidelines plus EPR . Cash reserves
are projected to decrease each year and fall below $5.0 million in FY 2017. The projected cash reserves
are $4.6 million below the minimum cash reserves requirements identified in this report.
8 Operation & Maintenance Expenses excludes depreciation expense; Ratebase is historical inves tment in plant & equipment;
Five year capital improvements is budgeted capital improvements for next five years and excluding capital improvements
funded through debt issuances.
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 26
Figure 3 – Comparison of Projected Cash Balances with Recommended Minimum Cash Reserves
Summary of Financial Targets
CPAU’s Gas Distribution Fund Center is meeting or exceeding two of the three financial targets, that is,
Debt Coverage, and Operating Income; and, falling below the third one, the targeted minimum cash
reserves. CPAU may consider the following options to restore cash in its reserves to levels that exceed
the minimums:
1) Increase rates by an additional 5% in FY 2014. This would allow the cash balance to reach the
minimum cash target by FY 2017 with cash reserves of approximately $9.7 million. Table 23 is
the projected cash reserves compared with minimum targets for the period from FY 2013 to FY
2017 with the additional 5% rate adjustment in FY 2014.
Table 23 – Distribution Fund - Targeted and Projected Cash Reserves
Fiscal Year
Ending
Minimum Cash
Reserve Target
Projected Reserves
with Proposed
Rate Adjustments
Projected Reserves with
Additional 5% Rate
Adjustment in 2014
2013 8,913,536$ 6,570,934$ 6,570,934$
2014 9,182,775 5,351,543 6,464,800
2015 9,179,010 5,007,146 7,322,803
2016 9,294,319 5,048,367 8,617,075
2017 9,415,768 4,844,706 9,704,284
Cash Balances
2) Debt of approximately $5.0 million could be issued to resto re cash reserves. This would help
ensure the cash deficiency is restored immediately. A small bond issuance of $5.0 million will
Section 2
Gas Utility Financial Plan
City of Palo Alto
Gas Utility Cost of Service Study Page 27
result in debt issuance costs. CPAU could consider combining the $5.0 million with possible
financing requirements for other utilities.
3) CPAU could rely on the cash reserves held by other utility funds. If an emergency cash situation
occurred, the Gas Utility could borrow the needed funds and a debt repayment schedule
established at the time to reimburse the borrowed funds with a corresponding interest rate.
4) The City is currently conducting an audit of utility reserves. The City may revise its reserve
policies following completion of the audit.
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 28
Cost of Service Analysis
The cost of service study identifies the cost to provide service to each customer class and is used to
develop rates to collect revenues from each customer class based on the applicable costs to serve that
class. To complete a cost of service study the following general steps were completed:
1) Determination of utility revenue requirements
2) Classification of utility expenses into cost pools (functional components)
3) Development of allocation factors considering how costs are incurred and which class is
responsible for the utility incurring the cost
4) Allocation of the costs to each customer class based on the allocation factors developed in step 3
Cost of Service to be Allocated
Cost of service to be allocated equals total revenue requirements for the utility. Revenue requirements
are the total revenues needed from rates to fund the utility operations. Utility revenue requirements
were developed as discussed in section 2 and summarized below based on information provided by
CPAU and totaled $38,355,026. Table 24 details the revenue requirements and is broken down between
the Gas Supply and Gas Distribution Funds.
Table 24 – Revenue Requirement by Fund
Fund
Revenue
Requirements
Gas Supply Fund 16,096,221$
Gas Distribution Fund 22,258,805
Total 38,355,026$
Classification of Gas Supply Fund Expenses into Functional Cost Components
CPAU’s Gas Supply Fund revenue requirements of $16,096,221 were classified into three functional cost
components prior to allocation to the customer classes. The functional cost components used in the
analysis are listed below:
1) Gas Commodity Purchases – Cost to purchase natural gas (including cost of fixed price purchases
less the anticipated use of cash reserves)
2) Transportation – The cost to transport gas supply into CPAU’s service territory and internal costs
related to the operation of the Gas Supply Fund
3) Administration – Internal costs incurred by CPAU for the securing and purchasing of gas supply
for customers
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 29
Table 25 lists the cost category, projected expenditure, and shows the classification into the appropriate
cost components (pools).
Table 25 – Gas Supply Fund - Classification into Functional Cost Components
Category Expenditure
Gas Commodity
Purchases Transportation
Commodity
Purchase
Administration
Commodity Purchases 14,813,936 14,813,936
Commodity Transportation 1,472,458 1,472,458
Allocated Administration & Overhead 226,802 226,802
General Management and Overhead 517,973 517,973
Alternate Energy Programs 199,920 199,920
Rent, Other Transfers 41,068 41,068
Proration Impact 43,378 43,378
Interest Income (175,026)(175,026)
Other Revenue (11,000)(11,000)
Reserve Funding (1,033,288)(1,033,288)
Gas Supply Fund Revenue Requirements 16,096,221$ 13,780,648$ 2,088,772$ 226,802$
Cost Pool
Classification of Gas Distribution Fund Expenses into Functional Cost Components
CPAU’s Gas Distribution Fund revenue requirements of $22.2 milli on were classified into functional cost
components prior to allocation to the customer classes.
CPAU uses the Cash Basis method for its financial projections. In this study, costs are categorized using
the Utility Basis method which uses the following categories of costs for the Distribution Fund Center:
1) Operation and maintenance of the distribution system
2) Customer, marketing and financial services
3) Depreciation expense
4) Revenue financed capital
Both the Cash Basis and the Utility basis uses the same costs for “Operation and maintenance of the
distribution system” and “Customer, marketing and financial services”, and the two methods differ on
funding of infrastructure costs. T he Utility Basis incorporates funding of depreciation expense and
revenue financed capital items, the Cash Basis incorporates capital program costs, debt service
payments and non-operating revenue. The revenue financed capital is used to balance the Cash Basis
revenue requirement with Utility Basis. Table 26 shows the reconciliation of the two methods:
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 30
Table 26 – Reconciliation of Cash and Utility Basis
Cash Basis Amount
Operation & Maintenance of Distribution System 7,556,765$
Customer, Marketing & Financial Services 9,206,030
Debt Service 802,725
Capital Improvement Program 7,706,000
Distribution Rate Stabilization Reserves (1,941,594)
Interest (536,614)
Connection Fees (720,000)
Proration Impact 185,493
Total 22,258,805$
Utility Basis Amount
Operation & Maintenance of Distribution System 7,556,765$
Customer, Marketing & Financial Services 9,206,030
Depreciation Expense 1,855,620
Revenue Financed Capital 3,640,390
Total 22,258,805$
The Utility Basis expense categories are classified into functional cost components as shown in Table 27.
The expenses were classified based on the allocator that best reflects the cost causation of the expense .
The development of allocators is explained in the following section on Allocation Factors.
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 31
Table 27 – Gas Distribution Fund - Classification into Functional Cost Components
Category Expenditure
Distribution
Expense NBV
Sales
Distribution
Avg &
Excess
Weighted
Services
Distribuiton
Meter
Costs
Weighted
Services
DISTRIBUTION SYSTEM:
Overhead and Allocated Charges 3,049,823 3,049,823
Operations Administration 404,615 404,615
Engineering Administration 453,342 453,342
Operations and Maintenance 3,648,985 600 46,915 1,663,358 1,210,105 459,137 268,871
CUST., MARKETING & FINANCIAL SERVICES
Customer Service Administration 88,884 88,884
Customer Service Operations 519,526 519,526
Meter Reading 274,764 274,764
Billing 308,828 308,828
Key Accounts 114,530 114,530
Credit & Collections 56,770 56,770
Demand Side Management 1,530 1,530
Efficiency Programs 1,033,402 1,033,402
Low Income Programs 267,286 267,286
Research & Development Programs 32,130 32,130
General Fund Transfers 5,994,800 5,994,800
Other Transfers 169,787 169,787
Rent 178,472 178,472
Adjustments
Discounts and Uncollectables 250,000 250,000
(Less) Non-Rate Revenue
Reimbursement from Other Funds (84,680)(84,680)
Subtotal 16,762,795 3,705,038 763,836 8,992,506 1,210,105 459,137 268,871 1,363,302
Depreciation Expense 1,855,620 39,007 827,858 597,888 231,386 159,481
Revenue Financed Capital 3,640,390 3,640,390
Total Distribution Fund 22,258,805$ 3,744,045$ 4,404,226$ 9,820,364$ 1,807,993$ 690,523$ 428,353$ 1,363,302$
Allocation Factors
Once expenses are classified, an allocation factor is assigned to each cost component based on why the
cost is incurred. This results in rates that reflect the appropriate cost and the c ost impact each customer
class creates on the system. The allocation factors used are listed below:
Total Sales – Allocated on unit sales (therms) to each class.
Average and Excess – Allocation based on a combination of the average monthly sales to each
class and the peak usage during the winter season. A description of the development of this
allocator is listed in the allocator section of this report.
Sales Distribution – Allocated based on sales (therms) to each class that use the distribution
system. (Class G-10 (CNG) does not use CPAU’s distribution infrastructure and is therefore
excluded from the calculation of this allocator.)
Weighted Services – Allocator developed based on the estimated time to read meters, bill
customer accounts and cost to provide customer services to each customer class.
Meter Costs – Cost to purchase and install a typical meter for each class.
Weighted Service Distribution – Allocator developed based on the weighted services listed
above excluding class G-10 (CNG) that does not use the distribution infrastructure.
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 32
Distribution Expenses – Allocator developed based on how all previously discussed distribution
expenses were allocated.
Net Book Value (NBV) – Allocator developed based on how distribution of assets are allocated to
each customer class.
Development of Allocators
The sections below describe the development of the allocators used in the study.
Total Sales Allocator
This allocator is developed based on total number of therms used by each customer class.
Table 28 – Total Sales Allocator
Total Sales
Allocation Development G-1 G-2 G-3 G-6 G-10 Total
Total Therms Sold 11,463,405 13,718,859 4,897,713 338,660 58,615 30,477,253
Percent of Total 37.6%45.0%16.1%1.1%0.2%100.0%
Average & Excess Allocator
The allocation of costs using the Average and Excess method considers the average demand created by a
customer class and the excess demand created by the same class. Excess demand is defined as peak
usage less average usage. This is a critical allocator used in the study to allocate portions of the
distribution related costs. The average usage is the total therms used by each class divided by 12
months. If the infrastructure was used consistently during the year no additional capacity would be
required above the average usage. However, gas usage is not consistent throughout the year resulting
in larger system capacity required to serve the peak demands created on the system. The cost to expand
the system above the average usage is appropriately charged to customers based on the peak demands
created by each class. The G-10 class is served directly off the transmission system and no distribution
system investments are constructed to service this class of customers and their usage is excluded in the
development of this allocator. Development of the average and excess allocator is a three -step process
and is described below.
Step One – Identification of Average Monthly Usage for each class: The table below shows the total
projected sales in therms for each class of customer and the average monthly sales to each class of
customers.
Customer Class Annual Sales Avg. Monthly Sales
G-1 11,463,405 955,284
G-2 13,718,859 1,143,238
G-3 4,897,713 408,143
G-6 338,660 28,222
G-10 58,615 4,885
Total 30,477,253 2,539,771
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 33
Step Two – Determination of Excess Peak over Average for each class: This step determines the
capacity that is greater than the average for each class of customers and is calculated by identifying
the peak usage for each class and subtracting the average usage from it. The table below shows the
calculation of the excess peak over average usage for each customer class.
Customer Class
Winter
Average Usage
Averge Monthly
Sales
Excess Peak over
Avg.
G-1 1,446,089 955,284 490,806
G-2 1,391,002 1,143,238 247,764
G-3 467,725 408,143 59,582
G-6 38,048 28,222 9,826
G-10 4,789 4,885 (96)
Total 3,347,653 2,539,771 807,882
Step Three – Determination of Average and Excess Allocator: The allocator is developed by summing
the average usage and the excess usage for each class and calculating the percent contribution of
each class to the total.
Customer
Class
Class
Average Class Peak Total
Percent of
Total
G-1 955,284 490,806 1,446,089 43.2%
G-2 1,143,238 247,764 1,391,002 41.6%
G-3 408,143 59,582 467,725 14.0%
G-6 28,222 9,826 38,048 1.1%
G-10 4,885 (96) 4,789 0.1%
Total 2,539,771 807,882 3,347,653 100.0%
*The G-10 rate class has a higher average use for the year than their usage during the peak month. The distribution system
costs are allocated considering both the class average usage and usage during the peak month. The G-10 rate class is not
contributing to the peak demands on the system and is resulting in an over allocation of costs using the class averages. The over
allocation is credited back to the class using the peak allocation.
Distribution Sales
Allocated based on sales (therms) to each class that use the distribution system.
Sales Distribution
G-1 G-2 G-3 G-6 Total
11,463,405 13,718,859 4,897,713 338,660 30,418,637
37.7%45.1%16.1%1.1%100.0%
Allocation Development
Total Therms Sold Excl. G-10
Percent of Total
Weighted Services
Allocator developed based on the estimated time to read meters, bill customer accounts , and cost to
provide customer services to each customer class. The weighting factors were established based on
quantifiable items such as cost to install meters and estimated items such as the time to read meters,
bill a customer’s account and time spent by customer service personnel. The weighting factors were
developed based on discussions with staff and UFS experience in completing cost of service studies for
other utilities.
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 34
Weighted Services
Allocation Development G-1 G-2 G-3 G-6 G-10 Total
No. of Customers 21,700 2,310 19 33 1 24,063
Weighting Factor for Services 1 7 40 10 7
Weighted Customers 21,700 16,170 760 330 7 38,967
Percent of Total 55.7%41.5%2.0%0.8%0.0%100.0%
Meter Costs
Allocator developed based on cost to purchase and install a typical meter for each class.
Meter Cost
Allocation Development G-1 G-2 G-3 G-6 G-10 Total
Meter Installation Costs - Average 70.36 716.40 1,470.08 716.40 716.40
No. of Customers 21,700 2,310 19 33 1
Total Meter Replacement Costs 1,526,812 1,654,884 27,932 23,641 716 3,233,985
Percent of Total 47.2%51.2%0.9%0.7%0.0%100.0%
Weighted Service Distribution
Allocator developed based on the weighted services listed above excluding G-10 (CNG) that does not use
the distribution infrastructure.
Weighted Services Distribution
Allocation Development G-1 G-2 G-3 G-6 Total
No. of Customers Excl. G-10 21,700 2,310 19 33 24,062
Weighting Factor for Distribuiton 1 7 40 10
Weighted Customers 21,700 16,170 760 330 38,960
Percent of Total 55.7%41.5%2.0%0.8%100.0%
Distribution Expenses
Allocator developed based on how all previously discussed distribution expenses were allocated.
Distribution Expense
Allocation Development G-1 G-2 G-3 G-6 Total
Allocated Distrbution Expenses 3,067,839 2,946,847 697,516 68,843 6,781,046
Percent of Total 45.2%43.5%10.3%1.0%100%
NBV Allocator
Allocator developed based on how assets were allocate d to each customer class. The table below is the
distribution of asset investments based on cost causation principals.
Allocation of Plant Investment and Capital Costs and development of the NBV allocator are detailed
below.
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 35
Account Total Allocation G-1 G-2 G-3 G-6 G-10
Structures and Improvements 1,215,164 Avg & Excess 526,243 505,283 169,805 13,833 -
Measuring & Regulating Equipment 340,087 Sales Distribution 128,163 153,380 54,758 3,786 -
Mains Therm 22,216,404 Sales Distribution 8,372,355 10,019,637 3,577,069 247,342 -
Mains Demand 16,348,487 Avg & Excess 7,079,934 6,797,936 2,284,506 186,110 -
Services Therm 7,134,141 Sales Distribution 2,688,534 3,217,510 1,148,670 79,427 -
Services Demand 5,249,833 Avg & Excess 2,273,511 2,182,956 733,602 59,764 -
Services Customer Related 8,255,982 Weighted Svcs. Dist.4,598,430 3,426,572 161,051 69,930 -
Regulators Demand 161,234 Avg & Excess 69,824 67,043 22,530 1,835 -
Regulators Therm 219,105 Sales Distribution 82,571 98,817 35,278 2,439 -
Meters 4,834,723 Meter Cost 2,282,544 2,474,008 41,757 35,343 1,071
Total Rate Base 65,975,158$ 28,102,110$ 28,943,142$ 8,229,026$ 699,810$ 1,071$
NBV Allocator 42.59%43.87%12.47%1.06%0.00%
Summary of Allocation Factors
Table 29 shows the summary of the allocation factors used for each cost category and the expenses
classified in the cost pool.
Table 29 – Allocation Factors Used to Distribute Expenses
Total Costs G-1 G-2 G-3 G-6 G-10 Total
Total Sales 16,096,221 37.6%45.0%16.1%1.1%0.2%100.0%
Avg & Excess 1,807,993 43.3%41.6%14.0%1.1%0.0%100.0%
Sales Distribution 9,820,364 37.7%45.1%16.1%1.1%0.0%100.0%
Weighted Services 1,363,302 55.7%41.5%2.0%0.8%0.0%100.0%
Meter Cost 428,353 47.2%51.2%0.9%0.7%0.0%100.0%
Weighted Services Distribution 690,523 55.7%41.5%2.0%0.8%0.0%100.0%
Distribution Expense 4,007,625 45.2%43.5%10.3%1.0%0.0%100.0%
NBV 4,140,646 42.6%43.9%12.5%1.1%0.0%100.0%
Total Revenue Requirements 38,355,026$
Allocation of Costs to Customer Classes
The total costs from Table 29 are applied to the allocation factors and result in the cost distributed to
each customer class. Table 30 shows total allocated costs to each customer class.
Table 30 – Allocation of Costs to Each Customer Class
G-1 G-2 G-3 G-6 G-10 Total
Total Sales 6,054,269 7,245,463 2,586,672 178,860 30,957 16,096,221
Avg & Excess 782,976 751,789 252,645 20,582 - 1,807,993
Sales Distribution 3,700,850 4,429,001 1,581,179 109,333 - 9,820,364
Weighted Services 759,198 565,725 26,589 11,545 245 1,363,302
Meter Cost 202,232 219,195 3,700 3,131 95 428,353
Weighted Services Distribution 384,609 286,595 13,470 5,849 - 690,523
Distribution Expense 1,813,014 1,741,511 412,214 40,685 201 4,007,625
NBV 1,763,708 1,816,492 516,459 43,921 67 4,140,646
Total 15,460,855 17,055,771 5,392,930 413,906 31,565 38,355,026
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 36
Summary of Revenue Requirements into Cost Categories
The Revenue Requirements from the table above are isolated into cost categories for rate development
and the separation is summarized in Table 31 below.
Table 31 – Customer Class Revenue Requirement by Classification
Classification G1 G2 G3 G6 G10 Total
Supply Purchases 5,183,313 6,203,144 2,214,558 153,129 26,504 13,780,648
PG&E Local Transportation 785,649 940,228 335,667 23,210 4,017 2,088,772
Administrative Fee 85,307 102,091 36,447 2,520 436 226,802
Total Supply 6,054,269 7,245,463 2,586,672 178,860 30,957 16,096,221
Public Benefits 502,855 601,794 214,844 14,856 - 1,334,349
Distribution 3,099,486 3,372,208 1,175,239 86,928 - 7,733,861
Services 971,709 1,057,564 368,602 27,257 - 2,425,133
General Fund Equity Transfers 2,259,168 2,703,665 965,224 66,742 - 5,994,800
Distribution- Sales based 6,833,219 7,735,231 2,723,909 195,783 - 17,488,142
Meter O&M 464,999 504,004 8,507 7,200 218 984,929
Meter Reading 243,436 181,399 8,526 3,702 79 437,142
Billing 273,617 203,889 9,583 4,161 88 491,338
Services-Customer 900,503 671,020 31,538 13,694 - 1,616,755
Customer Service 690,811 514,765 24,194 10,505 223 1,240,499
Distribution- Customer based 2,573,366 2,075,078 82,348 39,263 608 4,770,663
Total Distibution 9,406,585 9,810,309 2,806,257 235,046 608 22,258,805
Total Revenue Requirements 15,460,855 17,055,771 5,392,930 413,906 31,565 38,355,026
Projected Billing Units by Customer Class
Table 32 shows the billing units for each customer class based on the projected number of therms and
customers in each customer class for FY2013.
Table 32 – Projected Billing Units (FY 2013)
Classification G-1 G-2 G-3 G-6 G-10 Total
Therms 11,463,405 13,718,859 4,897,713 338,660 58,615 30,477,253
Number of Customers 21,700 2,310 19 33 1 24,063
Development of Unit Costs
The revenue requirements from each cost category are divided by the billing basis to identify unit costs
of service or rates by customer class. The table below identifies the charges by customer class broken
down by either cost per therm or monthly customer charge.
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 37
Table 33 – Charges by Therm and by Customer per Month
Classification Billing Basis G-1 G-2 G-3 G-6 G-10
Commodity Purchases Therms 0.4522 0.4522 0.4522 0.4522 0.4522
PG&E Local Transportation Therms 0.0685 0.0685 0.0685 0.0685 0.0685
Administrative Fee Therms 0.0074 0.0074 0.0074 0.0074 0.0074
Total Supply Supply Charge - therms 0.5281 0.5281 0.5281 0.5281 0.5281
Public Benefits Therms 0.0439 0.0439 0.0439 0.0439 -
Distribution Therms 0.2704 0.2458 0.2400 0.2567 -
Services Therms 0.0848 0.0771 0.0753 0.0805 -
General Fund Equity Transfers Therms 0.1971 0.1971 0.1971 0.1971 -
Distribution - Sales based Dist. Charge - therms 0.5961 0.5638 0.5562 0.5781 -
Meter O&M Number of Customers 1.79 18.18 37.31 18.18 18.18
Meter Reading Number of Customers 0.93 6.54 37.39 9.35 6.54
Billing Number of Customers 1.05 7.36 42.03 10.51 7.36
Services-Customer Number of Customers 3.46 24.21 138.33 34.58 -
Customer Service Number of Customers 2.65 18.57 106.12 26.53 18.57
Customer Charge Monthly Customer Charge 9.88 74.86 361.18 99.15 50.65
Supply Fund Charges
Distribution Charges
Monthly Customer Charges
Gas Supply Fund – Proposed Changes
The cost of service for the Gas Supply Fund identifies an overall supply rate reduction of 34.9%. The
reduction is based on the anticipated lower gas supply costs projected by CPAU using market price
projections as of November 2011 for commodity costs. Since gas supply commodity rates will be based
on actual gas supply costs at the time of delivery, the cost of service rate change provided below is
subject to change based on the actual market-based gas supply commodity costs. Table 34 details the
Gas Supply Fund cost of service by customer class.
Table 34 – Gas Supply Fund Cost of Service
Customer Class Cost of Service
Projected
Revenues
% Adjustment
Required
G-1 6,054,269 9,956,367 -39.2%
G-2 7,245,463 12,017,721 -39.7%
G-3 2,586,672 2,429,568 6.5%
G-6 178,860 296,667 -39.7%
G-10 30,957 29,077 6.5%
Totals 16,096,221 24,729,399 -34.9%
Gas Supply Summary
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 38
Gas Supply Fund Cost Breakdown Compared with Current Rates
Table 35 and Table 36 compare the current charges with the cost of service charges for Gas Supply.
Table 35 – Current Supply Charges
Customer
Class
Commodity
Charge
Average
Administrative
Fee
PG&E Local
Transportation
Total Supply
Rate Billing Basis
G-1 0.8246 0.0227 0.0212 0.869 Therm
G-2 0.8321 0.0227 0.0212 0.876 Therm
G-3 0.4522 0.0227 0.0212 0.496 Therm
G-6 0.8321 0.0227 0.0212 0.876 Therm
G-10 0.4522 0.0227 0.0212 0.496 Therm
Current Supply Charges
Table 36 – Cost of Service Supply Charges
Customer
Class
Commodity
Charge
Administrative
Fee
PG&E Local
Transportation
Total Supply
Rate Billing Basis
G-1 0.4522 0.0074 0.0685 0.528 therm
G-2 0.4522 0.0074 0.0685 0.528 therm
G-3 0.4522 0.0074 0.0685 0.528 therm
G-6 0.4522 0.0074 0.0685 0.528 therm
G-10 0.4522 0.0074 0.0685 0.528 therm
Cost of Service Supply Charges
Gas Distribution Fund – Proposed Changes
The cost of service for the Gas Distribution Fund Center identifies an overall rate increase of 24.8% as
detailed in Table 37.
Table 37 – Gas Distribution Fund Cost of Service
Customer Class Cost of Service
Projected
Revenues
% Adjustment
Required
G-1 9,406,585 8,632,606 9.0%
G-2 9,810,309 7,529,187 30.3%
G-3 2,806,257 1,483,408 89.2%
G-6 235,046 187,721 25.2%
G-10 608 663 -8.3%
Totals 22,258,805 17,833,585 24.8%
Distribution Summary
Gas Distribution Fund - Cost Breakdown Compared with Current Rates
The cost of service study separated the Distribution Fund Center sales revenues into the two rate
components:
1) Fixed Customer Charges ($/Month) – The fixed charges billed to customers on a monthly basis
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 39
2) Volumetric Charges ($/therm) – Costs billed to customers based on usage
Table 38 compares the cost of service based fixed customer charges and volumetric charges with current
rates for the same.
Table 38 – Cost of Service and Current Rate Comparison
Customer
Class
Fixed
Customer
Charge
($/Month)
Variable
Volumetric
Charge
($/Therm)
Fixed
Customer
Charge
($/Month)
Variable
Volumetric
Charge
($/Therm)
G1 5.25$ 0.6338$ 9.88$ 0.5961$
G2 35.00 0.4781 74.86 0.5638
G3 311.00 0.2884 361.18 0.5562
G6 55.25 0.4897 99.15 0.5781
G10 55.25 - 50.65 -
Current Charges Cost of Service Charges
Distribution Charge Comparision
G1 Rate Class – The cost of service study identified a potential reduction in the distribution volumetric
charges. The current rates of $0.6338/therm should be reduced to $0.5961/therm to meet cost of
service requirements. The study identified an increase in the fixed customer charge from $5.25/Month
to $9.88/Month to cover the cost of service.
G2 Rate Class - The cost of service study identified increases in both the distribution volumetric charges
and the fixed monthly customer charge. Current volumetric charges of $0.4781/therm should increase
to meet the cost of service of $0.5562/therm. The study identified an increase in the fixed customer
charge from $35.00/Month to $74.86/Month to cover the cost of service.
G3 Rate Class - The cost of service study identified increases in both the distribution volumetric charges
and the fixed monthly customer charge. The current volumetric charges of $0.2884/therm compares
with cost of service results of $0.5781/therm. The study identified an increase in the fixed customer
charge from $311.0/Month to $361.18/Month to cover the cost of service.
G6 Rate Class - The cost of service study identified increases in both the distribution volumetric charges
and the fixed monthly customer charge. The current volumetric charges of $0.4897/therm compares
with cost of service results of $0.5781/therm. The study identified an increase in the fixed customer
charge from $55.21/Month to $99.15/Month to cover the cost of service.
G-10 Rate Class – The current rates do not include a distribution charge as this customer is served
directly from the Gas Supply Transmission line and bypasses the distribution s ystem. Current fixed
customer charge is $55.25. The cost of service study identified that a fixed monthly charge of $50.65 was
applicable to cover the cost of service.
Cost of Service for Residential Tiers
The cost of service study identifies the cost to provide service to each customer class and develops unit
costs. For homogenous rate classes such as residential customers, often a separate analysis is done to
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 40
determine the cost-based tiered rates. Cost-based tiered rates are used to encourage efficient use of
resources by providing price signals that are based on higher costs imposed on the system by higher
demands put on the system. A tiered rate structure was developed for the residential class due to the
homogeneity of residential customers’ load profiles and usage characteristics. Other rate classes may
also have similar load profiles but not similar usage characteristics. For example, the G2 rate class can
consist of low use gas customers and high use gas customers making it impractical to implemen t a tiered
rate structure that is both fair and cost-based. For this reason, tiers were only developed for the
residential class. For CPAU, gas supply costs are uniform for all therms purchased and do not vary based
on how much a customer uses. However , gas distribution costs vary based on how much infrastructure
is constructed to serve the customer classes’ peak load. The base-extra capacity method reviewed the
average demand of this class and the peak demand created due to higher than average usage. Ba sed on
this method, the first tier rate was developed by applying the peak usage of the class over the past 10
years and assuming the system was used at full capacity consistently throughout the year, thus giving an
average rate at full capacity. Any remaining distribution costs are applied to the second tier assuming
the system was constructed to handle the peak demands of the class. The distribution costs from the
cost of service study were $4,069,289 and the annualized usage using the peak demand was 27,633,948
therms, resulting in a first tier distribution rate of 14.7 cents per therm. The calculation is shown in Table
39.
Table 39 – Residential First Tier Calculation
First Tier Rate Amount
Residential Distribution Costs from Cost of Service 4,071,196$
Class Peak Usage Past 10 Years - Therms 2,302,829
Annualized Usage based on Peak Demand - Therms 27,633,948
First Tier Distribution Charge - Therm 0.147
Other Distribution Charges 0.24
First Tier Distribution Charges 0.388
The second tier rate is set to recover the remaining distribution costs required to serve the class’ peak
demands. An estimated $1,007,402 will be recovered in the first tier leaving $3,061,887 of unrecovered
distribution cost attributed to the expansion of the infrastructure. This cost is recovered in the second
tier charges and yields a second tier distribution rate of 66.2 cents per therm. The calculation is shown
in Table 40.
Table 40 – Residential Second Tier Calculation
Second Tier Rate Amount
Residential Distribution Costs from Cost of Service 4,071,196$
Cost recovered in first tier charges 1,007,874
Cost to be recovered in second tier 3,063,321
Second Tier Usage - Therms 4,622,284
Distribution Charges Second Tier 0.663
Other Distribution Charges 0.24
Second Tier Distribution Charges 0.904
Section 3
Cost of Service Analysis
City of Palo Alto
Gas Utility Cost of Service Study Page 41
Cost of Service Results (Combined Gas Supply Center & Distribution Center Funds)
Table 41 is the summarized results of the cost of service analysis and compares the cost of providing
service to each class with the projected revenues from each class. The “% change” column is the
adjustment necessary for the rates applicable to each customer class to meet cost of service
requirements.
Table 41 – Cost of Service Summary Results (Supply and Distribution Funds Combined)
Customer Class
Cost of Service
Utility Basis
Projected
Revenues % Change
G-1 15,460,855$ 18,588,973$ -16.8%
G-2 17,055,771 19,546,908 -12.7%
G-3 5,392,930 3,912,976 37.8%
G-6 413,906 484,388 -14.6%
G-10 31,565 29,740 6.1%
Total 38,385,983$ 42,592,061$ -9.9%
The cost of service study identifies an overall rate reduction of 9.9%. Rate reductions occur for the G-1,
G-2 and G-6 customer classes while rate increase is required for G-3 and G-10.
It is recommended that CPAU combine the G-2 (Commercial) and G-6 (Municipal) rate classes due to
similar usage patterns and customer characteristics. In review of the cost of service , UFS found no
significant differences and therefore recommends to combine these two classes to reduce the
administrative costs and burden of maintaining separate rates for the G-6 rate class. Table 42 below
shows the cost of service results for the billing components of the G-2 and G-6 rate classes.
Table 42 – G-2/G-6 Billing Components
Billing Component G-2 G-6
Customer Charge 74.86 99.15
Distribution Volumetric Charge 0.564 0.578
Supply Fund Volumetric Charge 0.528 0.528
If the current G-2 rates were applied to G-6, overall charges would be reduced by approximately $11,900
annually.
Section 4
Customer Rate Changes
City of Palo Alto
Gas Utility Cost of Service Study Page 42
Customer Rate Changes
The cost of service study identified changes in rates for each rate class to meet cost of service results.
Table 41 identifies the impact on each rate class should cost of service rates be implemented. The cost
of service study identified monthly customer charges and volumetric charges for supply acquisition,
supply transportation and distribution charges. Future gas supply commodity charges will be a pass
through to all customers and will vary based on cost to purchase the gas commodity. For cost of service
purposes a 45.2 cent/therm gas supply commodity charge was assumed and was based on the
December 2011 CPAU projection.
G-1 Rate Design
Table 43 shows the current residential rates compared with the proposed rates using the cost of service
results. The G-1 rate is anticipated to have a reduction of almost 17% as a result of the proposed rate
changes. The reduction is due to the lower cost of gas and market-based pricing for gas supply
commodity rates. Without a change in the current rates, CPAU will over-recover actual gas supply costs
by 39%. The G-1 rate class requires a 9% increase in distribution charges to meet the cost of service
revenue requirements. A significant increase is in the monthly customer charge, where an adjustment
of $4.63/month is required to meet cost of service results. The first tier distribution charges are down
39% from the current flat distribution rate and the tier two charges are increased by 43% from the
current flat distribution rate.
Table 43 – Proposed G-1 Rate Design
G-1 Current Rates Proposed Rates
Percent
Difference
Commodity (Tier 1)0.7095 0.4522 -36.3%
Commodity (Tier 2)1.2815 0.4522 -64.7%
Admin 0.0227 0.0074 -67.2%
PG&E Local 0.0212 0.0685 223.3%
Distribution (Tier 1)0.6338 0.3883 -38.7%
Distribution (Tier 2)0.6338 0.9037 42.6%
Customer Charge 5.25 9.88 88.2%
Total Revenue 18,588,973 15,486,616 -16.7%
Supply Fund Revenue 9,956,367 6,054,269 -39.2%
Distribution Fund Revenue 8,632,606 9,432,347 9.3%
The tiering analysis also involved modifying the number of therms billed at tier one and tier two usage
levels. The proposed modification would affect the winter tier one and tier two levels and decrease the
amount billed at tier one from 96 therms to 60 therms. Table 44 details the proposed tier levels.
Section 4
Customer Rate Changes
City of Palo Alto
Gas Utility Cost of Service Study Page 43
Table 44 – Proposed Tier One Levels (therms)
A common method to determine the breakpoint for tier one and tier two levels is through the analysis of
the average customer usage during each season. Tiering provides cost-based incentives to customers
for conservation and efficient use of resources and at the same time enjoy the benefit of lower bills for
lower consumption levels. In determining the proposed tier one usage level, UFS reviewed the average
usage during the summer and winter seasons. The current average monthly median residential usage is
21 therms during the summer season and 66 therms during the winter season. The tier one levels
proposed are consistent with the average monthly median customer usage for each season.
G -1 – Customer Impacts
The impact on G-1 customers as a result of the rate change is depicted in the Figure 4. The
average G-1 customer would see approximately a 15% reduction in charges in the summer and a
24% reduction in the winter based on the average summer usage of 21.4 therms and average
winter use of 66 therms (and based on the December 2011 projection for gas supply commodity
costs).
Figure 4 – Impacts on G-1 Customers at Varying Usage Levels
-30%
-25%
-20%
-15%
-10%
-5%
0%
10 21 30 40 50 60 70 80
G-1 Impact of Proposed Rates -%
Summer Percentage G1 Change Winter Percentage G1 Change
G-2 Rate Design
Table 45 details the current G-2 rates compared with the proposed rates using the cost of service
results. The G-2 rate is anticipated to have a reduction of 12.7% as a result of the proposed rate
changes. The reduction is from the change to market -based pricing for gas commodity supply as well as
the adjustment to the distribution rates. Without a change in the current rates CPAU will over-recover
G-1
Current Tier
One
Proposed Tier
One
Tier One - Summer 20 20
Tier One - Winter 96 60
Section 4
Customer Rate Changes
City of Palo Alto
Gas Utility Cost of Service Study Page 44
actual gas supply costs by 40%. The G-2 rate class requires a 30.3% increase in distribution charges to
meet the cost of service revenue requirements. A significant increase is in the monthly customer
charge, where an adjustment of $39.86/month is required to meet cost of service results.
Table 45 – Proposed G-2 Rate Design
G-2 Current Rates Proposed Rates
Percent
Difference
Commodity 0.8321 0.4522 -45.7%
Admin 0.0227 0.0074 -67.2%
PG&E Local 0.0212 0.0685 223.3%
Distribution 0.4781 0.5638 17.9%
Customer Charge 35.00 74.86 113.9%
Total Revenue 19,546,908 17,055,771 -12.7%
Supply Fund Revenue 12,017,721 7,245,463 -39.7%
Distribution Fund Revenue 7,529,187 9,810,309 30.3%
G -2 – Customer Impacts
The impact on G-2 customers as a result of the rate change is depicted in the graph below. The
average G-2 customer would see approximately an 12.7% reduction based on the average
monthly usage of 495 therms.
Figure 5 – Impacts on G-2 Customers at Varying Usage Levels
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
200 275 350 425 500 575 650 725
Therms
G-2 Impact of Proposed Rates -%
G-3 Rate Design
Table 46 details the current G-3 rates compared with the proposed rates using the cost of service
results. The G-3 rate is anticipated to increase by 37.8% as a result of the rate changes. The increase is
from the adjustment of the distribution rates to cost of service. Without a change in the current rates
Section 4
Customer Rate Changes
City of Palo Alto
Gas Utility Cost of Service Study Page 45
CPAU will under-recover actual gas supply costs by 6.5% due primarily to the increase in transmission
charges to reflect the cost of service as these customers are already on market price-based commodity
rates. The G-3 rate class requires an 89.2% increase in distribution charges to meet the cost of service
revenue requirements. The increase in the monthly customer charge represents an adjustment of
$50.18/month to meet cost of service results.
Table 46 – Proposed G-3 Rate Design
G-3 Current Rates Proposed Rates
Percent
Difference
Commodity 0.4522 0.4522 0.0%
Admin 0.0227 0.0074 -67.2%
PG&E Local 0.0212 0.0685 223.3%
Distribution 0.2884 0.5562 92.8%
Customer Charge 311.00 361.18 16.1%
Total Revenue 3,912,976 5,392,930 37.8%
Supply Fund Revenue 2,429,568 2,586,672 6.5%
Distribution Fund Revenue 1,483,408 2,806,257 89.2%
G -3 – Customer Impacts
The impact on G-3 customers as a result of the rate change is depicted in the graph below. The
average G-3 customer would see approximately a 38% increase. The total percent adjustment
varies slightly based on the amount of gas a customer uses. The average customer in the G-3
class uses 21,500 therms/month and would see an approximate 38% rate adjustment.
Figure 6 – Impacts on G-3 Customers at Varying Usage Levels
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
13,500 15,500 17,500 19,500 21,500 23,500 25,500 27,500
Therms
G-3 Impact of Proposed Rates -%
Section 4
Customer Rate Changes
City of Palo Alto
Gas Utility Cost of Service Study Page 46
G-6 Rate Design
Table 47 details the current G-6 rate compared with the proposed rates using the cost of service results.
The G-6 rate is anticipated to have a reduction of 17.5% as a result of the rate changes. The reduction is
from the change to market-based pricing for gas supply. Without a change in the current rates CPAU
will over-recover actual gas supply costs by 40%. The G-6 rate class requires a 17.5% increase in
distribution charges to meet the cost of service revenue requirements. The most significant increase is
in the monthly customer charge, where an adjustment of $19.61/month is required to meet cost of
service results. UFS recommends eliminating this rate schedule as the customer usage profile for this
rate class is not significantly different from non-municipal business accounts.
Table 47 – Proposed G-6 Rate Design
G-6 Current Rates Proposed Rates
Percent
Difference
Commodity 0.8321 0.4522 -45.7%
Admin 0.0227 0.0074 -67.2%
PG&E Local 0.0212 0.0685 223.3%
Distribution 0.4897 0.5638 15.1%
Customer Charge 55.25 74.86 35.5%
Total Revenue 484,388 399,454 -17.5%
Supply Fund Revenue 296,667 178,860 -39.7%
Distribution Fund Revenue 187,721 220,594 17.5%
G -6 – Customer Impacts
The impact on G-6 customers as a result of the rate change is depicted in the graph below. The
average G-6 customer would see approximately a 17.5% reduction based on the average monthly
usage of 850 therms.
Section 4
Customer Rate Changes
City of Palo Alto
Gas Utility Cost of Service Study Page 47
Figure 7 – Impacts on G-6 Customers at Varying Usage Levels
-20%
-18%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
500 600 700 800 900 1,000 1,100 1,200
Therms
G-6 Impact of Proposed Rates -%
G-10 Rate Design
Table 48 details the current G-10 rate compared with the proposed rates using the cost of service
results. The G-10 rate is anticipated to have an increase of 6.1% that results in increased annual charge
to the G-10 customer of $1,825.
Table 48 – Proposed G-10 Rate Design
G-10 Current Rates Proposed Rates
Percent
Difference
Commodity 0.4522 0.4522 0.0%
Admin 0.0227 0.0074 -67.2%
PG&E Local 0.0212 0.0685 223.3%
Distribution 0.0000 0.0000 0.0%
Customer Charge 55.25 50.65 -8.3%
Total Revenue 29,740 31,565 6.1%
Supply Fund Revenue 29,077 30,957 6.5%
Distribution Fund Revenue 663 608 -8.3%
Summary of Revenue Collection with Current and Proposed Rate Schedules by Fund Center and Rate
Class
Implementation of the proposed rates is projected to produce revenues to meet CPAU’s revenue
requirements. The table below summarizes the revenue collection with current and proposed rate
schedules. Implementation of the proposed rates is anticipated to result in overall revenue reduction of
9.9% for CPAU with rate decreases for the G-1, G-2 and G-6 rate classes that range between 12.7% and
17.5%. Rate increases are expected to occur for the G-3 and G-10 rate classes that would range
Section 4
Customer Rate Changes
City of Palo Alto
Gas Utility Cost of Service Study Page 48
between 37.8% and 6.1%. Table 49 provides a summary of the revenues by function for each rate class
under the existing rates and the proposed rates.
Table 49 – Summary of Revenue Collection with Current and Proposed Rate Schedules
G-1 G-2 G-3 G-6 G-10 Total
Supply 9,956,367 12,017,721 2,429,568 296,667 29,077 24,729,399
Distribution 8,632,606 7,529,187 1,483,408 187,721 663 17,833,585
Total 18,588,973 19,546,908 3,912,976 484,388 29,740 42,562,984
Supply 6,054,269 7,245,463 2,586,672 178,860 30,957 16,096,221
Distribution 9,432,347 9,810,309 2,806,257 220,594 608 22,270,115
Total 15,486,616 17,055,771 5,392,930 399,454 31,565 38,366,336
Difference $ (3,102,356) $ (2,491,136) $ 1,479,953 $ (84,934) $ 1,825 $ (4,196,648)
Supply -39.2%-39.7%6.5%-39.7%6.5%-34.9%
Distribution 9.3%30.3%89.2%17.5%-8.3%24.9%
Total -16.7%-12.7%37.8%-17.5%6.1%-9.9%
Current Revenue ($/year)
Proposed Revenue ($/year)
Utility Financial Solutions
185 Sun Meadow Ct.
Holland, MI 49424
Phone: 616-393-9722
Fax: 616-393-9721
Accountant’s Compilati on Report
City of Palo Alto, Utilities Department
The accompanying forecasted statements of revenues and expenses of the City of Palo Alto Utilities
(utility) were compiled for the year ending June 30th 201 3 in accordance with guidelines established by
the American Institute of Certified Public Accountants.
The purpose of this report is to assist management in forecasting revenue requirements and
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, accord ingly, 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 City Council and Utilities Advisory Commission and
management 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
April 25, 2012
Excerpted Draft
Utilities Advisory Commission Meeting
Minutes of May 2, 2012
ITEM 2: ACTION: Gas Utility Proposed Rate Adjustments Effective July 1, 2012
Senior Resource Planner Ipek Connolly provided a presentation on the requested changes to gas
retail rates. In summary, the change to a spot purchase strategy, rather than a laddering strategy
led to changes to the rate structures. Overall, rates are expected to fall by 10% based on the
budgeted supply cost estimate. A cost of service study concluded that realignments needed to be
made to the distribution rates so the rate changes for each rate class vary. Residential gas rates
continue with a 2-tier rate structure, but the winter period was redefined to exclude April, tier sizes
were modified to reflect 50th percentile usage levels for summer and winter seasonal averages, and
tier rates were revised based on distribution cost allocations per cost of service study. Resulting
rate differential between tier 1 and tier 2 is $0.52 per therm compared to the current differential of
$0.57 per therm. Connolly explained that the service charges will increase, except for the
Compressed Natural Gas (CNG) station, and average distribution rates will increase, except for the
G-1 Residential class. Connolly showed actual and projected market prices for gas commodity that
continue to decline since the budget submission in November 2011. Connolly also showed
graphically the volatility in market-based rates and expected gas supply rate decrease for G-1
Residential and G-2 Commercial rate classes by comparing these rates against the market based
supply rate of G-3 rate class for the July ‘06 – March ’12 period.
Connolly then showed that based on market based G -3 commodity rates for March 2012 and
proposed revisions to other fixed rate components of G-1 rate schedule, the decrease in average
residential customer bills is 33% for the gas utility. Combined with proposed rate changes to other
utility services, total bill is expected to decrease for the average Palo Alto residential customer.
Connolly also added that as gas commodity rates will be market -based, the actual bill changes will
be subject to change based on market price of natural gas and individual customers’ monthly gas
usage levels.
Commissioner Waldfogel asked how tiering works when the supply rate is based on market prices.
Connolly explained that the commodity rate will be the same for all customers and will not be
tiered. The residential tiers will be applied to the distribution rates. Connolly stated that the
commodity rate will change every month based on market prices and so it's difficult to predict the
actual supply rates.
Commissioner Melton asked about the fixed-term rate contracts that haven't yet expired. Connolly
explained that the above market part of those contracts will be drawn from the supply reserve and
that the reserve was sufficient to cover that difference. Director Valerie Fong explained that all of
the fixed-term contracts will expire by October 2014. Assistant Director Jane Rat chye explained
that such contracts comprise a very small and declining percentage of the supply needs.
Chair Foster asked why our proposed rates result in higher bills than PG&E's in the summer
compared to the winter as shown in the charts presented. Con nolly explained that in the summer
the usage levels were much lower, and therefore the difference in the CPAU fixed service charge,
and higher distribution rates compared to PG&E were causing the comparison to be less favorable
than the winter comparisons. Ratchye explained that staff reviewed the PG&E cost structure in
comparison with CPAU costs and the difference is due to the higher costs in the distribution side,
predominantly the higher CIP expenditures, distribution operations costs and General Fund
Transfers. Ratchye also noted that PG&E CIP expenditures may be rising significantly in the near
term.
Commissioner Keller asked how predictable the distribution charges are. Connolly said that she
didn't expect significant changes in the future. Fong a dded that these costs are relatively
predictable.
Commissioner Waldfogel asked for the justification for residential tier 2 rates higher than the
commercial rates. He stated that the higher charges are not justified and constitute a spa and pool
tax.
Commissioner Keller stated that she supports conservation pricing.
Chair Foster stated that the rates are supported by the cost of service study and he has
determined that it is risky to recommend rates different from those developed from a cost of service
study. The only way that a different rate could be proposed is to question the assumptions used in
the study and ask that the study be redone.
Commissioner Waldfogel asked where the cost of service study supported higher tier 2 gas
distribution rates. Connolly pointed to page 32 of the cost of service study attached to the UAC
report and explained that the tiered rates were determined based on calculation of base and extra
capacity costs for the residential class using the average class peak based on the billing data for
the past ten years. The method first calculates the average rate if everyone utilized the system at
full capacity and determines tier 1 rate as this value. But since the system is not utilized at full
capacity all the time, this rate does not recover all costs that must be collected from the class. The
remaining costs are to be recovered from the second tier usage amount and the rate for tier 2 is
determined by dividing the remaining costs by the expected tier 2 usage amount.
Commissioner Waldfogel argued that, if the costs are assigned by system peak, then the summer
usage clearly does not impact the system peak and, therefore, this is invalid reasoning for the
differential in rates for the tiers.
Chair Foster remarked that the cost of service study is key to the development of the rates and
tiers.
Commissioner Waldfogel made a motion to recommend that Council adopt a G -1 tier 2 distribution
rate equal to the proposed G-2 distribution rate ($0.5638/therm) and the residential tier 1 G-1 rate
be adjusted to whatever it needed to be to collect the required revenue for the G -1 rate class. After
discussion, Commissioner Waldfogel amended his motion to recommend that the G -1 distribution
rate be set to equal the average G-1 distribution rate ($0.5961/therm) and not have tiered G-1
distribution rates. The motion died for lack of a second.
ACTION:
Chair Foster made a motion that the UAC recommend that the City Council: 1) amend Utility Rate
Schedules G-1, G-2, G-3, G-4, G-10, G-11, and G-12, and Utility Rules and Regulations 2 and 5,
as attached to the report, effective July 1, 2012; and 2) repeal Utility Rate Schedule G -6 as of July
1, 2012. Commissioner Melton seconded the motion. The motion carried (3 -1) with Commissioner
Waldfogel opposed and Commissioners Keller and Eglash absent.