HomeMy WebLinkAboutStaff Report 3567
City of Palo Alto (ID # 3567)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/16/2013
City of Palo Alto Page 1
Summary Title: Wastewater Collection Fund Financial Projections
Title: Utilities Advisory Commission Recommendation that the Finance
Committee Review the 5 -year Financial Forecast for the Wastewater
Collection Fund and Take Action on Whether to Recommend t hat Council
Approve an Adjustment to Wastewater Collection Rates Effective July 1, 2013
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee:
1. Review the 5-year Financial Forecasts for the Wastewater Collection Fund; and
2. Recommend that Council not adjust Wastewater Collection Rates effective July 1,
2013.
Executive Summary
Staff assessed major cost drivers and expected costs, the short-term risks and reserve guidelines
in order to determine the revenue requirements for the Wastewater Collection Fund for the
next five years. The financial forecast shows that no rate adjustment is needed for Fiscal Year
(FY) 2014. With no rate adjustment for FY 2014, the projections show that rate adjustments of
9% per year would be needed for FY 2015 and FY 2016. Smaller rate adjustments of 7% and 6%
are forecast for FY 2017 and FY 2018, respectively. These preliminary rate adjustment
projections will result in adequate financial reserves for the 5-year forecast horizon.
At its March 6, 2013 meeting, the UAC reviewed the 5-year financial forecasts for the
Wastewater Collection Fund and recommended no change to current Wastewater Collection
Utility Rates.
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Background
In order to maintain the financial viability of the Wastewater Collection Fund, staff conducts an
annual review of major cost drivers and expected costs facing the utility; evaluates risks and
adequacy of reserves; and determines the revenue requirements of the Wastewater Collection
Fund for the next five years. The revenue requirements and resulting rate adjustment targets
depend on a number of factors, including retail revenue projections, wastewater treatment
costs, distribution system operating and Capital Improvement Program (CIP) expenses, prudent
funding of the Wastewater Collection Rate Stabilization Reserve (WW-RSR), and debt service
payments. Any change in these factors can trigger an adjustment to the revenue requirement.
During the budget process, staff forecasts revenues and utility expenses to quantify the annual
revenue requirement. Changes to forecasted revenues or expenses are reflected in
adjustments to the budget during the mid-year budget adjustment process.
Discussion
Financial Projections
Table 1 below shows actuals, budgeted and projected financial information for the Wastewater
Collection Utility for FY 2012 through FY 2018. The difference between the adopted budget and
projections for FY 2013 is the estimated CIP expenses. Projected FY 2 013 CIP expenses are
$310,000 less than the adopted budget. Additionally, staff is recommending no rate increase
for FY 2014, compared to last year’s financial projections, when staff forecasted a 9% rate
adjustment for FY 2014. The major reason for the reassessment of a FY 2014 rate adjustment is
the reduction in the CIP budget for FY 2013 and 2014.
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Table 1: Five-Year Financial Plan
FINANCIAL PROJECTIONS
($'000)
Actual Adopted Projected
2012 2013 2013 2014 2015 2016 2017 2018
1
2 % CHANGE IN RETAIL RATE 0.0%5.0%5.0%0.0%9.0%9.0%7.0%6.0%
3 PROJECTED CHANGE IN RETAIL SALES REVENUE - 715 715 - 1,352 1,473 1,249 1,146
4
5 NET RETAIL SALES REVENUE 14,094 14,980 14,980 15,010 16,305 17,773 19,032 20,182
6 CONNECTION AND CAPACITY FEES 989 750 750 861 871 894 917 940
7 OTHER / TRANSFERS IN 264 302 302 271 271 271 271 271
8 INTEREST 494 397 397 331 159 231 223 228
9 TOTAL SOURCES OF FUNDS 15,841 16,429 16,429 16,473 17,606 19,170 20,443 21,621
10
11 TREATMENT 8,895 8,556 8,556 8,984 9,433 9,904 10,400 10,920
12 DISTRIBUTION OPERATIONS 3,550 4,813 4,813 4,909 5,065 5,201 5,371 5,548
13 DEBT SERVICE 128 128 128 128 129 128 128 128
14 RENT 106 110 110 113 116 120 123 127
15 OTHER/ TRANSFERS OUT 125 147 147 147 147 147 147 147
16 CAPITAL IMPROVEMENT PROGRAMS 4,274 4,404 4,094 989 4,069 4,135 4,309 4,371
17 TOTAL USES OF FUNDS 17,079 18,159 17,849 15,269 18,958 19,634 20,478 21,240
18
19 INTO / (OUT OF) RESERVES (1,238) (1,730) (1,420) 1,204 (1,351) (464) (34) 381
Fiscal Year
City of Palo Alto
Wastewater Collection
Cost Drivers
The total uses of funds for the Wastewater Collection Fund are projected to increase from the
budgeted levels of $18.2 million in FY 2013 to $21.2 million in FY 2018, an average annual
increase of 3.4%.
Treatment costs account for $8.6 million, or almost half of the total costs, in FY 2013 and are
projected to increase by 5% per year reaching $10.9 million in FY 2018. Actual treatment costs
increased an average of 8% from FY 2008 to FY 2012 and actual treatment costs for FY 2012
were 12% higher than the budgeted costs. Some of this increase was due to Palo Alto’s flow -
share at the Regional Water Quality Control Plant increasing from 36% in FY 2006 to 40% in FY
2012. The risk of higher treatment costs and increasing flow share was included in the risk
assessment for the WW-RSR for FY 2014 and FY 2015 (shown in Table 3 below).
Annual costs for CIP and operations account for roughly 25% each of the total costs. Other
operating expenditures such as operations, maintenance and administration costs, allocated
cost plan charges and Utilities administration charges, rent, and other transfers are projected to
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increase by 3% per year. These projections reflect current expectations. The final operating
budget proposal will be presented to the Finance Committee in May 2013.
Capital Improvement Program (CIP)
Due to a backlog of previously budgeted projects (for w hich funds have already been collected),
new planned wastewater main replacement and rehabilitation projects have been deferred by
one year. Therefore, the proposed FY 2014 CIP budget is $989,000, followed by a more normal
expenditure level of $4.1 million in FY 2015 and increasing by 2.4% per year thereafter. Table 2
presents the expected CIP costs for the financial forecast horizon. Also shown in Table 2 are
revenues, of around $900,000 per year, collected from new customer connection and capacity
fees.
Table 2
Capital Improvement Program (FY 2014 – FY 2018)
2013-14 2014-15 2015-16 2016-17 2017-18
WBS Desc.Exp.Rev.Exp.Rev.Exp.Rev.Exp.Rev.Exp.Rev.
WC-13001 WC Reh/Aug. Prj 26 $310,000 $0 $3,000,000 $0 $0 $0 $0 $0 $0 $0
WC-13002 Fusion and General E $0 $0 $51,500 $0 $0 $0 $53,000 $0 $0 $0
WC-14001 WC Reh/Aug. Prj 27 $0 $0 $320,000 $0 $3,090,000 $0 $0 $0 $0 $0
WC-15001 WC Reh/Aug. Prj 28 $0 $0 $0 $0 $330,000 $0 $3,183,000 $0 $0 $0
WC-15002 Wastewater System Im $218,000 $0 $225,000 $0 $232,000 $0 $239,000 $0 $246,000 $0
WC-16001 WC Reh/Aug. Prj 29 $0 $0 $0 $0 $0 $0 $340,000 $0 $3,270,000 $0
WC-17001 WC Reh/Aug. Prj 30 $0 $0 $0 $0 $0 $0 $0 $0 $350,000 $0
WC-80020 Sewer System Extensi $361,000 -$861,000 $372,000 -$871,000 $383,000 -$894,000 $394,000 -$917,000 $405,000 -$940,000
WC-99013 Sewer Manhole Rehab/$100,000 $0 $100,000 $0 $100,000 $0 $100,000 $0 $100,000 $0
Total $989,000 -$861,000 $4,068,500 -$871,000 $4,135,000 -$894,000 $4,309,000 -$917,000 $4,371,000 -$940,000
Revenue Requirement
The revenue requirement of the Wastewater Collection Fund is the total amount of revenue
that must be collected to cover the operations and maintenance expenses, debt service
payments and rate-financed CIP expenditures. This revenue is collected through wastewater
rates, and may be supplemented by revenues from service connection and capacity fees,
interest income, transfers in from other funds, and other miscellaneous revenu es.
Based on the City’s Comprehensive Annual Financial Report (CAFR) for FY 2012, the WW -RSR
ended the fiscal year with a balance of $4.75 million, which is above both the maximum long -
term reserve guideline level of $4.3 million and the short-term risk assessment value of $1.9
million.
The Wastewater Collection Fund has a projected revenue shortfall of $1.2 million in FY 2013,
followed by a surplus of $1.2 million in FY 2014. Since the WW -RSR is projected to be slightly
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above the maximum guideline level in FY 2014, staff recommends no rate adjustment for FY
2014. Assuming no rate adjustment is implemented for FY 2014, the financial forecast shows
that a rate adjustment of 9% would be required in FY 2015 followed by increases of 9%, 7% and
6% in the subsequent three fiscal years in order for the WW-RSR to remain within the minimum
and maximum guideline levels for the long-term.
Revenue Projections
Revenue from ratepayers constitutes the largest source of revenue for the Wastewater
Collection Fund. A rate adjustment was implemented on July 1, 2012, which resulted in a 5%
average increase of the Wastewater Collection Fund rates. In addition, the billing basis for
commercial customers was changed from monthly water usage to winter water usage in order
to minimize irrigation related usage being factored into wastewater usage. Other revenues in
FY 2012 included service connection and capacity fees ($900,000), transfers in ($300,000) and
interest and gains on investments ($500,000). Annual interest income projections assume an
interest rate of 2.2% throughout the forecast horizon. Other revenue categories are expected
to remain relatively unchanged.
Reserves and Risk Assessment
As required by the Council-approved Rate Stabilization Reserve (RSR) guidelines, staff performs
an annual assessment of short-term risks for the fund. For this evaluation, staff estimates the
revenue shortfall due to: 1) the maximum observed budget -to-actual variance in one year
during the past five years; 2) an increase of 10% of planned system improvement CIP
expenditures for the budget year; and 3) an increase of 10% in the planned expenditure for
treatment costs. Prior to FY 2014, the budget-to-actual variance part of the risk calculation
used 10.4%, which was the highest it has been over the past ten years. The variance has fallen
significantly due to the more stable nature of current revenue collections as a result of the rate
change implemented in FY 2012. Table 3 summarizes the risk assessment calculation for the
Wastewater Collection Fund.
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Table 3: Wastewater Collection Rate Stabilization Reserves
Annual Reserve Adequacy Analysis
FY 2013 FY 2014 FY 2015
Budget ($000) 14,990 15,020 16,603
Historical Budget-to-Actual variance 10.4% 3.3% 3.3%
Budget-to-Actual Risk ($000) 1,559 496 538
System Improvement CIP Budget ($000) 4,054 628 3,697
CIP Contingency @10% ($000) 405 63 370
Treatment Cost Contingency @10% ($000) - 898 943
Total short-term risk assessment value ($000) 1,964 1457 1851
Reserve Requirement as % of Sales Revenue 13.1% 9.7% 11.3%
Table 4 summarizes the minimum and maximum long-term guideline levels for the WW-RSR for
FY 2013 through FY 2015 as well as the short-term risk assessment value from Table 3 above.
Table 4: Wastewater Rate Stabilization Reserve Long-Term Reserve Guideline Levels
and Short-Term Risk Assessment ($M)
Wastewater Collection Rate Stabilization Reserve (WW-RSR) FY 2013 FY 2014 FY 2015
Estimated End of Year Balance 3.5 4.8 3.4
Short-term Risk Assessment 2.0 1.5 1.9
Minimum Long-term Guideline Level (15% of sales revenues) 2.3 2.3 2.5
Maximum Long-term Guideline Level (30 % of sales revenues) 4.5 4.5 4.9
The WW-RSR balance is expected to be $3.5 million at the end of FY 2013, which is within the
minimum and maximum guideline levels and above the short-term risk assessment level. For
FY 2014, the reserve balance is projected to be slightly above the maximum guideline levels
with no rate adjustment. For FY 2015, the reserve balance is projected to be between the
minimum and maximum guideline levels and above the short-term risk assessment level after
an assumed 9% rate increase.
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Figure 1 shows the projected WW-RSR ending balance, short-term risk assessment value, and
the long-term minimum and maximum guideline levels for the 5-year financial planning
horizon.
Figure 1
Alternatives
Staff evaluated a scenario to smooth rate increases over the next five years, the goal being to
stay above the minimum guideline levels and minimize spikes in rate increases. Based on
current expense projections, 5.4% increases every year for the 5-year planning horizon would
achieve that end. However, such a rate trajectory would push reserve balances further above
the maximum guideline level in FY 2014.
Staff also weighed the considerations of having more of the ratepayers’ money in reserves than
was necessary for operations. In addition, due to the stability of both revenues and costs
within this fund, the short-term risk assessment is trending lower than the current minimum
reserve guidelines. Staff plans to conduct a thorough review of RSR reserve guidelines in FY
2014, which may result in Council revising the reserve guidelines.
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Comparison of Wastewater Rates for Palo Alto and Surrounding Cities
For several years, Palo Alto's retail wastewater collection rates have generally been on par with
surrounding areas. Table 5 compares monthly wastewater collection bills using rates as of
February 1, 2013. Based on current rates, the average residential customer in surrounding
cities pays approximately 48% more than the average Palo Alto residential customer. At this
time, the certainty or magnitude of other jurisdictions’ planned rate changes is not known.
Table 5 – Monthly Residential Wastewater Collection Bill Comparison
(Rates in effect as of February 1, 2013)
Wastewater Palo
Alto
Mountain
View
Redwood
City
Santa
Clara
Menlo
Park
Average
Benchmark
Residential $ 29.31 $ 24.25 $ 57.88 $ 29.20 $ 62.67 $43.50
Difference from CPAU -17.3% 97.5% -0.4% 113.8% 48.4%
Commission Review and Recommendations
At their February 13 and March 6, 2013 meetings the UAC reviewed the 5-year financial
forecasts for the Wastewater Collection Fund. The February meeting was a preview of the
financial forecasts and the UAC discussed the CIP deferrals and their impact on rate stabilization
reserve levels. The UAC also discussed how the reserves should reflect deferred or accrued
maintenance and cautioned against treating CIP deferrals as savings. At their following March
meeting the UAC heard that Wastewater treatment costs had fallen since their preview of the
financial forecast in February, and so reserve levels would be higher and future rate increases
lower.
On March 6, 2013 the UAC voted 6-0, with one Commissioner absent, to recommend that
Council not adjust Wastewater Collection Rates effective July 1, 2013. The excerpted draft
notes from the UAC’s March 6, 2013 meeting are provided as Attachment B , and excerpted
final minutes from the February meeting are provided in Attachment C.
Environmental Review
This recommendation does not meet the California Environmental Quality Act’s definition of a
“project” under Public Resources Code Section 21065.
Attachments:
Attachment A: Wastewater Collection Utility Financial Projections (FY 2014-FY 2018)
(PDF)
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Attachment B: Excerpted Draft Minutes of March 6, 2013 UAC Meeting (PDF)
Attachment C: Excerpted Final Minutes of Feb 13, 2013 UAC Meeting (PDF)
Actual Adopted Projected
2012 2013 2013 2014 2015 2016 2017 2018
1 0.0%5.0%5.0%0.0%9.0%9.0%7.0%6.0%
2 WASTEWATER REVENUE
3 REVENUE:14,165 14,304 14,304 15,020 15,020 16,371 17,845 19,094
4 RATE ADJUSTMENT 0 715 715 0 1,352 1,473 1,249 1,146
5 PRORATION IMPACT 0 (30)(30)0 (56)(61)(52)(48)
6 TOTAL ADJUSTED REVENUE 14,165 14,990 14,990 15,020 16,315 17,783 19,042 20,192
7 DISCOUNTS/UNCOLLECT.(71)(10)(10)(10)(10)(10)(10)(10)
8 INTEREST 494 397 397 331 159 231 223 228
9 CONNECTION AND CAPACITY FEES 989 750 750 861 871 894 917 940
10 OTHER / TRANSFERS IN 264 302 302 271 271 271 271 271
11 FROM RESERVES:
12 RATE STABILIZATION 1,238 1,730 1,190 0 1,351 464 34 0
13 COMMITMENTS & REPPROPRIATIONS 0 0 230 0 0 0 0 0
14 TOTAL FINANCIAL RESOURCES 17,079 18,159 17,849 16,473 18,958 19,634 20,478 21,621
15 OPERATING EXPENSES
16 TREATMENT 8,895 8,556 8,556 8,984 9,433 9,904 10,400 10,920
17 CUSTOMER DESIGN & CONN. (CIP)340 350 350 361 372 383 394 405
18 SYSTEM IMPROVEMENT (CIP)3,934 4,054 3,744 628 3,697 3,752 3,915 3,966
19 CUSTOMER SERVICES 72 257 257 267 277 285 296 308
20 OPERATIONS 2,724 2,918 2,918 3,005 3,106 3,194 3,310 3,431
21 ALLOCATED CHARGES:754 1,638 1,638 1,637 1,682 1,722 1,765 1,809
22 TOTAL MAJOR ACTIVITIES 16,719 17,773 17,463 14,881 18,566 19,240 20,080 20,838
23 DEBT SERVICE 128 128 128 128 129 128 128 128
24 TRANSFERS:
25 OPERATING TRANSFERS OUT 125 147 147 147 147 147 147 147
26 RENT 106 110 110 113 116 120 123 127
27 TOTAL OPERATING EXPENSES 17,079 18,159 17,849 15,269 18,958 19,634 20,478 21,240
28 RESERVE ADDITIONS:
29 PLANT REPLACEMENT 0 0 0 0 0 0 0 0
30 RATE STABILIZATION 0 0 0 1,204 0 0 0 381
31 TOTAL RESERVE ADDITIONS:0 0 0 1,204 0 0 0 381
32 TOTAL REVENUE REQUIREMENT 17,079 18,159 17,849 16,473 18,958 19,634 20,478 21,621
33 RESERVES BALANCES
34 PLANT REPLACEMENT 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
35 RATE STABILIZATION 4,751 3,021 3,561 4,766 3,415 2,950 2,916 3,297
36 TOTAL RESERVES BALANCES 5,751 4,021 4,561 5,766 4,415 3,950 3,916 4,297
37
38 COMMITMENTS & REAPPROPRIATIONS 11,044 11,044 10,814
39 RATE STABILIZATION RESERVE GUIDELINES
40
41 Short Term Risk Assessment Value 1,879 1,964 1,964 1,457 1,851 1,952 2,060 2,155
43 Long Term Rate Stabilization Guidelines
44 RSR Minimum 2,156 2,253 2,253 2,253 2,456 2,677 2,864 3,036
45 RSR Maximum 4,311 4,506 4,506 4,506 4,911 5,353 5,728 6,072
2012 2013 2013 2014 2015 2016 2017 2018
City of Palo Alto
Wastewater Collection
Fiscal Year
% CHANGE IN RETAIL RATE
WASTEWATER COLLECTION
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Excerpted Draft
Utilities Advisory Commission Meeting
Minutes of March 6, 2013
ITEM 4: ACTION: Staff Recommendation that the Utilities Advisory Commission Review the 5 -
Year Financial Forecast for the Wastewater Collection Fund and Take Action on Whether to
Recommend that Council Approve an Adjustment to Wastewater Collection Rates Effective July
1, 2013
Resource Planner Eric Keniston advised that the projected costs for wastewater treatment fell
since the preliminary financial forecast was presented last month so that the projected rate
increase for FY 2015 is 9%, instead of 11%. That change also resulted in the rate stabilization
reserve being projected to be above the maximum guideline level at the end of FY 2014 so that
no rate increase was justified for FY 2014.
ACTION:
Commissioner Melton made a motion to recommend that the Council not adjust Wastewater
Collection Rates effective July 1, 2013. Commissioner Eglash seconded the motion. The motion
carried (6-0) with Commissioner Chang absent.
Excerpted Final
Utilities Advisory Commission Meeting
Minutes of February 13, 2013
ITEM 2: PRESENTATION: Presentation on Financial Projections for the City’s Electric, Gas,
Water and Wastewater Collection Utilities
Assistant Director Jane Ratchye stated that the presentation on the financial forecasts is a
preview of next month's discussion. This month no information was provided in advance of the
presentation, but next month the full report will be provided with all information. In this
presentation, we will be showing options for the water and wastewater funds and would like to
get some feedback from the commission on these options.
Resource Planner Eric Keniston provided an overview of the 5-year financial forecasts for all
funds, stating it was possible to not have any rate increases for FY 2014. This is different from
last year’s financial projections, which had forecast the need for increases of 15% for water and
9% for wastewater. Electric and gas show no need for changes at this time. T here have been
some significant savings related to Capital Improvement Programs (CIP).
For the Electric Fund, no rate increases were shown to be needed, but supply costs
(renewables, transmission) were projected to increase, and distribution costs were pr ojected to
decrease due to decreased Capital Improvement Program (CIP) budgets in the next two years.
This was due to a backlog of projects as well as vacancies (under -filled positions, retirements,
fewer trainers for new employees). No rate increases are shown to be needed until FY 2016.
Commissioner Cook asked why there were vacancies in this economy, and whether it was a
structural issue. Director Fong stated that for skilled positions such as electric and gas
engineers there is a shortage.
Commissioner Eglash added that this is an industry wide problem for utilities.
Commissioner Hall observed that the large drop in CIP expenses is significant, and
Commissioner Cook asked whether this could cause a problem in the future with operations.
Director Fong stated that if a project came up that was required immediately, those would be
done.
Vice Chair Foster asked if there were zero dollars budgeted for undergrounding for FY 2014.
Keniston confirmed that this is true.
Regarding the Gas Fund, Keniston stated that since all customers now have market rate gas
commodity costs, the net revenue profile is relatively steady. In addition, other components
were brought into alignment with cost of service study as of the rates effective July 1, 2012. CIP
deferrals for two years will cause distribution costs to fall significantly so that the distribution
rate stabilization reserve (RSR) levels are projected to rise above the maximum guideline level
for several years. Options are to let the reserves be where they are, or to have rate decreases
(with increases later). The gas supply RSR is more of a cash flow reserve as market -based
commodity costs are passed through to customers. With a two month lag between billing and
revenue collection, funds should be in place to cover the potentially expensive float needed for
winter gas.
Commissioner Cook asked if the minimum and maximum guidelines are legal requirements.
Keniston replied that they are not legal requirements.
Commissioner Melton asked whether the high amount for the gas distribution RSR was all due
to CIP deferrals. Keniston confirmed that it was.
Commissioner Eglash asked if, given market prices for gas sales, whether RSR needs been re -
assessed. Assistant Director Ratchye stated staff will reasse ss the appropriate reserve levels
after completion of a rates policy. Director Fong added that the reserve is needed for cash
flow, so the reserve needs may not necessarily be reduced, but may be based on when we pay
for gas and when we receive the corresponding revenue from customers.
Keniston stated that the Water fund has seen large cost increases over the last few years. In FY
2014, it is possible to have no rate increase, although large increases would be needed starting
in FY 2015 if there were no rate increase for FY 2014. The reasons for lower expenses this year
include a return of capital funds in FY 2013 and a deferral of main replacement projects by one
year. Therefore, the Water RSR will be near to the maximum guideline level instead of the
minimum for FY 2013. Keniston stated that an alternative rate increase profile would be 7%
annual increases for the 5-year period.
Commissioner Hall asked if the SFPUC rates rising will be offset by the CIP decreases. Keniston
replied that this is the case for next year.
Commissioner Melton stated that if there is no rate increase next year, the following year
increase will be much higher and that in the past, the UAC generally counseled against that.
Commissioner Hall stated he preferred a level rate increase trajectory.
Regarding the wastewater fund, Keniston stated last year a 9% increase was projected for FY
2014, but with CIP main replacement deferrals of one year, revenues are expected to be above
expenses and the wastewater RSR is expected to be above the maximum guideline for FY 2014.
A double digit rate increase will possibly be needed in FY 2015. An alternative plan could have
a small increase in FY 2014, but reserves would be pushed above maximum guideline levels
with anything more than a small increase.
Commissioner Melton asked whether the cost growth was due to the treatment plant cost
going up. Keniston confirmed that this was the case.
Commissioner Melton stated that temporarily exceeding the maximum guideline level is not as
significant as dipping below the minimum guideline level. A one year peak over maximum is
not a big deal.
Commissioner Eglash stated he was uncomfortable with taking more money from ratepayers
simply to bank it for future cost increases. He would rat her leave the money with ratepayers,
especially when the reserve levels are above the maximum guideline level.
Commissioner Waldfogel stated the reserves should reflect deferred or accrued maintenance
cost. It sounds like there isn’t a plan to try and catch up with CIP projects.
Commissioner Eglash agreed, saying he was on a UAC committee reviewing the CIP in the past
and was impressed with the long-term plan to be current with infrastructure replacements. It is
a reason to be very proud of CPAU, but the notion when you can't spend at the rate you would
like to, or to treat CIP deferrals as a savings instead of a known cost or deferred expense for the
future creates some unease.
Director Fong added that CPAU has always practiced ‘pay as you go’ for CI P expenditures. The
consideration of budgeting for future CIP expenses is possibly in conflict the idea of not holding
more of ratepayer funds than actual expenses indicate.
Commissioner Eglash wondered if there is a matter of degree and of predictabilit y that makes
CIP different, but agreed that there is a conflict in objectives.
Commissioner Melton agreed that, if because of other limitations we have to defer CIP, it
seems appropriate to bank funds for the future when costs start coming along, includi ng that,
as a representative to the City’s Infrastructure Task Force, this is how the General Fund got into
trouble. If in the future Utilities has to do three years of work to get back on track, there should
be money in an infrastructure reserve fund to handle that.
Vice Chair Foster asked if there would be a situation of doing multiple projects at once in the
future, or if this would be a steady deferral out one year. Director Fong stated it was the latter.
Commissioner Waldfogel stated that ratepayers should expect to pay a portion of the life of
infrastructure, even if there are no expenses in one year, that it should not be a ‘jubilee’ of
sorts. Director Fong stated this would be an excellent discussion for the rates policy.
Assistant Director Ratchye asked whether the UAC had any direction for staff as to the
proposals to be provided in March.
Commissioner Eglash said that he is supportive of a flatter rate increase for water, rather than
zero in FY 2014, as this has always been expected. However, he would support zero for
wastewater as the reserves would go above the maximum guideline level.
Commissioner Melton said that he supports the steady, moderate rate increase alternative for
water as he would like to avoid double digit rate increases in water in the future. However, he
said he feels less strongly for wastewater since the dollars are not that large.
Commissioner Eglash encouraged staff to think about the input provided on the CIP funding as
he is very interested in not treating the CIP deferrals as savings, but look at opportunity to bank
the money for catching up with the CIP projects.
Commissioner Melton asked about how much of the fixed costs for the gas distribution and
water costs are collected with fixed charges and how much is collected with volumetric charges.
Ratchye stated that according to the cost of service study, some of the fixed costs are assigned
to be collected with fixed charges, but not all the fixed costs.
Commissioner Waldfogel asked if staff will be coming back with the fiber fund financial
information. Keniston said that there are no plans to do that at this time since rate increases
for the fiber fund are based on the Consumer Price Index.
Director Fong stated that the City Auditor completed an audit of CPAU's reserves and that their
advice was not to store money in reserves, but to only charge customers what is needed in a
particular year.
Vice Chair Foster indicated his support for steady rate increases for water, but said that he did
not have a strong opinion on wastewater.