HomeMy WebLinkAboutStaff Report 5825
City of Palo Alto (ID # 5825)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 6/16/2015
City of Palo Alto Page 1
Summary Title: Resolution to Adopt Drought Surcharges and 4% Water Rate
Increase
Title: Staff Recommendation that the City Council Adopt two Resolutions
Effective September 1, 2015: 1) Amending Rate Schedules W-1 (General
Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire
Service Connections), W-4 (Residential Master-Metered and General Non-
Residential Water Service), and W-7 (Non-Residential Irrigation Water
Service) to Increase Rates 4% and Add Drought Surcharges; and 2) Activating
Drought Surcharges at the 20% Level in Response to Mandatory Potable
Water Use Restrictions Imposed by the State Water Resources Control Board
From: City Manager
Lead Department: Utilities
Recommendation
Staff recommends that the Finance Committee recommend that Council:
1) Adopt a resolution (Attachment A) amending rate schedules W-1 (General Residential
Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service
Connections), W-4 (Residential Master-Metered and General Non-Residential Water
Service), and W-7 (Non-Residential Irrigation Water Service) to add drought surcharges
and increase rates 4% effective September 1, 2015; and
2) Adopt a resolution (Attachment C) activating the drought surcharges at the 20%
reduction level effective September 1, 2015.
Executive Summary
The Fiscal Year (FY) 2016 Water Financial Plan recommended for Council approval by the
Finance Committee on April 7, 2015 concluded that a 12% water rate increase was necessary in
FY 2016. However, as a result of an update to the water cost of service analysis that was
completed subsequent to the Financial Plan, Council is only able to adopt an 8% water rate
increase effective July 1, 2015 (see Staff Report #5814 on the June 8, 2014 Council agenda). An
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additional 4% water rate increase, which is necessary to cover increasing costs in the Water
Fund, is proposed for implementation on September 1, 2015.
At the same time, staff proposes that the Council amend the rate schedules to add drought
surcharges. These surcharges would not apply in a normal year, but could be imposed by action
of the City Council in the event of a drought or other local water shortage situation. The
primary purpose of the surcharges is to recover some or all of the revenue lost due to water
consumption reductions. They are not intended to be the primary tool for achieving
conservation goals during a drought.
Given the 24% water use reduction mandate established for Palo Alto by the State Water
Resources Control Board, staff expects that customers will reduce their water use, requiring a
rate increase to recover the largely fixed costs of providing water service. Staff recommends
activating the new drought surcharges on September 1, 2015, the same day that the proposed
4% rate increase would be effective.
In summary, the two attached resolutions are intended to accomplish three objectives:
1. Complete the 12% rate increase recommended to Council by the Finance Committee on
April 7, 2015. Staff has recommended to Council that this 12% increase be broken into
two parts, with an 8% increase effective July 1, 2015 and the remaining 4% increase
effective September 1, 2015. The 8% increase will be considered by the Council during
the water rate hearings on June 8 and continuing if needed to June 15. The first
resolution (Attachment A) implements the remaining 4% increase.
2. Add drought surcharges to the water rate schedules. These surcharges cannot become
active unless Council activates them by resolution. Three levels of surcharge are
included, one for the 10/15% reduction level, one for a 20% reduction level, and one for
a 25% reduction level. The first resolution (Attachment A) includes all three potential
surcharges as part of the proposed rate schedule amendments, but does not seek
Council authorization to apply them.
3. Activate the drought surcharges at the 20% reduction level, effective September 1,
2015. The second resolution (Attachment C) implements this action by activating the
drought surcharges at the 20% reduction level.
The increase to the underlying rate schedules (12% total, 8% on July 1, 2015 and 4% on
September 1, 2015) is intended to generate additional revenue required to fund daily
operations. The drought surcharges are only intended to be used temporarily under drought
conditions or other water shortage situations to recover revenue lost due to temporarily low
sales volumes.
The effect of the 4% rate increase is an increase of $2.89 per month for the median residential
customer using 9 CCF/month. Note that the changes will take effect on September 1, after the
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summer irrigation season, when water usage is normally reduced. The impact of the imposition
of the drought surcharges will depend on whether a customer reduces water use.
Background
Last year, in response to the ongoing drought, staff began the process of developing drought
surcharges. The City’s current rate setting methodology is based on the 2012 Palo Alto Water
Cost of Service and Rate Study by Raftelis Financial Consultants, Inc. (RFC) (Staff Report 2676).
Prior to updating the 2012 Water Utility Cost of Service Analysis (COSA) to include additional
rates or surcharges for use in an extended drought, staff sought policy direction in the form of
guidelines for the COSA. The guidelines (Attachment D) were approved by Council on
November 10, 2014 (Staff Report 5171) and state that:
Surcharges should be based on the cost to serve customers. This was the overriding
principle for the analysis.
The demand targets and indoor and outdoor use reductions underlying the rate design
should be consistent with the water shortage response plan evaluation criteria in
Appendix G of the City’s 2010 Urban Water Management Plan (UWMP).
Staff should evaluate the feasibility of adding a third tier to the residential rate (W-1)
and a second tier to the general non-residential rate (W-4).
Water purchase costs should be passed through directly on the bill as a separate rate
component.
Variances should be evaluated for customers needing additional water for medical
necessity, health and safety, and other critical needs.
At the same time that staff was completing the COSA for the drought surcharges, the annual
budgeting and financial forecasting process was in progress. The FY 2016 Water Utility Financial
Plan projected the need for a 12% rate increase on July 1, 2015. The primary driver for this
increase is wholesale water rate increases. On March 4, 2015 the Utilities Advisory Commission
recommended that the Council approve the 12% rate increase, and on April 7, 2015 the Finance
Committee also unanimously recommended approval (Staff Report 5591). Staff mailed notices
of the rate increase to all water utility customers, as required by Article XIIID of the State
Constitution (added by Proposition 218 in 1996).
Shortly after the City mailed the notices, the California Court of Appeal published a decision
providing additional guidance on constitutionally compliant water rate design.
Staff asked RFC to review the City’s water rate methodology and structure to ensure that they
continued to equitably recover the City’s costs to provide water service. RFC examined and
validated both the City’s methodology and rate structure as fundamentally sound, and
recommended minor adjustments to ensure that peaking costs are equitably allocated to each
customer class and residential rate tier.
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Since Council may not adopt rates higher than those in the Proposition 218 notice that was sent
to customers, staff recommended that Council approve an 8% rate increase effective July 1,
2015, the maximum rate increase that both aligned with the updated COSA and was within the
notice requirements. Council will consider the recommendation for the 8% rate increase at its
budget hearings on June 8, 2015 and June 15, 2015 meetings (Staff Report 5814). The
remaining 4% rate increase needed can be adopted along with the drought surcharges. This
increase is included in the attached rate schedules, and a Prop 218 notice of the 4% increase
and the range of potential drought surcharges Council may activate will be sent to customers in
July.
Discussion
Overview of 4% Rate Increase
As discussed earlier, the attached rate schedules include a 4% rate increase, effective
September 1, 2015. The rates are summarized in Tables 1 through 3, below. The tables show
the existing rates, the rates proposed for July 1, 2015 (an 8% increase from existing rates), the
rates proposed for September 1, 2015 (a 4% increase), and the change in rates. Note that the
proposed rates for July 1, 2015 shown in Tables 1 through 3 are an 8% overall rate increase, not
the 12% rate increase proposed at the March 3, 2015 UAC meeting. The 4% rate increase
effective September 1, 2015, when combined with the 8% increase effective July 1, 2015, will
result in an overall 12% rate increase, in line with the proposal in the FY 2016 Water Utility
Financial Plan.
All rate increases are based on the cost of service methodology established in the 2012 “Palo
Alto Water Cost of Service and Rate Study” by Raftelis Financial Consultants as modified by the
attached memo titled “Proposed Water Rates” by Raftelis Financial Consultants (Attachment F).
Table 1: Water Commodity Charges (Current and Proposed)
Current Rates
(7/1/13)
Proposed Rates
(7/1/15)1
Proposed Rates
(9/1/15)
Change from July 2015
(Proposed) Rates
$/CCF %
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 4.99 5.70 5.93 0.23 4%
Tier 2 Rates 7.58 8.08 8.38 0.30 4%
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 6.15 6.66 6.92 0.26 4%
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 6.15 6.66 6.92 0.26 4%
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 7.52 7.99 8.29 0.30 4%
1 The July 1, 2015 proposed rates shown in Tables 1 through 3 are for the 8% overall rate increase, that staff
recommends be effective on July 1, 2015, instead of the 12% rate increase proposed earlier.
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Table 2: Current and Proposed Monthly Water Service Charge
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change from July 2015
(Proposed) Rates
Current (7/1/13) Proposed (7/1/15)1 Proposed (9/1/15) $/mo %
5/8” 14.67 15.54 16.03 0.49 3%
3/4” 19.51 20.88 21.50 0.62 3%
1” 29.18 31.58 32.45 0.87 3%
1 ½” 53.37 58.32 59.83 1.51 3%
2” 82.39 90.40 92.67 2.27 3%
3” 174.29 192.01 196.70 4.69 2%
4” 309.72 341.74 350.00 8.26 2%
6” 633.80 700.04 716.82 16.78 2%
8” 1,165.86 1,288.28 1,319.07 30.79 2%
10” 1,843.02 2,036.96 2,085.57 48.61 2%
12” 2,423.45 2,678.68 2,742.56 63.88 2%
Table 3: Current and Proposed Monthly Fire Service Charges
Meter
Size
Monthly Fire Service Charge
($/month based on meter size)
Change from July 2015
(Proposed) Rates
Current (7/1/13) Proposed (7/1/15)1 Proposed (9/1/15) $/mo %
2” 3.03 3.38 3.43 0.05 1%
4” 18.78 20.94 21.22 0.28 1%
6” 54.55 60.82 61.63 0.81 1%
8” 116.24 129.61 131.34 1.73 1%
10” 209.03 233.09 236.20 3.11 1%
12” 337.65 376.51 381.52 5.01 1%
Table 4 shows the impact of the proposed September 1, 2015 rate changes (excluding any
drought surcharges) on the median residential bill. This comparison assumes that customers do
not reduce their consumption. Historically, however, customers have looked for ways to
conserve after their bills have increased, so not all customers will experience the same bill
increase. The average increase is roughly 4% compared to the July 1, 2015 proposed rates and
roughly 12% compared to the current rates, but residential customers with lower usage will see
higher percentage increases, due to the adjustment to peaking factors in the proposed July 1,
2015 rate schedules.
Table 4: Impact of Proposed Water Rate Changes on Residential Bills
Usage
(CCF/month)
Bill under
Existing
Rates
Bill under
Proposed 7/1/15
Rates
Bill under
Proposed 9/1/15
Rates
Change from July 2015
(Proposed)
$/mo %
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4 34.63 38.34 39.75 1.41 4%
(Winter median) 7 52.19 57.82 59.99 2.17 4%
(Annual median) 9 67.35 73.98 76.75 2.77 4%
(Summer median) 14 105.25 114.38 118.65 4.27 4%
25 188.63 203.26 210.83 7.57 4%
Table 5 shows the impact of the proposed September 1, 2015 rate changes (excluding any
drought surcharges) on various representative commercial customer bills. As with residents,
this comparison assumes that customers do not decrease consumption.
Table 5: Impact of Proposed Water Rate Changes on Commercial Bills
Usage
(CCF/month)
Bill under
Existing
Rates
Bill under
Proposed 7/1/15
Rates
Bill under
Proposed 9/1/15
Rates
Change from July 2015
(Proposed)
$/mo %
Commercial (W-4) (5/8” meters)
(Annual median) 12 88.47 95.46 99.07 3.61 4%
(Annual average) 64 408.27 441.78 458.91 17.13 4%
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 121 130 134 4 3%
(Summer median) 37 332 354 367 13 4%
(Winter average) 56 474 506 524 18 4%
(Summer average) 199 1,550 1,648 1710 62 4%
Overview of the Drought Surcharge Proposal
The proposed drought surcharges for each rate schedule are shown in Table 6. The drought
surcharges are based on the cost of service methodology established in the 2012 “Palo Alto
Water Cost of Service and Rate Study” by Raftelis Financial Consultants as modified by the
attached memo titled “Proposed Drought Surcharges” by Raftelis Financial Consultants
(Attachment G).
Table 6: Recommended Drought Surcharges ($/CCF)
Rate Class 10%/15%2 Reduction 20% Reduction 25% Reduction
W-1 Residential (Tier 1) 0.19 0.39 0.59
W-1 Residential (Tier 2) 0.55 1.14 1.76
W-4 (Non-residential and Master
Metered Multi-Family, General Use) 0.24 0.49 0.72
W-7 (Non-residential and Master
Metered Multi-Family, Irrigation) 0.51 1.18 1.93
2 Water use reduction targets for the 10% and 15% reduction targets are identical because of CPAU’s supply
guarantee under its 2009 Water Supply Agreement with the SFPUC. The supply guarantee, which is higher than
CPAU’s normal year demand, is a factor in the water use reduction targets.
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As set forth in the attached rate schedules, these surcharges may be activated by Council’s
adoption of a resolution. The Council may opt to activate the surcharge at a lower level than
necessary to fully recover all lost revenue. For example, if the City’s water supplier imposed a
mandatory reduction of 20% on Palo Alto, the City Council could adopt surcharges at a 10/15%
level or a 20% level. This gives the Council the freedom to adopt a lower surcharge to make up
part of the lost revenue, and offset any remaining revenue shortfall by making temporary cost
reductions or drawing down reserves. Once adopted, the surcharges will remain in effect until
Council takes action to remove or amend them.
Since the State has imposed a 24% mandatory reduction on Palo Alto effective June 1, 2015
staff recommends that Council adopt a resolution activating the drought surcharges. In the FY
2016 Water Utility Financial Plan, staff projected a continuation of SFPUC’s request for a 10%
voluntary water use reduction, but no mandatory reductions. The financial plan anticipated
that the revenue loss associated with the 10% reduction in water sales would be offset by
drawing down reserves, with no activation of drought surcharges. Now that Palo Alto is subject
to a 24% mandatory water use reduction, staff recommends activating the drought surcharges
at the 20% reduction level. Because they will take effect at the end of the summer irrigation
season, the surcharges are only estimated to recover roughly 80% of the projected $2.8 million
in lost revenue for FY 2016. The remaining lost revenue will be offset by drawing down
reserves.
Impact on Customer Bills
Tables 7 and 8 show the impact the proposed surcharges, if activated at the 20% reduction
level, would have on various sample customer bills. Customers who conserve3 would see a
lower bill compared to a normal year, while customers who do not conserve would see an
increased bill. High use customers see greater savings when they conserve and higher costs
when they do not. This is because higher users are expected to reduce consumption more than
lower users, an expectation that is factored into the consumption projections underpinning the
rate design. Additional tables are included in Attachment E showing the bill impacts for other
reduction scenarios.
Customers who are already conserving may see increases to their bills as a result of the
surcharges. Some customers may perceive this as “being punished for conserving,” even though
they will still save money relative to a normal year. Staff intends to communicate the reason for
the surcharges (that the utility’s cost to deliver water is mainly fixed), and that the impact of
the surcharges will be felt more dearly by those customers who are not reducing consumption.4
3 Bills shown in Tables 7 and 8 assume that conserving customers use 10% less water under the drought
surcharges.
4 These bill calculations assume the SFPUC does not raise rates to recover lost revenue. This assumption may hold
in the short term, but in an extended drought the SFPUC will increase rates as needed. In this event, the City would
adjust rates to pass the cost through to customers.
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Table 7: Impact of Proposed Drought Surcharges (20% Reduction Level) on Residential Bills for
both Conserving and Non-Conserving Customers
Usage
(CCF/month)
Bill under
Normal
Year Rates*
Bill with Surcharges,
Conserving Customer
Bill with Surcharges,
Non-Conserving Customer
Bill
Change in Bill
Bill
Change in Bill
% $/mo % $/mo
4 39.75 39.03 -2% -0.72 41.31 4% 1.56
(Winter median) 7 59.99 58.15 -3% -1.84 63.47 6% 3.48
(Annual median) 9 76.75 73.39 -4% -3.36 82.51 8% 5.76
(Summer median) 14 118.65 111.47 -6% -7.18 130.11 10% 11.46
25 210.83 186.20 -12% -24.63 234.83 11% 24.00
* Proposed rates effective September 1, 2015
Table 8: Impact of Proposed Drought Surcharges, Non-Residential Bills,
20% Reduction Level
Usage
(CCF/month)
Bill under
Normal
Year Rates*
Bill with Surcharges,
Conserving Customer
Bill with Surcharges,
Non-Conserving Customer
Bill
Change in Bill
Bill
Change in Bill
% $/mo % $/mo
Commercial (W-4) (5/8” meters)
(Annual median) 12 99.07 96.95 -2% -2.12 104.95 6% 5.88
(Annual average) 64 458.91 447.59 -2% -11.32 490.27 7% 31.36
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 134 124 -8% -11 145 8% 11
(Summer median) 37 367 323 -12% -44 410 12% 43
(Winter average) 56 524 458 -13% -66 590 13% 66
(Summer average) 199 1710 1473 -14% -236 1944 14% 234
* Proposed rates effective September 1, 2015
Drought Surcharge Rate Design, Alignment With Design Guidelines
The design for the drought surcharges are mostly in line with the rate design guidelines
adopted by Council, with deviations from Guidelines 5, 6, and 7 as discussed below.
Guideline 1: Rates to be based on the cost of service
The drought surcharges are based on the memo titled “Proposed Drought Surcharges” by
Raftelis Financial Consultants (Attachment G). The surcharges use the same cost of service
methodology as the City’s normal year rates, but assume reductions in sales commensurate
with the water use reductions required. The model assumes that, during a drought, greater
water use reductions occur in the rate classes more associated with irrigation (Tier 2 W-1, W-7),
which results in higher increases in the rates. These surcharges are not “penalty rates” designed
to punish overuse; instead, they are intended only to recover revenue lost due to water use
reductions, although they may have the side effect of sending a price signal to encourage
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conservation. While the surcharges may have some impact on customer conservation, they are
not the primary tool for the City to achieve drought reduction targets, nor is that their intended
purpose.
Guidelines 2 through 4: Consistency of Overall Demand Targets and Indoor and Outdoor Use
Reductions with Design Criteria in Appendix G of the UWMP
The UWMP lists several criteria to use when evaluating the water allocations that form the
basis for any rate design. These are included in Attachment H and are summarized below. They
state that the allocations underlying any rate design should:
a. Reduce overall City consumption to the reduction target required
b. Provide sufficient water available for personal use
c. Have a design that is acceptable to the community
d. Be designed to minimize unemployment and business loss
e. Minimize landscaping investment losses
f. Be cost-effective, enforceable, and achievable in the given timeline
g. Allow for flexibility
h. Take into account for new water services
i. Recover penalties applied by suppliers
The proposed rate design accomplishes these goals. The demand targets and allocations used
as the basis for the rate design are shown in Attachment E. By assuming greater cuts in outdoor
use than indoor use, and designing rates on that basis, the demand targets and indoor/outdoor
allocations preserve sufficient water for personal use and minimize the impacts on business
use. However, no individual allocations are established, which means people have the
opportunity to choose whether they focus their savings goals on indoor or outdoor use. This
provides flexibility to the consumer, allowing them the flexibility to allocate their water use as
needed to minimize landscape investment losses, and makes it more likely the rate design will
be acceptable to the community. Since individual allocations are not established, the rate
design automatically takes into account new water services.
Guidelines 5 and 6: Adding a Tier to the Residential (W-1) and General Non-residential (W-4)
Rate Schedules
As part of this study staff evaluated a three tier system for residential rates (W-1) and a two tier
system for general non-residential consumption (W-4), but does not recommend adopting
additional tiers at this time. Staff’s analysis of customer usage suggests that such an approach
may be feasible and cost-justified, but it requires more legal and technical analysis than staff
can currently accommodate given the June 1 effective date of the state’s mandatory 24% use
reduction.
Guideline 7: Create a Separate Water Supply Rate Component
Staff recommends against proceeding with this rate design feature at this time. Staff is
currently projecting little change to the SFPUC’s water rates over the next three years given the
large rate increase that will go into effect July 1, 2015. However, if the drought continues
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beyond the upcoming winter, the SFPUC may increase its rates higher than anticipated,
prompting staff to revisit this feature as part of a future rate change.
Guideline 8: Evaluate the Need for Variance Processes
The proposed cost-based surcharges do not include extraordinarily large increases or penalty
rates for second tier users, so staff is recommending against creating a variance process at this
time. However, if it becomes apparent that a variance process is necessary, staff will
re-evaluate the feasibility of such a process.
Commission Review
The Utilities Advisory Commission (UAC) reviewed this proposal at its June 3, 2015 meeting.
Because of the proximity of the UAC meeting to the June 16, 2015 Finance Committee meeting,
the outcome is not available for this report and will be provided at the June 16, 2015 Finance
meeting.
Timeline
Assuming the Finance Committee supports staff’s recommendation, notification of the rate
increases will be sent to customers as required by Article XIIID of the State Constitution (added
by Proposition 218, 1996). The rate schedules will then go to the City Council in August, at
which time the public hearing required by Article XIIID of the State Constitution will be held.
Assuming the Council adopts the rate changes, they will become effective September 1, 2015.
Resource Impact
The attached rate schedules include a 4% increase over the rates that are proposed to be
adopted July 1, 2015. The proposed July 1, 2015 rates are 8% higher than the existing rates and
will generate roughly $3 million in additional revenue during a normal year. The additional 4%
increase will generate an additional $1.5 million during a normal year, though it will generate
less in FY 2016 due to the late adoption date. Actual revenue from both rate changes will be
lower in the short term because sales volumes are lower due to drought restrictions. The entire
revenue increase will be offset by an increase in wholesale water supply costs, as discussed in
the FY 2016 Water Utility Financial Plan.
In addition to the 4% rate increase, the attached rate schedules include the addition of drought
surcharges that could be imposed by Council as needed. Table 9 shows the estimated revenue
that would be recovered by the attached drought surcharges under various drought scenarios,
if they were kept in place for an entire fiscal year. Note that this revenue is not extra revenue
above the utility’s cost of operation. It only replaces revenue lost due to decreased sales
associated with the drought. Staff is recommending activation of the drought surcharges at the
20% level effective September 1, 2015.
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Table 9: Revenue Recovered by Drought Surcharges
Reduction in Available Supply
Estimated Lost Revenue Recovered
by Drought Surcharges
10/15% $1.3 million
20% $2.7 million
25% $4.1 million
The Fiscal Year 2016 Proposed Budget assumes a rate increase of 12% consistent with the
approved Water Utility Financial Plan. Due to the two-step process to achieve a 12% rate
increase to cover the utilities costs and the uncertainty of water usage due to the drought and
drought rates, staff anticipates returning to the City Council as part of the Fiscal Year 2016
Midyear Budget review report with a recommendation to adjust the water fund’s revenues and
align it with actual experience during the first six months of fiscal year 2016.
Policy Implications
As discussed above, the proposed drought surcharges and underlying rates are consistent with
the Design Guidelines for the 2014 Water Utility Drought Rate Cost of Service Study and
Appendix G of the UWMP, except as noted above. In addition, they are consistent with Article
XIIID of the State Constitution in that they reflect only the cost to serve customers under
normal conditions and under various drought scenarios.
Environmental Review
Adoption of these rate changes is exempt from the California Environmental Quality Act,
pursuant to California Public Resources Code Sec. 21080(b)(8), (adoption of rates to meet
operating expenses, purchase supplies, meet reserve needs and obtain capital improvement
funds), thus no environmental review is required.
Attachments:
Attachment A: Resolution of the Council of the City of Palo Alto Adopting Drought
Surcharges, a Water Rate Increase, and Amending Rate Schedules W-1, W-2, W-3, W-4,
and W 7 (PDF)
Attachment B: Amended Rate Schedules W-1, W-2, W-3, W-4, and W 7 (PDF)
Attachment C: Resolution Activating Drought Surcharges Effective September 1, 2015
(PDF)
Attachment D: Adopted Design Guidelines for Drought Rate Cost of Service Analysis
(DOCX)
Attachment E: Bill Impacts of Drought Surcharges Under Various Reduction Scenarios
(PDF)
Attachment F: May 20, 2015 Memo from Raftelis Financial Consultants, "Proposed
Water Rates" (PDF)
Attachment G: May 20, 2015 Memo from Raftelis Financial Consultants, "Proposed
Drought Surcharges" (PDF)
Attachment H: Appendix G of the Urban Water Management Plan (PDF)
Attachment A
* NOT YET APPROVED *
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052615 sdl 6053336
Resolution No. _________
Resolution of the Council of the City of Palo Alto Amending Rate
Schedules W-1 (General Residential Water Service), W-2 (Water
Service from Fire Hydrants), W-3 (Fire Service Connections), W-4
(Residential Master-Metered and General Non-Residential Water
Service), and W-7 (Non-Residential Irrigation Water Service) to
Increase Water Rates 4% and Add Drought Surcharges
R E C I T A L S
A. On January 17, 2014 the Governor of the State of California proclaimed a State
of Emergency due to severe drought conditions. On April 1, 2015 the Governor issued
Executive Order proclaiming that severe drought conditions continue to exist, and ordering the
State Water Resources Control Board to adopt regulations imposing mandatory water use
restrictions on water suppliers to achieve a 20% reduction in statewide potable water use
through February 28, 2016.
B. On May 5, 2015, the State Water Resources Control Board adopted regulations
imposing upon Palo Alto a mandatory 24% reduction in potable water consumption from
June 1, 2015 through February 28, 2016.
C. The City's costs of distributing water and managing its operations are mostly
fixed, and will not decrease despite decreases in water consumption during a drought.
Customer response to this call for mandatory reductions will result in reductions in water sales
revenue. The City intends to add drought surcharges to its rate schedules that may be used to
recover these fixed costs during current and future droughts.
D. The City, on June 15, adopted the FY 2016 Water Utility Financial Plan (Staff
Report #5813), which determined an additional 12% increase in revenue was needed for
FY 2016 due to increased water supply costs. On June 15 the City adopted an 8% increase to its
water rates effective July 1, 2015. An additional 4% increase to normal year water rates is
necessary to achieve adequate revenue to fund operations for FY 2016.
E. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
F. On July _____, 2015, the City mailed notice of the proposed water rate
amendments and drought surcharges to all City of Palo Alto Utilities water customers. The
notice contained a description of the 4% overall increase in water rates, as well as each of the
three levels of drought surcharges that Council may activate in response to a drought or other
water shortage situation.
Attachment A
* NOT YET APPROVED *
2
052615 sdl 6053336
G. Pursuant to Article XIIID Sec. 6 of the California Constitution, on August 17, 2015,
the City of Palo Alto held a public hearing to consider all protests against the proposed water
rate amendments, including the drought surcharges.
H. The total number of written protests presented by the close of the public
hearing was __________ fifty percent (50%) of the total number of customers and property
owners subject to the proposed water rate amendments.
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 W-1 (General Residential Water Service) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-1, as amended, shall become effective September 1,
2015.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-2, as amended, shall become effective September 1,
2015.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-3 (Fire Service Connections) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-3, as amended, shall become effective September 1,
2015.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-4 (Residential Master-Metered and General Non-Residential Water Service) is
hereby amended to read as attached and incorporated. Utility Rate Schedule W-4, as amended,
shall become effective September 1, 2015.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-7 (Non-Residential Irrigation Water Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule W-7, as amended, shall become effective
September 1, 2015.
SECTION 6. The Council finds that the revenue derived from the adoption of this
resolution shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of
the City of Palo Alto.
SECTION 7. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
Attachment A
* NOT YET APPROVED *
3
052615 sdl 6053336
SECTION 8. Council may later find it necessary to activate one of the drought surcharge
levels described in the August 2015 public notice. Pursuant to Government Code
53750(h)(2)(B), Council’s later activation of any one of the properly noticed and Council-
approved drought surcharge levels is not a rate increase for purposes of Article XIII C and
Article XIII D of the California Constitution and Government Code 53750.
SECTION 9. The Council finds that the adoption of this resolution changing water
rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to maintain service 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 staff report and all attachments presented to Council, the Council incorporates
these documents herein and 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:
___________________________ ___________________________
Senior Deputy City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-1 Effective 7-1-20159-1-2015
dated 7-1-20137-1-2015 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to all separately metered single family residential water services.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Service Charge: Per Month
For 5/8-inch meter ..................................................................................................... $ 15.5416.03
For 3/4 inch meter ..................................................................................................... 20.8821.50
For 1 inch meter ........................................................................................................ 31.5832.45
For 1 1/2 inch meter .................................................................................................. 58.3259.83
For 2-inch meter ........................................................................................................ 90.4092.67
For 3-inch meter ........................................................................................................ 192.01196.70
For 4-inch meter ........................................................................................................ 341.74350.00
For 6-inch meter ........................................................................................................ 700.04716.82
For 8-inch meter ........................................................................................................1,288.281,319.07
For 10-inch meter ......................................................................................................2,036.962,085.57
For 12-inch meter .......................................................................................................2,678.682,742.56
Commodity Rate: (To be added to Service Charge and applicable to all pressure zones.)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 usage ........................................................................................................................$5.705.93
Tier 2 usage (All usage over 100% of Tier 1) ........................................................................8.088.38
ATTACHMENT B
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-2 Effective 7-1-20159-1-2015
dated 7-1-20137-1-2015 Sheet No W-1-2
Drought Surcharges:
If adopted by City Council resolution as described in Section D.3, one of the three designated
drought surcharge reduction levels will be added to the Customer’s applicable Commodity Rate for
Tier 1 and Tier 2 water usage. The drought surcharges in the table below are measured in dollars per
hundred cubic feet (ccf).
System-wide Water
Usage Reduction level 10/15% 20% 25%
Tier 1 0.19 0.39 0.59
Tier 2 0.55 1.14 1.76
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $6.00
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.
2. Calculation of Usage Tiers
Tier 1 water usage shall be calculated and billed based upon a level of 0.2 ccf per day
rounded to the nearest whole ccf, based on meter reading days of service. As an example,
for a 30 day bill, the Tier 1 level would be 0 through 6 ccf. For further discussion of bill
calculation and proration, refer to Rule and Regulation 11.
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-3 Effective 7-1-20159-1-2015
dated 7-1-20137-1-2015 Sheet No W-1-3
3. Drought Surcharge
During periods of water shortage or restrictions on local water use, the City Council may
adopt a resolution activating a Drought Surcharge at the 10/15%, 20% or 25% level, as
needed to recover the water utility’s costs of providing water service. The purpose of the
Drought Surcharge is to recover revenues lost as a result of reduced consumption.
{End}
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-1 Effective 7-1-20159-1-2015
dated 7-1-20137-1-2015 Sheet No W-2-1
A. APPLICABILITY:
This schedule applies to all water taken from fire hydrants for construction, maintenance, and
other uses in conformance with provisions of a Hydrant Meter Permit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
1. Monthly Service Charge.
METER SIZE
5/8 inch ........................................................................................................................... 50.00
3 inch ........................................................................................................................... 125.00
2. Commodity Rate: (per hundred cubic feet) ................................................................ $6.666.92
3. Drought Surcharges:
If adopted by City Council resolution as described in Section D.5, one of the three designated
drought surcharge reduction levels will be added to the Customer’s Commodity Rate.
System-wide Water
Usage Reduction level 10/15% 20% 25%
Surcharge (dollars per
hundred cubic feed) 0.24 0.49 0.72
D. SPECIAL NOTES:
1. Monthly charges shall include the applicable monthly service charge in addition to usage billed at
the commodity rate.
2. Any applicant using a hydrant without obtaining a Hydrant Meter Permit or any permittee using a
hydrant without a Hydrant Meter Permit shall pay a fee of $50.00 for each day of such use in
addition to all other costs and fees provided in this schedule. A hydrant permit may be denied or
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-2 Effective 7-1-20159-1-2015
dated 7-1-20137-1-2015 Sheet No W-2-2
revoked for failure to pay such fee.
3. A meter deposit of $750.00 may be charged any applicant for a Hydrant Meter Permit as a
prerequisite to the issuance of a permit and meter(s). A charge of $50.00 per day will be added for
delinquent return of hydrant meters. A fee will be charged for any meter returned with missing or
damaged parts.
4. Any person or company using a fire hydrant improperly or without a permit, or who draws water
from a hydrant without a meter installed and properly recording usage shall, in addition to all other
applicable charges be subject to criminal prosecution pursuant to the Palo Alto Municipal Code.
5. During periods of water shortage or restrictions on local water use, the City Council may adopt a
resolution activating a Drought Surcharge at the 10/15%, 20% or 25% level, as needed to recover
the water utility’s costs of providing water service. The purpose of the Drought Surcharge is to
recover revenues lost as a result of reduced consumption.
{End}
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-1 Effective 7-1-2015
dated 7-1-2013 Sheet No W-3-1
A. APPLICABILITY:
This schedule applies to all public fire hydrants and private fire service connections.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
1. Monthly Service Charges
Public Fire Hydrant .................................................................................................... $5.00
Private Fire Service:
2-inch connection .......................................................................................................$3.383.43
4-inch connection .......................................................................................................20.9421.22
6-inch connection ....................................................................................................... 60.8261.63
8-inch connection .......................................................................................................129.61131.34
10-inch connection .....................................................................................................233.09236.20
12-inch connection .....................................................................................................376.51381.52
2. Commodity (To be added to Service Charge unless water is used for fire extinguishing or
testing purposes.)
Per Hundred Cubic Feet
All water usage........................................................................................................... $10.00
D. SPECIAL NOTES:
1. Service under this schedule may be discontinued if water is used for any purpose other
than fire extinguishing or testing and repairing the fire extinguishing facilities. Using
hydrants and fire services for other purposes is illegal and will be subject to the
commodity charge as noted above, fines, and criminal prosecution pursuant to the Palo
Alto Municipal Code.
2. For a combination water and fire service, the general water service schedule shall apply.
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-2 Effective 7-1-2015
dated 7-1-2013 Sheet No W-3-2
3. Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
4. Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
water if records and documentation are supplied by the customer.
{End}
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-1 Effective 7-1-20159-1-2015
dated 7-1-20137-1-2015 Sheet No W-4-1
A. APPLICABILITY:
This schedule applies to non-residential water service in the City of Palo Alto and its distribution
area. This schedule is also applicable to multi-family residential customers served through a master
meter.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 15.5416.03
For 3/4-inch meter .................................................................................... 20.8821.50
For 1-inch meter .................................................................................... 31.5832.45
For 1 ½-inch meter .................................................................................... 58.3259.83
For 2-inch meter .................................................................................... 90.4092.67
For 3-inch meter .................................................................................... 192.01196.70
For 4-inch meter .................................................................................... 341.74350.00
For 6-inch meter .................................................................................... 700.04716.82
For 8-inch meter ....................................................................................1,288.281,319.07
For 10-inch meter ....................................................................................2,036.962,085.57
For 12-inch meter ....................................................................................2,678.682,742.56
Commodity Rates: (to be added to Service Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per ccf ............................................................................................................ $ 6.666.92
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-2 Effective 7-1-20159-1-2015
dated 7-1-20137-1-2015 Sheet No W-4-2
Drought Surcharges:
If adopted by City Council resolution as described in Section D.2, one of the three designated
drought surcharge reduction levels will be added to the Customer’s Commodity Rate.
System-wide Water
Usage Reduction level 10/15% 20% 25%
Surcharge (dollars per
hundred cubic feed) 0.24 0.49 0.72
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.
2. Drought Surcharge
During periods of water shortage or restrictions on local water use, the City Council may
adopt a resolution activating a Drought Surcharge at the 10/15%, 20% or 25% level, as
needed to recover the water utility’s costs of providing water service. The purpose of the
Drought Surcharge is to recover revenues lost as a result of reduced consumption.
{End}
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-1 Effective 7-1-2015
dated 7-1-2013 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential water service supplying dedicated irrigation meters in the
City of Palo Alto and its distribution area.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 15.5416.03
For 3/4-inch meter .................................................................................... 20.8821.50
For 1-inch meter .................................................................................... 31.5832.45
For 1 1/2 inch meter .................................................................................... 58.3259.83
For 2-inch meter .................................................................................... 90.4092.67
For 3-inch meter .................................................................................... 192.01196.70
For 4-inch meter .................................................................................... 341.74350.00
For 6-inch meter .................................................................................... 700.04716.82
For 8-inch meter ....................................................................................1,288.281,319.07
For 10-inch meter ....................................................................................2,036.962,085.57
For 12-inch meter ....................................................................................2,678.682,742.56
Commodity Rates: (to be added to Service Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per ccf ............................................................................................................ $ 8.088.29
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-2 Effective 7-1-2015
dated 7-1-2013 Sheet No W-7-2
Drought Surcharges:
If adopted by City Council resolution as described in Section D.2, one of the three designated
drought surcharge reduction levels will be added to the Customer’s Commodity Rate.
System-wide Water
Usage Reduction level 10/15% 20% 25%
Surcharge (dollars per
hundred cubic feed) 0.51 1.18 1.93
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.
2. Drought Surcharge
During periods of water shortage or restrictions on local water use, the City Council may
adopt a resolution activating a Drought Surcharge at the 10/15%, 20% or 25% level, as
needed to recover the water utility’s costs of providing water service. The purpose of the
Drought Surcharge is to recover revenues lost as a result of reduced consumption.
{End}
****NOT YET APPROVED*****
Attachment C
1
150526 sdl 6053335
Resolution No. _________
Resolution of the Council of the City of Palo Alto Adopting Drought
Surcharges at the 20% Reduction Level in Response to Mandatory
Potable Water Use Restrictions Imposed by the State Water
Resources Control Board
R E C I T A L S
A. The state of California is experiencing record dry conditions. On January 17,
2014 the Governor of the State of California proclaimed a State of Emergency due to severe
drought conditions. On April 1, 2015 the Governor issued an Executive Order proclaiming that
severe drought conditions continue to exist, and ordering the State Water Resources Control
Board to adopt regulations imposing mandatory water use restrictions on water suppliers to
achieve a 20% reduction in statewide potable water use through February 28, 2016.
B. On May 5, 2015, the State Water Resources Control Board adopted regulations
imposing upon Palo Alto a mandatory 24% reduction in potable water consumption from
June 1, 2015 through February 28, 2016.
C. Customer response to this call for mandatory reductions will result in reductions
in water sales revenue. The City’s costs of distributing water and managing its operations are
mostly fixed, and will not decrease despite decreases in water consumption. The drought
surcharges are necessary to recover these fixed costs.
D. The City wishes to activate the drought surcharges for all of its water rate
schedules at the 20% level. In light of the State’s mandate that Palo Alto reduce its overall
potable water consumption by 24%, activation of local surcharges at the 20% level is projected
to recover no more than the City’s fixed costs of operations, and is not projected to collect
revenue above and beyond the cost to serve the City’s water customers under drought
conditions.
E. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
F. On July _____, 2015, the City mailed notice of the proposed water rate
amendments and drought surcharges to all City of Palo Alto Utilities water customers. The
notice contained a description of the 4% overall increase in water rates, as well as each of the
three levels of drought surcharges that Council may activate in response to a drought or other
water shortage situation. The notice further informed customers that in August 2015, staff
plans to recommend that Council activate the 20% drought surcharge level.
****NOT YET APPROVED*****
Attachment C
2
150526 sdl 6053335
G. Pursuant to Article XIIID Sec. 6 of the California Constitution, on August 17, 2015,
the City of Palo Alto held a public hearing to consider all protests against the proposed water
rate amendments, including the drought surcharges.
H. The total number of written protests presented by the close of the public
hearing was _______ fifty percent (50%) of the total number of customers and property owners
subject to the proposed water rate amendments.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. As authorized by Chapter 12.20.010 of the Palo Alto Municipal Code, the
drought surcharges listed in Section C under the 20% reduction level for the W-1 (General
Residential Water Service), W-2 (Water Service from Fire Hydrants), W-4 (Residential Master-
Metered and General Non-Residential Service), W-7 (Non-residential Irrigation Water Service)
will apply to all City of Palo Alto Utilities water customer bills as of September 1, 2015,.
SECTION 2. In light of the State’s mandate that Palo Alto reduce its overall potable
water consumption by 24%, activation of local drought surcharges at the 20% level is projected
to recover no more than the City’s fixed costs of operations, and is not projected to collect
revenue above and beyond the cost to serve the City’s water customers under drought
conditions.
SECTION 3. The drought surcharges will continue to apply until the City Council acts to
remove or amend them. Council may later find it necessary to activate one of the other
drought surcharge levels described in the August 2015 public notice. Pursuant to Government
Code 53750(h)(2)(B), Council’s later activation of any one of the properly noticed and Council-
approved drought surcharge levels is not a rate increase for purposes of Article XIII C and
Article XIII D of the California Constitution and Government Code 53750.
SECTION 4. The Council finds that the adoption of this resolution changing water
rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to maintain service 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
/ /
/ /
/ /
/ /
****NOT YET APPROVED*****
Attachment C
3
150526 sdl 6053335
reviewing the staff report and all attachments presented to Council, the Council incorporates
these documents herein and 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:
___________________________ ___________________________
Senior Deputy City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
Attachment D
Adopted by Council on November 10, 2014 (Staff Report 5171)
Design Guidelines for the 2014 Water Utility Drought Rate Cost of Service Study
1. Drought rates must be based on the cost to serve customers. This is the overriding principle
for this study; all other rate design considerations must fall within this basic premise.
2. The drought rate design should be consistent with the water shortage response plan
evaluation criteria in Appendix G of the City’s 2010 Urban Water Management Plan,
summarized as follows:
a. Reduce overall City consumption to reduction target required
b. Provide sufficient water available for personal use
c. Design should be acceptable to the community
d. Unemployment and business loss should be minimized
e. Landscaping investment losses should be minimized
f. Plan should be cost-effective, enforceable, and achievable in the given timeline
g. Plan should allow for flexibility
h. Plan should take into account for new water services
i. Plan should recover penalties applied by suppliers
These criteria are discussed in more detail in the 2010 Urban Water Management Plan.
3. Rates will be designed for the following demand targets:
San Francisco Public
Utilities Commission
System-wide Demand
Reduction
Target Palo Alto
Demand
(CCF)
Projected Sales
(CCF)
10/15% 4.976 million 4.571 million
20% 4.586 million 4.213 million
25% 4.261 million 3.914 million
4. Rates will be designed assuming the following allocation of water between indoor and
outdoor (irrigation) use.
SFPUC System-
wide Reduction
in Available
Supply
CPAU
Sales
(CCF)
Indoor Use Outdoor Use
(CCF)
% reduction
over normal
year (CCF)
% reduction
over normal
year
None 4.946 million 3.134 million - 1.812 million -
10/15% 4.571 million 2.977 million 5% 1.589 million 12%
20% 4.213 million 2.852 million 9% 1.359 million 25%
25% 3.914 million 2.758 million 12% 1.160 million 36%
5. Rates for residential customers should provide an allowance for efficient landscaping
through the use of three tiers, if feasible, and should otherwise be based on two tiers.
Attachment D
Adopted by Council on November 10, 2014 (Staff Report 5171)
6. Rates for commercial customers should provide an individual baseline allocation
representing indoor use (based on winter use in a pre-drought year) and a second tier for
outdoor use.
7. Water purchase costs should be passed through directly on the bill as a separate rate
component.
8. Evaluate variance processes for customers needing additional water for medical necessity,
health and safety, and other critical needs.
Page 1 of 3
Estimated Impact of Proposed Drought Surcharges on Customer Bills
The charts below show the impact of drought surcharges on customer bills. Note that the bill
calculations below assume that the City’s wholesale supplier, the SFPUC, does not raise rates to
recover lost revenue. This assumption may hold in the short term, but in an extended drought
the SFPUC will increase rates as needed. In this event, the City would adjust rates to pass the
cost through to customers.
10% / 15% REDUCTION LEVEL
Residential Bills
Usage
(CCF/month)
Bill under
Normal
Year Rates
Bill with Surcharges,
Conserving Customer
Bill with Surcharges,
Non-Conserving Customer
Bill
Change in Bill
Bill
Change in Bill
% $/mo. % $/mo.
4 39.75 39.29 -1% -0.46 40.51 2% 0.76
(Winter median) 7 59.99 58.95 -2% -1.04 61.68 3% 1.69
(Annual median) 9 76.75 75.03 -2% -1.73 79.54 4% 2.79
(Summer median) 14 118.65 115.21 -3% -3.44 124.19 5% 5.54
25 210.83 200.22 -5% -10.61 222.42 5% 11.59
Commercial Bills
Usage
(CCF/month)
Bill under
Normal
Year Rates
Bill with Surcharges,
Conserving Customer
Bill with Surcharges,
Non-Conserving Customer
Bill
Change in Bill
Bill
Change in Bill
% $/mo. % $/mo.
Commercial (W-4) (5/8” meters)
(Annual median) 12 99.07 97.65 -1% -1.42 101.95 3% 2.88
(Annual average) 64 458.91 451.36 -2% -7.55 474.27 3% 15.36
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 134 130 -3% -4 139 4% 5
(Summer median) 37 367 346 -6% -21 385 5% 18
(Winter average) 56 524 493 -6% -31 553 6% 29
(Summer average) 199 1710 1601 -6% -109 1811 6% 101
ATTACHMENT E
Page 2 of 3
20% REDUCTION LEVEL
Residential Bills
Usage
(CCF/month)
Bill under
Normal
Year Rates
Bill with Surcharges,
Conserving Customer
Bill with Surcharges,
Non-Conserving Customer
Bill
Change in Bill
Bill
Change in Bill
% $/mo. % $/mo.
4 39.75 39.03 -2% -0.72 41.31 4% 1.56
(Winter median) 7 59.99 58.15 -3% -1.84 63.47 6% 3.48
(Annual median) 9 76.75 73.39 -4% -3.36 82.51 8% 5.76
(Summer median) 14 118.65 111.47 -6% -7.18 130.11 10% 11.46
25 210.83 186.20 -12% -24.63 234.83 11% 24.00
Commercial Bills
Usage
(CCF/month)
Bill under
Normal
Year Rates
Bill with Surcharges,
Conserving Customer
Bill with Surcharges,
Non-Conserving Customer
Bill
Change in Bill
Bill
Change in Bill
% $/mo. % $/mo.
Commercial (W-4) (5/8” meters)
(Annual median) 12 99.07 96.95 -2% -2.12 104.95 6% 5.88
(Annual average) 64 458.91 447.59 -2% -11.32 490.27 7% 31.36
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 134 124 -7% -10 145 8% 11
(Summer median) 37 367 323 -12% -44 410 12% 43
(Winter average) 56 524 458 -13% -66 590 13% 66
(Summer average) 199 1710 1473 -14% -237 1944 14% 234
Page 3 of 3
25% REDUCTION LEVEL
Residential Bills
Usage
(CCF/month)
Bill under
Normal
Year Rates
Bill with Surcharges,
Conserving Customer
Bill with Surcharges,
Non-Conserving Customer
Bill
Change in Bill
Bill
Change in Bill
% $/mo. % $/mo.
4 39.75 38.98 -2% -0.77 42.11 6% 2.36
(Winter median) 7 59.99 57.55 -4% -2.44 65.29 9% 5.30
(Annual median) 9 76.75 71.75 -7% -5.00 85.57 11% 8.82
(Summer median) 14 118.65 107.24 -10% -11.41 136.27 15% 17.62
25 210.83 173.76 -18% -37.07 247.81 18% 36.98
Commercial Bills
Usage
(CCF/month)
Bill under
Normal
Year Rates
Bill with Surcharges,
Conserving Customer
Bill with Surcharges,
Non-Conserving Customer
Bill
Change in Bill
Bill
Change in Bill
% $/mo. % $/mo.
Commercial (W-4) (5/8” meters)
(Annual median) 12 99.07 96.71 -2% -2.36 107.71 9% 8.64
(Annual average) 64 458.91 446.31 -3% -12.60 504.99 10% 46.08
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 134 119 -11% -15 152 13% 18
(Summer median) 37 367 302 -18% -65 438 19% 71
(Winter average) 56 524 426 -19% -98 632 21% 108
(Summer average) 199 1710 1361 -20% -349 2094 22% 384
201 S. Lake Avenue
Suite 301
Pasadena, CA 91101
Phone 626 . 583 . 1894
Fax 626 . 583 . 1411
www.raftelis.com
Raftelis Financial Consultants
Memorandum
TO: Jon Abendschein, Senior Resource Planner
FROM: Sudhir Pardiwala/Hannah Phan
DATE: May 20, 2015
SUBJECT: Proposed Water Rates
The City of Palo Alto (City) engaged Raftelis Financial Consultants, Inc. (RFC) to review the cost of service
methodology and water rate structure described in our 2012 rate study1 to ensure its continued
compliance with Proposition 218. This memo summarizes the methodology and development of the
proposed water rate methodology and tiered rate structure.
Proposed Water Rates
The following subsections detail the methodology and calculation related to the proposed water rates
for fiscal year (FY) 2016.
Cost of Service Analysis Adjustments
At the City’ request, RFC reviewed the cost of service analysis methodology used in its 2012 rate study,
to ensure its continued compliance with Proposition 218’s substantive requirements for water rates. The
methodology and rate structure described in the 2012 cost of service study remains fundamentally
sound. Upon review, we have refined our analysis and recommend that the following adjustments be
made to ensure that the rates proposed continue to equitably recover the City’s costs of providing water
service:
1.RFC updated the customer class peaking factors using FY 2014 data. Peaking costs are one of the
elements used to differentiate rates amongst different classes of customers. Different
customers impose different demands on the system, and the portion of the costs related to
peaking are applied proportionally to the peaking factors. As discussed below, peaking factors
for the customer classes have shifted since the last study, and the new peaking factors should be
reflected in the proposed rates.
2.RFC analyzed the usage characteristics for residential Tiers 1 and 2 usage in order to update the
peaking-related costs to be allocated to each tier. The boundary between Tier 1 and Tier 2 use, 6
CCF, represents the median winter monthly usage for residential customers (winter is consider
January through March). Analyzing winter usage is a common way to calculate indoor, year-
1 Palo Alto Water Cost of Service and Rate Study Report dated March 2012
ATTACHMENT F
City of Palo Alto May 20, 2015
Page 2
round, base load use. Usage above this level typically is related to irrigation. As a result, the
2012 cost of service study did not allocate any peaking factors to Tier 1, because the customers
with usage solely in that tier were presumed not to have a usage peak. Upon further study, RFC
has determined that Tier 1 customers do have a small peaking factor that occurs as a result of
their slightly higher summer use. As a result, RFC recommends refining the 2012 cost of service
analysis to allocate a small share of peaking factor costs to Tier 1. This change will more
equitably recover system design and operational costs associated with Tier 1 customers’ peak
demands upon the system.
3. RFC adjusted the model to more clearly delineate the difference between base (delivery),
peaking, and the cost of purchased water from San Francisco Public Utilities Commission
(SFPUC). While this does not necessarily affect the cost allocation between customer classes, it
does more clearly show the costs being allocated among customer classes and residential tiers.
The adjustments were made to the model used to calculate the City’s existing rates, which has been
updated to reflect FY 2016 budget requirements.
Adjustment 1: Peaking Factors for Customer Classes
Table 1 shows the peaking factors by customer class, based on the maximum month factors calculated
from each customer class’ water usage in FY 2014, compared to the peaking factors used in the 2012
study. These were calculated using the same methodology as in the 2012 cost of service study. The
primary differentiator of rates amongst different customer classes is based on the demand that they put
on the system. This demand is expressed in terms of the maximum day and maximum hour factors.
These are the demands expressed as a ratio of the maximum demand to the average demand for each
customer class. For example, if the maximum demand for a customer class were 10,000 CCF per day,
and the average annual demand were 5,000 CCF per day, the peaking ratio would be 2.0.
Residential customers generally have higher peaking factors than commercial customers, and irrigation
customers have the highest peaking factors. The max day factor for each customer class is based on the
maximum month demands. The ratio of the max hour and max day for the whole system is used to
estimate the max hour factor for each customer class. Since usage in the Construction – W2 class is
intermittent and varies based on the construction activity in the City, customers in the Construction –
W2 class are considered to be the same as the Commercial – W4 class for the purpose of calculating
variable charges. These two classes are differentiated only in the fact that temporary hydrant meters are
used for construction customers, while commercial customers have permanent services.
City of Palo Alto May 20, 2015
Page 3
Table 1
Revised Peaking Factors by Customer Class
The change to the peaking factors by customer class shifts the capacity or peaking-related costs among
the customer classes, to equitably reflect their demands on the system and recover the City’s cost of
providing service. The peaking factors for the W-4 customer class has remained the same (when
normalized).2 The peaking factor for the W-1 customer class as a whole has also remained the same,
though the peaking factors for the residential tiers have been adjusted as discussed below. The W-7
customer class peaking factor has changed.
Adjustment 2: Peaking Factors for Residential Rate Tiers
In order to equitably allocate the peaking related costs to residential Tiers 1 and 2, RFC analyzed the
water usage per month per account for FY 2014. Since the maximum month usage for residential
customers occurs in August, the August usage in each tier was compared with the average usage in each
tier to determine the relative peaking factor for each tier. Table 2 shows the calculation of the peaking
factor for each tier, representing the amount of extra capacity needed on the system to serve customers
in that tier. The peaking factor for Tier 1 is 1.06 (i.e., the peak is 1.06 times the average or 6 percent
above the average Tier 1 usage.) Similarly, the peak for Tier 2 is 69 percent above the average for Tier 2
usage. The delivery cost, or average cost of providing service, is recovered from the average
component, and the peak cost recovered from the peak component. Based on the analysis, Tier 2
requires approximately 12 times (0.69/0.06) more peaking capacity than Tier 1. Conversely, in the 2012
study, no peaking cost was allocated to Tier 1, thus putting 100 percent of the peaking costs on Tier 2.
2 Normalization is done so that W-1 equals 2.0. This normalization is performed to make it easier to see differences
between customer class peaking factors and how those peaking factors change over time. Using the normalized
peaking factors results in the same cost allocation as would result if the non-normalized peaking factors were used.
Customer Specific Peaking Factors
2012 Max Day
(MD)
2012 Max
Hour (MH)
2014 Max Day
(MD)
2014 Max
Hour (MH)
Residential - W1 1.49 2.34 1.45 2.27
Master MFR/Commercial - W4 1.30 2.04 1.27 1.99
Irrigation - W7 2.25 3.53 1.81 2.84
Construction - W2 1.30 2.04 1.27 1.99
Customer Specific Peaking Factors
2012 MD
Normalized
2012 MH
Normalized
2014 MD
Normalized
2014 MH
Normalized
Residential - W1 2.00 3.14 2.00 3.14
Master MFR/Commercial - W4 1.75 2.75 1.75 2.75
Irrigation - W7 3.00 4.71 2.50 3.92
Construction - W2 1.75 2.75 1.75 2.75
City of Palo Alto May 20, 2015
Page 4
Table 2
Peaking Factors for Tiers 1 and 2
Adjustment 3: Presentation of Underlying Rate Components
These changes discussed above result in the calculated rates shown in Table 3 for FY 2016, assuming a
12 percent revenue increase. Each rate has three components: supply rate, delivery rate, and peaking
rate. The supply rate represents the cost of purchased water from the SFPUC, which is applied to all
customer classes and tiers equally since the City only has one source of water. Note that the supply rate
component includes the fixed meter costs (about 2 percent of total costs) and losses (about 8 percent of
purchased water). The delivery rate represents the City’s fixed costs of operating the water system to
serve year-round base load consumption, excluding any peaking related costs. This component is also
applied to all customer classes and tiers equally. The peaking rate represents the capacity related costs
of the system necessary to serve peak load, and it differs per customer class and tier based on the
calculated peaking factors for each customer class and tier, as shown in Tables 1 and 2. Table 4 shows
the existing rates and how they underlying rate components were previously displayed.
Table 3
Proposed FY 2016 Commodity Rate
Peaking Factor Analysis for W1 Customers
Max Month
Usage Bills in Tier Usage per Bill Average
Usage
Peaking
Factor
Tier 1 - 0-6 CCF 73,173 13,124 5.58 5.27 1.06
Tier 2 - over 6 CCF 154,329 11,739 13.15 7.78 1.69
Customer Class Tier (ccf)Supply Rate
($/ccf)
Delivery Rate
($/ccf)
Peaking Rate
($/ccf)Rate ($/ccf)
Residential - W1
Tier 1 6 $4.61 $1.10 $0.22 $5.93
Tier 2 over 6 $4.61 $1.10 $2.67 $8.38
Average Rate $3.87 $7.36
Master MFR/Commercial - W4 $4.61 $1.10 $1.21 $6.92
Irrigation - W7 $4.61 $1.10 $2.58 $8.29
Construction - W2 $4.61 $1.10 $1.21 $6.92
City of Palo Alto May 20, 2015
Page 5
Table 4
Existing Commodity Rate Components
The proposed rates are shown in Table 5 for both an 8 percent and a 12 percent revenue increase. The
monthly meter service charge includes customer service, metering, and billing charges as well as the
costs associated with the service connection and a portion of the distribution system capacity. Fire
service meter charges include costs associated with maintaining system capacity to serve firefighting
flows for private fire meters.
Customer Class Tier (ccf)Supply Rate
($/ccf)
Delivery Rate
($/ccf)
Peaking Rate
($/ccf)Rate ($/ccf)
Residential - W1
Tier 1 6 $3.41 $1.58 $0.00 $4.99
Tier 2 over 6 $3.41 $1.58 $2.59 $7.58
Average Rate $6.41
Master MFR/Commercial - W4 $3.41 $1.58 $1.16 $6.15
Irrigation - W7 $3.41 $1.58 $2.53 $7.52
Construction - W2 $3.41 $1.58 $1.16 $6.15
City of Palo Alto May 20, 2015
Page 6
Table 5
Proposed FY 2016 Water Rates
General Monthly Meter Service Charge
Meter Size Existing Rates Updated COS
Rates (8.2%)
Updated COS
Rates (12.1%)
5/8"$14.67 $15.54 $16.03
3/4"$19.51 $20.88 $21.50
1"$29.18 $31.58 $32.45
1 1/2"$53.37 $58.32 $59.83
2"$82.39 $90.40 $92.67
3"$174.29 $192.01 $196.70
4"$309.72 $341.74 $350.00
6"$633.80 $700.04 $716.82
8"$1,165.86 $1,288.28 $1,319.07
10"$1,843.02 $2,036.96 $2,085.57
12"$2,423.45 $2,678.68 $2,742.56
Monthly Fire Meter Service Charge
Meter Size Existing Rates Updated COS
Rates (8.2%)
Updated COS
Rates (12.1%)
2"$3.03 $3.38 $3.43
4"$18.78 $20.94 $21.22
6"$54.55 $60.82 $61.63
8"$116.24 $129.61 $131.34
10"$209.03 $233.09 $236.20
12"$337.65 $376.51 $381.52
Commodity Rate ($/ccf)
Existing Rates Updated COS
Rates (8.2%)
Updated COS
Rates (12.1%)
Residential - W1
Tier 1 0 - 6 ccf $4.99 $5.70 $5.93
Tier 2 over 6 ccf $7.58 $8.08 $8.38
Master MFR/Commercial - W4 $6.15 $6.66 $6.92
Irrigation - W7 $7.52 $7.99 $8.29
Construction - W2 $6.15 $6.66 $6.92
201 S. Lake Avenue
Suite 301
Pasadena, CA 91101
Phone 626 . 583 . 1894
Fax 626 . 583 . 1411
www.raftelis.com
Raftelis Financial Consultants
Memorandum
TO: Jon Abendschein, Senior Resource Planner
FROM: Sudhir Pardiwala/Hannah Phan
DATE: May 20, 2015
SUBJECT: Proposed Drought Rates
The City of Palo Alto (City) engaged Raftelis Financial Consultants, Inc. (RFC) to develop a drought rate
structure that is Proposition 218-compliant, fair and equitable while encouraging conservation. This
memo summarizes the methodology for the proposed drought rates.
Proposed Water Drought Rates
The following subsections detail the methodology and calculation related to the proposed drought rates
for FY 2016.
Demand Scenarios
The City receives its potable water supply from SFPUC, which is currently asking its wholesale customers
for a 10 percent voluntary reduction. If the drought worsens, SFPUC will ask for mandatory cutbacks.
RFC modeled three supply reduction scenarios, which were provided by the City as supplied by SFPUC: a
10/15% reduction scenario, a 20% reduction scenario, and a 25% reduction scenario. Table 1 shows the
projected purchases and sales in acre feet (AF) of water for each drought scenario for FY 2016, including
a water loss factor of approximately 8.1 percent as well as projected reductions in usage.
Table 1
Drought Scenarios
Drought Scenarios – FY 2016 Purchases (AF) Sales (AF)
Normal 11,404 10,477
10/15% reduction 10,535 9,679
20% reduction 9,710 8,920
25% reduction 9,022 8,288
Proposed Drought Surcharge Calculation
The proposed drought rates are calculated to be revenue neutral, net of SFPUC costs, compared to the
revenue generated from the FY 2016 rates shown in Table 2.
ATTACHMENT G
City of Palo Alto May 20, 2015
Page 2
Table 2
Proposed FY 2016 Water Commodity Rates
Reduced sales result in reduced revenues as well as reduced purchased water costs. However, the net
result is inadequate revenue to recover costs since a significant amount of the water system costs are
fixed. As a result, rates need to be increased during drought and other shortage situations, to ensure
financial stability and sufficient revenue recovery.
In times of drought, it is important to ensure that basic health and sanitation needs are provided for
first. This is considered to be essential usage. The City has set reduction targets for each type of
consumption for each drought scenario, as shown in Table 3, in order to achieve the total target
reduction set by SFPUC. Indoor usage is required to conserve less than outdoor usage. While it is not
practical to set a target reduction for construction usage, for purposes of the analysis in order to
calculate drought rates, construction usage is projected to have the same reduction as commercial
customers.
Table 3
Assumed Water Reduction in Each Scenario
Table 4 shows the indoor and outdoor reductions (from a normal year) assumed under each reduction
scenario and the usage reductions assumed for each customer group and billing tier based on the
percentages shown in Table 3.
Updated COS
Rates (12.1%)
Residential - W1
Tier 1 0 - 6 ccf $5.93
Tier 2 over 6 ccf $8.38
Master MFR/Commercial - W4 $6.92
Irrigation - W7 $8.29
Construction - W2 $6.92
Requested Reductions:10/15%20%25%
Residential
Indoor Reduction (0 - 6 CCF)5%9%12%
Outdoor Reduction (7 - 30 CCF)10%18%26%
Outdoor Reduction (30+ CCF)15%30%36%
Reduction Goal 8%15%21%
Non-Residential
Indoor Reduction 5%9%12%
Outdoor Reduction 12%25%36%
City of Palo Alto May 20, 2015
Page 3
Table 4
Projected Water Usage in Each Scenario
When usage is reduced in a drought, water purchase costs decrease as well. Therefore, water purchase
costs were separated out before calculating the revenue requirement for the drought surcharges. Table
5 shows the estimated SFPUC supply costs for each drought scenario. Because of the fixed costs that
SFPUC charges the City, the unit cost increases as the usage decreases.
Table 5
SFPUC Supply Unit Cost in Each Drought Scenario - ($)
The total water enterprise cost in FY 2016, excluding the cost of water purchased from SFPUC, is
approximately $11.7 million, as shown in Table 6. To determine the cost to serve each customer class,
net of water purchase costs, in FY 2016, RFC determined the total commodity revenue, based on the FY
2016 rates, less purchased water costs. Fixed meter charges are excluded from this analysis since those
are unaffected by the drought. RFC used the same cost allocation methodology discussed in the
previous section to determine the cost allocation to each customer class by cost component. Delivery
costs are costs associated with providing service to customers during average conditions. Peaking costs
are costs associated with providing service at peak conditions, which differ based on customer class
since they peak at different levels.
Table 6
Allocation of City’s Costs to Customer Class
Customer Class Tier (ccf)Total Usage
(ccf)Reduction %Total Usage
(ccf)Reduction %Total Usage
(ccf)Reduction %Total Usage
(ccf)
Residential - W1
Tier 1 6 894,536 -1.2%883,519 -2.2%874,706 -3.0%868,096
Tier 2 over 6 1,260,973 -13.5%1,090,204 -24.8%948,351 -34.2%829,401
Master MFR/Commercial - W4 1,798,207 -6.3%1,685,653 -11.9%1,584,610 -16.3%1,504,785
Irrigation - W7 428,161 -12.0%376,781 -25.0%321,120 -36.0%274,023
Construction - W2 6,694 -6.3%6,275 -11.9%5,899 -16.3%5,601
TOTAL 4,388,571 4,042,432 3,734,687 3,481,906
Normal 10/15% Reduction 20% Reduction 25% Reduction
FY 2016 SFPUC Costs Usage (ccf)Unit cost
($/ccf)
Normal $20,189,435 4,388,571 $4.61
10/15%$18,858,590 4,042,432 $4.67
20%$17,679,924 3,734,687 $4.74
25%$16,711,773 3,481,906 $4.80
COS Allocation Delivery Peaking Total
Residential - W1 $2,360,813 $3,566,028 $5,926,841
Master MFR/Commercial - W4 $1,969,480 $2,182,259 $4,151,739
Irrigation - W7 $468,941 $1,104,723 $1,573,665
Construction - W2 $7,331 $8,123 $15,454
Total $4,806,566 $6,861,134 $11,667,699
City of Palo Alto May 20, 2015
Page 4
Table 7 shows the delivery unit cost in each drought scenario based on the projected water usage in
Table 4 and the cost in Table 6. Since these costs are fixed, the unit cost increases as usage decreases.
Table 7
Calculation of Delivery Unit Cost in Each Drought Scenario
Table 8 shows the calculation of each rate component for each customer class in each drought scenario.
The calculation is based on the data presented in Tables 5 through 7. Since the City only has one source
of water, everyone pays the same unit cost for supply. That principle applies to the fixed delivery cost of
the system. Since this cost is fixed, the unit rate increases as the usage decreases. The differentiation
between the prices for the tiers comes from the peaking related costs. Since customer usage peaks at
different levels, the peaking cost is used to differentiate between customer classes and tier prices. The
difference in peaking costs between residential Tiers 1 and 2 is based on the same methodology and
ratio shown in Table 2. In all scenarios, the revenue collected from the delivery and peaking components
equals $11.7 million, meaning the drought surcharges only collect revenue equal to the normal year
revenue requirement for delivery and peaking costs.
Delivery Cost 10/15%20%25%
Total Cost $4,806,566 $4,806,566 $4,806,566
Usage (CCF)4,042,432 3,734,687 3,481,906
Average Unit Cost ($/CCF)$1.19 $1.29 $1.38
City of Palo Alto May 20, 2015
Page 5
Table 8
Calculation of Rate Component in Each Drought Scenario1
Table 9 shows the proposed drought surcharges for each drought scenario from the FY 2016 normal
rates, shown in Table 2. These are calculated as the difference between the normal rates and the rates
shown in Table 8 for each customer class and rate category.
1 Totals may not add due to rounding.
10/15% Reduction Supply
(SFPUC)Delivery Peaking Total
Residential - W1
Tier 1 6 $4.67 $1.19 $0.26 $6.12
Tier 2 over 6 $4.67 $1.19 $3.06 $8.93
Master MFR/Commercial - W4 $4.67 $1.19 $1.29 $7.16
Irrigation - W7 $4.67 $1.19 $2.93 $8.80
Construction - W2 $4.67 $1.19 $1.29 $7.16
20% Reduction Supply
(SFPUC)Delivery Peaking Total
Residential - W1
Tier 1 6 $4.74 $1.29 $0.29 $6.32
Tier 2 over 6 $4.74 $1.29 $3.49 $9.52
Master MFR/Commercial - W4 $4.74 $1.29 $1.38 $7.41
Irrigation - W7 $4.74 $1.29 $3.44 $9.47
Construction - W2 $4.74 $1.29 $1.38 $7.41
25% Reduction Supply
(SFPUC)Delivery Peaking Total
Residential - W1
Tier 1 6 $4.80 $1.38 $0.33 $6.52
Tier 2 over 6 $4.80 $1.38 $3.95 $10.14
Master MFR/Commercial - W4 $4.80 $1.38 $1.45 $7.64
Irrigation - W7 $4.80 $1.38 $4.03 $10.22
Construction - W2 $4.80 $1.38 $1.45 $7.64
City of Palo Alto May 20, 2015
Page 6
Table 9
Proposed Drought Surcharges
Commodity Rate ($/ccf)Normal 10/15%20%25%
Residential - W1
Tier 1 6 $5.93 +$0.19 +$0.39 +$0.59
Tier 2 over 6 $8.38 +$0.55 +$1.14 +$1.76
Master MFR/Commercial - W4 $6.92 +$0.24 +$0.49 +$0.72
Irrigation - W7 $8.29 +$0.51 +$1.18 +$1.93
Construction - W2 $6.92 +$0.24 +$0.49 +$0.72
CRITERIA TO EVALUATE WATER SHORTAGE RESPONSE PLAN
This appendix lists criteria expected to guide the selection of allocation/allotment
strategies whenever water use reductions are needed. Not all of them may be applicable
to every strategy but customer perception of equity is important in achieving the necessary
reductions.
1. Reduce overall City consumption by reduction target required -this is the effective goal of
any plan. To accomplish this goal the percentage reduction for the various customer classes
will necessarily vary because their ratios of indoor/ outdoor use varies.
2. Sufficient water available for personal use -the most important use of water is for basic
drinking, health, and sanitary uses, and therefore, this is given the highest priority of use.
This prioritization will drive both rate schedules and water use restrictions. However, within
allowed limits (i.e., water use restriction ordinances}, customers will be able to choose how
they use their allotment between indoor and outdoor uses.
3. Acceptance by the community-many people tend to evaluate or accept a particular water-
rationing plan in terms of how it would directly affect them. It is this aspect which makes it
difficult to gain a popular consensus on any one plan. However, any plan must be generally
accepted by the community to be successful. One important aspect of acceptance is the
public's understanding of the program; thus, it is viewed as important to make the plan as
uncomplicated as possible.
4. Minimize unemployment or business loss -water is extensively used in both commercial
and industrial functions. If water is severely limited to these consumers, increased
unemployment and business losses could result. Staff intends that, wherever possible, this
should be avoided. Still, outside water use must be sacrificed greatly if only minimal indoor
reductions are required. Cooling tower use for air conditioning must also be considered.
5. Landscaping investment losses -in cases of critical or severe shortage of water, it is
expected that significant landscaping losses may arise. The use of recycled water should be
encouraged for certain applications. In some cases, using the City's well system to augment
the SFPUC supply will be an option to provide a minimum amount of water for landscaping.
In this case, the goal should be to keep valuable and mature trees and plantings alive.
Shrubs and lawns will be considered a lower priority.
6. Workable plan -the plan must be workable in order to accomplish its goal. It must take the
following factors into account:
a. Cost -the cost of any water plan to the public should be minimized.
Page 1of2
ATTACHMENT H
b. Enforcement -enforcement is viewed as a key component of any plan. Those plans
requiring fewer resources for enforcement would be preferable. However, the success
of a plan is contingent upon effective enforcement and the utility must be provided the
resources to meet the enforcement objective. The current staff can only absorb a
certain level of additional responsibilities without unreasonably impacting service to the
customer.
c. The plan must be practical and feasible from a data processing viewpoint and not
subject to erroneous results due to incomplete or inaccurate databases. A realistic
timeframe must be allowed to perform any necessary data entry or customer
programming functions.
9. Flexibility-the water shortage is a dynamic situation and may get better or worse. Thus, it
is necessary that any plan be adaptable to changes in targets or adjustable if original
expectations are not being met.
10. Allowance for new services-some provision must be made in any plan to serve new
establishments or those under construction.
12. Recover penalties applied by suppliers -revenue should be collected to the extent
necessary to recover any penalties that may be charged by suppliers.
Page 2 of 2