HomeMy WebLinkAboutStaff Report 6858
City of Palo Alto (ID # 6858)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 5/17/2016
City of Palo Alto Page 1
Summary Title: FY 2017 Gas Financial Plan and Rate Proposals
Title: Utilities Advisory Commission Recommendation That the Finance
Committee Recommend the City Council Adopt: (1) Resolution Approving the
Fiscal Year 2017 Gas Utility Financial Plan; and (2) Resolution Increasing Gas
Rates by Amending Rate Schedules G-1 (Residential Gas Service), G-1-G
(Residential Green Gas Service), G-2 (Residential Master-Metered and
Commercial Gas Service), G-2-G (Residential Master-Metered and
Commercial Green Gas Service), G-3 (Large Commercial Gas Service), G-3-G
(Large Commercial Green Gas Service), G-10 (Compressed Natural Gas
Service) and G-10-G (Compressed Natural Green Gas Service)
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission (UAC) request that the Finance Committee
recommend that the Council:
1. Adopt a resolution (Attachment A) approving the fiscal year (FY) 2017 Gas Utility
Financial Plan (Attachment B); and
2. Adopt a resolution (Attachment C) increasing gas rates by amending Rate Schedules G-1
(Residential Gas Service), G-1-G (Residential Green Gas Service), G-2 (Residential
Master-Metered and Commercial Gas Service), G-2-G (Residential Master-Metered and
Commercial Green Gas Service), G-3 (Large Commercial Gas Service), G-3-G (Large
Commercial Green Gas Service), G-10 (Compressed Natural Gas Service Service) and G-
10-G (Compressed Natural Green Gas Service)
Executive Summary
The FY 2017 Gas Utility Financial Plan includes projections of the utility’s costs and revenues for
FY 2017 through FY 2026. Costs have risen over the past several years and revenues have not
kept pace. Gas rates have not been adjusted since July 2012. A rate increase of 24% is required
to increase revenues to cover projected FY 2017 costs, but staff proposes utilization of reserves
and a series of rate increases over the next three years to minimize the impact to customers.
City of Palo Alto Page 2
The proposed FY 2017 Gas Utility Financial Plan includes an 8% gas rate increase on July 1, 2016
followed by rate increases of 9% and 7% in FY 2018 and FY 2019, respectively, so that revenues
cover costs by FY 2019. In addition, the plan includes proposed transfers to the Operations
Reserve of $1.5 million and $5.3 million from the Rate Stabilization Reserve in FY 2016 and FY
2017, respectively, to ensure that there are appropriate financial reserves for contingencies.
These actions will reduce the Rate Stabilization Reserve to zero by the end of FY 2017.
Gas Utility expenses are projected to increase by roughly 4.4% annually from FY 2016 to FY
2026 due primarily to higher operations and maintenance expenses and increasing gas supply
costs. In the short term, some of these costs are related to the cross-bore inspection program,
as well as cap-and-trade allowance purchase costs. In addition, capital improvement program
(CIP) costs have increased as the economy has improved. Gas supply costs are currently very
low and can vary significantly, but are projected to rise steadily over the forecast horizon;
however, those costs are passed on to customers with the monthly-varying, market-based
commodity rate. Besides costs increases, the gas rate increase projections are also negatively
affected by the downward trend in gas usage over the last several years.
The UAC reviewed the Gas Financial Plan and Rate Proposals at its meeting on April 12, 2016,
and unanimously recommended approval of the proposed gas rates and financial plan.
Background
Every year staff presents the UAC with Financial Plans for its Electric, Water, Gas, and
Wastewater Collection Utilities and recommends any rate adjustments required to maintain
their financial health. These Financial Plans include a comprehensive overview of the utility’s
operations, both retrospective and prospective, and are intended to be a reference for UAC and
Council members as they review the budget and staff’s rate recommendations. Each Financial
Plan also contains a set of Reserves Management Practices describing the reserves for each
utility and the management practices for those reserves.
The Finance Committee reviewed preliminary financial forecasts and rate projections for all
Utilities funds at its March 1, 2016 meeting. Staff has made revisions to some of those
preliminary projections.
City of Palo Alto Page 3
Discussion
Staff’s annual assessment of the financial position of the City’s gas utility is completed to ensure
adequate revenue to fund operations. This includes making long-term projections of market
conditions, the physical condition of the system, and other factors that could affect utility costs,
and setting rates adequately to recover these costs. The current rate proposals are also based
on the cost of service methodology described in the 2012 Gas Utility Cost of Service Study
completed by Utility Financial Solutions.
Proposed Actions for FY 2016
This year’s Gas Utility Financial Plan includes the following proposed action for FY 2016:
1. Reduce the $3.4 million transfer from the Rate Stabilization Reserve to the Operations
Reserve proposed in the FY 2016 Gas Financial Plan to $1.5 million.
Proposed Actions for FY 2017
This year’s Gas Utility Financial Plan also includes the following proposed actions for FY 2017:
1. Transfer $5.3 million from the Rate Stabilization Reserve to the Operations Reserve; and
2. Amend gas rate schedules (see Attachment D) to increase rates by approximately 8%.
The reserve transfers will enable staff to maintain sufficient funds in the Gas Operations
Reserve levels while spreading the required rate increases for the gas utility over several years.
These proposed actions are described in more detail in the FY 2017 Gas Financial Plan
(Attachment B).
Staff proposes to adjust gas rates as shown in Table 1 and Table 2, below, effective July 1, 2016.
These changes are projected to increase the system average gas rate by roughly 8%. These rate
changes are included in the proposed amended rate schedules in Attachment D.
City of Palo Alto Page 4
Table 1: Gas Consumption Charges in $/CCF (Current and Proposed)
Current
(7/1/12)
Proposed
(7/1/16)
Change
$/Therm %
G-1 (Residential)
Tier 1 Rates 0.4392 0.5021 0.0629 14.3%
Tier 2 Rates 0.9546 1.0407 0.0861 9.0%
G-2 (Residential Master-Metered and Small Commercial)
Uniform Rate 0.6147 0.6855 0.0708 11.5%
G-3 (Large Commercial)
Uniform Rate 0.6071 0.6775 0.0704 11.5%
G-10 (Compressed Natural Gas)
Uniform Rate 0.0509 0.0963 0.0454 89.2%
Table 2: Current and Proposed Monthly Service Charge
Rate Schedule
Monthly Service
Charge ($/month) Change
Current
(7/1/12)
Proposed
(7/1/16) $/mo %
G-1 (Residential) $9.88 $10.32 $0.44 4.5%
G-2 (Res. Master-Metered and Small Commercial) $74.86 $78.23 $3.37 4.5%
G-3 (Large Commercial) $361.18 $377.43 $16.25 4.5%
G-10 (CNG) $50.65 $52.93 $2.28 4.5%
Bill Impact of Proposed Rate Changes
Table 3 shows the impact of the proposed July 1, 2016 rate changes on the median residential
bill. The average increase is roughly 8% based on commodity prices as of March 2016, but some
customers may see slightly higher or lower increases due to slight changes in the composition
of the utility’s costs, as well as prevailing market prices.
City of Palo Alto Page 5
Table 3: Impact of Proposed Gas Rate Changes on Residential Bills
Usage
(Therms/month)
Bill under
Current Rates
Bill under
Proposed Rates
Change
$/mo. %
Winter (Using March 2016 commodity prices)
30 $ 29.67 $ 32.00 $ 2.33 8%
54 (median) 45.50 49.34 3.84 8%
80 72.96 78.89 5.94 8%
150 155.21 167.17 11.96 8%
Summer (Using July 2015 commodity prices)
10 $ 17.70 $ 18.77 $ 1.07 6%
18 (median) 23.95 25.52 1.57 7%
30 38.49 41.05 2.56 7%
45 57.95 61.80 3.85 7%
Table 4 shows the impact of the proposed July 1, 2016 rate changes on various representative
commercial customer bills.
Table 4: Impact of Proposed Gas Rate Changes on Commercial Bills
(Using March 2016 commodity prices)
Usage
(Therms/month)
Bill under
Current Rates
Bill under
Proposed Rates
Change
%
G-2 (Residential Master-Metered and Small Commercial)
500 $492 $531 8%
5,000 4,250 4,608 8%
10,000 8,426 9,137 8%
G-3 (Large Commercial)
25,000 $21,049 $22,825 8%
50,000 41,736 45,272 8%
FY 2017 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 5 shows the projected rate adjustments over the next five years and their impact on the
annual median residential gas bill.
Table 5: Projected Rate Adjustments, FY 2017 to FY 2021
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
Gas Utility 8% 9% 7% 4% 1%
Estimated Bill Impact ($/mo)* $2.52 $3.19 $2.70 $1.65 $0.43
* estimated impact on median residential gas bill, which is currently $32.93.
City of Palo Alto Page 6
Changes from Prior Financial Forecasts
After presenting the preliminary financial forecast to the UAC on February 3, 2016, continuing
warmer winter weather has caused staff to lower its projections for FY 2016 sales and
revenues, and thus increase its FY 2017 rate projection from 7% to 8% as shown in Table 6
below.
Staff has projected future gas rate increases for several years. Table 6 compares current rate
projections to those projected in the last two year’s Financial Plans. As shown, the FY 2017 rate
projections are somewhat higher than projected last year. In the FY 2015 Financial Plan, the
reduction in gas usage due to warm weather and drought had not occurred and the additional
costs for cross-bore investigations beyond FY 2017 had not been planned.
Table 6: Projected Gas Rate Trajectory for FY 2017 to FY 2026
Projection FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Preliminary Financial
Forecast (presented to
the UAC in Feb. 2016)
7% 5% 5% 5% 3% N/A N/A N/A N/A N/A
Current
(FY 2017 Financial Plan) 8% 9% 7% 4% 1% 1% 1% 1% 1% 1%
Last year
(FY 2016 Financial Plan) 7% 4% 4% 4% 3% 3% N/A N/A N/A N/A
Two years ago
(FY 2015 Financial Plan) 0% 3% 3% 4% 3% N/A N/A N/A N/A N/A
Gas Bill Comparison with Surrounding Cities
Table 7 presents winter and summer residential bills for Palo Alto and PG&E at several usage
levels for commodity rates in effect as of July 2015 (to illustrate a summer month bill) and
February 2016 (to illustrate a winter month bill). The annual gas bill for the median residential
customer for calendar year 2015 was $420.86, about 15% lower than the annual bill for a PG&E
customer with the same consumption. PG&E’s distribution rates for gas have increased
substantially to collect for needed system improvements for pipeline safety and maintenance.
The bill calculations for PG&E customers are based on PG&E Climate Zone X, an area which
includes the surrounding communities
City of Palo Alto Page 7
Table 7: Residential Monthly Gas Bill Comparison
Season
Usage
(therms) Palo Alto PG&E Zone X
%
Difference
Winter
(February
2016)
30 31.25 40.23 -22%
(Median) 54 48.34 72.42 -33%
80 77.16 117.37 -34%
150 163.10 245.51 -34%
Summer
(Jul 2015)
10 17.75 12.47 42%
(Median) 18 24.04 22.60 6%
30 38.64 43.44 -11%
45 58.18 69.50 -16%
Monthly gas bills for commercial customers for various usage levels for rates in effect as of
March 1, 2016 are shown in Table 8. Bills for CPAU customers at the usage levels shown are
around 9% lower for smaller commercial customers and 4 to 17% higher for larger commercial
customers than for PG&E customers. This is a substantial improvement over the calendar
year 2013 bill comparison, when commercial gas bills for CPAU customers were 27-44% higher
than for PG&E customers. This is primarily attributable to PG&E’s increased distribution rates as
the commodity rates for CPAU and PG&E are very similar, both being based on spot market gas
prices.
Table 8: Commercial Monthly Average Gas Bill Comparison
(for Rates in Effect Mar. 1, 2016)
Usage
(therms/mo)
Gas Bill ($/month) %
Difference Palo Alto PG&E
500 518 572 -9%
5,000 4,510 4,953 -9%
10,000 9,231 8,859 4%
50,000 44,711 38,104 17%
Commission Review and Recommendation
The UAC reviewed this proposal at its April 12, 2016 meeting. Staff noted that the rate
projection had changed since the UAC reviewed the preliminary financial forecast at its
February 3, 2016 meeting as a result of updated sales data. Staff also noted that gas usage has
been declining, and if it continued to do so then the rate increases in following years would
need to be higher than projected in the FY 2017 Gas Financial Plan for the future years after FY
2017.
The UAC voted to recommend that the Council adopt resolutions approving the FY 2017 Gas
Financial Plan and increasing gas rates by amending Rate Schedules G-1, G-1-G, G-2, G-2-G, G-3,
G-3-G, G-10 and G-10-G. The vote was unanimous (5-0) with Chair Foster, Vice Chair Cook,
City of Palo Alto Page 8
Commissioners Ballantine, Danaher, and Schwartz voting yes and Commissioners Hall and
Eglash absent.
The draft excerpted minutes from the UAC’s April 12, 2016 meeting are provided as
Attachment E.
Timeline
The City Council will consider adopting the Financial Plan and amending the rate schedules as
part of the FY 2017 budget review and adoption process.
Resource Impact
Normal year sales revenues for the Gas Utility are projected to increase by roughly 8% ($2.2
million) as a result of the proposed rate increases, not including fluctuations in commodity
revenue/cost. See the attached FY 2017 Gas Financial Plan for a more comprehensive overview
of projected cost and revenue changes for the next ten years.
Policy Implications
The proposed gas rate adjustments are consistent with Council-adopted Reserve Management
Practices that are part of the Financial Plan, and were developed using a cost of service study
and methodology consistent with industry accepted cost of service principles.
Environmental Review
The Finance Committee’s review and recommendation to Council regarding the FY 2017 Gas
Financial Plan and rate adjustments does not meet the California Environmental Quality Act’s
definition of a project, pursuant to Public Resources Code Section 21065, thus no
environmental review is required.
Attachments:
Attachment A: Resolution Approving the FY 2017 Gas Utility Financial Plan (PDF)
Attachment B: Proposed FY 2017 Gas Utility Financial Plan (PDF)
Attachment C: Resolution of the Council of the City of Palo Alto Adopting a Gas Rate
Increase and Amending Rate Schedules G-1, G-1-G-, G-2, G-2-G, G-3, G-3-G, G-10 and G-
10-G (PDF)
Attachment D: Proposed Amendments to Rate Schedules G-1, G-1-G, G-2, G-2-G, G-3, G-
3-G, G-10 and G-10-G (PDF)
Attachment E: Excerpted Draft UAC Minutes of April 12, 2016 (PDF)
Attachment A
* NOT YET APPROVED *
6053681
Resolution No. _________
Resolution of the Council of the City of Palo Alto Approving the
FY 2017 Gas Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes
making long-term projections of market conditions, the physical condition of the system, and
other factors that could affect utility costs, and setting rates adequate to recover these costs. It
does this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby adopts the FY 2017 Gas Utility Financial Plan.
SECTION 2. The Council hereby approves the transfer of $1.5 million in FY 2016 from
the Rate Stabilization Reserve to the Operations Reserve, as described in the FY 2017 Gas Utility
Financial Plan approved via this resolution.
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s (CEQA) definition of a project under Public Resources
Code Section 21065, and therefore, no environmental assessment is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
Attachment A
* NOT YET APPROVED *
6053681
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Senior Deputy City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
FY 2017 GAS
UTILITY
FINANCIAL PLAN
FY 2017 TO FY 2026
GAS UTILITY FINANCIAL PLAN
April 12, 2016 2 | Page
GAS UTILITY FINANCIAL PLAN
FY 2017 TO FY 2026
TABLE OF CONTENTS
Section 1: Definitions and Abbreviations ................................................................................. 4
Section 2: Executive Summary and Recommendations ............................................................ 5
Section 2A: Overview of Financial Position .................................................................................. 5
Section 2B: Summary of Proposed Actions .................................................................................. 6
Section 3: Detail of FY 2017 Rate and Reserve Proposals ......................................................... 6
Section 3A: Rate Design ............................................................................................................... 6
Section 3B: Current and Proposed Rates ..................................................................................... 6
Section 3C: Bill impact of Proposed Rate Changes ...................................................................... 8
Section 3D: Proposed Reserve Transfers ..................................................................................... 8
Section 4: Utility Overview ...................................................................................................... 9
Section 4A: Gas Utility History ..................................................................................................... 9
Section 4B: Customer Base ........................................................................................................ 10
Section 4C: Distribution System ................................................................................................. 11
Section 4D: Cost Structure and Revenue Sources ...................................................................... 12
Section 4E: Reserves Structure ................................................................................................... 12
Section 4F: Competitiveness ...................................................................................................... 13
Section 4G: Gas Supply Rates .................................................................................................... 14
Section 5: Utility Financial Projections ................................................................................... 15
Section 5A: Load Forecast .......................................................................................................... 15
Section 5A: FY 2011 to FY 2015 Cost and Revenue Trends ........................................................ 16
Section 5B: FY 2015 Results ....................................................................................................... 17
Section 5C: FY 2016 Projections ................................................................................................. 18
Section 5D: FY 2017‐FY 2026 Projections .................................................................................. 18
Section 5E: Risk Assessment and Reserves Adequacy ............................................................... 19
GAS UTILITY FINANCIAL PLAN
April 12, 2016 3 | Page
Section 5F: Alternate Scenarios ................................................................................................. 21
Section 5G: Long‐Term Outlook ................................................................................................. 22
Section 6: Details and Assumptions ....................................................................................... 24
Section 6A: Gas Purchase Costs ................................................................................................. 24
Section 6B: Operations .............................................................................................................. 25
Section 6C: Capital Improvement Program (CIP) ....................................................................... 26
Section 6D: Debt Service ............................................................................................................ 28
Section 6E: Equity Transfer ........................................................................................................ 29
Section 6F: Revenues ................................................................................................................. 29
Section 6G: Communications Plan ............................................................................................. 30
Appendices ............................................................................................................................ 32
Appendix A: Gas Financial Forecast Detail ................................................................................ 33
Appendix B: Gas Utility Capital Improvement Program (CIP) Detail ......................................... 34
Appendix C: Gas Utility Reserves Management Practices ......................................................... 36
Appendix D: Description of Gas Utility Cost Categories ............................................................ 40
Appendix E: Gas Utility Communications Samples .................................................................... 41
GAS UTILITY FINANCIAL PLAN
April 12, 2016 4 | Page
SECTION 1: DEFINITIONS AND ABBREVIATIONS
ABS: Acrylonitirile butydene styrene, a plastic gas main material
CARB: California Air Resources Board
CIP: Capital Improvement Program
CNG: Compressed Natural Gas
CPAU: City of Palo Alto Utilities Department
CPUC: California Public Utilities Commission
Cross‐bore: A cross‐bore exists when one utility line has been drilled or “bored” through a
portion of another line. Gas cross‐bores can occur in sewer lines as a result of “horizontal
boring” construction practices.
Distribution: transportation of gas to customers.
GMR Program: Gas Main Replacement Program
Local Transportation: transportation of gas to Palo Alto across PG&E’s distribution system from
PG&E City Gate.
Malin: a delivery hub referred to in gas purchase contracts and located in Malin, Oregon, where
the northern end of PG&E’s Redwood Transmission Pipeline is located.
MMBtu: Millions of British thermal units, a unit of gas measurement equal to ten therms.
Commonly used for high volume gas measurement. Wholesale purchases of gas from suppliers
are typically measured in MMBtu.
O&M: Operations and Maintenance
PE or HDPE: Polyethylene, a gas main material (more specifically, High‐Density Polyethylene)
PG&E: Pacific Gas and Electric
PG&E Citygate, or Citygate: a delivery hub referred to in gas purchase contracts. Any gas
delivered to PG&E’s distribution system (such as gas delivered at the southern end of PG&E’s
Redwood Transmission Pipeline) is said to have been delivered at PG&E Citygate.
PVC: Polyvinyl chloride, a plastic gas main material
Summer: April 1 to October 31
Therms: The standard unit of measurement for natural gas sales to customers, equal to 100,000
British thermal units. Therms measure the heating value of the gas, rather than its volume.
Transmission: transportation of gas between major gas delivery hubs via a gas transmission
pipeline, such as PG&E’s Redwood pipeline.
UAC: Utilities Advisory Commission, an appointed body that advises the City Council on CPAU
issues.
Winter: November 1 to March 31
GAS UTILITY FINANCIAL PLAN
April 12, 2016 5 | Page
SECTION 2: EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City’s Gas Utility for the next ten years. This
Financial Plan provides revenues to cover the costs of operating the utility safely over that time
while adequately investing for the future. It also addresses the financial risks facing the utility
over the short term and long term, and includes measures to mitigate and manage those risks.
SECTION 2A: OVERVIEW OF FINANCIAL POSITION
From FY 2017 through FY 2026, non‐commodity costs are projected to increase at roughly 3.5%
per year. In the short term, some of these costs are related to the cross‐bore inspection
program, as well as cap‐and‐trade allowance purchase costs. In addition, capital improvement
program (CIP) costs have increased as the economy has improved, and CPAU is also planning
new gas main replacement projects after completing a large multi‐year gas main replacement
project. The Gas Utility expenses over the period of this financial plan are shown in Table 1
below.
Table 1: Gas Utility Expenses for FY 2015 to FY 2026 (Thousand $’s)
Expenses
($000)
FY
2015
(act.)
FY
2016
(est.)
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Commodity costs 10,519 9,258 12,337 13,293 13,770 14,338 14,834 15,380 16,013 16,600 17,178 17,613
Operations 18,529 19,738 21,792 22,443 23,541 23,548 24,535 25,553 26,631 27,755 28,929 30,257
Capital Projects 1,832 6,889 6,305 5,985 6,115 6,301 6,488 6,680 6,879 7,083 7,293 7,509
TOTAL 30,881 35,886 40,434 41,721 43,426 44,188 45,857 47,613 49,522 51,438 53,400 55,380
To ensure that revenues cover these rising costs, the financial plan includes the rate trajectory
shown in Table 2. There was no rate increase in FY 2016 since new gas main replacement
projects were not added in FY 2014 and FY 2015 in order to complete a multi‐year project to
replace the last of the ABS plastic mains in Palo Alto. An 8% increase is projected for FY 2017,
followed by 9% and 7% increases for FY 2018 and FY 2019. An 8% increase in FY 2017 is
equivalent to $2.52 per month for the median residential customer’s monthly gas bill, based on
commodity prices as of February 2016.
Table 2: Projected Gas Rate Trajectory for FY 2017 to FY 2026
Projection FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Current Financial Plan 8% 9% 7% 4% 1% 1% 1% 1% 1% 1%
FY 2016 Financial Plan 7% 4% 4% 4% 3% 3% N/A N/A N/A N/A
The Gas Rate Stabilization Reserve is used to smooth rate increases over several years. This
Financial Plan projects that these reserves will be exhausted by the end of FY 2017. The Gas CIP
Reserve can be used to offset one‐time unanticipated capital costs. Table 3 shows the projected
reserve transfers over the forecast period.
GAS UTILITY FINANCIAL PLAN
April 12, 2016 6 | Page
Table 3: Transfers To/(From) Reserves for FY 2016 to FY 2026 ($000)
Reserve FY 2016 FY 2017 FY 2018 to FY 2026
Rate Stabilization (1,531) (5,275) ‐
Operations 1,531 5,275 ‐
SECTION 2B: SUMMARY OF PROPOSED ACTIONS
Staff proposes the following actions for the Gas Utility in FY 2016:
1. Amend the $3.4 million transfer proposed in the FY 2016 Gas Financial Plan to $1.5
million, based on ending Operations Reserve levels.
Staff proposes the following actions for the Gas Utility in FY 2017:
2. Increase rates as shown in Section 3B: Current and Proposed Rates. These changes are
projected to increase rates by 8%, assuming monthly commodity prices are constant.
However, should commodity prices rise, relative bill increases will be higher, and
conversely lower if commodity prices should fall.
3. Transfer $5.3 million from the Rate Stabilization Reserve to the Operations Reserve. See
Section 3B: Current and Proposed Rates for more details.
SECTION 3: DETAIL OF FY 2017 RATE AND RESERVE PROPOSALS
SECTION 3A: RATE DESIGN
The Gas Utility’s rates are evaluated and implemented in compliance with cost of service
requirements. The Gas Utility’s current rates are based on the methodology from the April 2012
Gas Utility Cost of Service Study completed by Utility Financial Solutions1. Staff tentatively plans
to review this cost of service study in the next year or two unless any major changes occur to
the utility’s operations or customer base that would necessitate an earlier study. Before any
such update, staff will review current rates and the scope of the study with the UAC and Council
to determine UAC and Council policy priorities.
SECTION 3B: CURRENT AND PROPOSED RATES
On July 1, 2012 CPAU restructured its rates so that the commodity component varied monthly
to match changes in gas market prices2. In addition, monthly service charges were increased to
recover the cost of providing gas service to customers. In January 2015, the Council adopted a
new rate component to collect the costs of purchasing allowances for the purpose of
compliance with the State’s cap‐and‐trade program3. This component will change depending on
the cost of allowances and gas demand. At the same time, two bill components (Local
1 Staff Report 2812, 5/17/ 2012 http://archive.cityofpaloalto.org/civica/filebank/blobdload.asp?BlobID=31395
2 Staff Report 2812, 5/17/2012: http://archive.cityofpaloalto.org/civica/filebank/blobdload.asp?BlobID=31395
3 Staff Report 5397, 1/26/2015: https://www.cityofpaloalto.org/civicax/filebank/documents/45537
GAS UTILITY FINANCIAL PLAN
April 12, 2016 7 | Page
transportation and Administration) were collapsed into the Distribution rate to streamline bill
presentation.
CPAU has four rate schedules: one for separately metered residential customers (G‐1), one for
small commercial and master‐metered multi‐family residential customers (G‐2), one for
customers using over 250,000 therms per year (G‐3) and a specific schedules for the
Compressed Natural Gas station (G‐10). All customers pay a monthly service charge, which
represents meter reading, billing, and other customer service costs, as well as a portion of
operations and maintenance cost. All customers are also charged for each therm of gas used.
Separately metered residential customers are charged on a tiered basis, differentiated by
season. During the Winter months, the first 2 therms per day (60 therms for a 30 day billing
period) are charged a base price per CCF, and all additional units charged a higher price per
therm. During the Summer months, the first tier level is 0.667 therms per day, or 20 therms for
a 30 day billing period. Commercial customers pay a uniform price for each therm used.
Table 4 shows the current and proposed monthly service charges for all rate schedules. Table 9
shows the consumption charges related to distribution charges. As mentioned earlier,
commodity charges change monthly. Some recent commodity price history is discussed in
Section 6A: Gas Purchase Costs.
Table 4: Current and Proposed Monthly Service Charges
Rate Schedule
Monthly Service Charge ($/month) Change
Current (7/1/12) Proposed (7/1/16) $/mo %
G‐1 (Residential) $9.88 $10.32 $0.44 4.5%
G‐2 (Small Commercial) $74.86 $78.23 $3.37 4.5%
G‐3 (Large Commercial) $361.18 $377.43 $16.25 4.5%
G‐10 (CNG) $50.65 $52.93 $2.28 4.5%
Table 5: Current and Proposed Gas Distribution Charges
Current
(7/1/12)
Proposed
(7/1/16)
Change
$/Therm %
G‐1 (Residential)
Tier 1 Rates 0.4392 0.5021 0.0629 14.3%
Tier 2 Rates 0.9546 1.0407 0.0861 9.0%
G‐2 (Residential Master‐Metered and Small Commercial)
Uniform Rate 0.6147 0.6855 0.0708 11.5%
G‐3 (Large Commercial)
Uniform Rate 0.6071 0.6775 0.0704 11.5%
G‐10 (Compressed Natural Gas)
Uniform Rate 0.0509 0.0963 0.0454 89.2%
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SECTION 3C: BILL IMPACT OF PROPOSED RATE CHANGES
Table 6 shows the impact of the proposed July 1, 2016 rate changes on the median residential
bill. The average increase is roughly 8% based on March 2016 commodity rates, but some
customers may see slightly higher or lower increases due to slight changes in the composition
of the utility’s costs, as well as prevailing market prices.
Table 6: Impact of Proposed Gas Rate Changes on Residential Bills
Usage
(Therms/month)
Bill under
Current Rates
Bill under
Proposed Rates
Change
$/mo. %
Winter (Using March 2016 commodity prices)
30 $ 29.67 $ 32.00 $ 2.33 8%
54 (median) 45.40 49.34 3.84 8%
80 72.96 78.89 5.94 8%
150 155.21 167.17 11.96 8%
Summer (Using July 2015 commodity prices)
10 $ 17.70 $ 18.77 $ 1.07 6%
18 (median) 23.95 25.52 1.57 7%
30 38.49 41.05 2.56 7%
45 57.95 61.80 3.85 7%
Table 7 shows the impact of the proposed July 1, 2016 rate changes on various representative
commercial customer bills.
Table 7: Impact of Proposed Gas Rate Changes on Commercial Bills
(Using March 2016 commodity prices)
Usage
(Therms/month)
Bill under Current
Rates
Bill under
Proposed Rates
Change
%
G‐2 (Residential Master‐Metered and Small Commercial)
500 492 531 8%
5,000 4,250 4,608 8%
10,000 8,426 9,137 8%
G‐3 (Large Commercial)
25,000 21,049 22,825 8%
50,000 41,736 45,272 8%
SECTION 3D: PROPOSED RESERVE TRANSFERS
In the FY 2016 Financial Plan, several transfers between reserves were discussed for FY 2016.
CIP related funds were transferred out of the Reappropriations Replacement into the CIP
Reserve, and $3.4 million was proposed to be transferred from the Rate Stabilization Reserve
into the Operations Reserve.
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April 12, 2016 9 | Page
As lower expenses in FY 2015 resulted in higher ending reserve balances than initially projected,
staff recommends reducing the $3.4 million transfer from the Rate Stabilization Reserve in FY
2016 to $1.5 million, and proposes transferring $5.3 million in FY 2017. For FY 2016, staff
proposes a $3.4 million transfer from the Rate Stabilization Reserve. This transfer will exhaust
the Rate Stabilization Reserve, as planned for and discussed in Section 5E: FY 2017‐FY 2026
ProjectionsSection 4E: Reserves Structure, and is included in the financial projections in this
Financial Plan. It will enable CPAU to maintain adequate Operations Reserve levels while
moderating the pace of increase in gas rates. The impact of these transfers on reserves levels
can be seen in Appendix A: Gas Utility Financial Forecast Detail.
SECTION 4: UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It is intended as general
background information and to help readers better understand the forecasts in Section 5:
Utility Financial Projections and Section 6: Details and Assumptions.
SECTION 4A: GAS UTILITY HISTORY
On September 22, 1917, the City of Palo Alto issued a bond to purchase the property of Palo
Alto Gas Company and continue it as a municipal enterprise. At the time, the system comprised
21 miles of mains, 1,900 meters, and was valued at $65,500. PG&E supplied the gas, which was
synthesized from coal at its Potrero facility. Almost immediately the City faced challenges.
Losses were at nearly 25% according to PG&E’s master meter, and PG&E had filed with the
Railroad Commission (the forerunner to today’s Public Utilities Commission) to increase rates
by nearly 72.5%. Despite these initial hurdles, Palo Alto’s system grew tremendously, and by
1924 revenues had exceeded those of the electric utility. Sales were such that the annual
reports of the time noted gas usage “appears to be greater than that of any other city in the
state, showing that gas is a very popular form of fuel in Palo Alto.” Just prior to the acquisition
of the neighboring town of Mayfield’s gas system (centered around today’s California Avenue)
in 1929, the miles of main in service and customers connections had doubled.
Notable changes to the gas supply itself came in 1930, when PG&E ceased supplying purely
manufactured (or coal) gas from its Potrero Hill facility in San Francisco and instead switched to
natural gas. In 1935, a supplementary butane injection system (later retired) was purchased
from Standard Oil to mitigate large wintertime peaks. Gas sales were at 248,658 million cubic
feet (MCF) with 4,849 active services.
Early gas mains in Palo Alto were made of steel, but in the 1950s, like many other utilities, CPAU
switched to ABS plastic. CPAU switched to PVC plastic in the early 1970s, but around 100 miles
of ABS mains had already been installed. A 1990 evaluation of the system found a steadily
increasing rate of gas leaks associated with those mains, something that other gas utilities had
also been experiencing. To reduce leaks, CPAU accelerated its main replacement program from
7,000 feet (1.3 miles) of replacements per year to 20,000 feet (3.8 miles) per year. This would
enable the utility to replace all of its ABS and its most vulnerable steel and PVC mains with
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April 12, 2016 10 | Page
polyethylene (PE) mains over the course of the following 36 years.4 As of 2015 the Gas Utility
had replaced approximately 99 miles of ABS, as well as some sections of steel where cathodic
protection was not effective. Current main replacement projects will target the last ~800 feet of
remaining ABS main as well as tackling PVC replacement. A PVC risk analysis to determine the
appropriate footage of annual PVC replacement for future CIP projects is currently being
conducted. This is an example of how local control of its Gas Utility has provided Palo Alto
residents with substantial benefits. During the 1990s and 2000s, while CPAU was increasing its
main replacement rate to ensure a robust gas distribution system, PG&E was underspending on
safety‐related infrastructure, according to a past audit.5
In the 1990s, while grappling with the issues surrounding its distribution system, CPAU was also
participating in major changes to the structure of the gas industry in California. Until 1988 CPAU
had a formal policy of setting its rates equal to PG&E’s rates and successfully did so with the
exception of one year in the mid‐1970s. At times this led to inadequate revenue (1974 to 1981)
as PG&E, the City’s only gas supplier, regularly filed requests with the CPUC to increase the
wholesale gas supply rates charged to the Gas Utility. In the 1990s, as the CPUC began
deregulating the natural gas industry in California, the Gas Utility began purchasing gas from
suppliers other than PG&E. In 1997 the CPUC adopted the “Gas Accord,”6 which enabled the
Gas Utility (along with other local transportation‐only customers) to obtain transmission rights
on PG&E’s Redwood transmission pipeline running from Malin, Oregon into California.
In 2000/2001 the California energy crisis occurred, causing major disruptions to the Gas Utility’s
supply costs. Wholesale gas prices rose over 500% between January 2000 and January 2001.
The Council approved drawing down reserves to provide ratepayer relief and, for two years
following the crisis, CPAU rates were above PG&E’s as reserves were replenished. In April 2001
the Council approved a hedging practice of buying fixed price gas one to three years into the
future. After reaching a low point in October 2001, prices continued to rise, and as a result the
CPAU hedging strategy frequently resulted in a wholesale supply cost advantage compared to
PG&E until prices began to decline steeply in mid‐2008. At that point the Gas Utility’s wholesale
supply costs became higher than market gas prices due to fixed price contracts entered into
prior to 2008. As a result the Gas Utility’s wholesale supply costs were higher than PG&E’s for
several years. In 2012 Council approved a plan to formally cease the hedging strategy and
purchase all gas on the short‐term (“spot”) markets. As of July 1, 2012, the commodity portion
of the gas rates changes every month based on the spot market gas price.
SECTION 4B: CUSTOMER BASE
CPAU’s Gas Utility provides natural gas service to the residents, businesses, and other gas
customers in Palo Alto. Close to 23,400 customers are connected to the natural gas system,
approximately 21,700 (93%) of which are residential and 1,700 (7%) of which are non‐
residential. Residential customers consume about 10 to 12 million therms of gas per year,
4 Staff Report CMR:183:90. Infrastructure Review and Update, March 1, 1990
5 Focused Financial Audit of The Pacific Gas & Electric Company’s Gas Distribution Operations, Overland Consulting,
made available through a CPUC Administrative Law Judge’s ruling on A12‐11‐009/I13‐03‐007 on 5/31/2013
6 CPUC decision 97‐08‐055. Since then, the Gas Accord has been amended four times, with the most recent being
Gas Accord V, application A.09‐09‐013
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roughly 45% of the gas sold, while non‐residential customers consume 55% (about 14 to 15
million therms). Residential customers use gas primarily for space heating (46% of gas
consumed) and water heating (42%), with the remainder consumed for other purposes such as
cooking, clothes drying, and heating pools and spas7. Non‐residential customers use gas for
space and water heating (73% of gas consumed), cooking (20%), and industrial processes (6%).8
The Gas Utility receives gas at the four receiving stations within Palo Alto where CPAU’s
distribution system connects with Pacific Gas and Electric’s (PG&E’s) system. These receiving
stations are jointly operated by CPAU and PG&E. CPAU purchases gas from a various natural gas
marketers, with PG&E providing only local transportation service (transportation from the
PG&E City Gate gas delivery hub to Palo Alto). CPAU also has transmission rights on PG&E’s
transmission pipeline from Malin, Oregon to PG&E City Gate, allowing it to purchase lower
priced gas at that location. CPAU does not produce or store any natural gas, and purchases gas
in the monthly and daily spot markets. The cost of the purchased gas is passed through directly
to customers through a rate adjuster that varies monthly with market prices. The cost of
purchased gas and PG&E local transportation service accounts for roughly one third of the
utility’s expenditures.
SECTION 4C: DISTRIBUTION SYSTEM
To deliver gas from the receiving stations to its customers, the utility owns 210 miles of gas
mains (which transport the gas to various parts of the city) and 23,400 gas services (which
connect the gas mains to the customers’ gas lines). These mains and services, along with their
associated valves, regulators, and meters, represent the vast majority of the infrastructure used
to deliver gas in Palo Alto. CPAU has an ongoing CIP to repair and replace its infrastructure over
time, the expense of which accounts for around 15 to 20% of the utility’s expenditures. Costs
for main replacements have been going up in recent years.
In addition to the CIP, the Gas Utility performs a variety of maintenance activities related to the
system, such as monitoring the system for leaks, testing and replacing meters, monitoring the
condition of steel pipe, and building and replacing gas services for buildings being built or
redeveloped throughout the city. The utility also shares the costs of other system‐wide
operational activities (such as customer service, billing, meter reading, supply planning, energy
efficiency, equipment maintenance, and street restoration) with the City’s other utilities. These
maintenance and operations expenses, as well as associated administration, debt service, rent,
and other costs, make up roughly half of the utility’s expenses. In addition to these ongoing
activities, CPAU has conducted a program to find and replace cross‐bores over the last several
years. Currently, $3 million is budgeted for the cross‐bore program over the next three years.
However, the ongoing cross‐bore investigation may require additional funding, or extend for
longer into the future, as the remaining sewer lines are more difficult to examine than the
majority of the wastewater collection system that has been examined to date.
7 http://energyalmanac.ca.gov/naturalgas/overview.html
8 Source: Statewide Commercial End Use Study, California Energy Commission report, 2006. Statistics shown are
for end users in PG&E Climate Zone 4 (the Peninsula) where Palo Alto is located.
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Figure 2: Cost Structure (FY 2015)
60%
34%
6%
Operations
Gas Purchases
Capital
Figure 1: Revenue Structure (FY 2015)
95%
5%
Sales of Gas
Other Revenue
SECTION 4D: COST STRUCTURE AND REVENUE SOURCES
As shown in Figure 1, the Gas
Utility receives 95% of its revenue
from sales of gas and the
remainder from capacity and
connection fees, interest on
reserves, and other sources.
Appendix A: Gas Utility Financial
Forecast Detail shows more detail
on the utility’s cost and revenue
structures.
As shown in Figure 2, in FY 2015,
gas purchase costs accounted for
roughly 34% of the Gas Utility’s
costs. This percentage can vary
widely from year to year, as this
cost is based upon market
purchases. Operational costs
represented roughly 60%, and
capital investment was
responsible for the remaining 6%.
The percentages for FY 2015 are
skewed by the fact that CIP,
which is normally about 20% of
expenses, was reduced in FY 2014
and FY 2015 to allow for a backlog
of projects to be completed.
SECTION 4E: RESERVES STRUCTURE
CPAU maintains six reserves for its Gas Utility to manage various types of contingencies. These
are summarized below, but see Appendix C: Gas Utility Reserves Management Practices for
more detailed definitions and guidelines for reserve management:
Reserve for Commitments: A reserve equal to the utility’s outstanding contract
liabilities for the current fiscal year. Most City funds, including the General Fund, have a
Commitments Reserve.
Reserve for Reappropriations: A reserve for funds dedicated to projects reappropriated
by the City Council, nearly all of which are capital projects. Most City funds, including
the General Fund, have a Reappropriations Reserve.
Capital Improvement Program (CIP) Reserve: The CIP reserve can be used to
accumulate funds for future expenditure on CIP projects and is anticipated to be empty
unless a major one‐time CIP expenditure is expected in future years. This CIP can also
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April 12, 2016 13 | Page
act as a contingency reserve for the CIP. This type of reserve is used in other utility funds
(Electric, Water, and Wastewater Collection) as well.
Rate Stabilization Reserve: This reserve is intended to be empty unless one or more
large rate increases are anticipated in the forecast period. In that case, funds can be
accumulated to spread the impact of those future rate increases across multiple years.
This type of reserve is used in other utility funds (Electric, Water, and Wastewater
Collection) as well.
Operations Reserve: This is the primary contingency reserve for the Gas Utility, and is
used to manage yearly variances from budget for operational gas costs. This type of
reserve is used in other utility funds (Electric, Water, and Wastewater Collection) as
well.
Unassigned Reserve: This reserve is for any funds not assigned to the other reserves
and is normally empty.
SECTION 4F: COMPETITIVENESS
Table 8 presents winter and summer residential bills for Palo Alto and PG&E at several usage
levels for commodity rates in effect as of July 2015 (to illustrate a summer month bill) and
March 2016 (to illustrate a winter month bill). The annual gas bill for the median residential
customer for calendar year 2015 was $420.86, about 15% lower than the annual bill for a PG&E
customer with the same consumption. PG&E’s distribution rates for gas have increased
substantially to collect for needed system improvements for pipeline safety and maintenance.
The bill calculations for PG&E customers are based on PG&E Climate Zone X, an area which
includes the surrounding communities.
Table 8: Residential Monthly Natural Gas Bill Comparison ($/month)
Season
Usage
(therms) Palo Alto PG&E Zone X
%
Difference
Winter
(March 2016)
30 31.25 40.23 ‐22%
(Median) 54 48.34 72.42 ‐33%
80 77.16 117.37 ‐34%
150 163.10 245.51 ‐34%
Summer
(Jul 2015)
10 17.75 12.47 42%
(Median) 18 24.04 22.60 6%
30 38.64 43.44 ‐11%
45 58.18 69.50 ‐16%
Table 9 shows the monthly gas bills for commercial customers for various usage levels for rates
in effect as of March 1, 2016. Bills for CPAU customers at the usage levels shown are around 9%
lower for smaller commercial customers and 4 to 17% higher for larger commercial customers
than for PG&E customers. This is a substantial improvement over the calendar year 2013 bill
comparison, when commercial gas bills for CPAU customers were 27% to 44% higher than for
PG&E customers. This is primarily attributable to PG&E’s increased distribution rates as the
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April 12, 2016 14 | Page
commodity rates for CPAU and PG&E are very similar, both being based on spot market gas
prices.
Table 9: Commercial Monthly Average Gas Bill Comparison (for Rates in Effect Feb. 1, 2016)
Usage (therms/mo)
Gas Bill ($/month) %
Difference Palo Alto PG&E
500 518 572 ‐9%
5,000 4,510 4,953 ‐9%
10,000 9,231 8,859 4%
50,000 44,711 38,104 17%
SECTION 4G: GAS SUPPLY RATES
Starting in July 2012, CPAU replaced a “laddering” hedging strategy for purchasing gas supplies
with a strategy to buy gas on the short‐term, or “spot” markets and pass the commodity cost to
customers on a monthly basis. The actual commodity prices are shown in Figure 3. As shown,
commodity prices have steadily fallen for the last two years.
Figure 3: Gas Commodity Rates from July 2012 through March 2016
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April 12, 2016 15 | Page
SECTION 5: UTILITY FINANCIAL PROJECTIONS
SECTION 5A: LOAD FORECAST
Gas usage in Palo Alto is volatile, varying with both economic and weather conditions. As shown
in Figure 4, in the early 1970’s, gas purchases reached over 45 million therms per year. Usage
dropped dramatically in the 1976/1977 drought when customers saved significant amounts of
(hot) water by upgrading to efficient showerheads. During the 1980s and 90s average gas usage
was around 36 million therms per year. Usage dropped again in the early 2000’s. In FY 2001, gas
prices escalated during the California energy crisis and Palo Alto’s rates increased by nearly
200%. From 2003 to 2011, usage decreased by 2.3% mainly as a result of continued customer
investments in energy efficiency.
In FY 2015 an unusually warm winter, as well as ongoing drought, have again caused gas usage
to tumble to historic lows. Gas usage was 25.6 million therms in FY 2015.
Figure 4: Historic Gas Consumption
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25
30
35
40
45
50
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)
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April 12, 2016 16 | Page
Gas consumption, as denoted by the dotted line in Figure 5, is projected to recover somewhat
and stay stable over the forecast period, although changes such as replacement of gas
appliances with electric appliances or customer behavior may result in lower long run usage.
Figure 5: Forecast Gas Consumption
SECTION 5A: FY 2011 TO FY 2015 COST AND REVENUE TRENDS
Figure 6 and Appendix A: Gas Utility Financial Forecast Detail how costs have changed during
the last five years as well as how they are projected to change over the next decade.
The annual expenses for the gas utility decreased substantially between 2011 and 2015 due to
lower gas sales. Market prices for gas supplies are shown in Figure 3 above. FY 2014 and 2015
were notable for a temporary hiatus in most CIP budgeting, to permit the completion of a
backlog of projects which had previously been budgeted for. This budgetary hold allowed for
backlogged gas main replacement projects to be started, which consumed capital reserves.
Starting in FY 2012, additional funding for gas cross‐bore inspections increased Operations
costs.
Revenues are below expenses, and the projected rate trajectory will bring revenues in line with
costs by FY 2019. As shown in Figure 6 below, revenues were below cost in FY 2011 and FY 2013
and are projected to be below cost in FY 2016. Reduced budgeting for new CIP in FY 2014 and
FY 2015, as well as the availability of relatively large reserves, forestalled the need for rate
increases until now. However, since Rate Stabilization Reserves are projected to be depleted by
FY 2017, the Gas Utility must increase rates to cover costs.
As shown in Figure 6, the last gas rate adjustment was in July 2012 when rates were increased
by 12%. However, this was at the same time that the commodity rates were changed to a
market‐based, monthly pass‐through cost—and commodity rates (and usage) fell, so revenues
actually declined in FY 2013 after the rate increase.
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April 12, 2016 17 | Page
Figure 6: Gas Utility Expenses, Revenues, and Rate Changes:
Actual Costs through FY 2015 and Projections through FY 2026
SECTION 5B: FY 2015 RESULTS
Sources of funds for FY 2015 were lower than projected by $4.8 million, but expenses related to
Purchases and Operations and Maintenance activities came in well below expected budget.
Total FY 2015 expenses were $30.9 million compared to projections of $34.9 million in the FY
2015 Financial Plan. Table 10 summarizes the variances from forecast.
Table 10: FY 2015, Actual Results vs. Financial Plan Forecast
Net Cost/(Benefit)Type of change
Sales revenues lower than forecast 5,427,000 Revenue decrease
Other revenues and interest were
higher than forecasted
(628,000) Revenue increase
Purchase costs lower than forecast (3,212,000) Cost savings
Operations & maintenance, Customer
service and other savings
(760,000) Cost savings
Net Cost / (Benefit) of Variances $827,000
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SECTION 5C: FY 2016 PROJECTIONS
Current projections indicate that sales revenues continue to be lower than forecast, at this time
projected to be $4.7 million. However, Purchase cost reductions of $4.2 million offset most of
this. Table 11 summarizes the current projected variances from FY 2016 Financial Plan.
Table 11: FY 2016, Projected Results vs. Financial Plan Forecast
Net Cost/ (Benefit) Type of change
Sales revenues lower than forecast 4,719,000 Revenue decrease
Purchase costs lower than forecast (4,171,000) Cost savings
Operations & maintenance, Customer service and
other savings
(1,843,000) Cost savings
Capital improvement budgets higher 1,216,000 Cost increase
Other revenues and interest lower than forecasted 611,000 Revenue decrease
Net Cost / (Benefit) of Variances $531,000
SECTION 5D: FY 2017‐FY 2026 PROJECTIONS
As can be seen in Figure 6 above, costs for the Gas Utility are projected to rise in FY 2017, then
are projected to increase at a bit less than 3.5% per year through FY 2026. In Operations, this is
due to an additional $1 million for cross‐bore inspections (this expense is projected to continue
for at least three years), as well as general inflationary increases of around 2.6% per year.
Salaries and benefits expenses are projected to rise at nearly 4% per year, per the City’s Long
Range Financial Plan. CIP programs are projected to increase, then stabilize at around $6 million
per year in FY 2018, then grow at around 2% per year thereafter. Gas commodity costs are the
most variable component. At the time the budget was developed in December 2015, gas supply
prices were projected to increase by around 3 to 4% per year, but recently gas prices have hit
near record lows. Since this is a pass‐through cost to customers, the risk of these costs being
higher or lower than expected has a minimal impact on reserves.
As shown in Figure 7, the Rate Stabilization Reserves are projected to be depleted by FY 2017.
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Figure 7: Gas Utility Reserves
Actual Reserve Levels for FY 2011 and Projections through FY 2026
SECTION 5E: RISK ASSESSMENT AND RESERVES ADEQUACY
The Gas Utility’s primary contingency reserve, the Operations Reserve, is projected to be right
at the approved minimum guideline level in FY 2018 and FY 2019, barring either short‐run
budget savings and/or larger future increases. Figure 8 shows the Operations Reserve
recovering to the target level by FY 2021 with the projected rate trajectory.
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Figure 8: Operations Reserve Adequacy
Forecast Operations Reserve levels also exceed the short‐term risk assessment for the Utility.
Table 12 summarizes the risk assessment calculation for the Gas Utility through FY 2021. The
same methodology is used for FY 2022 through FY 2026 as well. The risk assessment includes
the revenue shortfall that could accrue due to:
1. Lower than forecasted distribution sales revenue; and
2. An increase of 10% of planned system improvement CIP expenditures for the budget
year.
Table 12: Gas Risk Assessment ($000)
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
Total non‐commodity revenue $21,587 $24,256 $26,956 $28,370 $28,781
Max. revenue variance, previous ten years 16% 16% 16% 16% 16%
Risk of revenue loss $3,462 $3,890 $4,323 $4,549 $4,615
CIP Budget $5,076 $4,720 $4,811 $4,958 $5,105
CIP Contingency @10% $508 $472 $481 $496 $511
Total Risk Assessment value $3,969 $4,362 $4,804 $5,045 $5,126
Finally, the CIP Reserve was created at the end of FY 2015 to act as a contingency reserve for
capital improvement projects. Current guidelines state that the balance of this reserve should
fall between 12 and 24 months of budgeted CIP expense.
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At the end of FY 2016, the sum of the CIP Reserve and existing Commitments was a bit below
$5 million, as shown in Figure 7. However, based upon FY 2016’s CIP budget, the minimum
reserve level is $6.9 million. As such, this reserve is technically below the minimum level, but
the Risk assessment reserve level for the Operations Reserve is also set to handle a 10%
increase to CIP costs should that arise. As such, staff does not recommend an additional
increase to rates to fund this reserve at this time. If any CIP funds budgeted in FY 2016 are not
used or committed by the end of the fiscal year, those funds flow to the Operations Reserve
and those funds could be used to fund the CIP reserve, so increasing rates for this contingency
is premature. Staff is in the process of reviewing this reserve and the appropriateness of the
current minimum and maximum guideline levels.
SECTION 5F: ALTERNATE SCENARIOS
At the UAC’s February 2016 meeting, it was suggested that staff prepare two alternate
scenarios for rate increases. The first (“Target”) scenario keeps the Operations Reserve at or
near the Target level throughout the forecast period as shown in Figure 9 below. The second
(“Minimum”) has no rate change in FY 2017 and lets the Operations Reserve stay at minimum
for five years as shown in Figure 10 below. Both options as well as the proposed rate
adjustments are shown in Table 13.
Table 13: Projected Gas Rate Trajectory for FY 2017 to FY 2026
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Proposed 8% 9% 7% 4% 1% 1% 1% 1% 1% 1%
Target 8% 16% 2% 1% 1% 2% 2% 2% 2% 1%
Minimum 0% 24% 1% 1% 1% 4% 3% 1% 1% 1%
The Target scenario does not change the FY 2017 proposed rate increase, but a 16% rate
increase in FY 2018 would be needed to bring reserves to target levels. Figure 9 shows that the
Operations Reserve levels for the Target scenario.
The Minimum scenario avoids a rate increase in FY 2017, but requires a significant increase in
FY 2018 (24%). If sales are lower than expected or costs rise, then this rate increase would be
even higher. Figure 10 shows that the Operations Reserve levels for the Minimum scenario.
Staff recommends an 8% gas rate increase in FY 2017 to moderate the rate increases that are
projected in FY 2018 while keeping the Gas Operations Reserve at healthy levels.
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Figure 9: Operations Reserve at Target
Figure 10: Operations Reserve at Minimum
SECTION 5G: LONG‐TERM OUTLOOK
In the longer term (5 to 35 years out) it is very difficult to predict the Gas Utility’s commodity
costs. A variety of long‐term trends could affect commodity costs either positively or negatively.
Continuing improvement in gas extraction technology, such as fracking, could continue to
create generous supplies of gas, but these technologies are also under greater scrutiny with
respect to their environmental impacts. On the demand side, a continued shift from coal to
natural gas for electricity generation or an increase in manufacturing in the U.S. might drive up
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April 12, 2016 23 | Page
natural gas prices, but other factors, such as generally more mild winters, might drive gas
demand lower. It is also difficult to predict the magnitude of the additional cost impacts
associated with the State’s cap‐and‐trade program over the long term. In the face of this
uncertainty, CPAU is able to protect the financial position of the Gas Utility by continuing its
current strategy of passing these costs directly to its customers via month‐varying rate
adjustment mechanisms.
Future CIP investment needs for the Gas Utility may be lower than in the past, although costs
per foot for main replacement may increase substantially. The Gas Utility has replaced nearly all
of its ABS gas mains and its most problematic steel and PVC mains as well. The PE pipe being
used now is expected to have at least a fifty‐year lifetime, and there is growing evidence that it
may last much longer than that. This would result in lower CIP investment over the long term.
CPAU is considering performing a study in the near future to develop its future main
replacements priorities and strategy.
Long‐term state or local climate goals could also have a major impact on the Gas Utility. The
Global Warming Solutions Act, Assembly Bill 32 (AB32), set a goal of reducing greenhouse gas
(GHG) emissions to 1990 levels by 2020 and then maintaining those reductions. In its December
2007 Climate Protection Plan, the City set a goal of lowering emissions to 15% below 2005
levels by 2020. As a community Palo Alto achieved these goals in 2012 even with continued use
of natural gas for heating, cooking, and industrial processes. If stricter goals are enacted at the
state or local level, however, it could lead to “electrification”, or consumer switching from gas‐
using appliances to electric‐using appliances for heating, cooking and processes. If significant
amounts of electrification occurred, stranded investment and higher rates could be required as
the costs of the distribution system are recovered over a lower sales base. One example of a
stricter standard has been stated by the Governor—reducing GHG emissions to 80% below
1990 levels by 2050.9 This goal, or less ambitious interim state goals, would require legislation
to implement. But it is instructional that, in the recent discussion draft of its scoping plan
update, CARB says, to meet those goals, natural gas use would have to be “mostly phased
out.”10 Legislation has been recently passed addressing the Governor’s 2030 climate goals of
50% renewable generation, 50% reduction in transportation fuels, and a doubling of energy
efficiency. A few bills have already been introduced on post‐2020 GHG emission reduction goals
and the GHG cap‐and‐trade market. As stewards of the Gas Utility, the City should continue to
stay aware of developments in state climate planning, participate as a stakeholder, and
consider these types of impacts and ways to mitigate them when developing its own
sustainability goals.
9 Executive Orders S‐3‐05 and B‐16‐2012.
10 Climate Change Scoping Plan, First Update, Discussion Draft for Public Review and Comment, California Air
Resources Board, October 2013, pg 88.
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April 12, 2016 24 | Page
SECTION 6: DETAILS AND ASSUMPTIONS
SECTION 6A: GAS PURCHASE COSTS
The Gas Utility purchases much of its gas for delivery at Malin, Oregon which is almost always
cheaper than delivery at PG&E City Gate, even including the costs of transmission from Malin to
City Gate. Gas is purchased on a month‐ahead and day‐ahead basis in the spot market. The last
few years have seen gas prices in a relatively narrow but low band, and prices for the last year
in particular have been lower than most projections. High levels of natural gas in storage, along
with warmer than normal weather on the West coast has kept prices low, as shown in Figure
11.
Figure 11: Gas Market Prices at PG&E Citygate
Future gas commodity costs are expected to increase steadily over the next several years.
Figure 12 shows the projected gas prices used to generate this forecast. Projections for
transmission costs associated with transporting gas over PG&E’s Redwood transmission
pipeline (from Malin, Oregon to the PG&E Citygate) are based on rates adopted in the most
recent update to the Gas Accord.
Local transportation costs decreased on January 1, 2015 due to the expiration of a temporary
adder to PG&E’s local transportation rate,11 but in December 2014 PG&E applied to the CPUC to
more than double local transportation costs. Staff is tracking PG&E’s application and, based on
11 California Public Utilities Commission Advice Letter 3430‐G, effective January 1, 2014. Also see CPUC Decision
12‐12‐30 regarding the Pipeline Safety Enhancement Plan Adder.
GAS UTILITY FINANCIAL PLAN
April 12, 2016 25 | Page
discussions to date, expects that nearly all of the proposed increase in local transportation costs
will be approved. Staff projects these costs to escalate at 3% per year in subsequent years. As
these charges are dictated by PG&E and are outside of Palo Alto’s control, staff may propose
making these costs a pass‐through charge, similar to the commodity charge, in FY 2018.
Figure 12: Wholesale Gas Price Projections
SECTION 6B: OPERATIONS
Operations costs include the Customer Service, Demand Side Management, Operations and
Maintenance (including Engineering), Resource Management, and Administration categories in
Figure 13, below. Debt service, rent, and transfers are also included in Operations costs
(excluding the General Fund equity transfer). Appendix D: Description of Gas Utility Cost
Categories includes detailed descriptions of the activities associated with these cost categories.
Operations costs are projected to increase by 2 to 4% per year. Salary and benefits, inflation,
and other assumptions match those used in the City’s long‐range financial forecast.
Operations costs for FY 2017 to FY 2019 include funding for the cross‐bore program. In the
1970s CPAU, like many other utilities, adopted horizontal drilling as an alternative to trenching
when installing new gas services. This created the possibility of cross‐bores, which can happen
when a gas service is bored through a sewer lateral. Though cross‐bores are very rare, they can
create a dangerous situation when a contractor attempts to clear a blocked sewer line, because
if the cross‐bored gas service is damaged during the line clearing it can result in a gas leak.
CPAU has been inspecting new gas services since 2001, and in 2011 began video inspections of
the sewer laterals at the location of horizontally‐drilled gas services installed before 2001. This
inspection program has cost roughly $1 million per year since FY 2012. While a majority of
sewer laterals have been inspected, staff has come across several services which are not able to
be scoped, either due to infiltration by roots or broken/collapsed pipe segments. Staff has
GAS UTILITY FINANCIAL PLAN
April 12, 2016 26 | Page
included $3 million in additional funding between FY 2017 and FY 2019 for this program, but
the program will likely require additional funding in future years to complete.
Figure 13: Historical and Projected Operational Costs
SECTION 6C: CAPITAL IMPROVEMENT PROGRAM (CIP)
The Gas Utility’s CIP program consists of the following programs and budgets:
The Gas Main Replacement Program, under which the Gas Utility replaces aging gas
mains
Customer Connections, which covers the cost when the Gas Utility installs new services
or upgrades existing services at a customer’s request in response to development or
redevelopment. The Gas Utility charges a fee to these customers to cover the cost of
these projects.
Ongoing Projects, which covers the cost of routine meter, regulator, and service
replacement, minor projects to improve reliability or increase capacity, and other
general improvements.
Tools and Equipment, which covers the cost of capitalized equipment, such as
directional boring equipment.
One‐time Projects, which represents occasional large projects that do not fall into any
other category.
Table 14 shows the current status of these project categories and future projected spending.
GAS UTILITY FINANCIAL PLAN
April 12, 2016 27 | Page
Table 14: Budgeted Gas CIP Spending
The Gas Main Replacement (GMR) Program is in the process of reaching a major milestone, the
replacement of the last gas mains made from ABS plastic. The program to replace ABS and
other low‐performing materials in the system started in the 1990s (see Section 4A: Gas Utility
History for more detail). CPAU temporarily slowed down its new CIP appropriations in this
category in FY 2014 and 2015 in order to finish the last major ABS main replacement project
and to catch up on a backlog of projects that has accumulated due to staffing issues. With the
replacement of all ABS mains with PE plastic, the material most at risk for failure is removed
leaving only PVC plastic, steel (wrapped, with cathodic protection), and PE mains. The next
focus of the GMR program will be PVC mains. CPAU is considering updating the Gas System
Master Plan to determine which areas of the system to prioritize. The plan will help CPAU
determine whether the pace of main replacement (approximately three miles of main each
year, or 1.5% of the system) needs to be increased, decreased, or whether it needs to remain
the same.
The current budget for gas main replacement assumes the current pace of main replacement,
but does not take into account the recent rise in costs for main replacement, which have
increased from the levels seen during the recent recession. Several factors may be contributing
to this. Economic recovery in the Bay Area, as well as a greater focus on infrastructure
improvement by many municipal agencies and utilities could be creating high demand for
contractors in these fields. Newer, more leak resistant pipe materials may have ongoing greater
costs. CPAU has seen the replacement cost per linear foot increase by 25 to 50% over the last
couple of years. Currently CPAU plans to complete as much main replacement as possible
within its current budget, provided there are no safety concerns. However, if this trend of
higher cost continues, the Gas Utility may require larger CIP budgets, and as a result, larger rate
increases.
Ongoing Projects, Tools and Equipment, and Customer Connections are projected to cost
approximately $0.8 million in FY 2017 and increase by 3% per year through the end of the
forecast period. In practice, these projects can fluctuate dramatically depending on system
conditions and the pace of development and redevelopment in the city. It is worth noting that
the Customer Connections program is paid for through fee revenue, so when costs go up, so
does fee revenue.
Aside from customer connections and some transfers from other funds, the CIP plan for
FY 2017 to FY 2021 is funded by utility rates. The details of the plan are shown in Appendix B:
Gas Utility Capital Improvement Program (CIP) Detail.
Project Category
Current
Budget*
Spending,
Curr. Yr
Remain.
Budget** Committed FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
One Time Projects 150 (9) 141 125 ‐ ‐ ‐ ‐ ‐
Gas Main Replacement 8,097 (367) 7,730 3,580 4,191 3,811 3,878 4,000 4,121
Tools And Equipment 291 (76) 214 ‐ 100 100 100 100 100
Ongoing Projects 918 (193) 726 76 785 809 833 858 884
Customer Connections 953 (576) 377 38 1,229 1,265 1,303 1,342 1,383
TOTAL 10,409 (1,222) 9,187 3,818 6,305 5,985 6,115 6,301 6,488
*Includes unspent funds from previous years carried forward or reappropriated into the current fiscal year
**Equal to CIP Reserves (Reserve for Reappropriations + Reserve for Commitments).
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SECTION 6D: DEBT SERVICE
The Gas Utility currently makes debt service payments on one bond issuance, the 2011 Series A
Utility Revenue Refunding Bonds. This bond issuance was to refinance the $18 million principal
remaining on the Utility Revenue Bonds, 2002 Series A issued for the Gas and Water Utilities to
finance various improvements to the distribution systems. $9.4 million of this issuance was
secured by the net revenues of the Gas Utility. Debt service for this bond for the financial
forecast period is shown in Table 15. Debt service on this bond will continue through 2026.
Table 15: Gas Utility Debt Service
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
2011 Utility Revenue
Refunding Bonds, Series A 803 802 800 800 802 804 805 803 800 803
The 2011 bonds include two covenants stating that 1) the Gas Utility will maintain a debt
coverage ratio of 125% of debt service, and 2) that the City will maintain “Available Reserves”12
equal to five times the annual debt service. The current financial plan complies with these
covenants throughout the forecast period, as shown in Table 16 and
Table 17.
Table 16: Debt Service Coverage Ratio ($000)
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Revenues 35,938 39,825 43,628 46,051 47,336 48,323 49,891 51,465 53,429 54,696
Expenses
(Excluding CIP and
Debt Service)
‐33,310 ‐34,933 ‐36,511 ‐37,086 ‐38,566 ‐40,128 ‐41,838 ‐43,552 ‐45,307 ‐47,068
Net Revenues 2628 4892 7117 8965 8770 8195 8053 7913 8,122 7,628
Debt Service 803 802 800 800 802 804 805 803 800 803
Coverage Ratio 327% 610% 890%1121%1094%1019%1000%985% 985% 985%
Table 17: Debt Service Minimum Reserves ($000)
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
Gas Utilitya 9,543 7,647 7,849 9,712 11,191 11,901 12,270 12,298 12,327 12,742
Debt Serviceb 803 804 803 802 801 801 802 803 800 803
Reserves Ratioc 12x 10x 10x 12x 14x 15x 15x 15x 15x 15x
a) CIP, Rate Stabilization, Operations, and Unassigned Reserves
b) Gas Utility’s share of the debt service on the 2011 bonds.
c) Calculated using only Gas Utility reserves. The actual reserves ratio for the 2011 bonds is calculated based on the
combined Electric, Gas, and Water Utility reserves and debt service and is higher than shown here.
12 Available Reserves as defined in the 2011 bonds include the reserves for the Water, Electric, and Gas Utilities
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April 12, 2016 29 | Page
The Gas Utility’s reserves and net revenue are also pledged as security for the bond issuances
listed in Table 18, even though the Gas Utility is not responsible for the debt service payments.
The Gas Utility’s reserves or net revenues would only be called upon if the responsible utilities
are unable to make their debt service payments. Staff does not currently foresee this occurring.
Table 18: Other Issuances Secured by Gas Utility’s Revenues or Reserves
Bond Issuance Responsible Utilities Annual Debt
Service ($000)
Secured by Gas Utility’s:
Net Revenues Reserves
1995 Series A Utility
Revenue Bonds Storm Drain $680 Yes No
1999 Utility Revenue
Bonds, Series A
Wastewater Collection
Wastewater Treatment
Storm Drain
$1,207 No Yes
2009 Water Revenue
Bonds (Build America
Bonds)
Water $1,977* No Yes
*Net of Federal interest subsidy
SECTION 6E: EQUITY TRANSFER
The City calculates the equity transfer from its Gas Utility based on methodology adopted by
Council in 2009 that has remained unchanged since13. Each year it is calculated according to the
2009 Council‐adopted methodology, and does not require additional Council action.
SECTION 6F: REVENUES
The Gas Fund receives most of its revenues from sales of gas, but about 5% comes from other
sources. The largest of these comes from service connection and capacity fees, followed closely
by sales of allowances related to California’s cap‐and‐trade program. Another revenue item
related to the cap‐and‐trade program is collected in customer’s bills. While the State provides
CPAU with a certain number of free allowances each year, the Gas Utility is required to sell a
portion of those in accordance with the regulations. In order to have enough allowances to
cover customer’s natural gas emissions, CPAU must buy allowances at market, and
subsequently passes through the cost of those allowances to customers. The regulations do not
allow the revenue derived from the sale of the free allowances to offset allowance purchases,
thus the pass‐through rate component.
Sales revenue projections are based on the load forecast in Section 5A: Load Forecast. Except
where stated otherwise, these load forecasts are based on normal weather. Weather can vary
substantially, however, and this can affect revenues substantially. Also, changes in customer
behavior, as well as changes to more efficient gas appliances, or switching to electric
13 For more detail on the ordinance adopting the 2009 transfer methodology, see CMR 280:09, Budget Adoption
Ordinance for Fiscal Years 2009 and 2010; and CMR 260:09, Finance Committee Report explaining proposed
changes to equity transfer methodology.
GAS UTILITY FINANCIAL PLAN
April 12, 2016 30 | Page
appliances, will modify these forecasts. Forecasts are continually evaluated to see when new
trends emerge.
SECTION 6G: COMMUNICATIONS PLAN
The FY 2017 communications strategy covers four primary areas: operations, infrastructure,
safety, efficiency, renewables and rates. Since moving to market pricing for commodity rates,
changes to the commodity rates are posted monthly on the City’s website. Gas use efficiency
incentives are promoted year‐round, but most heavily during winter months to impact heating
activities. Promotional methods include community outreach events, print ads in local
publications, utility bill inserts, messaging on the bills and envelopes, website pages, email
blasts, videos for the web and local Comcast channels, Home Energy Reports and the use of
social media.
To keep customers apprised of the status and accomplishments of capital improvement
projects, a network of project web pages are maintained. Traffic is driven to the website via
print and digital ads, social media and email blasts. Safety topics are emphasized year‐round.
CPAU is engaging in several campaigns and programs in FY 2017 to promote gas utility
efficiency and renewable energy. The Georgetown University Energy Prize competition is a
friendly, national campaign to encourage communities to reduce energy use. Energy savings
from reduced gas and electric consumption qualify to help Palo Alto compete for a $5 million
prize at the end of a two‐year campaign. Since adoption of a carbon neutral electric supply
portfolio, CPAU launched a new voluntary renewable natural gas carbon offsets program,
PaloAltoGreen Gas. Much of our programmatic promotional activity will center around
customer education and encouragement to sign up for participation in PaloAltoGreen Gas.
Other new programs include home efficiency services and online tools to help customers
manage their energy use.
Stepping up efforts to promote gas safety education, staff is focusing outreach around youth,
the importance of calling USA (811) before digging for anyone who may excavate in and around
Palo Alto, such as plumbers and contractors, potential sewer and gas line crossbores, keeping
fats, oils and greases out of drains, and ensuring clear access to meters. For younger
“customers‐to‐be,” CPAU created a Home Safety Detective campaign that includes special tool
kits to help them identify home safety problems. Staff provides safety kits to youth and adults
at school presentations, neighborhood safety and emergency preparedness fairs and other
community outreach events. Meter access awareness is highlighted through use of materials
featuring photos of some unusual ways people obstruct access to their meters, including using
them as bike racks and building storage sheds around them.
CPAU will continue to promote safety, infrastructure, operations, efficiency and rate
adjustment messages through a variety of marketing and media channels. Every year, CPAU
publishes an updated gas safety awareness brochure which is mailed to all customers in Palo
Alto, as well as plumbers, contractors and excavators that may work in and around the area.
Staff talks with business customers at special facilities meetings, attends neighborhood safety
and emergency preparedness fairs and offers presentations to school and community groups.
While print materials and website pages still feature prominently, CPAU is turning the outreach
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April 12, 2016 31 | Page
emphasis to direct mail, newspaper inserts, social media, online videos and cable TV. Copies of
all outreach materials and logs of activities are saved in the Gas Safety Public Awareness Plan
that is reviewed at least once per year by the Department of Transportation.
GAS UTILITY FINANCIAL PLAN
April 12, 2016 32 | Page
APPENDICES
Appendix A: Gas Financial Forecast Detail
Appendix B: Gas Utility Capital Improvement Program (CIP) Detail
Appendix C: Gas Utility Reserves Management Practices
Appendix D: Description of Gas Utility Cost Categories
Appendix E: Gas Utility Communications Samples
GAS UTILITY FINANCIAL PLAN
April 12, 2016 33 | Page
APPENDIX A: GAS FINANCIAL FORECAST DETAIL
GAS UTILITY FINANCIAL PLAN
April 12, 2016 34 | Page
APPENDIX B: GAS UTILITY CAPITAL IMPROVEMENT PROGRAM (CIP) DETAIL
Project #Project Name
Reappropriated /
Carried Forward from
Previous Years
Current Year
Funding
Budget
Amendments
Spending,
Current Year
Remaining in
CIP Reserve
Fund Commitments FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
ONE TIME PROJECTS
GS‐09000 Gas Station 1 Rebuild ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
GS‐08000 Gas Station 2 Rebuild ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
GS‐10000 Gas Station 3 Rebuild 4 ‐ ‐ ‐ 4 ‐ ‐ ‐ ‐ ‐ ‐
GS‐11001 Gas Station 4 Rebuild ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
GS‐13003 COBUG emissions equipment ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
GS‐15001 Security at Receiving Stations 150,000 150,000 (150,000) (9,459) 140,541 125,000 ‐ ‐ ‐ ‐
Subtotal, One‐time Projects 150,004 150,000 (150,000) (9,459) 140,545 125,000 ‐ ‐ ‐ ‐ ‐
GAS MAIN REPLACEMENT (GMR) PROGRAM
GS‐08011 GMR ‐ Project 18 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
GS‐09002 GMR ‐ Project 19 526,621 ‐ (30,410) (68,899) 427,312 427,312 ‐ ‐ ‐ ‐ ‐
GS‐10001 GMR ‐ Project 20 2,311,602 ‐ (13,981) (23,297) 2,274,324 2,274,325 ‐ ‐ ‐ ‐ ‐
GS‐11000 GMR ‐ Project 21 867,159 ‐ (20,512) (100,049) 746,598 832,416 ‐ ‐ ‐ ‐ ‐
GS‐12001 GMR ‐ Project 22 295,985 4,033,001 (493,001) (175,008) 3,660,977 3,000 ‐ ‐ ‐ ‐ ‐
GS‐13001 GMR ‐ Project 23 ‐ 620,650 ‐ ‐ 620,650 42,500 3,550,650 ‐ ‐ ‐ ‐
GS‐14003 GMR ‐ Project 24 ‐ ‐ ‐ ‐ ‐ ‐ 640,000 3,100,000 ‐ ‐ ‐
GS‐15000 GMR ‐ Project 25 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 711,000 3,200,000 ‐ ‐
GS‐16000 GMR ‐ Project 26 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 678,200 3,300,000 ‐
GS‐20000 GMR ‐ Project 27 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 700,000 3,400,000
GS‐20001 GMR ‐ Project 28 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 721,000
Subtotal, Gas Main Replacement Program 4,001,367 4,653,651 (557,904) (367,253) 7,729,861 3,579,553 4,190,650 3,811,000 3,878,200 4,000,000 4,121,000
TOOLS AND EQUIPMENT
GS‐13002 General Shop Equipment/Tools 130,931 100,000 (113,062) (46,069) 71,800 ‐ 100,000 100,000 100,000 100,000 100,000
GS‐01019 Global Positioning System 73,578 ‐ (70,768) (641) 2,169 ‐ ‐ ‐ ‐ ‐
GS‐02013 Directional Boring Machine ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
GS‐03007 Directional Boring Equipment ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
GS‐03008 Polyethylene Fusion Equip. 29,168 ‐ ‐ ‐ 29,168 ‐ ‐ ‐ ‐ ‐
GS‐14004 Gas Distribution System Model 140,742 87,690 (87,690) (29,544) 111,198 ‐ ‐ ‐ ‐ ‐ ‐
Subtotal, Tools and Equipment 374,419 187,690 (271,520) (76,254) 214,335 ‐ 100,000 100,000 100,000 100,000 100,000
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Gas Utility Capital Improvement Program (CIP) Detail (continued)
Project #Project Name
Reappropriated /
Carried Forward from
Previous Years
Current Year
Funding
Budget
Amendments
Spending,
Current Year
Remaining in
CIP Reserve
Fund Commitments FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
ONGOING PROJECTS
GS‐11002 Gas System Improvements 151,021 292,669 (66,397) (114,635) 262,658 76,036 231,913 238,870 246,036 253,417 261,020
GS‐03009 System Ext. ‐ Unreimbursed 284,821 192,675 (284,095) (35,809) 157,592 ‐ 198,500 204,455 210,590 216,908 223,415
GS‐80019 Gas Meters and Regulators 736,596 344,690 (733,487) (42,523) 305,276 ‐ 355,030 365,681 376,652 387,952 399,591
Subtotal, Ongoing Projects 1,172,438 830,034 (1,083,979) (192,967) 725,526 76,036 785,443 809,006 833,278 858,277 884,025
CUSTOMER CONNECTIONS (FEE FUNDED)
GS‐80017 Gas System Extensions (252,428) 950,000 255,428 (575,893) 377,107 37,880 1,228,500 1,265,355 1,303,315 1,342,415 1,382,688
Subtotal, Customer Connections (252,428) 950,000 255,428 (575,893) 377,107 37,880 1,228,500 1,265,355 1,303,315 1,342,415 1,382,688
GRAND TOTAL 5,445,800 6,771,375 (1,807,975) (1,221,826) 9,187,374 3,818,469 6,304,593 5,985,361 6,114,793 6,300,692 6,487,713
Funding Sources
Connection Fees 639,600 255,428 1,017,000 1,047,510 1,078,935 1,111,303 1,144,642
Utility Rates 6,131,775 (2,063,403) 5,287,593 4,937,851 5,035,857 5,189,389 5,343,070
CIP‐RELATED RESERVES DETAIL
6/30/2015
(Actual) 9/30/2015
Reappropriations 2,100,800 5,368,905 5,076,093 4,720,006 4,811,478 4,958,277 5,105,025
Commitments 3,345,000 3,818,469
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APPENDIX C: GAS UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Gas Utility
Financial Plan:
Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal
years covered by the Financial Plan. For example, if the Financial Plan delivered in
conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY
2015 to FY 2019 would be the Financial Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers
to the Utility’s Unrestricted Net Assets.
c) “Net Assets” ‐ The Government Accounting Standards Board defines a Utility’s Net
Assets as the difference between its assets and liabilities.
d) “Unrestricted Net Assets” ‐ The portion of the Utility’s Net Assets not invested in capital
assets (net of related debt) or restricted for debt service or other restricted purposes.
Section 2. Supply Fund Reserves
The Gas Utility’s Supply Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 4 (Reserve for Commitments)
b) For operating and capital budgets re‐appropriated from previous years, as described in
Section 5 (Reserve for Re‐appropriations)
Section 3. Distribution Fund Reserves
a) For existing contracts, as described in Section 4 (Reserve for Commitments)
b) For operating and capital budgets re‐appropriated from previous years, as described in
Section 5 (Reserve for Re‐appropriations)
c) For cash flow management and contingencies related to the Gas Utility’s Capital
Improvement Program (CIP), as described in Section 6 (CIP Reserve)
d) For rate stabilization, as described in Section 7 (Rate Stabilization Reserve)
e) For operating contingencies, as described in Section 8 (Operations Reserve)
f) Any funds not included in the other reserves will be considered Unassigned Reserves
and shall be returned to ratepayers or assigned a specific purpose as described in
Section 9 (Unassigned Reserves)
Section 4. Reserve for Commitments
At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for
Commitments will be set to an amount equal to the total remaining spending authority for
all contracts in force for the Wastewater Collection Utility at that time.
Section 5. Reserve for Reappropriations
At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for
Reappropriations will be set to an amount equal to the amount of all remaining capital and
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April 12, 2016 37 | Page
non‐capital budgets, if any, that will be re‐appropriated to the following fiscal year for each
fund in accordance with Palo Alto Municipal Code Section 2.28.090.
Section 6. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for
capital contingencies. Staff will manage the CIP Reserve according to the following
practices:
a) The following guideline levels are set forth for the CIP Reserve. These guideline levels
are calculated for each fiscal year of the Financial Planning Period based on the levels of
CIP expense budgeted for that year.
Minimum Level 12 months of budgeted CIP expense
Maximum Level 24 months of budgeted CIP expense
b) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and
the Reserve for Commitments when funds are added to or removed from the Reserve
for Commitments as a result of a change in contractual commitments related to CIP
projects. Any other additions to or withdrawals from the CIP reserve require Council
action.
c) Minimum Level:
i) Funds held in the Reserve for Commitments may be counted as part of the CIP
Reserve for the purpose of determining compliance with the CIP Reserve minimum
guideline level.
ii) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present
a plan to the City Council to replenish the reserve. The plan shall be delivered by the
end of the following fiscal year, and shall, at a minimum, result in the reserve
reaching its minimum level by the end of the next fiscal year. For example, if the CIP
Reserve is below its minimum level at the end of FY 2017, staff must present a plan
by June 30, 2018 to return the reserve to its minimum level by June 30, 2019. In
addition, staff may present, and the Council may adopt, an alternative plan that
takes longer than one year to replenish the reserve, or that does so in a shorter
period of time.
d) Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds
may be added to this reserve. If there are funds in this reserve in excess of the
maximum level staff must propose to transfer these funds to another reserve or return
them to ratepayers in the next Financial Plan. Staff may also seek Council approval to
hold funds in this reserve in excess of the maximum level, if they are held for a specific
future purpose related to the CIP.
Section 7. Rate Stabilization Reserve
Funds may be added to the Rate Stabilization Reserve by action of the City Council and held
to manage the trajectory of future year rate increases. Withdrawal of funds from the Rate
Stabilization Reserve requires Council action. If there are funds in the Rate Stabilization
Reserve at the end of any fiscal year, any subsequent Gas Utility Financial Plan must result
in the withdrawal of all funds from this Reserve by the end of the Financial Planning Period.
GAS UTILITY FINANCIAL PLAN
April 12, 2016 38 | Page
Section 8. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. Any portion of the Gas Utility’s Fund Balance not included in the reserves
described in Section 4‐Section 7 above will be included in the Operations Reserve unless this
reserve has reached its maximum level as set forth in Section 8 d) below. Staff will manage
the Operations Reserve according to the following practices:
a) The following guideline levels are set forth for the Operations Reserve. These guideline
levels are calculated for each fiscal year of the Financial Planning Period based on the
levels of Operations and Maintenance (O&M) and commodity expense forecasted for
that year in the Financial Plan.
Minimum Level 60 days of O&M and commodity expense
Target Level 90 days of O&M and commodity expense
Maximum Level 120 days of O&M and commodity expense
b) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations
Reserve are lower than the minimum level set forth above, staff shall present a plan to
the City Council to replenish the reserve. The plan shall be delivered within six months
of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its
minimum level by the end of the following fiscal year. For example, if the Operations
Reserve is below its minimum level at the end of FY 2014, staff must present a plan by
December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In
addition, staff may present, and the Council may adopt, an alternative plan that takes
longer than one year to replenish the reserve.
c) Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower
than the target level, any Financial Plan created for the Gas Utility shall be designed to
return the Operations Reserve to its target level by the end of the forecast period.
d) Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no
funds may be added to this reserve. Any further increase in the Gas Utility’s Fund
Balance shall be automatically included in the Unassigned Reserve described in Section
9, below.
Section 9. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the Gas
Utility’s Fund Balance will be held in the Unassigned Reserve. If there are any funds in the
Unassigned Reserve at the end of any fiscal year, the next Financial Plan presented to the
City Council must include a plan to assign them to a specific purpose or return them to the
Gas Utility ratepayers by the end of the first fiscal year of the next Financial Planning Period.
For example, if there were funds in the Unassigned Reserves at the end of FY 2015, and the
next Financial Planning Period is FY 2016 through FY 2020, the Financial Plan shall include a
plan to return or assign any funds in the Unassigned Reserve by the end of FY 2016. Staff
may present an alternative plan that retains these funds or returns them over a longer
period of time.
GAS UTILITY FINANCIAL PLAN
April 12, 2016 39 | Page
Section 10. Intra‐Utility Transfers Between Supply and Distribution Funds
The Gas Utility records costs in two separate funds: the Gas Supply Fund and the Gas
Distribution Fund. At the end of each fiscal year staff is authorized to transfer an amount
equal to the difference between Gas Supply Fund costs and Gas Supply Fund Revenues from
the Gas Distribution Fund Operations Reserve to the Gas Supply Fund, or vice versa. Such
transfers shall be included in the ordinance closing the budget for the fiscal year.
GAS UTILITY FINANCIAL PLAN
April 12, 2016 40 | Page
APPENDIX D: DESCRIPTION OF GAS UTILITY COST CATEGORIES
This appendix describes the activities associated with the various cost categories referred to in
this Financial Plan.
Customer Service: This category includes the Gas Utility’s share of the call center, meter
reading, collections, and billing support functions. Billing support encompasses staff time
associated with bill investigations and quality control on certain aspects of the billing process. It
does not include maintenance of the billing system itself, which is included in Administration.
This category also includes CPAU’s key account representatives, who work with large
commercial customers who have more complex requirements for their gas services.
Resource Management: This category includes gas procurement, contract management, rate
setting, and tracking of legislation and regulation related to the gas industry.
Operations and Maintenance: This category includes the costs of a variety of distribution
system maintenance activities, including:
surveying the gas system (50% of the system each year) and repairing any leaks found;
investigating reports of damaged mains or services and perform emergency repairs;
building and replacing gas services for new or redeveloped buildings; and
testing and replacing meters to ensure accurate sales metering.
This category also includes a variety of functions the utility shares with other City utilities,
including:
the Field Services team (which does field research of various customer service issues);
the Cathodic Protection team (which monitors and maintains the systems that prevent
corrosion in metal pipes and reservoirs); and
the General Services team (which manages and maintains equipment, paves and
restores streets after gas, water, or sewer main replacements, and provides welding
services, including certified gas line welding services)
Administration: Accounting, purchasing, legal, and other administrative functions provided by
the City’s General Fund staff, as well as shared communications services and Utilities
Department administrative overhead and billing system maintenance costs.
Demand Side Management: Includes the cost of administering gas efficiency programs and the
direct cost of rebates paid.
Engineering (Operating): The Gas Utility’s engineers focus primarily on the CIP, but a small
portion of their time is spent assisting with distribution system maintenance.
APPENDIX E: GAS UTILITY COMMUNICATIONS SAMPLES
Attachment C
* NOT YET APPROVED *
6053683
Resolution No. _________
Resolution of the Council of the City of Palo Alto Increasing Gas
Rates by Amending Rate Schedules G-1 (Residential Gas Service),
G-1-G (Residential Green Gas Service), G-2 (Residential Master-
Metered and Commercial Gas Service), G-2-G (Residential Master-
Metered and Commercial Green Gas Service), G-3 (Large Commercial
Gas Service), G-3-G (Large Commercial Green Gas Service).
G-10 (Compressed Natural Gas Service Service) and G-10-G
(Compressed Natural Green Gas Service)
R E C I T A L S
A. 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.
B. On ____, 2016, the City Council heard and approved the proposed rate increase.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-1 (Residential Gas Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule G-1, as amended, shall become effective July 1, 2016.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-1-G (Residential Green Gas Service) is hereby amended to read as attached
and incorporated. Utility Rate Schedule G-1-G, as amended, shall become effective July 1, 2016.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-2 (Residential Master-Metered and Commercial Gas Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule G-2, as amended, shall
become effective July 1, 2016.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-2-G (Residential Master-Metered and Commercial Green Gas Service) is
hereby amended to read as attached and incorporated. Utility Rate Schedule G-2-G, as
amended, shall become effective July 1, 2016.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-3 (Large Commercial Gas Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule G-3, as amended, shall become effective July 1, 2016.
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-3-G (Large Commercial Green Gas Service) is hereby amended to read as
Attachment C
* NOT YET APPROVED *
6053683
attached and incorporated. Utility Rate Schedule G-3-G, as amended, shall become effective
July 1, 2016.
SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-10 (Compressed Natural Gas Service Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule G-10, as amended, shall become effective
July 1, 2016.
SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-10-G (Compressed Natural Green Gas Service Service) is hereby amended to
read as attached and incorporated. Utility Rate Schedule G-10-G, as amended, shall become
effective July 1, 2016.
SECTION 9. The City Council finds as follows:
a. Revenues derived from the gas rates approved by this resolution do not exceed the
funds required to provide water service.
b. Revenues derived from the gas rates approved by this resolution shall not be used
for any purpose other than providing gas service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 10. 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.
SECTION 11. The Council finds that the adoption of this resolution changing gas 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.
Attachment C
* NOT YET APPROVED *
6053683
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
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-1 Effective 72-1-20156
dated 12-1-20135 Sheet No G-1-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from City of Palo Alto
Utilities:
1. Separately-metered single-family residential Customers.
2. Separately-metered multi-family residential Customers in multi-family residential facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES: Per Service
Monthly Service Charge: ..................................................................................................$910.3288
Tier 1 Rates: Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-$2.00
2. Cap and Trade Compliance Charge ..................................................$0.00-$0.25
Distribution Charge: .............................................................................................$0.50214392
Tier 2 Rates: (All usage over 100% of Tier 1)
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-2.00
2. Cap and Trade Compliance Charge ...................................................$0.00-$0.25
Distribution Charge: .............................................................................................
.........................................................................................................$01.0407954
6
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
ATTACHMENT D
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-2 Effective 72-1-20156
dated 12-1-20135 Sheet No G-1-2
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The
Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with
the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap
and Trade Compliance Charge will change in response to changing market conditions,
retail sales volumes and the quantity of allowances required. The Commodity and Cap
and Trade Compliance Charges will fall within the minimum/maximum ranges set forth
in Section C.
2. Seasonal Rate Changes:
The Summer period is effective April 1 to October 31 and the Winter period is effective from
November 1 to March 31. When the billing period includes use in both the Summer and the
Winter periods, the usage will be prorated based on the number of days in each seasonal
period, and the charges based on the applicable rates for each period. For further discussion
of bill calculation and proration, refer to Rule and Regulation 11.
3. Calculation of Usage Tiers
Tier 1 natural gas usage shall be calculated and billed based upon a level of 0.667 therms per
day during the Summer period and 2.0 therms per day during the Winter period, rounded to
the nearest whole therm, based on meter reading days of service. As an example, for a 30
day bill, the Tier 1 level would be 20 therms during the Summer period and 60 therms during
the Winter period months. For further discussion of bill calculation and proration, refer to
Rule and Regulation 11.
{End}
RESIDENTIAL GREEN GAS SERVICE
UTILITY RATE SCHEDULE G-1-G
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-G-1 Effective 27-1-20156
dated 72-1-20145 Sheet No G-1-G-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from the City of Palo
Alto Utilities under the PaloAltoGreen Gas Program:
1. Separately-metered single-family residential Customers.
2. Separately-metered multi-family residential Customers in multi-family residential
facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES: Per Service
Monthly Service Charge: ..................................................................................................$910.3288
Tier 1 Rates: Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-$2.00
2. Cap and Trade Compliance Charges .................................................$0.00-$0.25
Distribution Charge:.............................................................................................$0.50214392
PaloAltoGreen Gas Charge .................................................................................. $0.1200
Tier 2 Rates: (All usage over 100% of Tier 1)
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-2.00
2. Cap and Trade Compliance Charges ..................................................$0.00-$0.25
Distribution Charge:.............................................................................................$01.04079546
PaloAltoGreen Gas Charge .................................................................................. $0.1200
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
RESIDENTIAL GREEN GAS SERVICE
UTILITY RATE SCHEDULE G-1-G
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-G-2 Effective 27-1-20156
dated 72-1-20145 Sheet No G-1-G-2
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The
Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with
the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap
and Trade Compliance Charge will change in response to changing market conditions,
retail sales volumes and the quantity of allowances required. The Commodity and Cap
and Trade Compliance Charges will fall within the minimum/maximum ranges set forth
in Section C.
2. Seasonal Rate Changes:
The Summer period is effective April 1 to October 31 and the Winter period is effective
from November 1 to March 31. When the billing period includes use in both the Summer
and the Winter periods, the usage will be prorated based on the number of days in each
seasonal period, and the charges based on the applicable rates for each period. For
further discussion of bill calculation and proration, refer to Rule and Regulation 11.
3. Calculation of Usage Tiers
Tier 1 natural gas usage shall be calculated and billed based upon a level of 0.667 therms
per day during the Summer period and 2.0 therms per day during the Winter period,
rounded to the nearest whole therm, based on meter reading days of service. As an
example, for a 30 day bill, the Tier 1 level would be 20 therms during the Summer period
and 60 therms during the Winter period months. For further discussion of bill calculation
and proration, refer to Rule and Regulation 11.
4. PaloAltoGreen Gas Program Description and Participation
PaloAltoGreen Gas provides for the reduction of green-house gas (GHG) emissions
associated with a Customer’s Gas usage, through the purchase of certified environmental
offsets, with a preference to projects located in California. Purchases are made to match
100% of the therm usage at the Customer’s premises every month.
Customers choosing to participate shall fill out a PaloAltoGreen Gas Program application
provided by the Customer Service Center.
{End}
RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-1 Effective 27-1-20156
dated 72-1-20125 Sheet No G-2-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto
Utilities:
1. Commercial Customers who use less than 250,000 therms per year at one site.
2. Master-metered residential Customers in multi-family residential facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES: Per Service
Monthly Service Charge: ..................................................................................................$784.2386
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .................................... $0.10-$2.00
2. Cap and Trade Compliance Charges ................................................. $0.00-0.25
Distribution Charge: ........................................................................................................$0.6855147
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The Cap
and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the
state’s Cap and Trade Program, including the cost of acquiring compliance instruments
sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and Trade
Compliance Charge will change in response to changing market conditions, retail sales
volumes and the quantity of allowances required. The Commodity and Cap and Trade
Compliance Charges will fall within the minimum/maximum ranges set forth in Section C.
{End}
RESIDENTIAL MASTER-METERED AND COMMERCIAL GREEN GAS SERVICE
UTILITY RATE SCHEDULE G-2-G
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-G-1 Effective 27-1-20156
dated 72-1-20145 Sheet No G-2-G-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from the City of Palo
Alto Utilities under the PaloAltoGreen Gas Program:
1. Master-metered residential Customers in multi-family residential facilities.
2. Commercial Customers who use less than 250,000 therms per year at one site.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES:
1. 100% Renewable/Full Green option:Per Service
Monthly Service Charge: ......................................................................................$784.2386
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-$2.00
2. Cap and Trade Compliance Charges ....................................................... $0.00-0.25
Distribution Charge: ............................................................................................$0.6855147
PaloAltoGreen Gas Charge .................................................................................. $0.1200
2. 100 Therm block option:Per Service
Monthly Service Charge: ......................................................................................$784.2386
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................... $0.10-$2.00
2. Cap and Trade Compliance Charges ....................................................... $0.00-0.25
Distribution Charge: ............................................................................................$0.6855147
PaloAltoGreen Gas Charge (per 100 therm block) .............................................. $12.00
RESIDENTIAL MASTER-METERED AND COMMERCIAL GREEN GAS SERVICE
UTILITY RATE SCHEDULE G-2-G
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-G-2 Effective 27-1-20156
dated 72-1-20145 Sheet No G-2-G-2
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The
Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with
the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap
and Trade Compliance Charge will change in response to changing market conditions,
retail sales volumes and the quantity of allowances required. The Commodity and Cap
and Trade Compliance Charges will fall within the minimum/maximum ranges set forth
in Section C.
2. Request for Service
A qualifying Customer may request service under this schedule for more than one
account or meter if the accounts are located on one. A site consists of one or more
contiguous parcels of land with no intervening public right-of-ways (e.g. streets).
3. PaloAltoGreen Gas Program Description and Participation
PaloAltoGreen Gas provides for the reduction of green-house gas (GHG) emissions
associated with a Customer’s gas usage, through the purchase of certified environmental
offsets, with a preference to projects located in California. Purchases are made to match
100% of the therm usage at the Customer’s facility every month (the 100%
Renewable/Full Green option), or in 100 therm blocks.
Customers choosing to participate shall fill out a PaloAltoGreen Gas Program application
provided by the Customer Service Center.
{End}
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-3-1 Effective 27-1-20156
dated 72-1-20125 Sheet No G-3-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from the City of Palo
Alto Utilities:
1. Commercial Customers who use at least 250,000 therms per year at one site.
2. Customers at City-owned generation facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides natural gas service.
C. UNBUNDLED RATES: Per Service
Monthly Service Charge: $37761.4318
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .................................................... $0.10-$2.00
2. Cap and Trade Compliance Charges ...................................................... $0.00-0.25
Distribution Charge: .......................................................................................................$0.6775071
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The
Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with
the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap
and Trade Compliance Charge will change in response to changing market conditions,
retail sales volumes and the quantity of allowances required. The Commodity and Cap
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-3-2 Effective 27-1-20156
dated 72-1-20125 Sheet No G-3-2
and Trade Compliance Charges will fall within the minimum/maximum ranges set forth
in Section C.
2. Request for Service
A qualifying Customer may request service under this schedule for more than one
account or meter if the accounts are located on one site. A site consists of one or more
contiguous parcels of land with no intervening public right-of- ways (e.g. streets).
3. Changing Rate Schedules
Customers may request a rate schedule change at any time to any applicable City of Palo
Alto full-service rate schedule. Customers served under this rate schedule may elect Gas
Direct Access at any time.
{End}
LARGE COMMERCIAL GREEN GAS SERVICE
UTILITY RATE SCHEDULE G-3-G
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-3-G-1 Effective 27-1-20156
dated 72-1-20145 Sheet No G-3-G-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from the City of Palo
Alto Utilities under the PaloAltoGreen Gas Program:
1. Commercial Customers who use at least 250,000 therms per year at one site.
2. Customers at City-owned generation facilities.
B. TERRITORY:
This schedule applies anywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES:
1. 100% Renewable/Full Green option:Per Service
Monthly Service Charge:$37761.4318
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................................... $0.10-$2.00
2. Cap and Trade Compliance Charges .......................................................... $0.00-0.25
Distribution Charge: ...........................................................................................$0.6775071
PaloAltoGreen Gas Charge: ......................................................................................$0.1200
2. 100 Therm block option: Per Service
Monthly Service Charge:$37761.4318
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .......................................................... $0.10-$2.00
2. Cap and Trade Compliance Charges .......................................................... $0.00-0.25
Distribution Charge: ...........................................................................................$0.6775071
PaloAltoGreen Gas Charge (per 100 therm block): ....................................................$12.00
D. SPECIAL NOTES:
LARGE COMMERCIAL GREEN GAS SERVICE
UTILITY RATE SCHEDULE G-3-G
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-3-G-2 Effective 27-1-20156
dated 72-1-20145 Sheet No G-3-G-2
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The
Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with
the state’s Cap and Trade Program, including the cost of acquiring compliance
instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap
and Trade Compliance Charge will change in response to changing market conditions,
retail sales volumes and the quantity of allowances required. The Commodity and Cap
and Trade Compliance Charges will fall within the minimum/maximum ranges set forth
in Section C.
2. Request for Service
A qualifying Customer may request service under this schedule for more than one
account or meter if the accounts are located on one site. A site consists of one or more
contiguous parcels of land with no intervening public right-of-ways (e.g. streets).
3. PaloAltoGreen Gas Program Description and Participation
PaloAltoGreen Gas provides for the reduction of green-house gas (GHG) emissions
associated with a Customer’s gas usage, through the purchase of certified environmental
offsets, with a preference to projects located in California. Purchases are made to match
100% of the therm usage at the Customer’s facility every month, (the 100%
Renewable/Full Green option), or in 100 therm blocks.
Customers choosing to participate shall fill out a PaloAltoGreen Gas Program application
provided by the Customer Service Center.
{End}
COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-10-1 Effective 47-201-20156
dated 14-201-20135 Sheet No.G-10-1
A. APPLICABILITY:
This schedule applies to the sale of natural gas to the City-owned compressed natural gas (CNG) fueling
station at the Municipal Service Center in Palo Alto
B. TERRITORY:
Applies to location at the Municipal Service Center in City of Palo Alto.
C. UNBUNDLED RATES: Per Service
Monthly Service Charge: ..................................................................................................$520.9365
Per Therm
Supply Charges:
Commodity (Monthly Market Based) ................................................................ $0.10-$2.00
Cap and Trade Compliance Charges .............................................................. $0.00 to $0.25
Distribution Charge .........................................................................................................$0.0963509
D. SPECIAL CONDITIONS
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.
The Commodity charge is based on the monthly natural gas Bidweek Price Index for delivery at
PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The Cap and Trade
Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade
Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas
Utility’s compliance obligations. The Cap and Trade Compliance Charge will change in response to
changing market conditions, retail sales volumes and the quantity of allowances required. The
Commodity and Cap and Trade Compliance Charges will fall within the minimum/maximum range
set forth in Section C. {End}
COMPRESSED NATURAL GREEN GAS SERVICE
UTILITY RATE SCHEDULE G-10-G
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-10-G--1 Effective 47-120-20156
dated 4-20-2015 Sheet No.G-10-G-1
A. APPLICABILITY:
This schedule applies to the wholesale sale of natural gas to the City-owned compressed natural gas
(CNG) fueling station at the Municipal Service Center in Palo Alto under the PaloAltoGreen Gas
Program:
B. TERRITORY:
The City-owned compressed natural gas (CNG) fueling station located at the Municipal Service Center
in City of Palo Alto.
C. UNBUNDLED RATES: Per Service
Monthly Service Charge: ..................................................................................................$520.9365
Per Therm
Supply Charges:
Commodity (Monthly Market Based) .................................................... $0.10-$2.00
Cap and Trade Compliance Charges .................................................. $0.00 to $0.25
Distribution Charge .........................................................................................................$0.0963509
PaloAltoGreen Gas Charge ...................................................................................................$0.1200
D. SPECIAL CONDITIONS
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.
The Commodity charge is based on the monthly natural gas Bidweek Price Index for delivery at
PG&E Citygate, accounting for delivery losses to the Customer’s Meter. The Cap and Trade
Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade
Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas
Utility’s compliance obligations. The Cap and Trade Compliance Charge will change in response to
COMPRESSED NATURAL GREEN GAS SERVICE
UTILITY RATE SCHEDULE G-10-G
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-10-G--2 Effective 47-120-20156
dated 4-20-2015 Sheet No.G-10-G-2
changing market conditions, retail sales volumes and the quantity of allowances required. The
Commodity and Cap and Trade Compliance Charges will fall within the minimum/maximum range
set forth in Section C.
2. PaloAltoGreen Gas Program Description and Participation
PaloAltoGreen Gas provides for the reduction of green-house gas (GHG) emissions associated with a
Customer’s Gas usage, through the purchase of certified environmental offsets, with a preference to
projects located in California. Purchases are made to match 100% of the therm usage at the
Customer’s premises every month.
Customers choosing to participate shall fill out a PaloAltoGreen Gas Program application provided
by the Customer Service Center.
{End}
EXCERPTED DRAFT MINUTES OF THE APRIL 12, 2016
UTILITIES ADVISORY COMMISSION SPECIAL MEETING
ITEM 3. ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend
that the City Council Adopt: (1) a Resolution Approving the Fiscal Year 2017 Gas Utility
Financial Plan; and (2) a Resolution Increasing Gas Rates by Amending Rate Schedules G-1
(Residential Gas Service), G-1-G (Residential Green Gas Service), G-2 (Residential Master-
Metered and Commercial Gas Service), G-2-G (Residential Master-Metered and Commercial
Green Gas Service), G-3 (Large Commercial Gas Service), G-3-G (Large Commercial Green Gas
Service, G-10 (Compressed Natural Gas Service) and G-10-G (Compressed Natural Green Gas
Service)
Acting Rates Manager Eric Keniston summarized the written report. He explained that gas rates
were proposed to increase by 8%, slightly higher than the 7% shown in the preliminary forecast
in February. Overall rates for a median customer bill would be around 9%.
Keniston explained that gas revenues have been below expenses for several years, and reserves
had been used to make up the shortfall. A series of rate increases would be needed to bring
revenues back in line with cost. Keniston also explained that gas sales had been decreasing over
several years. While commodity rates changed monthly based on market prices, distribution
costs were not, and if consumption continued to decrease, rate increases would need to be
higher to recover shortfalls.
Keniston showed that, with current sales projections and the proposed rate trajectory,
Operations reserves would fall to near the minimum guideline levels for a few years before
recovering back to target. The proposed rate changes themselves were shown, and Keniston
noted that they resulted in an average 8% increase for most customers.
As was requested by the UAC in February, two additional scenarios were provided, the first
where Operations reserves were allowed to stay at or near the minimum guideline level, the
second where reserves were kept at or near target levels. The first scenario indicated a 24%
rate increase would be needed in FY 2018, the second a 16%, and staff recommended neither
approach.
The Commission had no questions on the proposed rates or FY 2017 Gas Financial Plan
following Keniston’s presentation.
ACTION:
Vice Chair Cook moved to recommend that the UAC recommend Council approve staff’s
proposal and Commissioner Schwartz seconded the motion. The motion carried unanimously
(5-0) with Chair Foster, Vice Chair Cook, Commissioners Ballantine, Danaher, and Schwartz
voting yes and Commissioners Eglash and Hall absent.
ATTACHMENT E