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HomeMy WebLinkAbout1998-02-17 City Council (19)City ofPalo Alto Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT:UTILITIES DATE: SUBJECT: FEBRUARY 17, 1998 CMR:135:98 BUDGET AMENDMENT ORDINANCE FOR ’FIBER CUSTOMER DESIGN AND CONNECTION SERVICES AMOUNT OF-$250,000 AND FIBER OPTIC PROJECT REPORT OPTIC IN THE, STATUS REPORT IN BRIEF This report requeats that Council approve a Budget Amendment Ordinance in the amount of $250,000 for Fiber Optic Customer Design and Connection Services Capital Improvement Program (CIP) project (CIP No.9802). This project will install fiber optic connections for new customers. These fiber optic connections may be made between the customer and the existing fiber backbone or-directly between two customer sites, depending upon the circumstances. More extensive new service connections are now expected than were originally anticipated during the budgeting process. The City will be fully reimbursed for the cost of installing these new service connections. As a result, this Budget Amendment Ordinance will not result in a net reduction in Electric Fund reserves. CMR: 135:98 Page 1 of 4 RECOMMENDATION Staff recommends that the City Council adopt the attached Budget Amendment Ordinance to increase Fiber Optic Customer Design and Connection Services budget appropriation by $250,000 to ensure that staff will be able to respond to connection requests in a timely manner for the remainder of FY 1997-98. All customer connection expenses will be offset by an equal amount of customer revenue; therefore, there will be no net reduction in Electric Fund Reserves. BACKGROUND On August 5, 1996, the City Council authorized staff to establish a Telecommunications Program as a subfund of the Electric Utility and fund a positioning strategy involving the Electric Utility’s development of a dark fiber optic ring around Palo Alto (CMR:361:96). Staff has since performed the initial activities necessary to implement the commercial telecommunications program as a dark fiber optic infrastructure license program. The initial design concept involved installation of two fiber cables, one with 144 fibers and the other with 96 fibers, in a single 15-mile ring. The design was later enhanced, without impacting the budget, by increasing the number of route-miles and decreasing the number fibers on many of the routes to achieve greater overall coverage. The modified design, as shown in Figure 1, covers a 28-mile route, with the majority of the route consisting of a single.144 strand fiber cable. This design also features a series of seven smaller rings that enable greater customization than would-have been possible with a single large ring. Construction has been completed for 24 of the 28 miles shown in Fi .gure 1. The remaining construction will be completed as necessary to meet customer demand. Fiber license agreements have been signed with two customers and advance engineering studies have been completed for five others. In total, advance engineering studies have been completed for connections to 29 different locations. Discussions are also underway with several other parties. Annual fiber license fees are currently in excess of $200,000 per year, with additional fiber license revenues of $700,000 per year under discussion. Although it is early to predict, licensing efforts .are on target for achieving capital cost recovery within the expected 3-5 year time frame.- DISCUSSION The FY1997-98 budget for Fiber Optic Customer Design and Cormection Services (9802) is $200,000, of which $33,000 has been spent. Based upon the level of interest expressed by potential customers, staff anticipates the need for an additional $250,000.. Potential customers have expressed the need to expedite dark fiber access upon execution of an CMR: 135:98 Page 2 of 4 Municipal Service Center Deferred until FY1998-99 STANFORD ---- Underground Singlemode Fiber Cable ---- Aerial Singlemode Fiber Cable ~ Fiber Backbone Splice Point ("XY" = splice point nam~ Date: 1/17/98 Figure I - Palo Alto Fiber Backbone Route Map agreement with the City. Adequate budget will allow staff to respond quickly tO these customer requests. ¯Staffattributes the higher than expected demand for customer design and connection services to two factors: Initial demand for dark fiber has been stronger from end users than from telecommunications carriers, resulting in a-greater demand for the City’s customer design and connection services. 2.Several requests have been for custom fiber cable installations between locations where it is not practical to use the fiber backbone. This requires additional up-front expenses that can be substantial in some cases. In particular, projects Under discussion with three prospective customers could require $350,000 of interconnection activities. RESOURCE IMPACT A Budget Amendment Ordinance in the amount of $250,000 is requested to fund anticipated Fiber Optic Customer Design and Connection Services (9802). Funds are available from the Electric Fund Rate Stabilization Reserve. All costs will be recovered through revenues via advance payment for all fiber optic customer design and connection services rendered. Thus, revenues will be correspondingly increased by $250,000, resulting in no net reduction in Electric Fmid Reserves: POLICY IMPLICATIONS Staff’s current project, enhanced by this request, extends the telecommunications program that Council approved in August 1996. It offers the opportunity for the City to install additional fiber optic cable and related infrastructure in response to customer requests that can not be.handled by the fiber optic backbone. ¯ ENVIRONMENTAL REVIEW As required by the California Environmental Quality Act, an environmental assessment was prepared for the Electric Utility’s overall dark fiber infrastructure project resulting in a Mitigated Negative Declaration (CMR: 177:97). CMR:135:98 Page 3 of 4 ATTACHMENTS Budget Amendment Ordinance PREPARED BY:Van Hiemke, Utilities Telecommunications Manager Tom Habashi, Assistant Director of Utilities EDWAR~ J. MRIZF_~ " " Director of Utilities CITY MANAGER APPROVAL: FLEMING Ci~ Manager CMR: 135:98 Page 4 of 4 ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET.FOR THE FISCAL YEAR 1997-98 FOR ADDITIONAL FUNDING IN.THE AMOUNT OF $250,000 FOR THE FIBER OPTIC CUSTOMER DESIGN AND CONNECTION SERVICES CAPITAL IMPROVEMENT PROJECT TO BE FULLY FUNDED BY REVENUE FROM BILLABLE WORK ~ WHEREAS, pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, ~he Council on June 23, 1997 did adopt a budget for fiscal year 1997-98; and WHEREAS, Capital Improvement Program Project 9802 was created in the Electric Fund to provide design and connection services to fiber optic ~ustomers; and ~- WHEREAS, on the basis .of advance engineering requests, the City of Palo Alto is experiencing more extensive new service requests than were originally anticipated, including.two-direct interconnection projects which could cost $350,000; and WHEREAS, there is insufficient funding in this Capital Improvement Program project to support this levei of activity for the remainder of the fiscal year and the appropriations for the projects need to be increased; and WHEREAS, the private property owners requesting these services reimburse the utility I00 percent of the cost of the service; and WHEREAS, City Council authorization is needed to amend the 1997-98 budget as hereinafter set forth. . NOW, THEREFORE, the Council of the City of Palo Alto does ORDAIN as follows: SECTION I. The sum of-Two Hundred Fifty Thousand Dollars ($250,000) is hereby appropriated to Capital Improvement Project Number 9802, Fiber Optic Customer Design and Connection Services. SECTION 2. Revenue from billable work in Capital Improvement Project Number 9802 is increased by the sum of Two Hundred Fifty Thousand Dollars ($250,000). SECTION 3. This transaction will have no effect on the Electric Rate Stabilization Reserve. SECTION 3. As specified in Section 2.28..080(a)’~of the’ Palo Alto Municipal Code, a two-thirds vote of the City Council ¯ is required toadopt this ordinance. ’~ SECTION 4. As required by the California Environmental Quality Act, an environmental assessment was prepared for the Electric Utility’s overall dark fiber infrastructure project resulting in a Mitigated Negative Declaration. SECTION 5. As provided in Section 2.04.350 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ~ABSTENTIONS: ABSENT: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM:City Manager Senior Asst. City Attorney Acting Director, Administrative Services Department Director of Utilities