HomeMy WebLinkAboutStaff Report 10107
City of Palo Alto (ID # 10107)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/16/2019
City of Palo Alto Page 1
Council Priority: Fiscal Sustainability
Summary Title: FY 2020 Wastewater Collection Financial Plan and Rate
Proposals
Title: Utilities Advisory Commission Recommends the City Council Adopt: (1)
a Resolution Approving the Fiscal Year 2020 Wastewater Colle ction Financial
Plan; and (2) a Resolution Increasing Wastewater Rates by 7 Percent by
Amending Rate Schedules S -1 (Residential Wastewater Collection and
Disposal), S -2 (Commercial Wastewater Collection and Disposal), S -6
(Restaurant Wastewater Collection and Disposal) and S -7 (Commercial
Wastewater Collection and Disposal – Industrial Discharger)
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:
a. The Fiscal Year (FY) 2020 Wastewater Collection Financial Plan (Attachment B);
and
b. Authority to transfer up to $978,000 from the CIP Reserve to the Operations
Reserve in FY 2020; and
2. Adopt a resolution (Attachment C) increasing wastewater rates by amending Rate
Schedules S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial
Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and
Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial
Discharger) (Attachment D).
Executive Summary
The FY 2020 Wastewater Collection Utility Financial Plan includes projections of the utility’s
costs and revenues through FY 2024. The Financial Plan projects c osts to rise substantially for
City of Palo Alto Page 2
the next several years due primarily to increasing treatment costs related to capital
improvements and increasing operational costs at the Regional Water Quality Control Plant
(RWQCP), as well as increasing collection system costs for operations and capital. In addition,
current revenues are only 90% of cost. Staff proposes a 7% wastewater collection rate increase
in FY 2020, and projects rate increases of 6% annually through FY 2024 to raise rate revenues to
cover current and projected costs.
Background
Every year staff presents the UAC and Finance Committee with Financial Plans for its Electric,
Gas, Water, 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 City’s sewer system collects wastewater from Palo Alto residents and delivers it to the
RWQCP for treatment. The City of Palo Alto runs the RWQCP, but it also treats wastewater for
five other partner agencies (Stanford, East Palo Alto, Los Altos Hills, Lost Altos, and Mountain
View). Much of the wastewater for those partner agencies is also transporte d across the City’s
wastewater collection system.
The Wastewater Collection Utility has two main costs: the costs of operating the collection
system and the Palo Alto’s share of the cost of running the RWQCP.1 As discussed in previous
years, both cost components have been increasing and are expected to continue to increase.
The RWQCP has been in operation since 1934. Aging equipment, new regulatory requirements,
and the movement to full sustainability will require rehabilitation, replacement and new
processes. Palo Alto has seen increases in operational costs in recent years, and debt service
for the plant is expected to increase substantially in coming years as a major rehabilitation and
replacement plan adopted in 2012 (Long Range Facilities Plan) is implemented. Collection
system costs are also increasing, though not as much as treatment costs. This is primarily driven
by increases in capital costs: the cost of underground construction to replace aging sewer mains
has nearly doubled since 2008. Other operational costs have also increased (e.g. salaries and
benefits and overhead), but more slowly than treatment and collection infrastructure -related
costs.
This year’s forecasts take place in the context of rising construction costs and the need for
major rehabilitation and replacement of infrastructure at the Regional Water Quality Control
Plant.
1 The costs associated with the RWQCP are shared among Palo Alto and the partner agencies based on wastewater
flows and the composition of the wastewater each agency sends to the treatment plant. Palo Alto’s share varies
from year to year, butyear but is roughly one third of the total cost.
City of Palo Alto Page 3
Discussion
Staff completes an annual assessment of the financial position of the City’s wastewater
collection utility to ensure adequate revenue to fund operations, in compliance with the cost of
service requirements set forth in the California Constitution (Proposition 218). 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.
The current rate proposals are also based on the methodology described in the 2011
Wastewater Collection Utility cost of Service and Rate Study completed by Utility Financial
Solutions (Staff Report 1399). Staff intends to review and update this study in FY 2020.
Proposed Actions for FY 2020
1. Increase wastewater rates by 7% for Rate Schedules S-1 (Residential Wastewater
Collection and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6
(Restaurant Wastewater Collection and Disposal) and S-7 (Commercial Wastewater
Collection and Disposal – Industrial Discharger).
2. Transfer up to $978,000 from the CIP Reserve to the Operations Reserve, as needed, to
bring the Operations Reserve above minimum guideline levels.
The FY 2020 Wastewater Collection Financial Plan (Attachment B) describes these proposed
actions in more detail. The transfer will enable staff to maintain Operations Reserve levels
above the minimum guideline level, although no transfer will be made if the Operations
Reserve will be above minimum guideline levels without it.
Staff proposes to adjust wastewater rates as shown in Table 1 below, effective July 1, 2019. The
adjustments will increase the system average rate by roughly 7%. These rate changes are
included in the amended rate schedules provided as Attachment D.
Table 1: Current and Proposed Wastewater Collection Charges
Current
(7/1/2018)
Proposed
(7/1/2019)
Change
$/mo. %
City of Palo Alto Page 4
Monthly Service and Minimum Charges ($/month)
S-1 (Residential) Service
charge
$38.66 $41.37 $2.71 7%
S-2 (Commercial),
S-6 (Restaurant)
Minimum 38.66 41.37 2.71 7%
Quantity Rates
S-1 (Residential) N/A N/A N/A - -
S-2 (Commercial) $/CCF 7.45 7.97 0.52 7%
S-6 (Restaurant) $/CCF 11.52 12.33 0.81 7%
S-7 (Industrial) $/CCF 3.42 3.66 0.24 7%
(1) Monthly charges for S-1 are fixed monthly charges, and those for S-2 and S-6
are minimum monthly charges.
(2) Currently there are no customers on the S-7 rate schedule; however, CPAU
continues to maintain it in case there is a need for the rate schedule in the
future.
FY 2020 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 2 shows the projected rate adjustments and their impact on a residential wastewater bill,
as shown in the Wastewater Financial Plan:
Table 2: Projected Rate Adjustments and Residential Bill Impact, FY 20 20 to FY 2024
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Wastewater Utility 7% 6% 6% 6% 6%
Estimated Bill Impact for
Residential Customers ($/mo)
$2.71 $2.48 $2.63 $2.79 $2.96
As noted above, the main drivers for the increase in the Wastewater Collection Utility’s costs
(and therefore rates) over the next several years are the costs for wastewater treatment, which
are projected to increase by about 6% per year as the City makes several upgrades to the
Regional Water Quality Control Plant. The treatment plant’s major project, started in FY 2018, is
making progress constructing the Sludge Dewatering and Truck Loadout Facility, which will
allow (in 2019) the retirement of the Plant’s two sewage sludge incinerators that have been in
operation since 1972. Future projects include secondary treatment upgrades as well as
replacement of the headworks facility. Capital improvement costs for the wastewater collection
system increased in FY 2019, but2019 but are projected to drop somewhat in FY 2020 as some
ongoing project costs are reduced. Construction costs for main replacement projec ts are
projected to be around 30% higher than they were in FY 2016, the last year an annual main
replacement project was budgeted. After FY 2020, Operating and CIP costs are projected to rise
roughly 2%-3% annually.
Figure 1 and 2 below illustrate the increase in the Wastewater Collection Utility’s costs. The
figures use FY 2016 as a comparison year because FY 2017 and FY 2018 are atypical years, due
to one-time cost savings related to delayed main replacement projects.
City of Palo Alto Page 5
Figure 1: FY 2016 and FY 2024 costs
Figure 2: Percentage of Total Cost Increase From FY 2016 to FY 202 4 Attributed to Treatment,
Capital, and Operations Costs
Figure 1 and 2 show that 56% of the increase from FY 2016 to FY 2024 is due to treatment cost
increases. 35% of the increase from FY 2016 to FY 2024 is due to collection capital expenses.
The remaining 9% is due to increases in collection operations costs.
Wastewater main replacement costs have risen substantially in recent years, and the water,
electric and gas utilities have also seen similar increases. Because bids for projects have
continued to come in higher than historical prices, staff re -evaluated the cost of future projects
City of Palo Alto Page 6
and revalued them based on current bid indications. As a result, projected costs for main
replacement projects have risen by $1 to $2 million from prior forecasts.
The attached financial plan includes larger sewer main replacement projects every other year
instead of smaller projects annually. This CIP plan is a revision from what was provided to the
UAC in their packet at their March 6, 2019 meeting, but the revised plan was discussed as part
of the UAC presentation. This revised main replacement schedule will allow CPAU to continue
to replace wastewater mains in poor condition while addressing challenges in the current
construction market and optimizing current staffing resources.
Wastewater Bill Comparison with Surrounding Cities
The annual sewer bill for a Palo Alto resident is $464 under current rates, 29% lower than the
average neighboring community. Table 3 shows the monthly sewer bills for residential
customers compared to what they would be in surrounding communities.
Table 3: Residential Monthly Sewer Bill Comparison (based on rate s as of February, 2019)
Palo Alto
Neighboring Communities Neighboring
Community
Average
Menlo
Park
Redwood
City
Mountain
View Los Altos
Santa
Clara Hayward
38.66 93.83 78.24 42.91 40.80 37.36 32.85 54.33
If Council adopts the proposed wastewater rate change, and assuming other agencies do not
change their sewer rates, Palo Alto’s rates would be 24% lower than the average neighboring
community. Staff has no information at this time as to whether or when the surrounding
communities are planning wastewater rate changes. However, as most agencies are also
requiring renovations to their respective treatment plants, staff assumes increases at other
agencies will occur. Note that as partners in the RWQCP, Mountain View and Los Altos will be
affected by the same treatment cost increases as Palo Alto.
Changes from Prior Financial Forecasts
Staff has projected the need for ongoing wastewater rate increases, starting in FY 2019, for
several years. Table 4 compares current rate projections to those projected in the last two
year’s Financial Plans. As shown, the FY 2020 rate projections are lower than was projected last
year. The FY 2020 projections reflect current information available regarding the cost of capital
improvements both for Wastewater Collection and the Regional Water Quality Control Plant.
Table 4: Projected Wastewater Rate Changes for FY 2020 to FY 2024
Projection FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
Current
(FY 2020 Financial Plan) 7% 6% 6% 6% 6%
City of Palo Alto Page 7
Prior year
(FY 2019 Financial Plan) 12% 10% 6% 4% 4%
Two years ago
(FY 2018 Financial Plan) 7% 7% 7% 7% 5%
Commission Review and Recommendation
The UAC reviewed this proposal at its March 6, 2019 meeting. Staff presented the UAC with the
main cost drivers of the utility, but also discussed that the proposed rate changes for FY 2021
and beyond had decreased from initial recommendations of 8% per year to 6% per year. This
was due to an amended CIP schedule that has larger main replacement projects every other
year, rather than annual replacement projects. This resulted in lower costs over the long run
and thus lower proposed rates. The UAC accepted staff’s recommendation and approved the
proposed FY 2020 rates and amended financial plan unanimously. The excerpted draft minutes
from the UAC’s March 6, 2019 meeting can be found on the City’s website, located here.
Timeline
If the Finance Committee supports the proposed rate adjustments, staff will send notification of
the potential rate increases to customers as required by Article XIIID of the State Constitution
(added by Proposition 218). The City Council will consider the proposed Financial Plans and
amended rate schedules with the FY 2020 budget, at which time the public hearing required by
Article XIIID of the State Constitution will be held.
Resource Impact
Staff projected normal year revenues for the Wastewater Collection Utility to increase by
roughly 7% ($1.3 million) in FY 2020 as a result of the proposed rate increases. See the FY 2020
Wastewater Collection Utility Financial Plan (Attachment B) for a more comprehensive
overview of projected cost and revenue changes for the next five years.
Policy Implications
The proposed wastewater rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans. Staff developed the wastewater
rate adjustments using a cost of service study and methodology that was developed in
compliance with the cost of service requirements of Proposition 218.
Environmental Review
The Finance Committee’s review and recommendation to Council on the proposed FY 2020
Wastewater Collection Financial Plan and rate adjustments do not meet the definition of a
project, pursuant to Section 21065 of the California Environmental Quality Act, thus no
environmental review is required.
Attachments:
• Attachment A: Resolution Approving FY 2020 Wastewater Utility Financial Plan - Draft
• Attachment B: FY 2020 Wastewater Collections Financial Plan
• Attachment C: Resolution Amending FY 2020 Wastewater Rates - Draft
City of Palo Alto Page 8
• Attachment D: Proposed Wastewater Collection Utiliy Rate Schedules S-1, S-2, S-6 and S-
7
Attachment A
* NOT YET APPROVED *
6055183
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the
FY 2020 Wastewater Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) 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 a
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
Plan.
SECTION 1. The Council hereby approves the FY 2020 Wastewater Utility Financial
SECTION 2. The Council hereby approves the transfer of up to $978,000 in FY 2020
from the Capital Improvement Projects Reserve to the Operations Reserve, as described in the
FY 2020 Wastewater Utility Financial Plan and approved via this resolution.
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s definition of a project under Public Resources Code
Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
Attachment A
* NOT YET APPROVED *
6055183
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Senior DeputyAssistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
FY 20 20 WASTEWATER
COLLECTION UTILITY
FINANCIAL PLAN
FY 20 20 TO FY 202 4
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 2 | P a g e
FY 20 20 WASTEWATER COLLECTIO N
UTILITY FINANCIAL PLAN
FY 20 20 TO FY 20 2 4
TABLE OF CONTENTS
Section 1: Definitions and Abbreviations................................................................................ 4
Section 2: Executive Summary and Recommendations ........................................................... 4
Section 2A: Overview of Financial Position .................................................................................. 4
Section 2B: Summary of Proposed Actions .................................................................................. 5
Section 3: Detail of FY 2020 Rate and Reserves Proposals ....................................................... 6
Section 3A: Rate Design ............................................................................................................... 6
Section 3B: Current and Proposed Rates ..................................................................................... 6
Section 3C: Bill Impact of Proposed Changes .............................................................................. 7
Section 3D: Proposed Reserve Transfers ..................................................................................... 7
Section 4: Utility Overview .................................................................................................... 8
Section 4A: Wastewater Utility History ....................................................................................... 8
Section 4B: Customer base .......................................................................................................... 9
Section 4C: Collection System ...................................................................................................... 9
Section 4D: Cost Structure and Revenue Sources ...................................................................... 10
Section 4E: Reserves Structure ................................................................................................... 10
Section 4F: Competitiveness ...................................................................................................... 11
Section 5: Utility Financial Projections ................................................................................. 12
Section 5A: FY 2014 to FY 2018 Cost and Revenue Trends ........................................................ 12
Section 5B: FY 2018 Results ....................................................................................................... 13
Section 5C: FY 2019 Projections ................................................................................................. 13
Section 5D: FY 2020 – FY 2024 Projections ................................................................................ 13
Section 5E: Risk Assessment and Reserves Adequacy ............................................................... 15
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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Section 5F: Alternate Scenarios ................................................................................................. 17
Section 5G: Long-Term Outlook ................................................................................................. 17
Section 6: Details and Assumptions ..................................................................................... 17
Section 6A: Wastewater Treatment Costs ................................................................................. 17
Section 6B: Operations .............................................................................................................. 18
Section 6C: Capital Improvement Program (CIP) ....................................................................... 18
Section 6D: Debt Service ............................................................................................................ 20
Section 6E: Other Revenues ....................................................................................................... 21
Section 7: Communications Plan .......................................................................................... 22
Appendices ......................................................................................................................... 23
Appendix A: Wastewater Collection Financial Forecast Detail .................................................. 24
Appendix B: Wastewater Collection Utility Capital Improvement Program (CIP) Detail .......... 25
Appendix C: Wastewater Collection Utility Reserves Management Practices .......................... 26
Appendix D: Map (CPA Wastewater Collection System - Sewer Mains Replaced or
Rehabilitated since 1990) .......................................................................................................... 29
Appendix E: Sample of Wastewater Collection Outreach Materials ......................................... 30
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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SECTION 1 : DEFINITIONS AND ABBR EVIATIONS
CCF The standard unit of measurement for water delivered to water customers, equal to
one hundred cubic feet, or roughly 748 gallons. When water usage is used to assess
wastewater charges for commercial customers, it is measured in CCF.
CIP Capital Improvement Program
CPAU City of Palo Alto Utilities Department
FOG Fats, oils, and grease. When flushed into the sewer system, these materials
accumulate in parts of the sewer system and create blockages.
O&M Operations and Maintenance
RWQCP Regional Water Quality Control Plant, the wastewater treatment plant owned and
operated by the City of Palo Alto that serves Palo Alto and several surrounding
communities.
UAC Utilities Advisory Commission
SECTION 2 : EXECUTIVE SU MMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City of Palo Alto’s Wastewater Collection Utility
for the next five years. The 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 2 A : OVERVIEW OF FINANC IAL POSITION
Overall costs in the Wastewater Collection Utility are expected to rise by an average of
approximately 5% per year from fiscal year (FY) 2019 to FY 2024. Wastewater treatment costs
are projected to rise by an average of approximately 6.1% annually and collection system CIP
costs, which rose substantially in FY 2019 as sewer main replacement projects resumed an
annual replacement cycle, are projected to increase on average by 6% annually over the
projection period. This financial plan includes larger sewer main replacement projects every
other year instead of smaller projects annually. This revised main replacement schedule will
allow CPAU to continue to replace wastewater mains in poor condition while addressing
challenges in the current construction market and optimizing current staffing resources.
However, Wastewater collection system operations costs are currently projected to increase by
2% to 3% per year. Table 1 below shows the costs for the Wastewater Collection Utility.
Table 1: Expenses for FY 2018 to FY 2024
Expenses
($000)
FY 2018
(actual)
FY 2019
(estimate)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Treatment Costs 9,559 10,981 11,733 12,400 13,974 14,365 14,744
Operations 4,779 5,660 5,933 6,237 6,386 6,382 6,395
Capital Projects 2,955 6,631 5,950 1,478 8,674 1,570 8,761
TOTAL 17,294 23,273 23,616 20,115 29,033 22,317 29,900
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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Across all the City’s utilities, CIP expenses are reflective of higher contract bid prices for
underground construction. Going forward, to ensure that revenues cover rising costs and
reserves remain healthy, the financial plan includes the proposed and projected rate changes
shown in Table 2. The table also shows rate projections from last year’s Financial Plan. Last
year’s plan projected higher initial increases in FY 2020 and 2021 due to projected lower
reserve balances.
Table 2: Proposed / Projected Wastewater Collection Rate Trajectory for FY 2020 to FY 2024
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
Current Plan 7% 6% 6% 6% 6%
FY 2019 Plan 12% 10% 6% 4% 4%
The Wastewater Collection Utility has a small balance in both its Rate Stabilization and CIP
Reserves. The Rate Stabilization Reserve is used to phase in rate increases over multiple years
to reduce rate impacts to customers. The FY 2019 Financial Plan included a transfer of these
funds to the Operations Reserve in FY 2019, and the transfer was approved per resolution . A
transfer from the CIP Reserve to the Operations Reserve may be required as well, and staff
currently anticipates this will be necessary in FY 2020 . That decision will depend on ending
Operations Reserve balances, so Staff is seeking approval of the CIP to Operations Reserve
transfer with Council’s approval of this Financial Plan, in the event the transfer becomes
necessary. The Operations Reserve was above its target level in FY 2018, but is projected to
remain within the minimum and maximum target guidelines (see more detail in Figure 5).
Table 3: Transfers To/(From) Reserves for FY 2019 to FY 2024 ($000)
Reserve FY 2019 FY 2020 FY 2021 to FY 2024
CIP Reserve - (978) -
Rate Stabilization (342) -
Operations 342 978 -
Unassigned - - -
SECTION 2 B : SUMMARY OF PROPOSE D ACTIONS
Staff proposes completion of the following actions for the Wastewater Collection Utility in FY
2019:
1. Transfer $342,000 from the Rate Stabilization Reserve to the Operations Reserve in FY
2019, per Resolution 9766.
Staff proposes the following actions for the Wastewater Collection Utility in FY 2020:
1. Increase rates by 7% to bring revenue collection closer to expenses. This is described in
more detail in Section 3B: Current and Proposed Rates.
2. Transfer up to $978,000 from the CIP Reserve to the Operations Reserve in FY 2020.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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SECTION 3 : DETAIL OF FY 2020 RATE AND RESERVES P ROPOSALS
SECTION ERROR! REFERENCE SOURCE NOT FOUND.A : RATE DESIGN
The Wastewater Collection Utility’s rates are evaluated and imp lemented in compliance with
the cost of service requirements and procedural rules set forth in the California Constitution
(Proposition 218). Current rates were structured based on staff’s annual assessment of the
wastewater utility’s financial position, and relied on the methodology from the January 2011
Wastewater Collection Utility Cost of Service & Rate Study completed by Utility Financial
Solutions (Staff Report 1399). Since the study’s publication, staff has updated certain rate
structure components from those identified in the study , while maintaining cost-based rates.
For instance, commercial customers previously had an option to be billed based on annual
water usage or winter-only water usage, and staff opted to make winter-only the standard. This
change better reflects sewer-related outflows and removes possible irrigation effects. Staff
plans to review and update this cost of service study in FY 2020. Before conducting any new
cost of service study, staff reviews current rates and the scope of the study with the Utilities
Advisory Commission (UAC) and Council to determine the City’s policy priorities.
SECTION ERROR! REFERENCE SOU RCE NOT FOUND.B : CURRENT AND PROPOS ED
RATES
The current rates were adopted July 1, 2018, when the City increased sewer rates by 11%.
CPAU has three sewer rate schedules: one for residents (S-1), one for commercial customers
(S-2), and a special schedule for restaurants (S-6), which discharge higher than average amounts
of grease and oil and, therefore, have a greater impact on the sewer system. Residential
customers are billed a monthly service charge, while commercial customers are billed based on
their winter month water usage (previous January through March). This closely approximates
non-irrigation water consumption, which represents actual sewer use. Restaurant customers are
billed monthly based on water usage. CPAU also maintains a rate schedule for industrial
dischargers (S-7), but there are currently no customers required to be on this rate schedule.
CPAU proposes a 7% rate increase in FY 2020. This increase will go to fund increases to
treatment costs resulting from Water Quality Control Plant improvements and upgrades, as well
as ongoing collection systems capital projects and operations costs. Table 4, below, summarizes
the current and proposed rates for all customer classes. Section 4F: Competitiveness discusses
comparisons with neighboring communities.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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Table 4: Current Sewer Rates
Current
(as of 7/1/2018)
Proposed
(effective 7/1/2019)
Monthly Service and Minimum Charges ($/month)
S-1 (Residential) Service charge $38.66 $41.37
S-2 (Commercial),
S-6 (Restaurant)
Minimum 38.66 41.37
Quantity Rates: based on winter water usage (average
for January - March bill period)
S-2 (Commercial) $/CCF 7.45 7.97
S-6 (Restaurant) $/CCF 11.52 12.33
S-7 (Industrial) $/CCF 3.42 3.66
SECTION ERROR! REFERENCE SOU RCE NOT FOUND.C: B ILL IMPACT OF PROPOS ED
CHANGES
Table 45 below shows the impact of the proposed July 1, 2019 rate changes:
Table 5: Impact of Proposed Sewer Changes
Current
(as of
7/1/2018)
Proposed
(effective
7/1/2019)
Change
$/mo. %
Residential $38.66 $38.66 $2.71 7%
General Commercial (14 CCF) 104.30 111.58 7.28 7%
Restaurant (56 CCF) 645.12 690.48 45.36 7%
SECTION ERROR! REFERENCE SOU RCE NOT FOUND.C : PROPOSED RESERVE
TRANSFERS
In the FY 2017 Financial Plan, staff recommended a $1.95 million transfer from the Rate
Stabilization Reserve in FY 2016. This left a small amount, $342,000, which was originally to be
transferred in FY 2017 to bring the Rate Stabilization Reserve balance to zero.
However, because new main replacement projects were deferred in FY 2017 and FY 2018,
resulting in one-time cost savings, the Operation Reserve ended above the maximum guideline
level, and the transfer was not needed. Staff will transfer the remaining $342,000 in FY 2019. In
addition, staff is seeking Council approval to transfer $978,000 from the CIP Reserve to the
Operation Reserve in FY 2020, in the event that is needed.
These transfers are included in the financial projections in this Financial Plan, and will enable
CPAU to maintain adequate Operations Reserve levels while moderating the pace of increase in
Wastewater Collection rates. Appendix A: Wastewater Collection Financial Forecast Detail
shows the impact of these transfers on reserves levels.
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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 later sections.
SECTION 4 A : WASTEW ATER UTILITY HISTORY
The Wastewater Utility commenced operation in 1899 to serve Palo Alto and Stanford. In its
first three decades the system grew to 60 miles of sewers. Raw sewage was discharged into
Mayfield Slough at the edge of the Bay. In the 1930s, at the behest of the State Department of
Health, Palo Alto built the South Bay’s first wastewater treatment plant. At that time the sewer
system served 20,500 Stanford and Palo Alto residents and a cannery. The plant was upgraded
twice in the 1940s and 1950s to increase capacity.1 At the same time, the postwar population
and industrial boom in the 1950s required rapid expansion of the sewer system. In the first half
of the 1960s Palo Alto’s area doubled, as did wastewater flows, overwhelming the capa city of
several of the utility’s “trunk lines,” which are the largest diameter main sewer lines carrying
wastewater to the treatment plant. This prompted the City, in 1965, to perform the first of its
sewer master plans to identify needed capacity improve ments. At that point the Wastewater
Utility’s system comprised more than 150 miles of sewer mains.2
In 1968 the City signed agreements with the Cities of Mountain View and Los Altos to build a
new regional treatment plant, the RWQCP, which is still in operation today. Since 1940 the City
had been providing treatment services to the East Palo Alto Sanitary District through an existing
agreement, and was also serving Stanford University by transporting wastewater across the
City’s sewer system to the treatment plant. Both of these organizations became partners in the
RWQCP as well. At the same time the Town of Los Altos Hills became the sixth partner as it
signed an agreement with the City to connect the Town’s sewer system to the City’s sewer
system to carry wastewater to the new RWQCP. The current agreements for the RWQCP
extend through 2035.3
In the 1980s the City directed increased attention to the condition of its sewer system,
performing a series of studies of groundwater inflow and infiltration into the system. The
studies found high rates of infiltration, estimating that as much as 40% of the water going to
the RWQCP from Palo Alto’s system was groundwater and stormwater rather than
wastewater.4 In some parts of Palo Alto the land surface had subsided due to groundwater
pumping by the water utility, and though that practice had ceased many years earlier as the
water utility switched to the Hetch Hetchy Regional Water System, parts of the city had already
subsided two to five feet. This subsidence had damaged several parts of the sewer collection
system, leading to reduced slopes for sewer mains that caused reductions in capacity. In
1 Long Range Facilities Plan for the Regional Water Quality Control Plant, August 2012, Carollo Engineers, pp 2-1
through 2-2
2 Wastewater Collection and Storm Drainage, 1965, Brown and Caldwell Consulting Engineers, pp 4, 6-7, 143
3 Long Range Facilities Plan for the Regional Water Quality Control Plant, August 2012, Carollo Engineers, pg 2-2
4 Wastewater Collection System Master Plan – Capacity Assessment, January 2004, MWH Americas, Inc., pg ES-2
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response to these studies the City commenced an accelerated sewer system rehabilitation
program.5 At that point the sewer system comprised over 190 miles of mains.6
A Master Plan study in 1988 recommended a variety of capacity expansions, and in the 1990s
the City completed about half of them. However, a 2004 Master Plan update found that the
accelerated sewer rehabilitation plan started in the early 1990s had substantially reduced
infiltration, easing the capacity problems that had led the to the recommended capacity
increases in the 1988 study. Several of the outstanding projects were canceled and replaced
with a different set of projects.7 At the same time the City updated its hydraulic model and
developed greater capacity to do system planning in house.
SECTION 4 B : C USTOMER BASE
The City of Palo Alto’s Wastewater Collection Utility provides sewer service to the residents and
businesses of Palo Alto. It is distinct from the Wastewater Treatment Utility, which provides
treatment services for surrounding communities in addition to Palo Alto. Nearly 22,000
customers are connected to the sewer system, approximately 20,440 (93%) of which are
residential and 1,560 (7%) of which are non-residential. Residential customers pay a flat fee for
service. Non-residential customers are billed for sewer service based on their metered winter
water usage. There is relatively little variability in revenues for this utility.
SECTION 4 C : COLLECTION SYSTEM
The Wastewater Collection Utility delivers all the wastewater it collects to the Regional Water
Quality Control Plant (RWQCP) operated by the City of Palo Alto under a partnership agreement
with several surrounding communities. Palo Alto is responsible for 35% to 40% of the
wastewater sent to the RWQCP. This Financial Plan does not describe the cost of running the
RWQCP in detail as this cost is contained in the Wastewater Treatment Utility; however since
these costs are a major driver of CPAU’s sewer rates, Section 6A: Wastewater Treatment Costs
provides some discussion of future trends in treatment costs. Treatment costs make up nearly
half of the Wastewater Collection Utility’s expenses as shown in Table 1 above.
To collect wastewater from its customers and deliver it to the RWQCP, CPAU owns roughly
18,000 sewer laterals (which collect wastewater from customers’ plumbing systems) and 217
miles of sewer mains (which transport the waste to the treatment plant). These laterals and
mains, along with the associated manholes and cleanouts, represent the vast majority of
infrastructure used to collect wastewater in Palo Alto. CPAU conducts a sewer rehabilitation
and replacement program to replace mains over time as they deteriorate or to increase
capacity. For more discussion of this program, see Section 6C: Capital Improvement Program
(CIP). CIP expense accounts for roughly a quarter of the utility’s expenditures.
In addition to its CIP, CPAU performs various maintenance activities on the sewer system.
These include inspecting and repairing sewer laterals, responding to sewer overflows, regularly
5 CMR 183:90, Infrastructure Review and Update, March 1, 1990
6 Master Plan of the Wastewater Collection System, December 1988, Camp Dresser & McKee, Inc., pg 1-2
7 Wastewater Collection System Master Plan – Capacity Assessment, January 2004, MWH Americas, Inc., pg ES-3
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cleaning sections of the system heavily impacted by fats, oils, and grease (FOG), and building
and replacing sewer laterals for new or redeveloped buildings. The utility also shares the costs
of other operational activities (such as customer service, billing, 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 approximately
another quarter of the utility’s expenses.
SECTION 4 D : COST STRUCTURE AND REVENUE SOURCES
In FY 2018, treatment costs represented slightly more than half of the Wastewater Collection
Utility’s costs (53%), and Operations costs represented nearly a third (30%), while Capital
spending accounted for the remainder (17%). Figure 1 shows these expenditures. The utility’s
revenue in FY 2018, shown in Figure 2, came primarily from sewer charges (92%), with the
remainder coming mainly from capacity and connection fees and other sources (8%).
Figure 1: Cost Structure (FY 2018) Figure 2: Revenue Structure (FY 2018)
SECTION 4 E : RESERVES STRUCTURE
CPAU maintains six reserves for its Wastewater Collection Utility to manage various types of
contingencies. Below is a summary of these reserves and Appendix C: Wastewater Collection
Utility Reserves Management Practices provides 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. It also acts as a
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contingency reserve for the CIP. This type of reserve is used in other utility funds
(Electric, Gas, and Water) 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, Gas, and Water) as well.
• Operations Reserve: This is the primary contingency reserve for the Wastewater
Collection Utility, and is used to manage yearly variances from budget for operational
costs. This type of reserve is used in other utility funds (Electric, Gas, and Water) as well.
• Unassigned Reserve: This reserve is for any funds not assigned to the other reserves
and is normally empty.
SECTION 4 F : COMPETITIVENESS
Table 6 shows the monthly sewer bills for residential customers compared to what they would
be in surrounding communities. The annual sewer bill for a Palo Alto customer is $464 under
current rates, 29% lower than the average neighboring community. Palo Alto has the fifth
lowest bill of the group.
Table 6: Residential Monthly Equivalent Sewer Bill Comparison ($)
Palo Alto
Neighboring Communities Neighboring
Community
Average
Menlo
Park
Redwood
City
Santa
Clara
Mountain
View Los Altos Hayward
38.66 93.83 78.24 42.91 40.80 37.36 32.85 54.33
Based on rates as of February 2019
Table 7 compares the sewer bills for two classes of commercial customers to what they would
be under surrounding communities’ rate schedules. Note that other communities often have
specific rates for industrial customers that discharge high intensity wastewater, such as food
processors or chemical or electronics manufacturers, but Palo Alto does not currently have any
customers that require these special rates. Palo Alto is less competitive with surrounding cities
with regards to commercial sewer rates, but is not the most expensive jurisdiction in all cases.
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Table 7: Commercial Monthly Sewer Bill Comparison ($)
Palo Alto
Neighboring Communities Neighboring
Community
Average
Menlo
Park
Redwood
City
Mountain
View Los Altos
Santa
Clara Hayward
General
Commercial
104.30 135.24 103.18 127.12 52.41 72.10 70.98 93.50
Restaurant 645.12 963.20 988.96 583.52 142.71 666.40 519.12 643.98
Based on rates as of February 2019
SECTION 5 : UTILITY FINANCIAL PROJECTIONS
SECTION 5 A : FY 201 4 TO FY 201 8 COST AND REVENUE TR ENDS
Figure 3 shows the Wastewater Collection Utility’s actual expenses and revenues for the past
five years and projections through FY 2024. Total treatment plant expenses have grown, on
average, by around 4% per year. Wastewater collection capital investment fluctuated greatly
during this time period: FY 2014 saw a reduction in investment mainly due to delayed main
replacement projects, and FY 2015 and 2016 saw increased capital investment as those capital
projects were completed. Collections operations costs decreased slightly during this timeframe.
Since the revenue for this utility is very stable, revenue changes closely follow rate changes. The
other large revenue item of note is the continued connection and capacity fees from new
construction. These fees grew dramatically between FY 2010 and FY 2015 and then plateaued.
Figure 3: Wastewater Collection Utility Expenses, Revenues and Rate Changes
Actual Costs through FY 2018 and Projections through FY 2024
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SECTION 5 B : FY 201 8 RESULTS
Actual revenues for FY 2018 were lower than forecast revenues ($18.4 million actual vs. $18.7
million projected). Total FY 2018 expenses were $17.3 million compared to projections of $19.3
million in the FY 2019 Financial Plan. Table 8 summarizes the variances from forecast.
Table 8: FY 2018, Actual Results vs. Financial Plan Forecast ($000)
Net Cost/
(Benefit)
Type of
Change
Wastewater treatment costs lower than forecast $(859) Cost decrease
Sales revenues higher than forecast $(253) Revenue increase
Interest, Connection, capacity fees and other revenues $629 Revenue decrease
Operations, capital and other cost decreases $(1,143) Cost decrease
Net Cost / (Benefit) of Variances $(1,626)
SECTION 5 C : FY 201 9 PROJECTIONS
This year staff is estimating slightly lower overall costs for FY 2019. Based upon actual results
for FY 2018, staff estimated operations costs to be lower by around $425 thousand, with
treatment costs projected to be about $183 thousand higher. Revenue from sales is projected
to increase by $262 thousand, but other income from connection fees and interest is projected
to be lower by $176 thousand. Revised projections estimate a net withdrawal from reserves of
$2.3 million vs. $2.7 million in last year’s forecast. Table 9 summarizes the variances from the
prior forecast.
Table 9: FY 2019, Updated Projections vs. Financial Plan Forecast ($000)
Net Cost/
(Benefit)
Type of
Change
Wastewater treatment cost increases $183 Cost increase
Operations and other cost decreases $(423) Cost decrease
Sales revenues higher than forecast $(262) Revenue increase
Connection, capacity fees and other revenue $176 Revenue decrease
Net Cost / (Benefit) of Variances $(326)
SECTION 5 D : FY 20 20 – FY 202 4 PROJECTIONS
As shown in Figure 3 above (and, in more detail, in Appendix A: Wastewater Collection Financial
Forecast Detail), the Wastewater Collection Utility’s total costs are projected to increase by
roughly 5% per year on average for FY 2019 through FY 2024. The majority of this increase is
due to projected capital cost increases for treatment. The treatment plant is facing the need for
major upgrades in coming years, due to aging equipment and changing environmental
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regulations. The costs of the plant are shared among member agencies, with members
expected to see average cost increases of around 6% per year over the forecast horizon.
As noted previously, collection system capital expenses were lower than usual in FY 2017 and
FY 2018 as sewer main replacement projects were delayed to enable staff to complete previous
year projects, but a regular annual main replacement cycle resumed in FY 2019. However,
underground construction costs for all utilities have increased significantly. This means that the
FY 2019 capital budget for a main replacement project is 30.7% higher than in FY 2016, which
was the most recent “normal” year in the CIP program (a year when an annual sewer main
replacement project was budgeted). In FY 2020, there is a planned reduction in funding for a
smaller main replacement project, resulting in a lower projected CIP expense. After this, staff
expects overall collection system capital costs to increase on average by 6% per year over the
next five years. However, sewer replacement projects will be completed every two years
instead of annually, so the capital spending will be higher every other year as a result.
The red line in Figure 3 shows revenue levels and the figure shows that there have been several
years where costs exceeded revenues. This trend is projected to continue every year from 2018
through 2022, and will result in a fairly rapid reduction of reserves. Staff projects annual rate
increases of 6% to 7% are required to keep reserves from dropping below minimum reserve
guidelines. Figure 4 below shows the relative drop in reserves through FY 2020, increase in
2021 and 2023 and decrease in FY 2022 and FY 2024, which corresponds with the sewer main
replacement every other year.
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Figure 4: Wastewater Collection Reserves Projections
(FY 2018 actual, FY 2019 – FY 2024 projected)
SECTION 5 E : RISK ASSESSMENT AND RESERVES ADEQUA CY
The Wastewater Collection Utility currently has one contingency reserve, the Operations
Reserve. This Financial Plan as presented results in the Operations Reserve remaining within the
minimum and maximum guideline levels throughout the forecast period with the exception of
FY 2021 where the funds are needed in FY 2022 for the sewer main replacement project as well
as other capital projects. Figure 5 below shows the proposed Staff plan.
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Figure 5: Operations Reserve Adequacy
Staff performs an annual assessment of risks for the Wastewater Collection Utility. For this
evaluation, staff estimates the revenue shortfall due to:
1. the maximum observed budget-to-actual variance in one year during the past five years;
2. an increase of 10% in system improvement CIP expenditures for the year; and
3. an increase of 10% in treatment costs.
Table 10 summarizes the risk assessment calculation for the Wast ewater Collection Utility
through FY 2024. The Operations Reserve is projected to be adequate to manage these levels
of risk over the entire forecast period.
Table 10: Wastewater Collection Risk Assessment
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Total Revenue ($000) 20,626 21,872 23,184 24,575 26,050
Max. Historical Budget-to-Actual variance 4% 4% 4% 4% 4%
Budget-to-Actual Risk ($000) 825 875 927 983 1,042
System Rehabilitation CIP Budget ($000) 5,505 1,015 8,194 1,073 8,246
CIP Contingency @10% ($000) 551 101 819 107 825
Treatment Budget ($000) 11,733 12,400 13,974 14,365 14,744
Treatment Cost Contingency @10% ($000) 1,173 1,240 1,397 1,436 1,474
Total risk assessment value ($000) 2,549 2,216 3,144 2,527 3,341
Projected Operations Reserve Level ($000) 5,086 7,659 3,430 7,493 5,563
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SECTION 5 F : ALTERNATE SCENARIOS
No alternate scenarios are proposed as part of this financial plan.
SECTION 5 G : LONG -TERM OUTLOOK
In the longer term (5 to 35 years) the primary factor that could lead to increased costs for the
Wastewater Collection Utility are major upgrades at the RWQCP, a share of which will be
allocated to the utility as part of treatment costs. These upgrades includes replacement or
rehabilitation of the parts of the facility that pump raw sewage to the main treatment works
(the headworks), separate out primary sludge (the primary settling tank), process sludge (the
bio-solids facility), and treat wastewater (the fixed film reactors). Upgrades to the laboratories
and operational buildings are planned as well. In addition, the 72 -inch regional trunk sewer line
flowing into the plant needs to be evaluated and rehabilitated.
In the future, nutrient limiting regulations for RWQCP discharges are anticipated from the State
due to changes in San Francisco Bay. A response to the proposed regulatio ns was addressed in
the Long Range Facilities Plan in 2012 and will be more fully addressed by a capital project (WQ -
14004) to upgrade the secondary treatment process, currently in design. The project is in
response to aging equipment as well as the regulations, although replacing the aging
equipment is needed whatever the outcome of the regulations.
SECTION 6 : DETAILS AND ASSUMP TIONS
SECTION 6 A : WASTEWATER TREATMENT COSTS
Treatment expenses represent the Wastewater Collection Utility’s share of the costs of
operating the RWQCP. Per the partnership agreements between Palo Alto and its partner
agencies, these charges are assessed based on a formula that takes into account the total
amount of wastewater delivered, the amount of organic material in it, its ammonia content,
and the total suspended solids it is carrying. The Wastewater Collection Utility’s assessed share
of the RWQCP’s revenue requirement fluctuates in the 35% to 40% range. Mountain View is
the other large agency served by the RWQCP (38% of the revenue requirement estimated for FY
2019) with the smaller agencies (Stanford, Los Altos, East Palo Alto, and Los Altos Hills) making
up the remainder of the flow to the treatment plant.
Based on detailed project cost projections provided by RWQCP staff, treatment costs are likely
to continue to increase by roughly 5% per year through at least 2030. Wastewater Treatment
Fund costs are increasing due to rising salary and benefit costs as well as the attendant
allocated charges for centralized city services needed to support wastewater treatment fund
operations. Additional expenses include increased water and air permitting fees from the
Regional Water Quality Control Board and the Bay Area Air Quality Management District.
Commodity and utility rates to operate the facility are also increasing with the largest increases
in FY 2019 for electrical, water, gas, and storm rates. Chemical expenses, needed to adjust
water quality and meet permit requirements, are also increasing modestly per the latest
chemical market conditions and procurement contract conditions.
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Capital projects, parts, and materials are increasing at about 3% per year to keep up with
ongoing replacement of aging equipment. Larger increases to capital expenses are expected to
begin in FY 2020 in the form of new debt service for major projects to implement the Plant’s
capital program. The Plant’s major project in FY 2019 will be finishing construction of the Sludge
Dewatering and Truck Loadout Facility, which will allow the retirement of the Plant’s two
sewage sludge incinerators that have been in operation since 1972.
SECTION 6 B : OPERATIONS
Operations costs include the Customer Service, Distribution Operations, Engineering, and
Allocated Charges categories in Appendix A: Wastewater Collection Financial Forecast Detail.
Debt service, rent, and transfers are also included in this category. Customer Service costs are
primarily related to the call center and collections on delinquent accounts. The Distribution
Operations category includes preventative and corrective maintenance on sewer mains and
laterals, investigation of sewer overflows, regular cleaning of heavily impacted sections of the
sewer system, and services shared with other utilities (such as street restoration and
equipment maintenance). Allocated Charges include the costs of 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.
Operations costs are projected to increase by 2 to 3% per year, on average, over the forecast
period. Underlying these projections are salary and benefit, consumer price index, and other
cost projections used in the City’s long-range financial forecast.
SECTION 6 C : CAPITAL IMPROVEMENT PROGRAM (CIP)
The Wastewater Collection Utility’s CIP consists of the following programs:
• The Sanitary Sewer Replacement/Rehabilitation (SSR) Program, under which the
Wastewater Collection Utility replaces aging sewer mains.
• Customer Connections, which covers the cost when the Wastewater Collection Utility
installs new laterals or upgrades existing laterals at a customer’s request in response to
development or redevelopment. CPAU charges a fee to these customers to cover the
cost of these projects.
• Ongoing Projects, which covers the cost of replacing deteriorated manholes and sewer
laterals, as well as the cost of capitalized tools and equipment.
The Sanitary Sewer Replacement and Rehabilitation Program funds the replacement of
deteriorating sewer mains to increase capacity or improve pipe condition in various parts of the
sewer system. The sewer system consists of over 217 miles of mains, and CPAU uses a variety
of tools to establish which sections are in need of replacement. The 2004 Master Plan study
identified wastewater mains with capacity deficiency and they have been corrected in past CIP
projects. For condition assessment, maintenance statistics (such as records of the location and
number of sewer overflows on the system) and videotape of sewer mains from a past vid eo
inspection of sewer main project or during regular cleaning can reveal areas with deteriorating
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pipe. CPAU uses a structural rating system to grade the pipe defects. The video -inspection
data and maintenance records are used to plan and prioritize sewer main replacement and
rehabilitation.
Utilities also coordinates with the Public Works street maintenance program to avoid cutting
into newly repaved streets. A major goal of the replacement program is to minimize sewer
overflow and reduce groundwater and rainwater infiltration. As mains deteriorate they begin
to allow roots into the pipe joints to create blockage s, permitting groundwater and rainwater to
infiltrate the system. Some level of infiltration is expected on any sewer system, but if ther e is
too much, the combined flow of wastewater and groundwater/rainwater can overwhelm the
capacity of various parts of the sewer system. Reducing infiltration can reduce the need to
expand the system to accommodate increased flow, as well as reducing unnecessary amounts
of water to be treated at the treatment plant. To achieve this goal, deteriorating mains are
either rehabilitated with a plastic lining or replaced with new HDPE pipe. Staff has been
replacing/rehabilitating the mains as needed according to their condition. In addition,
Wastewater Operations’ routine maintenance continues to stay on schedule to minimize sewer
overflows.
Over the last few years, main replacement costs have been increasing for utilities due to
economic activity in the Bay Area causing construction cost inflation. It is likely that this trend
will continue in the short term.
This increase in cost was a partial reason for a one year delay in projects in FY 2018. Staff
deferred its FY 2018 replacement project because all Field Inspectors were busy providing
inspection services for one water and two previous wastewater construction projects. Several
Engineers were also focused on designing, coordinating amongst all departments, and setting
up the contract for the complicated Upgrade Downtown project. However, Utilities
Engineering has been consistently replacing aging sewer mains since the early 90’s. The
proactive replacement program keeps the collection system in good condition. Between 1990
and 2017, 67 miles or 31% of the collection system has been replaced or rehabilitated (the red-
colored lines shown in the attached map in Appendix D: Map (CPA Wastewater Collection
System - Sewer Mains Replaced or Rehabilitated since 1990).
In many cases, staff combine annual projects to save administrative time/cost and to make the
project more attractive for contractors to bid. The most recent Sanitary Sewer Replacement
(SSR) projects SSR 24/25/26 and SSR 27 were substantially completed in April of 2017.
Construction costs continue to rise and keeping and maintaining qualified staff to design and
work on projects is an ongoing challenge. Currently, there are engineering and field inspector
vacancies.
In this financial plan, by continuing to re-evaluate and re-prioritize the scope of future projects
based on the structural rating system and available budget, staff proposes to undertake a SSR
project every other year (in 2022 and 2024) instead of annually . This SSR project will have a
$7.15M budget every to cover design and construction. This project scope and frequency will
allow staff to continue replacing wastewater mains that are in poor condition and to reduce
groundwater and rainwater infiltration through cracks or leaking joints. Additionally, the
staggered schedule of water and wastewater main replacements in even years and gas main
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replacements in odd years will ease scheduling difficulties for inspection coverage due to
shared staffing across water, wastewater, gas, and large development services projects. This
staggered schedule for water main replacement will also allow staff to focus on current
priorities. As the staff vacancies become filled and construction costs stabilize, staff can re -
evaluate the need to return to an annual replacement program.
Customer Connections costs are projected to increase steadily by around 3% each year through
the end of the forecast period. Actual expenses for these projects fluctuate annually depending
on how many defective laterals and manholes are discovered during routine maint enance, as
well as how much development and redevelopment is going on that prompts the replacement
or upgrade of sewer laterals. It is worth noting that property owners pay a fee for sewer lateral
replacement or expansion during redevelopment, so when the number of projects increases, so
does fee revenue.
Table 11 displays projected CIP spending for the 5-year financial forecast period.
Table 11: Projected CIP Spending
Aside from Customer Connections, the CIP plan for FY 2020 to FY 2024 is funded by sewer rates
and capacity fees. Appendix B: Wastewater Collection Utility Capital Improvement Program
(CIP) Detail shows the details of the plan.
SECTION 6 D : DEBT SERVICE
The Wastewater Collection Utility currently pays its share of one bond issuance, the 1999 Utility
Revenue Bonds, Series A, which is due to be retired in 2024. This $17.7 million issuance
refinanced various earlier Storm Drain, Wastewater Treatment, and Wastewater Collection
Utility bond issuances. The Wastewater Collection Utility’s share of the issuance was roughly
$1.9 million. This amount represented the second refinancing of the remaining principal of a
1990 bond issuance, which itself was a refinancing of a 1985 issuance that financed a variety of
improvements to the sewer system. The cost of debt service for the Wastewater Collection
Utility’s share of this bond issuance for the financial forecast period is roughly $128,000 per
year as shown in Table 12 below.
Table 12: Wastewater Collection Utility Debt Service ($000)
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
1999 Utility Revenue Bonds, Series A 128 129 129 129 0
The 1999 Utility Revenue Bonds include two covenants stating that 1) the Wastewater
Collection Utility will maintain a debt coverage ratio of 125% of debt service, and 2) that the
Project Category
Current
Budget*
Spending,
Curr. Yr
Remain.
Budget**Committed FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Sewer Rehab/Augmentation 6,105 (376) 5,729 825 4,520 - 7,150 - 7,150
Ongoing Projects 1,129 (445) 683 380 985 1,015 1,043 1,073 1,104
Customer Connections 447 (132) 315 30 445 463 480 497 512
TOTAL 7,681 (954) 6,728 1,236 5,950 1,478 8,673 1,570 8,766
*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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City will maintain “Available Reserves”8 equal to five times the annual debt service. The current
financial plan maintains compliance with both covenants throughout the forecast period. Table
13, below, shows compliance with the first covenant. Due to the small size of the annual debt
service payment for these bonds, the Wastewater Collection Utility’s Operations Reserve alone
more than satisfies the second covenant at more than 30 times annual debt service throughout
the forecast period.
Table 13: Debt Service Coverage Ratio ($000)
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Revenues 19,240 20,616 22,258 24,040 25,963 28,041
Expenses (Excl. CIP
and Debt Service)
14,458 15,384 16,330 18,018 18,262 18,888
Net Revenues 4,781 5,232 5,929 6,022 7,701 9,153
Debt Service 128 128 129 129 129 0
Coverage Ratio 3729% 4096% 4611% 4665% 5958% N/A
The Wastewater Collection Utility’s reserves (but not its net revenues) are also considered
security for the Storm Drain and Wastewater Treatment Utilities’ shares of the debt service on
the 1999 bonds. Throughout the term of the bonds there remains a sma ll risk that the
Wastewater Collection Utility’s reserves could be called upon to make a debt service payment
on behalf of one of those utilities if it cannot meet its debt service obligations. Staff does not
foresee this occurring based on the current financial condition of those utilities. If the
Wastewater Collection Utility’s reserves were used this way, any amounts advanced would
have to be repaid by the borrowing utility.
One other bond series is secured by the net revenues (but not the reserves) of the Wastewater
Collection Utility. The 1995 Series A Utility Revenue Bonds issued for the Storm Drain utility
were secured by the net revenues of the City’s “Enterprise,” which was defined as the City’s
water, gas, wastewater, storm drain, and electric utilities, and are senior to the 1999 bonds
referenced above. Debt service payments of roughly $680,000 per year are made on the 1995
Series A bonds by the City’s Storm Drain Utility, and staff does not currently foresee any risk of
that utility being unable to make payment.
SECTION 6 E : OTHER REVENUES
The utility has seen substantial increases in connection and capacity fee revenues in recent
years. These fees are imposed to cover the cost of installing new service lines and the
customer’s impact on the overall system capacity. These are assumed to continue, albeit
slightly reduced from current levels. Income from interest and transfers in are projected to
remain steady through the forecast horizon.
8 Available Reserves as defined in the 1999 Utility Revenue Bonds included reserves for the Water, Wastewater
Treatment, Wastewater Collection, Refuse, Storm Drain, Electric, and Gas Utilities
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SECTION 7 : COMMUNICATIONS PLAN
The FY 2020 Wastewater Collection Utility communications strategy covers three primary areas:
infrastructure upgrades, maintenance and operation activities that relate to safety, and the
resulting impact to rate this year. Communication about wastewater rate adjustments will
highlight the important infrastructure and operations upgrades that are occurring at the
Regional Water Quality Control Plant (WQCP) and increased capital improvement projects (CIP)
to improve wastewater collection utility services. This includes increased CIP work, both on
wastewater collection mains and at the WQCP. To keep customers apprised of the status and
accomplishments of CIP projects, a network of project web pages are maintained and updated
as needed. Customers are informed of project information on the Utilit ies website at
www.cityofpaloalto.org/utilityprojects and through utility bill inserts, ads in newspapers and
local publications, social media, and email newsletters.
An important communications topic for the wastewater utility is avoiding sewer back-ups due
to FOG (fats, oil and grease) and trash being dumped down drains and toilets. Safety topics are
emphasized year-round. Staff continues with the outreach goal of educating customers about
the utility’s gas-sewer line cross-bore inspection program, including the importance of calling
Utilities prior to clearing sewer lines in the event of a sewer back-up.
Promotional activity about wastewater infrastructure upgrades, utility maintenance and safety
operations includes use of bill inserts, ads in local print publications, website pages, email
newsletters and social media. While print materials and website pages feature prominently,
CPAU is increasing the outreach emphasis on more direct communication with customers,
including through use of social media, email newsletters, digital ads and videos. Staff also
attend community safety and emergency preparedness events and neighborhood meetings,
and we continually seek out new opportunities to do so. One example of a new residential
outreach opportunity is through providing information on the Cool Blocks curriculum .
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 23 | P a g e
APPENDICES
Appendix A: Wastewater Collection Financial Forecast Detail
Appendix B: Wastewater Collection Utility Capital Improvement Program (CIP) Detail
Appendix C: Wastewater Collection Utility Reserves Management Practices
Appendix E: Map (CPA Wastewater Collection System - Sewer Mains Replaced or Rehabilitated
since 1990)
Appendix E: Sample of Wastewater Collection Outreach Materials
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 24 | P a g e
APPENDIX A : WASTEWATER COLLECTIO N FINANCIAL FORECAST D ETA IL
($'000)
Actual Actual Actual Actual Actual
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
1
2 % CHANGE IN RETAIL RATE 0% 0% 9% 9% 0% 11% 7% 6% 6% 6% 6%
3 PROJECTED CHANGE IN RETAIL SALES REVENUE - - 1,352 1,416 - 1,916 1,353 1,241 1,315 1,394 1,478
4
5 RETAIL SALES REVENUE 14,588 14,658 15,648 17,126 17,420 19,240 20,616 21,862 23,174 24,565 26,040
6 CONNECTION AND CAPACITY FEES 1,703 1,392 794 1,047 549 747 759 772 785 799 813
7 OTHER / TRANSFERS IN 361 753 321 355 328 261 324 298 261 324 298
8 INTEREST 339 315 475 (88) 19 283 212 240 184 178 304
9 TOTAL SOURCES OF FUNDS 16,991 17,119 17,238 18,441 18,316 20,530 21,911 23,172 24,404 25,866 27,455
10
11 PURCHASES/CHARGES OF UTILITIES (TREATMENT)6,863 8,589 8,770 8,391 9,559 10,981 11,733 12,400 13,974 14,365 14,744
12 ALLOCATED CHARGES (CIP&OPERATING)2,359 1,062 1,900 1,477 1,318 1,337 1,325 1,350 1,381 1,408 1,435
CUSTOMER SERVICE 133 (324) (22) 345 283 293 318 328 337 346 355
13 DISTRIBUTION OPERATIONS 2,570 2,646 2,635 2,759 2,720 2,939 3,166 3,413 3,502 3,441 3,528
ENGINEERING (OPERATING)310 319 347 292 345 355 378 389 399 409 419
14 DEBT SERVICE 129 51 47 43 38 128 128 129 129 129 -
15 RENT 217 223 293 300 310 319 329 339 349 359 370
16 OTHER/ TRANSFERS OUT 241 108 233 323 359 289 289 289 289 289 289
17 CAPITAL IMPROVEMENT FUNDING 989 3,477 4,985 1,332 2,362 6,631 5,950 1,478 8,674 1,570 8,761
ALLOWANCE FOR UNSPENT CAPITAL FUNDS - - - - - (400) (400) (400) (400) (515) (515)
18 TOTAL USES OF FUNDS 13,811 16,150 19,187 15,261 17,294 22,873 23,216 19,715 28,633 21,802 29,385
19
20 INTO / (OUT OF) RESERVES 3,180 969 (1,948) 3,179 1,021 (2,343) (1,305) 3,457 (4,229) 4,064 (1,930)
21
24 ENDING COMMITMENTS & REAPPROPRIATIONS 8,312 8,291 11,088 1,922 1,268 1,268 1,268 1,268 1,268 1,268 1,268
23 ENDING PLANT REPLACEMENT RESERVE - - - - - - - - - - -
ENDING CIP RESERVE - 2,551 978 978 978 978 - - - - -
22 ENDING RATE STABILIZATION RESERVE 4,556 4,292 342 342 342 - - - - - -
ENDING OPERATIONS RESERVE 3,728 2,431 3,211 6,393 6,137 5,414 5,086 7,659 3,430 7,493 5,563
25 UNASSIGNED RESERVES - - - - 1,278 - - 884 - - -
26 RISK ASSESSMENT VALUE 2,230 2,722 1,814 1,618 1,907 2,489 2,549 2,216 3,144 2,527 3,341
27
28 OPERATIONS RESERVE GUIDELINES
29 MIN (60 DAYS TREATMENT/O&M EXP)1,915 2,083 2,224 2,305 2,455 2,736 2,904 3,064 3,347 3,410 3,475
TARGET (105 DAYS TREATMENT/O&M EXP)3,352 3,646 3,892 4,034 4,296 4,787 5,082 5,361 5,857 5,968 6,081
30 MAX (150 DAYS TREATMENT/O&M EXP)4,788 5,208 5,560 5,763 6,137 6,839 7,260 7,659 8,367 8,526 8,687
31
City of Palo Alto
Wastewater Collection
Fiscal Year
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 25 | P a g e
APPENDIX B : WASTEWATER COLLECTIO N UTILITY CAPITAL IMPROVEMENT PROGRAM (CIP) DETAIL
Project # Project Name
Reappropriated /
Carried Forward from
Previous Years
Current Year
Funding
Proposed
Budget
Amendments
Spending,
Current Year
Remaining in
CIP Reserve
Fund Commitments FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
SEWER SYSTEM REHABILITATION AND AUGMENTATION (SSR/A) PROGRAM
WC-11000 SSR/A - Project 24 129,256 - - - 129,256 94,404 - - - - -
WC-12001 SSR/A - Project 25 186,531 - - - 186,531 186,531 - - - - -
WC-13001 SSR/A - Project 26 261,594 - - - 261,594 215,207 - - - - -
WC-14001 SSR/A - Project 27 73,015 - - - 73,015 - - - - - -
WC-15001 SSR/A - Project 28 202,443 4,842,600 - (343,267) 4,701,776 329,198 - - - - -
WC-16001 SSR/A - Project 29 - 409,849 - (32,956) 376,893 - 4,098,490 - - - -
WC-17001 SSR/A - Project 30 - - - - - - 421,684 - 6,500,000 - -
WC-19001 SSR/A - Project 31 - - - - - - - - 650,000 - 6,500,000
WC-20000 SSR/A - Project 32 - - - - - - - - - 650,000
Subtotal, Sewer Rehab./Augmentation 852,839 5,252,449 - (376,223) 5,729,065 825,340 4,520,174 - 7,150,000 - 7,150,000
ONGOING PROJECTS
WC-13002 Fusion & Gen. Equip./Tools - 50,000 - - 50,000 - 50,000 50,000 50,000 50,000 50,000
WC-15002 WW System Improvements 1 253,000 - - 253,001 - 260,000 269,000 276,875 285,181 293,737
WC-99013 Sewer / Manhole Rehab.170,088 655,636 - (445,318) 380,406 380,406 675,305 695,564 716,431 737,924 760,062
Subtotal, Ongoing Projects 170,089 958,636 - (445,318) 683,407 380,406 985,305 1,014,564 1,043,306 1,073,105 1,103,799
CUSTOMER CONNECTIONS (FEE FUNDED)
WC-80020 Sewer System Extensions 27,286 420,000 - (132,084) 315,202 30,175 445,000 463,000 480,000 497,000 511,910
Subtotal, Customer Connections 27,286 420,000 - (132,084) 315,202 30,175 445,000 463,000 480,000 497,000 511,910
GRAND TOTAL 1,050,214 6,631,085 - (953,625) 6,727,674 1,235,921 5,950,479 1,477,564 8,673,306 1,570,105 8,765,709
Funding Sources
Connection/Capacity Fees 405,820 - 430,534 443,450 456,754 470,457 470,457
Funded by Rates and Other Revenue 6,211,085 - 5,505,479 1,014,564 8,193,306 1,073,105 8,253,799
CIP-RELATED RESERVES DETAIL
6/30/2018
(Actual)
6/30/2019
(Unaudited)
Reappropriations 350,244 5,491,753
Commitments 699,970 1,235,921
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 26 | P a g e
APPENDIX C : WASTEWATER COLLECTIO N UTILITY RESERVES
MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the W astewater
Collection 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. Reserves
The Wastewater Collection Utility’s Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 3 (Reserve for Commitments)
b) For operating and capital budgets re-appropriated from previous years, as described in
Section 4 (Reserve for Re-appropriations)
c) For cash flow management and contingencies related to the Wastewater Collection
Utility’s Capital Improvement Program (CIP), as described in Section 5 (CIP Reserve)
d) For rate stabilization, as described in Section 6 (Rate Stabilization Reserve)
e) For operating contingencies, as described in Section 7 (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 8 (Unassigned Reserves).
Section 3. Reserve for Commitments
At the end of each fiscal year the 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 4. Reserve for Re-appropriations
At the end of each fiscal year the Reserve for Re-appropriations will be set to an amount
equal to the amount of all remaining capital and non-capital budgets, if any, that will be re-
appropriated to the following fiscal year in accordance with Palo Alto Municipal Code
Section 2.28.090.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 27 | P a g e
Section 5. 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 or removed from to that reserve
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 City Council to
approve holding funds in this reserve in excess of the maximum level if they are held for
a specific future purpose related to the CIP.
Section 6. 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 Wastewater Collection Utility
Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the
Financial Planning Period.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 28 | P a g e
Section 7. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. Any portion of the Wastewater Collection Utility’s Fund Balance not
included in the reserves described in Section 3-Section 6 above will be included in the
Operations Reserve unless this reserve has reached its maximum level as set forth in Section
7(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 105 days of O&M and commodity expense
Maximum Level 150 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 Wastewater Collection Utility
shall be designed to return the Operations Reserve to its target level within four years.
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 Wastewater Collection
Utility’s Fund Balance shall be automatically included in the Unassigned Reserve
described in Section 8, below.
Section 8. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the
Wastewater Collection 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 Wastewater Collection 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.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 29 | P a g e
APPENDIX D : MAP (CPA WASTEWATER COLLECTION SYSTEM - SEWER
MAINS REPLACED OR RE HABILITATED SINCE 19 90)
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 30 | P a g e
APPENDIX E : SAMPLE OF WASTEWATER COLLECTI ON OUTREACH
MATERIALS
Attachment C
* NOT YET APPROVED *
60540686055185
Resolution No. _________
Resolution of the Council of the City of Palo Alto Increasing
Wastewater Rates by Amending Rate Schedules S-1 (Residential
Wastewater Collection and Disposal), S-2 (Commercial Wastewater
Collection and Disposal), S-6 (Restaurant Wastewater Collection and
Disposal) and S-7 (Commercial Wastewater Collection and Disposal –
Industrial Discharger)
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 ____, 2019, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
C. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the ________ 2019 public hearing was mailed to all City of Palo Alto
Utilities wastewater customers by _______, 2019.
D. The City Clerk has tabulated the total number of written protests presented by
the close of the public hearing, and determined that it was less than fifty percent (50%) of the
total number of customers and property owners subject to the proposed wastewater rate
amendments, therefore a majority protest does not exist against the proposal.
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 S-1 (Residential Wastewater Collection and Disposal) is hereby amended to read
as attached and incorporated. Utility Rate Schedule S-1, as amended, shall become effective
July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule S-2 (Commercial Wastewater Collection and Disposal) is hereby amended to read
as attached and incorporated. Utility Rate Schedule S-2, as amended, shall become effective
July 1, 2019.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule S-6 (Restaurant Wastewater Collection and Disposal) is hereby amended to read
as attached and incorporated. Utility Rate Schedule S-6, as amended, shall become effective
July 1, 2019.
Attachment C
* NOT YET APPROVED *
60540686055185
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger) is
hereby amended to read as attached and incorporated. Utility Rate Schedule S-7, as amended,
shall become effective July 1, 2019.
SECTION 5. The Council finds that the revenue derived from the wastewater rates
approved by this resolution do not exceed the funds required to provide wastewater service,
and the revenue derived from the adoption of this resolution shall be used only for the
purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 6. 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 p ayor
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 7. The Council finds that the adoption of this resolution changing
wastewater collection 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 Californ ia
Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec.
15273(a). After reviewing the staff report and all attachments presented to Council, the
Council incorporates these documents herein and finds that sufficient evidence has been
presented setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Senior DeputyAssistant City Attorney City Manager
Attachment C
* NOT YET APPROVED *
60540686055185
___________________________
Director of Utilities
___________________________
Director of Administrative Services
RESIDENTIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-1-1 Effective 7-1-20198
dated 7-1-20168 Sheet No S-1-1
A. APPLICABILITY:
This schedule applies to each Occupied Domestic Dwelling unit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wastewater Service.
C. RATES:
Per Month
Each Occupied Domestic Dwelling unit ................................................................................
$38.6641.37
D. SPECIAL NOTES:
1. Any dwelling unit being individually served by a Water, Gas, or Electric Meter will be
considered continuously occupied.
2. For two or more Occupied Domestic Dwelling units served by one Water Meter, the monthly
Wastewater charge will be calculated by multiplying the current Wastewater rate by the
number of dwelling units.
3. Each developed separate lot shall have a separate service lateral to a sanitary main or
manhole.
{End}
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-2-1 Effective 7-1-20198
dated 7-1-20186 Sheet No S-2-1
A. APPLICABILITY:
This schedule applies to all commercial establishments other than those served under Utility Rate
Schedule S-1 (Residential Wastewater Collection and Disposal), Rate Schedule S-6 (Restaurant
Wastewater Collection and Disposal) or Rate Schedule S-7 (Commercial Establishments
Wastewater Disposal – Industrial Discharger). B. TERRITORY: This schedule applies everywhere the City of Palo Alto provides Wastewater Services. C. RATES:
1. Minimum Charge per connection per month .............................................................$38.6641.37 2. Quantity Rates, per 100 cubic feet (See Section D.1) .............................................$7.457.97 D. SPECIAL NOTES: 1. The monthly charge for the quantity rate set forth in Section C.2 of this rate schedule will
be based upon the average Water usage for the months of January, February and March,
and applied in the following July. If a Water Meter is identified as exclusively serving
irrigation landscaping, such Meter will be exempted from Wastewater charge
calculations. Customers without an applicable usage history will be charged at the
minimum monthly charge until such time as such usage may reasonably be established by
the City of Palo Alto Utilities Department. 2. The City of Palo Alto Utilities Department may require Wastewater Metering facilities,
in which case Service will be governed by terms of a special agreement between the City
and the Customer.
{End}
RESTAURANT WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-6
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-6-1 Effective 7-1-20198
dated 7-1-20186 Sheet No S-6-1
A. APPLICABILITY:
This schedule applies to all restaurants.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wastewater Services.
C. RATES:
1. Minimum charge per connection per month ......................................................... $38.6641.37
2. Quantity Rates, per 100 cubic feet of monthly metered Water usage ........................ $
11.5212.33
D. SPECIAL NOTES: 1. The City of Palo Alto Utilities Department may require Wastewater Metering facilities, in
which case Service will be governed by terms of a special agreement between the City and
the Customer.
{End}
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
– INDUSTRIAL DISCHARGER
UTILITY RATE SCHEDULE S-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-7-1 Effective 7-1-20198
dated 7-1-20168 Sheet No S-7-1
A. APPLICABILITY:
This schedule applies to any establishment requiring sampling of industrial discharges in excess
of 25,000 gallons per day, or special discharge monitoring, as defined in Rule and Regulation 23,
Section D.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wastewater Services.
C. RATES:
1. Collection System Operation, Maintenance, and Infiltration Inflow:
$2.15 per 100 cubic feet of metered water use.
2. Advanced Waste Treatment Operations and Maintenance Charge:
$1.27 51 per 100 cubic feet of metered water use
3. $ 247.56 per 1000 pounds (lbs) of COD (Chemical Oxygen Demand)
4. $ 596.62 per 1000 lbs of SS (Suspended Solids)
5. $ 3,983.85 per 1000 lbs of NH 3 (Ammonia)
6. $ 14,781.25 per 1000 lbs of toxics (chromium, copper, cyanide, lead, nickel, silver, and zinc) D. SPECIAL NOTES: 1. Water usage will be determined as defined in Rule and Regulation 23, Section D. If a
Water Meter is identified as exclusively serving irrigation landscaping, such Meter will
be exempted from Wastewater charge calculations. 2. The City of Palo Alto Utilities Department may require Wastewater Metering facilities,
in which case Service will be governed by terms of a special agreement between the City
of Palo Alto and the Customer. 3. Charges for large discharges will be determined on the basis of sampling as outlined in
Utilities Rule and Regulation 23, Section D. However, for purposes of arriving at an
accurate flow estimate, discharge Meters, if installed, can be utilized to measure outflow
for billing purposes. Annual charges will be determined and allocated monthly for billing
purposes.
{End}