HomeMy WebLinkAbout2019-04-16 Finance Committee Agenda PacketFinance Committee
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Tuesday, April 16, 2019
Special Meeting
Community Meeting Room
5:30 PM
Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in
the Council Chambers on the Thursday 12 days preceding the meeting.
PUBLIC COMMENT
Members of the public may speak to agendized items. If you wish to address the Committee on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council
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comment may be addressed to the full Finance Committee via email at City.Council@cityofpaloalto.org.
Call to Order
Oral Communications
Members of the public may speak to any item NOT on the agenda.
Action Items
1. Staff and the Utilities Advisory Commission Recommend the City
Council Adopt: (1) a Resolution Approving the Fiscal Year 2020 Water
Utility Financial Plan; and (2) a Resolution Increasing Water Rates by 1
percent by Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service From Fire Hydrants), W-3 (Fire Service
Connections), W-4 (Residential Master-Metered and General Non-
Residential Water Service), and W-7 (Non-Residential Irrigation Water
Service)
2. Staff and the Utilities Advisory Commission Recommends the City
Council Adopt: (1) a Resolution Approving the Fiscal Year 2020
Wastewater Collection 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)
3. Recommendation That the Finance Committee Recommends the City
Council Adopt a Resolution Amending Utility Rate Schedule D-1 (Storm
and Surface Water Drainage) Increasing the Storm Water Management
2 April 16, 2019
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
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Fee by 4.5 Percent to $14.68 Per Month per Equivalent Residential Unit
for Fiscal Year 2020
4. Finance Committee Review and Input on the Palo Alto Transportation
Management Association (TMA) Strategic Plan and Funding Request
Future Meetings and Agendas
Adjournment
1 FY 2020 Electric Financial Plan and Rate Proposals - Utilities
2 FY 2020 Gas Financial Plan and Rate Proposals - Utilities
3 FY 2020 PROPOSED Operating/Capital Budgets - ASD
4 FY 2020 Municipal Fee Hearings - ASD
5 Review recommended workplan for in-depth Municipal Fee
review, follow-up from 2018 - ASD
May 28
1pm - 5pm 6 FY 2020 Budget Wrap-up - ASD
June 4 7 3rd Quarter Financials - ASD
Finance Committee Items Tentatively Scheduled
May 15 & 23
1pm - 8pm
Meeting
Date TitleLine
No.
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Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/16/2019
City of Palo Alto Page 1
Summary Title: FY 2020 Water Financial Plan and Rate Proposals
Title: Staff and the Utilities Advisory Commission (UAC) Recommend the City
Council Adopt: (1) a Resolution Approving the Fiscal Year 2020 Water Utility
Financial Plan; and (2) a Resolution Increasing Water Rates by 1% by
Amending Rate Schedules W-1 (General Residential Water Service), W-2
(Water Service from Fire Hydrants), W-3 (Fire Service Connections),W-4
(Residential Master-Metered and General Non-Residential Water Service),
and W-7 (Non-Residential Irrigation Water Service)
From: City Manager
Lead Department: Utilities
RECOMMENDATION
Staff requests that the Finance Committee recommend that the Council:
1. Adopt a resolution (Attachment A) approving:
a. The fiscal year (FY) 2020 Water Utility Financial Plan (Attachment B); and
b. Up to a $5 million transfer from the Operations Reserve to the CIP Reserve; and
2. Adopt a resolution (Attachment C) increasing water rates by amending Rate Schedules W-1
(General Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire
Service Connections), W-4 (Residential Master-Metered and General Non-Residential Water
Service), and W-7 (Non-Residential Irrigation Water Service) (Attachment D)
EXECUTIVE SUMMARY
The FY 2020 Water Utility Financial Plan includes projections of the utility’s costs and revenues
for FY 2019 through FY 2024. Costs are projected to rise on average by about 3 to 4% per year
over the next several years. As a result, staff projects the need for a 1% water rate increase on
July 1, 2019 and 2% to 6% rate increases in later years. The 1% increase in FY 2020 is needed to
raise revenue for rising capital and operations expenses. Over the longer term, increases are
primarily associated with increasing water supply costs, with some of the increase related to
rising capital costs.
City of Palo Alto Page 2
BACKGROUND
Every year staff presents the 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
the Finance Committee 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.
Most of the City’s water comes from the San Francisco Public Utilities Commission (SFPUC)’s
Hetch Hetchy water system. This same system serves San Francisco and a number of other Bay
Area cities as well. The system is run by San Francisco, but as much as two thirds of the water is
used outside of San Francisco by 26 cities, water districts, and private utilities. These agencies
are frequently referred to as the “wholesale customers” (as compared to the SFPUC’s “retail
customers,” residents of San Francisco). The wholesale customers are represented by the Bay
Area Water Supply and Conservation Agency (BAWSCA), which negotiates with the SFPUC on
their behalf and ensures contract compliance through regular review of the SFPUC’s accounting
and capital expenditures.1
The Water Utility has two main costs: water supply costs (primarily the cost of water delivered
to Palo Alto from the Hetch Hetchy system) and the costs of operating the distribution system
(the system of pipes, pumps, reservoirs, and other infrastructure that carries water to Palo Alto
customers). As discussed in previous years, both cost components have been increasing and are
expected to continue to increase. For many years the largest cost increases have been on the
water supply side. This is due primarily to major capital investments the SFPUC has made since
2010, partly due to pressure from wholesale customers. The Water System Improvement
Project (WSIP) is a $4.8 billion capital improvement program, one of the largest in the country,
to rehabilitate and seismically strengthen the lower portions of the Hetch Hetchy system. The
goal was to achieve the capability to return to service within 24 hours after a major earthquake.
The project was 96% complete as of January 2019. The project has greatly improved the
resiliency of the Hetch Hetchy system, but has also led water supply costs to double over the
course of the project.
By contrast, capital and operational costs have increased roughly at inflation for the last five
years. But this year’s forecasts take place in the context of rising construction and operations
costs that may change that trend.
The Finance Committee reviewed preliminary financial forecasts at its March 19, 2019 meeting.
The Utilities Advisory Commission (UAC) reviewed the Water Financial Plan at its April 3, 2019
meeting but the results of that meeting were not available as of the publication of this report.
1 For a video summary of BAWSCA’s activities, see https://vimeo.com/283596665/5619ce2c11
City of Palo Alto Page 3
DISCUSSION
Staff’s annual assessment of the financial position of the City’s water utility is completed 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 cost of service (COS) methodology described in the
2012 Palo Alto Water Cost of Service & Rate Study, and updated in the 2015 Study update, the
2015 Drought Rate memorandum completed by Raftelis Financial Consultants, and, lastly, as
updated this year as memorialized in the attached memo by Raftelis Financial Consultants titled
“Proposed FY 2020 Water Rates” (Attachment E).2
Staff proposes to adjust water rates, effective July 1, 2019, to recover costs related to growing
capital improvement, operations and maintenance, and general administrative costs, as
discussed below. These changes are projected to increase the system average water rate by
roughly 1%.
The overall proposed change in customer bills is between -2% to 2%, depending on customer
class, though the change may be higher (up to 5%) depending on usage. As noted above, staff
has updated the 2015 COS study according to the attached memo. It was updated to reflect the
most current customer consumption patterns, which have normalized several years after the
drought. It also reflects changes to the utility’s cost structure. The updated COS study
generated some shifts in the way costs should be allocated across customer classes. Over the
past several years, customer usage patterns have changed. This may be because of customer
experiences and changes that occurred during the recent drought of 2014 – 2017. These
changes create different peak usage levels, or peaking factors, that each customer class
imposes on the water system. Peaking factors are the rate of use compared to the average rate
of use of any class or of the water system as a whole. These changed usage patterns and
peaking factors, together with the updated costs, reflect the current cost of water service.
Based on the analysis, the relative changes to customer class groups are shown in Table 1
below:
Table 1: Revenue Allocation by Customer Class in FY 2020
Customer Class Customer Class Revenue Difference Customer Class
Percentage of Total
Revenue at Current
Rates
Customer Class
Percentage of Total
Revenue at Cost of
Service
At Current
Rates
At Cost of
Service
Residential – W1 $21,269,490 $21,770,016 2% 47% 48%
Master MFR/Commercial – W4 $17,477,323 $17,187,130 (2%) 39% 38%
Irrigation – W7 $5,744,331 $5,877,794 2% 13% 13%
Construction – W2 $52,010 $51,546 (1%) 0% 0%
2 A cost of service study (COS) is a study using industry-standard techniques to determine how the costs of running
the utility should be recovered from its customers; charges to each customer are set in proportion to the cost of
serving that customer.
City of Palo Alto Page 4
Fire Service – W3 $611,593 $606,922 (1%) 1% 1%
TOTAL $45,154,747 $45,493,408 1% 100% 100%
As a result of the COS update, residential customers will see a 2% increase (on average),
Commercial Irrigation a 2% increase, and the other customer classes will see between a 0 to -
2% increase.
Concurrently, staff also evaluated whether it would be appropriate to apply a single fixed
charge to residential meter sizes 1” and smaller. In general, a customer’s meter is sized based
upon the required load of the dwelling. However, there may be cases where a customer could
be adequately served with a smaller meter, but a larger meter is required because of special
equipment or circumstances. Two such scenarios involve homes with domestic fire sprinklers,
which are required for new homes or when older homes go through a specific degree of
upgrade, and pressure-related issues resulting from longer than normal service lengths. These
types of issues raised the question of whether differentiating meter sizes smaller than 1” was
appropriate for Palo Alto. The various reasons for increasing meter size to 3/4” or 1” do not
impact the City’s infrastructure or the on-going maintenance requirements, since lines and
infrastructure are already sized to provide fire flow requirements. There is no need to increase
main size to meet supply requirements and therefore no additional cost to the utility.
Additionally, new residential developments in general are connected with at least 1” meters.
To ensure uniform administration and equitable cost allocation, staff proposes to charge all
residential customers with 5/8”, 3/4”, and 1” meters, which include fire flow, a uniform
monthly service fee. This means that residential customers with 3/4” and 1” meters will see a
decrease in their uniform monthly service fee and residential customers with 5/8” meters will
see an increase in their uniform monthly service fee in order to fully recover the cost of
providing service to these different meter sizes. Raftelis’s 2019 memo titled “Proposed FY 2020
Water Rates” (Attachment E) contains greater detail on this change.
Unlike residential customers who typically have only one meter for all water uses (domestic,
irrigation and fire suppression), commercial customers are required to have a separate fire
service meter. This means that small commercial customers are not oversized up to 1” in order
to meet fire flow requirements. Commercial customers have meter sizes that are based on
water demands that are reflective of the customer’s actual daily and seasonal usage impact on
the City’s water system. For this reason, it is appropriate to continue to set small commercial
customer meter charges according to meter flow capacity as is the case under the current rates.
The analysis and discussion on meters is deliberated in more detail within the FY 2020 Water
Financial Plan (Attachment B), as well as in the 2019 memorandum from Raftelis Financial
Consultants (Attachment E). Based on the analysis, staff is recommending combining the meter
charges for residential services smaller than 1”, and this proposal is shown in Table 3 below.
The proposed rates and meter charges for commercial customers are shown in Tables 4 and 5,
respectively. The overall impact on the customer bill for the average customer with a 5/8”
City of Palo Alto Page 5
meter is roughly 2%, but with more and more customers expected to upgrade to 1” services
over time, more customers will have the larger meters and so they will pay less in meter
charges than the 2018 rates would have required. Approximately 83% of residential customers
have 5/8” meters, 2.8% have 3/4” meters, and 13% have 1” meters (the rest have meter size
greater than 1”).
Finally, Staff is proposing to separate the commodity cost of purchased water from SFPUC from
the distribution-related portion of the volumetric rates to facilitate passing through future
SFPUC rate increases. This is a revenue neutral change. All customers will pay this separate
commodity cost for each unit of water in addition to the volumetric rate that is applicable for
their customer class. Raftelis’s 2019 memo, “Proposed FY 2020 Water Rates”, contains greater
detail on this change. With Council’s approval, the commodity portion of the City’s water rates
will be passed-through automatically via periodic rate adjustments to account for increases in
wholesale water charges or wastewater treatment charges, as well as inflation. Pass-through
rate changes are expected to be annual, however there may be times when the pass-through is
implemented on a periodic basis depending upon how SFPUC sets its rates. This automatic
adjustment will be authorized for five years from Council’s adoption of the proposed water
rates, and customers will be provided notice of any adjustments via their billing statements.
The rate changes proposed for July 1, 2019 are included in the proposed amended rate
schedules in Attachment D and outlined here in Tables 2 through 5.
Table 2: Water Consumption Charges in $/CCF (Current and Proposed)
Current (7/1/18)* Proposed
(7/1/19)
Change
($/CCF)^
W-1 (Residential), W-2(Construction), W-3(Commercial) and W-7 (Irrigation)
Volumetric Rate ($/CCF)
Commodity
Rate - 4.10 4.10 -
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 6.64 2.54 2.56 0.02
Tier 2 Rates 9.44 5.34 5.97 0.63
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 7.77 3.67 3.61 (0.06)
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 7.77 3.67 3.61 (0.06)
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 9.33 5.23 5.50 0.27
*Rates effective 7/1/18 did not list the $4.10 commodity rate
separately, as the proposal for the 2019 rates does.
City of Palo Alto Page 6
^Change percentages not included because the rates effective
7/1/18 did not list the $4.10 commodity rate separately while
the proposal for the 2019 rates does.
Table 3: Current and Proposed Monthly Service Charges for W-1
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18)
Residential (W-1)
Proposed (7/1/19)
Residential (W-1)
$ %
5/8” $18.43 $20.25 $1.82 11%
3/4” $24.83 $20.25 ($4.58) (18%)
1” $37.64 $20.25 ($17.39) (46%)
1 ½” $69.66 $65.40 ($4.26) (6%)
2” $108.08 $101.17 ($6.91) (6%)
3” $229.75 $214.44 ($15.31) (7%)
4” $409.05 $381.37 ($27.68) (7%)
6” $838.09 $780.79 ($57.30) (7%)
8” $1,542.50 $1,436.57 ($105.93) (7%)
10” $2,439.01 $2,271.20 ($167.81) (7%)
Table 4: Current and Proposed Monthly Service Charges for Fire Services (W-3)
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18) Proposed (7/1/19) $ %
2” $4.16 $4.17 $0.01 0%
4” $25.73 $25.81 $0.08 0%
6” $74.74 $74.96 $0.22 0%
8” $159.28 $159.74 $0.46 0%
10” $286.43 $287.27 $0.84 0%
12” $462.67 $464.02 $1.35 0%
City of Palo Alto Page 7
Table 5: Current and Proposed Monthly Service Charges for W-4, and W-7
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18)
Commercial (W-4)
Irrigation (W-7)
Proposed (7/1/19)
Commercial (W-4)
Irrigation (W-7)
$ %
5/8” $18.43 $17.71 ($0.72) (4%)
3/4” $24.83 $23.67 ($1.16) (5%)
1” $37.64 $35.59 ($2.05) (5%)
1 ½” $69.66 $65.40 ($4.26) (6%)
2” $108.08 $101.17 ($6.91) (6%)
3” $229.75 $214.44 ($15.31) (7%)
4” $409.05 $381.37 ($27.68) (7%)
6” $838.09 $780.79 ($57.30) (7%)
8” $1,542.50 $1,436.57 ($105.93) (7%)
10” $2,439.01 $2,271.20 ($167.81) (7%)
12” $3,207.45 $2,986.60 ($220.85) (7%)
Bill Impact of Proposed Rate Changes
The average increase in overall revenue is projected to be about one percent, but some
customers may see higher or lower increases in their bill due to changes in the level at which
customer classes utilize the water system. As California is no longer under drought restrictions,
customers have started using more water (although overall usage has not resumed at pre-
drought levels and is not predicted to, based upon history from previous droughts). The peak
usage month is in August, indicating irrigation as a main driver. This change in usage, mainly by
the residential and irrigation-only classes of customers, has also shifted their relative allocations
of distribution system cost due to the fact these customers are having a greater impact on the
water distribution system. The result is seen in Table 1 above, with the larger share of increase
going to the Residential Tier 2 group and Irrigation customers. The methodology used in this
update the same as the methodology as was used in Raftelis’ 2015 study update.
Because water consumption increased as the Bay Area exited the drought and the SFPUC took
in greater than expected revenues, the current estimate of the FY 2020 SFPUC W-25 rate
(Wholesale Use with Long-Term Contract) is $4.10/ccf, and this is currently projected to stay
the same until FY 2023. While the SFPUC will not determine its final wholesale rate until May or
June, the probability of their changing this rate is considered low. However, in order to have the
City’s water rates in place for July 1, staff must provide notice to CPAU customers by the end of
April. Should the SFPUC increase rates beyond $4.10/ccf after the City’s July 1 water rates are
adopted, current Operations Reserves should provide sufficient funds until an adjustment to
Palo Alto’s rates can be made next year.
Table 6 shows the impact of the proposed July 1, 2019 rate changes on residential bills.
City of Palo Alto Page 8
Table 6: Impact of Proposed Rate Changes on Residential Bills
Usage
(CCF/month)
Bill under
Existing Rates
(7/1/18)
Bill under
Proposed Rates
(7/1/19)
Change
$/mo. %
4 $44.99 $46.89 $1.90 4%
(Winter median) 7 $67.71 $70.28 $2.57 4%
(Annual median) 9 $86.59 $90.42 $3.83 4%
(Summer median) 14 $133.79 $140.77 $6.98 5%
25 $237.63 $251.54 $13.91 6%
Table 7 shows the impact of the proposed July 1, 2019 rate changes on various representative
commercial customer bills.
Table 7: Impact of Proposed Rate Changes on Commercial Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/18)
Bill under
Proposed Rates
(7/1/19)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $111.67 $110.23 ($1.44) (1%)
(Annual average) 64 $515.71 $511.15 ($4.56) (1%)
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 $ 153.63 $151.80 ($1.83) (1%)
(Summer median) 37 $ 414.87 $420.60 $5.73 1%
(Winter average) 56 $ 592.14 $603.00 $10.86 2%
(Summer average) 199 $ 1,926.33 $1,975.80 $49.47 3%
FY 2020 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 8 shows the projected rate adjustments over the next five years and their impact on the
annual median residential water bill for 5/8” customers
Table 8: Projected Rate Adjustments, FY 2020 to FY 2024 (5/8” meter)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Water Utility 4%2 2% 3% 6% 6%
Estimated Bill Impact ($/mo)1 $3.83 $1.81 $2.77 $5.70 $6.04
1) estimated impact on median residential water bill for customers with 5/8” meter, which is
currently $86.59.
2) 1% system average rate increase. Residential bill impact for a customer with median
consumption is 4% for a 5/8” meter.
Figures 1 and 2 below illustrate the projected increases in the Water Utility’s costs between FY
2019 and FY 2024:
City of Palo Alto Page 9
Figure 1: FY 2019 and FY 2024 costs
Figure 2: Percentage of Total Cost Increase From FY 2019 to FY 2024
Attributed to Supply, Ongoing Capital, and Operations Costs
City of Palo Alto Page 10
A major driver for the increase in the water utility’s costs (and therefore rates) over the next
several years is operations cost. Inflationary increases of 2 to 3% per year are factored into
these changes, and also larger benefit cost increases to reflect a 6.2% discount rate for pension
liabilities. Salaries and benefits account for less than 20% of the water fund’s overall costs, so
while these benefits assumption changes do create larger expense projections, they are not
significantly higher than they would have been under prior assumptions. Operations costs are
projected to increase by around 4% overall over the forecast period.
The cost of water is also a major driver. Wholesale water costs are adopted by the SFPUC, and
generally have changed on an annual basis. Costs are projected to increase annually on average
by 2.5% per year from FY 2019 to FY 2024. The SFPUC is currently engaged in a $4.8 billion
Water System Improvement Project (WSIP). As of December 31, 2018, nearly 96% of the WSIP
regional projects are complete.3 This has resulted and will continue to result in large increases
in the annual debt service costs assigned to wholesale customers like Palo Alto. After each WSIP
project is completed, wholesale customers must start paying the debt service costs within 3 to
4 years. The currently estimated WSIP completion date is December 30, 2021, as adopted by
the SFPUC in March of 2018. Current major projects underway are replacement of Calaveras
dam, restoration work to the Alameda Creek Watershed, and work on regional groundwater
storage and recovery project. The SFPUC is forecasting the need for additional Transmission,
Supply & Storage and Treatment system upgrade projects, starting after the WSIP is complete.
Future and in-progress construction work will require bond funding, and the SFPUC’s financial
plans show debt service cost growing by 77% between FY 2018 and FY 2024, and nearly
doubling by FY 2028. Initial wholesale rate increase projections range from 4% to 5% per year
on average through FY 2024 to cover increases in debt service cost.
Changes in usage due to drought, or recovery from drought, can also make the magnitude of
future increases difficult to predict. The SFPUC’s costs to operate the Regional Water System
are primarily fixed costs, so the water rate charged to wholesale customers like the City of Palo
Alto is highly dependent on usage by all users of the Regional Water System. The City’s FY 2020
Water Utility Financial Plan assumes that, while the drought has ended and usage has
increased, based on CPAU’s experience, consumption is not anticipated to return to pre-
drought levels. The SFPUC is currently working on its budget for FY 2020, and the long-range
changes to wholesale costs are subject to change. Staff will reflect those increases in future
financial forecasts, as they become available. In the short term, because sales of water by the
SFPUC were higher than they projected during the drought, they have collected a reserve of
funds in their Balancing Account. They are obliged to utilize these funds to offset rate increases,
and based upon their current estimate of sales, they are not anticipating a need to raise rates
to wholesale customers until FY 2023.
There remains some uncertainty in the forecasts of capital costs for the water utility in coming
years. Water main replacement costs have risen substantially in recent years. The regional and
3 Second Quarter FY 2018-19 WSIP Regional Quarterly Report, http://www.sfwater.org/index.aspx?page=307
City of Palo Alto Page 11
even national focus on infrastructure improvement has created labor shortages, leading to
higher bids than were seen in the past. Several factors go into main replacement cost, such as
location as well as the length of main segments. The projects in FY 2019 and FY 2020, although
of smaller segment size than in later years, are also located in higher traffic areas and are much
harder to coordinate (such as University Avenue). This financial plan includes larger main
replacement construction projects every other year instead of smaller projects annually. This
revised main replacement schedule will allow CPAU to meet its main replacement needs while
addressing challenges in the current construction market and optimizing current staffing
resources. This shift to larger main replacement projects every other year is anticipated to
attract more contractors to bid on the larger projects. Additionally, this main replacement
project schedule for water will be staggered with wastewater and gas (water and wastewater
construction every even year and gas construction every odd year), which will ease scheduling
difficulties for inspection coverage due to shared inspection staff across water, wastewater,
gas, and large development services projects. Beyond this, there are large one-time capital
costs in FY 2019 through 2021 related to reservoir rehabilitation which are not currently
projected in FY 2024.
Due to delays in construction, it is anticipated that several projects budgeted for FY 2019 will be
delayed until FY 2020, thus the lower than normal values for FY2019 in Figure 1 above. For
purposes of comparison, the on-going capital improvement cost, outside of one-time projects,
would be estimated at around $10.5 million in FY 2019.
Higher bid costs and delays in project schedules resulted in a deferment of main replacement
projects in FY 2017, temporarily lowering costs, and greater than anticipated sales post-drought
resulted in higher revenues. These have resulted in the Operations Reserve being filled to the
maximum guideline level, with surplus reserves available to phase in rate increases more slowly
over the forecast period by drawing down reserves. It has also been the intention of Staff to
fund individual CIP reserves for each of the utility funds, as can be prudently done without
undue impact on rates. As distribution related costs are projected to decline in the short-term
next year and supply costs are anticipated to remain relatively flat, staff is taking this
opportunity to recommend transferring $5 million to the CIP reserve and bring it above its
minimum guideline value. Having this reserve in place will enable staff to smooth out uneven
annual funding associated with ongoing CIP projects, and will be a source for one-time or
immediately needed projects.
Water Bill Comparison with Surrounding Cities
Table 9 compares water bills for residential customers to those in surrounding communities as
of February 2019 (under current the City’s current water rates). Palo Alto customers have some
of the highest monthly bills of the group, although bills for smaller water users are lower than
in some surrounding communities. It is unclear at this time what water rate changes may be
implemented in these communities for FY 2020.
City of Palo Alto Page 12
Table 9: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of February 2019
Palo
Alto
Menlo
Park
Mountain
View Hayward
Redwood
City
Santa
Clara
4 44.99 52.84 37.47 35.20 54.04 23.92
(Winter median) 7 67.71 76.44 58.08 56.62 76.09 41.86
(Annual median) 9 86.59 92.17 71.82 70.90 90.79 53.82
(Summer median) 14 133.79 133.34 106.17 108.51 138.94 83.72
25 237.63 224.91 222.94 201.02 267.39 149.50
*Based on the FY 2013 BAWSCA survey, the fraction of SFPUC as the source of potable
water supply was 100% for Palo Alto, 95% for Menlo Park, 100% for Redwood City, 87%
for Mountain View, 10% for Santa Clara and 100% for Hayward.
Changes from Last Year’s Financial Forecast
Table 10 compares current rate projections to those projected in the last two year’s Financial
Plans. As shown, the FY 2020 rate projections are somewhat lower than projected last year.
Table 10: Projected Water Rate Trajectory for FY 2020 to FY 2024
Projection FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
Current
(FY 2020 Financial Plan) 1% 2% 3% 6% 6%
Last year
(FY 2019 Financial Plan) 7% 7% 6% 4% 4%
Two years ago
(FY 2018 Financial Plan) 6% 6% 6% 6% 2%
NEXT STEPS
The Utilities Advisory Commission is scheduled to review the FY 2020 Water Financial Plan in
April 2019. Assuming the Utilities Advisory Commission supports staff’s recommendation,
notification of the rate increases will be sent to customers as required by Article XIIID of the
State Constitution (added by Proposition 218). The Financial Plans and rate schedules will then
go to the City Council with the FY 2020 budget for adoption, at which time the public hearing
required by Article XIIID of the State Constitution will be held. Assuming the rate changes are
approved, they will become effective July 1, 2019.
RESOURCE IMPACT
Normal year sales revenues for the Water Utility are projected to increase by roughly 1% ($340
thousand) as a result of these rate increases when compared to what the FY 2020 projected
sales revenues would be under current rates. The FY 2020 Budget is being developed
City of Palo Alto Page 13
concurrent with these rates and, depending on the final rates, adjustments to the budget may
be necessary at a later time. See the attached FY 2020 Water Financial Plan for a more
comprehensive overview of projected cost and revenue changes for the next five years.
POLICY IMPLICATIONS
The proposed water rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans and were developed using a cost of
service study and methodology consistent with the cost of service requirements of Proposition
218.
ENVIRONMENTAL REVIEW
The UAC’s review and recommendation to Council on the FY 2020 Water Financial Plan and rate
adjustments does not meet the definition of a project requiring California Environmental
Quality Act (CEQA) review under Public Resources Code Section 21065 thus no environmental
review is required.
Attachments:
• Attachment A: Resolution Adopting FY 2020 Water Financial Plan
• Attachment B: FY 2020 Water Financial Plan
• Attachment C: Resolution Adopting Water Rates Effective July 1, 2019
• Attachment D: Utility Rate Schedules W-1 W-2 W-3 W-4 and W-7
• Attachment E: Palo Alto Water COS Memo 2019
Attachment A
* NOT YET APPROVED *
6055182
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the
FY 2020 Water Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. The City
does this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby adopts the FY 2020 Water Utility Financial Plan.
SECTION 2. The Council hereby approves the transfer of up to $5,000,000 in FY 2020
from the Operations Reserve to the Capital Improvement Projects Reserve, as described in the
FY 2020 Water 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 (CEQA) 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:
ATTEST:
Attachment A
* NOT YET APPROVED *
6055182
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
ATTACHMENT B
FY 2020 WATER
UTILITY
FINANCIAL PLAN
FY 2020 TO FY 2024
WATER UTILITY FINANCIAL PLAN
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FY 2020 WATER UTILITY
FINANCIAL PLAN
FY 2020 TO FY 2024
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 .................................................................................. 6
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 Rate Changes .................................................................... 10
Section 3D: Proposed Reserve Transfers ................................................................................... 11
Section 4: Utility Overview .................................................................................................. 11
Section 4A: Water Utility History ............................................................................................... 11
Section 4B: Customer Base ........................................................................................................ 12
Section 4C: Distribution System ................................................................................................. 12
Section 4D: Cost Structure and Revenue Sources ...................................................................... 12
Section 4E: Reserves Structure ................................................................................................... 13
Section 4F: Competitiveness ...................................................................................................... 14
Section 5: Utility Financial Projections ................................................................................. 14
Section 5A: Load Forecast .......................................................................................................... 14
Section 5B: FY 2014 to FY 2018 Cost and Revenue Trends ........................................................ 16
Section 5C: FY 2018 Results ....................................................................................................... 17
Section 5D: FY 2019 Projections ................................................................................................ 17
Section 5E: FY 2020 – FY 2024 Projections ................................................................................ 18
Section 5F: Risk Assessment and Reserves Adequacy ............................................................... 19
Section 5G: Long-Term Outlook ................................................................................................. 20
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Section 6: Details and Assumptions ..................................................................................... 21
Section 6A: Water Purchase Costs ............................................................................................. 21
Section 6B: Operations .............................................................................................................. 23
Section 6C: Capital Improvement Program (CIP) ....................................................................... 24
Section 6D: Debt Service ............................................................................................................ 27
Section 6E: Other Revenues ....................................................................................................... 28
Section 6F: Sales Revenues ........................................................................................................ 28
Section 7: Communications Plan .......................................................................................... 29
Appendices ......................................................................................................................... 30
Appendix A: Water Utility Financial Forecast Detail ................................................................. 31
Appendix B: Water Utility Capital Improvement Program (CIP) Detail ..................................... 33
Appendix C: Water Utility Reserves Management Practices ..................................................... 34
Appendix D: Description of Water Utility Operational Activities ............................................... 37
Appendix E: Sample of Water Utility Outreach Communications ............................................. 38
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SECTION 1: DEFINITIONS AND ABBREVIATIONS
BAWSCA Bay Area Water Supply and Conservation Agency
CCF The standard unit of measurement for water delivered to water customers, equal to
one hundred cubic feet, or roughly 748 gallons.
CIP Capital Improvement Program
CPAU City of Palo Alto Utilities Department
O&M Operations and Maintenance
RFC Raftelis Financial Consultants, Inc.
SFPUC San Francisco Public Utilities Commission
SFWD San Francisco Water Department
UAC Utilities Advisory Commission
WSIP The SFPUC’s Water System Improvement Program to seismically strengthen the
transmission lines of the Hetch Hetchy Regional Water System.
SECTION 2: EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City’s Water Utility for the next five years. This
Financial Plan provides revenues to cover the costs of operating the utility safely over that time
while adequately investing for the future. It also addresses the financial risks facing the utility
over the short term and long term, and includes measures to mitigate and manage those risks.
SECTION 2A: OVERVIEW OF FINANCIAL POSITION
Based on staff’s most recent analysis, staff expects overall costs in the Water Utility to rise on
average by about 3 to 4% per year from fiscal year (FY) 2019 to 2024. Operations cost
projections rise on average by about 4% annually through the projection period. Water supply
costs, the largest individual component of the utility’s costs, are projected to remain relatively
flat through FY 2022, based on current SFPUC projections, and then rise steeply thereafter due
to a series of major capital projects on the Hetch Hetchy Regional Water System. See Section
6A: Water Purchase Costs for more information. Capital costs were lower than budgeted in FY
2018 and will be lower than originally budgeted in staff’s projection for FY 2019 as some capital
projects will be shifted to FY 2020 and beyond. For FY 2021 through 2024, staff anticipates
annual capital expenditures will include several reservoir and tank rehabilitation projects and
will fluctuate due to planning for larger main replacement construction projects every other
year instead of smaller projects annually. This revised main replacement schedule will allow
CPAU to meet its main replacement needs while addressing challenges in the current
construction market and optimizing current staffing resources. Section 6C: Capital
Improvement Program (CIP) provides more detail on CIP costs. Table 1 below shows the costs
for the Water Utility from FY 2018 through FY 2024.
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Table 1: Expenses for FY 2018 to FY 2024 (Thousand $’s)
Expenses
($000)
FY
2018
(act.)
FY
2019
(est.)
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
Water
Purchases 21,958 22,482 22,178 21,878 21,582 23,012 25,409
Operations 16,829 16,815 18,610 19,066 19,481 20,507 20,875
Capital
Projects 8,169 5,575 16,944 5,882 13,136 4,253 13,350
TOTAL 46,956 44,872 57,732 46,825 54,199 47,771 59,634
This proposed financial plan projects that the Water Utility needs the rate increases shown in
Table 2 to ensure that revenues cover costs and reserves remain healthy. Staff projects a need
for sales revenue increases averaging roughly 3% per year through FY 2024. This is due to the
fact that revenue is currently below costs, water sales are projected to decline somewhat and
also little or no increase is expected in non-sales revenue (e.g. interest, connection fees).
The table also shows rate projections from last year’s Financial Plan. Last year’s plan projected
slightly higher rate increases. The table also shows rate projections from the Financial Plan from
two years ago, which included higher increase projections. However, delays in water main
replacement projects as well as post-drought sales revenues resulted in an increase in reserves,
which enabled the more gradual increases projected in the current plan. The FY 2018 financial
plan assumed that the Rate Stabilization Reserve would be drawn down faster and the
Operations Reserve run closer to the minimum guideline level for the next several years, in
accordance with the Finance Committee’s direction on April 17, 2018.
Table 2: Proposed and Projected Water Rate Changes for FY 2020 to FY 2024
Projection FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
Current 1% 2% 3% 6% 6%
Last year 7% 7% 6% 4% 4%
2 years 6% 6% 6% 6% 2%
The Water Utility has a Rate Stabilization Reserve that can be used to smooth rate increases
over several years. This Financial Plan projects that these reserves will be utilized by the end of
FY 2024. The Water Utility also has a Capital Improvement Program (CIP) Reserve that can be
used to offset one-time unanticipated capital costs. The CIP Reserve balance of $2.726 million is
currently below the minimum guideline of 12 months of budgeted CIP expense (see Appendix
C, section 5). This Financial Plan replenishes that reserve by $5 million in FY 2020 to bring it
closer to the minimum guideline. The Water Utility Operations Reserve was above the
maximum guideline level at the end of FY 2018. However, these funds will be needed to fund
the Water Utility in FY 2019 and FY 2020, bringing the Operations Reserve within guidelines by
FY 2021. Table 3 shows the projected reserve transfers over the forecast period.
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Table 3: Transfers To/(From) Reserves for FY 2020 to FY 2024 ($000)
Reserve FY 2020 FY 2021 to FY 2024
Capital Improvement 5,000 4,000
Rate Stabilization - (4,069)
Operations (5,000) 69
SECTION 2B: SUMMARY OF PROPOSED ACTIONS
Staff proposes the following actions for the Water Utility in FY 2020:
1. Increase rates to raise an additional 1% in revenue to fund increases to operations costs.
Section 3B: Current and Proposed Rates describes this increase in more detail.
2. Transfer $5 million from the Operations Reserve to the Capital Improvement Reserve.
See Section 3D: Proposed Reserve Transfers for more details.
SECTION 3: DETAIL OF FY 2020 RATE AND RESERVES PROPOSALS
SECTION 3A: RATE DESIGN
The Water Utility’s rates are evaluated and implemented in compliance with the cost of service
requirements and procedural rules set forth in the California Constitution under Article 13 (per
Proposition 218). The City structured current rates based on staff’s assessment of the financial
position of the Water Utility, and updated current rates using the methodology from the March
2012 Palo Alto Water Cost of Service & Rate Study by Raftelis Financial Consultants, Inc. (RFC)
(Staff Report 2676), RFC’s 2015 Memorandum: Proposed Water Rates updating the 2012 Study
and analyzing drought rates (Staff Report 5951), as well as RFC’s 2019 Memorandum updating
the 2012 study. Staff plans to update the cost of service study in 1 to 2 years, unless any major
changes occur to the utility’s operations or customer base that would necessitate an earlier
study. Before conducting any new cost of service study, staff will review current rates and the
scope of the study with the Utilities Advisory Commission (UAC) and Council to determine the
City’s policy priorities.
SECTION 3B: CURRENT AND PROPOSED RATES
The current rates and surcharges were effective on July 1, 2018. Current rates reflect
adjustments in accordance with the results of an updated cost of service study performed by
RFC in 2015. The 2015 study developed the drought surcharges and evaluated the City’s water
rate methodology and structure in light of court decisions interpreting provisions of the State
Constitution applicable to water rates. In FY 2019, RFC again validated the City’s rate structure,
recommending only minor adjustments to ensure that costs were equitably allocated to each
customer class and residential rate tier. Raftelis’s 2019 memo titled “Proposed FY 2020 Water
Rates” (Attachment E) contains greater detail on this change.
CPAU has five rate schedules: separately metered residential customers (W-1), commercial and
master-metered multi-family residential customers (W-4), irrigation-only services (W-7),
WATER UTILITY FINANCIAL PLAN
M a r c h 2019 7 | P a g e
services to fire sprinkler systems in buildings and private hydrants (W-3), and service to fire
hydrant rental meters used for construction (W-2). All customers pay a monthly service charge
based on the size of their inlet meter. This charge represents meter reading, billing, and other
customer service costs, but also the cost of maintaining the capability to deliver a peak flow for
that customer corresponding to their meter size.
For small residential customers there may be different reasons for the meters to be oversized
to 1”, either to meet fire flow requirements for fire suppression purposes or to maintain water
pressure due to long service runs or their location within the system. This increase in meter
size does not impact the City’s infrastructure or the on-going maintenance requirements, since
lines and infrastructure are already sized to provide fire flow requirements. There is no need to
increase main size to meet supply requirements and therefore no additional cost to the utility.
Additionally, new residential developments in general are connected with at least 1” meters.
To ensure uniform administration and equitable cost allocation, staff proposes to charge all
residential customers with 5/8”, 3/4”, and 1” meters, which include fire flow, a uniform
monthly service fee. Residential customers with 3/4” and 1” meters will see a decrease in their
uniform monthly service fee and residential customers with 5/8” meters will see an increase in
their uniform monthly service fee. The cost to the City of providing service to these different
residential meter sizes are similar and therefore the City must fully recover the costs from these
customers in order to reflect the cost of providing service to residential customers with these
different meter sizes. Raftelis’s 2019 memo titled “Proposed FY 2020 Water Rates”
(Attachment E) contains greater detail on this change.
Unlike residential customers who typically have only one meter for all water uses (domestic,
irrigation and fire suppression), commercial customers are required to have a separate fire
service meter. This means that small commercial customers are not oversized up to 1” in order
to meet fire flow requirements. Commercial customers have meter sizes that are based on
water demands that are reflective of the customer’s actual daily and seasonal usage impact on
the City’s water system. For this reason, it is appropriate to continue to set small commercial
customer meter charges according to meter flow capacity as is the case under the current rates.
All customers are also charged for each CCF (one hundred cubic feet) of water used. Separately
metered residential customers are charged on a tiered basis, with the first 0.2 CCF per day (6
CCF for a 30 day billing period) charged at the first tier price per CCF, and all additional units
charged a higher tier price per CCF. Commercial customers pay a uniform price for each CCF
used, and a higher price for separately metered irrigation service.
For July 1, 2019, staff is proposing an overall increase in revenues of approximately one
percent. Water rates are composed of two general types of costs: commodity and distribution.
Commodity costs are mainly volumetric in nature and charged by the San Francisco Public
Utilities Commission (SFPUC). In April 2018, the SFPUC provided a preliminary estimate that
their W-25 wholesale rate for agencies with long-term contracts would remain at $4.10/CCF in
FY 2020. The SFPUC will not determine its final rate until May or June, 2019. However, in order
to have the City’s water rates in place for July 1, 2019 staff must notify customers by the end of
April, 2019. Staff is using the SFPUC’s April 2018 estimate in this forecast.
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Distribution rates cover all the costs to deliver water within the City, such as operations,
maintenance, metering and billing, and capital improvement. Staff is reflecting changes in
Capital improvement costs in distribution costs; these costs are projected to remain fairly
constant over the next five years. Operations costs are discussed in Section 6B: Operations,
below.
Staff is proposing to separate the commodity cost of purchased water from SFPUC from the
distribution-related portion of the volumetric rates to facilitate passing through future SFPUC
rate increases. All customers will pay this separate commodity cost for each unit of water in
addition to the volumetric rate that is applicable for their customer class. Raftelis’s 2019 memo,
“Proposed FY 2020 Water Rates”, contains greater detail on this change. California Government
Code Section 53756 (established by AB-3030) became effective January 1, 2009. This section of
the Code authorizes public agencies providing water, sewer, and garbage services to adopt
automatic pass-through rate adjustments to account for increases in wholesale water charges
or wastewater treatment charges, as well as inflation. Pass-throughs must be adopted via the
Proposition 218 process and can be effective for up to five years without additional Prop 218
authorization.
Table 4 shows the current and proposed consumption charges.
Table 4: Current and Proposed Water Consumption Charges
Current (7/1/18)* Proposed
(7/1/19)
Change
($/CCF)^
W-1 (Residential), W-2(Construction), W-3(Commercial) and W-7 (Irrigation)
Volumetric Rate ($/CCF)
Commodity
Rate - 4.10 4.10 -
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 6.64 2.54 2.56 0.02
Tier 2 Rates 9.44 5.34 5.97 0.63
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 7.77 3.67 3.61 (0.06)
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 7.77 3.67 3.61 (0.06)
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 9.33 5.23 5.50 0.27
*Rates effective 7/1/18 did not list the $4.10 commodity rate
separately, as the proposal for the 2019 rates does.
^Change percentages not included because the rates effective
7/1/18 did not list the $4.10 commodity rate separately while
the proposal for the 2019 rates does.
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Table 5 shows the current and proposed monthly service charges for rate schedules W-1.
Table 5: Current and Proposed Monthly Service Charges for W-1
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18)
Residential (W-1)
Proposed (7/1/19)
Residential (W-1)
$ %
5/8” $18.43 $20.25 $1.82 10%
3/4” $24.83 $20.25 ($4.58) (18%)
1” $37.64 $20.25 ($17.39) (46%)
1 ½” $69.66 $65.40 ($4.26) (6%)
2” $108.08 $101.17 ($6.91) (6%)
3” $229.75 $214.44 ($15.31) (7%)
4” $409.05 $381.37 ($27.68) (7%)
6” $838.09 $780.79 ($57.30) (7%)
8” $1,542.50 $1,436.57 ($105.93) (7%)
10” $2,439.01 $2,271.20 ($167.81) (7%)
Table 6: Current and Proposed Monthly Service Charges for W-4 and W-7
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18)
Commercial (W-4)
Irrigation (W-7)
Proposed (7/1/19)
Commercial (W-4)
Irrigation (W-7)
$ %
5/8” $18.43 $17.71 ($0.72) (4%)
3/4” $24.83 $23.67 ($1.16) (5%)
1” $37.64 $35.59 ($2.05) (5%)
1 ½” $69.66 $65.40 ($4.26) (6%)
2” $108.08 $101.17 ($6.91) (6%)
3” $229.75 $214.44 ($15.31) (7%)
4” $409.05 $381.37 ($27.68) (7%)
6” $838.09 $780.79 ($57.30) (7%)
8” $1,542.50 $1,436.57 ($105.93) (7%)
10” $2,439.01 $2,271.20 ($167.81) (7%)
12” $3,207.45 $2,986.60 ($220.85) (7%)
Table 7 shows the current and proposed monthly service charges for rate schedule W-3
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Table 7: Current and Proposed Monthly Service Charges for Fire Services (W-3)
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18) Proposed (7/1/19) $ %
2” $4.16 $4.17 $0.01 0%
4” $25.73 $25.81 $0.08 0%
6” $74.74 $74.96 $0.22 0%
8” $159.28 $159.74 $0.46 0%
10” $286.43 $287.27 $0.84 0%
12” $462.67 $464.02 $1.35 0%
SECTION 3C: BILL IMPACT OF PROPOSED RATE CHANGES
Table 8 shows the impact of the proposed July 1, 2019 rate changes on the median residential
bill. The system average increase is projected to be about one percent, but some customers will
see higher or lower increases due to slight changes in the composition of customer’s utilization
of the system over time, as well as changes to the utility’s costs.
Table 8: Impact of Proposed Water Rate Changes on Residential Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/18)
Bill under
Proposed
Rates (7/1/19)
Change
$/mo. %
4 $44.99 $46.89 $1.90 4%
(Winter median) 7 $67.71 $70.28 $2.57 4%
(Annual median) 9 $86.59 $90.42 $3.83 4%
(Summer median) 14 $133.79 $140.77 $6.98 5%
25 $237.63 $251.54 $13.91 6%
Table 9 shows the impact of the proposed July 1, 2019 rate changes on various representative
commercial customer bills.
Table 9: Impact of Proposed Water Rate Changes on Commercial Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/18)
Bill under
Proposed
Rates
(7/1/19)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $111.67 $110.23 ($1.44) (1%)
(Annual average) 64 $515.71 $511.15 ($4.56) (1%)
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 $ 153.63 $151.80 ($1.83) (1%)
(Summer median) 37 $ 414.87 $420.60 $5.73 1%
(Winter average) 56 $ 592.14 $603.00 $10.86 2%
(Summer average) 199 $ 1,926.33 $1,975.80 $49.47 3%
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SECTION 3D: PROPOSED RESERVE TRANSFERS
In the FY 2018 Financial Plan, staff proposed transferring $1.87 million from the Rate
Stabilization Reserve to the Operations Reserve in FY 2018. This transfer was not necessary as
increased sales during FY 2017 resulted in larger than expected revenues, largely from the
drought surcharge. The drought surcharge was discontinued at the start of FY 2018. Customer
sales recovery after the drought continues to be more robust than staff’s initial projections, and
the Operations Reserve has remained healthy.
Based upon current reserve levels and the deferral of new main replacement spending in FY
2020, staff is recommending that $5 million be transferred to the CIP reserve, which currently
has $2.7 million and is below the minimum level of 12 months of budgeted CIP expense. In FY
2021, an additional transfer of $2.069 million to the CIP reserve from the Rate Stabilization
Reserve is projected as well as a transfer of $1.931 million from the Operations Reserve to the
CIP reserve.
Section 4E: Reserves Structure and Appendix A: Water Utility Financial Forecast Detail shows
details of reserves levels.
SECTION 4: UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It provides general
background information and helps readers better understand the forecasts in Section 5: Utility
Financial Projections and Section 6: Details and Assumptions.
SECTION 4A: WATER UTILITY HISTORY
The Water Utility was established on May 9, 1896, two years after the city was incorporated.
Voters of the 750 person community approved a $40,000 bond to buy local, private water
companies who operated one or more shallow wells to serve the nearby residents. The city
grew and the well system expanded until nine wells were in operation in 1932. Palo Alto began
receiving water from the San Francisco Water Department (SFWD) in 1937 to supplement these
sources.
A 1950 engineering report noted, “the capricious alternation of well waters and the San
Francisco Water Department water…has made satisfactory service to the average customer
practically impossible”. By 1950, only eight wells were still in operation. Despite this,
groundwater production increased in the 1950’s leading to lower groundwater tables and water
quality concerns. In 1962, a survey of water softening costs to CPAU customers determined that
CPAU should purchase 100% of its water supply needs from the SFWD. CPAU signed a 20-year
contract with SFWD, and CPAU’s wells were placed in standby condition. The SFWD later
became known as the SFPUC. Since 1962 (except for some very short periods) CPAU’s entire
supply of potable water has come from the SFPUC.
As the city grew, so did the number of mains in the water system. The system of mains
expanded along with the city, while existing sections of the system continued to age. In the
mid-1980s, the number of breaks in cast iron mains installed during the 1940s and earlier
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started to accelerate. In FY 1994, to combat deterioration of older sections of the system, CPAU
performed an analysis of cost effective system improvements and increased the rate of main
replacement from one mile per year to three. CPAU began a plan to replace 75 miles of
deficient mains within 25 years.
In 1999, a study of system reliability concluded that the distribution system needed major
upgrades to provide adequate water supply during a natural disaster. This ultimately resulted in
the $40 million Emergency Water Supply and Storage Project, completed in 2013, which
involved a new underground reservoir in El Camino Park, the siting and construction of several
emergency supply wells, and the upgrade of several existing wells and the Mayfield pump
station. Upon completion, the city began to focus reliability efforts on its system of water
storage reservoirs and transmission lines in the Foothills.
At the same time that CPAU was evaluating the reliability of its own system, the SFPUC, in
consultation with BAWSCA members, was evaluating the reliability of the Hetch Hetchy
Regional Water System, which crosses two major fault lines between the Sierras and the Bay
Area. That evaluation concluded that major upgrades to the system were required. This
planning process culminated in the SFPUC’s $4.8 billion Water System Improvement Project
(WSIP), which is ongoing. The SFPUC continues to evaluate its aging system for other needed
infrastructure improvements.
SECTION 4B: CUSTOMER BASE
CPAU’s Water Utility provides water service to the residents and businesses of Palo Alto, plus a
handful of residential customers not in Palo Alto (Los Altos Hills, primarily). Nearly 20,300
customers are connected to the water system, approximately 16,500 (81%) of which are
separately metered residential customers and 3,800 (19%) of which are commercial, master-
metered residential, irrigation and fire service customers.
Judging from seasonal consumption patterns, between 35% and 50% of Palo Alto’s water is
used for irrigation, and that consumption is heavily weather dependent. It also varies
significantly by season. As a result of these two factors, there is significant variability in the
amount of water that is demanded from the system month to month and year to year.
SECTION 4C: DISTRIBUTION SYSTEM
To deliver water to its customers, CPAU owns roughly 233 miles of mains (which transport the
water from the SFPUC meters at the city’s borders to the customer’s service laterals and
meters), eight wells (to be used in emergencies), five water storage reservoirs (also for
emergency purposes) and several tanks used to moderate pressure and deal with peaks in flow
and demand (due to fire suppression, heavy usage times, etc.). These represent the vast
majority of the infrastructure used to distribute water in Palo Alto.
SECTION 4D: COST STRUCTURE AND REVENUE SOURCES
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Figure 1: Cost Structure (FY 2018)
47%
36%
17%
Water Purchases
Operations
Capital
Figure 2: Revenue Structure (FY 2018)
97%
3%
Sales of Water
Other Revenue
As shown in Figure 1, water purchase
costs accounted for 47% of the Water
Utility’s costs in FY 2018 Operational
costs represented 36%, and capital
investment was responsible for the
remaining 17%. Staff projects these
percentage distributions to remain
similar over the forecast period with the
capital investment increasing to
approximately 19% of the Water Utility’s
costs.
The Water Utility receives nearly all of its
revenue from sales of water and the
remainder from capacity and connection
fees, interest on reserves, and other
sources. Appendix A: Water Utility
Financial Forecast Detail shows more
detail on the utility’s cost and revenue
structures. Approximately 16% of the
utility’s revenues come from fixed
service charges, though most of its costs
are fixed.
SECTION 4E: RESERVES STRUCTURE
CPAU maintains six reserves for its Water Utility to manage various types of contingencies. The
descriptions below summarize these reserves; see Appendix C: Water Utility Reserves
Management Practices for more detailed definitions and guidelines for reserve management:
• Reserve for Commitments: A reserve equal to the utility’s outstanding contract
liabilities for the current fiscal year. Most City funds, including the General Fund, have a
Commitments Reserve.
• Reserve for Reappropriations: A reserve for funds dedicated to projects reappropriated
by the City Council, nearly all of which are capital projects. Most City funds, including
the General Fund, have a Reappropriations Reserve.
• Capital Improvement Program (CIP) Reserve: The CIP reserve can be used to
accumulate funds for future expenditure on CIP projects, as well as to manage cash flow
for ongoing capital projects. This CIP can also act as a contingency reserve for the CIP.
This type of reserve is used in other utility funds (Electric, Gas, and Wastewater
Collection) as well.
• Rate Stabilization Reserve: This reserve is intended to be empty unless the city
anticipates one or more large rate increases 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 Wastewater
Collection) as well.
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• Operations Reserve: This is the primary contingency reserve for the Water Utility, and is
used to manage yearly variances from the budget for operational water supply costs.
This type of reserve is used in other utility funds (Electric, Gas, and Wastewater
Collection) as well.
• Unassigned Reserve: This reserve is for any funds not assigned to the other reserves
and is normally empty.
SECTION 4F: COMPETITIVENESS
Table 9 shows the current water bills for residential customers compared to what they would
be under surrounding communities’ rate schedules. CPAU has the highest monthly bills of the
group, although bills for smaller water users are less than in some surrounding communities.
Table 10: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of February 2019
Palo
Alto
Menlo
Park
Mountain
View Hayward
Redwood
City
Santa
Clara
4 44.99 52.84 37.47 35.20 54.04 23.92
(Winter median) 7 67.71 76.44 58.08 56.62 76.09 41.86
(Annual median) 9 86.59 92.17 71.82 70.90 90.79 53.82
(Summer median) 14 133.79 133.34 106.17 108.51 138.94 83.72
25 237.63 224.91 222.94 201.02 267.39 149.50
* Based on the FY 2013 BAWSCA survey, the fraction of SFPUC as the source of potable
water supply was 100% for Palo Alto, 95% for Menlo Park, 100% for Redwood City, 87%
for Mountain View, 10% for Santa Clara and 100% for Hayward.
SECTION 5: UTILITY FINANCIAL PROJECTIONS
SECTION 5A: LOAD FORECAST
Figure 4 shows 40 years of water consumption history. Average water use has trended
downward over time even as Palo Alto’s population has grown. Significant water use reductions
over the 40-year history were in response to requests to reduce water use in the 1976-77 and
1988-92 drought periods. During these periods, customers invested in efficient equipment and
modified behavior to achieve water reduction goals. Reductions in usage achieved during these
drought periods endured even after those periods. More recently, water sales decreased
substantially during the 2007-2009 recession and during the 2014-2017 drought. Usage has
started to return to pre-drought levels, though the level at which usage will finally plateau is
unknown.
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Figure 3: Historical Water Consumption
Figure 4 shows the forecast of water consumption through FY 2024 and beyond, as denoted by
the dotted line.
Figure 4: Forecast Water Consumption
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During the recent drought, the State mandated a 24% water use restriction for Palo Alto until
May 2016. Customers continue to conserve, but water usage has been increasing. Based on
patterns experienced in previous droughts, this forecast assumes consumption will only
rebound by 50% of the difference between pre-drought and drought levels, then resume with
the previous trend of decreasing usage over time.
SECTION 5B: FY 2014 TO FY 2018 COST AND REVENUE TRENDS
Figure 5 and the tables in Appendix A: Water Utility Financial Forecast Detail show how costs
have changed during the last five years as well as how staff projects they will change over the
next decade.
The annual expenses for the water utility rose substantially between 2014 and 2018. The
increases were primarily related to water purchase costs, which increased 40% from $15.7
million in FY 2014 to $21.9 million in FY 2018. Section 6A: Water Purchase Costs contains a
more in-depth discussion of water purchase costs. Operations costs have remained fairly steady
since FY 2014, increasing by about 7%, while CIP costs have generally increased but fluctuated
down in certain years. For example, in FY 2017, delays were in part due to the rising CIP costs;
during that year a water main replacement project that was put out for bid resulted in very few
contractors competing, and project bids that were higher than budgeted.
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Figure 5: Water Utility Expenses, Revenues, and Rate Changes:
Actual Costs through FY 2018 and Projections through FY 2024
SECTION 5C: FY 2018 RESULTS
Actual revenues for FY 2018 were slightly higher than projected ($48.2 million vs. $47.9 million).
Operating costs were lower during FY 2018, mainly due to savings in rent, operations and
maintenance and customer service expenses. Table 11 summarizes the variances from forecast.
Table 11: FY 2018, Actual Results vs. Financial Plan Forecast
Net Cost/
(Benefit) (000)
Type of
change
Higher net sales and other revenues $ (303) Revenue increase
Water purchase cost lower than expected $ (104) Cost savings
Rent savings $ (1,156) Cost savings
Operations and maintenance costs lower than expected $ (740) Cost savings
Net Cost / (Benefit) of Variances $ (2,303)
SECTION 5D: FY 2019 PROJECTIONS
Estimated sales revenues are expected to decrease slightly by about $0.8 million. On the
expense side, the most notable change from the FY 2019 budget identified at this time is
changes to CIP expenditures. Approximately $11.2 million in projects budgeted in FY19 or
earlier are slated to be re-appropriated to FY2020, the largest being main replacement project
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27, estimated at $6.5 million, and some seismic water system upgrades, estimated at $2
million. The net effect on FY19 CIP budget is estimated at about $8 million. Operations expense
decreases are anticipated from lower than expected operations budgets. Table 12 summarizes
the changes from last year’s forecast.
Table 12: FY 2019 Change in Projected Results, 2019 Forecast vs 2020 Forecast
Net Cost/
(Benefit)
Type of
Change
Lower net revenues from sales and other income $786 Revenue decrease
Deferral of capital project spending ($8,120) Cost decrease
Lower estimated rent costs ($1,264) Cost decrease
Lower operations budget estimates $(1,193) Cost decrease
Net Cost / (Benefit) of Variances ( $9,790)
SECTION 5E: FY 2020 – FY 2024 PROJECTIONS
Figure 5 above shows that on average the costs for the Water Utility are increasing through the
rest of the forecast period, though mainly after FY 2022 based on current estimates from the
SFPUC. Water supply costs are the largest component, and are generally projected to grow by
about 2.5 percent on average over the forecast period. Operations and capital investment costs
are also expected to increase at the same rate of inflation used in the City’s long-term financial
plans (3% to 5% per year), which also take into account higher estimated pension costs. While
future CIP costs have been revised upwards to reflect the higher construction costs seen in
recent projects, there is still uncertainty with regard to the utility’s future costs for main
replacement. See Section 6: Details and Assumptions for more detail on the costs that make up
these projections, as well as the various assumptions underlying the projections.
As shown in Figure 5, above, staff currently projects revenues to be below expenses for FY
2020. Revenues are expected to exceed expenses in FY 2019 due to delays in water main
replacement projects. As main replacement work resumes, the Water Utility requires rate
increases of between 1% and 6% per year through FY 2024 to bring revenues up to match
annual expenses. This forecast assumes the use of the Rate Stabilization Reserve to spread the
increases over multiple years. In addition, the Capital Improvement Reserve is available to assist
in funding Capital Improvements going forward.
Figure 6 below shows reserves trends based on these revenue projections. Staff projects the
Rate Stabilization Reserve to have a zero balance by the end of FY 2024, and based upon a
surplus of funds above the Operations Reserve maximum guideline level, the CIP Reserve is
recommended to have an additional $5 million infusion in FY 2020. Assuming the projected
increases in revenue, staff expects the Operations Reserve, the main contingency reserve, to be
within the target range during the forecast period, and that this reserve will be adequate to
meet all identified risks, as discussed in Section 5F: Risk Assessment and Reserves Adequacy. In
addition, the Unassigned reserve reflects reserve funds in the Operations reserve above the
maximum guideline level. With the expected increase in costs in FY 2020 and FY 2021, these
excess reserves will be utilized quickly and moderate the pace of increases going forward, but
must be used before Rate Stabilization Reserve funds are utilized.
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Figure 6: Water Utility Reserves
Actual Reserve Levels for FY 2018 and Projections through FY 2024
SECTION 5F: RISK ASSESSMENT AND RESERVES ADEQUACY
The Water Utility currently has one contingency reserve, the Operations Reserve, and this
Financial Plan proposes using funds and raising rates slowly such that reserves remain well
within the guideline levels throughout the forecast period, as shown in Figure 7. Funds in excess
of the maximum as of the end of FY 2019 will be recommended to be moved to the Unassigned
Reserve. While the Operations Reserve not projected to drop below the minimum reserve level
during this forecast period, it is expected to exceed the short term risk assessment for the
utility.
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Figure 7: Operations Reserve Adequacy
Table 13 summarizes the risk assessment calculation for the Water Utility through FY 2024. The
risk assessment includes the revenue shortfall that could accrue due to:
1. Lower than forecasted sales revenue; and
2. An increase of 10% of planned system improvement CIP expenditures for the budget
year.
Table 13: Water Risk Assessment ($000)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Total non-commodity revenue $19,343 $20,232 $21,042 $21,673 $21,424
Max. revenue variance, previous ten years 13% 13% 13% 13% 13%
Risk of revenue loss $1,795 $1,877 $1,952 $2,011 $1,988
CIP Budget $16,944 $5,882 $13,136 $4,253 $13,350
CIP Contingency @10% $1,694 $588 $1,314 $425 $1,335
Total Risk Assessment value $3,489 $2,465 $3,266 $2,436 $3,323
SECTION 5G: LONG-TERM OUTLOOK
CPAU has put its Water Utility on strong footing by investing in its distribution system
infrastructure and emergency water facilities over the last 20 years. The Water System Master
Plan, recently completed and under review, will give CPAU a better picture of the long-term
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outlook for its infrastructure and will result in a plan for an appropriate schedule for
infrastructure replacement and upgrades. In addition, CPAU’s water supplier, the SFPUC, has
replaced and seismically strengthened its water transmission infrastructure, which will benefit
Palo Alto and all Hetch Hetchy customers over the long term.
The opportunities for CPAU’s Water Utility to obtain additional supplies over the long term may
be in alternative water supplies such as recycled water, groundwater, and water from the Santa
Clara Valley Water District. These alternatives have been analyzed in the past, and were
analyzed again most recently in the 2017 Water Integrated Resource Plan1. Some of these
alternatives may provide cost savings or increased drought protection.
Climate change may begin to present challenges for the Water Utility over the next 20 to 40
years. Availability of water from SFPUC’s Regional Water System may change with changing
seasonal precipitation patterns. Water consumption patterns may change. Consumption could
increase due to drier weather or decrease as customers become even more focused on water
conservation. Droughts may become more frequent. The risk of wildfire in the foothills could
increase, possibly threatening utility infrastructure or placing greater demands on it. Sea level
rise could result in greater exposure of utility infrastructure to inundation, possibly resulting in
higher maintenance and replacement costs. As part of the Sustainability/Climate Action Plan,
CPAU is currently working on a Climate Change Adaptation Roadmap that will begin to assess
some of these risks.
SECTION 6: DETAILS AND ASSUMPTIONS
SECTION 6A: WATER PURCHASE COSTS
CPAU purchases all of the potable water supplies from the SFPUC, which owns and operates the
Hetch Hetchy Regional Water System. CPAU is one of several agencies that purchase water
from the SFPUC, all of whom are members of the Bay Area Water Supply and Conservation
Agency (BAWSCA). Palo Alto uses roughly 7% of the water delivered by the SFPUC to BAWSCA
member agencies.
The Hetch Hetchy Regional Water System begins with a system of reservoirs and tunnels in the
high Sierra in Yosemite County and water is transported by a gravity-fed pipeline to the Bay
Area. Currently, the SFPUC is in the midst of a $4.8 billion bond-financed capital improvement
program (the Water System Improvement Program, or WSIP) to seismically retrofit the facilities
that transport water to the Bay Area. As of December 31, 2018, nearly 96% of the WSIP regional
projects are complete.2 This has resulted and will continue to result in large increases in the
annual debt service costs assigned to wholesale customers like Palo Alto. After each WSIP
project is completed, wholesale customers must start paying the debt service costs within 3 to
4 years. The currently estimated WSIP completion date is December 30, 2021, as adopted by
the SFPUC in March of 2018. In large part because of these WSIP-related debt service costs, the
1 2017 Water Integrated Resource Plan: https://www.cityofpaloalto.org/civicax/filebank/documents/56088
2 Second Quarter FY 2018-19 WSIP Regional Quarterly Report, http://www.sfwater.org/index.aspx?page=307
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SFPUC’s wholesale water rate has already increased from $1.43 per CCF in FY 2009 to $4.10 per
CCF in FY 2019, and is forecast to increase to slightly more than $5 per CCF by FY 2024 (these
projections are subject to change based on future SFPUC budget estimates). Figure 8 shows the
SFPUC’s actual wholesale water rate since FY 2009 and a projection through FY 2024 and
beyond. Note that the wholesale water rate decreased in FY 2014, but the apparent rate
decrease is due to a part of the debt being directly paid by the BAWSCA agencies. This cost is
paid in addition to the wholesale water rate and adds about $0.35 to $0.45 per CCF to the
wholesale rate.
Parts of SFPUC’s system not included in the WSIP will also need rehabilitation after the WSIP is
completed, and some of these projects are already included in the SFPUC’s rate projections,
such as additional Transmission, Supply & Storage and Treatment system upgrade projects,
slated to start after the WSIP ends. The SFPUC is also conducting condition assessments of
other “up-country” facilities, located in the Sierras, in the coming years. Current estimates are
that $1.8 billion will be needed between FY 2019 and FY 2028 primarily for these non-WSIP
projects, but if these assessments identify other facilities that need replacement, it may result
in additional rate increases as new debt is issued to finance the projects.
In April 2018, the SFPUC provided an estimate for FY 2020 wholesale water rates to remain at
$4.10 per CCF. However, there is much uncertainty surrounding the level of continued water
usage by the BAWSCA agencies as the drought effects continue.
Sales have been increasing since the end of the drought in 2017. If that trend continues in
upcoming years, rate projections may level out. However, if snow and rain do not materialize in
future years further calls for restricted usage may reoccur.
Figure 8: Historical and Projected SFPUC Wholesale Water Rate
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During FY 2017 through FY 2019, the balancing account for SFPUC’s wholesale customers built
up an over-collection of revenue due to wholesale customer revenues exceeding costs. This is
because SFPUC sold more wholesale water than its sales projection used for rate setting.
Additional reasons for the balancing account balance are the cost savings in the wholesale
revenue requirement due to the SFPUC’s debt refinancing, and credits applied to the balancing
account due to BAWSCA’s annual review of the wholesale revenue requirement calculations.
These balancing account funds will be refunded approximately between 2020 and 2023, which
allows some rate stabilization of SFPUC’s wholesale rates. If it weren’t for this rate stabilization
effect of the balancing account, Palo Alto would pay higher rates in FY 2020 for water
purchased from SFPUC.
SECTION 6B: OPERATIONS
CPAU’s Water Utility operations include the following activities:
• Administration, a category that includes charges allocated to the Water Utility for
administrative services provided by the General Fund and for Utilities Department
administration, as well as debt service and other transfers. Additional detail on Water
Utility debt service is provided in Section 6D: Debt Service
• Customer Service
• Engineering work for maintenance activities (as opposed to capital activities)
• Operations and Maintenance of the distribution system; and
• Resource Management
Appendix D: Description of Water Utility Operational Activities includes detailed descriptions of
the work associated with each of these activities.
From FY 2014 to FY 2018, overall Operations costs increased 1.7% per year on average (see
Figure 9). Operations and Maintenance costs were the main driver, followed by Administration
and Resource Management costs. Transfers have varied from year to year, but are expected to
remain relatively low and stable through the forecast period.
Staff project inflationary increases for all operations costs with underlying assumptions for
salary and benefit costs, consumer price index, and other cost projections that match the City’s
long-range financial forecast.
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Figure 9: Historical and Projected Operational Costs
SECTION 6C: CAPITAL IMPROVEMENT PROGRAM (CIP)
The Water Utility’s CIP consists of the following types of projects:
• One time projects, or large, non-recurring replacement of system assets (such as
reservoir rehabilitation).
• Water main replacement, which represents the ongoing replacement of aging water
mains, and sometimes the services associated with those mains.
• Ongoing projects, which represent the cost of replacing aging and under-recording
meters and degraded boxes and covers, minor replacements of various types of
distribution system equipment, and the cost of capitalized tools and equipment.
• Customer connections, which represents the cost when the Water Utility installs new
services or upgrades existing services 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.
Table 14 shows the FY 2019 projected budget and the five year CIP spending plan, although
these figures are preliminary pending budget discussions starting in May. The ‘committed’
column represents funds committed to contracts for which work has not yet been completed or
invoices paid. As mentioned earlier in this report, $11.2 million of funds in the Current Budget
column will be carried over to FY 2020.
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Table 14: Budgeted Water Utility CIP Spending ($000)
The water main replacement program funds the replacement of deteriorating water mains. The
water system consists of over 236 miles of mains, approximately 2,000 fire hydrants, and over
20,000 metered service connections spanning 9 pressure zones over a 26 square mile service
area. CPAU utilizes an asset management database in conjunction with hydraulic modeling
software to prioritize capital improvements. CPAU selects mains for replacement by
researching the maintenance history of the system and identifying those that are undersized,
corroded, and subject to recurring breaks. CPAU uses a scoring system based on criticality in
order to prioritize which mains to replace first, and coordinates with the Public Works street
maintenance program to avoid cutting into newly repaved streets. In recent years, CPAU has
already replaced many of the most leak-prone and deteriorated pipes. CPAU is currently
pursuing a pipe replacement program of 13.5 miles of mains within the next decade. The main
replacement schedule in this financial plan will allow CPAU to replace these mains on schedule.
Costs for the water main replacement program are increasing for a variety of reasons:
• Fire Code regulations now mandate fire sprinklers for new residential units. To
accommodate increased fire flows, new main replacement projects require larger
diameter pipe.
• CPAU has switched to high-density polyethylene (HDPE) for its mains. Installation costs
for this material are slightly higher, though lifecycle costs are lower, and the material
performs better. Joints in distribution mains are the most likely place for failure, and
sections of HDPE pipe can be fused together rather than connected with fittings. In the
long run, this will reduce losses and maintenance costs.
• To take full advantage of HDPE’s fusibility, CPAU is now replacing the services along
with the water mains with new HDPE services. In the past, the existing services were
reconnected, regardless of the material. This new practice costs more in the short run,
but will provide long term benefits.
• Lastly, costs have escalated after the recession. The regional and even national focus
on infrastructure improvement has created labor shortages in the construction market,
leading to higher bids than were seen in the past.
These factors have created some uncertainty in future water main replacement costs. As bids
for new projects, such as upgrades to University Avenue, have consistently come in higher over
the last few years, future main replacement project budgets have been increased from prior
year’s estimates to reflect expected bid estimates. If the cost of water main replacement
continues to rise at its current levels, budgets may need to be revised further. Construction
Project Category
Current
Budget*
Spending,
Curr. Yr
Remain.
Budget**Committed FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
One Time Projects 7,195 (561) 6,634 2,729 2,000 2,000 - - -
Water Main Replacement 13,768 (3,473) 10,295 2,243 - - 9,350 - 9,350
Ongoing Projects 3,250 (331) 2,919 532 2,182 2,239 2,099 2,161 2,224
Customer Connections 766 (419) 347 46 754 777 800 824 849
TOTAL 24,979 (4,784) 20,195 5,549 4,935 5,016 12,249 2,985 12,423
*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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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.
However, CPAU is nearing the end of a long term water main replacement program initiated in
1993 to replace the oldest and most degraded parts of the system. Roughly 25% of the system
has been replaced, and the rate of water leaks has decreased 50%. CPAU initiated a master
planning process in FY 2015 that was completed in 2016 to evaluate the current state of the
distribution system and determine the necessary rate of main replacement in future years.
This financial plan addresses these challenges in a way that will allow CPAU to meet its main
replacement needs. This financial plan includes approximately $8.5 million every other year for
main replacement construction instead of $5.7 million annually. This shift to larger main
replacement construction projects every other year will allow CPAU to meet its main
replacement needs (replace 13.5 miles of mains within the next decade) while attracting more
contractors to bid on the larger projects. Additionally, this main replacement project schedule
for water will be staggered with wastewater and gas (water and wastewater construction every
even year and gas construction every odd year), which will ease scheduling difficulties for
inspection coverage due to shared inspection staff across water, wastewater, gas, and large
development services projects.
There is no new main replacement budgeted in FY 2020 or FY 2021. However, work will
continue on ongoing main replacement projects in FY 2020 and FY 2021. This staggered
schedule for water main replacement will allow staff to focus on current priorities such as the
Upgrade Downtown project, and water reservoir upgrades. As the staff vacancies become filled
and construction costs stabilize, staff can re-evaluate the need to return to an annual
replacement program.
Included in the one-time project budget are seismic water system upgrades and/or
replacement for the Corte Madera, Park, Boronda and Dahl reservoirs to improve earthquake
resistance. This work will improve protection from water loss at these reservoirs in a seismic
event. If an earthquake caused a significant water leak, this could lead to loss of water for
firefighting, loss of water storage for drinking, property damage from flooding or mudslides,
and environmental damages. Work has begun on this project in 2019 and staff estimates this
work will cost an additional $2 million each year in FY 2020 and FY 2021. AMI projects are now
planned to begin in 2024 and will be included as an inter-fund transfer to the electric fund, or a
loan payment to the Electric Special Projects Reserve.
One project not included in this forecast is the seismic strengthening of a large water
transmission line in the foothills. Staff has engaged a consultant to investigate alternatives for
this project. The consultant is analyzing an alternative that involves installing a valve and hose
system that could be used to bypass breaks in the line while they are repaired after an
earthquake. This is a relatively low cost alternative that would not substantially affect the
financial forecast. The study is not finalized yet, however, and if it is determined that the entire
pipeline needs to be replaced, it could cost between $15 million and $20 million, which would
likely require bond financing and would substantially affect the financial forecast.
Ongoing Projects and Customer Connections are projected to cost approximately $2.9 million in
FY 2020 and increase to approximately $3 million per year through the end of the forecast
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period. Actual expenses for these projects fluctuate annually depending on how many defective
meters are discovered and replaced during routine maintenance, as well as how much
development and redevelopment is going on that prompts the replacement or upgrade of
water services. It is worth noting that property owners pay a fee for water service replacement
or expansion during redevelopment, so when the number of projects go up (meaning higher
costs for this activity), so does fee revenue.
Aside from customer connections, the CIP plan for FY 2020 to FY 2024 is funded by revenue
from utility rates and capacity fees. Appendix B: Water Utility Capital Improvement Program
(CIP) Detail shows the details of the plan.
SECTION 6D: DEBT SERVICE
The Water Utility’s annual debt service is roughly $3.2 million per year. This is related to two
bond issuances, one requiring payments through 2026, the other through 2035. CPAU is in
compliance with all covenants on both bonds.
The first bond is the 2009 Water Revenue Bond, Series A, issued for $35 million to finance
construction of the Emergency Water Supply and Storage project (the El Camino Reservoir, new
wells, rehabilitation of existing wells and tanks, etc.) and to be retired by 2035. As part of the
‘Build America’ bond program, there is an interest payment subsidy from the Federal
Government of 35%. There is always the possibility that the federal government will choose to
stop offering this subsidy. The automatic federal spending cuts under the Budget Control Act
(BCA) of 2011 have already reduced the subsidy by $50,000 per year, and if planned cuts
through 2021 proceed without amendment, staff estimates that the subsidy would be reduced
by over $200,000 per year by 2021. The Bipartisan Budget Act of 2013, which relieved some of
the discretionary spending cuts in the 2011 BCA, did not affect automatic cuts to the subsidy,
and actually extended the automatic cuts through 2023.
The second bond issuance is the 2011 Utility Revenue Refunding Bond, Series A, which is to be
retired in 2026. This $17.2 million issuance refinanced an earlier Water and Gas Utility bond
issuance, the 2002 Utility Revenue Bonds, Series A, which was issued to finance various capital
improvements for both systems. The Water Utility’s share of the issuance was roughly $7.8
million.
Table 15 shows the cost of debt service for the Water Utility’s share of these bond issuances for
the financial forecast period:
Table 15: Water Utility Debt Service ($000)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
2009 Water Revenue Bonds,
Series A (net of grants)
2,097 2,114 2,132 2,151 2,151
2011 Utility Revenue Bonds,
Series A
654 656 657 658 658
Both the 2009 and 2011 Bonds include the following covenants: 1) net revenues plus Available
Reserves shall at least equal 125% of the maximum annual debt service, and 2) Available
Reserves shall be at least 5 times the maximum annual debt service. Note that “Available
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Reserves,” as defined for both bonds, include the reserves for the Gas and Electric systems, not
just the Water system. This Financial Plan maintains compliance with these covenants
throughout the forecast period, as shown in Appendix A: Water Utility Financial Forecast Detail.
The net revenues (but not the reserves) of the Water Utility are also pledged for one other
bond as shown in Table 16 below, even though the Water Utility is not responsible for the debt
service payments. The Water Utility’s reserves or net revenues would only be called upon if the
responsible utilities are unable to make their debt service payments. Staff does not currently
foresee this occurring. Amounts advanced from one utility to pay debt service for another
utility would be repaid by the borrowing fund.
Table 16: Other Issuances Secured by the Water Utility’s Revenues or Reserves
Bond Issuance Responsible
Utilities
Annual Debt
Service ($000)
Secured by Water Utility’s:
Net Revenues Reserves
1995 Series A Utility
Revenue Bonds Storm Drain $680 Yes No
SECTION 6E: OTHER REVENUES
The Water Utility receives most of its revenues from sales of water. The next largest source is
connection and capacity fees, which in FY 2018 represented 55% of revenue from sources other
than water sales. The remainder consisted of a variety of miscellaneous charges, transfers,
grants, and interest income.
Revenues from connection and capacity fees have more than doubled since FY 2009.
Connection fees are charged to new developments that need new or replacement service
connections, while capacity fees are charged to development that put additional demands on
the water distribution system. Revenue from these sources decreased slightly during the
recession, but has increased substantially since then. Staff is forecasting revenue from these
sources to increase at an average of 2% per year in subsequent years.
Other revenue sources are projected to stay stable through the forecast period, though interest
income always fluctuates depending on changes in interest rates. Some uncertainty also exists
related to the Federal government’s commitment to continuing to pay the interest subsidy on
the Build America Bonds.
SECTION 6F: SALES REVENUES
Staff based the sales revenue projections on the load forecast in Section 5A: Load Forecast and
the projected rate changes shown in Figure 5. Except where stated otherwise, these load
forecasts are based on normal precipitation. Precipitation can vary substantially, and this can
affect revenues substantially. In dry years customers use more water, increasing revenues, and
in wet years they use less. One factor that is difficult to predict is customer usage recovery
post-drought. It appears that customer irrigation usage has resumed, although as predicted,
total usage has not reached pre-drought levels. What is uncertain is whether the ongoing
pattern of ongoing usage declines will continue at the same levels seen before the drought
occurred. Staff will continue to monitor these patterns and adjust projections accordingly.
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SECTION 7: COMMUNICATIONS PLAN
In FY 2020, the focus of communications surrounding rates will continue to be on the cost
drivers for water utility rate increases and what CPAU is doing to keep costs down. One of the
main reasons for water utility rate increases are the infrastructure costs from the Water System
Improvement Project (WSIP), which has raised rates for all San Francisco Public Utilities
Commission (SFPUC) customers. Rising costs from our wholesale water supplier increases CPAU
costs which must be recovered through rates. Staff have set up a dedicated webpage at
cityofpaloalto.org/ratesoverview to provide an overview about rates, including the value of
what customers get for what they pay, information on utilities resources and infrastructure
projects.
CPAU will continue its outreach on continuing to make water conservation a way of life, regardless of
drought or rain conditions, which is also in line with the State of California’s current outreach
campaign. Messaging will reinforce the importance of water use efficiency, and that although rates are
increasing, efficient usage can help prevent a customer should not see a significant increase in water
utility costs on their bills. Through our water conservation outreach, CPAU promotes water use
efficiency rebates, incentives and easy water-saving behaviors through bill inserts, web content, email
newsletters, online videos, print and digital ads, presentations to customer groups and the use of
social media.
To keep customers apprised of the status and accomplishments of CIP projects, a network of project
webpages are maintained at www.cityofpaloalto.org/utilityprojects Safety topics are also
emphasized year-round. For all utility outreach, while print materials and website pages still feature
prominently, CPAU is placing more emphasis on digital advertising content, direct mail, and in-person
attendance at community safety and emergency preparedness events.
Staff will provide rates information to internal and external stakeholders including Utilities staff
across all divisions who may interact with the public, the City Manager’s Office and other
departments, Utilities Advisory Commission (UAC), City Council, business and residential
customers. Rates communications will include a substantial update to the web, addition of a
“breaking news” page on the Utilities home website, discussion in the Proposition 218 rate
adjustment notice, utility bill inserts and educational updates to Customer Service staff. Other
communication methods will involve updates to financial plans, presentations to UAC, Finance
Committee, City Council and any media coverage as a result of the rate increases.
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APPENDICES
Appendix A: Water Utility Financial Forecast Detail
Appendix B: Water Utility Capital Improvement Program (CIP) Detail
Appendix C: Water Utility Reserves Management Practices
Appendix D: Description of Water Utility Operational Activities
Appendix E: Sample of Water Utility Outreach Communications
APPENDIX A: WATER UTILITY FINANCIAL FORECAST DETAIL
FISCAL YEAR FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
WATER SUPPLY
Purchases 5,507,153 4,671,433 4,127,085 4,172,038 4,859,576 4,954,697 4,880,376 4,807,171 4,735,063 4,664,037 4,594,077
Sales 5,047,148 4,433,016 3,858,825 3,852,185 4,609,000 4,706,305 4,607,075 4,537,969 4,469,900 4,402,851 4,336,808
BILL AND RATE CHANGES
Variable Charge (Supply)-16%25%22%9%7%-6%0%0%0%9%13%
Variable Charge (Distribution)30%-16%13%5%-1%1%8%1%5%4%0%
Service Charge (Distribution)9%0%-15%3%0%43%-4%4%4%3%0%
Change in System Average Rate 8%0%11%7%3%4%1%2%3%6%6%
Change in Average Residential Bill 7%-1%17%4%-2%4%2%0%2%4%4%
STARTING RESERVES
Reappropriations (Non-CIP)- - - - - - - - - - -
Commitments (Non-CIP)2,000 347,000 347,000 177,273 177,273 284,034 284,034 284,034 284,034 284,034 284,034
Restricted for Debt Service 3,225,000 3,331,000 3,316,000 3,299,194 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000
Emergency Plant Replacement 1,000,000 1,000,000 - - - - - - - - -
Capital Reserve - - 4,000,000 2,726,096 2,726,096 2,726,096 2,726,096 7,726,096 11,726,096 11,726,096 11,726,096
Rate Stabilization Reserve 17,272,000 20,133,000 6,567,000 1,877,437 4,069,437 4,069,437 4,069,437 4,069,437 2,000,437 2,000,437 2,000,437
Operations Reserve - - 11,663,836 14,606,828 12,734,948 13,741,000 13,977,857 11,647,202 12,105,439 7,809,544 12,124,586
Unassigned - - - - 7,056,052 7,182,707 11,544,515 - - - -
TOTAL STARTING RESERVES 21,499,000 24,811,000 25,893,836 22,686,828 30,023,806 31,263,274 35,861,939 26,986,769 29,376,006 25,080,111 29,395,153
REVENUES
Net Sales 39,029,262 33,654,549 36,136,644 41,657,382 44,078,960 46,147,823 45,493,408 45,807,704 46,454,121 48,591,809 50,574,618
Other Revenues and Transfers In 4,053,920 7,504,848 3,258,936 5,829,851 4,116,200 3,322,654 3,363,878 3,406,255 3,449,103 3,494,311 3,561,380
TOTAL REVENUES 43,083,182 41,159,397 39,395,579 47,487,233 48,195,160 49,470,477 48,857,286 49,213,959 49,903,224 52,086,120 54,135,997
EXPENSES
Water Purchases 15,705,288 15,669,935 17,626,020 20,075,322 21,957,711 22,482,357 22,177,643 21,877,500 21,581,859 23,011,682 25,409,111
Operating Expenses 679.9%2.9%5.8%-54.7%
Administration
Allocated Charges 2,366,077 2,342,985 2,953,291 3,151,373 2,809,112 2,868,555 3,013,532 3,094,114 3,171,529 3,246,694 3,315,978
Rent 2,192,454 2,249,457 1,803,087 1,720,711 1,775,774 1,829,047 1,883,919 1,940,436 1,998,649 2,058,609 2,120,367
Debt Service 3,220,208 3,218,869 3,222,606 3,219,316 3,222,669 3,220,858 3,220,638 3,222,843 3,223,563 3,834,553 3,834,553
Transfers and Other Adjustments 335,808 63,612 (377,200) (256,608) 393,607 438,322 407,111 415,253 423,558 432,030 432,030
Subtotal, Administration 8,114,546 7,874,923 7,601,785 7,834,792 8,201,161 8,356,782 8,525,199 8,672,646 8,817,299 9,571,885 9,702,928
Resource Management 570,040 488,331 592,744 868,038 922,558 949,971 1,023,375 1,054,455 1,081,881 1,109,307 1,133,345
Operations and Mtc 4,986,274 5,283,426 5,038,570 5,290,549 5,725,236 5,900,269 7,351,404 7,573,857 7,770,626 7,967,223 8,139,793
Engineering (Operating)381,502 358,128 282,472 355,852 354,597 367,008 389,421 400,391 410,565 420,563 429,592
Customer Service 1,677,926 1,821,447 2,076,559 1,616,008 1,625,332 1,676,088 1,824,606 1,882,829 1,932,593 1,982,937 2,026,185
Allowance for Unspent Budget - - - - - (435,425) (503,559) (518,489) (531,874) (545,183) (556,962)
Subtotal, Operating Expenses 15,730,288 15,826,254 15,592,128 15,965,239 16,828,885 16,814,693 18,610,447 19,065,690 19,481,091 20,506,731 20,874,881
Capital Program Contribution 8,335,605 8,580,372 9,082,021 4,110,131 8,169,097 5,574,762 16,944,366 5,881,532 13,136,168 4,252,665 13,350,080
TOTAL EXPENSES 39,771,182 40,076,561 42,300,170 40,150,692 46,955,693 44,871,813 57,732,456 46,824,722 54,199,118 47,771,078 59,634,072
9.04
ENDING RESERVES
Reappropriations (Non-CIP)- - - - - - - - - - -
Commitments (Non-CIP)347,000 347,000 177,273 177,273 284,034 284,034 284,034 284,034 284,034 284,034 284,034
Restricted for Debt Service 3,331,000 3,316,000 3,299,194 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000
Emergency Plant Replacement 1,000,000 - - - - - - - - - -
Capital Reserve - 4,000,000 2,726,096 2,726,096 2,726,096 2,726,096 7,726,096 11,726,096 11,726,096 11,726,096 11,726,096
Rate Stabilization Reserve 20,133,000 6,567,000 1,877,437 4,069,000 4,069,437 4,069,437 4,069,437 2,000,437 2,000,437 2,000,437 -
Operations Reserve - 11,663,836 14,606,828 12,734,948 13,741,000 13,977,857 11,647,202 12,105,439 7,809,544 12,124,586 8,626,948
Unassigned - - - 7,056,052 7,182,707 11,544,515 - - - - -
TOTAL ENDING RESERVES 24,811,000 25,893,836 22,686,828 30,023,369 31,263,274 35,861,939 26,986,769 29,376,006 25,080,111 29,395,153 23,897,078
OPERATIONS RESERVE
Min (60 days of non-capital expenses)- 5,230,611 5,145,323 6,320,551 6,704,783 6,826,058 7,045,080 7,077,380 7,104,006 7,514,723 7,969,338
Target (90 days of non-capital expenses)- 9,395,240 8,698,557 9,527,750 10,222,892 10,401,957 10,581,978 10,633,555 10,676,017 11,294,133 11,985,746
Max (120 days of non-capital expenses)- 13,559,870 12,251,790 12,734,948 13,741,000 13,977,857 14,118,875 14,189,730 14,248,027 15,073,543 16,002,154
Risk Assessment Value 2,494,338 2,698,795 2,251,743 2,657,639 2,251,587 3,489,206 2,465,403 3,265,957 2,436,177 3,322,840
DEBT SERVICE COVERAGE RATIO
Net Revenues (125% of Debt Service)876%878%931%1020%1104%1120%1166%1170%1174%1035%1107%
Available Reserves (5x Debt Service)*6.6 6.9 6.0 8.3 8.6 10.0 7.3 8.0 6.7 6.7 5.3
*For the purposes of debt covenants, the unrestricted reserves of other utilities may be counted toward the available reserves for meeting this measure. A ratio below 5x means that this utility is relying on the
reserves of other utilities to meet its debt covenants.
Appendix A (continued)
FISCAL YEAR FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
REVENUES
Net Sales 91%82%92%88%91%93%93%93%93%93%93%
Other Revenues and Transfers In 9%18%8%12%9%7%7%7%7%7%7%
TOTAL REVENUES 100%100%100%100%100%100%100%100%100%100%100%
EXPENSES
Water Purchases 39%39%42%50%47%50%38%47%40%48%43%
Operating Expenses
Administration
Allocated Charges 6%6%7%8%6%6%5%7%6%7%6%
Rent 6%6%4%4%4%4%3%4%4%4%4%
Debt Service 8%8%8%8%7%7%6%7%6%8%6%
Transfers and Other Adjustments 1%0%-1%-1%1%1%1%1%1%1%1%
Subtotal, Administration 20%20%18%20%17%19%15%19%16%20%16%
Resource Management 1%1%1%2%2%2%2%2%2%2%2%
Operations and Mtc 13%13%12%13%12%13%13%16%14%17%14%
Engineering (Operating)1%1%1%1%1%1%1%1%1%1%1%
Customer Service 4%5%5%4%3%4%3%4%4%4%3%
Allowance for Unspent Budget 0%0%0%0%0%-1%-1%-1%-1%-1%-1%
Subtotal, Operating Expenses 40%39%37%40%36%37%32%41%36%43%35%
Capital Program Contribution 21%21%21%10%17%12%29%13%24%9%22%
TOTAL EXPENSES 100%100%100%100%100%100%100%100%100%100%100%
RISK ASSESSMENT DETAIL
Distribution Revenue Variance 1,636,301 1,790,593 1,840,729 1,840,729 1,694,110 1,794,769 1,877,250 1,952,340 2,010,910 1,987,832
10% CIP Program Contingency 858,037 908,202 411,013 816,910 557,476 1,694,437 588,153 1,313,617 425,267 1,335,008
Total Risk Asssessment Value 2,494,338 2,698,795 2,251,743 2,657,639 2,251,587 3,489,206 2,465,403 3,265,957 2,436,177 3,322,840
Projected Operations Reserve 11,663,836 14,606,828 12,734,948 13,741,000 13,977,857 11,647,202 12,105,439 7,809,544 12,124,586 8,626,948
Operations Reserve, % of Risk Value 468%541%566%517%621%334%491%239%498%260%
OPERATIONS RESERVE
Min (60 days of non-capital expenses)- 5,230,611 5,145,323 6,320,551 6,704,783 6,826,058 7,045,080 7,077,380 7,104,006 7,514,723 7,969,338
Target (90 days of non-capital expenses)- 9,395,240 8,698,557 9,527,750 10,222,892 10,401,957 10,581,978 10,633,555 10,676,017 11,294,133 11,985,746
Max (120 days of non-capital expenses)- 13,559,870 12,251,790 12,734,948 13,741,000 13,977,857 14,118,875 14,189,730 14,248,027 15,073,543 16,002,154
Risk Assessment Value 2,494,338 2,698,795 2,251,743 2,657,639 2,251,587 3,489,206 2,465,403 3,265,957 2,436,177 3,322,840
DEBT SERVICE COVERAGE RATIO
Net Revenues (125% of Debt Service)876%878%931%1020%1104%1120%1166%1170%1174%1035%1107%
Available Reserves (5x Debt Service)*6.6 6.9 6.0 8.3 8.6 10.0 7.3 8.0 6.7 6.7 5.3
*For the purposes of debt covenants, the unrestricted reserves of other utilities may be counted toward the available reserves for meeting this measure. A ratio below 5x means that this utility is relying on the reserves of
other utilities to meet its debt covenants.
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APPENDIX B: WATER 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
ONE TIME PROJECTS
WS-07000 Regulation Station Imp.526,578 345,000 - (34,418) 837,160 526,578 - - - - -
WS-07001 Water Recycling Facilities - 395,649 - - 395,649 - - - - - -
WS-08001 Water Reservoir Coating 576,303 330,000 - (50,687) 855,616 581,589 - - - - -
WS-09000 Seismic Water System 2,021,107 3,000,000 - (475,455) 4,545,652 1,621,102 2,000,000 2,000,000 - - -
WS-13003 GPS Equipment Upgrade - - - - - - - - - - -
WS-13004 Asset Mgmt. Mobile Sys.- - - - - - - - - - -
WS-13006 Meter Shop Renovations - - - - - - - - - - -
WS-15004 Water System Master Plan - - - - - - - - - - -
WS-08002 Emergency Water Supply - - - - - - - - - - -
Subtotal, One-time Projects 3,123,988 4,070,649 - (560,560) 6,634,077 2,729,269 2,000,000 2,000,000 - - -
WATER MAIN REPLACEMENT PROGRAM
WS-20000 WMR - Project 32 - - - - - - - - - - -
WS-11000 WMR-Project 25 381,939 - - - 381,939 - - - - - -
WS-12001 WMR- Project 26 5,026,718 600,000 - (3,465,115) 2,161,603 2,242,505 - - - - -
WS-13001 WMR - Project 27 (862) 7,175,000 - (8,136) 7,166,002 - - - - - -
WS-14001 WMR - Project 28 - 585,107 - - 585,107 - - - 8,500,000 - -
WS-15002 WMR - Project 29 - - - - - - - - 850,000 - 8,500,000
WS-16001 WMR - Project 30 - - - - - - - - 850,000
WS-19001 WMR - Project 31 - - - - - - - - - -
Subtotal, Water Main Replacement Prog.5,407,795 8,360,107 - (3,473,251) 10,294,651 2,242,505 - - 9,350,000 - 9,350,000
ONGOING PROJECTS
WS-80014 Services/Hydrants 6,770 424,360 - (45,448) 385,682 27,819 437,091 450,204 463,710 477,621 491,950
WS-80015 Water Meters - 900,000 - (60,939) 839,061 - 515,000 530,450 546,364 562,755 579,638
WS-02014 W-G-W Utility GIS Data 351,720 442,890 - (92,744) 701,866 420,645 456,177 469,862 483,958 498,477 513,431
WS-13002 Equipment/Tools - 50,000 - - 50,000 - 50,000 50,000 50,000 50,000 50,000
WS-11003 Dist. Sys. Improvements 85,000 500,000 - (87,318) 497,682 81,332 261,620 269,469 277,553 285,880 294,456
WS-11004 Supply Sys. Improvements 35,744 254,000 - (44,632) 245,112 1,707 261,620 269,469 277,553 285,880 294,456
WS-19000 Mayfield Reservoir - 200,000 - 200,000 200,000
Subtotal, Ongoing Projects 479,234 2,771,250 - (331,081) 2,919,403 531,503 2,181,508 2,239,454 2,099,138 2,160,613 2,223,931
CUSTOMER CONNECTIONS (FEE FUNDED)
WS-80013 Water System Extensions 33,974 732,021 - (418,656) 347,339 46,184 753,981 776,601 799,899 823,896 848,613
Subtotal, Customer Connections 33,974 732,021 - (418,656) 347,339 46,184 753,981 776,601 799,899 823,896 848,613
GRAND TOTAL 9,044,991 15,934,027 - (4,783,548)20,195,470 5,549,461 4,935,489 5,016,055 12,249,037 2,984,509 12,422,544
Funding Sources
Connection/Capacity Fees 929,348 - 902,280 929,348 957,228 985,946 1,015,524
Other Utility Funds (Asset Mgmt, GIS Systems)295,260 - 268,418 295,260 304,118 313,242 322,640
Utility Rates 15,934,027 - 3,764,791 3,791,447 10,987,691 1,685,321 11,084,380
CIP-RELATED RESERVES DETAIL
6/30/2018
(Actual)
6/30/2019
(Unaudited)
Reappropriations (excl. Bond Funded)1,616,991 14,646,009
Commitments (excl. Bond Funded)7,428,000 5,549,461
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APPENDIX C: WATER UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Water 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, for the Water Utility Financial Plan
delivered in conjunction with the FY 2015 budget, FY 2015 to FY 2021 is 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 Water 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 Water 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 Water 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.
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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 Water Utility
Financial Plan must result in the withdrawal of all funds from this Reserve by the end of
the next Financial Planning Period.
WATER UTILITY FINANCIAL PLAN
M a r c h , 2 0 19 36 | 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 Water 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 90 days of O&M and commodity expense
Maximum Level 120 days of O&M and commodity expense
b) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations
Reserve are lower than the minimum level set forth above, staff shall present a plan to
the City Council to replenish the reserve. The plan shall be delivered within six months
of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its
minimum level by the end of the following fiscal year. For example, if the Operations
Reserve is below its minimum level at the end of FY 2014, staff must present a plan by
December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In
addition, staff may present, and the Council may adopt, an alternative plan that takes
longer than one year to replenish the reserve.
c) Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower
than the target level, any Financial Plan created for the Water 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 Water 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 Water
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
Water 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 2021, 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.
WATER UTILITY FINANCIAL PLAN
M a r c h , 2 0 19 37 | P a g e
APPENDIX D: DESCRIPTION OF WATER UTILITY OPERATIONAL ACTIVITIES
This appendix describes the activities associated with the various operational activities referred
to in Section 6B: Operations of this Financial Plan.
Administration: Accounting, purchasing, legal, and other administrative functions provided by
the City’s General Fund staff, as well as shared communications services, CPAU administrative
overhead, and billing system maintenance costs. This category also includes Water Utility debt
service and rent paid to the General Fund for the land associated with reservoirs and various
other facilities.
Customer Service: This category includes the Water Utility’s share of the call center, meter
reading, collections, and billing support functions. Billing support encompasses staff time
associated with bill investigations and quality control on certain aspects of the billing process. It
does not include maintenance of the billing system itself, which is included in Administration.
This category also includes CPAU’s key account representatives, who work with large
commercial customers who have more complex requirements for their water services.
Engineering (Operating): The Water Utility’s engineers focus primarily on the CIP, but a small
portion of their time is spent assisting with distribution system maintenance.
Operations and Maintenance: This category includes the costs of a variety of distribution
system maintenance activities, including:
• investigating reports of damaged mains or services and performing emergency repairs;
• testing and operating valves;
• monitoring water quality and reservoir levels;
• monitoring the status of the different pressure zones;
• flushing water at hydrants and other closed end points of the system;
• building and replacing water services for new or redeveloped buildings; and
• testing and replacing meters to ensure accurate sales metering.
This category also includes a variety of functions the utility shares with other City utilities,
including:
• the Field Services team (which does field research of various customer service issues);
• the Cathodic Protection team (which monitors and maintains the systems that prevent
corrosion in metal tanks and reservoirs); and
• the General Services team (which manages and maintains equipment, paves and
restores streets after gas, water, or sewer main replacements, and provides welding
services)
Resource Management: This category includes water procurement, contract management,
water resource planning, interaction with BAWSCA, the SFPUC, and the SCVWD, and tracking of
legislation and regulation related to the water industry.
M a r c h , 2 0 19 38 | P a g e
APPENDIX E: SAMPLE OF WATER UTILITY OUTREACH COMMUNICATIONS
SATURDAY
H
STEP1
P rm bl P v m n
Attachment C
* NOT YET APPROVED *
6055179
Resolution No.
Resolution of the Council of the City of Palo Alto Increasing Water
Rates by Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service
Connections), W-4 (Residential Master-Metered and General Non-
Residential Water Service), and W-7 (Non-Residential Irrigation
Water Service)
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 water 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 water 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 W-1 (General Residential Water Service) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-1, as amended, shall become effective July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-2, as amended, shall become effective July 1, 2019.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-3 (Fire Service Connections) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-3, as amended, shall become effective July 1, 2019.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-4 (Residential Master-Metered and General Non-Residential Water Service) is
hereby amended to read as attached and incorporated. Utility Rate Schedule W-4, as amended,
shall become effective July 1, 2019.
Attachment C
* NOT YET APPROVED *
6055179
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-7 (Non-Residential Irrigation Water Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule W-7, as amended, shall become effective
July 1, 2019.
SECTION 6. The City Council finds as follows:
a. Revenues derived from the water rates approved by this resolution do not exceed
the funds required to provide water service.
b. Revenues derived from the water rates approved by this resolution shall not be used
for any purpose other than providing water service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
c. The amount of the water rates imposed upon any parcel or person as an incident of
property ownership shall not exceed the proportional cost of the water service
attributable to the parcel.
SECTION 7. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 8. The Council finds that the adoption of this resolution changing water
rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to maintain service is not subject to
the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code
Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After
reviewing the staff report and all attachments presented to Council, the Council incorporates
these documents herein and finds that sufficient evidence has been presented setting forth with
specificity the basis for this claim of CEQA exemption.
Attachment C
* NOT YET APPROVED *
6055179
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-1 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to separately metered single-family residential dwellings receiving Water
Service from the City of Palo Alto Utilities.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Services.
C. RATES:
Per Meter
Monthly Service Charge: Per Month
For meters 5/8-inch to 1 inchmeter .......................................................................... $ 18.4320.25
For 3/4 inch meter ..................................................................................................... 24.83
For 1 inch meter ........................................................................................................ 37.64
For 1 1/2 inch meter .................................................................................................. 69.6665.40
For 2-inch meter ........................................................................................................ 108.08101.17
For 3-inch meter ........................................................................................................ 229.75214.44
For 4-inch meter ........................................................................................................ 409.05381.37
For 6-inch meter ........................................................................................................ 838.09780.79
For 8-inch meter ........................................................................................................1,542.501,436.57
For 10-inch meter ......................................................................................................2,439.012,271.20
For 12-inch meter .......................................................................................................3,207.452,986.60
Per Hundred
Cubic Feet
VolumetricCommodity Rates: (To be added to Service Charge, and applicable to all pressure zones.)
Per Month
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Commodity Rate:
Water Delivery Charge from SFPUC .................................................................................... $4.10
Attachment D
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-2 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-2
Distribution Rate:
Tier 1 usage ........................................................................................................................$6.642.56
Tier 2 usage (All usage over 100% of Tier 1) ........................................................................9.445.97
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate for Tier 1 and Tier 2
Water usage when the City Council has determined that a Water reduction level is in effect for the
City as described in Section D.3. The drought surcharges in the table below are measured in dollars
per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Tier 1 0.20 0.43 0.64
Tier 2 0.58 1.21 1.85
Temporary Service – Developers
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $6.00
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-3 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-3
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
2.3. Calculation of Usage Tiers
Tier 1 Water usage shall be calculated and billed based upon a level of 0.2 ccf per day
rounded to the nearest whole ccf, based on Meter reading days of Service. As an
example, for a 30 day bill, the Tier 1 level would be 0 through 6 ccf. For further
discussion of bill calculation and proration, refer to Rule and Regulation 11.
3.4. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-2-1
A. APPLICABILITY: This schedule applies to all Water taken from fire hydrants for construction, maintenance, and
other uses in conformance with provisions of a Hydrant Meter Permit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES: 1. Monthly Service Charge.
METER SIZE
5/8 inch ........................................................................................................................... 50.00
3 inch ........................................................................................................................... 125.00 2. CVolumetricommodity Rate: (per hundred cubic feet) ................................................... $7.77 Commodity Rate:
Water Delivery Charge from SFPUC ........................................................................ $4.10
Distribution Rate: ................................................................................................................. $3.61
3.
4. Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in
Section D.5. The drought surcharges in the table below are measured in dollars per hundred
cubic feet (ccf).
Water Usage Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-2-2
1. 1. Monthly charges shall include the applicable monthly Service Charge in addition to usage
billed at the commodity rate.
1.2. The Commodity Charge is based on the water delivery rate per the San Francisco Public Utility
Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term Contract. The
Commodity Charge will be passed through automatically via periodic rate adjustments to account
for increases in wholesale water charges, as well as inflation. The pass-through period will be
effective for fiscal years 2020 through 2024, inclusive. Customers will be provided notice of any
adjustments via their billing statements. 2.3. 2. Any person or company using a hydrant without first obtaining a valid Hydrant Meter Permit
shall pay a fee of $50.00 for each day of such use in addition to all other costs and fees provided in
this schedule. A hydrant permit may be denied or revoked for failure to pay such fee. 3.4. 3.A Meter deposit of $750.00 may be charged any applicant for a Hydrant Meter Permit as a
prerequisite to the issuance of a permit and Meter(s). A charge of $50.00 per day will be added for
delinquent return of hydrant Meters. A fee will be charged for any Meter returned with missing or
damaged parts. 4.5. 4.Any person or company using a fire hydrant improperly or without a permit, or who draws Water
from a hydrant without a Meter installed and properly recording usage shall, in addition to all other
applicable charges be subject to criminal prosecution pursuant to the Palo Alto Municipal Code.
5.6. 5.During period of Water shortage or restrictions on local Water use, the City Council may, by
resolution, declare the need for citywide Water conservation at the 10/15%, 20% or 25% level.
While such a resolution is in effect, a drought surcharge will apply. The purpose of the drought
surcharge is to recover revenues lost as a result of reduced consumption.
{End}
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-1 Effective 7-1-20189
dated 7-1-20168 Sheet No W-3-1
A. APPLICABILITY:
This schedule applies to all public fire hydrants and private fire Service connections.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
1. Monthly Service Charges
Public Fire Hydrant .................................................................................................... $5.00
Private Fire Service:
2-inch connection .......................................................................................................$4.164.17
4-inch connection .......................................................................................................25.7325.81
6-inch connection ....................................................................................................... 74.7474.96
8-inch connection .......................................................................................................159.28159.74
10-inch connection .....................................................................................................286.43287.27
12-inch connection .....................................................................................................462.67464.02
2. Commodity (To be added to Service Charge unless Water is used for fire extinguishing or
testing purposes.)
Per Hundred Cubic Feet
All water usage........................................................................................................... $10.00
D. SPECIAL NOTES:
1. Service under this schedule may be discontinued if Water is used for any purpose other
than fire extinguishing or testing and repairing the fire extinguishing facilities. Using
hydrants and fire Services for other purposes is illegal and will be subject to the
commodity charge as noted above, fines, and criminal prosecution pursuant to the Palo
Alto Municipal Code.
2. For a combination Water and fire Service, the Water Service schedule shall apply.
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-2 Effective 7-1-20189
dated 7-1-20168 Sheet No W-3-2
3. Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
4. Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
Water if records and documentation are supplied by the Customer.
{End}
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-1
A. APPLICABILITY:
This schedule applies to Water Services to non-residential buildings, and multi-family residential
dwellings served through a Master-Meter.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 18.4317.71
For 3/4-inch meter .................................................................................... 24.8323.67
For 1-inch meter .................................................................................... 37.6435.59
For 1 ½-inch meter .................................................................................... 69.6665.40
For 2-inch meter .................................................................................... 108.08101.17
For 3-inch meter .................................................................................... 229.75214.44
For 4-inch meter .................................................................................... 409.05381.37
For 6-inch meter .................................................................................... 838.09780.79
For 8-inch meter ....................................................................................1,542.501,436.57
For 10-inch meter ....................................................................................2,439.012,271.20
For 12-inch meter ....................................................................................3,207.452,986.60
Per Hundred
Cubic FeetC
Volumetricommodity Rates: (to be added to Service Charge, applicable to all pressure zones) Per
Month
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Commodity Rate:
Water Delivery Charge from SFPUCPer ccf ...........................................
..................................................................................................................$ 7.774.10
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-2
Distribution Rate: ........................................................................................... 3.61
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet
(ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-3 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-3
2.3. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential Water Service supplying dedicated irrigation Meters.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Services.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 18.4317.71
For 3/4-inch meter .................................................................................... 24.8323.67
For 1-inch meter .................................................................................... 37.6435.59
For 1 1/2 inch meter .................................................................................... 69.6665.40
For 2-inch meter .................................................................................... 108.08101.17
For 3-inch meter .................................................................................... 229.75214.44
For 4-inch meter .................................................................................... 409.05381.37
For 6-inch meter .................................................................................... 838.09780.79
For 8-inch meter ....................................................................................1,542.501,436.57
For 10-inch meter ....................................................................................2,439.012,271.20
For 12-inch meter ....................................................................................3,207.452,986.60
Per Hundred
Cubic Feet
CVolumetricommodity Rates: (to be added to Service Charge, applicable to all pressure zones)Per
Month
Commodity Rate:
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Water Delivery Charge from SFPUCPer ccf ....................................
..........................................................................................................$ 9.334.10
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-7-2
Distribution Rate: ........................................................................................... 5.50
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf).
Water Usage Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.53 1.25 2.02
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
2.3. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption. {End}
445 S. Figueroa Street, Suite 2270 Los Angeles, CA 90071
www.raftelis.com
MEMO
To: Lisa Bilir, Resource Planner
From: Sudhir Pardiwala/Hannah Phan
Date: March 21, 2019
Re: Proposed FY 2020 Water Rates
The City of Palo Alto (City) engaged Raftelis Financial Consultants, Inc. (Raftelis) to update the
cost of service (COS) methodology and water rate structure described in our 20151 rate study to
ensure its continued compliance with Proposition 218. This memorandum summarizes the
methodology and development of the proposed water rate methodology and tiered rate
structure.
Proposed Water Rates
The calculations in this memo show the changes in the rate structure resulting from the cost of
service adjustments without considering any revenue adjustments. The proposed rates consider
a 0.75 percent revenue adjustment to ensure adequate cost recovery and reserves balance.
The following subsections detail the methodology and calculation related to the proposed water
rates for fiscal year (FY) 2020.
Cost of Service Analysis Adjustments
At the City’s request, Raftelis reviewed the COS analysis methodology used in its 2015 rate
update study, to ensure its continued compliance with Proposition 218’s substantive
requirements for water rates. The methodology and rate structure described in the 2015 COS
update study remains fundamentally sound. We have reviewed and updated the data based on
current characteristics and refined our analysis to recommend the following adjustments to
ensure that the rates proposed continue to equitably recover the City’s costs of providing water
service:
1. Raftelis updated the revenue requirements, customer data, and customer class peaking
factors using FY 2018 actual and FY 2019 budget data. Peaking costs are used to
differentiate rates amongst different classes of customers since different customers
impose different demands on the system, and the portion of the costs related to peaking
are applied to the customer classes in proportion to the peaking factors. As discussed
below, peaking factors for the customer classes have shifted since the last study, and
the new peaking factors should be reflected in the proposed rates.
2. Per City’s request, the cost of purchased water from San Francisco Public Utilities
Commission (SFPUC) is separated from the commodity rate to facilitate passing through
1 Memorandum dated May 20, 2015 titled “Proposed Water Rates”
DRAFT
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 2
future SFPUC rate increases. The remaining water rate components: base (delivery) and
peaking costs remain unchanged.
3. Many Residential – W1 meters are oversized either to meet fire flow requirements for fire
suppression purposes, or to maintain water pressure due to long service runs or their
location within the system. This increase in meter size does not impact the City’s
infrastructure or the on-going maintenance requirements, since lines and infrastructure
are already sized to provide fire flow requirements. In this instance, there is no need to
increase main size to meet supply requirements and therefore no additional costs to the
utility. Likewise, an increase in meter size to maintain water pressure does not require
the City to maintain additional capacity to serve these meters. Thus, the City proposes to
charge all residential customers with 5/8”, ¾”, and 1” meters, which include fire flow, a
uniform monthly service fee. New residential developments in general are connected
with at least 1” meters. To ensure uniform administration and equitable cost allocation,
and based on analysis of the above-described system characteristics, Raftelis agrees
that it would be prudent to charge all residential meters up to 1” the same charge. Non-
residential customers are required to have a separate fire service meter, which ensures
that the meter size for the remaining water consumption is more reflective of their actual
daily and seasonal impact on Palo Alto’s water system. For these customers it is
appropriate to continue to use the meter capacity to determine monthly service fees.
The adjustments were made to the model used to calculate the City’s existing rates, which has
been updated to reflect FY 2020 budget requirements.
Adjustment 1: Revenue Requirements, Customer Data, and Peaking Factors Update
Raftelis updated the revenue requirements (both operating and capital expenses) and customer
accounts and water usage data using FY 2018 actual and FY 2019 budget data to complete the
cost of service analysis and project the future revenue adjustments necessary to fund all
projected operating and capital costs. We also updated the peaking factors calculations, as
discussed in detail below.
Rates for customer classes can be differentiated by the peaks that they impose on the water
system. Peaking factors are the rate of use compared to the average rate of use of any class or
of the water system as a whole. Average rate of water use is the total water used in a year
divided by the number of months or days or hours or billing period. Customers do not use water
at the average rate; when the faucet is turned on, water in a typical residential home may
discharge 2 gallons per minute. At this rate the usage in a day would be 3.8 ccf or 115 ccf per
month. The average use for a typical single family home in the City is about 11 ccf per month.
To allow customers to use water at the higher demand rate, components of the water system
need to be designed to handle these higher loads. The operating and capital costs associated
with this oversizing of the system to meet the higher or peak demands are passed on to
customers in peaking charges. Different customer classes have typically different peak
demands which are used to assign costs to each class.
There are two types of peaking factors used in water system design and in the rate study for
cost allocation purposes: the system peaking factors and the customer specific peaking factors.
Peaking factors are expressed by maximum day and maximum hour demand. The maximum
day demand is the maximum amount of water used in a single day in a year. The maximum
hour demand is the maximum usage in an hour on the day with maximum usage. It is generally
expressed as a factor of the average water usage in a day. Max day factors are typically used to
size reservoirs and transmission facilities, whereas peak hour factors are typically used to
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 3
design distribution systems and booster pumps. For example, the City’s system wide peaking
factors, as measured by staff, are 1.70 for Max Day and 2.05 for Max Hour. This means that the
water usage on the maximum day of the year is 1.7 times the average usage for that year.
System peaking factors allow the allocation of different components of the system costs to
average and peak (Max Day and Max Hour) customer demands. Different components of the
water system, such as transmission lines and distribution facilities, and the costs associated
with those components are designed to meet the peaking demands of customers. Therefore,
the extra capacity costs of these different components include the costs associated with
meeting peak customer demand and are allocated proportional to the system peaking factors.
Once the costs of peaking are determined, costs to each customer class is calculated based on
their individual peaking characteristics. To assign these costs to customers based on their use
of the system, it is necessary to identify the peaking factors for the different classes and tiers.
Table 1 shows the customer specific peaking factors, based on the maximum month factors
calculated from each customer class’ actual water usage in FY 2018 (in the columns “2018 Max
Day” and “2018 Max Hour,”) compared to the peaking factors used in the 2015 study update (in
the columns “2014 Max Day” and “2014 Max Hour.” These were calculated using the same
methodology for both the 2014 and 2018 columns. The primary differentiator of rates amongst
different customer classes is based on the demand that they put on the system. This demand is
expressed in terms of the maximum day and maximum hour factors. These are the demands
expressed as a ratio of the maximum demand to the average demand for each customer class.
For example, if the maximum demand for a customer class were 10,000 CCF per day, and the
average annual demand were 5,000 CCF per day, the peaking ratio (or Max Day peaking factor)
would be 2.0.
Residential customers generally have higher peaking factors than commercial customers since
residential uses are a combination of both domestic use and irrigation use, while commercial
customers usually have separate irrigation meters. Irrigation use typically shows the highest
peak demand due to the timing and amount of water used for irrigation purposes. In the
absence of actual max day data by customer class, maximum month demand is used to
represent max day demand.2 The maximum month demand is then used to calculate the max
day peaking factor for each customer class. The max day peaking factor for each customer
class is calculated by dividing the maximum month usage by the average monthly usage.
The ratio of the max hour and max day for the whole system is used to estimate the max hour
factor for each customer class. For example, the max day factor for Residential customers for
2018 is 1.45. The ratio of the system max hour over max day is 1.21 (2.05 / 1.70). Thus, the
estimated max hour for Residential customers is 1.75 (1.45 x 1.21). This is the method used to
calculate columns “2014 Max Hour” and “2018 Max Hour,” using the appropriate ratio of system
max hour over max day (2.4/1.53 in 2014, and 2.05/1.70 in 2018). Since usage in the
Construction – W2 class is intermittent and varies based on the construction activity in the City,
customers in the Construction – W2 class are considered to be the same as the Commercial –
W4 class for the purpose of calculating variable charges. These two classes are differentiated
only in the fact that temporary hydrant meters are used for construction customers, while
commercial customers have permanent services.
2 This is reasonable given the importance of using relative peaking factors of the different customer classes to assign
costs equitably. Since the system relationship of max day and max hour is used to determine the max hour use for
each class, we use the max day nomenclature throughout this cost of service analysis.
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 4
Table 1 Updated Peaking Factors by Customer Class3
The change to the peaking factors by customer class shifts the capacity or peaking-related
costs among the customer classes, to equitably reflect their demands on the system and
recover the City’s cost of providing service.
The peaking factors for the W1, W4 and W7 customer classes have decreased, as shown in
Table 1. The max day factors in both 2014 and 2018 data are similar. However, the 2018 max
hour factors are significantly lower than the 2014 max hour factors because of the availability of
AMI hourly production data from the wholesale water provider (San Francisco Public Utilities
Commission) in 2018 compared to 2014. Using AMI information to calculate the peaking factors
results in more reliable and accurate calculations. Additionally, the data used in the 2015
updated study (in the columns “2014 Max Day” and “2014 Max Hour”) is from FY 2011, while FY
2018 data is used in this study update. In the 7 years that elapsed between those two data sets,
the underlying usage patterns changed, including a decline in average day usage. Because the
peaking factors are ratios using average day usage, the peaking factors are impacted by the
change in average usage over time. Although maximum day usage in FY 2018 did not decline
relative to FY 2011, the highest hour of usage during that maximum day of usage declined
substantially. Customer experiences and changes that occurred during the drought of 2014 –
2017 may have influenced usage characteristics such as automatic sprinkler systems program
settings spreading the irrigation and over more different off hours rather than during peak times
or days, or water efficiency appliances and tools may have influenced peak usage patterns on a
system-wide basis.
Table 2 shows the peaking factors for each tier of the Residential – W1 customer class. The
methodology to calculate the peaking factor is the same as the methodology used in the 2015
study update. Raftelis analyzed the water usage per month per account for the residential class
in FY 2018. Since the maximum month usage for residential customers occurs in August, the
August usage in each tier was compared with the average usage in each tier to determine the
relative peaking factor for each tier. Table 2 shows the calculation of the peaking factor for each
tier, representing the amount of extra capacity needed on the system to serve customers in that
tier. The max day peaking factor for Tier 1 is 1.06 (i.e., the peak is 1.06 times the average or 6
percent above the average Tier 1 usage.) This low peaking is expected since this is mostly
3 July 2017 was an anomaly in water usage for W7 irrigation customers due to a change in the landscaping of the
municipal golf course, which typically uses a blend of potable and recycled water usage. To account for this one-
time change, Raftelis replaced the July and August 2017 usage of the municipal golf course with the most recent
July and August usage to estimate the typical July and August usage for the W7 customer class.
Customer Specific Peaking 2014 Max Day 2014 Max Hour 2018 Max Day 2018 Max Hour
(a)(b) = (a) x (e)/(f) (c)(d) = (c) x (g)/(h)
Residential - W1 1.45 2.27 1.45 1.75
Master MFR/Commercial - W4 1.27 1.99 1.25 1.51
Irrigation - W7 1.81 2.84 1.78 2.15
Construction - W2 1.27 1.99 1.25 1.51
(e) = 2.4 system max hour peaking factor for 2014
(f) = 1.53 system max day peaking factor for 2014
(g) = 2.05 system max hour peaking factor for 2018
(h) = 1.70 system max day peaking factor for 2018
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 5
indoor usage which changes little with seasons. Note that the 16,655 customer bills in Tier 1
include all customers who uses between 0 and 6 ccf of water, not just those that only use 6 ccf
or less per month. This means that customers who are in Tier 2 also have 6 ccf of Tier 1 usage.
Thus, the Tier 1 peaking factor is very low since most, if not all customers, use all of their Tier 1
water. Similarly, the max day peak for Tier 2 is 147 percent above the average for Tier 2 usage.
This peak primarily results from irrigation use in summer. The delivery cost, or average cost of
providing service, is recovered from the average component, and the peak costs recovered from
the peak components.
Table 2 Max Day Peaking Factors for Tiers 1 and 2
Adjustment 2: Separation of Water Supply Cost
These updates discussed above result in the calculated rates shown in Table 3 for FY 2020,
without any revenue increase. Each commodity rate has three components: supply rate,
delivery rate, and peaking rate. The supply rate represents the cost of purchased water from the
SFPUC, which is applied to all customer classes and tiers equally since the City only has one
source of water. The $4.10 per ccf represents only the variable cost of the total SFPUC costs. It
does not include the fixed costs and water losses of approximately $3.16 million in FY 2020.
This supply rate would be a separate line item on the customer’s bill. The supply rate will
automatically be updated annually based on the purchased water cost from SFPUC.
The City rate only includes the delivery and peaking rates. The delivery rate represents the
City’s fixed costs of operating the water system to serve year-round base load consumption,
excluding any peaking related costs. This component is also applied to all customer classes and
tiers equally. The peaking rate represents the capacity related costs of the system necessary to
serve peak load, and it differs per customer class and tier based on the calculated peaking
factors for each customer class and tier, as shown in Tables 1 and 2. The Difference column in
Table 3 combines the Supply Rate and the City Rate to compare with the Current Rates, since
FY 2020 would be the first year the Supply Rate will be called out separately.
Table 3
FY 2020 COS Commodity Rate – No Revenue Adjustments
Peaking Factor Analysis for W1 Customers
Max Month
Usage Bills in Tier Usage per Bill Average Usage Peaking
Factor
Tier 1 - 0-6 CCF 88,625 16,655 5.32 5.04 1.06
Tier 2 - over 6 CCF 165,473 11,786 14.04 5.68 2.47
Customer Class Tier (ccf)Supply Rate
($/ccf)
Delivery Rate
($/ccf)
Peaking Rate
($/ccf)
City Rate
($/ccf)Current Rates Difference
Residential - W1
Tier 1 6 $4.10 $2.37 $0.14 $2.51 $6.64 0%
Tier 2 over 6 $4.10 $2.37 $3.53 $5.90 $9.44 6%
Average Rate $4.10 $2.39 $4.26 $8.09 3%
Master MFR/Commercial - W4 $4.10 $2.37 $1.18 $3.55 $7.77 -2%
Irrigation - W7 $4.10 $2.37 $3.07 $5.44 $9.33 2%
Construction - W2 $4.10 $2.37 $1.18 $3.55 $7.77 -2%
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 6
Adjustment 3: Calculation of Monthly Meter Service Charge
The monthly meter service charge includes customer service, metering, and billing charges as
well as the costs associated with the service connection and a portion of the water system
capacity. Fire service meter charges include costs associated with maintaining system capacity
to serve fire flows for private fire meters.
The American Water Works Association (AWWA) M1 manual recommends setting meter
charges according to meter flow capacity because meter charges are designed to represent the
maximum demand that a customer actually puts on the system. As a result, meter charges
increase proportionally to the flow capacity of the meter. Meters are usually sized to meet the
demand a customer can place on the system. While this methodology is appropriate for larger
meter sizes, this approach may not be appropriate for the City for small meter sizes (up to 1”)
since, due to updated building codes, sometimes residential meters are required to be sized
larger, for various reasons, even though the customer’s actual demand does not necessitate a
larger meter. Additionally, Palo Alto sizes its main replacements to provide every customer with
enough capacity for a 1” meter, so the amount of system capacity available to smaller
customers is fairly uniform.
In the City, meter sizing is not always driven by customer usage characteristics. Meters
operating at different pressures may have different flow capacities. Under lower pressures, a
larger meter may be required to maintain flows. There are instances in the City where the utility
installs larger meters than would typically be needed when customers experience lower
pressure due to long service runs or their location on the system. At times, this has been done
for the convenience of the utility. For example, in one neighborhood, water meters were located
in the back of the house, attached to a water line running along the rear property lines. The
utility moved the water line out to the street for easier maintenance, but ran long services to the
meters at the back of the houses, which reduced pressure, requiring larger meters. These
customers did not have unusually large usage or fire sprinklers, but had larger meters
nonetheless.
Note that there is a difference between allocating meter-related costs according to the capacity
available to the customer and allocating the remaining revenue requirement across customer
classes. The remaining revenue requirement should be allocated according to the relative
peaking demands each class puts on the system, whereas meter related costs must be
allocated according to the capacity that is available/ready to serve the customer at any given
time irrespective of the customer’s usage.
The City has two reasonable options for addressing the issues outlined above:
1. Create a system of charges that differentiate high usage residential customers from
residential customers with fire sprinklers, low pressure, or other similar
characteristics; or
2. Recognize that residential customers (with 1” or smaller meters) have different
reasons for their meter size, including pressure needs and fire sprinkler
requirements, and create a uniform charge for all residential customers with 1” or
smaller meter sizes.
Because the cost to provide the capacity to serve a 5/8”, ¾” or 1” residential meter is similar and
the need for larger meters (up to 1”) may be necessitated because of fire flow or low system
pressure, the City is proposing to charge a uniform monthly service charge to all Residential –
W1 customers with 1” or smaller meter sizes. This uniform charge results in higher charges for
the 5/8” meter and lower charges for the ¾” and 1” meters, since the costs to the City of
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 7
providing service to these different meter sizes are similar and therefore the City must fully
recover these costs from these customers. The proposed uniform charges for Residential – W1
customers with meter sizes up to 1”, as shown in Table 4, are the same at $20.12 per month
with no revenue adjustment; with the proposed revenue increase, the proposed uniform charge
for these Residential customers is $20.25 per month as shown in Table 5.
Unlike residential customers who typically only have one meter for all water uses: domestic,
irrigation, and fire suppression, non-residential customers are required to have a separate fire
service meter. This means that none of the small commercial customers have meter sizes up to
1” due to fire sprinkler requirements. This distinguishes the commercial customer class from the
residential class and ensures that the meter sizes used for commercial customers are based on
water demands that are reflective of the commercial customer’s actual daily and seasonal
usage impact on the City’s water system. For these customers it is appropriate to continue to
use the methodology in the AWWA M1 Manual.
Table 4 shows the FY 2020 COS monthly meter service charge, based upon the updated
revenue requirements and customer data for all customer classes.
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 8
Table 4 FY 2020 COS Monthly Meter Service Charge – No Revenue Adjustments
W1 Residential Customers
Meter Size
Meter
Capacity Cost Billing Cost
Proposed
Charge Current Charge Difference
5/8"$14.40 $5.72 $20.12 $18.43 9%
3/4"$14.40 $5.72 $20.12 $24.83 -19%
1"$14.40 $5.72 $20.12 $37.64 -47%
1 1/2"$59.34 $5.72 $65.06 $69.66 -7%
2"$94.94 $5.72 $100.66 $108.08 -7%
3"$207.68 $5.72 $213.40 $229.75 -7%
4"$373.82 $5.72 $379.54 $409.05 -7%
6"$771.37 $5.72 $777.09 $838.09 -7%
8"$1,424.07 $5.72 $1,429.79 $1,542.50 -7%
10"$2,254.77 $5.72 $2,260.50 $2,439.01 -7%
12"$2,966.81 $5.72 $2,972.53 $3,207.45 -7%
Non-W1 Customers
Meter Size
Meter
Capacity Cost Billing Cost
Proposed
Charge Current Charge Difference
5/8"$11.87 $5.72 $17.59 $18.43 -5%
3/4"$17.80 $5.72 $23.52 $24.83 -5%
1"$29.67 $5.72 $35.39 $37.64 -6%
1 1/2"$59.34 $5.72 $65.06 $69.66 -7%
2"$94.94 $5.72 $100.66 $108.08 -7%
3"$207.68 $5.72 $213.40 $229.75 -7%
4"$373.82 $5.72 $379.54 $409.05 -7%
6"$771.37 $5.72 $777.09 $838.09 -7%
8"$1,424.07 $5.72 $1,429.79 $1,542.50 -7%
10"$2,254.77 $5.72 $2,260.50 $2,439.01 -7%
12"$2,966.81 $5.72 $2,972.53 $3,207.45 -7%
Fire Service Charge - W3 Service
Meter Size
Meter
Component
Proposed
Charge Current Charge Difference
2"$4.16 $4.16 $4.16 0%
4"$25.74 $25.74 $25.73 0%
6"$74.76 $74.77 $74.74 0%
8"$159.32 $159.33 $159.28 0%
10"$286.52 $286.52 $286.43 0%
12"$462.81 $462.81 $462.67 0%
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 9
The proposed FY 2020 cost of service rates, shown in Table 5, include a proposed 0.75 percent
revenue adjustment for FY 2020. The rates and charges in Tables 3 and 4 did not include the
revenue adjustment to evaluate the impact of the COS update.
Table 5 Proposed FY 2020 Water Rates
General Monthly Meter Service Charge - Residential W1
Meter Size July 1, 2018 July 1, 2019
Up to 1"varies $20.25
General Monthly Meter Service Charge*
Meter Size July 1, 2018 July 1, 2019 Difference
5/8"$18.43 $17.71 -4%
3/4"$24.83 $23.67 -5%
1"$37.64 $35.59 -5%
1 1/2"$69.66 $65.40 -6%
2"$108.08 $101.17 -6%
3"$229.75 $214.44 -7%
4"$409.05 $381.37 -7%
6"$838.09 $780.79 -7%
8"$1,542.50 $1,436.57 -7%
10"$2,439.01 $2,271.20 -7%
12"$3,207.45 $2,986.60 -7%
Monthly Fire Meter Service Charge
Meter Size July 1, 2018 July 1, 2019 Difference
2"$4.16 $4.17 0%
4"$25.73 $25.80 0%
6"$74.74 $74.96 0%
8"$159.28 $159.74 0%
10"$286.43 $287.27 0%
Commodity Rate ($/ccf)
July 1, 2018 July 1, 2019 Difference
SFPUC Water Rate included $4.10
Residential - W1
Tier 1 0 - 6 ccf $6.64 $2.56 0%
Tier 2 over 6 ccf $9.44 $5.97 7%
Master MFR/Commercial - W4 $7.77 $3.61 -1%
Irrigation - W7 $9.33 $5.50 3%
Construction - W2 $7.77 $3.61 -1%
*Applies to Master MFR/Commercial - W4, Irrigation - W7, Construction -
W2, and Residential - W1 customers above 1"
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 Collection 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 costs 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 transported 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) $/CCF 3.42 3.66 0.24 7%
(1) Monthly charges for S-1 are fixed monthly charges, and those for S-2 and S-6
are minimum monthly charges.
(2) Currently there are no customers on the S-7 rate schedule; however, CPAU
continues to maintain it in case there is a need for the rate schedule in the
future.
FY 2020 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 2 shows the projected rate adjustments and their impact on a residential wastewater bill,
as shown in the Wastewater Financial Plan:
Table 2: Projected Rate Adjustments and Residential Bill Impact, FY 2020 to FY 2024
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Wastewater Utility 7% 6% 6% 6% 6%
Estimated Bill Impact for
Residential Customers ($/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 projects 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 2024 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 rates 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 2020 WASTEWATER
COLLECTION UTILITY
FINANCIAL PLAN
FY 2020 TO FY 2024
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 2 | P a g e
FY 2020 WASTEWATER COLLECTION
UTILITY FINANCIAL PLAN
FY 2020 TO FY 2024
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
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SECTION 1: DEFINITIONS AND ABBREVIATIONS
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 SUMMARY 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 2A: OVERVIEW OF FINANCIAL 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 2B: SUMMARY OF PROPOSED 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.
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SECTION 3: DETAIL OF FY 2020 RATE AND RESERVES PROPOSALS
SECTION ERROR! REFERENCE SOURCE NOT FOUND.A: RATE DESIGN
The Wastewater Collection Utility’s rates are evaluated and implemented 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 SOURCE NOT FOUND.B: CURRENT AND PROPOSED
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 SOURCE NOT FOUND.C: BILL IMPACT OF PROPOSED
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 SOURCE 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 4A: WASTEWATER 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 capacity 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 improvements. 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 4B: CUSTOMER 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 4C: 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
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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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 4D: 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 4E: 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
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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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 4F: 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 5A: FY 2014 TO FY 2018 COST AND REVENUE TRENDS
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 5B: FY 2018 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 5C: FY 2019 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 5D: FY 2020 – FY 2024 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 5E: RISK ASSESSMENT AND RESERVES ADEQUACY
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 Wastewater 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 5F: ALTERNATE SCENARIOS
No alternate scenarios are proposed as part of this financial plan.
SECTION 5G: 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 regulations 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 ASSUMPTIONS
SECTION 6A: 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 6B: 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 6C: 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 video
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 blockages, permitting groundwater and rainwater to
infiltrate the system. Some level of infiltration is expected on any sewer system, but if there 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 maintenance, 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 6D: 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 small 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 6E: 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 Utilities 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.
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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
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APPENDIX A: WASTEWATER COLLECTION FINANCIAL FORECAST DETAIL
($'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
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APPENDIX B: WASTEWATER COLLECTION 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 COLLECTION UTILITY RESERVES
MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Wastewater
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 REHABILITATED SINCE 1990)
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
March 2 0 1 9 30 | P a g e
APPENDIX E: SAMPLE OF WASTEWATER COLLECTION 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 payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 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 California
Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec.
15273(a). After reviewing the staff report and all attachments presented to Council, the
Council incorporates these documents herein and finds that sufficient evidence has been
presented setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Senior 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 NH3 (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}
City of Palo Alto (ID # 10147)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/16/2019
City of Palo Alto Page 1
Summary Title: Storm Water Management Fee Increase for FY2020
Title: Recommendation That the Finance Committee Recommends the City
Council Adopt a Resolution Amending Utility Rate Schedule D-1 (Storm and
Surface Water Drainage) Increasing the Storm Water Management Fee by 4.5
Percent to $14.68 Per Month per Equivalent Residential Unit for Fiscal Year
2020
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends the Finance Committee recommends that the Council adopt the attached
resolution (Attachment A) amending Utility Rate Schedule D-1 (Storm and Surface Water
Drainage), to implement a 4.5% rate increase consistent with the applicable Consumer Price
Index, increasing the monthly charge per Equivalent Residential Unit by $0.63, from $14.05 to
$14.68 for Fiscal Year 2020.
Background
On April 11, 2017, a majority of Palo Alto property owners approved a ballot measure
authorizing a monthly Storm Water Management Fee to fund storm drain capital improvement
projects, enhanced maintenance the of storm drain system, storm water quality protection
programs and more. Council certified the results of the ballot proceeding on April 17, 2017.
The approved ballot measure contained an annual fee escalator clause that permits the Council
to raise the Storm Water Management Fee each year to account for inflationary cost increases.
Specifically, the ballot measure stated that:
“In order to offset the effects of inflation on labor and material costs, the maximum rate for the
Storm Water Management Fee (and each component of the Storm Water Management Fee)
will be increased annually each July 1 (beginning July 1, 2018), by the lesser of (i) the
percentage change in the Consumer Price Index [CPI] for the San Francisco-Oakland-San Jose
CSMA, published by the United States Department of Labor, Bureau of Labor Statistics during
the prior calendar year;or (ii) 6%. The City Council would have the authority to set the rate for
the Storm Water Management Fee (and each component of the Storm Water Management
Fee) at any rate that is less than or equal to the inflation adjusted maximum rate.”
City of Palo Alto Page 2
On June 11, 2018, Council adopted a resolution to implement the Storm Water Management
Fee to be $14.05 per month per ERU, effective July 1, 2018.
Discussion
Staff has determined from Bureau of Labor Statistics records that the local CPI for the San
Francisco-Oakland-San Jose CMSA increased by 4.5% between December 2017 and December
2018. The CPI increase is substantially lower than 6%, therefore consistent with the ballot
measure, staff recommends that the Storm Water Management Fee be increased by the CPI
amount of 4.5% to keep fund revenues consistent with general cost increases. Over time, the
cost of capital improvement program projects adjustment as well as annual salary and benefits
adjustment are likely to be higher than the annual CPI increase. The recommended increase will
help to ensure adequate funding to implement the capital improvement program projects and
provide all the services outlined in the ballot measure.
To enact the Storm Water Management Fee increase, Council must adopt the attached
resolution amending Utility Rate Schedule D-1 (Storm and Surface Water Drainage). The new
rate for the Storm Water Management Fee will be $14.68 per month per Equivalent Residential
Unit (ERU).For single-family residential properties, ERU equivalents are estimated and billed a
monthly amount based on parcel size, in accordance with the following table:
RESIDENTIAL RATES (Single-Family Residential Properties)
PARCEL SIZE (sq.ft.)Equivalent Residential Unit (ERU)
< 6,000 sq.ft.0.8 ERU
6,000-11,000 sq.ft.1.0 ERU
> 11,000 sq.ft.1.4 ERU
For commercial, industrial, institutional, and multi-family residential properties, monthly bills
are based on a rate of 1.0 ERU for each 2,500 square feet of impervious surface on the parcel.
Timeline
The Storm Water Management Fee increase will take effect on July 1, 2019.
Resource Impact
The 4.5 percent increase in rates is expected to increase annual revenue to the Storm Drainage
Fund by $320,800. A subsequent adjustment will be included in the development of the FY
2020 Operating Budget, subject to City Council approval.
Environmental Review
Adoption of changes to utility rate schedules is statutorily exempt from review under the
California Environmental Quality Act (CEQA)pursuant to CEQA Guidelines 15273(a) (Rates,
Tolls, Fares, and Charges).Additionally, staff concludes that the inflation related changes in the
Storm Water Fee will not negatively impact environmental protection or sustainability goals.
City of Palo Alto Page 3
Attachments:
·Attachment A: RESO Amending Utility Rate Schedule for Storm Surface Water FY2020
NOT YET APPROVED
1
Resolution No. ______
Resolution of the Council of the City of Palo Alto Amending Utility Rate
Schedule D-1 (Storm and Surface Water Drainage) to Increase Storm
Water Management Fee Rates by 4.5% Per Month Per Equivalent
Residential Unit for Fiscal Year 2020
The Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule
D-1 (Storm and Surface Water Drainage) is hereby amended to read in accordance with sheet D-
1-1, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended,
shall become effective July 1, 2019.
SECTION 2. The Council finds that this rate increase is being imposed to offset the effects of
inflation on labor and material costs pursuant to the annual inflationary fee escalator provision
of the Storm Water Management Fee ballot measure, which was approved by a majority of Palo
Alto property owners on April 11, 2017.
SECTION 3. The Council finds that the revenue derived from the authorized adoption enumerated
herein shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the
City of Palo Alto.
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
NOT YET APPROVED
2
SECTION 4. The Council finds that modification and approval of this change to the Utility Rate
Schedule D-1 (Storm and Surface Water Drainage) for the purpose of meeting operating expenses
is statutorily exempt from California Environmental Quality Act (CEQA) review, pursuant to Public
Resources Code Section 15273(a), as a modification of a rate or charge for the purpose funding
capital projects and operating expenses necessary to maintain service within existing service
areas.
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ _____________________________
Assistant City Attorney City Manager
_____________________________
Director of Public Works
_____________________________
Director of Administrative Services
GENERAL STORM AND SURFACE WATER DRAINAGE
UTILITY RATE SCHEDULE D-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2019
Supersedes Sheet No.D-1-1 dated 7-1-2018 Sheet No. D-1-1
A. APPLICABILITY:
This schedule applies to all storm and surface water drainage service, excepting only those
users and to the extent that they are constitutionally exempt under the Constitution of the
State of California or who are determined to be exempt pursuant to Rule and Regulation 25. B. TERRITORY:
Inside the incorporated limits of the city of Palo Alto and land owned or leased by the city.
C. RATES: Per Month:
Storm Drainage Fee per Equivalent Residential Unit (ERU) ............................................ $14.68
D. SPECIAL NOTES:
1. An Equivalent Residential Unit (ERU) is the basic unit for computation of storm
drainage fees for residential and non-residential customers. All single-family residential
properties shall be billed the number of ERUs specified in the following table, based on
an analysis of the relationship between impervious area and lot size for Palo Alto
properties.
RESIDENTIAL RATES (Single-Family Residential Properties
PARCEL SIZE (sq.ft.) ERU
<6,000 sq.ft. 0.8 ERU
6,000 - 11,000 sq.ft. 1.0 ERU
>11,000 sq.ft. 1.4 ERU
All other properties will have ERU's computed to the nearest 1/10 ERU using the
following formula:
No. of ERU = Impervious Area (Sq. Ft.)
2,500 Sq. Ft. 2. For more details on the storm drainage fee, refer to Utilities Rule and Regulation 25.
{End}
City of Palo Alto (ID # 10198)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/16/2019
City of Palo Alto Page 1
Summary Title: Provide Input for TMA Strategic Plan
Title: Finance Committee Review and Input on the Palo Alto Transportation
Management Association (TMA) Strategic Plan and Funding Request
From: City Manager
Lead Department: Transportation
Recommendation
Staff recommends that the Finance Committee receive and provide input on a funding
request and strategic plan presentation by the Palo Alto Transportation Management
Association (TMA).
Background and Discussion
As part of its strategic planning efforts, the TMA seeks Finance Committee input on
Fiscal Year (FY) 2020 funding levels and potential outcomes of City investment in the
TMA. While a recent private donation has allowed the TMA to expand its activities to the
California Avenue Business District, City funds that support the TMA are dedicated
solely to Downtown per the funding agreement with the TMA. TMA representatives will
provide the Finance Committee with a presentation on the strategic plan update and
will receive Committee feedback on various funding scenarios and desired mode shift
ideas for Downtown. The letter from the TMA requesting to appear before the Finance
Committee is included as Attachment A.
TMA representatives brought the 2018 TMA Annual Report to Council on January 14,
2019. The staff report for that item can be found at this link: 2018 Palo Alto TMA
Annual Report (https://www.cityofpaloalto.org/civicax/filebank/documents/68450).
Timeline
The funding agreement between the City and the TMA lasts through FY 2020.
Resource Impact
A total of $480,000 has been budgeted for FY 2019. The revenue source is the
University Avenue Parking Fund. TMA funding for FY 2020 will be considered in the
annual budget process subject to Council approval.
City of Palo Alto Page 2
Policy Implications
The funding agreement between the City and the Palo Alto Transportation Management
Association (TMA) requires that the TMA strategic plan be regularly updated.
In addition, the transportation demand management (TDM) services provided by the
TMA are consistent with the following Comprehensive Plan policies and programs:
Policy T-1.1 Take a comprehensive approach to reducing single-occupant vehicle trips
by involving those who live, work and shop in Palo Alto in developing strategies that
make it easier and more convenient not to drive.
Policy T-1.2 Collaborate with Palo Alto employers and business owners to develop,
implement and expand comprehensive programs like the TMA to reduce single-
occupant vehicle commute trips, including through incentives.
Program T1.2.1 Create a long-term education program to change the travel habits of
residents, visitors, shoppers and workers by informing them about transportation
alternatives, incentives and impacts. Work with the PAUSD and with other public and
private interests, such as the Chamber of Commerce and Commuter Wallet partners, to
develop and implement this program.
Program T1.2.4 Evaluate the performance of pilot programs implemented by the Palo
Alto Transportation Management Association and pursue expansion from Downtown to
California Avenue and other areas of the city when appropriate.
Program T1.2.6 Pursue full participation of Palo Alto employers in the TMA.
Policy T-1.13 Encourage services that complement and enhance the transportation
options available to help Palo Alto residents and employees make first/last mile
connections and travel within the city for daily needs without using a single-occupancy
vehicle, including shuttle, taxi and ridesharing services.
Policy T-2.2 As part of the effort to reduce traffic congestion, seek ongoing funding and
engage employers to operate and expand TMAs to address transportation and parking
issues as appropriate in the City’s employment districts.
Program T2.2.1 Work in partnership with the Palo Alto TMA and Stanford University to
aggregate data and realize measurable reductions in single-occupant vehicle commuting
to and from Downtown and in the Stanford Research Park.
Policy T-5.5 Minimize the need for employees to park in and adjacent to commercial
centers, employment districts and schools.
City of Palo Alto Page 3
Program T7.1.1 Expand transportation opportunities for transit-dependent riders by
supporting discounts for taxi fares, rideshare services and transit, by coordinating
transit systems to be shared by multiple senior housing developments, by maintaining a
database of volunteer drivers and other transit options.
Environmental Review
This is a presentation by an outside organization, and no action will be taken, therefore
no environmental review is required.
Attachments:
• TMA Request to Present to Finance Committee
355 Alma Street, Palo Alto
March 14, 2019
To: City Council Finance Committee, via email to Sylvia Star-Lack
From: Palo Alto TMA: Steve Raney, Executive Director and Rob George, Board Chair
Subject: FY2020 PATMA budget request for April 2 Finance Committee meeting
Dear City Council Finance Committee,
At your April 2 meeting, Palo Alto TMA would welcome the opportunity to discuss in detail TMA
budget options for City of Palo Alto’s FY2020 budget. In FY2019, the City provided $480,000 to
the TMA. For FY2020, the TMA requests between “flat” and a 50% increase, $480,000 and
$720,000 respectively. We will explain the results, 200 to 337 cars removed, that we can deliver
at different funding levels.
Thanks in advance for your consideration
‐‐
Steve Raney
Palo Alto TMA, Mgmt by Altrans TMA Inc
355 Alma Street, Palo Alto, CA 94301
P: (650) 324-3127, www.paloaltotma.org