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Home My WebLink About1999-05-03 City Council (10)BUDGET ’99 - ’01 C ty City of Palo Alto Manager’s Report TO:HONORABLE CITY COUNCIL ATTENTION: FINANCE COMMITTEE FROM: DATE: CITY MANAGER MAY 3, 1999 DEPARTMENT:.UTILITIES CMR: 221:99 SUBJECT:PROPOSED WATER RATE INCREASE REPORT IN BRIEF This report requests Council approval of a water rate increase of approximately 15 percent effective July 1, 1999. This rate increase is requested to offset a projected increase in the wholesale cost of water from the San Francisco Water Department (SFWD) and an increase in Palo Alto’s capital improvement program. This rate proposal is contingent upon the San Francisco Board of Supervisors approving a wholesale water rate increase before July 1, 1999. Additionally, the proposed effective date of July 1, 1999 could be delayed depending on the status of conversion of the utilities billing system. CMR:221:99 Page I of 5 RECOMMENDATION Staff recommends that the City Council direct staff to prepare a resolution, in conjunction with adoption of the 1999-00 Budget, to increase Water Fund revenue approximately 15 percent, effective July 1, 1999. BACKGROUND A review of the FY 1999-00 Water Fund financial obligations indicates that current rate levels are insufficient to meet the Fund’s financial obligations. The Water Fund’s revenue requirement consists of a number of components including the cost to purchase water, operate and maintain a reliable system, finance an appropriate capital improvement program from current operating revenues, fund prudent reserve levels and provide a transfer to the General Fund. Any change in one of more of these components as well as a change in consumption can trigger a need for a rate adjustment. DISCUSSION A review of FY 1999-00 budget projections and sales forecast indicates the following: The San Francisco Water Department (SFWD) is planning an increase of approximately 30 percent in the wholesale cost of water. If the San Francisco Board of Supervisors does not approve the wholesale water increase, staffwill revise its proposed retail rate increase. Expenditures for Capital Improvement Program (CIP) projects are expected to rise due to the increase in the number of projects planned for this year. A sluggish water sales level has prevailed since the previous drought. During the- first half of FY 98-99, the actual sales level was 3 percent below projections. Staff does not anticipate any change in the sales level for 1999-00. If the sales level is projected to remain fiat in FY 2000-01, another rate increase may be required for FY 2000-01. Impact of the Proposed 15 Percent Rate Increase: The proposed 15 percent rate increase will be spread between customer classes with the objective of aligning Palo Alto’s water rate structures closer to rate structures charged in neighboring cities. To achieve this objective, water rate structures continue to be "flattened" to narrow the price differential between small and large users. However, an inverted rate structure for the residential class will continue to promote conservation and the efficient use of valuable resources. CMR:221:99 Page 2 of 5 The proposed rate increase has been spread to all water consumption levels. In addition, to help stabilize revenue and to align meter charges in Palo Alto with meter charges in effect in other nearby cities, meter charges for all customers were increased. Different percentages were applied to meter charges depending on meter sizes. Small meters, such as the 5/8 inch and the 1 inch were increased by 25 percent, while large meters such as the 6 inch and 10 inch meter charges were doubled. The resulting charges are similar to meter charges for neighboring cities (Table 1). A large differential has existed for many years due to Palo . Alto’s application of rate increases primarily to the consumption rates to promote conservation rather than to the fixed meter charge. Table 2 shows the impact of the proposed rates on customer bills based on different consumption levels. TABLE 1 COMPARISON OF PROPOSED METER CHARGES WITH OTHER CITIES 5/8 inch 2 inch 4 inch 6 inch $5.00 8.50 24.30 60.00 $5.00 26.50 75.00 166.50 $9.15 73.20 228.75 457.50 $3.00 17.85 48.80 97.75 $7.11 23.96 54.96 86.96 TABLE2 IMPACT OFPROPOSEDRATEINCREASEON CUSTOMERBILLS Small Residential 7 $16.63 $2.65 16% Average Residential 12 27.66 3.52 15% Residential 20 45.78 5.46 14% CMR:221:99 Page 3 of 5 Large Residential Small Commercial Medium Commercial Large Commercial 35 9 100 1200 80.05 25.70 246.95 2820.00 9.13 3.34 31.65 342.00 13% 15% 15% 14% Water Rate Comparison With Surrounding Cities: Attachment 1 compares proposed water bills with current water bills charged in Menlo Park, Redwood City, Mountain View, and Los Altos. Los Altos is being served by the California Water Service Company. A range of usage levels for residential and non-residential customers is shown. In Palo Alto, an average residential customer using 12 units per month will be paying approximately 19 percent more than residents in surrounding cities. Palo Alto commercial water bills under the proposed rates are approximately 20 percent higher than commercial bills in neighboring cities. Recent discussions with the staff in these other cities indicate that their retail water rates will be increased but the magnitude of their increases was not known at the time of writing this report. Thus, if these cities pass on the SFWD wholesale rate increase, the rate differential between Palo Alto and these cities will be less than indicated in the attachment. RESOURCE IMPACT The fiscal impact of the proposed 15 percent increasefor FY 1999-00 is approximately $1.747 million dollars. The Rate Stabilization Reserve in the Water Utility is projected to be above the minimum reserve guideline level but below target level. Depending on further possible actions by the SFWD in 2000, staff may propose another retail rate increase for FY 2000-01, if water sales levels remain unchanged. POLICY IMPLICATIONS Approval of this proposed rate increase does not represent a change to existing policies. TIMELINE The proposed effective date for this rate change is July 1, 1999 but may be impacted by the conversion of the existing billing system to the Customer Information System (CIS). Staff resources are prioritized for this important conversion. However, a possibility exists that this rate change will be delayed beyond July 1, 1999. In addition, this rate proposal could be CMR:221:99 Page 4 of 5 modified or eliminated pending approval by the SFWD to enact a wholesale water rate increase. ENVIRONMENTAL REVIEW Approval of the staff recommendation to increase water rates does not constitute a project under the California Environmental, Quality Act. ATTACHMENTS Rate Schedules W-l, W-4 Attachment 1- Water Rate Comparison PREPARED BY:Lucie Hirmina, Manager, Utilities Rates Randy Baldschun, Assistant Director of Utilities Administrative Services DEPARTMENT HEAD APPROVAL: Director of Utilities CITY MANAGER APPROVAL: CMR:221:99 Page 5 of 5 GENERAL RESIDENTIAL WATER SERVICE UTILITY RATE SCHEDULE W-1 A.APPLICABILITY: This schedule applies to all residential single family water service. B.TERRITORY: Inside and outside the incorporated limits of the City of Palo Alto and land owned or leased by the City. C. RATES: Service Charge: Per Meter Per Month For For For For For For For For For For 5/8-inch meter ...........................................$5.00 3/4 inch meter ............................................5.00 1 inch meter ............................................5.63 1 1/2 inch meter ..........................................6.50 2-inch meter ............................................8.50 3-inch meter ...........................................16.95 4-inch meter ............................................24.30 6-inch meter ...........................................60.00 8-inch meter ........ ....................................93.50 10-inch meter ..........................................116.00 Commodity Rate: (To be added Service Charge and applicable to all pressure zones.) Per Meter Per Meter Per Hundred Cubic Feet All Pressure Zones First Next Over 7 Ccf .............................................$1.66 7 Ccf ..............................................2.21 14 Ccf .............................................2.28 Temporary unmetered service to residential subdivision developers, per connection .........................$5.00 Issued by the City Council Supersedes Sheet No. W-1-1 dated 7-1-96 CITY OF PALO ALTO UTILITIES Effective 7-1-99 Sheet No. W-1-1 A. APPLICABILITY: GENERAL NON-RESIDENTIAL WATER SERVICE UTILITY RATE SCHEDULE W-4 This schedule applies to non-residential water service in the City of Palo Alto and its distribution area. This schedule is also applicable to multi-family residential customers served through a master meter. B. TERRITORY: Ca Inside the incorporated limits of the City of Palo Alto, on land owned or leased by the City, and any other land serviced by the Palo Alto Water Utility. RATES: Service Charge Per Meter Per Month For For For For 1 1/2 inch meter ...........................................6.50 5/8-inch meter ...........................................$5.00 3/4-inch meter ............................................5.00 1-inch meter ............................................5.63 For 2 inch meter ............................................8.50 For 3-inch meter ...........................................16.95 For 4-inch meter ...........................................24.30 For 6-inch meter ...........................................60.00 For 8-inch meter ...........................................93.50 For 10-inch meter ..........................................116.00 Commodity Rates: (to be added to Service Charge) Per Meter Per Month Per Hundred Cubic Feet All Pressure Zones Per Ccf .................................................$2.30 Issued by the City Council Supersedes Sheet No. Wo4-1 dated 7-1-96 CITY OF PALO ALTOIITII ITI ~.q Effective 7-1-99 Sheet No. W=4-1 Residential Water Charges ATTACHMENT 1 7 ccf 12 ccf 35 ccf $100.00- $80.00- $60.00- $40.00- $20.00- []Los Altos []Menlo Pk. []Mt. View []P.A. []RWC $0.00 Medium,Commercial Water Char_~es $317.25 $300.00- $250.00- $200.00- $150.00- $100.00- $50.00 $171.17 $230.50 $211.00 $246,96 [] Los Altos [] Menlo Pk. [] Mt. View [] P.A. mRWC $0.00 1 O0 ccf Usage (ccf/month)