HomeMy WebLinkAbout2021-04-20 Finance Committee Agenda Packet Finance Committee
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Tuesday, April 20, 2021
Special Meeting
6:00 PM
***BY VIRTUAL TELECONFERENCE ONLY***
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Pursuant to the provisions of California Governor’s Executive Order N-29-20, issued on March 17,
2020, to prevent the spread of Covid-19, this meeting will be held by virtual teleconference only,
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PUBLIC COMMENT
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this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers/Community Meeting Room, and deliver it to the Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Committee, but it is very helpful. Public
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 (UAC) Recommendation
That the Finance Committee Recommend the City Council Decline to
Adopt the Energy Storage System Targets and Receive the 2020
Energy Storage Report
2.Staff Recommendation That the Finance Committee Recommend the
City Council Adopt a Resolution Amending Utility Rate Schedule D-1
(Storm and Surface Water Drainage) Reflecting a 2.0 Percent
Consumer Price Index Rate Increase to $15.34 per Month per
Equivalent Residential Unit for Fiscal Year 2022
3.Regional Water Quality Control Plant Wastewater Treatment Fund
Capital Program Update
Future Meetings and Agendas
Adjournment
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Presentation
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2 April 20, 2021
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION ON THE CITY’S WEBSITE
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Meeting ID: 992-2730-7235 Phone No: 1 (669) 900-6833
City of Palo Alto (ID # 12142)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/20/2021
City of Palo Alto Page 1
Summary Title: Energy Storage AB 2514 Report
Title: Staff and the Utilities Advisory Commission (UAC) Recommendation
That the Finance Committee Recommend the Council Decline to Adopt the
Energy Storage System Targets and Receive the 2020 Energy Storage Rep ort
From: City Manager
Lead Department: Utilities
RECOMMENDATION
Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee
recommend that Council decline to adopt energy storage system targets under California
Assembly Bill (AB) 2514 at this time, and that Council receive the 2020 City of Palo Alto Utilities
Energy Storage Report. The CPAU 2020 Energy Storage Report (linked here)1 was also
submitted to the California Energy Commission (CEC) in December of 2020.
EXECUTIVE SUMMARY
California law AB 2514 (2010, as amended) requires all California publicly owned utilities to
investigate whether energy storage systems are cost effective every three years (Public Utilities
Code § 2836(b)). Most recently in 2017 City of Palo Alto Utilities (CPAU) staff examined energy
storage systems,2 determined that they were not cost effective for CPAU, and therefore
declined to set energy storage targets.
To investigate if energy storage located in the City of Palo Alto was financially beneficial to all
customers, CPAU built an economic battery dispatch model and worked on a joint analysis with
the Smart Energy Power Association (SEPA) with other publicly owned utilities through the
Northern California Power Agency (NCPA) and Sacramento Municipal Utility District (SMUD).
The CPAU and SEPA analyses both suggest that for Palo Alto customer-sited energy storage is
still not cost-effective from a societal perspective (for the utility and customers in aggregate).
Since neither energy storage within the City nor on the transmission system was found to be
cost effective for the utility or its customers as a whole, staff recommends declining to set
1 https://efiling.energy.ca.gov/GetDocument.aspx?tn=236202-1&DocumentContentId=69171
2 https://www.cityofpaloalto.org/civicax/filebank/documents/57435
CITY OF
PALO
ALTO
City of Palo Alto Page 2
energy storage system targets at this time.3 Instead CPAU will continue to monitor this rapidly
maturing space and continue looking for specific projects which by virtue of their location could
provide extraordinary resiliency, lower carbon emissions, and/or lower distribution system
costs. Staff is also currently evaluating multiple proposals for utility-scale storage co-located
with renewable generation and will move forward with competitive projects that complement
CPAU’s existing supply portfolio.
In December of 2020 UAC unanimously accepted the staff recommendation to not set energy
storage system targets (Staff Report ID #113574). The UAC discussion focused on:
1. Whether utility-scale storage was cost-effective even if small storage was not. Staff
responded that CPAU is currently evaluating competitive storage proposals at utility-
scale renewable electricity generation sites.
2. What carbon price would be required to make customer-sited energy storage systems
cost-effective. Staff responded that there was relatively little carbon saved per dollar in
the customer-sited storage sites since installed battery costs are still high and there are
losses in the battery. A carbon price higher than $200 per metric ton of carbon dioxide
equivalent (MT CO2-e) would likely be needed based on today’s installed battery costs
and efficiencies for the residential scenarios examined. The market price for carbon
reductions in the electric system,5 which would be the appropriate value for evaluating
energy storage, is estimated to be approximately $30 to $60 per MT CO2-e based on the
current price of renewable energy in California.
3. How the utility could send appropriate price signals to customers with energy storage to
ensure they operated it in a way that was beneficial to the community, utility, and
electric grid as a whole. Staff responded that sending the appropriate price signal is
exactly what smart meters and smart devices are meant for once those are installed.
CPAU submitted the “City of Palo Alto Utilities 2020 Energy Storage Report”6 to the CEC in
December 2020. The 2020 report includes:
1) An overview of customer adoption of Energy Storage Systems (ESS) in Palo Alto;
2) Analysis of the cost-effectiveness of customer-sited ESS within Palo Alto; and
3) Next steps for ESS both within Palo Alto and sited at utility-scale renewable generation.
BACKGROUND
The deployment of ESS in the California electricity sector has grown rapidly in recent years due
to declining cost, regulatory mandates for investor-owned utilities (IOUs) to procure and/or
provide rebates for customer sited ESSs, availability of reliable system manufacturers/installers,
3 Under state law (PUC 2836(b)), local publicly owned electric utilities like CPAU must analyze the merits of ESS investments
periodically and set goals if such investments are cost effective.
4 http://cityofpaloalto.org/civicax/filebank/documents/79337
5 The market price for carbon is lower than the long-term carbon price needed to achieve global emissions reductions to curtail
global warming. The latter is significantly higher and includes more expensive emissions reductions not currently being widely
implemented. However, because energy storage competes with renewable energy to curtail electricity grid emissions, the
market price for carbon is a more appropriate measure.
6 https://efiling.energy.ca.gov/GetDocument.aspx?tn=236202-1&DocumentContentId=69171
City of Palo Alto Page 3
federal tax credits, and increased customer awareness of the benefits ESS7. IOUs have been
authorized to collect over $1B from their customers to be spent on the state-mandated storage
program for IOU territory, which is called the Self Generation Incentive Program (SGIP).
On a very basic level, energy storage systems can be used to allow energy generated at one
time to be utilized later. This opens up a number of possible value streams as shown in the
CPAU 2020 Energy Storage Report.8 This list of value streams is consistent with other analyses
of value streams, such as those shown in the 2017 Rocky Mountain Institute Storage Report.9
Despite energy storage systems being able to provide multiple values, the actual installation of
batteries in California has not always been economically or environmentally beneficial. A recent
evaluation10 of the Self Generation Incentive Program found that on average commercial
storage projects without performance-based incentives increased carbon emissions. This was
primarily11 due to commercial customers using their batteries during the times of cleanest
electricity and charging their batteries during the times of dirtier electricity (which is typical for
maximizing savings from commercial demand charges).
DISCUSSION
The CPAU and SEPA analyses both suggest that for Palo Alto, customer-sited energy storage is
still not cost-effective from a societal perspective (for the utility and customers in aggregate).
Details on the analysis and results are in the CPAU 2020 Energy Storage Report.
Since neither energy storage within the City nor on transmission system were found to be cost
effective for the utility or its customers as a whole, CPAU will not be setting storage goals at this
time. Instead CPAU will continue to facilitate customer-funded installations through education
and group buy programs, and monitor this rapidly maturing space and continue looking for
specific projects which by their location could provide extraordinary resiliency, lower carbon
emissions, and/or lower distribution system costs. Staff is also currently evaluating multiple
proposals for utility-scale storage located with renewable generation and will move forward
with competitive projects that complement our existing supply portfolio.
Areas of Unique Value of Energy Storage to CPAU
7 It is estimated battery costs have declined by 50% over the past 3 years, with the corresponding battery ESS cost declining by
30%. Under California Public Utilities Commission (CPUC) mandates, the IOU/CCAs were required to contract for 2,485 MW of
ESS by 2020. In addition, CPUC requires IOUs to provide cash rebates to customers installing ESS under the Self-Generation
Incentive Program (SGIP). The increased wildfire risks and associated public-safety-power-shutoff measures have increased the
customer’s need for back-up power sources, which ESS are well suited to provide.
8 https://efiling.energy.ca.gov/GetDocument.aspx?tn=236202-1&DocumentContentId=69171
9 https://rmi.org/wp-content/uploads/2017/03/RMI-TheEconomicsOfBatteryEnergyStorage-FullReport-FINAL.pdf
10https://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/Utilities_and_Industries/Energy/Energy_Programs/D
emand_Side_Management/Customer_Gen_and_Storage/2017_SGIP_AES_Impact_Evaluation.pdf
11 10% of the emissions increase was due to parasitic losses within the battery, but 90% of the emissions increase was due to
the commercial customers operating the batteries to lower their utility demand charges rather than lower carbon or wholesale
energy costs.
City of Palo Alto Page 4
Although the current analyses suggest energy storage within CPAU territory is not financially
beneficial to all customers, there are a number of factors which could change this in the future.
These factors do not currently outweigh the costs of storage, but there is the potential for this
to change in the future based on: higher future resiliency value to community, statewide
energy supply shortages or interruptions, different structure proposed for transmission
charges, and rapid electrification of particular residential neighborhoods.
Factors which would Improve Future Energy Storage Value to CPAU & Customers
1. Increased community value of local resiliency: The recent electricity supply shortages at the
state level and potential future disruptions from large-scale regional wildfires could lead the
community to elect to pay a premium for local electricity storage.
2. Insufficient distribution system capacity in residential areas: Energy storage could help
distribution system costs, in particular for neighborhoods rapidly switching to all electric
homes which also have a high penetration of electric vehicles. Where there is not currently
enough distribution system capacity, batteries may have the potential to be leveraged as
“non-wires solutions” if exercised appropriately.
3. Increased wholesale value of flexible resources: The recent supply shortages at the state
level could indicate that flexible electricity generation is currently underpriced and
undervalued. Flexible resources such as batteries could be worth more in the future if this
trend holds, especially as more natural gas generation is retired in California.
4. Reconfiguration of transmission charges: The primary transmission operator of California is
considering redistributing transmission charges in a way which would make flattening
electricity demand more valuable. This would increase the value of storage as one way to
flatten electricity demands, at a City level.
5. CPAU’s Hourly Carbon Neutral Standard: In August 2020 CPAU adopted an hourly carbon
neutral accounting standard. This will ensure that the technologies such as energy storage
which can store the lowest carbon hours and then help the grid during the highest carbon
hours are properly valued when making investment decisions.
6. Solar Net Energy Metering Rate: Since Palo Alto compensates new solar customers at the
value to the utility for the solar exported to the grid, if the value of electricity continues to
decline during the day, the value of local solar exported to the grid may decline as well. If
the difference between the retail rate of electricity and the value of local solar electricity
exported to the grid increases in the future, this will increase the value of local energy
storage to customers.
Key Differences in Energy Storage Value between CPAU and PG&E
City of Palo Alto Page 5
Since two separate analyses suggest that energy storage is not currently financially beneficial to
CPAU and its customers, it is important to understand why it is considered beneficial for the
investor-owned utilities (IOUs) which are required to invest in and subsidize energy storage for
their customers. Some of the key differences between CPAU and the IOUs such as PG&E which
are required to invest in storage systems via the SGIP are shown below.
1. Distribution System Deferral: Lower value for CPAU than PG&E.
a. The City’s electric distribution system is not currently constrained since electricity
sales are 30% below historical peak due to aggressive efficiency, high customer
adoption of solar, departure of industrial loads, lack of other load growth, and lower
summertime temperatures.
b. Staff will continue to investigate specific locations on the residential side of the
distribution system for opportunities for distribution deferral, especially in
neighborhoods switching to all electric homes and with high penetration of electric
vehicles.
2. Back-up Power for Outages & Power Safety Power Shutoff Events: Lower value for CPAU
than PG&E.
a. CPAU’s territory is mostly urban, non-mountainous terrain, lower fire-risk and fewer
distribution miles per customer, therefore limited customers are affected by PSPS.
CPAU also has relatively few outages.
3. Time-of-Use (TOU) Rate Bill Management: Lower value for CPAU than PG&E.
a. There is no Residential TOU rate as CPAU does not yet have smart meters installed
and therefore cannot distinguish when during the day electricity is being used. Price
differentials for TOU pilot rates in Palo Alto have historically been small, though this
may have changed marginally in recent years.
i. CPAU expects to have smart meters deployed by 2024.
ii. Staff is exploring ways to control smart electric vehicle charging, smart
building management systems, and smart thermostats to leverage flexible
demand response programs. Connected batteries would be eligible in any
pilot.
iii. TOU rate design will be an important topic in a future electric cost of service
study.
b. The price differential in the current CPAU commercial TOU rate is small.
i. Staff will be evaluating this in the next electric cost of service study as well.
4. Utility-scale Transmission-Connected Energy Storage: Lower value for CPAU than PG&E.
a. CPAU owns highly flexible load-following hydroelectricity, which provides ~15% of its
electric supply.
b. CPAU has already entered into long-term contracts for carbon-free resources that
will supply ~110% of its electricity needs through 2024. If CPAU were currently
City of Palo Alto Page 6
contracting for new renewable resources, the economics of bundling in utility scale
storage during construction would be more advantageous.
Comparison of Planned Storage Expenditures between CPAU and PG&E Territory
A comparison between CPAU and the surrounding IOU PG&E Self Generation Incentive Program
(SGIP) on the basis of authorized budget and on key aspects are below.
Customer-sited storage:
• 87% of the total PG&E SGIP funding dedicated to customer-sited energy storage is
reserved for high fire risk customers, those who have had multiple PSPS events in the
last two to three years, and or low-income customers. CPAU has very few customers
with high fire risk and has relatively few customers who are both low income and have
high fire risk.
• A comparison of the remainder of the dedicated SGIP funding12 shows that:
o An equivalent pro rata amount of funding dedicated to customer-sited energy
storage would be $500k in total for CPAU, which would roughly translate to 220
kW / 590 kWh of customer-sited batteries installed in CPAU territory.
o As of 2020, Palo Alto already has 240 kW / 648 kWh in residential batteries
installed and 1,000 kW / 2,020 kWh commercial customer-sited batteries.
• For customer-sited energy storage, CPAU customers appear to be investments on their
own, which could call into question whether utility intervention to further stimulate
demand is required in this market.
Large-scale or transmission grid-tied:
• An equivalent amount of funding allocated for transmission/wholesale interconnected
storage would be about $1.3M and would roughly translate into 1.1 MW / 4.4 MWh of
transmission grid-tied batteries installed.
• Palo Alto is evaluating competitive transmission grid-tied projects in the 5 MW / 20
MWh range.
PUBLIC ENGAGEMENT
Resiliency, lowering costs, and lower carbon emissions are core values of CPAU. CPAU will
engage the public as needed on the topic of energy storage in the S/CAP process and as part of
any other local discussions on resiliency as they relate to energy storage.
NEXT STEPS
After the Finance Committee, the recommendation will be presented to Council. If Council
accepts the staff recommendation CPAU will not set any energy storage system targets at this
time. Staff is evaluating transmission grid-tied storage located at utility-scale renewables. CPAU
will also consider utility scale and behind-the-meter storage as supply portfolio options in the
12 This includes funds not already made available, but earmarked for SGIP through authorized collections.
City of Palo Alto Page 7
2024 Electric Integrated Resource Plan. Staff will also continue evaluating specific local projects
which due to their location could provide extraordinary resiliency, lower carbon emissions, or
distribution system value.
There are six key areas that staff will continue to explore as these will have the highest value to
CPAU and its customers:
1. Examine using flexible loads to avoid or minimize future rotating outages: Flexible loads
have many of the benefits of energy storage but are much less expensive than purchasing
standalone batteries or other energy storage. The recent electricity supply shortages at the
state level indicate that flexible electricity loads such as storage, flexible EV charging,
flexible building management systems, smart thermostats and smart heat-pump water
heaters may currently be undervalued. Staff will be examining ways to use flexible
electricity loads to minimize the risk and severity of rotating outages in the future. This
could be configured as an Automatic Demand Response program or a Virtual Power Plant. It
is important to note that flexible loads like these programs reduce the likelihood and
magnitude of future rotating outages, but if Palo Alto is called upon to shed load for the
reliability of the statewide grid, CPAU will have to initiate the outages mandated.
2. Examine investing in flexible electrification to create distributed thermal energy storage:
Electrification of space and water heating has the potential to decrease carbon emissions
even more if these systems use electricity during the cleanest hours of the day and coast
through the highest emission hours of the day, since heat-pump water heaters and
buildings can pre-heat when residents are not home and then maintaining their
temperatures with excellent insulation. CPAU is already incentivizing electrification of space
and water heating and could add extra incentives to those systems which can be dispatched
to follow the cleanest hours on the grid.
3. Evaluate local energy storage at existing local solar for resiliency: Explore partnering with
emergency services to add storage to existing local solar sites at City facilities. Storage could
be used to mitigate the risk and severity of potential supply shortages in addition to
catastrophic emergencies. The combination of solar plus storage may also be able to
contribute to resiliency needs in a highly electrified environment, such as would result if the
City’s Sustainability and Climate Action Plan (S/CAP) goals were achieved.
4. Continue to evaluate competitive proposals for energy storage at utility-scale renewable
generation: CPAU is currently evaluating multiple proposals for energy storage sited at
utility-scale renewable generation and will move forward with any proposals that are found
to be economic and a good fit for the electric supply portfolio.
5. Continue to evaluate financial and physical integration of storage and flexible loads: CPAU is
evaluating both the physical impacts of energy storage and flexible loads on utility
distribution system operations as well as the costs and benefits to the utility’s financial
position and other ratepayers. In particular, as the industry evolves, staff will evaluate the
City of Palo Alto Page 8
impact of storage and flexible loads on cost-of-service rate design and make adjustments if
needed.
6. Evaluate the potential resiliency needs of an electrified community (one in which the
Sustainability and Climate Action Plan goals are fully implemented) and the role energy
storage may need to play: CPAU continues to evaluate current and future resiliency needs,
including the potential role of energy storage.
RESOURCE IMPACTS
The pace of the projects outlined above will be dictated by staffing availability as Utilities
continues to prioritize safety, reliability and sustainability. The staff and resources needed if we
were to decide to launch a pilot Automatic Demand Response program would likely be at least
0.5 FTE and $100k for the first year. Staffing and resources would need to be identified through
a reprioritization of existing staff and resources or potentially other contracting arrangements.
POLICY IMPLICATIONS
Energy storage is a key technology to enable increased penetration of renewable energy in
California and, when installed in customer premises, reduce their utility use. These two aspects
conform to Utilities Strategic Plan objectives and Council policy on environmentally sustainable
development.
ENVIRONMENTAL REVIEW
Council acceptance of staff and UAC’s recommendation to decline to adopt energy storage
system targets under California Assembly Bill (AB) 2514 at this time, and that Council receive
the 2020 City of Palo Alto Utilities Energy Storage report, is not a project requiring
environmental review for the purpose of the California Environmental Quality Act, because
these are administrative activities of government that will not result in direct or indirect
physical changes in the environment (Cal. Code Regs. Tit. 14 Sec. 15378(b)(5)).
City of Palo Alto (ID # 12169)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/20/2021
City of Palo Alto Page 1
Summary Title: Storm Water Management Fee Increase for FY2022
Title: Adoption of a Resolution Amending Utility Rate Schedule D-1 (Storm
and Surface Water Drainage) Reflecting a 2.0 Percent Consumer Price Index
Rate Increase to $15.34 Per Month Per Equivalent Residential Unit for Fiscal
Year 2022
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends that the Finance Committee recommend that the City Council adopt the
attached resolution (Attachment A) amending Utility Rate Schedule D-1 (Storm and Surface
Water Drainage), to implement a 2.0% rate increase for the Storm Water Management Fee
consistent with the applicable Consumer Price Index, increasing the monthly charge per
Equivalent Residential Unit (ERU) by $0.30, from $15.04 to $15.34 for Fiscal Year 2022.
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 of the 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
consider raising 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
City of Palo Alto Page 2
On June 22, 2020, Council adopted a resolution to implement the Storm Water Management
Fee to be $15.04 per month per ERU, effective July 1, 2020; this reflected a 2.5% from prior
year rates.
Discussion
Staff has determined from Bureau of Labor Statistics records that the local CPI for the San
Francisco-Oakland-San Jose CMSA increased by 2.0% between December 2019 and December
2020. As the CPI rate is substantially lower than 6%, consistent with the ballot measure, staff
recommends that the Storm Water Management Fee be increased by the CPI in order to keep
fund revenues consistent with general cost increases and to provide sufficient funds for
planned storm water management capital and operating expenditures, including thirteen
capital improvement projects identified in the 2017 Storm Water Management Fee 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 $15.34 per month per ERU. Single-
family residential properties are billed a monthly amount based on parcel size, in accordance
with the following table:
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
Commercial, industrial, institutional, and multi-family residential properties are billed monthly
at 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, 2021.
Resource Impact
The 2.0 percent increase in rates is expected to increase annual revenue to the Stormwater
Management Fund by approximately $152,000 and, if recommended, will be reflected in the
Public Works Department Stormwater Management Fund Fiscal Year 2022 Operating Budget
revenue.
Stakeholder Engagement
Staff presented the 2.0% rate increase to the Storm Water Management Oversight Committee
on April 1, 2021 (Agenda and Meeting Packet) as a preliminary proposed base budget item for
the development of the Fiscal Year 2022 Stormwater Management Fund Operating Budget. The
Committee consists of seven members from the public and was established to review proposed
stormwater management capital improvements and operating programs to be funded from the
Stormwater Maangement Fees and to monitor expenditures of the fund.
City of Palo Alto Page 3
Environmental Review
The Finance Committee’s recommendation to Council to consider adopting this change to the
Storm Water Management Fee 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).
Attachments:
• Resolution Amending Utility Rate Schedule D-1 (Storm and Surface Water Drainage)
Attachment A
6055501 1
NOT YET APPROVED
Resolution No. _______
Resolution of the Council of the City of Palo Alto Amending Utility Rate
Schedule D-1 (Storm and Surface Water Drainage) Increasing the Storm
Water Management Fee by 2.0 Percent Per Month Per Equivalent
Residential Unit for Fiscal Year 2022
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, 2021.
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.
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Attachment A
6055501 2
SECTION 4. The Council finds that the adoption of this resolution changing the Storm
Water Management Fee 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:
___________________________ _____________________________
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 7-1-2021
Supersedes Sheet No.D-1-1 dated 7-1-2020 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) ............................................ $15.34
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}
0
CITY OF
PALO
ALTO
City of Palo Alto (ID # 12170)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/20/2021
City of Palo Alto Page 1
Summary Title: Regional Water Quality Control Plant Wastewater Treatment
Fund Capital Program Update
Title: Regional Water Quality Control Plant Wastewater Treatment Fund
Capital Program Update
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends that the Finance Committee review the near-term capital improvement
program for the Regional Water Quality Control Plant (RWQCP) Wastewater Treatment Fund.
Background
The RWQCP, originally constructed in 1934, has undergone several expansions and upgrades.
The RWQCP is now an advanced (tertiary treatment) facility that provides treatment and
disposal of wastewater for Palo Alto, Mountain View, Los Altos, Los Altos Hills, East Palo Alto
Sanitary District, and Stanford University. The RWQCP has a capital improvement program (CIP)
to re-invest in or replace aging infrastructure. The Wastewater Treatment Fund infrastructure is
owned by Palo Alto and supported by its partner agencies. The Plant’s core infrastructure was
built in 1972 with tanks, pumps, large pipes, industrial buildings, acquisition of additional land,
and complex mechanical and electrical systems. The 1972 Plant had major capital additions in
1980 and 1988. From 1999 to the present, staff has managed an ongoing $1.9 to $3.4 million
annual CIP reinvestment in aging infrastructure funded on a recurring basis through the partner
agreements; the recurring capital budget is increased by an annual inflation index first
approved by partner agencies in 1998. Key projects are listed below with major debt
financed/grant funded projects in 1972, 1980, 1984, 1988, 1999, 2009, 2010, and 2019. Debt
service for larger projects financed through loans or bonds is provided through amendments to
the partner agreements. Typical useful life of Plant infrastructure is 30 years for mechanical and
electrical gear with most of the Plant at or beyond its useful life. The capital program is a critical
commitment to replace and improve aging systems for reliable wastewater treatment.
CITY OF
PALO
ALTO
City of Palo Alto Page 2
Table 1: Completed Capital Work 1972 – 2021
Project Funding
Expense
(million $)
1972 Regional Water Quality Control Plant Federal Grants/Bonds $11.2
1980 Advanced Wastewater Treatment Facility Federal Grants/Operating $10.3
1984 Dewatering and Cogeneration Project Utility Revenue Bond $1.1
1988 Capacity Expansion Project Utility Revenue Bond $9.7
1984 – 1998 miscellaneous projects (note 1, 2) Recurring Capital Budget $7.8
1999 – 2021 miscellaneous projects (note 1, 3) Recurring Capital Budget $50.5
1999 Sludge Incinerator Rehabilitation Utility Revenue Bond $7.5
2009 Recycled Water Pipeline California SRF Loan (note 4) $19.4
2010 Ultraviolet Disinfection Facility California SRF Loan $8.6
2019 Sludge Dewatering/Truck Loadout Facility California SRF Loan $29.2
Subtotal $155
Note 1: Per audited financial statements
Note 2: CIP could not exceed 2% of total capital investment of Plant 10/10/68 to 6/30/99
Note 3: Recurring CIP allowance of $1.9 million established in base year FY99; annual consumer
price index (CPI) increase of recurring amount increased to $3.3 million in FY21
Note 4: State Water Resources Control Board State Revolving Fund (SRF) Program
Discussion
The RWQCP’s Long Range Facilities Plan (LRFP) identifies additional projects that are needed to
rebuild and revitalize the facility, with recommended projects expected to cost between $315
to $392 million (2015 dollars). The LRFP was accepted by the City Council on July 2, 2012 (SR
#2914). Implementation of the LRFP is managed by a CIP team of staff engineers, support staff,
and a program manager (Woodard & Curran) (see SR #11612). Near-term project work
commenced and is listed below with latest project costs and status. Work to reline 2,364 linear
feet of the more deteriorated section of the 72-inch joint intercepting sewer is not listed but in
early stages of development. Longer-term work from the LRFP that is not listed below includes:
(a) complete relining of the remaining 6,636 linear feet of the less deteriorated sections
of the 72-inch joint intercepting sewer,
(b) a dual media filter facility overhaul,
(c) recycled water filters, storage, and booster station overhaul, and
(d) potential ozonation or other advanced facilities for advanced treatment of toxic
pollutants.
City of Palo Alto Page 3
Table 2: Current Capital Work In-Progress
Project Status Expected Funding
Expense
(million $)
Primary Sedimentation Tanks
Rehabilitation and Equipment Room
Electrical Upgrade (WQ-14003)
Awarding
Construction SRF Loan $19.4
Outfall Line Construction (WQ-
19000)
100% Design /
Re-evaluation for
Future Levee Height
SRF Loan $11.1
Secondary Treatment Upgrades
(WQ-19001)
60% Design
Complete
SRF Loan /
USEPA Loan $146.0
Advanced Water Purification System
(WQ-19003) Design Started
Valley
Water/Mountain
View/Palo Alto
$20.0
New Laboratory and Environmental
Services Building (WQ-14002) Advanced Planning Revenue Bond $57.0
Headworks Facility Replacement
(WQ-16002) Budgeted SRF Loan $48.0
Projects in Progress (WQ-19002) Varies Operating Capital
Budget $8.3
Subtotal $310.0
The RWQCP capital program requires both the recurring CIP funding as well as debt-financed
instruments for larger projects. The 10-year financial forecast is shown below. Significant new
annual debt service (for the above listed projects) will commence at various times over the next
ten years as new capital improvements are realized (see Timeline section below for details of
debt timing).
City of Palo Alto Page 4
The City Council, on June 22, 2020, adopted the City’s Capital Budget (CMR #11330), which
included the Wastewater Treatment Fund’s multi-year capital expenditure plan. Included in this
plan were capital improvement projects consistent with the RWQCP’s LRFP. The projects
include:
1) WQ-14003 Primary Sedimentation Tank Rehabilitation and Equipment Room
Electrical Upgrades;
2) WQ-19000 Outfall Line Construction;
3) WQ-14002 New Laboratory and Environmental Services Building;
4) WQ-19001 Secondary Treatment Upgrades;
5) WQ-19003 Advanced Water Purification System;
6) WQ-19002 Plant Repair, Retrofit, and Equipment Replacement; and
7) WQ-16002 Headworks Facility Replacement.
Estimated Expenses FY2021-2031
$60,000,000
$55,000,000
$50,000,000
$45,000,000
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$-
FY 2021 FY 2022 FY 2023
= Debt to Annual Expenditure Budget
-Existing Debt Service
-Treatment Operations & Existing CIPs
Projection+ Planned CIP
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030
= Overall Percentage Change -Planned Debt Service
-MinorCIP -Treatment Operations
-Treatment Operations & Planned CIPs
FY 2031
City of Palo Alto Page 5
Recent project status is included below.
WQ-14003 Primary Sedimentation Tank Rehabilitation & Equipment Room Electrical Upgrades
The Project rehabilitates the four concrete primary sedimentation tanks and their ancillary
systems and extends their useful life at least another 30 years. The scope of work includes the
following for all four tanks: repair cracked and spalling concrete on the tank’s floors, walls, and
covers; apply a new protective coating to the tank walls, ceilings, and covers; upgrade primary
sedimentation tank area lighting with LED light fixtures; replace hatch and drainage covers on
the top deck; install a flight and chain monitoring system for the primary sludge raking
mechanisms; replace effluent flow diversion gates; and replace aging motor control centers,
(i.e., electrical power distribution equipment) relocating them to a pre-engineered building
adjacent to the sludge pump room.
The design consultant is Kennedy / Jenks Consultants. In May 2021, staff will bring to Council a
recommendation for approval of the project’s construction contract and approval of a
resolution for the SRF loan to cover the design and construction costs of the project.
Additionally, Council will be asked to approve amendments to three partner agreements
covering loan repayment with Mountain View, Los Altos, Stanford, and the East Palo Alto
Sanitary District. Construction is expected to be completed in December 2023.
WQ-19000 Outfall Line Construction
The RWQCP has one 54-inch diameter outfall line to convey treated effluent from the RWQCP
to the Bay, traversing the Palo Alto Airport property. The existing outfall pipe was installed in
1964. The LRFP identified the need for a new outfall due to insufficient capacity in the existing
outfall due to sea level rise impacts, high king tides, wet-weather events, and generally
insufficient flow capacity in the existing pipe. Design, permitting, and California Environmental
Quality Act (CEQA) work is complete for a new 63-inch pipeline to supplement the capacity of
the rehabilitated 54-inch pipeline. However, the project is currently delayed.
The US Army Corp of Engineers has developed draft feasibility studies for a levee project
surrounding the Bay and the low-lying areas of Palo Alto. These draft studies highlight impacts
on the future alignment and height of the levee around the Palo Alto Airport. Future levee
height changes (e.g., potentially two feet or higher) impact the departure and landing angles
used to determine aeronautical safety. A potential runway shift to ensure safe takeoff and
landings might be triggered by a future levee height increase; the change impacts the depth
and top soil height of the new outfall pipeline, requiring it potentially to be deeper than it is
currently designed.
A re-evaluation of the new outfall depth will be made by the City’s consultant (Kennedy / Jenks
Consultants) after gathering technical information. After the re-evaluation of outfall pipeline
depth, it may be necessary to return to Council for a design fee amendment with the consultant
Kennedy / Jenks Consultants. The re-evaluation and potential redesign of the outfall pipe is
City of Palo Alto Page 6
likely to add 12 to 18 months to the project schedule. An SRF loan is currently approved by the
State for this project, however due to the delay, this financing may need to be increased (e.g.,
for construction cost escalation, a deeper pipeline, etc.). The project remains on the funding list
and will remain eligible for financing if progress continues on the potential redesign, however a
new state credit review may be required.
WQ-14002 New Laboratory and Environmental Services Building
The scope per the LRFP for this project was to take staff and equipment from existing RWQCP
buildings and move them into a new Operations Center for technical, lab, pretreatment, and
operations staff. An architect was hired in early 2019 to complete a full design for an
Operations Center. However, in 2019, an early construction cost estimate for total project cost
was $57 million, which was much higher than anticipated in the LRFP. The ancillary design fee
increase request from the architect and the substantially increased overall total project cost led
staff to release the architect from the contract at a point where the work completed was still
useful for later planning and design efforts. The restart, while unfortunate, has enabled staff to
strategize some advanced planning opportunities before restarting a full design approach for
future staff buildings. This re-evaluation will be an advanced planning analysis and include
remodeling current operations and/or administration buildings, procurement possibilities for a
supplemental real estate, office lease options, as well as a full design by an architect for new
building including (a) a lab-only building, (b) a technical services building for lab, pretreatment,
and technical staff, or (c) an operations center for lab, pretreatment, technical, and operational
staff. Staff is evaluating these options in the context of work condition changes in light of the
current pandemic as well as the most economical and long term fiscally prudent investments.
WQ-19001 Secondary Treatment Upgrades
Upgrading the secondary treatment process (biological process) to a process that removes
harmful nitrogen will be accomplished by creating anoxic and aerated zones in existing aeration
basins. The project will improve final water quality, ensure the Plant continues to meet effluent
discharge permit limits, and allow for ultimate decommissioning of the aging biotrickling filters
and other aging equipment. The project includes new air blowers; air diffusers in aerobic zones;
anoxic zone pulsed air equipment; membrane aerated biofilm reactor cassettes; slide and sluice
gates and valves to isolate and throttle flows; instruments such as flowmeters and oxygen
probes; power distribution equipment including standby diesel generator and power transfer
equipment; and return activated sludge piping and pumping.
On September 10, 2018, Council approved a professional services contract (SR #9485) for
design services with Brown and Caldwell for the Secondary Treatment Upgrades Project (WQ-
19001). The project adds treatment technology to remove nitrogen to address new regulatory
requirements as well as to replace 41- to 49-year old aging infrastructure that is beyond its
useful life. The contract was amended December 7, 2020 to add additional services (SR
#11155).
City staff plan to work with State SRF and USEPA Water Infrastructure Finance and Innovation
City of Palo Alto Page 7
Act (WIFIA) program financial staff to secure project financing. Design completion is anticipated
in October 2021. If WIFIA co-financing is pursued, staff will seek Council approval of WIFIA loan
issuance costs later this year (approximately $310,000). WIFIA loan closing is typically five to six
months after the loan application is submitted; the WIFIA application and application fee is due
by December 15, 2021. Solicitation for a construction contract will commence in mid- to late
calendar year 2022, after securing project financing. In early 2023, staff will return to Council
for approval of the final loan(s), the approval of a construction contract, and approval of
amendments to RWQCP partner agreements. Construction completion is expected in 2026. If
SRF financing eligibility is delayed one year to 2023, construction completion is delayed to 2027.
WQ-19003 Advanced Water Purification System
The project improves the quality of the RWQCP’s recycled water used for irrigation and other
purposes. The project is an advanced treatment system, initially sized for 1.125 million gallons
per day, and potentially expandable to 2.25 million gallons per day of recycled water. In March
2021, Council approved the project’s design services contract with Black & Veatch (SR #11782).
Construction is expected to be completed in 2025.
The Preliminary/Conceptual Design Report estimated the project to cost $20 million in 2017
dollars. Project funding is a partnership agreement between Valley Water, Mountain View, and
Palo Alto, with Valley Water providing the largest share ($16 million) of the funding, and the
Mountain View and Palo Alto portions split 75% Mountain View, 25% Palo Alto. Palo Alto’s
share, estimated to be $1 million, would be funded by water and wastewater utilities (SR
#10627). The City has also applied for State SRF loan financing to cover the project’s design and
construction costs above and beyond the $16 million Valley Water contribution.
WQ-19002 Plant Repair, Retrofit, and Equipment Replacement
Using ongoing, recurring funding from partner agencies, minor capital improvement projects
are financed and constructed. They are reimbursed based on the annual operating share of the
budget (about 35% for Palo Alto). Current projects include a recoating for the sludge blending
tank ($310,895) and replacement of two secondary clarifier mechanisms ($2,231,900). These
smaller projects are designed by consultants or in-house staff. One key project is the Medium
Voltage Electrical Distribution Loop Rehabilitation project (aka, 12kV Loop Rehab) to replace
buried underground cable, switches, and a primary metering cabinet. The 65% design has been
completed by Salas O’Brien; the 65% cost estimate for construction is $6,901,500. The project
will require specialized construction inspection of high voltage equipment.
WQ-16002 New Headworks Facility
The new Headworks Facility will replace the existing influent junction box, and two raw sewage
pump stations built in 1956 and 1972, respectively. The Headworks will consist of new
preliminary treatment equipment (large opening bar screens, fine screens, grit removal, and
odor control) followed by a raw sewage lift pump station, discharging into a new pressurized
“force main” between the lift station and the primary sedimentation tanks. All new equipment
City of Palo Alto Page 8
will be provided with new electrical power distribution, backup power, and state of the art
controls.
The project is on the list of major CIP projects outlined in the LRFP. The project is in the
planning stage. Staff anticipates putting out an RFP for the design services contract in 2022.
Staff will also apply for a state SRF loan to cover the design and construction costs of the
project.
RWQCP On-Call Construction Management and Inspection Services
To support the construction management and inspection service needs of the RWQCP capital
program, staff expects to bring to Council in May 2021 a set of contracts with multiple
construction management firms. These firms will be pre-selected to provide cost proposals for
the RWQCP capital program, which saves time on soliciting future proposals for each CIP
project. The price of the recommended firm will be brought to Council for approval, typically in
conjunction with approval of the construction contract, as an amendment to the construction
management firm’s compensation schedule. Construction management costs have been
budgeted with each capital project.
Capital Program Delivery Risks
Programmatic risks impacting delivery of capital projects include technical, schedule and
sequence, financial, staffing, and logistical issues.
Technical risks include, for example, difficulties assessing and rehabilitating infrastructure that
is in operation 24/7. Furthermore, project priorities sometimes change when systems are
evaluated to be at greater risk of failure.
Schedule and sequence risks include the SRF loan program delaying the ability to start
construction if the low-interest loan program scores a project lower than is required to get
financing for a particular year; the project is then rolled over to the following year for SRF loan
consideration. The SRF’s minimum qualifying score changes every year depending on the
number of applications and associated amounts of loan applied. Key project interdependencies
impacting schedule include the following:
• The Primary Sedimentation Tank Rehabilitation and Equipment Room Electrical
Upgrades Project (WQ-14003) must complete work prior to the 12kV Electrical Upgrades
Project (WQ-19002) and the Secondary Treatment Upgrades Project (WQ-19001). Also,
the 12kV Electrical Upgrades Project (WQ-19002) must precede the Secondary
Treatment Upgrades project (WQ-19001).
• A replacement raw sewage pump station odor control system (WQ-19003 Phase 1) must
be installed before the full Advanced Water Purification System (WQ-19003 Phase 2)
construction groundbreaking can commence. Implementing the two phases of the
Advanced Water Purification System creates potentially complicating project scheduling
and financing issues.
City of Palo Alto Page 9
If one of the projects above is delayed, it can put a large amount of later capital work at
schedule and cost risk.
Some projects require a greater level of coordination with internal and external stakeholders.
For example, the Outfall Pipeline is a project with significant outside coordination. Stakeholder
coordination and expectations may contribute to capital program delivery risk (e.g.,
communication issues, inadequate staffing, insignificant outreach, changing technical
standards, interference with a new project, changing regulatory requirements, etc.). Key capital
delivery stakeholders include (a) regulators (e.g., Federal Aviation Administration, Bay Area Air
Quality Management District, Regional Water Quality Control Board, US Army Corps of
Engineers, etc.), (b) internal City departments (e.g., budget staff, attorney’s office staff,
purchasing division staff, planning staff, etc.), (c) partner agencies, and (d) RWQCP neighbors
(e.g., Palo Alto Airport, landfill, Baylands Nature Preserve stewards and advocates, etc.).
Financial risks and considerations to plan for include changing loan interest rates, cash flow
needs and limitations to pay contractors prior to reimbursement from lenders, and the need to
forecast expenses to help Palo Alto and partner agencies establish rate planning efforts. Staff is
working to develop debt service and cashflow options for the very significant future Secondary
Treatment Upgrade project (WQ-19001), which is scheduled to begin in 2024. Partner
agreements extend either indefinitely and, at minimum, are extended and terminate no earlier
than the repayment of all debt. Any partner agency that may desire to exit the agreement
would need to identify a replacement site and construct their own wastewater treatment plant
within their jurisdiction, and this is extremely cost prohibitive due to the cost efficiencies of a
joint endeavor. Other risks to consider and mitigate for are delays to construction start that can
impact established project budgets; planning for differences in costs between estimates,
project budget, and bid results; changes in scope and the construction environment can
introduce timing issues into the scale and scope of work that is already defined; and securing
financing together while coordinating a loan application with a partner agreement.
Logistical issues include coordinating multiple onsite contractors. Staging and laydown areas at
the RWQCP are limited. Temporary bypass pumping operations and detailed construction
sequencing at a 24/7 operation are significant challenges for designers and onsite staff that
must plan a rebuild of an aging plant while continuing to safely treat and maintain existing
wastewater treatment infrastructure during construction (e.g., during the 39-month long
Secondary Treatment Upgrades project).
Cumulatively, the risks stated above represent a significant undertaking requiring the
management and support of a variety of City staff functions beyond the project team to ensure
that human and financial resources are directed effectively with appropriate controls and
contingencies addressed. This is an ongoing effort involving primarily Public Works,
Administrative Services, Human Resources, the City Attorney’s Office and City Manager’s Office.
City of Palo Alto Page 10
Comparison to Neighboring Agencies
The $310 million (2021 dollars) RWQCP capital program highlighted herein is similar to
neighboring wastewater treatment capital programs. These programs are also using USEPA
WIFIA, State SRF programs, and revenue bonds for financing. Some neighboring agencies are
shown below with the size of their capital programs.
Table 3: Comparison Agency CIP Programs
Project
CIP
Program
(million, $)
Residential
Population
Served
San Jose (10-year CIP for Regional Wastewater Treatment
Facility) $1,400 1,400,000
Sunnyvale Clean Water Program $450 152,770
Silicon Valley Clean Water RESCU Program (Redwood City) $495 220,000
San Mateo Clean Water Program $991 140,000
Palo Alto Regional Water Quality Control Plant CIP $310 236,000
Timeline
From a financing perspective, the low interest state SRF and USEPA WIFIA loan payments start
one year after construction completion. Assuming SRF and WIFIA financing, the annual total
projected expense for the Wastewater Treatment Fund, which includes new debt service, is
shown below.
Table 4: Wastewater Treatment Fund (WWT) Total Cost1
Fiscal
Year
Total WWT
Fund Cost
Percent
Change Key Project Debt Added
2022 $31,576,000 1.2%
2023 $33,081,000 4.8%
2024 $35,895,000 8.6% Outfall WQ-19002
Lab & Environmental Services Building WQ-14002
2025 $38,764,000 8.1% Primary Sedimentation Tank Rehab WQ-14003
2026 $39,608,000 2.2%
2027 $46,668,000 18.0% Secondary Treatment Upgrades WQ-19001
2028 $47,716,000 2.3%
2029 $50,897,000 6.7% Headworks WQ-16002
2030 $51,432,000 1.8%
2031 $52,397,000 1.9%
2032 $52,838,000 0.8%
1 Advanced Water Purification System project not included due to Valley Water funding
City of Palo Alto Page 11
Resource Impact
The Public Works Department is currently seeking funding for the projects planned in the
Wastewater Treatment Fund Capital Improvement Program through three primary sources:
1. State SRF loans
2. USEPA WIFIA loans (co-financing option)
3. Commercial market utility revenue bonds
The interest rate is currently 1.1% for SRF loans, approximately 2.0% for WIFIA loans, and
typically between 3.0-4.5% for revenue bonds depending on credit rating. SRF loans are
typically pursued for the RWQCP because they have the lowest long-term costs. However,
eligibility is competitive and not all projects are being funded (i.e., the program is
overcommitted). Changing federal priorities and new proposed infrastructure legislation may
change the funding levels of state SRF programs, which are periodically reinvested with new
federal money, but it is likely the SRF program will remain competitive.
The USEPA WIFIA loan is a co-financing option for larger projects where the WIFIA component
is $20 million minimum and no more than 49% of total project costs. Utility revenue bonds are
another possibility but are being pursued only if a needed project is not fundable from SRF. A
utility bond funded project could also be co-financed with WIFIA funds.
Annual debt service payments associated with each project depend upon prevailing interest
rates at the time of the loan approval and/or bond issuance, as well as the length of the
repayment term. The annual debt service payments will be paid by all the Partners to the Palo
Alto RWQCP and will be specified in amendments to their Agreements with Palo Alto, which are
brought to Council for approval as needed. Palo Alto is responsible for its fixed capacity
payment of 38.16% of debt financed instruments. These costs and the Palo Alto share are a
direct impact on the City’s Wastewater Collection Fund forecasted rates. These rates projected
for FY 2022 and the financial plan including forecasted future rate increases can be found in the
most recent report to the Finance Committee on April 6, 2021 (SR# 11886).
Anticipated project costs, funding sources, and debt repayment terms are detailed in the tables
above. The impact on Wastewater Treatment Fund expenses of the debt service associated
with the anticipated loans and bonds for each project is visualized in the 10-year forecast in the
graph above. The forecast projects overall expenses for the entire fund based on projected
operating and minor capital expenses, existing debt service, current capital project cost
estimates, and planned debt service assumptions detailed in the tables above. The graph also
shows the impact on the Debt Service Ratio of obtaining and accepting these loans and bonds in
the future based on current/conservative debt repayment assumptions (i.e., interest rates, loan
terms). The current Palo Alto policy is to keep the Debt Service Ratio below 15% and, per initial
staff analysis, the loans and bonds will cause the 15% amount to be exceeded reaching over
28% in current projections. When funding sources are approved and cause the fund to exceed
City of Palo Alto Page 12
the Debt Service Ratio, staff will return to Council with recommendations on handling the
potential increase in the debt service and related issues.
As these preliminary project cost estimates are still in the process of being reviewed, refined,
and developed, the current estimates for some of the Wastewater Treatment Fund’s Capital
projects are not expected to be included in the Fiscal Year 2022 Proposed Capital Budget. As
design continues and construction estimates are updated, total cost estimates will be adjusted
and brought to Council for approval through the annual budget development process in
subsequent years.
Environmental Review
Individual capital improvement projects are reviewed under CEQA prior to any project
approval. All capital projects are designed to comply with the City’s Sea Level Rise Policy.
Projects, and current CEQA status, include the following:
Table 5: RWQCP CEQA Status
Project CEQA Status
Primary Sedimentation Tanks Rehabilitation and Equipment
Room Electrical Upgrade Project Categorically Exempt
Outfall Line Construction Mitigated Negative
Declaration
Secondary Treatment Upgrades Categorically Exempt
Advanced Water Purification System Environmental Impact
Report
New Laboratory and Environmental Services Building TBD
Headworks Facility Replacement TBD
WQ-19002 Minor CIP Projects in Progress Varies, Typically
Categorically Exempt