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HomeMy WebLinkAbout2025-04-01 Finance Committee Agenda PacketFINANCE COMMITTEE Special Meeting Tuesday, April 01, 2025 Community Meeting Room & Hybrid 5:30 PM Finance Committee meetings will be held as “hybrid” meetings with the option to attend by teleconference/video conference or in person. Information on how the public may observe and participate in the meeting is located at the end of the agenda. The meeting will be broadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media Center https://midpenmedia.org. VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/99227307235) Meeting ID: 992 2730 7235    Phone: 1(669)900‐6833 PUBLIC COMMENTS General Public Comment for items not on the agenda will be accepted in person for up to three minutes or an amount of time determined by the Chair. General public comment will be heard for 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. Public comments for agendized items will be accepted both in person and via Zoom for up to three minutes or an amount of time determined by the Chair. Requests to speak will be taken until 5 minutes after the staff’s presentation or as determined by the Chair. Written public comments can be submitted in advance to city.council@CityofPaloAlto.org and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your subject line. PowerPoints, videos, or other media to be presented during public comment are accepted only by email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received, the  Clerk will have them shared at public comment for the specified item. To uphold strong cybersecurity management practices, USB’s or other physical electronic storage devices are not accepted. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. CALL TO ORDER PUBLIC COMMENT  Members of the public may speak in­person ONLY to any item NOT on the agenda. 1­3 minutes depending on number of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. ACTION ITEMS 1.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year 2026 Water Utility Financial Forecast including Reserve Transfers, and 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.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year 2026 Wastewater Collection Utility Financial Forecast, and 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), and Repealing Rate Schedules S‐3 (Industrial Waste Laboratory and Analysis Charges) and S‐4 (Hauled Liquid Waste Charges) 3.Evaluation of Fire and Ambulance Service Expansion Options (Follow‐up from 11/19/24 Meeting) FUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s) ADJOURNMENT PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN    Meeting ID: 992‐2730‐7235   Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments.  1 April 01, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. FINANCE COMMITTEESpecial MeetingTuesday, April 01, 2025Community Meeting Room & Hybrid5:30 PMFinance Committee meetings will be held as “hybrid” meetings with the option to attend byteleconference/video conference or in person. Information on how the public may observe andparticipate in the meeting is located at the end of the agenda. The meeting will be broadcast onCable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamedto Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/99227307235)Meeting ID: 992 2730 7235    Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the  Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. CALL TO ORDER PUBLIC COMMENT  Members of the public may speak in­person ONLY to any item NOT on the agenda. 1­3 minutes depending on number of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. ACTION ITEMS 1.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year 2026 Water Utility Financial Forecast including Reserve Transfers, and 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.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year 2026 Wastewater Collection Utility Financial Forecast, and 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), and Repealing Rate Schedules S‐3 (Industrial Waste Laboratory and Analysis Charges) and S‐4 (Hauled Liquid Waste Charges) 3.Evaluation of Fire and Ambulance Service Expansion Options (Follow‐up from 11/19/24 Meeting) FUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s) ADJOURNMENT PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN    Meeting ID: 992‐2730‐7235   Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments.  2 April 01, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. FINANCE COMMITTEESpecial MeetingTuesday, April 01, 2025Community Meeting Room & Hybrid5:30 PMFinance Committee meetings will be held as “hybrid” meetings with the option to attend byteleconference/video conference or in person. Information on how the public may observe andparticipate in the meeting is located at the end of the agenda. The meeting will be broadcast onCable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamedto Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/99227307235)Meeting ID: 992 2730 7235    Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the  Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.CALL TO ORDERPUBLIC COMMENT Members of the public may speak in­person ONLY to any item NOT on the agenda. 1­3 minutes depending onnumber of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard atthe end of the agenda.ACTION ITEMS1.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year2026 Water Utility Financial Forecast including Reserve Transfers, and Amending RateSchedules W‐1 (General Residential Water Service), W‐2 (Water Service From FireHydrants), W‐3 (Fire Service Connections), W‐4 (Residential Master‐Metered andGeneral Non‐Residential Water Service), and W‐7 (Non‐Residential Irrigation WaterService)2.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year2026 Wastewater Collection Utility Financial Forecast, and Amending Rate Schedules S‐1(Residential Wastewater Collection and Disposal), S‐2 (Commercial WastewaterCollection and Disposal), S‐6 (Restaurant Wastewater Collection and Disposal) and S‐7(Commercial Wastewater Collection and Disposal – Industrial Discharger), and RepealingRate Schedules S‐3 (Industrial Waste Laboratory and Analysis Charges) and S‐4 (HauledLiquid Waste Charges)3.Evaluation of Fire and Ambulance Service Expansion Options (Follow‐up from 11/19/24Meeting)FUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s) ADJOURNMENT PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN    Meeting ID: 992‐2730‐7235   Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments.  3 April 01, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. FINANCE COMMITTEESpecial MeetingTuesday, April 01, 2025Community Meeting Room & Hybrid5:30 PMFinance Committee meetings will be held as “hybrid” meetings with the option to attend byteleconference/video conference or in person. Information on how the public may observe andparticipate in the meeting is located at the end of the agenda. The meeting will be broadcast onCable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamedto Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/99227307235)Meeting ID: 992 2730 7235    Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the  Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.CALL TO ORDERPUBLIC COMMENT Members of the public may speak in­person ONLY to any item NOT on the agenda. 1­3 minutes depending onnumber of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard atthe end of the agenda.ACTION ITEMS1.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year2026 Water Utility Financial Forecast including Reserve Transfers, and Amending RateSchedules W‐1 (General Residential Water Service), W‐2 (Water Service From FireHydrants), W‐3 (Fire Service Connections), W‐4 (Residential Master‐Metered andGeneral Non‐Residential Water Service), and W‐7 (Non‐Residential Irrigation WaterService)2.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year2026 Wastewater Collection Utility Financial Forecast, and Amending Rate Schedules S‐1(Residential Wastewater Collection and Disposal), S‐2 (Commercial WastewaterCollection and Disposal), S‐6 (Restaurant Wastewater Collection and Disposal) and S‐7(Commercial Wastewater Collection and Disposal – Industrial Discharger), and RepealingRate Schedules S‐3 (Industrial Waste Laboratory and Analysis Charges) and S‐4 (HauledLiquid Waste Charges)3.Evaluation of Fire and Ambulance Service Expansion Options (Follow‐up from 11/19/24Meeting)FUTURE MEETINGS AND AGENDASMembers of the public may not speak to the item(s)ADJOURNMENTPUBLIC COMMENT INSTRUCTIONSMembers of the Public may provide public comments to teleconference meetings via email,teleconference, or by phone.1. Written public comments may be submitted by email to city.council@cityofpaloalto.org.2. For in person public comments please complete a speaker request card located on thetable at the entrance to the Council Chambers and deliver it to the Clerk prior todiscussion of the item.3. Spoken public comments for agendized items using a computer or smart phone willbe accepted through the teleconference meeting. To address the Council, click on the linkbelow to access a Zoom‐based meeting. Please read the following instructions carefully.You may download the Zoom client or connect to the meeting in‐ browser. If usingyour browser, make sure you are using a current, up‐to‐date browser: Chrome 30 ,Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled inolder browsers including Internet Explorer. Or download the Zoom application ontoyour smart phone from the Apple App Store or Google Play Store and enter in theMeeting ID below.You may be asked to enter an email address and name. We request that youidentify yourself by name as this will be visible online and will be used to notify youthat it is your turn to speak.When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk willactivate and unmute speakers in turn. Speakers will be notified shortly before theyare called to speak.When called, please limit your remarks to the time limit allotted. A timer will beshown on the computer to help keep track of your comments.4. Spoken public comments for agendized items using a phone use the telephone numberlisted below. When you wish to speak on an agenda item hit *9 on your phone so weknow that you wish to speak. You will be asked to provide your first and last name beforeaddressing the Council. You will be advised how long you have to speak. When calledplease limit your remarks to the agenda item and time limit allotted.CLICK HERE TO JOIN    Meeting ID: 992‐2730‐7235   Phone: 1‐669‐900‐6833Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its publicprograms, services and meetings in a manner that is readily accessible to all. Persons withdisabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments.  4 April 01, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. Page 1 of 27 6 5 8 3 Finance Committee Staff Report From: Kiely Nose, Interim Director of Utilities Lead Department: Utilities Meeting Date: April 1, 2025 Report #: 2412-3869 TITLE Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year 2026 Water Utility Financial Forecast including Reserve Transfers, and 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) RECOMMENDATION The Utilities Advisory Commission and Staff request that the Finance Committee recommend that the City Council adopt a resolution (Attachment A): 1. Approving the Fiscal Year (FY) 2026 Water Utility Financial Forecast shown in this staff report and attachments and approving a reserve transfer of up to $3,000,000 from the Rate Stabilization Reserve to the Operations Reserve in FY 2025; and 2. Amending Rate Schedules (Attachment B) effective July 1, 2025 (FY 2026): a. W-1 (General Residential Water service) b. W-2 (Water Service from Fire Hydrants) c. W-3 (Fire Service Connections) d. W-4 (Residential Master-Metered and General Non-Residential Water Service) e. W-7 (Non-Residential Irrigation Water Service) EXECUTIVE SUMMARY The City of Palo Alto Utilities (CPAU) provides electricity, water, wastewater, natural gas, and fiber optic services to the Palo Alto community. The Public Works Department also provides refuse collection and processing for recycling, compost and garbage, wastewater treatment and stormwater management. The City’s primary goals are to manage these services in a way that ensures continued safe, reliable, environmentally sustainable, and cost-effective operations. The City is proposing rate increases this year for electric, natural gas, wastewater and water services. Stormwater management fees will increase per the Consumer Price Index (CPI) as approved by residents in a 2017 ballot measure. The City strives to be transparent with utilities customers about the reason for rate changes, including explaining the cost drivers, benefits to customers, what the City is doing to keep costs low for ratepayers, and the services Item 1 Staff Report        Item 1: Staff Report Pg. 1  Packet Pg. 5 of 113  Page 2 of 27 6 5 8 3 and programs provided by the City to help customers keep utility bill costs low. Attachment E outlines CPAU’s plan for communicating rate changes to customers. Staff are presenting an overview of the financial forecast and rate change proposal for each utility service to the Utilities Advisory Commission (UAC) and Finance Committee prior to City Council review and approval in June 2025. The Water Utility has two main costs: water supply costs (primarily the cost of water delivered to Palo Alto from the Regional Water 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). Both cost components have been increasing and are expected to continue to increase. The FY 2025 Financial Plan projected a distribution rate increase in FY 2026 of 17%, equivalent to a 9% overall system average increase assuming no increase in the wholesale water rate. This FY 2026 forecast also reflects a 17% increase to the distribution rates; however, given lower reserves, higher expected ongoing costs, updated sales forecasts, and a 2% wholesale rate increase projected in July, this is equivalent to a 10% overall system average increase on customers’ water rates. Additionally, this proposal includes capital spending deferrals described in detail below. This rate increase is necessary to pay for inflationary cost increases, continued lower water sales, and performance of the necessary infrastructure maintenance and replacement activities that contribute to the safe and reliable provision of high-quality water to Palo Alto residents and businesses. The Water Utility needs to plan for large capital projects in the five-year budget, including two reservoir replacements or rehabilitations and a large main replacement every other year. This revised proposal defers the reservoir work by two years from FY 2027 and FY 2028 to FY 2029 and FY 2030, defers $4.6 million of main replacement work planned in FY 2026 and $2.5 million of main replacement work planned in FY 2028 to beyond the 5-year forecast horizon. The Water Utility has utilized or plans to use all available reserve funds to help offset higher costs and keep rates below the utility’s actual expenses during both the pandemic and the drought, up through the current drought recovery period. However, the reserves have now reached a point where rate increases are needed to pay for distribution system costs. Staff is developing an alternative financial model assuming debt financing (instead of pay-as-you-go) for the two reservoir capital projects, summarized in the Alternative section below. In December 2024, staff discussed a preliminary FY 2026 rate proposal of 14% with the Utilities Advisory Commission and Finance Committee. Members from both committees expressed concerns and asked staff to reassess the FY 2026 rate increase and reduce to 10% if feasible. Staff took this feedback into consideration and made modifications to the rate proposals reflected in this report. At the end of FY 2024, the operations reserve was approximately $2 million below projected levels with a balance of $7.1 million, which is below the minimum guideline level of $8.4 million. Revenues were $2.3 million higher than forecasted last year in the FY 2025 Financial Plan (sales Item 1 Staff Report        Item 1: Staff Report Pg. 2  Packet Pg. 6 of 113  Page 3 of 27 6 5 8 3 revenue, capacity and connection fees). This is because water purchases were higher than forecasted in the FY 2025 Financial Plan while purchases were still lower than in each of the pre- drought years (FY 2018 through FY 2022). Additionally, operating and capital expenses were $4.4 million higher than forecasted. Many of the cost increases are ongoing annual expenses, as discussed further in the Analysis section below. The rate stabilization reserve at the end of FY 2024 had a $4 million balance, and this financial forecast proposes to use all of that remaining funding to cover the unexpected additional costs for FY 2025 and FY 2026. Table 1: Projected Water Rate Trajectory from FY 2026 to FY 2030 Table 2: Alternate Water Rate Trajectory from FY 2026 to FY 2030 BACKGROUND F 2 2 2 2 2 C 1 1 1 7 7 S 2 1 1 5 8 D 1 1 1 8 7 Item 1 Staff Report        Item 1: Staff Report Pg. 3  Packet Pg. 7 of 113  Page 4 of 27 6 5 8 3 recommended rate adjustments required to maintain the utility’s financial health. Attachment D contains a set of Reserves Management Practices describing the reserves. This work is done annually as part of the budget and rate-setting cycle. 1 ANALYSIS Past Trends shows how costs have changed during the last five years as well as how staff projects they will change over the next five years. Expenses for the Water Utility rose by 3.8% annually on average between FY 2019 and FY 2024. The increases were primarily related to operations costs. SFPUC held its wholesale water rate at $4.10 from July 2016 to June 2022 and then increased the rate to $4.75 on July 1, 2022, to $5.21 on July 1, 2023, and to $5.67 on July 1, 2024. Operations costs other than purchased water and CIP increased by about 10.4% annually from FY 2019 to FY 2024, due to increases across all categories 1 Finance Committee April 23, 2024, Action Minutes https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=15050&compileOutputType=1 Item 1 Staff Report        Item 1: Staff Report Pg. 4  Packet Pg. 8 of 113  Page 5 of 27 6 5 8 3 of operations cost including administration, resource management, engineering, operations and maintenance, and customer service. CIP costs have generally risen, though they have decreased in some years. At the end of FY 2024 there was $12.2 million of CIP Reappropriations and Commitments budgeted in previous years and carried over to FY 2025 due to multi-year engineering design and construction projects. Item 1 Staff Report        Item 1: Staff Report Pg. 5  Packet Pg. 9 of 113  Page 6 of 27 6 5 8 3 Table 3: FY 2024 Actual Results vs. Prior Year’s Forecast Net Cost/ (Benefit) ($000) Type of change Higher sales revenues $(853)Higher revenues Higher other revenue $(863)Higher revenues Capital-related costs including CIP reappropriations/commitments $1,272 Cost increase Water purchases higher than expected $268 Cost increase Operating expense higher than expected $2,811 Cost increase Net Cost / (Benefit) of Variances $2,635 Net cost increase This forecast anticipates that water supply costs will increase 2.4% annually on average over the forecast period FY 2025 – FY 2030. Staff projects operations costs other than debt service to increase by 4% annually on average and capital contributions to the CIP Reserve to increase 18.2% on average each year. This increase is calculated based on an average of FY 2025 and FY 2026 compared to an average of FY 2030 and FY 2031. The increase in the capital contributions to the CIP Reserve appear high because of the capital deferrals in the near term, together with deferring the tank replacements to FY 2029 and FY 2030, making the capital costs high in those years. While staff revised future CIP costs upwards to reflect the higher construction costs seen in recent projects, there is still uncertainty with regard to the utility’s future costs for water main replacements. Debt service costs are declining during the FY 2025 – FY 2030 time period because the 2011 Utility Revenue Refunding Bond, Series A, is scheduled to be retired in 2026. The FY 2025 Financial Plan estimated a 5-year capital project budget for FY 2025 through FY 2029 of $54.2 million (not including carry-forward budgets from prior years). Staff currently projects a higher capital project budget of $58.7 million is needed (an increase of $4.5 million or 8%) for those same years. However, to maintain no more than a 10% rate increase in each year, this forecast reduces the size of the next two upcoming main replacement projects in FY 2026 and FY 2028 by $4.6 million and $2.5 million, respectively. Additionally, this forecast defers the two reservoir replacement/rehabilitations from FY 2027 and FY 2028 to FY 2029 and FY 2030 which increases the total cost by $1.6 million or 10.4% due to construction inflation, but also lengthens the time available to build reserves to pay for these replacements. Staff developed an Alternative section in this staff report which describes an alternative funding model where the tank projects are debt-financed rather than pay-as-you-go which would allow for the full main replacement budget in FY 2028 as well as reducing the impact on customer rates during FY 2029 and FY 2030. This forecast utilizes the full $4 million remaining in the Rate Stabilization Reserve at year-end FY 2024 by the end of FY 2026 to stabilize rates and cover operational and capital costs. This forecast proposes to transfer $3 million of these funds from the Rate Stabilization Reserve to the Operations Reserve in FY 2025 and the remaining $1 million in FY 2026. Item 1 Staff Report        Item 1: Staff Report Pg. 6  Packet Pg. 10 of 113  Page 7 of 27 6 5 8 3 Figure 1: Water Utility Expenses, Revenues, and Rate Changes: Actual Expenses through FY 2024 and Projections through FY 2030 * Note: in Figure 1, Capital in the projected years reflects one-time transfers from the Operations Reserve to the CIP Reserve, the annual capital program contribution to the CIP Reserve, as well as increases in the CIP Reappropriations and Commitments Reserve. Actual water sales in FY 2024 were 1.8% higher than forecasted in the FY 2025 Financial Plan. Similarly, actual sales revenues for FY 2024 were approximately $0.8 million (1.8% higher) than projected ($48 million vs. $47.2 million). The plan assumed an end to the drought by the end of FY 2023 with water sales recovery from FY 2024 to FY 2026. The drought recovery in FY 2024 was better than expected, and system losses slightly improved from 8.2% in FY 2023 to 6.2% in FY 2024. The current forecast begins with the most recent water purchases from FY 2024 (a year with close to average precipitation) and assumes a drought recovery over three years from FY 2024 to FY 2026, followed by a return to the pre-drought long-term decline trend of 1.3% annually based on the average decline from FY 2005 to FY 2024. This forecast assumes a 3-year average water loss for FY 2022 through FY 2024. 4%3%1%0%0% 5%5% 9.5%10%10% 10%10%10% 0 10 20 30 40 50 60 70 80 90 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year Capital* Operations Water Supply Debt Service Revenue Rate Changes Item 1 Staff Report        Item 1: Staff Report Pg. 7  Packet Pg. 11 of 113  Page 8 of 27 6 5 8 3 Figure 2: Water Purchases Forecast Staff based the sales revenue projections on the load forecast and the projected rate changes shown in Figure 2. Precipitation can vary substantially, and this can affect revenues substantially. In dry, non-drought years customers use more water, increasing revenues, and in wet years they use less. It is difficult to predict customer usage recovery from drought together with impacts from weather from year to year. Staff will continue to monitor these patterns and adjust projections accordingly in subsequent forecasts. The Water Utility receives most of its revenues from sales of water. In FY 2024 the Water Utility also received approximately 7% of total revenue from a combination of other sources including service connection fee and capacity fee revenue, interest income, and grants (interest subsidy on Build America Bonds). Other sources of revenue are projected to remain stable during the forecast period. Water Purchase Costs CPAU purchases all of its potable water supplies from the SFPUC, which owns and operates the Hetch Hetchy Regional Water System (RWS). The RWS begins with a system of reservoirs and tunnels in the high Sierra in Tuolumne County and water is transported by a gravity-fed pipeline to the Bay Area. CPAU is one of 26 agencies that purchase water from the SFPUC, all of whom are members of the Bay Area Water Supply and Conservation Agency (BAWSCA). These agencies, including the City, are frequently referred to as the “wholesale customers” (as compared to the Item 1 Staff Report        Item 1: Staff Report Pg. 8  Packet Pg. 12 of 113  Page 9 of 27 6 5 8 3 SFPUC’s “retail customers” in San Francisco). Palo Alto uses roughly 7% of the water delivered by the SFPUC to BAWSCA member agencies. •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 potential transfers. •Customer Service •Engineering work for maintenance activities (as opposed to capital activities) •Operations and Maintenance of the distribution system; and •Resource Management Item 1 Staff Report        Item 1: Staff Report Pg. 9  Packet Pg. 13 of 113  Page 10 of 27 6 5 8 3 in the Administration category in Figure 3) by using adopted FY 2025 budgets and Long-Range Financial Forecasts where possible. This forecast adjusts adopted numbers if there is a pattern of under or over-spending by category. Figure 3: Historical and Projected Operational Costs •Non-recurring construction projects (One Time Projects) of large system assets, such as the seismic retrofit projects, and the emergency water storage project. Currently there are no alternative water supply projects included in the budget but if Council decides to move forward with any such project in the future, it would fall within this project type. •The Water Main Replacement Program, which represents the ongoing replacement of aging water mains and main appurtenances. •Ongoing projects: o Water distribution system improvements are projects improving the reliability and operations of the water distribution system. The projects include but are not limited to engineering studies, hydraulic modeling, leak survey, hydrant maintenance, and pipe strength sampling. o Water supply improvements are projects maintaining and improving the water supply within the City’s distribution network and to individual pressure zones. The projects include but are not limited to emergency diesel generators, power supply projects, communications and controls, water quality engineering, site security, and engineering studies. 0 5 10 15 20 25 30 35 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year Resource Management Administration Operations & Maintenance (including Engineering) Customer Service Debt Service and Transfers Item 1 Staff Report        Item 1: Staff Report Pg. 10  Packet Pg. 14 of 113  Page 11 of 27 6 5 8 3 o Water metering improvements are projects replacing water meters, testing, and improving accuracy of the City’s water metering. •New Development Improvements (customer connections) are projects funded or constructed by private developers and property owners. The projects may include new services, hydrants, and other water system improvements necessary to support new development and new water demand. Table 4 shows the FY 2025 projected current year budget and the five-year CIP spending plan, although these figures are preliminary pending ongoing budget discussions. Table 4: Budgeted Water Utility CIP Spending ($000) The Ongoing Projects budget is larger in FY 2025 than in the other years because the budget includes $0.7 million for a generator purchase and a 3-year maintenance plan as well as $2.8 million for security cameras. Of the $7.3 million current budget for ongoing projects, $4.9 million is already reflected in the reappropriations or commitments reserves. The CIP budget additionally includes allocated overhead, estimated to be approximately $1.1 million in FY 2025 and escalating at 4% - 6% annually thereafter as shown in the Table 5. Table 5 also shows the forecast for unallocated CIP-related salaries and benefits, estimated to be $0.9 million in FY 2025. Allocated overhead and unallocated salaries and benefits are added to the capital budget. Table 5: Allocated Overhead and Unallocated CIP Salaries and Benefits ($000) FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Allocated Overhead 1,062 1,266 1,317 1,370 1,424 1,481 Unallocated CIP Salaries and Benefits 894 1,066 1,108 1,153 1,199 1,247 The water system consists of over 231 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. Since the Water Main Replacement Program began in 1990, CPAU has replaced 61 miles or 26% of the most leak-prone and deteriorated water mains. CPAU continues to pursue a pipe replacement program of mains nearing the end of their useful life. Item 1 Staff Report        Item 1: Staff Report Pg. 11  Packet Pg. 15 of 113  Page 12 of 27 6 5 8 3 The water main replacement schedule in this forecast will require CPAU to defer $7.1 million in main replacement work to beyond the 5-year planning period which will mean extending the timeline for replacing water mains. Deferring capital work increases the cost to complete the same capital work because of construction inflation, and deferring the work may increase maintenance costs and emergency repairs as a result of older water mains. •Construction costs in the San Francisco Bay Area have increased substantially, outpacing the consumer price index for all urban consumers. Additionally, material, fuel, and labor costs have escalated due to inflation, leading to higher bids. •More stringent traffic control requirements have driven cost increases: requirements for engineered traffic control plans, restricted working hours, maintaining pedestrian right of ways, bike lanes during construction, and special street plating requirements. •Street cut fees. •Code changes to fire flow requirements requiring larger diameter mains. •CPAU has switched to high-density polyethylene (HDPE) for its water mains for leak reduction and seismic performance. Item 1 Staff Report        Item 1: Staff Report Pg. 12  Packet Pg. 16 of 113  Page 13 of 27 6 5 8 3 sanitation, and domestic and commercial drinking water uses. A rupture and failure of the storage tanks during an earthquake could cause property damage, mudslides, and environmental damage. Staff contracted with an engineering specialist and investigated and analyzed the structural integrity and condition of the Park Tank Reservoir. The engineering specialist recommended a full roof replacement of the Park Tank Reservoir in addition to a seismic retrofit of the tank. Staff solicited proposals for an engineering firm to prepare plans and cost estimates for the seismic retrofit and roof replacement of Park Tank and to perform a condition assessment of Dahl Tank. If full tank replacement is needed for either Dahl or Park Tank, the estimated cost for design and construction of Dahl and Park reservoirs is approximately $7 million each. This forecast defers this work from FY 2027 and FY 2028 to FY 2029 and FY 2030. The cost to replace tank roofs and seismically retrofit the tanks is approximately $4 million per tank. Staff is evaluating the replacement or rehabilitation needs of these two tanks. These tanks are part of Palo Alto’s water distribution system located in the high fire threat area in the California Public Utilities Commission (CPUC) State Fire Map west of Highway 280 in the foothills. Item 1 Staff Report        Item 1: Staff Report Pg. 13  Packet Pg. 17 of 113  Page 14 of 27 6 5 8 3 Figure 4: Projected CIP Reserve Balances FY 2025 to FY 2030 Reserve Minimum Reserve Maximum 0 5 10 15 20 25 30 35 40 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year CIP Reserve (Year-End) $- $5 $10 $15 $20 $25 $30 FY 25 FY 26 FY 27 FY 28 FY 29 FY 30 Mi l l i o n s Capital Program Contribution Projected CIP Expenditure Item 1 Staff Report        Item 1: Staff Report Pg. 14  Packet Pg. 18 of 113  Page 15 of 27 6 5 8 3 Debt Service Table 6: Water Utility Debt Service ($000) FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 2009 Water Revenue Bond, Series A (net of subsidy)2,181 2,201 2,225 2,251 2,280 2,316 2011 Utility Revenue Refunding Bond, Series A 654 656 0 0 0 0 Total 2,835 2,857 2,225 2,251 2,280 2,316 Reserves Item 1 Staff Report        Item 1: Staff Report Pg. 15  Packet Pg. 19 of 113  Page 16 of 27 6 5 8 3 later in this report, or explore other measures to address the funding needs. Figure 7 shows the Water Utility’s year-end reserve balances from FY 2024 through FY 2030 and Table 7 summarizes the Water Utility’s reserve balances and transfers from FY 2025 through FY 2030. Figure 6: Operations Reserve Adequacy Figure 7: Water Utility Reserves Actual Year End Reserve Levels through FY 2024 and Projections through FY 2030 Reserve Maximum Reserve Target Reserve Minimum Risk Assessment 0 5 10 15 20 25 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actual Projection $ M i l l i o n s Fiscal Year Reserve (Year-End) 0 5 10 15 20 25 30 35 40 45 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year Unassigned Reappropriations (Non-CIP) Rate Stabilization Reserve Capital Reserve Operations Reserve Item 1 Staff Report        Item 1: Staff Report Pg. 16  Packet Pg. 20 of 113  Page 17 of 27 6 5 8 3 Table 7: Operations & Unassigned, Rate Stabilization and CIP Reserves Starting and Ending Balances, Revenues, Transfers To/(From) Reserves and Capital Program Contribution To/(From) Reserves Projected for FY 2025 to FY 2030 ($000) * Planned CIP (item 13) is reflected as an expense in the CIP Reserve and does not include CIP funded through Reappropriations or Commitments reserves. This will be funded with the $6 million Capital Program Contribution (item 11). Table 8 summarizes the risk assessment calculation for the Water Utility through FY 2030. The risk assessment includes the revenue shortfall of 14% that could occur due to lower than forecasted sales revenue. FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Total Non-Commodity Revenue $ 34,629 $ 39,800 $ 45,266 $ 49,970 $ 54,530 Max. Revenue Variance, Previous Ten Years 14%14%14%14%14% Risk of Revenue Loss $ 3,317 $ 3,812 $ 4,336 $ 4,787 $ 5,223 Total Risk Assessment Value $ 3,317 $ 3,812 $ 4,336 $ 4,787 $ 5,223 The Water Utility’s rates are evaluated and implemented in compliance with the cost-of-service requirements and procedural rules set forth in Article XIII D of the California Constitution (Proposition 218) and applicable statutory law. The City structured current rates based on staff’s assessment of the financial position of the Water Utility and updated current rates using the Item 1 Staff Report        Item 1: Staff Report Pg. 17  Packet Pg. 21 of 113  Page 18 of 27 6 5 8 3 methodology and rate structures developed by Raftelis Financial Consultants, Inc. (RFC).2 The Water Utility’s rates are based on RFC’s 2019 update to the 2015 cost of service study, which reviewed the City’s most recent cost of service methodologies and rate structures and declared both fundamentally sound. Before conducting any new cost of service study, staff will review current water rates and the scope of the study with the Utilities Advisory Commission (UAC) and Council to determine the City’s policy priorities. The current rates and surcharges became effective on July 1, 2024. CPAU has five water rate schedules: separately metered residential customers (W-1), commercial and master-metered multi-family residential customers (W-4), irrigation-only services (W-7), 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 metering, billing, and other customer service costs, and also the cost of maintaining the capability to deliver a peak flow for that customer based on their meter size. 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, including most multi-family customers, pay a uniform price for each CCF used. A separate rate per CCF exists for separately metered irrigation service. Water rates are composed of two general types of costs: commodity and distribution. For July 1, 2025, staff proposes to pass through any increase in the SFPUC wholesale water rate and to increase distribution rates by 17%. Customers have a separate commodity rate for purchased water from SFPUC relative to the rest of the distribution-related portion of the volumetric rates. 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. In 2024, Palo Alto used the Prop 218 process and the Council adopted the pass-through process effective July 1, 2024 through June 30, 2029 pursuant to Resolution 101763. The separate commodity charge passed-through SFPUC rate increases to customers. All customers pay this 2 RFC has developed 3 cost studies for the City: a 2019 Memorandum analyzing the 2015 methodology and rate structure, titled Proposed FY 2020 Water Rates https://www.cityofpaloalto.org/civicax/filebank/documents/71892; a 2015 study reviewing the 2012 methodology and analyzing drought rates entitled, Memorandum: Proposed Water Rates, https://www.cityofpaloalto.org/civicax/filebank/documents/48398 and a March 2012 Palo Alto Water Cost of Service & Rate Study https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city- manager-reports-cmrs/year-archive/2012/id-2676-04-18-12-1.pdf 3 Resolution 10176 https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=62048 Item 1 Staff Report        Item 1: Staff Report Pg. 18  Packet Pg. 22 of 113  Page 19 of 27 6 5 8 3 separate commodity rate, currently $5.67 per CCF, for each unit of water in addition to the volumetric rate that is applicable for their customer class. The rates shown below are in addition to the pass-through commodity rate charged to Palo Alto’s customers based on SFPUC supply charges. For further information and details about the proposed commodity rate, see Water Purchase Cost section above. Table 9: Current and Proposed Water Distribution Charges Current (7/1/2024) Proposed (7/1/2025) Change ($/CCF)Change (%) W-1 (Residential) Volumetric Rates ($/CCF) Tier 1 Rates 2.99 3.49 0.50 17% Tier 2 Rates 6.96 8.14 1.18 17% W-2 (Construction) Volumetric Rates ($/CCF) Uniform Rate 4.21 4.92 0.71 17% W-4 (Commercial) Volumetric Rates ($/CCF) Uniform Rate 4.21 4.92 0.71 17% W-7 (Irrigation) Volumetric Rates ($/CCF) Uniform Rate 6.41 7.49 1.08 17% Item 1 Staff Report        Item 1: Staff Report Pg. 19  Packet Pg. 23 of 113  Page 20 of 27 6 5 8 3 Table 10 and Table 11 show the current monthly service charges for rate schedules W-1, W-4 and W-7. These monthly service charges are also considered distribution rates. Table 10: Current and Proposed Monthly Service Charges for Residential W-1 Monthly Service Charge ($/month based on meter size)ChangeMeter Size Current (7/1/2024) Proposed (7/1/2025)$% 5/8”23.62 27.63 4.01 17% 3/4”23.62 27.63 4.01 17% 1”23.62 27.63 4.01 17% 1 ½”76.31 89.28 12.97 17% 2”118.05 138.11 20.06 17% 3”250.22 292.75 42.53 17% 4”445.01 520.66 75.65 17% 6”911.09 1,065.97 154.88 17% 8”1,676.31 1,961.28 284.97 17% 10”2,650.21 3,100.74 450.53 17% 12”3,485.00 4,077.45 592.45 17% Table 11: Current and Proposed Monthly Service Charges for W-4 and W-7 Monthly Service Charge ($/month based on meter size)ChangeMeter Size Current (7/1/2024) Proposed (7/1/2025)$% 5/8”20.65 24.16 3.51 17% 3/4”27.62 32.31 4.69 17% 1”41.53 48.59 7.06 17% 1 ½”76.31 89.28 12.97 17% 2”118.05 138.11 20.06 17% 3”250.22 292.75 42.53 17% 4”445.01 520.66 75.65 17% 6”911.09 1,065.97 154.88 17% 8”1,676.31 1,961.28 284.97 17% 10”2,650.21 3,100.74 450.53 17% 12”3,485.00 4,077.45 592.45 17% Item 1 Staff Report        Item 1: Staff Report Pg. 20  Packet Pg. 24 of 113  Page 21 of 27 6 5 8 3 Table 12 shows the current and proposed monthly service charges for rate schedule W-3. Table 12: Current and Proposed Monthly Service Charges for Fire Services (W-3) Monthly Service Charge ($/month based on meter size)ChangeMeter Size Current (7/1/2024) Proposed (7/1/2025)$% 2”$4.86 5.68 0.82 17% 4”$30.11 35.22 5.11 17% 6”$87.46 102.32 14.86 17% 8”$186.39 218.07 31.68 17% 10”$335.21 392.19 56.98 17% 12”$541.46 633.50 92.04 17% Bill Impacts Table 1 shows the impact of the proposed July 1, 2025 rate changes on the median residential bill. The system average increase is projected to be 10%, but some customers will see higher or lower increases due to changes in the composition of the customer’s utilization of the system over time. Table 13: Impact of Proposed Water Rate Changes on Residential Bills Usage (CCF/mo.)Bill under Current Rates (7/1/2024) Bill under Proposed Rates (7/1/2025)Change $/mo.% 4 $58.26 $64.75 $6.49 11% (Winter median) 7 $88.21 $97.24 $9.03 10% (Annual median) 9 $113.47 $125.10 $11.63 10% (Summer median) 14 $176.62 $194.75 $18.13 10% 25 $315.55 $347.98 $32.43 10% Item 1 Staff Report        Item 1: Staff Report Pg. 21  Packet Pg. 25 of 113  Page 22 of 27 6 5 8 3 Table 14 shows the impact of the proposed July 1, 2025 rate changes on the median commercial bill. Table 14: Impact of Proposed Water Rate Changes on Commercial Bills Change Usage (CCF/mo.)Bill under Current Rates (7/1/2024) Bill under Proposed Rates (7/1/2025)$/mo.% Commercial (W-4) (5/8” meters) (Annual median) 12 $139.21 $152.68 $13.47 10% (Annual average) 64 $652.97 $709.60 $56.63 9% Irrigation (W-7) (1 ½” meters) (Winter median) 9 $185.03 $208.80 $23.77 13% (Summer median) 37 $523.27 $580.64 $57.37 11% (Winter average) 56 $752.79 $832.96 $80.17 11% (Summer average) 199 $2,480.23 $2,732.00 $251.77 10% Bill Comparisons/Competitiveness Table 15: Single-Family Residential Monthly Water Bill Comparison, Compared to Neighboring Communities at Current Rates ($/Month), as of January 2025 * Based on the FY 2013 BAWSCA survey, the percentage of SFPUC as the source of potable water supply Alternative Item 1 Staff Report        Item 1: Staff Report Pg. 22  Packet Pg. 26 of 113  Page 23 of 27 6 5 8 3 capital work during the five-year forecast period. Table 2 in the Executive Summary shows the Alternate water rate trajectory from FY 2026 through FY 2030. Table 16: Water Utility Debt Service ($000) (Alternative) FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 2009 Water Revenue Bond, Series A (net of subsidy) 2011 Utility Revenue Refunding Bond, Series A Hypothetical New Bond for Tank Replacement Costs Total Item 1 Staff Report        Item 1: Staff Report Pg. 23  Packet Pg. 27 of 113  Page 24 of 27 6 5 8 3 Figure 8: Water Utility Expenses, Revenues and Rate Changes, Actual Costs through FY 2024 and Projections through FY 2030 (Alternative) 4%3%1%0%0% 5%5% 9.5% 10%10% 10%7%7% 0 10 20 30 40 50 60 70 80 90 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year Capital* Operations Water Supply Debt Service Revenue Rate Changes Reserve Maximum Reserve Target Reserve Minimum Risk Assessment 0 5 10 15 20 25 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year Reserve (Year-End) Item 1 Staff Report        Item 1: Staff Report Pg. 24  Packet Pg. 28 of 113  Page 25 of 27 6 5 8 3 Next Steps Staff plans to include the Finance Committee’s recommendations for water rate changes in the notification of potential rate increases to customers as required by Article XIIID of the State Constitution (added by Proposition 218) expected in May 2025. Staff will incorporate the Finance Committee’s recommendations into the draft financial forecast and attachments and bring those to the City Council in June. The City Council will consider the proposed financial forecasts and amended rate schedules with the FY 2026 budget, expected in June, at which time the public hearing required by Article XIIID of the State Constitution will be held. If Council approves the proposed rate increases, they will become effective July 1, 2025. FISCAL/RESOURCE IMPACT Based on the rate increases as shown, the estimated revenue impacts in FY 2026 would be an increase of $5.6 million in the Water Fund. Utility rate increases impact the general fund because the City is a utilities customer. The impact to the general fund of these rate increases is a $0.2 million expense increase. POLICY IMPLICATIONS The proposed water rate adjustments are consistent with Council-adopted Reserve Management Practices that are part of the Financial Forecast and were developed using a cost-of-service study and methodology consistent with the California Constitution and industry-accepted cost-of- service principles. STAKEHOLDER ENGAGEMENT Staff presented the Water Utility rate proposal to the UAC during the March 5, 2025 meeting and the UAC voted unanimously to recommend that the City Council adopt a resolution approving the 17% distribution rate and 10% overall rate increase for FY 2026. The UAC also recommended that the Finance Committee and City Council consider the potential cost saving activities as discussed by the UAC Subcommittee and reallocate any savings to restore reserves (credit card separate charge, electric vehicle replacement policies). Additional feedback from the Finance Committee will be incorporated in the financial forecast and included in the proposal presented to City Council in June 2025 during the budget adoption process. On December 3, 20244, staff discussed preliminary rate proposals at the Finance Committee meeting. Finance Committee members asked questions including whether the reserve guidelines levels are correct or whether we can have lower reserve levels and cautioned that messaging around the water increase will be very important. A reserve study is not currently in staff’s work plan. One Committee member requested a bill comparison to Bay Area agencies that rely 100% on the Regional Water System for potable water, and staff has included that information in the presentation for this item. One Committee member suggested making it clear that Palo Alto 4 December 3, 2024 Finance Committee Meeting, Staff Report https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=64761 , Minutes https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=39017 , Video https://www.youtube.com/watch?v=-tshOdaDA3A%3Ffeature%3Dshare Item 1 Staff Report        Item 1: Staff Report Pg. 25  Packet Pg. 29 of 113  Page 26 of 27 6 5 8 3 customers benefit both from Regional Water System water reliability during droughts as well as from the pristine water quality. Committee members cautioned that deferring water capital work to a later year could cause more costs from price inflation. One Committee member expressed concern that a 14% water rate increase (the cost recovery rate increase without deferring maintenance or seismic rehabilitation projects) would not be palatable to the community. On December 4, 20245, staff discussed the preliminary rate proposals at the UAC meeting. UAC commissioners asked for the drivers behind the distribution rate increase as well as more detailed information about cost categories (including allocated costs, vehicle replacement, salaries and benefits, non-revenue water, electricity costs, and costs to comply with new regulations). In response, staff has presented additional detail regarding the cost drivers in this report. One Commissioner requested a plan to limit the rate increase to 10% and Commissioners also asked for information about SFPUC’s planned wholesale rate increase. Staff took this feedback into consideration and made modifications to the preliminary rate proposals reflected in this report. Additional feedback from the UAC and Finance Committee meetings in 2025 will be incorporated in the financial forecast and included in the proposal presented to City Council in June 2025 during the budget adoption process. Attachment E contains examples of CPAU’s communication and outreach methods including the use of the utilities website, utility bill inserts, messaging on utility bills and MyCPAU online account management platform, email newsletters, print and digital ads in local publications, social media, community messaging platforms, and through direct mailings of the Home Water Reports and online WaterSmart portal. ENVIRONMENTAL REVIEW The Finance Committee’s review and recommendation to Council on the FY 2026 Water Utility financial forecast and rate schedule adjustments does not meet the California Environmental Quality Act’s definition of a project, pursuant to Public Resources Code Section 21065, thus no environmental review is required. ATTACHMENTS: Attachment A: Water Resolution FY26 Attachment B: Water Utility Rate Schedules FY26 Attachment C: Water Utility Financial and CIP Tables FY26 Attachment D: Water Reserves Management Practices Attachment E: Water Utility Communications Plan and Samples 5 December 4, 2024 Utilities Advisory Commission, Staff Report https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=d7cd6030-1d05-412e-a96b-cabd33557bc1, Minutes https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=41244 , Video https://www.youtube.com/watch?v=tfznidSYXiU%3Ffeature%3Dshare Item 1 Staff Report        Item 1: Staff Report Pg. 26  Packet Pg. 30 of 113  Page 27 of 27 6 5 8 3 APPROVED BY: Item 1 Staff Report        Item 1: Staff Report Pg. 27  Packet Pg. 31 of 113  *NOT YET APPROVED* Attachment A 1 027031225 Resolution No. Resolution of the Council of the City of Palo Alto Approving the FY 2026 Water Utility Financial Forecast and Reserve Transfers, and 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. 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. The City does this with the goal of providing safe, reliable, and sustainable utility services at competitive rates. The City adopts Financial Forecasts or 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 Forecasts or Plans. C. 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. D. On June 16, 2025, the City Council held a full and fair public hearing regarding the proposed rate increase and considered all protests against the proposals. E. As required by Article XIII D, Section 6 of the California Constitution and applicable law, notice of the June 16, 2025 public hearing was mailed to all City of Palo Alto Utilities water customers by May 2, 2025. F. 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. Item 1 Attachment A Water Resolution FY26        Item 1: Staff Report Pg. 28  Packet Pg. 32 of 113  *NOT YET APPROVED* Attachment A 2 027031225 The Council of the City of Palo Alto does hereby RESOLVE, as follows: SECTION 1. The Council hereby adopts the FY 2026 Water Utility Financial Forecast attached to and made a part of the staff report presented to the City Council. SECTION 2. The Council hereby approves a transfer from the Rate Stabilization Reserve to the Operations Reserve of up to $3,000,000 in FY 2025 as described in the FY 2026 Water Utility Financial Forecast. SECTION 3. 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, 2025. SECTION 4. 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, 2025. SECTION 5. 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, 2025. SECTION 6. 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, 2025. SECTION 7. 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, 2025. SECTION 8. The City Council finds that the revenues derived from the water rates approved by this resolution do not exceed the funds required to provide water service, do not exceed the proportional cost of the water service attributable to the parcel, and 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. SECTION 9. 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. Item 1 Attachment A Water Resolution FY26        Item 1: Staff Report Pg. 29  Packet Pg. 33 of 113  *NOT YET APPROVED* Attachment A 3 027031225 SECTION 10. The Council finds that the adoption of this resolution approving the FY 2026 Water Financial Forecast and Reserve transfers 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. 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 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 Utilities Director of Administrative Services Item 1 Attachment A Water Resolution FY26        Item 1: Staff Report Pg. 30  Packet Pg. 34 of 113  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 7-1-20245 dated 7-1-20234 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 Service. C. RATES: Per Meter Monthly Service Charge: Per Month For meters 5/8-inch to 1 inch .................................................................................... $ 27.63 23.62 For 1 1/2 inch meter .................................................................................................. 89.28 76.31 For 2-inch meter ........................................................................................................ 138.11 118.05 For 3-inch meter ........................................................................................................ 292.75 250.22 For 4-inch meter ........................................................................................................ 520.66 445.01 For 6-inch meter ........................................................................................................1,065.97 911.09 For 8-inch meter ........................................................................................................1,961.28 1,676.31 For 10-inch meter ......................................................................................................3,100.74 2,650.21 For 12-inch meter .......................................................................................................4,077.45 3,485.00 Per Hundred Cubic Feet Volumetric Rates: (To be added to Service Charge, applicable to all pressure zones.) Per Month Commodity Rate: Water Delivery Charge from SFPUC ......................................................................... $ 5.795.67 Distribution Rate: Tier 1 usage ........................................................................................................................$ 3.492.99 Tier 2 usage (All usage over 100% of Tier 1) .......................................................................8.146.96 Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 31  Packet Pg. 35 of 113  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 7-1-20245 dated 7-1-20234 Sheet No W-1-2 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.4. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf). 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 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 2025 through 2029, inclusive. Customers will be provided notice of any adjustments via their billing statements or by any other mailing by CPAU to the customer’s regular billing address. Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 32  Packet Pg. 36 of 113  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 7-1-20245 dated 7-1-20234 Sheet No W-1-3 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. 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} Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 33  Packet Pg. 37 of 113  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 7-1-20245 dated 7-1-20234 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. Volumetric Rate: (per hundred cubic feet) Commodity Rate: Water Delivery Charge from SFPUC ................................................................ $ 5.795.67 Distribution Rate: .................................................................................................................$ 4.214.92 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.6. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf). Level 1 (10/15%) Level 2 (20%) Level 3 (25%) Surcharge 0.26 0.53 0.77 Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 34  Packet Pg. 38 of 113  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 7-1-20245 dated 7-1-20234 Sheet No W-2-2 D. SPECIAL NOTES: 1. Monthly charges shall include the applicable monthly Service Charge in addition to usage billed at the commodity rate. 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 2025 through 2029, inclusive. Customers will be provided notice of any adjustments via their billing statements or by any other mailing by CPAU to the customer’s regular billing address. 3. 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. 4. 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. 5. 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. 6. 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} Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 35  Packet Pg. 39 of 113  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 7-1-20245 dated 7-1-20234 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 .......................................................................................................$ 5.68 4.86 4-inch connection .......................................................................................................35.22 30.11 6-inch connection ....................................................................................................... 102.32 87.46 8-inch connection .......................................................................................................218.07 186.39 10-inch connection .....................................................................................................392.19 335.21 12-inch connection .....................................................................................................633.50 541.46 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. Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 36  Packet Pg. 40 of 113  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 7-1-20245 dated 7-1-20234 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} Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 37  Packet Pg. 41 of 113  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 7-1-20254 dated 7-1-20234 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 .................................................................................... $ 24.1620.65 For 3/4-inch meter .................................................................................... 32.31 27.62 For 1-inch meter .................................................................................... 48.59 41.53 For 1 ½-inch meter .................................................................................... 89.28 76.31 For 2-inch meter .................................................................................... 138.11 118.05 For 3-inch meter .................................................................................... 292.75 250.22 For 4-inch meter .................................................................................... 520.66 445.01 For 6-inch meter ....................................................................................1,065.97 911.09 For 8-inch meter ....................................................................................1,961.28 1,676.31 For 10-inch meter ....................................................................................3,100.74 2,650.21 For 12-inch meter ....................................................................................4,077.45 3,485.00 Per Hundred Cubic Feet Volumetric Rates: (to be added to Service Charge, applicable to all pressure zones) Per Month Commodity Rate: Water Delivery Charge from SFPUC ...................................................... $ 5.675.79 Distribution Rate: ........................................................................................... 4.924.21 Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 38  Packet Pg. 42 of 113  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 7-1-20254 dated 7-1-20234 Sheet No W-4-2 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.3. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf). 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 2025 through 2029, inclusive. Customers will be provided notice of any adjustments via their billing statements or by any other mailing by CPAU to the customer’s regular billing address. 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 Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 39  Packet Pg. 43 of 113  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 7-1-20254 dated 7-1-20234 Sheet No W-4-3 consumption. {End} Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 40  Packet Pg. 44 of 113  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 7-1-20242025 dated 7-1-20234 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 .................................................................................... $ 24.1620.65 For 3/4-inch meter .................................................................................... 32.31 27.62 For 1-inch meter .................................................................................... 48.59 41.53 For 1 1/2 inch meter .................................................................................... 89.28 76.31 For 2-inch meter .................................................................................... 138.11 118.05 For 3-inch meter .................................................................................... 292.75 250.22 For 4-inch meter .................................................................................... 520.66 445.01 For 6-inch meter ....................................................................................1,065.97 911.09 For 8-inch meter ....................................................................................1,961.28 1,676.31 For 10-inch meter ....................................................................................3,100.74 2,650.21 For 12-inch meter ....................................................................................4,077.45 3,485.00 Per Hundred Cubic Feet Volumetric Rates: (to be added to Service Charge, applicable to all pressure zones) Per Month Commodity Rate: Water Delivery Charge from SFPUC ........................................................... $ 5.795.67 Distribution Rate: ..................................................................................................... 6.417.49 Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 41  Packet Pg. 45 of 113  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 7-1-20242025 dated 7-1-20234 Sheet No W-7-2 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.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%) 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 2025 through 2029, inclusive. Customers will be provided notice of any adjustments via their billing statements or by any other mailing by CPAU to the customer’s regular billing address. 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} Attachment B Item 1 Attachment B Water Utility Rate Schedules        Item 1: Staff Report Pg. 42  Packet Pg. 46 of 113  Attachment C Item 1 Attachment C Water Utility Financial and CIP Details        Item 1: Staff Report Pg. 43  Packet Pg. 47 of 113  Attachment C Water Utility Capital Improvement Program (CIP) Financial Details Item 1 Attachment C Water Utility Financial and CIP Details        Item 1: Staff Report Pg. 44  Packet Pg. 48 of 113  ATTACHMENT D: 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. 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 and approved by Council resolution. Item 1 Attachment D Water Reserve Management Practices FY26        Item 1: Staff Report Pg. 45  Packet Pg. 49 of 113  Minimum Level 20% of the maximum CIP Reserve guideline level Maximum Level Average annual (12 month)1 CIP budget, for 48 months of budgeted CIP expenses2 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: 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 there are funds in this reserve in excess of the maximum level staff must propose in the next Financial Plan to transfer these funds to another reserve, return the funds to ratepayers, or designate a specific use of the funds for CIP investments that will be made by the end of the next Financial Planning Period. 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. The Council may approve exceptions to this requirement, when proposed by staff to provide greater rate stabilization to customers. 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 1 Each month is calculated based upon 1/12 of the annual budget. 2 For example, in the Financial Plan for FY 2021, the 48 month period to use to derive the annual average is FY 2021 through FY 2024. In the FY 2022 Financial Plan, the 48 month period to use to derive the annual average would be FY 2022 through FY 2025 etc. Item 1 Attachment D Water Reserve Management Practices FY26        Item 1: Staff Report Pg. 46  Packet Pg. 50 of 113  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. Item 1 Attachment D Water Reserve Management Practices FY26        Item 1: Staff Report Pg. 47  Packet Pg. 51 of 113  Attachment E COMMUNICATIONS PLAN/SAMPLES The Fiscal Year (FY) 2026 water utility communications strategy covers these primary areas: recently implemented cost containment measures, cost drivers for rate increases, including operations and capital improvement, commodity costs, reserve balances, utility bill comparisons, and efficiency programs and services to help keep utility bill costs low. The City of Palo Alto Utilities (CPAU) communication methods include use of the utilities website, utility bill inserts, messaging on utility bills, MyCPAU online account management platform, email newsletters, print and digital ads in local publications, social media, community messaging platforms, and through direct mailings of the Home Water Reports and online WaterSmart portal. As a not for profit public utility, CPAU must recover its costs primarily through revenue generated by rates. Any increased supply costs are passed through rates to CPAU customers, including for capital improvement. The cost to deliver water supply to Palo Alto and for CPAU to distribute water to customers is high, as it includes maintaining and replacing water infrastructure, customer service, billing, and administration. CPAU’s communication about water utility rates will focus on the forecasted increase in costs passed down from Palo Alto’s water supplier, the San Francisco Public Utilities Commission (SFPUC), ongoing capital improvement and infrastructure upgrades, and what CPAU is doing to keep costs down. Maintaining water pipes, mains, and service connections is necessary to prevent leaks, which cost the utility and rate payers money, and prevents damage to infrastructure which could exacerbate safety and reliability concerns in the long term. CPAU promotes water use efficiency programs and easy water-saving behaviors to aid in our water saving efforts and help customers keep utility costs low. Messaging reinforces that although rates may increase, efficient usage can help customers avoid seeing a significant water cost increase on the utility bill. The City is also exploring opportunities to expand use of alternative water supplies and is working on a One Water Plan for that purpose to further reduce demands on potable water supplies in the future. Staff maintain a dedicated webpage at cityofpaloalto.org/ratesoverview to provide an overview on all utility rates, costs to the utility, updates to financial forecasts and proposed rate changes. While print materials such as bill inserts and ads feature prominently, CPAU is exploring additional ways to communicate directly to customers utilizing unique programs like the relatively new WaterSmart portal and Home Water Reports, in addition to the near real-time water usage data provided by new Advanced Metering Infrastructure (AMI) and the ability to send customers alerts about high water usage. Staff continue to maintain an active presence in social media and information sharing through citywide email newsletters. Staff attend community outreach events and host educational workshops on these related topics. Item 1 Attachment E Water Utility Communications Plan and Samples        Item 1: Staff Report Pg. 48  Packet Pg. 52 of 113  Attachment E Item 1 Attachment E Water Utility Communications Plan and Samples        Item 1: Staff Report Pg. 49  Packet Pg. 53 of 113  1 5 8 7 9 Finance Committee Staff Report From: Kiely Nose, Interim Director of Utilities Report Type: ACTION ITEMS Lead Department: Utilities Meeting Date: April 1, 2025 Report #: 2412-3871 TITLE Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year 2026 Wastewater Collection Utility Financial Forecast, and 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), and Repealing Rate Schedules S-3 (Industrial Waste Laboratory and Analysis Charges) and S-4 (Hauled Liquid Waste Charges) RECOMMENDATION The Utilities Advisory Commission and Staff request that the Finance Committee recommend that the City Council adopt a resolution (Attachment A): 1. Approving the Fiscal Year 2026 Wastewater Collection Utility Financial Forecast shown in this staff report and attachments; and 2. Amending Rate Schedules (Attachment B) effective July 1, 2025 (FY 2026): a. S-1 (Residential Wastewater Collection and Disposal) b. S-2 (Commercial Wastewater Collection and Disposal) c. S-6 (Restaurant Wastewater Collection and Disposal) d. S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger); and 3. Repealing Rate Schedules effective July 1, 2025: a. S-3 (Industrial Waste Laboratory and Analysis Charges) b. S-4 (Hauled Liquid Waste Charges) EXECUTIVE SUMMARY The City of Palo Alto Utilities (CPAU) provides electricity, water, wastewater, natural gas, and fiber optic services to the Palo Alto community. The Public Works Department also provides refuse collection and processing for recycling, compost and garbage, wastewater treatment and stormwater management. The City’s primary goals are to manage these services in a way that ensures continued safe, reliable, environmentally sustainable, and cost-effective operations. The City is proposing rate increases this year for electric, natural gas, wastewater and water services. Stormwater management fees will increase per the Consumer Price Index (CPI) as approved by residents in a 2017 ballot measure. The City strives to be transparent with utilities customers about the reason for rate changes, including explaining the cost Item 2 Staff Report        Item 2: Staff Report Pg. 1  Packet Pg. 54 of 113  2 5 8 7 9 drivers, benefits to customers, what the City is doing to keep costs low for ratepayers, and the services and programs provided by the City to help customers keep utility bill costs low. Attachment E outlines CPAU’s plan for communicating rate changes to customers. Staff are presenting an overview of the financial forecast and rate change proposal for each utility service to the Utilities Advisory Commission (UAC) and Finance Committee prior to City Council review and approval in June 2025. The Wastewater Collection Utility financial forecast proposes a 20% rate increase for FY 2026, which is equivalent to approximately $11 per residential customer per month. With this increase, Palo Alto’s rate will remain approximately 5% below neighboring cities, conservatively assuming that neighboring cities’ rates remain at current levels. This forecast also projects rate increases of 17% annually in FY 2027, 15% in FY 2028 and 5% annually in FY 2029 and FY 2030. The additional funding generated by this rate increase is required to pay for ongoing wastewater treatment costs, wastewater utility operations, and capital improvement projects. This forecast reflects deferral of some capital costs to manage the magnitude of the rate increase. Staff updated the utility’s cost projections for the FY 2025 to FY 2030 forecast period based on the most recent recorded costs and rates of cost increases. Relative to last year’s financial forecast, total expenses are expected to be about 14% higher over the forecast period, due to higher treatment costs and salary and benefits and inflation assumptions. To address these challenges, similar to last year’s forecast, this projection assumes deferral of the next sewer main replacement project to FY 2028. This assumption defers the more accelerated replacement cycle adopted in the FY 2024 financial plan to increase replacement from 1 miles to 2.5 miles of pipe annually starting in FY 2026. In last year’s Financial Plan, staff planned for a smaller main replacement in FY 2026 to replace 1 mile of sewer mains. This project is now deferred, and this forecast defers approximately $0.45 million of sewer lateral/manhole rehabilitation and replacement work in FY 2025 to future years. This forecast reflects the minimal number of high priority capital projects to allow the Wastewater Collection Operations Reserve to return to within guideline range and avoid an even higher rate increase. Table 1: Current Year (FY 2025) and Projected Rate Trajectory from FY 2026 to FY 2030 In the preliminary rate meetings with the Utilities Advisory Commission (UAC) on December 4, 2024 and with the Finance Committee on December 3, 2024, staff presented a rate trajectory of 18% in FY 2026, 15% in FY 2027 and FY 2028, and 9% in FY 2029 and FY 2030. This forecast proposes higher rate increases. Key reasons for the change are that this forecast includes additional vehicle replacement costs of $0.45 million in FY 2025, $0.4 million in FY 2026 and $0.1 million per year ongoing for based on staff’s latest projections. Additionally, this forecast adds Item 2 Staff Report        Item 2: Staff Report Pg. 2  Packet Pg. 55 of 113  3 5 8 7 9 approximately $0.35 to $0.4 per year from FY 2027 through FY 2030 for the CCTV program to assess pipe conditions and prioritize necessary sewer replacements. BACKGROUND ANALYSIS FY 2024 Costs and Revenues 232 below summarizes key reasons for the variances from forecast. Table 23: FY 2024 Actuals vs. Prior Year’s Forecast ($000) Net Cost/ (Benefit) Variance Type of Change Item 2 Staff Report        Item 2: Staff Report Pg. 3  Packet Pg. 56 of 113  4 5 8 7 9 Higher vehicle replacement and operations and maintenance salaries and benefits 888 Cost increase Lower CIP (395)Cost decrease Net Cost / (Benefit) of Variances 1,310 Net Cost Increase Projections Overview In the current year (FY 2025), staff projects sales revenues will be about $0.6 million, or 2%, higher compared to last year’s forecast, driven by a modest recovery in the commercial sector. On the expense side, staff estimates treatment costs in FY 2025 to be about $0.9 million, or 7%, lower than last year’s forecast, due to grant funding from Santa Clara Valley Water District’s “Guiding Principle 5” Program (GP5) 1. However, collection costs are projected to increase by about $1 million, or 11%, in FY 2025, attributed to higher salaries and benefits, and vehicle replacement expenses. Additionally, CIP costs are expected to decrease by about $1.2 million, or 29%, in FY 2025, reflecting the one-time deferral of a Sanitary Sewer Replacement/ Rehabilitation (SSR) project. Looking ahead, from FY 2025 to FY 2030, the forecasting period, treatment costs are projected to rise by an average of 9% annually, while collection costs are expected to grow by 10% annually. Over the forecast period, higher sales revenues are expected primarily due to rate increases, though interest revenues are projected to be slightly lower than outlined in last year’s projection due to low reserves. These rate increases are necessary to pay for rising treatment and collection system operation costs. Figure 1 illustrates actual revenues and expenses through FY 2024, along with projections through FY 2030. 1 GP5 https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=c7841814-4682-4e54-b1e7- f48fe8292e5c Item 2 Staff Report        Item 2: Staff Report Pg. 4  Packet Pg. 57 of 113  5 5 8 7 9 Figure 1: Wastewater Collection Utility Expenses, Revenues and Rate Changes * FY25 Commitments and Reappropriations reserves balances for Operations and Capital Investment are anticipated to be utilized in FY26 and FY27 Staff anticipates a modest recovery in sales revenue for FY 2025, driven primarily by the rate increase implemented in July 2024 and increased sales among non-residential customers and restaurants. Other revenue sources include capacity and connection fees, which are cost- recovery fees from new customers and service expansions, as well as income from interest and transfers, which fluctuate annually. Due to higher expected expenses, staff is proposing higher rate increases compared with the prior financial forecast, which are detailed in the sections below. With the proposed rate increases, overall revenues are projected to grow by an average of 12% annually from FY 2025 through FY 2030, which will gradually bring the Operations Reserve back to within the guideline range by the end of FY 2028 and allow the CIP Reserve to also be replenished gradually by FY 2030. Over the five-year forecast period, total expenses are expected to increase by 9% annually from FY 2025 to FY 2030.2 This increase is primarily driven by rising costs for treatment (9% annual average increase), shifting of sewer main replacements to FY 2028 (20% annual average increase), construction inflation and operating costs including salaries and benefits (operating 2 Because CIP fluctuates from year to year, this calculation assumes a three-year average of CIP for FY 2025 - FY 2027 and a two-year average for FY 2030 – FY 2031 in order to provide a more accurate view of estimated CIP costs over time. Item 2 Staff Report        Item 2: Staff Report Pg. 5  Packet Pg. 58 of 113  6 5 8 7 9 costs are forecasted to increase 3% on average over the same time period). Table 3 below shows the costs for treatment and collection expenses, which will be described in the sections below. Table 3: Wastewater Utility Costs for FY 2024 to FY 2030 ($,000) Actuals ProjectionExpenses ($000)FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Treatment 13,803 12,317 15,456 16,071 16,492 16,048 19,285 Treatment Operations 10,387 9,362 10,486 10,853 11,233 11,626 12,033 Treatment Capital & Debt Service/Loan repayments 3,417 2,059 2,643 2,908 2,949 3,008 5,838 Treatment Authorized Amount for Future Minor Capital - 896 2,327 2,310 2,310 1,414 1,414 Collection 20,111 12,980 15,846 18,714 23,617 25,790 27,020 Collection Operations * 8,765 9,963 11,044 10,081 10,479 10,890 11,317 Collection Capital * 11,217 3,221 5,187 9,000 13,000 15,000 16,000 Collection Debt** 129 - - - - - - TOTAL 33,915 25,501 31,688 35,152 39,970 41,938 46,602 *CIP and Operations Expenses in the projected years include changes due to commitments/reappropriations and funds transferred to the Operations and CIP Reserves ** The Wastewater Collection Utility also borrowed $3 million from the Fiber Optics Utility through a short-term loan in FY 2024 and will be repaid in FY 2026. The Collection Operations row includes the estimated interest payment on the loan of $90K in FY 2025 and $90K in FY 2026. Item 2 Staff Report        Item 2: Staff Report Pg. 6  Packet Pg. 59 of 113  7 5 8 7 9 towards future pay-as-you-go capital needs as necessary. These amounts are referred to as the “remaining unencumbered & authorized amount for future pay-as-you-go capital (minor capital)” or the “Treatment Authorized Amount for Future Minor Capital.” The Wastewater Collection Utility may retain these amounts but must be prepared to pay them when needed. As of FY 2025, the remaining unencumbered and authorized amount for future pay-as-you-go capital for Palo Alto is approximately $3.5 million, up from $2.5 million at the end of FY 2024, with an additional $1.3 million added annually. The Wastewater Collection Utility has not been charging customers for the remaining unencumbered and authorized amounts for future pay-as- you-go capital (Minor Capital) and planned to use reserves to pay for fluctuations in these costs. The Wastewater Collection Utility’s risk assessment level for the operations reserve includes a 10% contingency for treatment costs to cover fluctuations such as these. However, due to the low operations reserve levels, the operations reserve is below risk assessment levels, and there are no reserve funds available to pay for remaining unencumbered and authorized amounts for future pay-as-you-go capital (Minor Capital). Item 2 Staff Report        Item 2: Staff Report Pg. 7  Packet Pg. 60 of 113  8 5 8 7 9 Wastewater Collection Utility will begin to pay for debt service for major projects beginning with the Primary Sedimentation Tank in FY 2026 (financed through a low-interest State Revolving Fund loan), Outfall Line Construction in FY 2027 (bond financed), Secondary Treatment Upgrades in FY 2030 and Headworks Facility in FY 2030 - FY 2034 (financing plan is still preliminary and may be a combination of bond and State Revolving Fund loans). Palo Alto’s low-interest State Revolving Fund loans for the Primary Sedimentation Tank and Secondary Treatment Upgrades are at fixed interest rates. However, for future bond financing and future State Revolving Fund loans, the rates of borrowing is uncertain and for the State Revolving Fund loans, availability of funds is also uncertain. •Joint Intercepting Sewer Rehabilitation •Outfall Line Construction •12kV Loop Electrical Improvements and •Headworks Item 2 Staff Report        Item 2: Staff Report Pg. 8  Packet Pg. 61 of 113  9 5 8 7 9 Table 4: GP5 Grant Funding Assumed to Offset Palo Alto’s Treatment Costs ($000) GP5 Grant 2,453 1,139 417 417 417 1,810 The chart below illustrates a scenario without GP5 funding. Wastewater rates would need to increase by 24% in FY 2026, followed by annual increases of 8% to 15% over the next four years, as shown in blue texts in the chart below. * FY25 Commitments and Reappropriations reserves balances for Operations and Capital Investment are anticipated to be utilized in FY26 and FY27 Collection Operations Operations costs include the Customer Service, Sewer Operations, Engineering, and Allocated Charges categories. Debt service, rent, and transfers are also included in this category. The Sewer 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. Allocated Charges include the costs of accounting, human resources, information technology, purchasing, legal, and other administrative functions provided by the City’s General and Internal Services Funds staff, as well Item 2 Staff Report        Item 2: Staff Report Pg. 9  Packet Pg. 62 of 113  10 5 8 7 9 as shared communications services and Utilities Department administrative overhead and billing system maintenance costs. A portion of these costs are allocated to operations costs and a portion to capital costs. Figure 3: Wastewater Collection Utility Operational Costs 0 2 4 6 8 10 12 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n Fiscal Year Debt Service Allocated Charges Collection Operations (w/ Engineering) Customer Service Transfers Item 2 Staff Report        Item 2: Staff Report Pg. 10  Packet Pg. 63 of 113  11 5 8 7 9 sewer system. The Wastewater Collection Utility completed SSR 31 in FY 2024 which replaced and rehabilitated over two miles of sanitary sewer main, sewer laterals and manholes. Most of the original clay pipes in Palo Alto were installed between 1950 and 1970. 136 miles of sewer mains remain to be replaced before the end of their useful life. Under the current replacement cycle of 2.5 miles of main replaced each year on average beginning in FY 2028, replacement of the remaining mains would take approximately 60 years and the last main would be approximately 111 years old before replacement. This rate of main replacement is based on Staff’s experience, other nearby communities’ experience, and the National Clay Pipe Institute Engineering Manual suggesting that clay pipe can last around 100 years in Palo Alto’s underground conditions. Staff re-evaluates and prioritizes future projects based on a structural rating system, feedback from Wastewater Operations and available budget. In addition, the City is currently updating the Sewer Master Plan with anticipated completion in summer 2025. Results from this plan will assist in identifying and prioritizing future SSR projects. Item 2 Staff Report        Item 2: Staff Report Pg. 11  Packet Pg. 64 of 113  12 5 8 7 9 Table 5: Projected CIP Spending, FY 2025 to FY 2030 ($,000) Debt Service The Wastewater Collection Utility paid the only outstanding debt for its share of the 1999 Utility Revenue Bonds, Series A, at the end of FY 2024. However, Council approved a short-term loan up to $3 million from the Fiber Optics Fund Reserve to cover the projected shortfall of cash in the Wastewater Collection Utility, with the plan to repay the Fiber Utility in FY 2026. The Wastewater Collection Utility borrowed the full $3 million at the end of FY 2024. The loan also included an interest payment rate equal to the City’s portfolio rate each quarter plus 0.25%, or about $90K per year, assuming a portfolio interest rate of 3%. Staff will continue to monitor the Wastewater Collection Utility’s available funds and costs and will make recommendations on loan repayment timing as appropriate. Staff is also considering debt financing some of the future SSRs. This could be beneficial for the Wastewater Collection Utility because it would allow needed construction work to move forward on sewer main replacements before FY 2028. It would also reduce the risk of further deferrals of main replacements beyond FY 2028 if operational costs, construction costs and treatment costs continue to inflate more than projected. The more that wastewater assets are operated past their useful life, the greater the likelihood of substantial pipe failures resulting in additional repair and maintenance costs, sanitary sewer overflows, sinkholes, or other catastrophic impacts. On the other hand, debt financing is most appropriate for large one-time projects and would not be able to be used as an ongoing financing method for regular main replacement projects that occur annually or every other year. Tax-exempt bonds require the funds to be spent within three years and so the funds could most likely be used to fund one large five-mile main replacement project. Additionally, Wastewater Collection Utility customers would ultimately pay interest on the funds borrowed that could add up to approximately a doubling of the total project cost compared to pay-as-you-go financing. Customers would also pay the bond issuance costs of approximately $0.25 – $0.28 million per bond issuance. The Wastewater Collection Utility does not have any stand-alone debt and has never been rated so staff does not know what the true interest rate would be on a bond. But the interest rate would depend on the nature of the investment, the Item 2 Staff Report        Item 2: Staff Report Pg. 12  Packet Pg. 65 of 113  13 5 8 7 9 size of the bond issuance, duration of the repayment period and whether interest is capitalized during construction. Reserves Staff expects the Operations Reserve to return to within the guideline range by the end of FY 2028 and increase to target levels by FY 2029. Figure 4: Operations Reserve Adequacy Note: Operations Reserve shown with a minimum balance of $0. The Wastewater Collection Utility borrowed $3 million in a short-term loan from the Fiber Optics Utility in FY 2024 to cover cash needs and will repay the loan in FY 2026. Table 6 summarizes the risk assessment calculation for the Wastewater Utility through FY 2030. The risk assessment includes the revenue shortfall that could occur due to: 1. Lower than forecasted sales revenue; and 2. An increase of 10% of treatment costs for the budget year; and 3. An increase of 10% of planned system improvement CIP expenditures for the budget year. CIP Contingency for FY 2027 and after is not needed due to resuming the use of the CIP reserve Reserve Minimum Reserve Target Reserve Maximum Risk Assessment 0 2 4 6 8 10 12 14 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year Reserve (Year-End) Item 2 Staff Report        Item 2: Staff Report Pg. 13  Packet Pg. 66 of 113  14 5 8 7 9 Table 6: Wastewater Collection Risk Assessment ($,000) Sales Revenue 25,652 30,736 35,994 41,418 43,640 45,822 Budget-to-Actual Risk @ 4% 1,043 1,227 1,438 1,654 1,743 1,830 Treatment Budget 12,317 15,456 16,071 16,492 16,048 19,285 Treatment Cost Contingency @10% 1,232 1,546 1,607 1,649 1,605 1,928 CIP Budget * 2,464 4,431 - - - - CIP Cost Contingency @10% * 246 443 - - - - 2,521 3,216 3,045 3,304 3,348 3,759 1,035 1,502 3,178 5,494 8,096 8,250 *CIP budget is excluded from FY 2027 onward The CIP Reserve is currently depleted, and in the short term, there are insufficient funds to maintain the annual Capital Program Contribution to the CIP Reserve. Contributions will resume in FY 2027 to ensure rate stability and consistent CIP expenditures. This will gradually re-establish the CIP Reserve within the guideline range by FY 2029. The Wastewater Utility Financial Table FY26 (Attachment D) shows the amount of the rate-funded CIP Reserve contributions under “Expenses” for FY 2027 through FY 2030. Figure 5 below shows the projected CIP Reserve balances from FY 2018 through FY 2030. The projected CIP expenditures fluctuate from year to year with the staggered main replacement schedule. Item 2 Staff Report        Item 2: Staff Report Pg. 14  Packet Pg. 67 of 113  15 5 8 7 9 Figure 5: Projected CIP Reserve Balances, FY 2018 to FY 2030 ($000) Figure 6 below shows year-end reserve balance levels for each reserve from FY 2018 through FY 2030. Table 7 shows reserve starting and ending balances, revenues, transfers expenses, capital program contribution and operations reserve guideline levels from FY 2025 to FY 2030. The Operations Reserve was depleted in FY 2023 and FY 2024 because the schedule for Sanitary Sewer Replacement 31 was accelerated to complete the replacement prior to Caltrans’ street improvement project on El Camino Real, to avoid digging into the newly-paved street; additionally, costs were higher than forecasted (primarily CIP-related costs and transfers out to capital projects) and revenue was lower than forecasted (primarily capacity fee revenue). Reserve Minimum Reserve Maximum 0 2 4 6 8 10 12 14 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year CIP Reserve (Year-End) Item 2 Staff Report        Item 2: Staff Report Pg. 15  Packet Pg. 68 of 113  16 5 8 7 9 Figure 6: Wastewater Collection Utility Year-End Reserves Levels, FY 2018 to FY 2030 Note: Operations Reserve shown with a minimum balance of $0. The Wastewater Collection Utility borrowed $3 million in a short-term loan from the Fiber Optics Utility in FY 2024 to cover cash needs and will repay the loan in FY 2026. $0 $2 $4 $6 $8 $10 $12 $14 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ ( M i l l i o n s ) Fiscal Year Rate Stabilization CIP Reappropriations & Commitments CIP Reserve Operations Reserve Item 2 Staff Report        Item 2: Staff Report Pg. 16  Packet Pg. 69 of 113  17 5 8 7 9 Table 7: Operations, Rate Stabilization and CIP Reserves Starting and Ending Balances, Revenues, Transfers To/(From) Reserves, Expenses, Capital Program Contribution To/(From) Reserves, and Operations Reserve Guideline Levels for FY 2025 to FY 2030 ($000) * The Wastewater Collection Utility borrowed $3 million in a short-term loan from the Fiber Optics Utility in FY 2024 and this covered the cash needs of the utility. The Wastewater Collection Utility will repay the loan in FY 2026. The current rates were effective July 1, 2024, when the City increased sewer rates by 15%. To align revenues with costs, CPAU proposes to increase overall rates by 20% in FY 2026, followed by 17% in FY 2027, 15% in FY 2028, and 5% in both FY 2029 and FY 2030. CPAU has three sewer rate schedules applicable to current customers: one for residential customers (S-1), one for non-residential customers (other than restaurants) (S-2), and one for restaurants (S-6). Table 8 below summarizes the current and proposed rates for all customer classes. Raftelis Financial Consultants, Inc. completed a cost of service (COS) study for the Wastewater Collection Utility in 2021. Staff calculated the revenue increases needed for the Wastewater Collection Utility based on projected revenue and expenses to determine the proposed rates across customer classes. * Item 2 Staff Report        Item 2: Staff Report Pg. 17  Packet Pg. 70 of 113  18 5 8 7 9 Table 8: Current and Proposed Sewer Rates Change (as of 7/1/2024)(effective 7/1/2025)$% S-1 (Residential)Service Charge $ 55.93 $67.11 $ 11.18 20% S-2 (Commercial) Quantity Rates 10.44 12.52 2.08 20% S-6 (Restaurant)Quantity Rates 15.58 18.69 3.11 20% The proposed rates for the S-7 (Industrial Discharger) rate schedule are: 1) Collection System Operation, Maintenance, and Infiltration Inflow: $6.21 per 100 cubic feet of metered water use. 2) Advanced Waste Treatment Operations and Maintenance Charge: $2.48 per 100 cubic feet of metered water use 3) $304.18 per 1000 pounds (lbs) of COD (Chemical Oxygen Demand) 4) $733.40 per 1000 lbs of SS (Suspended Solids) 5) $5,067.70 per 1000 lbs of NH3 (Ammonia) 6) $22,233.94 per 1000 lbs of toxics (chromium, copper, cyanide, lead, nickel, silver, and zinc) In FY 2026, residential customers will experience an 20% increase in bills. Commercial and Restaurant customers bill impacts will vary due to each customer’s utilization of the system. Table 9 below shows the bill impact of the proposed FY 2026 rate changes (effective 7/1/2025) for the typical customers: Change (as of 7/1/2024)(effective 7/1/2025)$% S-1 (Residential)$ 55.93 $ 67.11 $11.18 20% S-2 (Commercial) - 14 CCF 146.16 175.28 29.12 20% S-6 (Restaurant) - 38 CCF 592.04 710.22 118.18 20% Table 10 shows the monthly sewer bills for residential customers compared to what they would be in surrounding communities. The average monthly sewer bill for a Palo Alto single family residential customer is $55.93 at current rates, which is lower than four of the six neighboring communities. These communities are the same six that Palo Alto compares itself to in the annual Item 2 Staff Report        Item 2: Staff Report Pg. 18  Packet Pg. 71 of 113  19 5 8 7 9 budget across Water, Wastewater, Gas, and Electric industries. In the following tables, “Menlo Park” refers to the West Bay Sanitary District. Table 10: Residential Monthly Equivalent Sewer Bill Comparison, Compared to Neighboring Communities at Current Rates ($/Month) Table 11: Non-Residential Monthly Equivalent Sewer Bill Comparison, Compared to Neighboring Communities at Current Rates ($/Month) Alternative Item 2 Staff Report        Item 2: Staff Report Pg. 19  Packet Pg. 72 of 113  20 5 8 7 9 amount of Treatment Authorized Amount for Future Minor Capital and charge the Wastewater Collection Utility at any time. By collecting these funds from customers over ten years instead of over four years, there would be approximately $1 million less revenue available in FY 2026 to pay for these charges. If the RWQCP charges the Wastewater Collection Utility for additional minor CIP projects, the Operations Reserve, which is currently at a very low level, would need to absorb these costs or the Wastewater Collection Utility would need to explore additional loan funding. Additionally, the Operations Reserve is projected to be below the risk assessment level in FY 2026 and projected to be restored to above the risk assessment level by FY 2028 for the alternative, one year later than the 20% proposal, thereby, carrying additional risks. To address this risk, if Council prefers the alternate rate trajectory, staff recommends Council approve an additional short-term loan in FY 2025 from the Fiber-Optics Utility of up to $2.5 million, the projected risk assessment level (see Table 6). Staff would evaluate at the end of the fiscal year whether any loan is necessary and re-evaluate next year depending on the actual results in FY 2025 and return to Council with any new requests in for FY 2026. Table 12: Projected Rate Increases from FY 2026 to FY 2030 (Alternative) Figure 7: Wastewater Collection Utility Expenses, Revenues and Rate Changes Actual Costs through FY 2024 and Projections through FY 2030 (Alternative) Item 2 Staff Report        Item 2: Staff Report Pg. 20  Packet Pg. 73 of 113  21 5 8 7 9 Figure 8: Operations Reserve Adequacy (Alternative) Staff plans to include the Finance Committee’s recommendations for wastewater rate changes in the notification of potential rate increases to customers as required by Article XIIID of the State Constitution expected in April 2025. Staff will incorporate the Finance Committee’s recommendations into the draft financial forecast and attachments and bring those to the City Council in June. The City Council will consider the proposed Financial forecasts and amended rate schedules with the FY 2026 budget, expected in June, at which time the public hearing required by Article XIIID of the State Constitution will be held. If Council approves the proposed rate changes, the rates will become effective July 1, 2025. Based on the proposed rate increase as shown, the estimated revenue impacts in FY 2026 would be an increase of $4.9 million in the Wastewater Collection Fund. Utility rate increases impact the general fund because the City is a utilities customer. The impact to the general fund from the proposed rate increases is a $0.02 million expense increase. The proposed Wastewater Collection Utility rate adjustments are consistent with Council- adopted Reserve Management Practice (Attachment E) and were developed using a cost-of- service study and methodology consistent with the California constitution and industry-accepted cost of service principles. As noted in the Reserves Management Practices, if reserves fall below Reserve Minimum Reserve Target Reserve Maximum Risk Assessment 0 2 4 6 8 10 12 14 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actuals Projection $ M i l l i o n s Fiscal Year Reserve (Year-End) Item 2 Staff Report        Item 2: Staff Report Pg. 21  Packet Pg. 74 of 113  22 5 8 7 9 the minimum guidelines, Council approval is required for a rate plan that requires more than one year to return reserves to within guideline levels. This staff report serves as the required plan. STAKEHOLDER ENGAGEMENT Staff presented the Wastewater Collection Utility rate proposal to the UAC during the March 5, 2025 meeting and the UAC voted unanimously to recommend that the City Council adopt a resolution approving the 20% rate increase and recommended that the Finance Committee and City Council consider potential cost saving activities (credit card separate charge, electric vehicle replacement policies as discussed by the UAC Subcommittee to control rate increases and reallocate any savings to restore reserves. Additional feedback from the Finance Committee will be incorporated in the financial forecast and included in the proposal presented to City Council in June 2025 during the budget adoption process. On December 3, 20243, staff discussed the preliminary rate proposals at the Finance Committee meeting. Finance Committee members expressed the importance of staff sharing information about other treatment plants and other utility rate increases and one Committee member questioned whether the reserve guideline levels are correct or whether we can have lower reserve levels. On December 4, 20244, staff discussed the preliminary rate proposals at the UAC meeting. UAC Commissioners requested more information on how other cities bill wastewater, and on the debt of the wastewater utility and the cost drivers of the rate increases, particularly in the collection system. This report includes more detail regarding debt of the wastewater utility and the cost drivers for the collection system. How other cities bill wastewater is a complex research project that is not currently in staff’s workplan. UAC Commissioners requested an additional five years of historical data on the charts. If time and resources permit, that information will be included in the accompanying presentation. UAC Commissioners asked a question about the nitrogen discharge requirements other Bay Area wastewater treatment plans are facing. Karin North, Assistant Director of Public Works explained that all treatment plants have a new Nutrient Watershed Permit adopted by the State this year. 3 December 3, 2024 Finance Committee Meeting, Staff Report https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=64761 , Minutes https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=39017 , Video https://www.youtube.com/watch?v=-tshOdaDA3A%3Ffeature%3Dshare 4 December 4, 2024 Utilities Advisory Commission, Staff Report https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=d7cd6030-1d05-412e-a96b-cabd33557bc1, Minutes https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=41244 , Video https://www.youtube.com/watch?v=tfznidSYXiU%3Ffeature%3Dshare Item 2 Staff Report        Item 2: Staff Report Pg. 22  Packet Pg. 75 of 113  23 5 8 7 9 Attachment E contains examples of CPAU’s communication and outreach methods including the use of the Utilities website, utility bill inserts, messaging on utility bills, and MyCPAU online account management platform, email newsletters, print and digital ads in local publications, social media, and community messaging platforms. ENVIRONMENTAL REVIEW ATTACHMENTS: APPROVED BY: Staff: Lisa Bilir, Senior Resource Planner Item 2 Staff Report        Item 2: Staff Report Pg. 23  Packet Pg. 76 of 113  Attachment A * NOT YET APPROVED * 6056919 6 7 1 0 Resolution No. Resolution of the Council of the City of Palo Alto Approving the FY 2026 Wastewater Collection Utility Financial Forecast, 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), and Repealing Rate Schedules S-3 (Industrial Waste Laboratory and Analysis Charges) and S-4 (Hauled Liquid Waste Charges) 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. The City does this with the goal of providing safe, reliable, and sustainable utility services at competitive rates. The City adopts Financial Forecasts or 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 and Financial Forecast attached to and made a part of the staff report presented to the City Council. C. 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. D. On June 16, 2025, the City Council held a full and fair public hearing regarding the proposed rate increase and considered all protests against the proposals. E. As required by Article XIII D, Section 6 of the California Constitution and applicable law, notice of the June 16, 2025 public hearing was mailed to all City of Palo Alto Utilities wastewater customers by May 2, 2025. F. 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. The Council hereby adopts the Reserves Management Practices and FY 2026 Financial Forecast attached to and made a part of the staff report presented to the City Council. Item 2 Attachment A FY26 Wastewater Resolution        Item 2: Staff Report Pg. 24  Packet Pg. 77 of 113  Attachment A * NOT YET APPROVED * 6056919 6 7 1 0 SECTION 2. 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, 2025. SECTION 3. 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, 2025. SECTION 4. 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, 2025. SECTION 5. 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, 2025. SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule S-3 (Industrial Waste Laboratory and Analysis Charges) is hereby repealed, effective July 1, 2025. SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule S-4 (Hauled Liquid Waste Charges) is hereby repealed, effective July 1, 2025. SECTION 8. 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 9. 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. // // // Item 2 Attachment A FY26 Wastewater Resolution        Item 2: Staff Report Pg. 25  Packet Pg. 78 of 113  Attachment A * NOT YET APPROVED * 6056919 6 7 1 0 SECTION 10. The Council finds that the adoption of this resolution approving the FY 2026 Wastewater Collection Utility Financial Forecast and Reserve Management Practices 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. 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: Assistant City Attorney City Manager Director of Utilities Director of Administrative Services Item 2 Attachment A FY26 Wastewater Resolution        Item 2: Staff Report Pg. 26  Packet Pg. 79 of 113  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 7-1-20254 dated 7-1-20243 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 ................................................................................ $55.9367.11 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} Attachment B Item 2 Attachment B FY26 Wastewater Rate Schedules        Item 2: Staff Report Pg. 27  Packet Pg. 80 of 113  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 7-1-20254 dated 7-1-20243 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 Service. C. RATES: Quantity Rate, per 100 cubic feet (See Section D.1) .......................................................... $12.520.44 D. SPECIAL NOTES: 1. The monthly charge for the quantity rate set forth in Section C of this rate schedule will be based upon the average Water usage for the months of January, February and March, and applied in the following July. If a Water Meter is identified as exclusively serving irrigation landscaping, such Meter will be exempted from Wastewater charge calculations. Customers without an applicable usage history will be rebuttably presumed to have usage of 4.8 ccf per month until such time as such usage may reasonably be established by the City of Palo Alto Utilities Department. 2. The City of Palo Alto Utilities Department may require Wastewater Metering facilities, in which case Service will be governed by terms of a special agreement between the City and the Customer. {End} Attachment B Item 2 Attachment B FY26 Wastewater Rate Schedules        Item 2: Staff Report Pg. 28  Packet Pg. 81 of 113  RESTAURANT WASTEWATER COLLECTION AND DISPOSAL UTILITY RATE SCHEDULE S-6 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No S-6-1 Effective 7-1-20254 dated 7-1-20243 Sheet No S-6-1 A. APPLICABILITY: This schedule applies to all restaurants. B. TERRITORY: This schedule applies everywhere the City of Palo Alto provides Wastewater Service. C. RATES: Quantity Rates, per 100 cubic feet of monthly metered Water usage ...................................$ 18.695.58 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} Attachment B Item 2 Attachment B FY26 Wastewater Rate Schedules        Item 2: Staff Report Pg. 29  Packet Pg. 82 of 113  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 7-1-20254 dated 7-1-20243 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 23, Section C. B. TERRITORY: This schedule applies everywhere the City of Palo Alto provides Wastewater Service. C. RATES: 1. Collection System Operation, Maintenance, and Infiltration Inflow: $ 6.215.18 per 100 cubic feet of metered water use. 2. Advanced Waste Treatment Operations and Maintenance Charge: $ 2.4807 per 100 cubic feet of metered water use 3. $304.18253.49 per 1000 pounds (lbs) of COD (Chemical Oxygen Demand) 4. $ 733.40611.17 per 1000 lbs of SS (Suspended Solids) 5. $ 5,067.704,223.09 per 1000 lbs of NHRR3RR (Ammonia) 6. $ 22,233.9418,528.29 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 23, Section C. 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 23, Section C. 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} Attachment B Item 2 Attachment B FY26 Wastewater Rate Schedules        Item 2: Staff Report Pg. 30  Packet Pg. 83 of 113  Attachment C Item 2 Attachment C FY26 Wastewater Collection Utility and CIP Financial Details        Item 2: Staff Report Pg. 31  Packet Pg. 84 of 113  Attachment C Wastewater Collection Utility Capital Improvement Program (CIP) Financial Details Item 2 Attachment C FY26 Wastewater Collection Utility and CIP Financial Details        Item 2: Staff Report Pg. 32  Packet Pg. 85 of 113  Attachment D 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. Item 2 Attachment D FY26 Wastewater Reserve Management Practices        Item 2: Staff Report Pg. 33  Packet Pg. 86 of 113  Attachment D 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 and approved by Council Resolution. 2 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) 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 there are funds in this reserve in excess of the maximum level staff must propose in the next Financial Plan to transfer these funds to another reserve, return the funds to ratepayers, or designate a specific use of the funds for CIP investments that will be made by the end of the next Financial Planning Period. 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. 1 Each month is calculated based upon 1/12 of the annual budget. 2 For example, in the Financial Plan for FY 2022, the 48 month period to use to derive the annual average is FY 2022 through FY 2025. In the FY 2023 Financial Plan, the 48 month period to use to derive the annual average would be FY 2023 through FY 2026 etc. Item 2 Attachment D FY26 Wastewater Reserve Management Practices        Item 2: Staff Report Pg. 34  Packet Pg. 87 of 113  Attachment D 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. 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. Item 2 Attachment D FY26 Wastewater Reserve Management Practices        Item 2: Staff Report Pg. 35  Packet Pg. 88 of 113  Attachment E WASTEWATER COLLECTION UTILITY COMMUNICATIONS PLAN/SAMPLES In FY 2026, the communications strategy for the Wastewater Collection Utility will address the following primary areas: recently implemented cost containment measures, cost drivers for rate changes including increasing wastewater treatment costs, maintenance and operations related to safety, reserve balances, and how these necessary activities impact the rates this year. Communication about wastewater rate adjustments will highlight the important infrastructure upgrades that are occurring at the Regional Water Quality Control Plant (RWQCP) as well as capital improvement projects (CIP) to improve our Wastewater Collection Utility services. Financial reserves are also below minimum guidelines due to higher capital improvement program costs, higher operating expenses, lower revenue than forecasted, and higher transfers out to capital projects. Some projects will be deferred as the fund increases revenues to a sustainable level. The City of Palo Alto Utilities (CPAU) communication methods include use of the utilities website, utility bill inserts, messaging on utility bills, MyCPAU online account management platform, email newsletters, print and digital ads in local publications, social media, and community messaging platforms. Staff update the utilities webpages with information on the progress of wastewater projects to keep customers apprised of the status and accomplishments of capital improvement projects. Customers can find project schedules, maps, overview of the work being done, and project manager contact information at cityofpaloalto.org/utilityprojects. An important communications topic for the Wastewater Collection Utility is avoiding sewer back- ups due to FOG (fats, oil and grease), trash and other hazardous materials being dumped down drains and toilets. These items can clog sewer lines, cause sewer overflows, and pollute San Francisco Bay, and create a health and safety risk to humans. Safety topics are emphasized year- round. Staff continue to educate customers about the utility’s gas-sewer line cross-bore inspection program, including the importance of calling 811 before digging and contacting CPAU prior to clearing sewer lines in the event of a sewer back-up. While print materials and webpages 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 attend community outreach events, safety and emergency preparedness fairs, business and neighborhood meetings. CPAU continually seeks out new opportunities to engage with the public to spread awareness about important safety topics and inform the community about project improvements such as at the RWQCP. Item 2 Attachment E FY26 Wastewater Collection Utility Communications Plan and Samples        Item 2: Staff Report Pg. 36  Packet Pg. 89 of 113  Attachment E Item 2 Attachment E FY26 Wastewater Collection Utility Communications Plan and Samples        Item 2: Staff Report Pg. 37  Packet Pg. 90 of 113  6 6 3 0 Finance Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Fire Meeting Date: April 1, 2025 Report #:2502-4221 TITLE Evaluation of Fire and Ambulance Service Expansion Options (Follow-up from 11/19/24 Meeting) RECOMMENDATION Staff recommends the Finance Committee evaluate Fire Department fire and ambulance service expansion options and provide feedback for further consideration. EXECUTIVE SUMMARY During the Fiscal Year 2025 Budget Hearings, the Finance Committee requested the Palo Alto Fire Department (PAFD) to return with options to increase fire and emergency medical service (EMS) resources to meet service needs. The Fire Department presented data on three staffing options to Finance Committee on November 19, 2024. During that meeting, the Finance Committee reviewed the options and requested additional data and additional staffing options to achieve the staffing of Engine 64 and a peak hour ambulance. As part of the Mid-Year budget actions this month, Council approved staffing of Engine 64 and Medic 64 in a cross-staffed model with the addition of 3 positions to be filled on overtime. This report includes specific follow-up data requested, including additional options for staffing Fire Station 4 and a peak hour ambulance for 12-Hour daily, and details on the creation of a new classification of single-role civilian EMS staff and establishing a single-role division (modified from the original proposal made in the November meeting). It also includes a proposed implementation timeline to illustrate the steps necessary to create the new division. BACKGROUND The November 19, 2024 Staff Report, (Attachment A) included information on existing City- wide Fire Department service demands and system performance, as well as options to increase resources by adding a fire engine at Station 4 and a peak call time 12-Hour ambulance (peak ambulance) to the current Palo Alto Fire Department deployment model. Three staffing options Item 3 Staff Report        Item 3: Staff Report Pg. 1  Packet Pg. 91 of 113  6 6 3 0 considered in November included: A. Contract with a private ambulance company B. Current model staffing with additional firefighters, or C. Creation of a new classification of single-role civilian EMS staff and establishing a single- role division. ANALYSIS 1. Details of “Other Calls” in Table 1 "Calls for Service” of the November report •Good Intent Calls: Good Intent calls capture incidents where there may have been an emergency, but it turned out to be non-emergent or nothing at all. For example, someone could smell smoke and call 9-1-1, but after firefighters arrive and investigate, they may find that the odor was from burnt popcorn down the hall. •False Alarms and False Calls: These are primarily alarms that are automatically triggered during construction or other non-emergency causes such as steam from a shower, dust, insects, or smoke from cooking. This category also covers situations where someone negligently triggered a fire alarm or made an intentionally false report. •Service Calls: These calls are for situations where the department is providing a service, but it’s not an emergency. This can include clean up calls for smoke removal, water evacuations or other hazards; assisting with non-emergency falls in the home; people trapped in an elevator or elevator overrides. •Hazardous Materials and Others: Most of these are utilities-related, such as a natural Item 3 Staff Report        Item 3: Staff Report Pg. 2  Packet Pg. 92 of 113  6 6 3 0 gas leak, wiring problem, powerlines down, but it also includes gasoline, diesel, or oil spills, chemical releases or other biological hazards. Table 1. Detail of "All Other" Calls for Service in FY 2024 Count Proportion of “All Other” Proportion of Total Calls for Service Good intent call 1,379 41%15% False alarm or false call 1,246 37%13% Service Call 655 19%7% Hazardous condition and Others 116 3%1% Subtotal “All Other “ 3,396 100%36% EMS 5,884 N/A 62% Fires 136 N/A 1% FY 2024 Total Calls for Services 9,416 N/A 100% 2. Stanford Call for Service Details The City of Palo Alto provides fire service protection under contract to Stanford University. The current contract began in July 2018, after being renegotiated with the closure of station 7 at the Stanford Linear Accelerator Center (SLAC). This contract was renewed to be effective through June 30, 2028, with re-negotiations for services beyond that date due to commence on or before July 1, 2026. The contract covers Fire Services only and explicitly excludes any costs associated with ambulance transport services. The cost model developed to calculate the charge to Stanford is complex and ensures that only the services covered by the contract, specifically resources staged at Station 6 and corresponding pro rata share of shared resources, are charged. The calculation equates to approximately 19% of the Fire Department budget. Table 2. Fiscal Year 2024 Stanford and Palo Alto Calls for Service Palo Alto Stanford Total EMS 5,154 730 5,884 Good intent call 1,234 145 1,379 False alarm or false call 851 395 1,246 Service Call 583 72 655 Fire 110 26 136 Hazardous condition and Others 100 16 116 TOTAL 8,032 1,384 9,416 Ambulance Transports 3,595 395 3,990 Stanford University accounts for fifteen percent (15%) of all calls for service. The call volume trends are similar to that of the rest of the city, with the majority of calls for emergency medical Item 3 Staff Report        Item 3: Staff Report Pg. 3  Packet Pg. 93 of 113  6 6 3 0 services (53%). However, false alarms make up a greater proportion of Stanford call volume (29%) in comparison to Palo Alto (11%). Stanford University makes up ten percent (10%) of transports. 3.Mountain View Call Volume Comparison 1. In that report the following calls for service data is provided: Table 4. City of Mountain View Fire Department Calls for Service Comparison Mountain View (FY23)Palo Alto (FY24) Count Percentage Count Percentage EMS*5,747 72%5,884 62% Good intent call 546 7%1,379 15% False alarm or false call 718 9%1,246 13% Service Call 539 7%655 7% Fire 196 2%136 1% Hazardous condition and Others 231 3%116 1% TOTAL 7,977 100%9,416 100% *Mountain View does not provide medical transport services, during this period they are serviced by County of Santa Clara EMS 4. Chart that shows history of deployment and cross-staffing 5.Potential Revenue increases 1 https://www.mountainview.gov/home/showpublisheddocument/8329/638423818087870000 Item 3 Staff Report        Item 3: Staff Report Pg. 4  Packet Pg. 94 of 113  6 6 3 0 6. Alternative Options for staffing Fire Station 4 and the 12-Hour Peak Ambulance that were not presented in the November report The November 19, 2024 Staff Report presented the following options for adding a dedicated fire engine to station 64 and a new 12-Hour ambulance: •Option A: Contract with a private ambulance company •Option B: Current model staffing with additional firefighters, or •Option C: Creation of a new classification of single-role civilian EMS staff and establishing a single-role division Additional options are limited that will increase resources and provide the same service level enhancements as Options A through C. Two Alternatives have been identified that are steps towards a Long-Term implementation of Option C. Fire Engine Staffing Permanent alternatives to bring Engine 64 to full-time staffing are limited. To provide some clarity on staffing needs for an engine, below outlines operational and budgetary staffing details. “Daily positions” represents the number of employees on each unit at any given time providing services to the community. This is how many people must be assigned to the unit for it to be in service. A fire engine requires 3 daily positions to operate. In total, the current staffing model operates with 3 daily staff. All engines operate 24 hours a day, seven days a week, 365 days per year which requires three shifts (i.e. “battalions”); therefore, each daily position must be multiplied by three battalions: 3.0 daily positions on an engine x 3 battalions = 9 total employees to staff one dedicated engine + Backfill staffing Additional firefighters are authorized in the service delivery model to provide leave coverage and are called “backfill.” The Department has 0.5 FTE backfill positions for every daily position. When adding 3 daily positions, at least 1.0 FTE firefighter would be necessary as a backfill position. Therefore, a total of 10 FTE would need to be added to fully staff a dedicated engine. Table 5: Fire Engine Staffing Position Classification Daily Staffing Budgeted Staffing (FTE) Fire Captain 1 3.0 Apparatus Operator 1 3.0 Fire Fighter 1 4.0 Total Staffing 3.0 daily staffing 10.0 budgeted staffing (FTE) Alternative Options Options A through C presented in the November report are long-term options to fully staff Engine 64 and a 12 HR Peak Ambulance. The Finance Committee asked the Department to explore alternative options for Fire Station 4 and a 12-Hour Peak Ambulance. Item 3 Staff Report        Item 3: Staff Report Pg. 5  Packet Pg. 95 of 113  6 6 3 0 Since the November meeting, City Council approved Engine 64 to be placed into service by cross-staffing the unit with Medic 64 on overtime in the FY 2025 Mid-Year Budget Review. This is a swift and initial action to place a fire engine in service allowing the City time to explore additional resource options to invest in the system. •Adds 3.0 FTE Fire Captain positions to Cross-Staff Engine 64 and Medic 64 Fire Station 4 Option E: Establish Single-Role Division with 12 Hour Peak Ambulance •Adds 7.0 FTE to launch Single-Role Division with 12 HR Peak Ambulance Single-Role Item 3 Staff Report        Item 3: Staff Report Pg. 6  Packet Pg. 96 of 113  6 6 3 0 Option F: Establish Single-Role Division with 2 Full-Time Ambulances, Add Engine 64 and 12 HR Peak Ambulance on Overtime •Add 12-hour peak ambulance on firefighter overtime •Adds 16.0 FTE to launch single-role division with 2 24-hour ambulances •Adds Engine 64 full-time by reassigning current firefighters from ambulances Single-Role Table 6. Firefighter Position Changes with Option F 2 Ambulances Engine 64 Difference Daily Staffing Budgeted Staffing (x3 Battalions) Fire Station 4 Peak Ambulance Item 3 Staff Report        Item 3: Staff Report Pg. 7  Packet Pg. 97 of 113  6 6 3 0 7. Details on the timeline for adding Single-Role Civilian staffing Single-role refers to an organizational model that will be new to Palo Alto, and has been adopted by other fire departments in California that provide an ambulance service. Currently all PAFD ambulances are staffed with firefighter Emergency Medical Technicians (EMT) and paramedics, working as an EMS provider and firefighter. The single-role organizational model establishes a new type of ambulance employee that does not have firefighting duties. The “single-role” will have the singular role as an ambulance employee and not a firefighter. This new position requires engagement with labor related to salaries and benefits. Staff have engaged labor in discussions on adding classifications for the positions of EMT and Paramedic, so the City will have the administrative ability to proceed with a new single-role staffing approach if approved. Single-role EMTs and paramedics market salary is typically 30% lower than those of firefighters, and there is potential for additional savings with pension benefits. CalPERS does not have uniformity on whether these job classifications would have safety or non-safety (miscellaneous) pensions. Across jurisdictions in the state, there are examples of different CalPERS classifications for these roles; for example, the City of Berkeley provides a safety pension for their single-role civilian staff, and the City of Chula Vista provides a non-safety pension. Palo Alto’s Human Resources staff has already communicated with CalPERS about the City’s intent to create the new job classifications, but has been informed that a determination cannot be made until final job descriptions are submitted to CalPERS. Hiring costs and timeframes are expected to be reduced with the single-role staff. Hiring timelines may be shortened, as the selection and training process for single-role staff is significantly shorter than it is for firefighters. Single-role staff will be required to complete approximately three weeks of training as compared to the 20-week academy for firefighters. This will allow the Department to fill vacancies for ambulance staff more rapidly. The associated expenses related to the hiring and training of new single-role staff is lower compared to the costs of firefighters. The single-role model is expected to create a more flexible staffing structure that will allow for faster and more cost-efficient expansion of EMS services in the future. This staff model could increase the resources provided to the community with a lower financial impact in both the short and long term. There is a possibility of a higher turnover rate with single-role personnel, however, that is something we would have to monitor to quantify. This model will create a hiring pipeline and assist with recruitment and diversity in hiring. The Department can tap into the more diverse candidate pool of civilian EMTs and paramedics, many of whom would be attracted to joining PAFD in the pursuit of a career in the fire service. It would create a hiring pipeline for civilian EMS workers to gain exposure and experience in the fire service. Item 3 Staff Report        Item 3: Staff Report Pg. 8  Packet Pg. 98 of 113  6 6 3 0 Single-role has a number of anticipated operational benefits for the Department, and will create more availability for response units during firefighter training exercises. Single-role ambulance staff will provide medical response coverage for the City as firefighters complete mandatory training. All firefighters must complete 200+ hours of training each year, including emergency medical training. This is currently accomplished while they are on-duty. Often, firefighters in training are called away due to the heavy workload from increasing calls for service. With this option, single-role civilian staffing would not be required to complete the firefighter portion of the training and would be able to provide full coverage for firefighters during training drills significantly reducing interruption and improving training continuity. Timeline FISCAL/RESOURCE IMPACT FY25 • IAFF Negotiations • E64 Cross-Staffed on Overtime FY26 (Jul-Dec) • 12 HR Ambulance on Overtime • E64 Cross-Staffed on Overtime • Preparation for Single-Role Division (if approved) FY26 (Jan-Jun) • Hire Single-Role Admin Staff • Hire Single-Role EMTs & Paramedics • Conduct training & transition Item 3 Staff Report        Item 3: Staff Report Pg. 9  Packet Pg. 99 of 113  6 6 3 0 This report presents information for consideration and potential fiscal impacts. Direction and feedback from the Committee will guide the Department in preparing the Fiscal Year 2026 budget to be presented and approved by the City Council. STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item 3 Staff Report        Item 3: Staff Report Pg. 10  Packet Pg. 100 of 113  5 1 8 3 Finance Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Fire Meeting Date: November 19, 2024 Report #:2406-3310 TITLE Evaluation of Fire and Ambulance Service Expansion Options RECOMMENDATION Staff recommends the Finance Committee review the evaluation of Fire Department fire and ambulance service expansion options and provide feedback for further consideration. EXECUTIVE SUMMARY During the Fiscal Year 2025 Budget Hearings, the City Council instructed the Palo Alto Fire Department (PAFD) to return with options to increase fire and emergency medical service (EMS) resources. This report includes information on current service demands and system performance, and options to increase resources by adding a fire engine at Station 4 and a peak call time 12-Hour ambulance (peak ambulance) to the current Palo Alto Fire Department deployment model. The three options for staffing the proposed new fire engine and peak call time ambulance are: A. Contract with a private ambulance company B. Current model staffing with additional firefighters, or C. Creation of a new classification of single-role civilian EMS staff and establishing a single- role division. Feedback from the Finance Committee and potential recommended direction to the City Council will guide budget development and labor negotiations or changes in administrative processes. BACKGROUND Emergency Response service demands continue to grow, with calls increasing for the last three years. The draw on the current fire and EMS resources have impacted response times and overall system performance. Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 11  Packet Pg. 101 of 113  5 1 8 3 Table 1. Calls for Service Fiscal Year EMS Fires All Others (Service Calls, False Alarms, Good Intent) Total FY2019 5,490 133 3,220 8,843 FY2020 5,029 126 2,956 8,111 (-8%) FY2021 4,940 144 2,125 7,209 (-11%) FY2022 5,260 117 2,957 8,334 (+16%) FY2023 5,670 138 3,411 9,212 (+11%) FY2024 5,884 136 3,396 9,416 (+2%) Most emergent calls for service are medical in nature (63% of calls). The Palo Alto Fire Department’s current deployment has prioritized ambulance services. PAFD has three (3) full- time (24/7) ambulances that respond to medical emergencies for patient treatment and transport. Two of the three ambulances share a fire station with a fire engine (Stations 1 and 2), and Fire Station 4 has a single ambulance assigned to the station. County Ambulance Mutual Aid There are times that all three ambulances are unavailable due to simultaneous calls; PAFD requests mutual aid from the Santa Clara County ambulance provider. In FY 2024, there were a total of 4,286 calls requiring an ambulance. The county covered 327 (7.6%) of those calls for PAFD. County ambulances take significantly more time to arrive on scene than PAFD ambulances. The 90th percentile response time for county ambulance in FY2024 was 29:53 minutes while PAFD ambulance was 12:02 minutes. The County established standard for an ambulance response time is 12 minutes 90% of the time in an urban environment. Patients that experience an emergency when all PAFD units are unavailable face a response time that is significantly longer than the standard. Shorter times to get patients with emergent medical needs from the field to a hospital is correlated with improved patient outcomes, especially with strokes, heart attacks and other severe trauma. Santa Clara County contracts with a for-profit ambulance provider to respond to all transport needs in the cities within the County, other than Palo Alto. The county provides back up coverage for Palo Alto, however, the County provider is challenged with meeting standards in their primary jurisdiction and is less reliable for back up coverage. The county ambulance service provider is not currently meeting the contractual performance goals as outlined in their contract with Santa Clara County. With no plans to change providers at Table 2. County Ambulance Requests Fiscal Year County Requests FY2019 114 FY2020 117 (3%) FY2021 96 (-18%) FY2022 214 (+123%) FY2023 272 (+27%) FY2024 327 (+20%) Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 12  Packet Pg. 102 of 113  5 1 8 3 the county level, other city fire departments throughout the county have begun to staff full- time ambulances with firefighters to meet a minimum level of service for their communities. As of this year, the following cities, that have not historically provided ambulance services, are in the process of staffing up ambulances: Mountain View Fire with one ambulance; Santa Clara Fire with two ambulances; San Jose Fire with eight ambulances; and Milpitas with two ambulances. Table 3. LAFCO Report Comparison Data Metric Palo Alto Mountain View Santa Clara Population 84,772**84,038 127,151 Square Miles 31.53 12 20 Calls for Service*8,149 4,695 9,259 Incidents per 1,000 residents 107 64 69 Firefighters 87 68 132 Fire Response Units 7 8 13 Ambulances 3 0 0 90th Percentile Response Time*9:41 8:15 8:03 *Data is averaged from 2018-2022 **Includes Stanford population Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 13  Packet Pg. 103 of 113  5 1 8 3 The LAFCO report combines multi-year data and presents response times for all urgent calls into one response time metric. This is different than what is shown in the City’s annual budget document1. The City budget presents response time percentiles isolating for EMS and Fire calls and for that specific fiscal year with approximately 75% of fire emergencies responded to within 8 minutes and 99% of medical emergencies calls within 12 minutes. Two primary measures are used in fire and emergency response for performance: Response Time: Response time is the time from receipt of a 9-1-1 call to the time the first unit arrives on scene. The standard in the field is to measure the 90th percentile response time, i.e. 90% of the responses are at or below the set time standard. The adopted standard for PAFD is a 90th percentile response time of 8:00 minutes or less for the first unit to respond to EMS and fire emergency calls and 12:00 minutes or less for an ambulance to arrive on scene. Unit Hour Utilization (UHU): Unit Hour Utilization measures workload for each response unit. This is the percentage of time during the day the unit is actively responding to a call. This measure shows how busy the system is and if units have enough availability to respond to the service demand of an area. UHU measurements also capture if there is enough time in the day for the firefighters on the unit to complete necessary daily tasks, such as report writing, training, and required breaks, etc. The maximum UHU recommended is 10% which allows a system to be primarily self-sufficient and may reduce the likelihood of staff injury. Once UHU reaches 10% for a primary responding unit, a fire department will see increased challenges to meet the standard 90th percentile response time due to the unavailability of resources for immediate response. An agency would need to add resources or experience reduced call volume to meet response time standards. Highlights from the 2023 LAFCO report findings for PAFD include the following: •Palo Alto’s adopted standard response time is 8:00 minutes or less 90% of the time. The study period between 2018 to 2022 shows Palo Alto’s 90th percentile response time is 9:41 minutes. (In FY 2024 the 90th Percentile Response time was 9:12 minutes) •Palo Alto has a high percentage of on-duty units that exceed a 10% UHU and significantly exceeds the average incidents per 1,000 people in Santa Clara County. The study notes that PAFD is “excessively busy” and recommends that PAFD should add additional resources to manage the call volume and improve response time performance effectively. •PAFD has one engine at 10.7% UHU and three ambulances with UHUs between 18.5- 1 FY 2025 Adopted Operating Budget, https://www.cityofpaloalto.org/files/assets/public/v/1/administrative- services/city-budgets/fy-2025-city-budget/adopted/palo-alto-adopted-operating-budget-book_final2.pdf Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 14  Packet Pg. 104 of 113  5 1 8 3 22.3%. The four remaining engine companies are over or close to 9% UHU. The report specifically notes a concern for Fire Station 4, “Two of the medic units are stationed with another response unit. However, Medic 64 operates with a 19.1% UHU and is the only resource assigned to Station 4.” •Given the growth projected for the City and the existing unit utilization level, there are challenges for PAFD to meet the current and projected demand for service for ambulances and four of the five fire engine companies. An additional engine company assigned to Fire Station 4 is necessary to improve performance, and an additional ambulance would improve the sustainability and performance of the EMS transport response system citywide. PAFD presented the full LAFCO Countywide Fire Service Review report and summary on March 11, 2024 to City Council. Staff report #2401-24932. Assessing Service Levels PAFD utilizes a predictive analytics software that allows for deployment comparisons and effectiveness. This program pulls historical incident data and processes simulations of different staffing models to predict outcomes for response times, UHU, and reliance on mutual aid resources, e.g. county ambulance. The modeling showed the most effective increase to City emergency response resources is adding a fire engine at Fire Station 4, and a 12-Hour peak ambulance. This will make a significant impact in reducing overall response times, UHU, and reliance on county ambulance services. Reduced response times will provide greater fire and life safety coverage throughout the City. Reducing UHU will also assist PAFD with training completion rates, while reducing burnout and injury rates. Revenue Streams The Finance Committee also instructed PAFD to research potential revenue sources to assist in offsetting existing department operations and the costs of service level expansions discussed in this report. PAFD has made progress and is confident that some additional revenue can be generated. These include increases to the base Ambulance Transport fee as a result of the citywide municipal fee study that is planned for completion in early 2025; increases in Ambulance Transport revenue from the growing call volume; and the renewed consideration of a First Responder Fee. These revenue increases will be brought forward for City Council consideration through the annual budget processes over the next two fiscal years. These new revenues are not contingent upon implementing any of the options included within this report. 2 https://cityofpaloalto.primegov.com/portal/viewer?id=3801&type=0 Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 15  Packet Pg. 105 of 113  5 1 8 3 ANALYSIS Based on the assessment of service needs and the predictive analytics, staff focused on researching alternate staffing models for a full-time Fire Engine at Station 4, and a peak ambulance. All models reflect these resource additions, the difference is the source for the additional staff resources, whether contracting out, increasing internal staffing under the current model, or creating a new internal position limited to the EMS role. A. Contract with a private ambulance company, B. Staffing with additional firefighters under the current staffing model (International Association of Fire Fighters Union, Local 1319 (IAFF) staff), or C. Creation of a new Single Role Civilian EMS Division within the Department. A two-year implementation timeline is assumed for all three options. The first year would implement the peak ambulance in order to immediately impact response times and EMS coverage. The second year Engine 64 would be upstaffed to coincide with the completed remodel of Fire Station 4. Costs for each option are shown as the annual operating costs for the plan for direct comparison of the overall financial impact. The table on the next page outlines the key information points of each option, and below each option is discussed in more detail. Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 16  Packet Pg. 106 of 113  5 1 8 3 Table 4. Staffing Options Summary* Cost Components & Timeframe A. Contract Ambulance B. Current Model Firefighters (IAFF) C. Single Role Civilian Ongoing Costs (Annual Operating Costs) Fire Costs $2.6M $2.6M ($0.7M) EMS Costs $0.8-1M $0.7M (Overtime) $3.8-4.0M Ongoing Cost Total $3.4-3.6M $3.3M $3.1-3.3M One-Time Costs (May be spread over multiple fiscal years) Hiring & Training Costs (one-time) $2.1M $2.1M $0.6M Fleet Fire Engine 64 $1.2-1.9M Fire Engine 64 $1.2-1.9M Reserve Ambulance $0.5M for replacement Fire Engine 64 $1.2-1.9M Reserve Ambulance $0.5M for replacement One Time Total $3.3-4.0M $3.8-4.5M $2.3-3M Timeframe and Other Components Increased Headcount 10 FTE 10 FTE 22 FTE (net) Labor Negotiations required N/A Negotiations required Peak Ambulance Timeframe 18+ Months 3 Months 12-18 Months Implementation Elements RFP Process IAFF Staff Assignment Bidding Process Establish new division and classifications Other Considerations •Bundled Rate •Quality Control •Staff Supervision •Easy to Implement •Higher Long-Term Pension and Benefit Liability Costs •Long Term Savings •Easy Upstaff for Higher Demand •Hiring Pipeline •Training Coverage *All options presented include Engine 64 and a peak ambulance Option A: Contract Ambulance Costs and Implementation Time: The Fire Department contacted local private ambulance service providers and ascertained a range from $0.9 to $1.0 million in annual costs for a peak ambulance. In this scenario 10 FTE would be added to upstaff Fire Engine 64, with a total annual operating cost of $2.6M. If selected, the ambulance service contract would be for work that is currently done by IAFF employees, and therefore, would require a meet and confer process before the City could contract with a private provider. The timeframe to secure a contract and having ambulance services in place is estimated to take over 18 months. Time will be impacted both by the length of the meet and confer process, potentially leading to impasse procedures as well as a request for proposal (RFP) to secure official bids from potential contractors. Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 17  Packet Pg. 107 of 113  5 1 8 3 To staff Engine 64, one-time hiring costs for the 10 FTE Firefighters that would be added are estimated at $2.1 million which includes testing, uniforms and Personal Protective Equipment (PPE). Additional staff costs for the 20-week Fire Academy and associated staffing backfill costs while firefighters are in the Fire Academy will also be incurred typically materializing in increased overtime costs. Other Considerations Option B: Additional Firefighter Staffing (Current Model) Costs and Implementation Time Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 18  Packet Pg. 108 of 113  5 1 8 3 Other Considerations This is the administratively most standard option and therefore greatest ease of implementation. This option, follows typical logistics of hiring existing classifications and placing an additional unit in service. This retains consistent quality control and assurance processes with direct PAFD supervision and training of City staff. Option C: Single-Role Civilian Division This option takes learnings from models implemented by other city fire departments in California, and utilizes single-role civilian EMT staff for ambulance service delivery. This proposal adds a peak ambulance and convert two of PAFD’s three full-time ambulances to single-role civilian staffing. Current firefighter staff will be shifted to upstaff Engine 64. If selected, a new EMS Division will be created within PAFD with a separate hiring, training and management team as there are different requirements for single-role civilian EMTs and paramedics. A total of 25 new FTE will be added to the Fire Department with an annual cost of $3.8-$4 million. This plan also includes a reduction of 3.0 FTE firefighter positions recently added in FY 2025 Adopted Budget which will create $0.7 million in annual savings. This brings the estimated ongoing net cost to $3.1-3.3 million annually. Impacts to centralized benefit costs, such as worker’s compensation insurance, retiree health and long term pension liability, are not included in the estimated cost as this will require the assistance of actuaries. The table provides the proposed positions for the single-role civilian EMS Division. Table 5. Single Role Civilian EMS Division Staff Summary 2 x 24 Hour, and One Peak Ambulance (3 Total) FTE Job Title Description/Role 1.00 EMS Manager Hiring, training, program management 1.00 Administrative Associate III Administrative process, purchasing, and HR support 10.00 Paramedic Single Role Civilian Paramedics assigned to the Peak or 24-Hour Ambulance Schedules. 10.00 EMTs Single Role Civilian EMTs assigned to the Peak or 24-Hour Ambulance Schedules. 3.00 Hourly Medics Hourly Single Role Civilian Paramedics to fill in shift gaps, and coverage for vacation, sick, etc. Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 19  Packet Pg. 109 of 113  5 1 8 3 The single-role civilian positions would be new classifications and will require a meet and confer process with labor organization as well as consultation with CalPERS on retirement benefit structures. There is not uniformity on benefit packages in this landscape. The City of Berkeley provides a sworn benefit package for their single-role civilian staff, and the City of Chula Vista provides a non-sworn benefit package. Human Resources staff is in communication with CalPERS to obtain further guidance. Other Considerations Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 20  Packet Pg. 110 of 113  5 1 8 3 benefit of this plan is providing coverage for firefighters to complete mandatory training which is currently complete while on-duty and can often be interrupted due to calls for service. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item 3 Attachment A_Ambulance Expansion CMR 111924        Item 3: Staff Report Pg. 21  Packet Pg. 111 of 113  Palo Alto Fire Department The chart below shows resource staffing at each Fire Station from Fiscal Year 2011 through Fiscal Year 2025. Only years where changes were made are shown. BC = Battalion Chief E = Engine M = Medic/Ambulance R = Rescue T = Truck XS = Cross Staffing Fire Station FY2011 FY2012 FY2014 FY2015 FY2016 FY2018 FY2021 FY2022 FY2025 (Current) Station 1 E61 (3) M61 (2) E61 (3) M61 (2) E61 (3) M61 (2) E61 (3) M6 (2) E61 (3) M61 (2) E61 (3) M61 (Peak, XS in PM) BC (1) E61 (3) M61 (Peak, XS in PM by E63) BC (1) E61 (3) M61 (2) BC (1) E61 (3) M61 (2) BC (1) Station 2 E62 (3) R62 (3) M62 (Peak, XS in PM) E62 (3) R62 (3) M62 (Peak, XS in PM) E62 (3) M62 (2) E62 (3) M62 (2) E62 (3) M62 (2) E62 (3) M62 (XS) E62 (3) Brown Out M62 (XS) S62 (2) M62 (2) E62 (3) M62 (2) Station 3 E63 (3) E63 (3) E63 (3) M63 (XS in PM) E63 (3) M63 (XS in PM) E63 (3) M63 (XS in PM) E63 (3) M63 (XS in PM) E63 (3) M63 (XS in PM) E63 (3) E63 (3) Station 4 E64 (3)E64 (3)E64 (3)E64 (3)E64 (3) M64 (XS) E64 (3) M64 (XS) E64 (3) M64 (XS) M64 (2)M64 (2) Station 5 E65 (3) E65 (3) E65 (3) E65 (3) M65 (XS) E65 (3)E65 (3) E65 (3) E65 (3) E65 (3) Station 6 E66 (3) T66 (3) BC (1) E66 (3) T66 (3) BC (1) E66 (3) T66 (4) BC (1) E66 (3) T66 (3) M66 (2) E66 (3) T66 (3) M66 (2) E66 (3) T66 (3) M66 (2) E66 (3) T66 (3) M66 (2) E66 (3) T66 (3) E66 (3) T66 (3) Station 7 (SLAC)E67 (3) Closed Closed Closed Closed Closed Closed Closed Closed Fire Units 9 8 7 7 7 7 7 6 6 Ambulance Units 1.5 1.5 2 2 2 1.5 1.5 3 3 Total Daily Staffing Day: 32 Night: 30 Day: 29 Night: 27 Day: 27 Night: 27 Day: 27 Night: 27 Day: 27 Night: 27 Day: 26 Night: 24 Day: 26-23 Night: 24-21 Day: 24 Night: 24 Day: 25 Night: 25 Changes SLAC Closed Removed Rescue 4th person to Truck M62 24hours M63 XS in PM Cross-Staffed E65 with M65 Moved Cross- Staffed M65 To station for as M64 New Stanford Contract Cross-Staffing Model 3 person Truck Moved M62 to M66 M61 reduced to Peak COVID Fiscal Crisis Brown out of E62/M62 (86% of time) Ended Cross-Staffing Removed M61 Peak E62 changed to Squad S62 changed to Engine 62 Item 3 Attachment B_Deployment History        Item 3: Staff Report Pg. 22  Packet Pg. 112 of 113  7 3 8 6 Palo Alto Fire Department Staffing Options Summary The table below compares Options A through C from the November report, and Options D through E as the alternatives. All costs are shown in Fiscal Year 2025 figures. Table 7. Staffing Options Summary Metric A. Contract B. IAFF C. Single-Role Civilian D. Cross-Staff E64 E. Single-Role Peak Hour Ambulance F. Single-Role & Fully Staff E64 1 Fire Units 7 7 7 7 6 7 2 Ambulance Units 3.5 3.5 3.5 2.0* 3.5 3.5 3 Annual Operating Cost $3.4-3.6M $3.2M $3.1-3.3M $0.9M $1.2M $2.5-2.7M 4 Headcount 10 FTE Firefighters 10 FTE Firefighters 25 FTE Single-Role -3 FTE Firefighters 3 FTE Firefighters 7 FTE Single-Role 16 FTE Single-Role -3 FTE Firefighters 5 Labor Negotiations required N/A Negotiations required Meet/Confer Negotiations required Negotiations required 6 12HR Ambulance Timeframe 18+ Months 3 Months 12-18 Months No 12 HR Am2bulance added 12-18 Months 3 Months 7 Implementation Elements RFP Process IAFF Staff Assignment Bidding Process Establish new division N/A Establish new division Establish new division 8 Hiring Costs $1.2M $1.2M $0.6M $0.4M $0.1M $0.4M 9 Fleet Fire Engine 64 ($1.2-$1.9M) Fire Engine 64 ($1.2- $1.9M) Reserve Ambulance ($0.5M) Fire Engine 64 ($1.2-$1.9M) Reserve Ambulance ($0.5M) Fire Engine 64 ($1.2-$1.9M) Reserve Ambulance ($0.5M) Fire Engine 64 ($1.2 - $1.9M) Reserve Ambulance ($0.5M) 10 One Time Total (Hiring + Fleet) $2.4-3.1M $2.9-3.6M $2.3-3.0M $1.6M-2.3M $0.6M $2.1-2.8M 11 Other Considerations •Bundled Rate •201 Rights •Quality Control •Staff Supervision •Easy to Implement •Higher Long Term Liability Costs •Long Term Savings •Easy Upstaff for Higher Demand •Hiring Pipeline •Training Coverage •Adds firefighting capacity to FS4 •Increases workload on FS4 Crew •Reduces availability of Medic 64 •Move towards Single-Role •Improves ambulance availability •Reduces reliance on SCC Ambulance •Fully staffs E64 & Peak Ambulance •Improves ambulance availability •Reduces reliance on SCC Ambulance •Long Term Savings •Hiring Pipeline •Training Coverage *Engine 64 and Medic 64 are Cross-Staffed Item 3 Attachment C_Staffing Options Summary        Item 3: Staff Report Pg. 23  Packet Pg. 113 of 113