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HomeMy WebLinkAboutStaff Report 104-08City of Palo Alto C ty Manager’s Report TO:HONORABLE CITY COUNCIL 9 FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE: SUBJECT: JANUARY 14, 2008 CMR: 104:08 ADOPTION OF A RESOLUTION DETERMINING UNDERGROUND UTILITY DISTRICT NO. 41 PROPERTY OWNERS WHO ELECT TO PAY UNDERGROUND CONVERSION COSTS OVER A PERIOD OF YEARS RECOMMENDATION Staff recommends that Council approve the attached Resolution determining Underground Utility District No. 41 property ow-ners electing to pay conversion costs over a period of years, determining and classi~dng unpaid assessments, and funding loans to property owners from the Reserve for Underground Connections. BACKGROUND At its meeting on October 24, 2005, the City Council adopted Ordinance No. 4882 creating Underground Utility District No. 41 (see attached Exhibit C for Background and History on Underground District) for the Cowq3er Avenue, Oregon Expressway, Middlefield Road and Colorado Avenue area (see Attachment D). The ordinance provided notice that any property ow-ner located within the district had the option of paying the cost of service conversion over a period of ten years, with interest. A total of 33 of the 174 property owners in the district selected the deferred payment plan. The underground project is a general benefit underground district, with the City paying all costs except the individual property underground service conversions. DISCUSSION The conversion costs for the 33 property owners who have chosen the deferred payment plan total $201,306. The remaining property ov~aers chose to be responsible for their ov~n financial arrangements. Assessments will be secured by liens on each property for the ten-year term of the loan. Repayment to the City wil! be made through the owner’s property tax bills. As mandated in the Palo Alto Municipal Code, interest rates were established the week preceding adoption of the CMR: 104:08 Page 1 of 2 Ordinance forming the underground district. Using this rate guideline, the interest rate for the loans will be 5.12%. A $50 loan-processing fee is added to each assessment. RESOURCE LMPACT On August 21, 1984, Council approved the funding of individual electric connections from the Electric System Improvement Resela~e, thereby establishing the reselwe for underground connections. As of June 30, 2007, the balance in the reserv-e for underground connections was $698,000. The total estimated service conversion cost for all customers in Underground Utility District No. 41 is $201,306. The City’s total contribution and related cost for Underground Utility District No. 41 is estimated to be $2,500,000. POLICY IMPLICATIONS This recommendation is consistent with the Council-approved Utilities Strategic Plan Key Strategy #7, "Implement programs that improve the quality of the environment." ENVIRONMENTAL REVIEW This project is categorically exempt from California Environn~ental Quality Act (CEQA). ATTACHMENTS A:Resolution B:Property" Owner List C:Background and History on Undergrounding of Electric Utilities D:Underground District 41 - Boundary Map PREPARED BY:PATRICK VALATH Senior Electric Project Engineer DEPARTMENT HEAD: CITY MANAGER APPROVAL: VALE~E F~3~G Director~of Ut~ties ,,,,. EMILY IffARRISON Assistant City Manager CMR: 104:08 Page 2 of 2 ATTACHMEN NOT YET APPROVED RESOLUTION NO. RESOLUTION OF THE C0t~CIL OF THE CITY OF PALO ALT0 DETE~INING UNDERGROUND UTILITY DISTRICT NO. 41 PROPERTY OWNERS Z~0 ELECT TO PAY UNDERGROUND CONVERSION COSTS OVER A PERIOD OF YEARS The Council of the City of Palo Alto does RESOLVE as follows: SECTION i. The Council of the City of Palo Alto amended Section 12.16.020 of Chapter 12.16 of Title 12 of the Palo Alto Municipa! Code by establishing Underground Utility District No. 41 on October 24, 2005, by adopting Ordinance No. 4882. SECTION 2. The owners of certain properties have exercised the option offered in said Ordinance and in Section 12.16.092 of said Code, to pay the cost over a period of years with such obligation secured by special assessments. A list of the properties owned by persons who have exercised the option to pay the costs of converting their electric service connection to underground !ocations over the period of ten (!0) years as indicated thereon is attached hereto as Exhibit "A" and hereby made a part hereof. SECTION 3. It appears to this Council that in its proceed- ings under and pursuant to Resolution of Intention to form said District, being Resolution No. 8515, adopted on Apri! 25, 2005, the assessments proposed to be levied should be made to mature over a period of ten (i0) years. SECTION 4. The public convenience and necessity required that the proceedings heretofore taken with respect to said underground utility districts being changed and modified to provide that the rate of interest to be paid by said owners of said properties shall be three quarters of one percent (3/4 of 1%) in excess of the rate shown in the New York Bond Buyer Index of Municipa! Bond Average Yields for 20 bonds for the week next preceding the day on which the Underground Districts were formed. SECTION 5. The assessments now remaining unpaid are as shown on Exhibit "A" attached hereto and by this reference made a part hereof, and that the aggregate amount thereof is $201,306. This Counci! hereby determines that the owners of the properties shown on Exhibit "A" hereto have elected to pay the cost of converting electric service connections to underground locations over the period of ten (i0) years and that said costs shall represent the unpaid assessments in these proceedings. SECTION 6. The City shall advance all loans to assessed property owners from available funds, and shall succeed to all rights under the assessment and to all rights which would have 080104 jb 0072976 NOT YET APPROVED accrued if bonds had been issued as provided in Section 13.04.170(i) of Chapter 13.04 of Title 13 of the Palo Alto Municipal Code. Loans for the Underground District will be funded to the assessed property owners from the Electric Reserve for Underground Connections. The tota! estimated principa! amount to be funded by this Reserve wil! be $201,306, pending any changes in actual moneys loaned. The principa! plus interest and loan processing fee shal! be amortized and repaid through the owner’s property taxes for a period of ten (i0) years. The loans shall bear interest from the latest of the date of completion and energizing of underground electrical facilities, or the date of disbursement of the loan. The rate of interest will be 5.12 percent. Principa! payments will be refunded to the Reserve for Underground Service Connections and interest will be added to the Electric Rate Stabilization Reserve. SECTION 7. A fee of $50 is added to the principal amount of each loan for loan processing. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST:APPROVED: City Clerk APPROVED AS TO FORM: Senior Asst. City Attorney Mayor City Manager Director of Utilities Director of Administrative Services 080104jb 0072976 ATTACHMENT B List of Property Owners Property Owners (s) Barbara M Davidsom Geradus & Elisabeth Staal Patrick Lin Ruth M Brown Eliot Tarlin & Sharon Fox Steinberg Revocable Trust Christine & Stanley Czarnecki Marlin Korfhage Helen Jacobson Mary & Joan Howland Alfred & Donna Mitchell Mary Wong lan & Valerie Mallace John Horan Robert Stock & Elizabeth Mann Debra Summers Doris Wong Ralph Accola Gregory & Phyllis Hiura Robert & Nora Chang Trust Darrell & Lisa Benatar David & Faith Gobuty Michael Arne The Bulow Family Trust Barbara Carter John R Horan Trustee Louis T. Weis Meyer & Hannah Scher Meyer & Hannah Scher Meyer & Hannah Scher Meyer & Hannah Scher Meyer & Hannah Scher Helen Colyen Parcel No.Address 132-01-054 2527 Webster St 132-01-010 635 Marion Ave 132-02-073 2695 Cowper 132-02-079 541 Bryson Ave 132-02-097 2510 Webster 132-01-060 628 Marion Ave 132-01-059 614 Marion Ave 132-02-005 590 Marion Ave 132-01-017 581 Marion Ave 132-02-042 547 Bryson Ave 132-01-050 2551 Webster St 132-01-063 670 Marion Ave 132-01-061 642 Marion Ave 132-02-084 2563 Cowper St 132-02-072 521 Colorado Ave 132-07-004 2420 Tasso St 132-02-037 595 Bryson Ave 132-55-021 2750 - 2752 Byron St 132-02-061 689 Colorado Ave 132-02-034 629 Byrson Ave 132-02-001 2522 Webster St 132-01-053 2533 Webster St 132-02-045 538 Bryson Ave 2593 Cowper St 132-01-051 2545 Webster St 132-02-084 2563 Cowper St 132-02-015 2538 Webster St 132-02-024 2572 Webster St 132-02-090 2688 Middlefield Rd 132-02-027 2640 Middlefield Rd 132-02-026 2620 Middlefield Rd 132-02-025 2590 Middlefield Rd 132-55-018 2712-22 Byron Assessment Principal $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5,451.96 3,645.00 3,835.01 0,400.00 6,653.82 6,985.21 7,602.16 4,702.01 3,793.38 7,557.30 5,719.73 7,057.05 5,863.00 7,066.82 5,668.60 6,427.60 6,892.19 8,813.03 4,666.54 4,501.13 8,084.04 4,500.00 7,000.00 8,000.00 5,203.70 5,0O0.00 5,334.00 4,462.00 5,860.00 6,561.00 6,654.00 6,600.00 4,746.47 TOTAL $201,306 ATTACHMENT C BACKGROUND AND HISTORY ON UNDERGROUNDING OF ELECTRIC UTILITIES BACKGROUNI) History of Undergrounding The City of Palo Alto began a progam to underground overhead electric, telephone, and cable TV facilities in 1965 with a project along Oregon Expressway. Since that time 42 Under~ound Districts have been formed. The main reasons for starting the undergounding progam in Palo Alto were to improve the aesthetics of the neighborhoods and to improve service reliability by reducing the impacts of weather on the electric distribution system. To establish the undergounding progam, the cit,, amended the Municipal Code adding Chapter 12.16 titled Underground Utilities. All new development after 1965 was required to have undergound facilities. This requirement resulted in the undergounding of electric facilities for most of the commercial areas outside of the older commercia! deve!opments in the University Avenue and California Avenue districts. Types of Underground Districts Rules for establishing an under~ound district in the City are covered by Utility Rule and Regulation 17. This rule establishes three types of under~ound districts: General Public Benefit, Primarily of Local Public Benefit, and areas that do not qualify under the preceding types. General Public Benefit projects are established by the City and the City pays for the installation of the electric system in the public right- of-way (ROW) and the residents pay for conversion of the facilities on their property. In the remaining two conversion area types, the residents must request the undergound district and fund the service conversion on their property as well as a portion of the utility costs in the public ROW. Most of the projects completed have been established under the General Public Benefit provision. Joint Construction on Utilities Poles The poles within the City of Palo Alto are jointly owned with AT&T or in some cases jointly owned with AT&T and PG&E. Comcast leases space on the poles from AT&T for the attachment of cable TV cables. Due to the joint ownership of the poles, undergound districts require ageement by the other joint owners. Once agreement on the Undergound District boundaries has been reached, the conduits and structures are jointly constructed. Joint construction is used to reduce costs and coordinate the construction to minimize impacts on the neighborhoods. Agreement on Undergound District boundaries by AT&T is subject to AT&T’s ability to recover its costs pursuant to California Public Utilities Commission’s (CPUC) Schedule A2 Rule 32 on undergounding which specifies the criteria for different levels of financial participation by AT&T. The applicable section of Rule 32 is critical to the financial viability of the undergound project. If a project qualifies under section A. 1 of Rule 32, the project has been found to have General Public Benefits, and AT&T and Comcast fund all the their improvements in the public right-of-way. If it is determined that Rule 32A.2 or 32A.3 are applicable to the project, the cost responsibility for the Cable TV and Telephone conduits and other structures shifts either to the City or to the residents. In the past, once AT&T had determined that the proposed area did not qualify under Rule 32A.1 the City has cancelled the underground project because of the increased costs to the Electric Utility and moved forward on undergrounding projects in areas where the telephone company would participate. Currently there are only a few small areas where the telephone company will participate. To facilitate the coordination between the parties in an Undergound District, a master agreement has been si=m~ed by the City, AT&T, and Cable TV. This master agreement is amended each time an under~ound district is formed to include the new Undergound District. Funding for Underground Districts General Benefit Undergounding was funded at approximately 2% of annual electric revenues. Beginning in 1998, funding was reduced to 1% per year due to the need to shift electric resources to rebuilding aging infi’astructure. The current funding which has been recently returned to 2% of annual electric revenues converts, on average, electric facilities for approximately 150 to 200 homes per year. The reduction in funding to 1% of revenues for under~ound districts was initiated about 10 years ago to "free up" revenues and resources to focus on replacing undergound facilities reaching the end of their useful lives. Cables installed in the sixties and seventies had an expected cable life of 30 years. In the late nineties a significant portion of the city’s undergound system had exceeded its expected life and failures were beginning to occur at an increasing rate. To reduce the rate of failure, an accelerated infrastructure pro~am was initiated to replace the cables that had exceeded their life expectancies. Because of staffing constraints the under~ound progam was temporarily scaled back. Costs that AT&T can recover from its rate payers for funding Genera! Public Benefit Undergounding under Rule 32A.1 are limited. The restrictions on AT&T’s funding limit the City’s ability to accelerate the undergounding pro~am beyond 2% of revenues while still receiving the full rule 32A.1 level of participation from AT&T. In addition the cost of the required service conversions on private property is borne by the individual owners in accordance with Utility Rule and Regulation No.17. This cost can range from $5,000 to $8,000. In order to reduce the burden of the service conversion cost to property owners in undergound districts the property owners are offered the option of financing their service conversion costs over a period of ten years with interest in accordance with the procedure given in Section 12.16.090 through 12.16.096 of the Palo Alto Municipal Code. The CMR that accompanies this document seeks approval of a resolution listing property, owners electing to participate in the selwice conversion financing offered by the Cit-y. Budgeting Funding for the Under~ound Districts is approved by the City Council during the annual budget process. In addition to the current fiscal year’s funding, staff also provides four additional years of projected funding for proposed under~ounding projects. These future projects are not approved for construction until the budget for these projects is approved each fiscal year. Each year staff reevaluates the future year recommendations and proposes changes based on additional information acquired since the last budget cycle including AT&T’s participation in covering project costs. Selecting Underground Districts Proposed under~ounding districts are determined by applying the priorities in Rule 17 and negotiations with AT&T as joint pole owners. In addition, Comcast, which leases pole .space from AT&T, must also fund part of the underground costs to move their facilities. The City Electric Utility takes the lead in proposing boundaries for an undergound project. AT&T’s agreement is driven by its ability to recover costs under rules that differ from Utility Rule and Regulation No. 7. Recently the City was advised by AT&T that the proposed undergound district planned for FY 2007-08 did not qualify under section A.1 of Rule 32, and that AT&T would be unable to fund all the improvements in the public right-of-way, resulting in the cost responsibility for the telephone substructure shifting to the City or the residents within the proposed districts. To give a perspective on this impact, the present cost to the City for undergounding is about $15,000 per home. This does not include the additional cost for each homeowner of about $5,000 for their service conversion. If the City continues undergrounding without AT&T and Comcast reimbursements, the cost to the City per home increases to approximately $20,000, an increase of 33%. Future of Program The overhead lines for approximately 14,100 homes remain to be undergounded and the current program undergrounds facilities for approximately 200 homes per year. If the City were to proceed with the progam without AT&T and Comcast reimbursements at the present funding rate of 2% of annual electric revenues, it is expected to take approximately 100 years more to complete the undergrounding of the entire city at a cost of $296,100,000. This is based on the current value of the dollar. Under the current pro~am the electric rate payers would be responsible for funding approximately $225,600,000 and the property owners would be responsible for funding about $70,500,000 oftotat cost. In light of the recent position taken by AT&T to suspend participation in undergrounding of utilities where AT&T is not able to recover costs fiom its ratepayers, staff is reviewing with AT&T and Comcast potential under~ounding project areas in the City. If an a~eement is reached with AT&T on additional areas for under~ounding of utilities, then staff will obtain Council approval for undergrounding of such areas to continue the under~ounding program. ATTACHMENT D 2440 2450 2425 2435 2451 2465 2479 2495 OREGON EXPRESSWAY 0 0 0 0 541 2712 LEGEND Project Boundary 2685 OO __, 2738 I "-ll 2767 2777 2787 0 2676 2680 2700 2710 2720 APPROVED,, 15 Mar 2005 Patrick Valath SR. ENGINEER/MANAGE~~.__. ~PEV DRWNI PDD CHKD.I PEV Underground District No. 41 Boundary Map City of Palo Alto California UTILITIES, ELECTRIC ENGINEERING REV, MAP # APPR. I SCALE I NTS SAP 4000 2540 DESCRIPTION W.O.# / DRAWING # 22187 SHEET 1 OF 1