HomeMy WebLinkAboutStaff Report 169-08City of Palo Alto
City Manager’s Report
BUDGET
’08- ’09
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: UTILITIES
ATTENTION: FINANCE COMMITTEE
DATE:
SUB3ECT:
MARCH 18, 2008 CMR: 169:08
UTILITIES ADVISORY COMMISSION RECOMMENDATION TO
ADOPT A RESOLUTION ADOPTING A WATER RATE
INCREASE AND AMENDING UTILITY RATE SCHEDULES W-l,
W-2, W-4, AND W-7
RECOMMENDATION
Staff and the Utilities Advisory Conm~ission (UAC) reconm~end that the City.- Council adopt the
attached resolution to:
(a)
(b)
Approve an 8 percent increase to retail water rates, for Fiscal Year (FY) 2008-09,
effective July 1, 2008, which will increase armual revenues by $2.0 million; and,
Approve the changes to the Water Utility Rate Schedules (W-l, W-2, W-4, and W-7),
as attached.
BACKGROUND
During the two-year FY 2007-09 budget process, a 10 percent rate increase was proposed by the
Utilities Department and approved by the City Comacil for FY 2007-08. In addition, a 10 percent
rate increase was approved in-concept for FY 2008-09. On February 19, City Council approved
mid-year changes to the FY 2007-08 budget primarily to reflect the unanticipated increased
wholesale cost of water [CMR: 151:08].
The Water Fund’s revenue requirement consists of a number of components including:
wholesale water cost, distribution system operations costs, Capital Improvement Program (CIP)
projects, funding of the Water Rate Stabilization Reserve (W-RSR) and the Emergency Plant
Replacement Reserve (EPRR), and debt service. Any change in one or more of these
components, or a change in retail sales levels, can trigger the need for a rate adjustment. During
the budget process, staff forecasts customer revenues and utilit3~ expenses in order to quantify the
CMR: 169:08 Page 1 of 6
armual revenue requirement. Changes to forecasted revenues or expenses are reflected in
adjustments during the midyear budget process.
DISCUSSION
Table 1 below shows the estimated FY 2008-09 revenues and expenses for the Water Fund as
well as the actual revenues and expenses for FY 2006-07 and the adjusted budget revenues and
expenses for FY 2007-08.
1
13
11
12
13
1-.
15
17
18
19
23
21
23
TABLE 1 - Water Fund Sources and Uses of Funds ($000)
Year
Actual .Adjusted In~oncept
Fisca!Cc~-U7 07-08
% CHANGE IN RETAIL RATE
F:R’L’3-.JECTED SYSTEM AVERAGE RATE (S.:CC=)
PROJECTED COMMODITY COST ($,’CCF)
SALES UNITS (THOUSAND CCFs)
FROJECTED CHANGE 1"t RETAIL SALES REVENUE
Utilities Retail Sales
7.0%
4.21
1.22
5,481
1,5’t0
$
$
Service connection charges & capacity fees
C, ther revenues plus Transfers In
Interest plus ~lain or los~ on inveetment
LIP Bond Proceeds ,; Reserve
Total Sources of Funds
Purchases
Supply Operating Budget
Distr~buNon Operating Budget
Debt Service payments (Pdn & Int}
Other Transfers Out
Capita] Improvement progr&ms
Operating Encumbrances & reconciliation
Total Uses of Funds
Into/(Out of) Reserves
857
1,281
1,080
0
26,271
7~806
396
5,211
784
4,759
4,159
178
23,292
2,979
10.0%
4.59 $ 5:0u
1.36
5,38t
2.247
24,526
833 843
366
946
0
6. :~7 !64;’121¯
427
8.119
776
5.140
11,1 12
0
,_ o.o7b
(6,904)
08-09
8.0%
4.96
1.47
5,381
I,977
26,5!4
843
244
946
35,000
63,548
8,701
428
8.095
776
5,213
13,945
0
37,158
26,390
At the end of FY 2006-07, $9.2 million was returned to the W-RSR for encmnbered CIP projects
that were cancelled. These funds will be used for the City’s Emergency Water Supply and
Storage Project. The total cost of the project is estimated to be $42 million, and Utilities staff is
working with the Administrative Services Department to explore utility revenue bond financing
for approximately $35 million of the project cost.
At this time, the San Francisco Public Utilities Convnission (SFPUC) has yet to adopt the
wholesale water cost for FY 2008-09 and it may substantially differ from projections. Water
sales levels have stabilized lately and revenue forecasts for FY 2008-09 and beyond reflect this
CMR: 169:08 Page 2 of 6
pattern. CIP expenses not funded by bond proceeds are projected to be in the $4 million per year
range for the next several years.
Reserves and Risk Assessment
Table 2 below surmaaarizes the end of year balances for the W-RSR, the risk assessment level
and the Reserve Guidelines. Staff presemed the annual risk assessment of the Water Fund to the
UAC at its February 2008 meeting. Note that the risk assessment level is determined by
assessing the short-term risks to the Water Fund. The Reserve Guidelines were established to
manage risks over the longer term.
TABLE 2: Water Reserve Balance, Guideline Levels and Risk Assessment Level ($M)
Water Rate Stabilization Reserve FY 2006-07 FY 2007-08 FY 2008-09
End of Year Balance
Risk Assessment Level
Reserv’e Minimum Level
Reserve Maximum Level
(actual)(estimated)(%recast)
16.3 9.9 6.9
3.5
7.1 4.9 5.3
14.2 12.4 13.3
After the proposed eight percent rate increase, the W-RSR balance is forecast to be $6.9 million
at the end of FY 2008-09/which is above the minimum guideline level as well as the risk
assessment level. Due to cominued future expected rate increases by SFPUC, staff recormnends
keeping a healthy reserve balance in the Water Fund.
Allocation of the Proposed Revenue Increase
In FY 2007-08, the fixed monthly customer charge was re-introduced to partially collect fixed
costs for all customer classes. The balance of the costs is recovered in volumetric rates. The
fixed component introduced an element of ’rate shock’ to some customers, especially residential
customers with low water usage, g~q~ile incremental adjustments to the fixed monthly customer
charge may be made over time, staff proposes that only the volumetric component of the rates be
increased in FY 2008-09. Staff proposes that the increased water costs be allocated in FY 2008-
09 to higher tier usage, both to avoid additiona! rate shock to residential customers with lower
water usage, as well as to promote resource conservation.
Table 3 below shows the impact of the proposed rate increase on customer bills based on
different consumption levels for the residential and non-residential classes.
CMR: 169:08 Page 3 of 6
TABLE 3: Impact of Rate Increase on Customer Bills
Customer
Smal! Residential
Average Residential
Medium Residential
Large Residential
Medium Commercial
Large Commercial or Industrial
Large Commercial or Industrial
(irrigation only) (W-7)
(5/8" Meter)
(5/8" Meter)
(5/8" Meter)
(5/8" Meter)
(3" Meter)
(6" Meter)
(6" Meter)
Usage
(CCF)
71
141
201
35i
3001
12001
Proposed
Monthly
Bill ($)
$32.64
68.79
99.78
177.24
1,486.75
5,896.83
Amount of
Proposed
Increase ($)
$-
4.58
8.50
18.31
106.80
427.20
Percent
Increase
0%o
7.1%
9.3%
11.5%
7.7%
7.8%
3000 14,351.43 1,068.00 8.0%
Comparison of Palo Alto Water Rates and Surroundin~ Cities:
For several years, Palo Alto’s retail water rates have generally been higher than surrounding
areas, due to the funding of an aggressive capital program to rehabilitate or replace aging water
distribution infrastructure. Table 4 below, which compares monthly water bills using municipal
water rates as of January 1, 2008 for Mountain View, Redwood City, Los Altos and Menlo Park,
indicates that the average residential customer in surrounding cities pays approximately 31
percent less than the average Palo Alto residential customer. There are indications that nearby
cities that purchase their water supplies from the SFPUC may be raising rates in FY 2008-09. At
this time, the certainty or magnitude of their rate increases is not known.
TABLE 4 - Monthly Residential Water Bill Comparison (rates in effect as of Jan. 1, 2008)
Small
Average
Large
Delta for Average use
Palo
Alto
7 $~...64
14 $64.21
$158.9352
Mountain
Vie~v
$20.85
$41.43
$132.27
35.5%
Redwood[ Los Menlo
City Altos1 Park!
$28.20
$42.80
$105.60
33.3%
$26.45 $32.15
$42.22 $51.18
$89.55
34.2%
Delta
(%)
I
17.5$26.91 %
30.8$44.41 %
$108.3 31.5$108.930 %
20.3% 39.8%
Proposition 218 Water Rate Increase Procedure:
Proposition 218 amended the California Constitution and set forth procedural requirements
public agencies must follow- in order to enact or increase a property-related fee. Since
Proposition 218 applies to the water service rate increases described here, the City nmst provide
written notice by mai! to water customers and property ow~ers subject to the proposed fees,
followed by a public hearing held not less than 45 days after notice is mailed. The notice must
include the amount of the fee, the basis upon which the fee was calculated, the reason for the fee,
Served by the California Water Service Company
CMR: 169:08 Page 4 of 6
and the date, time and location of the public hearing. If written protests against the proposed
fees are not presented by a majorit)T of customers, the City may impose the fee.
ALTERNATIVES
Staff evaluated the impact of alternative rate proposals to the proposed $2.0 million revenue
increase. Any smaller rate increase would require reducing some combination of the operating
budget, CIP, or the W-RSR. Reducing the CIP would hinder water main replacement projects,
where the infi’astructure has exceeded its system design life. Reducing the water operating
budget will hinder the reliability and safety of the water system. Withdrawing more funds from
the W-RSR would drive the reserve balance below the minimum guideline level, and could
necessitate an emergency rate increase request to accommodate infrastructure failure, or an
unexpected increase in water supply costs.
UTILITIES ADVISORY COMMISSION REVIEW AND RECOMMENDATIONS
On March 5, 2008, the UAC voted unanimously (4-0 with one Commissioner absent), to
recomrnend that the City Council:
(a)Approve an 8 percent increase to retail water rates for Fiscal Year (FY) 2008-09,
effective July 1, 2008, which will increase almual revenues by $2.0 million; and,
(b) Approve the changes to the Water Utility Rate Schedules, as attached.
The UAC discussed the fact that Palo Alto’s water rates are higher than neighboring cities and
noted that this trend is won’isome. The UAC also asked staff to explain why the fixed charges
were not proposed to increase as this is what staff had indicated last yea when proposing the
reinstatemem of the fixed charge. Staff responded that the goal of encouraging water
conservation has increased in importance since last year and that a greater difference in the rates
for higher use tiers will serve to provide a stronger incentive to conselwe.
RESOURCE IMPACT
Approval of this rate proposal will increase the Water Fund retail sales revenues in FY 2008-09
by approximately $2.0 million.
POLICY IMPLICATIONS
This recommendation is consistent with current City,- policies.
ENVIRONMENTAL REVIEW
AZl increase in rates to meet operating expenses and financial reserve needs 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)(1) and (3).
CMR: 169:08 Page 5 of 6
ATTACHMENTS
A. Resolution
B. Water Rate Schedules: W-l, W-2, W-4, and W-7
C. Draft Minutes of the UAC meeting of March 5, 2008
PREPARED BY:Eric Keniston, Utilities Rate Analyst
Ipek Com~olly, Senior Resource Plalmer
REVIEWED BY: Jane Ratchye, Assistant Director of Utilities, Resource Management
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
EMII~"H~SON
Assistant City M~ager
CMR: 169:08 Page 6 of 6
NOT YET APPROVED ATTACHMEN
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO ADOPTING A WATER RATE INCREASE AND
AMENDING UTILITY RATE SCHEDULES W-I, W-2, W-4,
AND W-7
WHEREAS, 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 and the fees and charges therefore; and
WHEREAS, pursuant to Article XIIID Sec. 6 of the California Constitution,
on June 9, 2008, the Council of the City of Palo Alto held a public hearing to consider all
protests against the proposed water rate increases; and
WHEREAS, .the total number of written protests presented by the close of the
public hearing was less than fifty percent (50%) of the tota! number of customers and
property owners subject tO the proposed water rate increases.
NOW, THEREFORE, the Council of the City of Palo Alto does hereby
RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal
Code, Utility Rate Schedule W-1 (General Residential Water Service) is hereby amended
to read in accordance with sheet W-l-l, attached hereto and incorporated herein. The
foregoing Utility Rate Schedule, as amended, shall become effective July 1, 2008.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal
Code, Utility Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended
to read in accordance with sheet W-2-1, attached hereto and incorporated herein. The
foregoing Utility Rate Schedule, as amended, shall become effective July 1, 2008.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal
Code, Utility Rate Schedule W-4 (General Non Residential Water Service) is hereby
amended to read in accordance with sheet W-4-1, attached hereto and incorporated
herein. The foregoing Utility Rate Schedule, as amended, shall become effective July 1,
2008.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal
Code, Utility Rate Schedule W-7 (Irrigation Water Service) is hereby amended to read in
accordance with sheet W-7-1, attached hereto and incorporated herein. The foregoing
Utility Rate Schedule, as amended, shall become effective July 1, 2008.
080311 syn 6050385
NOT YET APPROVED
SECTION 5. The Council finds that the revenue derived from the
authorized adoption enumerated herein shal! be used only for the purpose set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 6. The Council finds that an increase in rates to meet operating
expenses and financial reserve needs 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)(1) and (3).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Deputy City Attorney City Manager
Director of Utilities
Director of Administrative
Services
080311 syn 6050385 2
ATTACHMENT B
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W- 1
APPLICABILITY:
This schedule applies to all residential single family water se~Mce.
TERRITORY:
Inside and outside the incorporated limits of the City of Palo Alto and land owned or leased by the
CitT.
RATES:
Montt~y Customer Charge:
Per Meter
Per Month
For 5/8-inch meter
For 3/4 inch meter
For 1 inch meter
For 1 1/2 inch meter
For 2-inch meter
For 3-inch meter
For 4-inch meter
For 6-inch meter
For 8-inch meter
For 10-inch meter
...........................................................................................................$5.00
~..... ......................................................................................................5.00
.:.2 .......................................................................................................12.27
...........................................................................................................19.37
...........................................................................................................77.65
...........................................................................................................130.60
...........................................................................................................260.43
...........................................................................................................383.67
...........................................................................................................383.67
CommodiW Rate: (To be added Customer Charge and applicable to all pressure zones.)
Per Meter
Per Month
Per Hundred Cubic Feet
All Pressure Zones
First 7 Ccf
Over 7 Ccf
.......................................................................................................................$3.949
.......................................................................................................................5.164
Temporat7 umnetered service to residential
subdivision developers, per connection .......................................................................$6.00
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. W-1-1 dated 7-1-2007 CITY OF PALO ALTO
UTILITIES
Proposed Effective 7-1-2008
Sheet No. W-l-1
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
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:
Within the water service area of the City of Palo Alto.
RATES:
1. Monthly Customer Charge.
METER SIZE
5/8 inch ..........................................................................................................................50.00
3 inch ...................,.:. ...................................................................................................125.00
2. Conmaoditv Rate: (.per hundred cubic feet) ..................................................................$4.697
D. SPECIAL NOTES:
1.Monthly charges shall include the applicable monthly customer charge in addition to usage billed at
the commodity rate.
Any applicant using a hydrant without obtaining a Hych’ant Meter Permit or an3, permittee using a
hydraat without a Hydrant Meter Permit shall pay a fee of $50.00 for each day- of such use in
addition to all other costs mad fees provided in this schedule. A hydrant permit may- be denied or
revoked for failure to pay such fee.
A meter deposit of $750.00 may be charged any applicam 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
danaaged parts.
Any person or company using a fire hydrant as described in D. 1 above 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.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. W-2-1 dated 7-1-2007
Proposed Effective 7-1-2008
Sheet No. W-2-1
GENERAL NON-RESIDENTIAL WATER SERVICE
APPLICABILITY:
UTILITY tL4TE SCHEDULE W-4
This schedule applies to non-residential water service in the City of Palo Alto and its distribution
area. This schedule is also applicable to multi-family residential customers served tln’ough a master
meter.
TERRITORY:
Inside the incorporated limits of the City of Palo Alto, on land owned or leased by the City, and an5’
other land serviced by the Palo Alto Water Utility.
Monthly Customer Charge
Per Meter
Per Month
...............................................................................................$5.00
...............................................................................................12.27
...............................................................................................19.37
...............................................................................................77.65
...............................................................................................1~0.60
...............................................................................................260.43
...............................................................................................383.67
...............................................................................................383.67
For 5/8-inch meter
For 3!4-inch meter
For 1-inch meter
For 1 1/2 inch meter
For 2-inch meter
For 3-inch meter
For 4-inch meter
For 6-inch meter
For 8-inch meter
For 10-inch meter
ConmaodiW Rates: (to be added to Customer Charge)
Per Meter
Per Month
Per Hundred Cubic Feet
All Pressure Zones
Per Ccf ....................................................................................................................... $4.697
CITY OF PALO ALTO UTILITIES
Issued by the Ci5~ Council
Supersedes Sheet No. W-4-1 dated 7-1-2007 CITY OF PALO ALTO
UTILITIES
Proposed Effective 7-1-2008
Sheet No. W-4-1
IRRIGATION WATER SERVICE
UTILITY P~a~TE SCHEDULE W-7
Co
.APPLICABILITY:
This schedule applies to non-residential water service supplying dedicated in-igation meters in the
City of Palo Alto and its distribution area.
TERRITORY:
Inside the incorporated limits of the City of Palo Alto, on land owned or leased by the City, and any
other land serviced by the Palo Alto Water Utility.
RATES:
Monthly Customer Charge
For 5/8-inch meter-:
For 3/4-inch meter
For 1-inch meter
For 1 1/2 inch meter
For 2-inch meter
For 3-inch meter
For 4-inch meter
For 6-inch meter
For 8-inch meter
For 10-inch meter
Per Meter
Per Month
...............................................................................................$5.00
...............................................................................................12.27
...............................................................................................19.37
...............................................................................................77.65
...............................................................................................130.60
260 43
................................................................................................~8~.67
................................................................................................~8.~.67
Commodity Rates: (to be added to Customer Charge)
Per Meter
Per Month
Per Hundred Cubic Feet
All Pressure Zones
Per Ccf ....................................................................................................................... $4.697
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. W-7-1 dated 7-1-2007 CITY OF PALO ALTO
UTILITIES
Proposed Effective 7-1-2008
Sheet No. W-7-1
ATTACHMENT C
DRAFT
UTILITIES ADVISORY COIVIMISSION
MINUTES OF MARCH 5, 2008
CALL TO ORDER
Chairman Rosenbaum called to order at 7:00 P.M. the scheduled meeting of the Utilities Advisory Commission
(UAC).
Present: Commissioners George Bechtel, Dexter Dawes, John Melton, Dick Rosenbaum, and Council Liaison
Yiaway Yeh
Absent: Commissioner MarilynKe]ler
ORAL COMMUNICATIONS
NONE
APPROVAL OF THE MINUTES
Commissioner Bechtel expressed his approval as to the quality of the minutes for February. The minutes from
the February 6, 2008, were unanimously approved.
AGENDA REVIEW
No changes to the agenda were requested.
REPORT FROM COMMISSION MEETINGS/EVENTS
There were no reports.
Utilities Advisory Commission Minutes Approved on:Page 1 of 7
UTILITIES DIRECTOR REPORT
Utilities Director Valerie Fong gave the following updates:
Hydro Conditions: Northern Sierra precipitation is at 90% of average to date and reservoir levels are
about 80% of average. As a result, hydro electric generation is expected to be below average if
precipitation resumes median levels for the rest of the season.
Local Cogen: The project proponent, a key customer, has retained an energy consultant to assist
with project feasibility and development, however, neither firm is interested in owning the project and
ownership interest was proposed to the City. The preliminary project design is for a 20 MW plant, with
an initial capital cost of approximately $47M.
COTP Transmission Asset Lay-off: Staff wilt be sending a formal offer letter to other owners of
COTP transmission ex.pressing the City’s interest to lay-off all 50 MW of City’s ownership share for 20
years at cost. Continuing updates will be provided to the UAC, and the offer and final contract will be
subject to final Council approval.
Western Geo Power: On 2/19 Council approved participation in an NCPA 3rd phase agreement to
purchase up to 5 Average MW of a new Geysers area geothermal powerplant being developed by
Western GeoPower. The City’s share of output will range from 2 to 4% of the City’s electric load
depending on plant output and other member participation levels. Power flow is expected starting in
2010 and running through 2030.
ClP: In response to Vice Chair Dawes question at last month’s UAC meeting, an update on the gas
main replacement CIP was provided. The gas main replacement projects are an on-going expense of
running the gas utility. Over the last 15 years or so the gas mains have been replaced at an
accelerated rate due to the deterioration of ABS main pipelines. The replacement of the ABS mains is
expected to be completed in 2012-13 timeframe. Once this is completed the ABS services will be
replaced along with the on-going replacement of steel mains. Expenditures for pipeline replacement
are expected to begin decreasing after the all ABS mains are replaced and then level out at a level
that sustains the condition of the infrastructure.
Utilities Advisory Commission Minutes Approved on:Page 2 of 7
The following upcoming meetings were noted:
March 10, 2008 - Council Meeting (to establish UUD 45 and to approve the PPA with Ameresco for
the Keller Canyon landfill gas to energy)
March 17, 2008 - Council Joint Meeting with Senator Simitian
March 18, 2008 - Finance Committee - Water, Gas and Electric Rate Increase
o April 2, 2008- Next UAC Meeting
UNFINISHED BUSINESS
NONE
NEW BUSINESS
ITEM 1: ACTION ITEM: PropOsed Water Rate Increase Effective July 1, 2008
Valerie Fong, Utilities Director, stated that no presentation was prepared, but that staff was available to answer
questions on the report. As a prefatory comment, for residential customers, the 8 percent proposed increase
was geared more towards higher tier water users, primarily as a conservation signal.
Commissioner Melton questioned why the customer charge was not increasing at this time, and if it was staff’s
intention to bring this charge up to cost-of-service study levels for residential customers gradually. Fong stated
that all increases were on volumetric charges only this time for conservation reasons. Jane Ratchye, Assistant
Director for Resource Management, clarified that, with conservation goals growing in importance, widening the
price gap between residential tiers was a staff’s recommendation this year. This emphasis will be re-
evaluated on an ongoing basis.
Commissioner Dawes questioned the capital expenditures in Fiscal Year 2007-08 and the return of previously
encumbered Capital Improvement Program (CIP) funds to the Rate Stabilization Reserve (RSR), and
specifically whether the Emergency Water Supply and Storage project would be worked on this fiscal year.
Utilities Advisory Commission Minutes Approved on:Page 3 of 7
Fong clarified that it would be, and that well rehabilitation and pump station upgrades could go forward
independent of reservoir siting issues. Commissioner Dawes asked if the FY 07-08 CIP figures were for funds
spent or funds committed, and Fong clarified they were committed funds.
Commissioner Rosenbaum questioned the first sentence on page four, which appears to give reasons as to
why water rates have been higher than surrounding areas. Commissioner Rosenbaum stated that the reasons
given imply that Palo Alto has higher relative costs than others cities, and questioned whether that has been
studied. Ratchye agreed that the sentence related more to cost drivers rather than cost comparisons with
other cities. Commissioner Rosenbaum asked specifically about the level of allocated charges and general
fund transfers in other cities. Ratchye posited that allocated charges were unknown, and transfers were
probably very low. Commissioner Rosenbaum posited whether rate-payers would enjoy paying for such
transfers, along with rents to the City, as they account for roughly $0.80 per one hundred cubic feet of water,
and were "significant." Commissioner Rosenbaum suggested the charges may be too high, and perhaps a
comparison study should be done to surrounding cities.
Commissioner Dawes stated that the Auditors report shows Pato Alto’s water department costs have
increased rapidly over the last few years and are now higher than the next highest city utility, which was
"worrisome." Asked whether charges by the city to the water utility could be reduced, Fong commented these
were not within her scope to modify or make recommendations on, and if the UAC wanted to not increase
rates due to these costs, staff’s only recourse would be to drop CIP projects. Commissioner Dawes
commented that perhaps the chair or vice-chair of the UAC should present to Council the problems they see
with costs.
Utilities Advisory Commission Minutes Approved on:Page 4 of 7
Commissioner Rosenbaum asked for a motion. Commissioner Dawes moved and Commissioner Bechtel
seconded the water rate proposal. No further discussions were presented. Commissioner Rosenbaum asked
for those in favor, and the motion passed unanimously.
ITEM 2: ACTIOI’,I ITEM: Proposed Natural Gas Rate Increase Effective Jut,~ 1. 2008
Fong again stated that no presentation was prepared, but that staff was available to answer questions on the
report. She noted that there were no proposed increases to the customer charge for gas.
Commissioner Dawes questioned whether, based on projections of stable gas supply costs over the next few
years, whether the proposed increase should be spread over multiple years. Commissioner Melton countered
that a lower increase would tak~ the RSR below the risk assessment level. Commissioner Rosenbaum asked
if staff had comment, and Fong expressed staff’s agreement with Commissioner Melton, and added that there
were no additional reserves to "back-up" the gas funds, unlike the electric fund (Calaveras).
Commissioner Bechtel expressed concern for future projections showing no increases, and questioned
whether staff would look at debt financing more projects to spread costs over time and keep rates down,
perhaps having annual inflationary increases instead of large changes. Fong confirmed that staff was serious
about pursuing debt financing for large projects, and may finance gas projects along with larger projects
should the need arise. Commissioner Rosenbaum stated that normal maintenance operations should be
funded through rates, and that larger maintenance programs or CIP spending explains why Palo Alto’s
distribution costs were higher than Pacific Gas & Electric.
Utilities Advisory Commission Minutes Approved on:Page 5 ot:7
Commissioner Rosenbaum asked for a motion. Commissioner Dawes moved and Commissioner Melton
seconded the gas rate proposal. No further discussions were presented. Commissioner Rosenbaum asked
for those in favor, and the motion passed unanimously.
ITEM 3: ACTION ITEM: Proposed Electric Rate increase Effective July 1,2008
Fong again stated that no presentation was prepared, but that staff was available to answer questions on the
report. Commenting that, as the February UAC meeting regarding electric scenarios indicated that the "middle
of the road" option was what seemed to resonate with the UAC, this was what staff was proposing. Ratchye
added that, in order to ensure that reserves will end at the risk assessment value for FY 08-09, additional
funds are planned to be drawn from the Calaveras Reserve, but that the Cataveras Reserve fund balance
would still be within Council approved guideline levels.
Commissioner Dawes sought clarification as to whether staff could make such a transfer, and Commissioner
Melton confirmed that, within a particular fund, staff can move money between RSR’s.
Commissioner Melton commented that the discussion on this increase was really done last month, and the
current proposal was exactly what the UAC asked for the last time. Commissioner Melton moved and
Commissioner Bechtel seconded the electric rate proposal.
Commissioner Rosenbaum asked why the higher residential tiers would see larger increases than the lower
tiers, and what fraction of residential usage was in tier 3. Staff commented that it was quite a bit less than half,
but the exact figures were not immediately in front of them. Commissioner Rosenbaum commented that a two
tier pricing system may be more appropriate, and requested staff to look into that in the future. Fong
commented that, as shown on Table 3, the impact to larger users was not that dramatic.
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Commissioner Bechtel asked if there were any instances of a neighborhood needing a service change on the
distribution side due to household consumption levels increasing, or whether there has been a significant
increase in residential usage in general. Fong stated that she would have to ask the engineering department
for confirmation, but generally that the system is sized to take growth into account. Ratchye stated that
average usage has not increased dramatically over the last few years.
Commissioner Rosenbaum, seeing no requests for further discussion, asked for those in favor, and the motion
passed unanimously.
Resident Lois Nisbet, at the conclusion of New Business, asked to address a question to the UAC: "is there
any ethical consideration for the fact that you charge for utilities when in fact you spend it on something else?"
Commissioner Dawes asked if this was in regard to transfers, and Ms. Nisbet stated, "1 guess so."
Commissioner Dawes stated that question should be brought before the City Council regarding this issue, as
they set the policy regarding transfers. Commissioner Rosenbaum clarified that the transfer has been going
on since the inception of the utility, although it was capped at a growth rate of 3 percent several years ago.
The next schedule meeting is April 2, with everyone present.
The May 7 meeting is set for a day meeting.
Meeting adjourned at 8:00 P.M.
Respectfully submitted,
Marites Ward
City of Palo Alto Utilities
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