HomeMy WebLinkAboutStaff Report 393-10
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES
ATTENTION: FINANCE COMMITTEE
DATE: NOVEMBER 2, 2010 CMR: 393:10
SUBJECT: Water Utility Benchmark Study
This report is informational only and no action is required.
EXECUTIVE SUMMARY
Staff has received comments in various forums that the City’s water rates have been among the
highest in the region. The water utility benchmarking study was conducted by an outside
consultant to obtain an independent assessment of the factors that could explain this difference.
This study compared the City’s water utility with six nearby water suppliers.
The study revealed that the City does have higher water purchase cost than average as it gets all
of its water supplies from San Francisco, which is more expensive than groundwater or other
supplies from the Santa Clara Valley Water District. In addition, due to its size, Palo Alto does
not benefit from the economies of scale available to larger agencies. Palo Alto’s water system is
more expensive than average to operate since the City is spread out and includes sparser
development in hillier terrain. Palo Alto’s main distribution pipelines are also the oldest within
the group, and older infrastructure is more expensive to maintain and replace.
Another objective of the benchmarking study was to identify benefits that Palo Alto rate payers
may receive from the higher rates they pay. The study indicates that Palo Alto provides a higher
quality of service based on the lower number of complaints received and fewer system outages.
BACKGROUND
During its review of the Utilities long-term financial projections and the review of the Fiscal
Year (FY) 2011 budget in the Spring of 2010, the Utilities Advisory Commission (UAC) and the
Finance Committee recommended that a benchmark study for the Water Utility be prepared.
Staff engaged a consultant (HF&H Consultants, LLC) to complete the benchmarking study. This
report summarizes the findings of the study, which staff presented to the UAC at its October 6,
2010 meeting.
CMR: 393:10 Page 1 of 6
Current Rates and Bills
For further background information the following two figures compare monthly bills using
current water rates. Several cities implemented water rate increases in FY 2011 while Palo Alto
has not increased water rates since July 1, 2009. These later water rate increases were not
incorporated in the bill comparisons provided in the consultant report. The figure below
represents monthly bills for single-family residential customers using current water rates.
Hayward is shown twice in the following two figures, outer city rates (Hayward-O) and inner
city rates (I).
Palo Alto
Redwood City
Mountain View
Milpitas
Hayward ‐I
Hayward ‐O
Santa Clara
Bear Gulch ‐MP
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
M
o
n
t
h
l
y
Bi
l
l
($
)
Usage Per Monthly Bill (CCF)
Single Family Residential Monthly Bills
Benchmark City Comparisons
5/8" meter
Water bills for non-residential customers are shown in the chart below for different usage levels.
Note that although bills in Palo Alto are higher than average, they are not the highest in the
group of comparator cities.
CMR: 393:10 Page 2 of 6
Palo Alto Redwood City
Mountain View
Milpitas
Hayward ‐I
Hayward ‐O
Santa Clara
Bear Gulch ‐MP
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
0 250 500 750 1000 1250 1500 1750 2000
M
o
n
t
h
l
y
Bi
l
l
($
)
Usage Per Monthly Bill (CCF)
Commercial Monthly Bills
Benchmark City Comparisons
5/8" meter
DISCUSSION
Study Objectives and Approach
Given the concerns expressed by the UAC and the Council Finance Committee about Palo Alto’s
water rates, staff initiated a benchmark study for the Water Utility in May 2010. The objective
of the study was to develop benchmarks to provide insight into key questions such as:
o Why are Palo Alto water rates higher than neighboring cities?
o How does Palo Alto’s water utility budget compare with others?
o What qualitative and quantitative factors explain the differences?
o How does Palo Alto’s infrastructure, emergency preparedness and reliability compare
with its neighbors?
o What benefits do Palo Alto rate payers receive from higher rates?
Six neighboring cities with comparable size and location were selected for the benchmark
comparisons. The scope of the study was defined to capture information from readily available
documents on the benchmarks identified in the first phase and then, as a potential second phase,
to conduct further evaluation of the most informative benchmarks. HF&H Consultants, LLC
completed the first phase of the study and then staff followed up with further surveying and
CMR: 393:10 Page 3 of 6
compiling additional information from the benchmark cities. The Water Utility Benchmark
Study is provided as Attachment A. The study focused on areas such as:
o Rate structures and related charges
o Service area and customer characteristics
o Operating and capital budgets
o Infrastructure condition
o Staffing and operational requirements
o Quality of service
Study Conclusions
1. Service Area and Infrastructure Benchmarks
The benchmark cities selected have the overall characteristics shown in the following table:
City Population Service Area
(square miles)
Water Deliveries
(million gallons per day)
Palo Alto 63,400 26.0 12.3
Hayward 150,878 62.5 18.6
Milpitas 70,817 13.6 11.2
Mountain View 74,762 12.0 11.4
Redwood City 83,895 35.0 10.4
Santa Clara 117,242 19.3 22.2
California Water Company’s Bear
Gulch District (serves parts of Menlo
Park, Atherton and Woodside)
57,108 45.3 13.1
The study concluded that Palo Alto’s population is smaller than average and, therefore, does not
benefit from economies of scale, suggesting higher costs to serve its customers. In addition, Palo
Alto is less densely populated which may imply higher cost per capita for service. Palo Alto has
larger single family home lot sizes suggesting higher water use for irrigation. This results in a
higher ratio of peak to average usage translating to costlier service requirements.
2. Water Use Benchmarks
Palo Alto’s overall average water usage per account is about the same as the average for the
group. Comparing single family water use per account with the average for the group yields a
similar result. However, Palo Alto’s single-family residential customers water use per account is
actually the second highest after Bear Gulch, which has very different characteristics (much
larger average lot size). This provides one reason for higher average residential water bills.
Palo Alto’s fraction of “lost and unaccounted for” water (total sales volumes divided by total
purchase volumes) is in line with the industry average of 8-9%. Santa Clara’s fraction of lost
and unaccounted for water was extremely low and could partly explain their low water rates.
Staff examined Santa Clara’s policy regarding minimizing their water losses. Staff will further
investigate whether similar emphasis on reducing water losses could have a significant impact on
Palo Alto’s costs.
CMR: 393:10 Page 4 of 6
3. Operations and Maintenance (O&M) Benchmarks
O&M benchmarks can be used to determine how efficient water distribution operations are. The
study found that Palo Alto mains are the oldest average age in the benchmark cities. This
suggests that the City’s infrastructure is more expensive to maintain. In addition, Palo Alto has a
higher variation between peak and minimum month flows, which would suggest the need for
greater infrastructure needs (and cost) to meet peak flow requirements, and greater operational
cost to serve a wider range of flows.
Palo Alto has a greater number of employees per gallon delivered and per account. However,
other cities use staff from other departments for services such as meter reading and billing and
pay for these services in the form of an allocation, rather than directly in employee costs. In
addition, Palo Alto does its own engineering design in-house while other entities contract out for
these services.
Overall, Palo Alto’s operations costs are somewhat higher than average, which is consistent with
the higher level of service provided and Palo Alto’s lower economy of scale.
4. Quality of Service Benchmarks
Palo Alto receives below average complaints for taste, odor, turbidity, and high or low pressure
problems. These factors indicate that customer satisfaction is higher than average in Palo Alto.
In addition, Palo Alto has fewer outages per gallon of water delivered and per mile of main
suggesting better system maintenance and operations.
5. Utility Infrastructures, Emergency Preparedness, and Reliability
Palo Alto plans to replace its water utility infrastructure within the average service lives of the
facilities, which is a more aggressive replacement plan than other utilities. Palo Alto’s incidence
of main breaks, leaks, and outages is below average, which is further evidence of higher/better
reliability. Although Palo Alto has less storage capacity than average, and, therefore, could be
viewed as less reliable, the City is in the process of constructing additional storage.
6. Other Conclusions
Water purchase costs
Palo Alto currently pays more for water than the average benchmark comparator since some of
the agencies use less expensive groundwater or treated water from the Santa Clara Valley Water
District. In addition, other agencies supplement their supplies with recycled water, the full cost
of which may not be included in their water utility budgets. Palo Alto is currently entirely reliant
on the San Francisco Public Utilities Commission (SFPUC) for its drinking water supply. The
cost of SFPUC’s water will increase steeply in the next few years before leveling off. In
anticipation of these cost increases, Palo Alto has set its rates to generate reserves to smooth out
the increased cost.
Capital costs (past, present and projected)
Since Palo Alto’s main distribution lines are the oldest within the group, Palo Alto has
aggressively invested in facilities to improve system reliability and in programs to improve its
water use efficiency. Palo Alto’s Capital Improvement Plan (CIP) expenditure levels are
CMR: 393:10 Page 5 of 6
generally higher than other benchmark cities. Some of the benchmark cities also receive
significant revenues from connection fees that are used to fund capital improvements.
Rent
Palo Alto's Water Utility pays rent to the City's General Fund for its use of land. Palo Alto's
costs in this category are generally higher than other cities.
ATTACHMENTS
A. Water Utility Benchmark Study
B. Draft minutes from the UAC October 6,2010 meeting
PREPARED BY:
REVIEWED BY:
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
CMR: 393:10
IPEKCONNOLLY -'C
Senior Resource Planner 1':11
SHIV A SWAMINATHAN "'(;ib
Senior Resource Planner
DEBBIE LLOYD J) L
Acting Assistant Director, Resource Management
~Pclt-~
JAMES KEENE
City Manager
Page 6 of6
HF&H CONSULTANTS, LLC
Managing Tomorrow’s Resources Today
201 North Civic Drive, Suite 230 Robert D. Hilton, CMC
Walnut Creek, California 94596 John W. Farnkopf, PE
Tel: (925) 977-6950 Laith B. Ezzet, CMC
Fax: (925) 977-6955 Richard J. Simonson, CMC
hfh-consultants.com Marva M. Sheehan, CPA
TECHNICAL MEMORANDUM
To: Ipek Connolly, City of Palo Alto
Jane Ratchye, City of Palo Alto
From: John Farnkopf, HF&H Consultants, LLC
Sima Mostafaei, HF&H Consultants, LLC
Greg Trueblood, HF&H Consultants, LLC
Date: September 21, 2010
Subject: Water Utility Benchmarking Study
This technical memorandum summarizes the results of our benchmarking study
performed for the City of Palo Alto Utilities (CPAU) to assist in its rate-setting process
and potentially other purposes such as operational performance evaluation. This study
evaluated benchmarks at a reconnaissance level based on readily available data within the
project schedule and contract budget. This technical memorandum contains the
following sections:
I. Introduction
II. Service Area Benchmarks
III. Water Use Benchmarks
IV. O&M Benchmarks
V. Quality of Service Benchmarks
VI. Expense and Revenue Benchmarks
VII. Rate Benchmarks
VIII. Customer Bill Benchmarks
IX. Findings
X. Concluding Remarks and Possible Next Steps
Additional detail is included in the appendix.
I. Introduction
As part of its process of continuous self-assessment, the CPAU compares its utility rates
with similar neighboring cities. It has been observed and reported that the City’s water
rates have been among the highest in the region. The need for a benchmarking study
stemmed from the desire by the CPAU to obtain an independent assessment of the
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 2
factors that explain this difference. The purpose of the study is to provide answers to
the following questions:
1) Why are CPAU water rates higher than other neighboring utilities?
2) How does the CPAU water utility budget compare with other neighboring
utilities?
3) What qualitative and quantitative information explains the differences in major
cost categories (e.g., water purchase costs, operations costs, staff costs, capital
costs (past, present, and projected), transfers out).
4) How do the neighboring utilities compare with respect to the state of their
respective utility infrastructures, emergency preparedness and reliability?
5) What are CPAU customers getting for the extra money collected for water utility
services?
In this study, the City of Palo Alto’ water utility was compared with six other water
suppliers: the Cities of Redwood City, Mountain View, Milpitas, Hayward, and Santa
Clara and California Water Service Company’s Bear Gulch District.1
Within this group,
there is considerable variation in size, as shown below.
As can be seen, there are some disproportionate relationships. For example, Palo Alto’s
and Cal Water’s surface areas are large given their populations; Santa Clara’s surface
area for its population is comparatively small. Such examples illustrate the difficulty in
making statistical comparisons with a sample size of seven in which there may be
outliers that can skew the statistics and when data were not always available for all
seven agencies.
In the text of this report, Palo Alto is compared against the mean for the group and the
highest and lowest individual values. This comparison is intended to simplify
understanding each benchmark. Readers are urged, however, to also review the
appendix, which shows the values for each agency. In this way, the affects of
disproportionate relationships, outlier values, and missing data can aid in drawing
conclusions.
Documents from readily available sources were used in preparing this study. For most
but not all of the seven agencies, the following documents were reviewed:
• Budgets
• Comprehensive Annual Financial Reports
1 Cal Water is unusual among the agencies studied. It is the only member of the group that is a regulated water
company; all the others are cities. It serves a disproportionately high single-family residential population in affluent
portions of Menlo Park, Atherton, and Woodside whose customers have large lots.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 3
• Capital improvement programs
• Urban Water Management Plans
• Drinking Water Reports
• Master fee schedules
• Official statements
• General Plans
• Service Efforts and Accomplishments Report and other reports specific to Palo
Alto only
• Written responses provided by cities to the survey conducted by CPAU staff
Over 60 published source documents exceeding 5,000 pages were relied upon. In a few
cases, telephonic interviews were also conducted. In addition to HF&H’s research,
CPAU staff conducted additional targeted surveys and interviews to supplement in
areas of the greatest interest such as the condition of infrastructure, past and projected
capital improvement programs, funding sources, areas of staff deployment, and capital
improvement plan implementation. In view of the large volume of data and limited resources
available for research and analysis, this study should be regarded as a reconnaissance level study,
as was intended within the scope of services for this project.
The data extracted from these documents represents a recent timeframe, but not the
same timeframe for each benchmark or for each agency. As such, the report represents
conditions typically ranging from the last few years up to the current year, depending
on the benchmark. Whereas benchmarks concerning historical trends can extend into
prior decades, benchmarks concerning rates reflect rates that are either currently in
effect or adopted but not yet effective.
II. Service Area and Infrastructure Benchmarks
Service area benchmarks compare general differences in the service areas that could
lead to differences in providing service. Infrastructure benchmarks combined with
service area benchmarks allow for additional definition of the physical differences
among the agencies. Figure 1 summarizes the key benchmarks that were evaluated.
Palo Alto’s population ranks it smaller in the sample and, as a result, Palo Alto does not
benefit from the economies of scale available to larger agencies. Palo Alto also appears
to be less densely developed compared to the mean for the group based on the number
of residents and accounts per square mile and the miles of main per square mile. In
effect, Palo Alto’s water utility infrastructure may be spread over a larger area. It is
likely that Palo Alto may have significant undeveloped open space compared to the
other agencies.2
2 This could be verified by reviewing land use data.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 4
Figure 1. Service Area and Infrastructure Benchmarks
Benchmark Palo Alto Mean
Palo
Alto vs.
Mean High Low Significance of Benchmark
Service area characteristics
Population 63,400 88,300 -28%150,878 57,108 Size affects economies of scale.
Population growth over last ten years 8.6%8.2%4%17.9%-1.7%Growth affects need to expand.
Accounts 19,443 21,777 -11%32,382 16,463 Size affects economies of scale.
Surface area (square miles) 26.0 30.5 -15%62.5 12.0 Size affects economies of scale.
Residents per square mile 2,438 3,717 -34%6,230 1,261 Population density; larger is denser.
Accounts per square mile 748 900 -17%1,436 405 Development density; larger is denser.
Average Temperature (deg F)58.0 57.0 2%59.2 48.6 Irrigation needs; lower is cooler.
Average annual precipitation (in) 15.37 16.35 -6%19.81 14.03 Irrigation needs; lower is drier.
Infrastructure
Miles of distribution mains 219 262 -16%350 175
Accounts per mile of main 89 84 5%98 57 Infrastructure density; larger is denser.
Miles of main per square mile 8.42 10.51 -20%15.28 5.60 Infrastructure density; larger is denser.
Average age of distribution mains (years)61 45 34%61 33 Age affects need for O&M and R&R
Capital Assets (net book value)
Capital assets per account $3,288 $3,085 7%$5,087 $1,541 Investment
Capital assets per hcf $10.65 $10.14 5%$19.73 $5.51
Capital assets per square mile $2,458,500 $2,553,050 -4%$3,528,231 $798,273 Infrastructure concentration
Palo Alto’s average temperature is slightly above average and its precipitation is
slightly below average, the combined effect of which is a slightly higher irrigation
requirement for similar landscapes. Land use is also a significant influence in irrigation
water use.3
Larger lots in hotter, drier climates can lead to higher irrigation water use.
The values reported by the agencies indicated that Palo Alto’s distribution mains are
the oldest within the group. Older infrastructure is more expensive to maintain and
replace. The value of Palo Alto’s capital assets per account and per unit of water
delivered is slightly higher than the mean. Because of Palo Alto’s sparser development,
the value of its capital assets per square mile is slightly less than the mean.
III. Water Use Benchmarks
Water use benchmarks can indicate relative water use efficiency. More efficient water
use is presumed to be less expensive to supply per account. Palo Alto’s single-family
residential water use is near average for the group. Palo Alto’s multi-family use is much
less than average because it has fewer, smaller multi-family accounts. Palo Alto’s
commercial, institutional, and industrial (CII) use is somewhat above average. Overall,
for all its classes, Palo Alto’s average use per account is near the average.
3 A review of land use data could indicate differences in average lot size, which would assist in understanding
differences in irrigation among the agencies.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 5
Figure 2. Water Use Benchmarks
Losses are an indicator of a number of broad conditions. Systems with low losses can
have better maintained distribution mains with pressures held within recommended
limits so that leaks and breaks are minimized. Systems with low losses can also indicate
better controlled reservoirs with fewer spills and more accurate and better maintained
meters.
Based on published sources,4 Palo Alto’s water losses are below average.5
City staff
partially attributes the low losses to inaccurate SFPUC master meters, which under-
record deliveries to the City; other factors are also pending further review. Other
agencies in the group reported low losses due to under-recording SFPUC meters. As a
result of the lack of accurate data on losses, it is not possible to make meaningful
comparisons about losses. However, based on Palo Alto’s internal water loss reports,
Palo Alto’s losses are within industry norms.
IV. O&M Benchmarks
Operations and Maintenance (O&M) benchmarks indicate how service area and water
use characteristics affect O&M. Palo Alto’s O&M benchmarks suggest areas that could
lead to higher operating costs. For example, the employee data indicate that Palo Alto
uses more employees per millions of gallons delivered than the average for the group
and has fewer accounts per employee.
Benchmarks relying on the number of employees are problematic because of the
differences among the agencies in how they account for staff. For example, the CPAU
includes its meter reading staff as part of its water utility; other cities provide these staff
from other departments, which may result in undercounting their water utility staff. In
other cases, attributions of public works or other non-water utility staff to an agency’s
water utility may use approximate formulae rather than direct attribution from time
4 Bay Area Water Supply and Conservation Agency Annual Survey, FY 2008-09.
5 Palo Alto has subsequently verified that the water losses are in the 8% to 9% range, in line with industry average.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 6
sheets. Palo Alto also provides its own design staff, whereas some of the other agencies
contract design work to consultants.
Figure 3. O&M Benchmarks
Benchmark Palo Alto Mean
Palo
Alto vs.
Mean High Low Significance of Benchmark
Operations and maintenance
Mgd per employee 0.28 0.36 -22%0.49 0.28 Efficiency; larger is more efficient.
Accounts per employee 445 576 -23%745 445 Efficiency; larger is more efficient.
Miles of main per O&M employee 8.4 12.7 -34%17.7 8.4 Efficiency; larger is more efficient.
Mgd per O&M employee 0.47 0.72 -35%1.07 0.47 Efficiency; larger is more efficient.
O&M employees as a percent of total employees 59%52%15%64%40%
Load factors
Peak month to average monthly demand 1.50 1.45 4%1.70 1.25 Design conditions; smaller is better.
Peak month to minimum monthly demand 3.21 2.52 28%4.26 1.57 Operational extremes; smaller is better.
Mgd per booster pump station 2.05 1.64 25%2.65 0.22 Pumping cost; larger is more expensive.
Square miles per pressure zone 3.25 4.28 -24%10.42 1.22 Pumping cost; smaller is more expensive.
Square miles per booster pump 4.33 4.05 7%8.93 0.77 Pumping cost; smaller is more expensive.
Days of Storage 0.85 1.35 -37%2.04 0.84 Emergency preparedness; larger is better.
Gallons of potable storage per account 540 854 -37%1,071 540 Emergency preparedness; larger is better.
Load factors indicate a higher variation of flow between peak and minimum month
flows. Higher load factors can require greater operational skill, instrumentation, etc. in
serving a wider range of flows. Higher load factors will also lead to designing larger,
more expensive facilities to meet peak flows. In Palo Alto’s case, its hillier and more
extended service area calls for higher pumping rates with the associated increase in
power cost.
Palo Alto’s distribution system storage is below average compared with the group.
Further evaluation of this metric is needed to confirm that the data are comparable
(some of the other agencies in the sample have raw water storage that may have been
included with their treated water storage). We note that the City is currently
constructing additional storage that is not included in this report.
V. Quality of Service Benchmarks
O&M practices are ultimately reflected in the quality of service, which reflects customer
complaints and outages. Based on recent Drinking Water Reports submitted to the
Department of Public Health, Palo Alto’s complaints are overall below average,
specifically in taste and odor, turbidity, and high or low pressure. Palo Alto also has
fewer outages per million gallons per day (mgd) and per mile of main.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 7
Figure 4. Quality of Service Benchmarks
VI. Expense and Revenue Benchmarks
Palo Alto’s service area characteristics (specifically population size and distribution and
infrastructure age) contribute toward more costly operations. In meeting its operational
challenges, Palo Alto provides a comparatively high level of service. This level of
service comes at a cost, however, as indicated by the financial benchmarks in Figure 5.
Figure 5. Financial Benchmarks
Benchmark Palo Alto Mean
Palo
Alto vs.
Mean High Low Significance of Benchmark
Expenses
Total expenses (excl non-oper revenue)$25,903,000 $21,548,215 20%$27,088,382 $17,006,605 Magnitude of expenditures
Budgeted expenses per account $1,332 $1,013 32%$1,332 $837 Cost of providing service; lower is cheaper.
Operations
O&M cost per account $338 $288 17%$444 $150 Cost of operations.
Salary and benefits per employee $123,822 $119,191 4%$143,833 $96,667 Salary cost.
Average cost of purchased water ($/hcf)$0.17 $0.15 12%$0.17 $0.12 Supply cost.
Cost of purchased water as % of total budget 40%49%-18%58%34%Cost of supply (SFPUC and SCVWD).
Recent Annual CIP (within last 10 years)$4,100,000 $2,925,000 40%$4,400,000 $750,000 Magnitude of expenditures
Current Annual Capital Improvements
Annual CIP expense $6,298,750 $4,432,725 42%$6,298,750 $2,125,000 Magnitude of expenditures
Annual CIP expense per account $324 $218 48%$370 $66
Annual CIP expense per hcf $1.05 $0.69 52%$1.11 $0.23
Annual CIP expense per employee $144,136 $101,568 42%$144,136 $41,262
Annual CIP expense per mile of main $28,761 $19,160 50%$29,975 $6,071
Annual CIP expense compared to depreciation 538%337%60%558%108%Funding depreciation
Debt service as a percent of total budget 14%7%100%14%3%Indebtedness.
Debt service, per account $184 $83 122%$184 $28 Indebtedness.
Rent as a percent of expenses 7%3%148%8%0%
Revenues
Total annual revenue per account $1,489 $1,108 34%$1,489 $859 Customer cost; larger is more expensive.
Connection fee revenue as a percent of rate rev 2.4%2%42%8%0%Cost recovery from growth
Connection fees per 3/4" connection $3,600 $3,825 -6%$5,726 $1,787 Contributes toward funding capital projects.
Palo Alto’s overall budgeted operating and capital expenses per account are 32% higher
than the mean. Although O&M costs per account are 17% higher, salary costs are close
to average per employee. Palo Alto’s cost of water is slightly above average because its
sole source of supply is the SFPUC and less expensive alternatives such as groundwater
are not currently being used. Palo Alto’s cost of purchased water as a percent of the
total budget is not as high because Palo Alto has other expenses (e.g., debt service, rent
paid on land for water infrastructure) that are not present to such a degree in the other
agencies’ budgets.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 8
Palo Alto’s annual capital expenditures are higher for all of the benchmarks. The
amount by which Palo Alto’s average annual CIP currently exceeds depreciation
indicates that Palo Alto’s CIP more than keeps up with depreciation and is much higher
than the average for the group.
Palo Alto’ Water Fund pays rent to the General Fund. Other agencies have a similar
charge (although they may not characterize it as rent). Palo Alto’s charge is higher than
the mean.
Palo Alto’s annual revenues per account need to cover its higher expenses. We note
that Palo Alto’s connection fees, which produce revenue from growth to offset capital
expenses, are near average; the associated revenue is dependent on growth rates that
vary among the agencies. Revenue from connection fees can fund significant portions
of capital improvement programs, thereby taking some of the pressure off rates.
VII. Rate Benchmarks
Rate benchmarks aid in understanding the impact of costs on rates and the question of
whether rates are commensurate with costs and the level of service. For this
benchmark, there are two components: quantity charges and service charges, the sum of
which comprises the bill. A customer’s quantity charge will depend on its water use,
and the service charge depends on the size of the service. The combined structure of
these two rate components must be designed to meet the agency’s rate-making
objectives, among which are typically revenue sufficiency and water conservation.
Figure 6 graphically compares the current adopted residential quantity charges for each
of the members of the group, some of which rates have not increased recently (e.g., Palo
Alto) and some of which have increased significantly. All of the members have tiered
rates.6
Palo Alto’ rates are initially higher than the other agencies in the group but not
for demand beyond 25 hcf, at which point Mountain View’s and Redwood City’s rates
are higher. Hence, claims that “Palo Alto’s rates are the highest” are over simplify the
case.
Figure 7 provides benchmarks related to rate design, which are useful in understanding
the relationship between each member’s costs and the rate structure designed to
generate revenue to recover its costs. Palo Alto’s residential quantity charges have
fewer tiers than the average. Palo Alto’s residential tiers step up quickly, which
provides a strong price signal but the ratio of the top tier to lowest tier is not as great as
the average.
Palo Alto’s quantity charges are generally higher, but that is consistent with also having
lower service charges for the majority of its customers. For an average residential
6 Santa Clara’s minimum charge structure effectively provides the first 3 hcf at no cost; hence, the quantity charge for
its first tier is $0.00/hcf.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 9
customer, only 6% of the bill comes from the service charge, which is well within the
California Urban Water Conservation Council’s guidelines.
Figure 7 also shows benchmarks for the service charges, which are graduated in
proportion to the size of the service. Palo Alto’s service charges are all much lower than
average (i.e., again, Palo Alto’s rates are not always the highest). Lower service charges
provide stronger price signals to encourage water use efficiency because more of the
revenue must be recovered from the quantity charge. The California Urban Water
Conservation Council guidelines call for generating at least 70% of rate revenue from
quantity charges. At 94%, Palo Alto is the highest in the group, which evidences a very
potent conservation orientation.
Figure 6. Comparison of Residential Quantity Charges
$0
$1
$2
$3
$4
$5
$6
$7
$8
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69
Qua
n
t
i
t
y
C
h
a
r
g
e
(
$
/
H
C
F
)
HCF Per Monthly Bill
Mountain View
Palo Alto
CWS Bear Gulch
Milpitas
Hayward
Santa Clara
Redwood City
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 10
Figure 7. Rate Benchmarks
Benchmark Palo Alto Mean
Palo
Alto vs.
Mean High Low Significance of Benchmark
Rates Structures - -
Quantity charge price signal - residential - -
Number of tiers 2.00 2.71 -26%4.00 1.00 Component of variable price signal.
Slope of tiers from lowest to highest ($/hcf)$0.239 $0.098 143%$0.239 $0.000 Higher slope produces stronger price signal
Ratio of top tier to lowest tier 1.42 2.06 -31%4.09 1.00 Higher ratio produces stronger price signal.
Quantity charge price signal - non-residential
Number of tiers 1.00 1.57 -36%3.00 1.00 Component of price signal.
Slope of tiers from lowest to highest ($/hcf)$0.000 $0.021 -100%$0.129 $0.000 Higher slope produces stronger price signal
Ratio of top tier to lowest tier 1.00 1.22 -18%1.99 0.90 Higher ratio produces stronger price signal.
Service charges
For 5/8 inch meter $5.00 $11.55 -57%$22.41 $5.00
For 3/4 inch meter $5.00 $14.39 -65%$27.03 $5.00
For 1 inch meter $6.50 $21.81 -70%$45.05 $6.50
For 1 1/2 inch meter $12.27 $37.68 -67%$90.10 $12.27
For 2 inch meter $19.37 $58.96 -67%$144.15 $19.37
For 3 inch meter $77.65 $135.56 -43%$270.29 $58.70
For 4 inch meter $130.60 $222.53 -41%$450.49 $92.25
For 6 inch meter $260.43 $411.49 -37%$900.97 $184.70
For 8 inch meter $383.67 $604.00 -36%$996.05 $294.05
Average monthly bills
Single-family residential - average
Monthly consumption (hcf)14 13 4%26 9 Average water use per residence.
Monthly quantity charge $72.64 $46.29 57%$105.96 $21.24 Customer cost for water.
Service: 3/4"$5.00 $14.39 -65%$27.03 $5.00 Lower charge recovers less fixed cost.
Total $77.64 $60.69 28%$124.65 $34.41 Lower is less expensive.
Quantity charge portion 94%73%28%94%47%Conservation signal; CUWCC prefers > 70%
Annual SFR bills as percent of MHI 0.74%0.67%10%0.83%0.47%Affordability; EPA threshold = 2%.
VIII. Customer Bill Benchmarks
The combination of the quantity and service charge structures yields bills for customers
that depend on their monthly water use and service connection size. Figures 8 and 9
graph bills for ranges of consumption for residential customers (assuming a 3/4”
service and monthly consumption up to 70 hcf per month 7
) and non-residential
customers (assuming a 3” service and monthly consumption up to 1,000 hcf per month).
Palo Alto’s residential bills are not the highest for use below 12 hcf per month; at some
point to the right of Figure 9, Mountain View’s and Redwood City’s rates will produce
higher bills than Palo Alto’s rates.
7 In calculating residential bills, the average monthly flow per single-family residence was used for each agency.
Hence, the bills reflect both the differences in rate structure as well as the differences in average use per account.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 11
Figure 8. Residential Customer Bills
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70
Mo
n
t
h
l
y
B
i
l
l
(
$
)
Usage Per Monthly Bill (HCF)
Palo Alto
CW Bear Gulch
Milpitas
Hayward
Santa Clara
Redwood City
M
Mountain
View
Figure 9 shows that Palo Alto’s non-residential bills are never the highest in large part
because Palo Alto’s service charges for larger services are well below average. However,
Palo Alto’s non-residential bills are higher than the mean.
Figure 10 presents a comparison of average single-family residential water bills in
relation to the population of the agency’s service area. This graph also shows a trend
line for the group. By plotting bills versus population, it is possible to see how the size
of the agency affects its costs. As the smallest agencies in the group, Cal Water and Palo
Alto will not benefit from the economies of scale that the larger agencies receive. Palo
Alto is not the only member of the group above the trend line. The agencies below the
trend line may also benefit from other advantages, such as later development with
correspondingly younger infrastructure, which would not require as much capital
investment to maintain. It is also possible that regardless of the age of their
infrastructure, the agencies below the trend line are simply not making the investment
that is being made by those above the trend line.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 12
Figure 9. Non-Residential Customer Bills
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Mo
n
t
h
l
y
B
i
l
l
(
$
)
Usage on Monthly BIll (HCF)
Mountain View
Palo Alto
Redwood City
Hayward
MilpitasCW Bear Gulch
Santa Clara
Figure 10. Population versus Average Single-Family Residential Water Bill
Palo Alto
Redwood City
Mountain View
Milpitas Hayward
Santa Clara
CWS -Bear Gulch
$-
$20
$40
$60
$80
$100
$120
$140
50,000 70,000 90,000 110,000 130,000 150,000
Mo
n
t
h
l
y
B
i
l
l
Population
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 13
IX. Findings
The purpose of this benchmarking study was to provide answers to the following
questions:
Why are CPAU water rates higher than other neighboring utilities? As a precursor to
answering this question, it is important to distinguish between the components of the
rates, some of which are not higher in Palo Alto when compared to the members in the
group. Palo Alto’s highest residential and non-residential volume charges are lower
than Mountain View’s and Redwood City’s. Moreover, all of Palo Alto’s service
charges are lower than the average.
It is also important to distinguish between rates and bills. The City’s residential volume
rates are generally higher; however, based on assumptions about the size of the
connection and average monthly water consumption at each agency, customer bills
vary. Water bills for low-use residential customers compared to the average are only
slightly higher. Water bills for high-use residential customers are lower in Palo Alto
than in Mountain View and Redwood City, but higher than the other agencies. For the
average residential customer, it is true that Palo Alto’s bills are higher than the average
for the group. Part of the reason is due to Palo Alto’s rates and part is due to Palo Alto’s
average water use.
The following benchmarks help explain why Palo Alto’s rates are generally higher than
average:
1) Palo Alto puts more staff resources and capital into maintaining and replacing its
older facilities.
2) Palo Alto’s population and water sales are below average. Economies of scale
are greater for other members of the group.
3) Palo Alto’s service area is more broadly spread with more pumping zones.
Sparser development in hillier terrain is more expensive to serve because of the
cost of constructing the infrastructure and the cost of O&M, particularly
pumping.
4) Palo Alto experiences more seasonal variation in its demand, which requires a
higher level of operating capability, particularly in operating pumping, storage,
SCADA, and water quality monitoring equipment.
5) Palo Alto provides a higher quality of service based on the lower number of
complaints received and system outages.
6) Palo Alto’s cost of water supplies is higher compared to some of the agencies that
purchase water from SCVWD, pump groundwater, and use recycled water.
7) Palo Alto’s utility pays rent for land occupied by water facilities. Some other
cities have similar, lower charges.
How does the CPAU water utility budget compare with other neighboring utilities?
The CPAU budget for FY 2009 is 20% above average in total dollars and 32% above
average when measured in terms of dollars per account. O&M and debt service are a
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 14
greater percentage of Palo Alto’s budget than average but its cost of purchased water is
smaller portion of the budget than average.
What qualitative and quantitative information explains the differences in major cost
categories (e.g., water purchase costs, operations costs, staff costs, capital costs (past,
present, and projected), transfers out)?
This question raises a number of specific points:
1) Water purchase costs – Palo Alto is currently almost entirely reliant on the
SFPUC for its water supply, with no less expensive options used at present (e.g.,
local wells or treated water from the SCVWD). The SFPUC’s cost of water will
increase steeply in the next few years before leveling off. Palo Alto has set its
rates to generate reserves in anticipation of increases in the cost of water among
other cost increases. Palo Alto also does not use significant amounts of
groundwater, which is significantly cheaper than SFPUC water. In addition,
agencies, including Palo Alto, supplement their supplies with recycled water, the
full cost of which may not be included in their water utility budgets. 8
2) Operating costs – Palo Alto’s operating costs are somewhat higher than average,
which is consistent with the higher level of service that appears to be provided
and the Palo Alto’s lower economy of scale.
3) Staff costs – Our reconnaissance level analysis indicates that while salary costs
are comparable to other members of the group, Palo Alto attributes a larger
number of staff to its water utility. As a result, Palo Alto may have higher salary
costs, although a careful review of direct and allocated staff should be conducted
to confirm this 9
4) Capital costs (past, present, and projected) – Palo Alto has invested in facilities
and programs to improve its water use efficiency and reliability. By doing so,
Palo Alto has a greater margin of safety during supply shortages. It is possible in
the future that Palo Alto will be able to offset some of this investment with
revenue from the lease of its unused SFPUC entitlement to other BAWSCA
members.
.
5) Transfers out – Very little information was available about transfers out (or in) to
the general fund, reserves, or other enterprises. Further analysis should look at
transfers to determine (1) the types of transfers that are made within each water
utility (e.g., to operating and capital reserves, (2) the minimum and target
balance for each reserve within each water utility, and (3) the types of transfers
made outside each water utility.
8 More expensive recycled water is used on the golf course and Greer Park.
9 Subsequent inquiries have revealed CPAU has larger number of directly assigned staff. Other utilities tend to have
staff residing in the general fund and then the cost is allocated to the water utility.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 15
Summarizing the key points from the benchmark categories in this report adds to the
answer:
Benchmark Category Key Findings
Service Area and Infrastructure
• Hillier topography, sparser development, and drier, hotter
climate.
• Capital investment is above average.
• Smaller size has lower economies of scale.
Water Use • Single-family use is near average
• CII use is above average.
• Overall use is average.
Operations and Maintenance • Fully staffed for meter reading, customer service, design.
• Higher peak flows.
• Less storage and more pumping.
Quality of Service • Fewer taste, odor, and pressure complaints.
• Fewer service interruptions.
Financial • Higher current O&M expenses.
• Higher historic and projected capital expenses.
• Rents charged for land occupied by water utility
These findings indicate reasons for why Palo Alto’s costs are higher and its quality of
service is superior.
How do the neighboring utilities compare with respect to the state of their respective
utility infrastructures, emergency preparedness, and reliability? Palo Alto plans to
replace its water utility infrastructure within the average service lives of the facilities.
Palo Alto has the oldest infrastructure of those agencies for which data were available,
with younger/recent growth cities having relatively new infrastructure. All agencies
are focused on replacing old infrastructure, with Palo Alto having one of the more
aggressive capital improvement programs. In some cases, agencies are or will be
converting their customer meters to automated reading technology. The overall effect is
an increased level of capital improvements that will be funded from a combination of
debt and cash.
All of the members of the group provide emergency contacts at all times. All agencies
have on-call crews that allow for quick responses to leaks. Another measure of
emergency preparedness is evidenced by the amount of daily storage that is available;
Palo Alto’s is below average but is constructing more. Palo Alto’s incidence of main
breaks, leaks, and outages is below average, which is further evidence of reliability.
What are CPAU customers getting for the extra money collected for water utility
services? The average residential customer is paying $16.95 or 28% more per month in
Palo Alto compared with other members of the group. Part of the reason is due to the
higher use by Palo Alto’s average customer: Palo Alto residents pay more for more
water. In addition to providing an above-average quantity of water, there are
indications that Palo Alto provides an above-average quality of service based on below-
average complaints and that Palo Alto’s facilities are in above-average repair.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 16
Determining whether the above-average cost is commensurate with an above-average
level of service can be approached in various ways. For example, contingent valuation
techniques could be used to poll customers to find out if they would be willing to pay a
specified amount less for a specified lower level of service. Customers could also be
surveyed to determine their satisfaction level, as has been done by the City for the past
seven years. The most recent Service Efforts and Achievements Report notes:
Operating expense for the water utility totaled $19.4 million, including $8.4 million in water
purchases (26% more than five years ago). The average residential water bill has increased
27% over the five-year period. Average residential water usage per capita is down 9% from
five years ago. 81% of surveyed residents rate water quality as good or excellent.10
At a point when costs are climbing and demand is declining, Palo Alto’s rate payers
express a commendable level of satisfaction.
X. Concluding Remarks and Possible Next Steps
The City is one of a few California cities that provides a broad range of utility services.
In actively seeking to improve its services, the City continuously compares itself with
other municipalities. The present benchmarking study is the latest of such efforts. This
study focused on the City’s water utility, which the City’s previous studies identified as
having comparatively high rates.
Comments received on the draft report noted areas where additional work may be
required to completely answer certain questions, to provide greater detail, and to
further support conclusions. The following are some examples of these comments:
• Water losses – The low water losses reported in this study came from the most
recent published sources. City staff is aware that meter inaccuracy in the
SFPUC’s master meters is the primary cause for the low losses. Additional work
is needed to resolve this discrepancy. In addition to reviewing the underlying
meter data, meter calibration and replacement programs could also be compared
among the survey group.
• Reserves – Rates generate revenue not only for current cash flow but also to fund
operating, capital, and other reserves. Palo Alto has set its rates in anticipation of
increases in the SFPUC’s cost of water and other cost increases that may exceed
what has been done by other members in the group. Additional work is needed
to compare information on the types of reserves, fund balances, target balances,
and annual contributions to reserves.
• Non-rate revenue - This report notes that revenue from other non-rate sources
such as connection fees may provide funding for other agencies that helps hold
their rates down. Additional work is needed to determine how differences in
non-rate revenue among the survey group accounts for differences in rates.
10 Service Efforts and Accomplishments Report. City of Palo Alto. December 14, 2009. Page v.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 17
• Confirmation - This report relies on our interpretation of information that should
be confirmed by each member in the survey group. All of the data in the
appendix could be submitted to each member for review and confirmation.
• Timeframe – It should be recognized that the analysis is sensitive to the
timeframe for which data were available. Using data for another timeframe
could lead to different findings. A more detailed investigation would use data
from multiple years, rather than for a snapshot of the most recent year (which
varied by benchmark and by agency), in order to spot any trends and to take
short-term anomalies out of the evaluation.
The conclusions reached in the current study could change if additional information
were available or time were available to confirm that our interpretation of data is
correct. Moreover, it should be recognized that the analysis is sensitive to the
timeframe for which data were available. Using data for another timeframe could lead
to different findings.
HFH Consultants, LLC
9/22/2010 1
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
1. BENCHMARKS
Benchmark Palo Alto
Redwood
City
Mountain
View Milpitas Hayward Santa Clara
CWS Bear
Gulch Mean
Palo
Alto vs.
Mean High Low
Population 63,400 83,895 74,762 70,817 150,878 117,242 57,108 88,300 -28%150,878 57,108
Surface area (square miles) 26.0 35.0 12.0 13.6 62.5 19.3 45.3 31 -15%63 12
Water deliveries (million gallons per day) 12.3 10.4 11.4 11.2 18.6 22.2 13.1
Service area characteristics
Population 63,400 83,895 74,762 70,817 150,878 117,242 57,108 88,300 -28%150,878 57,108
Population growth over last ten years 8.6%1.1%-1.7%8.9%17.9%14.4%8.2%4%17.9%-1.7%
Accounts 19,443 23,110 17,229 16,463 32,382 25,481 18,329 21,777 -11%32,382 16,463
Surface area (square miles) 26.0 35.0 12.0 13.6 62.5 19.3 45.3 30.5 -15%62.5 12.0
Residents per square mile 2,438 2,397 6,230 5,207 2,414 6,075 1,261 3,717 -34%6,230 1,261
Accounts per square mile 748 660 1,436 1,211 518 1,320 405 900 -17%1,436 405
Average Temperature (deg F)58.0 59.2 58.0 48.6 58.9 59.0 57.0 2%59.2 48.6
Average annual precipitation (in) 15.37 19.81 15.80 15.04 18.03 14.03 16.35 -6%19.81 14.03
Infrastructure
Miles of distribution mains 219 265 175 203 350 295 324 262 -16%350 175
Accounts per mile of main 89 87 98 81 93 86 57 84 5%98 57
Miles of main per square mile 8.42 7.57 14.58 14.93 5.60 15.28 7.15 10.51 -20%15.28 5.60
Average age of distribution mains (years)61 33 45 43 45 34%61 33
Capital Assets (net book value)
Capital assets per account $3,288 $4,345 $2,279 $2,385 $1,541 $2,672 $5,087 $3,085 7%$5,087 $1,541
Capital assets per hcf $10.65 $19.73 $7.08 $7.18 $5.51 $6.27 $14.54 $10.14 5%$19.73 $5.51
Capital assets per square mile $2,458,500 $2,869,170 $3,271,835 $2,886,913 $798,273 $3,528,231 $2,058,424 $2,553,050 -4%$3,528,231 $798,273
Water use characteristics
Total water supply in mgd (incl losses)12.30 10.43 11.37 11.21 18.57 22.24 13.14 14.18 -13%22.24 10.43
Applied water over service area (feet)0.83 0.52 1.66 1.44 0.52 2.02 0.51 1.07 -23%2.02 0.51
Average flow per account (gpd)
Single-family residential 345 260 241 276 234 323 645 332 4%645 234
Multi-family residential 748 1,183 1,249 673 2,521 935 2,963 1,467 -49%2,963 673
Commercial/Institutional/Industrial 2,061 1,125 1,450 2,136 1,474 3,210 1,039 1,785 15%3,210 1,039
Average 603 433 606 590 483 847 688 607 -1%847 433
Flow distribution by class
Single-family residential 41.5%46.3%24.6%30.1%34.0%24.7%82.1%40.5%3%82.1%24.6%
Multi-family residential 13.6%22.3%27.2%11.0%18.0%20.5%1.7%16.3%-17%27.2%1.7%
Commercial/Institutional/Industrial 40.2%27.2%39.9%45.6%32.2%51.8%12.1%35.6%13%51.8%12.1%
Subtotal 95.3%95.9%91.8%86.7%84.2%97.1%95.9%92.4%3%97.1%84.2%
Losses 4.7%4.1%8.2%13.3%15.8%2.9%4.1%7.6%-38%15.8%2.9%
Total 100.0%100.0%100.0%100.0%100.0%100.0%100.0%
HFH Consultants, LLC
9/22/2010 2
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
1. BENCHMARKS
Benchmark Palo Alto
Redwood
City
Mountain
View Milpitas Hayward Santa Clara
CWS Bear
Gulch Mean
Palo
Alto vs.
Mean High Low
Operations and maintenance
Mgd per employee 0.28 0.34 0.32 0.36 0.49 0.36 -22%0.49 0.28
Accounts per employee 445 745 492 629 566 576 -23%745 445
Miles of main per O&M employee 8.4 17.7 12.5 10.6 14.2 12.7 -34%17.7 8.4
Mgd per O&M employee 0.47 0.70 0.81 0.56 1.07 0.72 -35%1.07 0.47
O&M employees as a percent of total employees 59%48%40%64%46%52%15%64%40%
Load factors
Peak month to average monthly demand 1.50 1.49 1.53 1.38 1.28 1.25 1.70 1.45 4%1.70 1.25
Peak month to minimum monthly demand 3.21 2.43 2.36 1.88 1.89 1.57 4.26 2.52 28%4.26 1.57
Mgd per booster pump station 2.05 1.04 2.24 2.65 0.22 1.64 25%2.65 0.22
Square miles per pressure zone 0.00 0.00 0.00 0.00 0.00 0.00 #DIV/0!- -
Square miles per booster pump 0.00 0.00 0.00 0.00 0.00 0.00 #DIV/0!- -
Days of Storage 0.85 2.04 1.50 1.45 1.51 1.23 0.84 1.35 -37%2.04 0.84
Gallons of potable storage per account 540 919 987 990 868 1,071 600 854 -37%1,071 540
Quality of service
Complaints per total mgd
Taste and Odor 0.49 1.32 0.45 0.05 0.94 0.81 -40%1.32 0.05
Color 1.22 1.14 0.80 0.48 0.40 1.01 20%1.22 0.40
Turbidity 0.33 1.50 0.54 0.00 0.04 0.60 -46%1.50 -
Worms and other 0.16 0.00 0.00 0.00 0.00 0.04 300%0.16 -
Pressure (High or Low)0.00 0.18 3.21 0.00 0.00 0.85 -100%3.21 -
Other 0.00 2.99 0.00 1.83 0.09 1.23 -100%2.99 -
Total 2.20 7.12 4.99 2.37 1.48 4.54 -52%7.12 1.48
Breaks, leaks, outages per mile of main
Per mgd 3.66 1.41 11.33 6.09 4.00 6.62 -45%11.33 1.41
Per mile of main 0.21 0.09 0.63 0.32 0.30 0.39 -47%0.63 0.09
Expenses
Total expenses (excl non-oper revenue)$25,903,000 $22,171,090 $17,762,098 $17,006,605 $27,088,382 $21,945,000 $18,961,329 $21,548,215 20%$27,088,382 $17,006,605
Budgeted expenses per account $1,332 $959 $1,031 $1,033 $837 $861 $1,034 $1,013 32%$1,332 $837
Operations
O&M cost per account $338 $444 $381 $247 $150 $192 $267 $288 17%$444 $150
Salary and benefits per employee $123,822 $143,833 $112,442 $96,667 $119,191 4%$143,833 $96,667
Average cost of purchased water ($/hcf)$0.17 $0.15 $0.16 $0.16 $0.16 $0.12 $0.15 $0.15 12%$0.17 $0.12
Cost of purchased water as % of total budget 40%34%51%51%55%58%51%49%-18%58%34%
Recent Annual CIP (within last 10 years)$4,100,000 $2,000,000 $4,400,000 $750,000 $4,000,000 $2,300,000 $2,925,000 40%$4,400,000 $750,000
Current Annual Capital Improvements
Annual CIP expense $6,298,750 $3,200,000 $3,420,000 $6,085,000 $2,125,000 $5,467,600 $4,432,725 42%$6,298,750 $2,125,000
Annual CIP expense per account $324 $138 $199 $370 $66 $215 $218 48%$370 $66
Annual CIP expense per hcf $1.05 $0.63 $0.62 $1.11 $0.23 $0.50 $0.69 52%$1.11 $0.23
Annual CIP expense per employee $144,136 $103,226 $97,714 $41,262 $121,502 $101,568 42%$144,136 $41,262
Annual CIP expense per mile of main $28,761 $12,075 $19,543 $29,975 $6,071 $18,534 $19,160 50%$29,975 $6,071
Annual CIP expense compared to depreciation 538%168%207%442%108%558%337%60%558%108%
Debt service as a percent of total budget 14%4%3%7%100%14%3%
Debt service, per account $184 $37 $28 $83 122%$184 $28
Rent as a percent of expenses 7%0%0%0%8%5%0%3%148%8%0%
HFH Consultants, LLC
9/22/2010 3
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
1. BENCHMARKS
Benchmark Palo Alto
Redwood
City
Mountain
View Milpitas Hayward Santa Clara
CWS Bear
Gulch Mean
Palo
Alto vs.
Mean High Low
Revenues
Total annual revenue per account $1,489 $1,140 $1,069 $961 $859 $892 $1,348 $1,108 34%$1,489 $859
Connection fee revenue as a percent of rate rev 2.4%0.5%0.1%0.0%8.3%0.5%0.0%2%42%8%0%
Connection fees per 3/4" connection $3,600 $1,787 $4,620 $1,910 $5,726 $5,305 $3,825 -6%$5,726 $1,787
Rates Structures - -
Quantity charge price signal - residential - -
Number of tiers 2.00 4 3 2 4 1 3 2.71 -26%4.00 1.00
Slope of tiers from lowest to highest ($/hcf)$0.239 $0.093 $0.205 $0.098 $0.029 $0.000 $0.026 $0.098 143%$0.239 $0.000
Ratio of top tier to lowest tier 1.42 2.93 4.09 2.10 1.60 1.00 1.26 2.06 -31%4.09 1.00
Quantity charge price signal - non-residential
Number of tiers 1.00 2 3 1 2 1 1 1.57 -36%3.00 1.00
Slope of tiers from lowest to highest ($/hcf)$0.000 $0.129 $0.017 $0.000 $0.003 $0.000 $0.000 $0.021 -100%$0.129 $0.000
Ratio of top tier to lowest tier 1.00 1.63 1.99 1.00 0.90 1.00 1.00 1.22 -18%1.99 0.90
Service charge structure
Service charge multipliers
For 5/8 inch meter $5.00 $18.02 $5.60 $22.41 $9.00 $8.40 $12.45 $11.55 -57%$22.41 $5.00
For 3/4 inch meter $5.00 $27.03 $5.60 $23.82 $12.20 $8.40 $18.69 $14.39 -65%$27.03 $5.00
For 1 inch meter $6.50 $45.05 $11.20 $33.83 $18.50 $13.40 $24.20 $21.81 -70%$45.05 $6.50
For 1 1/2 inch meter $12.27 $90.10 $18.20 $42.67 $40.60 $24.20 $35.74 $37.68 -67%$90.10 $12.27
For 2 inch meter $19.37 $144.15 $33.90 $55.69 $71.40 $34.10 $54.13 $58.96 -67%$144.15 $19.37
For 3 inch meter $77.65 $270.29 $58.70 $149.09 $180.20 $96.60 $116.42 $135.56 -43%$270.29 $58.70
For 4 inch meter $130.60 $450.49 $92.25 $188.93 $357.00 $134.20 $204.26 $222.53 -41%$450.49 $92.25
For 6 inch meter $260.43 $900.97 $184.70 $288.32 $629.80 $263.90 $352.33 $411.49 -37%$900.97 $184.70
For 8 inch meter $383.67 $900.97 $294.05 $377.74 $871.80 $403.70 $996.05 $604.00 -36%$996.05 $294.05
HFH Consultants, LLC
9/22/2010 4
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
1. BENCHMARKS
Benchmark Palo Alto
Redwood
City
Mountain
View Milpitas Hayward Santa Clara
CWS Bear
Gulch Mean
Palo
Alto vs.
Mean High Low
Average monthly bills
Single-family residential - average
Monthly consumption (hcf)14 10 10 11 9 13 26 13 4%26 9
Monthly quantity charge $72.64 $27.05 $28.81 $21.24 $30.00 $38.36 $105.96 $46.29 57%$105.96 $21.24
Service: 3/4"$5.00 $27.03 $5.60 $23.82 $12.20 $8.40 $18.69 $14.39 -65%$27.03 $5.00
Total $77.64 $54.08 $34.41 $45.06 $42.20 $46.76 $124.65 $60.69 28%$124.65 $34.41
Quantity charge portion 94%50%84%47%71%82%85%73%28%94%47%
Annual SFR bills as percent of MHI 0.74%0.74%0.47%0.58%0.83%0.66%0.67%10%0.83%0.47%
Single-family residential - half of average
Monthly consumption (hcf)7 5 5 6 5 7 13 7 4%13 5
Monthly quantity charge $33.27 $14.40 $11.78 $21.24 $34.00 $19.18 $51.90 $26.54 25%$51.90 $11.78
Service: 3/4"$5.00 $27.03 $5.60 $23.82 $12.20 $8.40 $18.69 $14.39 -65%$27.03 $5.00
Total $38.27 $41.43 $17.38 $45.06 $46.20 $27.58 $70.59 $40.93 -7%$70.59 $17.38
Quantity charge portion 87%35%68%47%74%70%74%65%34%87%35%
Single-family residential - two times average
Monthly consumption (hcf)28 21 19 22 19 26 52 27 4%52 19
Monthly quantity charge $157.00 $60.60 $66.29 $50.28 $67.40 $73.98 $228.44 $100.57 56%$228.44 $50.28
Service: 3/4"$5.00 $27.03 $5.60 $23.82 $12.20 $8.40 $18.69 $14.39 -65%$27.03 $5.00
Total $162.00 $87.63 $71.89 $74.10 $79.60 $82.38 $247.13 $114.96 41%$247.13 $71.89
Quantity charge portion 97%69%92%68%85%90%92%85%14%97%68%
- -
Multi-family residential (1 1/2" meter)- -
Monthly consumption (hcf)30 48 51 27 102 38 120 59 -49%119.81 27.21
Monthly quantity charge $104.73 -$14.67 $34.07 $21.24 $33.50 $38.36 $107.48 $46.39 126%107.48 (14.67)
Service: 1 1/2"$12.27 $90.10 $18.20 $42.67 $40.60 $24.20 $35.74 $37.68 -67%90.10 12.27
Total $117.00 $75.43 $52.27 $63.91 $74.10 $62.56 $143.22 $84.07 39%143.22 52.27
Quantity charge portion 90%-19%65%33%45%61%75%50%79%0.90 (0.19)
Commercial/Institutional/Industrial
Monthly consumption (hcf)83 45 59 86 60 130 42 72 15%130 42
Monthly quantity charge $334.62 $290.50 $341.57 $349.00 $217.63 $132.54 $164.87 $261.53 28%$349.00 $132.54
Service: 3"$77.65 $270.29 $58.70 $157.45 $180.20 $96.60 $116.42 $136.76 -43%$270.29 $58.70
Total $412.27 $560.79 $400.27 $506.45 $397.83 $229.14 $281.29 $398.29 4%$560.79 $229.14
Quantity charge portion 81%52%85%69%55%58%59%65%24%85%52%
HF Consultants, LLC
9/22/2010 1
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
2. RATE STRUCTURES AND BILLS
Monthly Service Charge Resi Non-Resi
For 5/8 inch meter $5.00 $18.02 $5.60 $22.41 $23.64 $9.00 $8.40 $12.45
For 3/4 inch meter $5.00 $27.03 $5.60 $23.82 $25.14 $12.20 $8.40 $18.69
For 1 inch meter $6.50 $45.05 $11.20 $33.83 $35.77 $18.50 $13.40 $24.20
For 1 1/2 inch meter $12.27 $90.10 $18.20 $42.67 $45.10 $40.60 $24.20 $35.74
For 2 inch meter $19.37 $144.15 $33.90 $55.69 $58.82 $71.40 $34.10 $54.13
For 3 inch meter $77.65 $270.29 $58.70 $149.09 $157.45 $180.20 $96.60 $116.42
For 4 inch meter $130.60 $450.49 $92.25 $188.93 $199.48 $357.00 $134.20 $204.26
For 6 inch meter $260.43 $900.97 $184.70 $288.32 $304.49 $629.80 $263.90 $352.33
For 8 inch meter $383.67 $900.97 $294.05 $377.74 $398.94 $871.80 $403.70 $996.05
For 10 inch meter $383.67 $900.97 $429.15 $546.80 $577.47 $1,050.40 $498.30 $1,431.82
For 12 inch meter $640.20 $2,054.36
For 14 inch meter $2,801.39
Residential Flow Charges, Per HCF, Per month
Tier 1 0-7 $3.95 0-10 $2.40 0-3 $1.65 0-20 $1.77 0-8 $2.90 All Units $2.74 0-10 $3.65
Tier 2 7+$5.62 11-25 $3.05 4-25 $3.41 20+$3.72 9-25 $3.40 11-36 $3.86
Tier 3 26-50 $4.98 25+ $6.77 26-60 $4.25 36+$4.58
Tier 4 50+ $7.03 60+$4.65
Commercial Flow Charges, Per HCF, Per month
Tier 1 All Units $4.95 0-15 $3.05 0-20 $3.41 All Units $4.04 0-200 $3.65 All Units $2.74 All Units $3.92
Tier 2 15+$4.98 21-200 $3.67 200+$4.20
Tier 3 200+$6.77
Tier 4
Bear GulchPalo Alto Redwood City Mountain View Milpitas Hayward Santa Clara
HF Consultants, LLC
9/22/2010 1
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
3. SERVICE AREA CHARACTERISTICS
Palo Alto Redwood
City
Mountain
View Milpitas Hayward Santa
Clara
CWS Bear
Gulch
Service Area Characteristics
Population [5]63,400 83,895 74,762 70,817 150,878 117,242 57,108
# of Households [4]28,291 29,301 33,680 19,376 48,561 44,729
Occupancy Per Household [4]2.33 2.65 2.29 3.54 3.13 2.63
Population, 1999 [5]58,400 83,000 76,025 65,000 128,000 102,500 65,830
10-year Population Increase 9%1%-2%9%18%14%-13%
Median Household Income [1]126,741$ 88,163$ 88,637$ 93,531$ 60,689$ 85,571$
Average Temperature [3]58.0 59.2 58.0 48.6 58.9 59.0
Average annual precipitation (in) [3]15.37 19.81 15.80 15.04 18.03 14.03
Number of SFPUC Connections [5]5 13 6 4 4 2 8
Area size (square miles) [5]26.00 35.00 12.00 13.60 62.50 19.30 45.30
Number of Accounts [5]
Single-family residential 14,804 18,616 11,620 12,232 27,001 17,005 16,723
Multi-family residential 2,243 1,969 2,476 1,839 1,327 4,883 76
Commercial/Institutional/Industrial 2,396 2,525 3,133 2,392 4,054 3,593 1,530
Total accounts 19,443 23,110 17,229 16,463 32,382 25,481 18,329
[1] American Community Survey, 2008
[3] 2005 Urban Water Management Plan (For each respective jurisdiction)
[4] California Department of Finance, City/County Population and Housing Estimates, 1/1/2009 (Table 2, E-5)
[5] BAWSCA 08-09 survey
HF Consultants, LLC
9/22/2010 1
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
4. FACILITIES
Palo Alto Redwood
City
Mountain
View Milpitas Hayward Santa
Clara
CWS
Bear
Gulch
Miles of Mains [5]219 265 175 203 350 295 324
Average age, years 61.00 33.00 44.70 43.10
Number of Booster Pump Stations [5]6 10 5 7 59
Number of Treatment Plants --1
Number of pressure zones [5]8 14 3 6 37
Age distribution of mains
0-10 years 8%4%
11-20 years 9%9%
21-30 years 5%10%
31-40 years 13%30%
41-50 years 38%25%
50-60 years 25%20%45%
>70 years 2%2%
100%100%
Storage Reservoirs
Number reservoirs [5]6 12 2 5 6 7 35
Local Storage (mg) [5]10.5 21.24 17 16.3 28.1 27.3 11
Wells
Number of wells 3 7 1 5 27
Capacity (gpm)3575
[5] BAWSCA 08-09 survey
HF Consultants, LLC
9/22/2010 1
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
5. OPERATIONS
Palo Alto Redwood
City
Mountain
View Milpitas Hayward Santa Clara CWS Bear
Gulch
Employees
Efficiency/Supply 3.00 3.00 3.00 1.00
Administrative 2.00 4.00 3.70
Engineering 7.00 2.00 4.50
Customer Service/Meter Reading 5.70 7.00 7.00 13.50
Other 2.00 14.00 15.00
O&M 26.00 15.00 14.00 33.00 20.80
Total (FTE)43.70 31.00 35.00 0.00 51.50 45.00
Sources of Supply [5]
SFPUC 100%100%86%65%100%12%89%
SCVWD 11%35%0%17%0%
Local 3%0%0%71%11%
Consumption by class (hcf) [5]
Single-family residential 2,491,120 2,358,295 1,365,679 1,645,525 3,083,003 2,682,139 5,264,948
Multi-family residential 818,496 1,136,209 1,509,045 603,880 1,632,319 2,227,045 109,867
Commercial/Institutional/Industrial 2,409,832 1,385,607 2,216,207 2,493,279 2,916,640 5,627,166 775,960
Subtotal 5,719,448 4,880,111 5,090,931 4,742,684 7,631,962 10,536,350 6,150,775
Losses 281,893 210,903 457,025 728,091 1,428,455 316,566 262,269
Total 6,001,341 5,091,014 5,547,956 5,470,775 9,060,417 10,852,916 6,413,044
Losses as a percent of total supplies 4.7%4.1%8.2%13.3%15.8%2.9%4.1%
Consumption by class (mgd) [5]
Single-family residential 5.11 4.83 2.80 3.37 6.32 5.50 10.79
Multi-family residential 1.68 2.33 3.09 1.24 3.35 4.56 0.23
Commercial/Institutional/Industrial 4.94 2.84 4.54 5.11 5.98 11.53 1.59
Subtotal 11.72 10.00 10.43 9.72 15.64 21.59 12.61
Losses 0.58 0.43 0.94 1.49 2.93 0.65 0.54
Average Daily Demand (mgd) [5]12.30 10.43 11.37 11.21 18.57 22.24 13.14
[5] BAWSCA 08-09 survey, Table 4A
HF Consultants, LLC
9/22/2010 1
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
6. FINANCIAL
Palo Alto Redwood City Mountain View Milpitas Hayward Santa Clara CWS Bear Gulch
Revenue from rates
Quantity charge revenue 28,948,000$ 17,675,000$ 18,423,146$ 15,828,000$ 24,900,000$ 22,737,489$ 24,716,456$
Service charge revenue -$ 8,661,000$ -$ -$ 2,900,000$ -$ -$
Total rate revenue 28,948,000$ 26,336,000$ 18,423,146$ 15,828,000$ 27,800,000$ 22,737,489$ 24,716,456$
Non-Operating Revenue
Non-Operating Revenue $334,000 $295,000 $417,000 $500,000 $264,387
Connection fee revenue $682,000 $120,000 $10,000 $2,300,000 $113,000
Interest Income $1,265,000 $744,887
PILOT (franchise fees, rent)$1,900,000 $0 $0 $2,180,000 $1,167,000
Total non-operating revenue $4,181,000 $1,159,887 $10,000 $417,000 $4,980,000 $1,280,000 $264,387
Expenses
Salaries & Benefits $5,411,000 $4,458,810 $2,364,447 $5,790,743 $4,350,000
Operating & Maintenance Costs $6,563,000 $10,271,562 $6,561,190 $4,072,073 $4,846,550 $4,895,000 $4,886,474
Water Purchased $10,354,000 $7,440,718 $9,093,359 $8,722,000 $14,800,000 $12,700,000 $9,717,855
Administrative Expenses $1,474,449 $3,859,955
Transfers to the General Fund $0 $1,848,085 $741,518
Property and other taxes $497,045
Debt Service $3,575,000 $633,100 $0 $909,571
Total expenses $25,903,000 $22,171,090 $17,762,098 $17,006,605 $27,088,382 $21,945,000 $18,961,329
Net Revenue $7,226,000 $5,324,797 $671,048 ($761,605)$5,691,618 $2,072,489 $6,019,514
HF Consultants, LLC
9/22/2010 1
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
7. CAPITAL IMPROVEMENTS
Palo Alto Redwood City Mountain
View Milpitas Hayward Santa Clara CW Bear Gulch
Main replacement
Annual historical main replacement (feet)8,000
Annual projected main replacement (feet)15,840
Capital Assets [1]12,075,000$ 20,582,045$ 4,915,623$ 4,915,623$ 4,446,473$ 2,859,744$ 4,003,286$
Land And Construction in Progress 51,846,000$ 79,838,908$ 34,346,397$ 34,346,397$ 45,445,587$ 65,235,120$ 89,243,321$
Depreciable Assets 63,921,000$ 100,420,953$ 39,262,020$ 39,262,020$ 49,892,060$ 68,094,864$ 93,246,607$
Total capital assets (net book value)1,171,000$ 1,908,781$ 1,653,293$ 1,376,544$ 1,976,578$ 979,338$ 2,177,634$
Depreciation Expense [1]2.3%2.4%4.8%4.0%4.3%1.5%2.4%
Depreciation as a percent of depreciable assets 44.3 41.8 20.8 25.0 23.0 66.6 41.0
Replacement cycle (years)$2,458,500 $2,869,170 $3,271,835 $2,886,913 $798,273 $3,528,231 $2,058,424
Capital assets (net book value) per square mile $10.65 $19.73 $7.08 $7.18 $5.51 $6.27 $14.54
Capital assets (net book value) per hcf $3,288 $4,345 $2,279 $2,385 $1,541 $2,672 $5,087
Capital Improvements $27,414,000 $3,200,000 $3,420,000 $5,300,000 $2,155,000 $2,513,000
Budgeted Capital Improvements $3,500,000
FY 04-05 $2,900,000
FY 05-06
FY 06-07
FY 07-08 $6,085,000 $2,000,000
FY 08-09 $27,414,000 $3,420,000 $2,000,000
FY 09-10 $8,173,000 $2,000,000
FY 10-11 $5,067,000 $2,000,000 $5,834,000
FY 11-12 $6,338,000 $2,000,000 $5,958,000
FY 12-13 $5,617,000 $2,000,000 $5,927,000
FY 13-14 $2,500,000 $6,463,000
FY 14-15 $2,500,000 $3,156,000
FY 15-16 $6,298,750 $3,200,000 $3,420,000 $6,085,000 $2,125,000 $5,467,600
[1] FY 2009 CAFR for each Jurisdiction, respectively
HF Consultants, LLC
9/22/2010 1
Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
8. SERVICE QUALITY
Palo Alto Redwood
City
Mountain
View Milpitas Hayward Santa Clara CWS Bear
Gulch
Complaints Reported (1)
Taste and Odor 6 15 5 1 21
Color 15 13 9 9 9
Turbidity 4 17 6 0 1
Worms and other 2 0 0 0 0
Pressure (High or Low)0 2 36 0 0
Illnesses (Waterborne)0 0 0 0 0
Other (Specify) (2)34 0 34 2
Total 27 0 81 56 44 33 0
System Problems (1)
Service Connection Breaks/ Leaks 32 4 86 -
Main Breaks/Leaks 13 12 27 89
Water Outages --2 0 -
Boil Water Orders ---0 -
Total 45 0 16 127 113 89 0
(1) From Report to the Drinking Water Program, 2008
(2) Santa Clara: hardness and entrained air.
(2) Mountain View: fluoride, NHCL2, filtrations, particle, gasket degradation and testing.
(2) Hayward: Air in Water and Solids
125
ATTACHMENT B
EXCERPTED DRAFT MINUTES OF UTILITIES ADVISORY COMMISSION
Meeting of October 6, 2010
ITEM 4: DISCUSSION: Water Benchmarking Study
Senior Resource Planner Shiva Swaminathan presented the Water Benchmarking Study results to the
UAC.
Commissioner Keller asked about the City’s water losses and the relation to inaccurate master meter data.
Staff explained that Palo Alto has both internal and external master meters and has requested that SFPUC
calibrate its meter. Staff also explained that while the City’s losses were at an industry standard level,
further study will be done to see if we can learn from Santa Clara which has low lost and unaccounted for
levels.
The Commissioners and staff discussed the anticipated water increases over the next few years (7-8% per
year) and how these anticipated increases are communicated to the Council annually. Commissioner
Melton also stated that every opportunity be taken to educate the Council about increasing water rates.
Commissioner Cook asked if staff had looked at groundwater as an alternative source. Staff replied that
this had been evaluated and ruled out because the sustainable yield from the groundwater, according to a
consultant report, is only 500 acre-feet per year, or less than 5% of the City’s total usage. It can, however,
use groundwater for emergencies and during a drought.