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HomeMy WebLinkAboutStaff Report 189-05UTILITIES ADVISORY COMMISSION REVIEW On March 9, 200S, the UAC split the staff recommendation into two separate motions: the first motion was that the UAC recommend to the City Council that it approve Utility Connection Fee Rate Schedules E-IS, W-S, G-S, S-S and Utility Service Call Rate Schedule C-I to be effective July I,200S. This was passed unanimously (Dahlen absent). The second motion was that City Council approve and authorize staff to impose a Utility Capacity Fee in conformance with Government Code Section 6600 on new service demands or service upgrades in the Water and Wastewater Utilities and direct staff to place the revenue from the collection of Water and Wastewater Collection system capacity fees in special Capital Improvement Program accounts for capacity improvements in the Water and Wastewater funds as set in Government Code 66000 Commissioner Rosenbaum expressed that since Palo Alto is one of the few Bay Area cities that do not impose a capacity fee, this is not a business friendly action. This motion passed: 3-1 (Rosenbaum opposed and Dahlen absent). The Commission also recommended staff provide to Council a list of similar fees at neighboring communities. RESOURCE IMPACT The estimated increase in annual connection fee revenues is approximately $SO,OOO, $80,000, and $40,000, for the Water, Gas, and Wastewater Collection Funds respectively. In spite ofthe modest increase in electric connection fees, overall electric connection fee revenue is expected to remain unchanged due to lower connection activity. POLICY IMPLICATIONS This proposal meets the following Utilities Strategic Plan objectives: to invest in utility infrastructure to deliver reliable service and to provide superior financial service to the City and competitive rates to customers. Utilities is in the process of estimating revenue from sources cited. These recommendations do not represent a change in current City policies. ENVIRONMENTAL REVIEW The adoption ofthe resolution does not constitute a project under the California Environmental Air Quality Act; therefore, no environmental assessment is required. ATTACHMENTS A. Resolution B. Utility Rate Schedules E-IS, W-S, G-S, S-S and C-I C. Utilities Advisory Commission Report dated March 9, 200S D. Tables 1,2, and 3, detailing existing and recommended service connection charges. E. Minutes Excerpt from UAC March 9, 200S PREPARED BY: CMR:I89:0S Jose Jovel, Utilities Engineering Estimator Tomm Marshall, Electric Engineering Manager Page 2 of3 recommended demand-related improvements to our wastewater collection system estimated at $4 million to reliably support current and future normal collection system operations. What Other Utilities Are Doing See chart below for comparison of some ofthe local utilities impact fees. Palo Alto is one of the few remaining water/wastewaterutilities that do not collect some form of utility capacity fee (Staff was not able to find another bay area water/wastewater utility which did not charge a capacity fee). WATER City or WATER SERVICE OR METER SIZE Other utility Agency 0/8" 1" 1-1/2" Alameda County Water Dist. $5,384 $11,484 $16,830 City of Santa Cruz Current $3,356 $8,390 $16,780 Proposed $6,220 $15,550 $31,100 Dublin San Ramon Services Dist. $5,200 $13,000 $26,000 Zone 7 $15,800 $39,500· $79,000 City of Napa $3,800 $6,300 $12,500 City of Benicia $7,635 $8,047 $18,084 12,100-27,900- EBMUD 3,090-45,900 82,900 160,000 Contra Costa Water Dist. $14,594 $36,485 $72,970 ~veragefee $11,100 $23,400 $46,100 City of Palo Alto proposed fees. $1,200 $2,250 $4,500 Est. -Fees are estimated based on the utility d~sign criteria. ' WASTEWATER IW ASTEWATER ~" $20,560 $26,848 ~49,760 ~41,600 $126,400 $20,000 $32,144 ~O,600-296,OOO $116,752 $79,100 $9,000 CITY OR OTHER UTILITY AGENCY LATERAL SIZE 4" ~entral Contra Costa· Sanitary Dist. 1 EDU $3,983 if Qravity flow Dublin San Ramon Services Dist. 1 EDU $11,050 EBMUD 1 EDU $605 then Est. . tity of Benicia 1 EDU $7,500 Union Sanitary District 1 EDU $2,987.78 Average fee 1 EDU $5,230 City of Palo Alto proposed fees 1 EDU $2,500 *Est. -Fees are estimated based on the demand stated in the customer's load sheet. Calculating New Water and Wastewater Capacity Fees March 2, 2005 UAC Connectivity Fees ~" 4" ~" $34,033 $56,524 $83,133 $53,696 $83,900 $167,800 $108,850 $186,600 $388,750 $91,000 $260,000 $520,000 $462,000 $1,320,000 $2,640,000 $400,000 $62,500 $124,900 $72,336 $128,577 Est. Est. Est. Est. Est. Est. Est. Est. Est. Est. 6" Est.* Est. Est. Est. Est. Est. Page 4 of 7 million dollars per year. Based on SAP service orders created for water in 2004 we would have collected approximately $810,993 in capacity fees for the added water load (through 1217/04). The revenue generated by the capacity fee is highly variable since a Stanford West, Stanford senior housing or P AMF proj ect can up the figure considerably (none of these proj ects occurred in the 2004 year). The capacity fee revenue will be used to fund CIP improvements in the Water and Wastewater Collection systems. These capacity fees will be in addition to the existing Utility Connection Fees. The Utility Connection Fees pay for the labor and materials to make the physical connection from the water or sewer main to the customers' meter or property line cleanout. In researching what other utility districts and Cities are charging we found that our proposed water capacity fees are approximately 111 0 of the average capacity fees charged by other Cities or Utility Districts and our proposed wastewater capacity fees are approximately Y2 of the average capacity fees. RECOMMENDATIONS The Utilities Department recommends the following utility capacity fees: WATER Size of 5/8" 1" 1-112" 2" 3" 4" 6" 4" 6" 8" service dOlll dOlll dOlll dOlll dOlll dOlll dOlll fire fire fire Utility $1,200 $2,250 $4,500 $9,000 By est. By est. By est. $8,250 $19,970 $36,300 Capacity @$30/FU @$30/FU @$30/FU Fee $66,750 @ $176,333 $339,667 capacity @capacity @capacity If a customer has an existing service and wants to upgrade the capacity of their service then a capacity credit will be given for the existing service. The customer will pay a capacity charge for the new service minus the credit for the existing service. Therefore, to upgrade from 5/8" water meter to 1" water meter the capacity charge would be $1,050. The calculation for the upgraded service would be: New Service Capacity Charge $2,250 minus Existing Service Capacity Credit $1,200 equals $1,050 Capacity Charge for the upgraded service. Note. FU is fixture unit and EDU is equivalent dwelling unit March 2, 2005 UAC Connectivity Fees Page 60f 7 Draft Minutes ATTACHMENT E Bechtel asked about this year a 5 Mg connection and if this fee goes through, what would the typical home connection fee be. Ekstrand said a typical home in Palo Alto currently costs $58 for a connection fee. We charge them for us to install it and we are not increasing that fee very much. The new meter fee will be 150. Capacity fee would be $2,250. Residential use would not quite double. Melton asked what the fees would be for a larger user. Ekstrand referred to the new development at High Street. Our charge was $26,000. This is a 60 unit development at 25 fixture units per unit. Combined fee of 80 for water and sewer. It would be over $100,000 we would be charging for that size of customer. Bechtel asked what customer reaction will be? Ekstrand has been telling people about it in the development cpmmittee meetings. The comments he hears is that it is expected and we are about the only city that does not charge the connection fee. Dawes stated the fees would be quite different if the customer is starting on a vacant lot. If you are taking down a house, and putting up another, you would pay very little, you'd get credit for what is already there. Bechtel asked about the water impact fee. He doesn't understand pricing model. What are the assumptions where these figures come from. Ekstrand explained that if a customer has an existing service and wants to upgrade the capacity of their service then a capacity credit will be given for the existing service. The customer will pay a capacity charge for the new service minus the credit for the existing service. Therefore, to upgrade from 5/8" water meter to 1" water meter the capacity charge would be $1,050. The calculation for the upgraded service would be: New Service Capacity Charge $2,250 minus Existing Service Capacity Credit $1,200 equals $1,050 Capacity Charge for the upgraded service. Ekstrand said you are actually letting people buy into our system. We. have the total current value of our system and divided by the total number of customers. If someone wants to connect to our system, they have to pay for it on a proportional basis. Bechtel asked gOing forward what should we ·do .with our capacity fees. Are we being somewhat short sided proposing a modest fee at this time rather than a fee that would cover our system? Has staff considered if we doubled the proposal. Ekstrand feels we have good justification for the fees we are proposing now. It would take another year to come up with the proposal justification for doubling this proposal. Auzenne said we'd like to be conservative now rather than coming up with an increase that would be difficult to justify. Bechtel said he was content with the proposal we're making. Ekstrand said we've already sent the bill for High Street and he feels we've lost $100,000 on that job as a re~ult of not having these fees in place. Page 2 of4 Draft Minutes ATTACHMENT E Rosenbaum talked about fees under Prop 13, the property fees you collect is no longer sufficient so you better collect them up front. New customers should be considered an asset, why do we feel it's necessary to have a capacity charge. He stated this is not a business friendly proposal. Auzenne said he believes we are business friendly. He has discussions regularly. This will be a zero based recovery; We don't try to take the last person on the system and try to make them pay for all upgrades on the system. All costs get spread across the rates and all customers pay for them. We are looking at doing this in a more fair manner. This proposal will help to keep rates lower. This seems to be a fair and equitable method of doing it. Rosenbaum compared the Utilities business to Toyota selling cars. When we have a new customer they are paying the regular rates that everyone else has. Why isn't this new source of revenue enough to cover the capital costs. Auzenne said they would be paying the cost up front rather than incrementally. We are trying to add value and lower the costs to customers rather than what they would have paid. This is one way we are moving forward in trying to improve our financial efficiency. Rosenbaum said Page 4 has no local districts. What goes on in Menlo Park, Mt. View, and Sunnyvale? Ekstrand has information about East Palo Alto but not the cities Rosenbaum suggested. Auzenne suggested in the future we benchmark with other cities. We will make it more localized before it goes to Council. Rosenbaum asked about coming up with the rational we had to come up with these fees. Fees can not be arbitrary. We could do on an arbitrary basis. Seems like other cities prices are exorbitant and how did they legally justify. We come to the UAC first for wisdom and guidance. Dawes appreciates Rosenbaum questioning the philosophy for how to do this. Dawes said if everybody is doing it, expand our list to show it is universally extracted from developers in all the neighborhood, it would help defend the concern among Council. Bechtel will support because it is important to keep rates low. If you are an existing customer, keeping our rates low is very important. If this keeps us from having to spread capacity among all of the rates,all the customers, including the developer, will keep them satisfied. Dawes said capacity is for water and wastewater but not electric. Ekstrand said we are in PG&E territory and they do not charge this fee. Melton asked under resource impact, he wants to verify. accurate information. Increase. is generating Capacity fee is estimated at Y2 million a year each for both water and .... Dawes asked for a motion. Rosenbaum suggested making the motion into 2 parts. Page 3 of4 Draft Minutes ATTACHMENT E 1. First Motion Motion: Bechtel made the motion that the UAC approve the recommendation to the City Council that they approve Utility Connection Fee Rate Schedules E-15, W-5, G-5, S-5 and Utility Service Call Rate Schedule C-1 to be effective July 1, 2005 and direct staff to place the revenue from the collection of Water and Wastewater Collection system capacity fees in to special CIP accounts for capacity improvements in the Water and Wastewater funds as set in Government Code 66000. Melton seconded. Motion Passed: Unanimous 4-0 (with Dahlen absent) 2. Second Motion Motion: Bechtel motioned that City Council approve and authorize staff to impose a Utility Capacity Fee in Conformance with Government Code Section 6600 on new service demands or service upgrades in the Water 'and Wastewater Utilities. Melton seconded. Rosenbaum opposed the motion. He feels that since Palo Alto is one of the few cities that do not impose a capacity fee, this is not a business friendly action. Motion passed: Ayes 3 -Opposed 1 (Rosenbaum) (Dahlen absent) Page 4 of4 ~t I'