HomeMy WebLinkAboutStaff Report 206-07***NOT YET APPROVED***
herein by reference. The foregoing Utility Rate Schedule, as
amended, shall become effective on July 1, 2005.
SECTION 6. The Council finds that the revenue derived
from the authorized adjustments of the several electric service
rates shall be used only for the purposes set forth in Article
VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 7. The Council finds that the adoption of this
resolution does not constitute a project under the California
Environmental Quality. Act, California Public Resources Code
section 21080, subdivision (b) (8).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Senior Asst. City Attorney
050419 c1 0072536 2
APPROVED:
Mayor
City Manager
Director of Utilities
Director of Administrative
Services
'-,
TO: HONORABLE CITY COUNCIL
ATTENTION: FINANCE COMMITTEE
FRO:M: CITY MANAGER DEPARTMENT: UTILITIES
DATE: MARCH 15, 2005 CMR:189:05
SUBJECT: APPROVAL OF A RESOLUTION ADOPTING AN INCREASE IN
UTILITY SERVICE CALL AND CONNECTION FEES
RECOMMENDATION
Staff and the Utilities Advisory Commission (UAC) recommend that the City Council adopt the
attached resolution to increase fees for Utility connections and Utility service calls; and implement
a capacity fee effective July 1,2005.
DISCUSSION
The Utilities Department provides service connections to its distribution network in order to meet
new and existing customer needs for electric, gas, water, and sewer services. Connection fee rates
schedules are designed to recover the costs that the Utilities Department incurs for installation,
connection, and. inspection of these new connections. A cost of service study is periodically -
performed in order to dete1111ine whether the Utility continues to fully recover those cost
components.
A recent review of cOlUlection costs has been completed, and the results indicate that current fees are
not fully recovering costs. In addition, some connections, which were subject to engineerillg
estimates, have now been standardized. As such new fees have' been added to cover these
standardized services.
The Service Calls Rate Schedule has been updated to reflect the increase in labor rates. These labor
rates have continued to rise since the last time this rate schedule has been updated due to contract
increases. Therefore, staff is proposing to increase connectioil fees and service call rates as ofJuly 1,
2005.
In addition, in conformance with the Government Code 66000, stall' is proposing implementing a
Utility Capacity Fee. The capacity fees will cover the proportionate cost of system improvements
required to serve the new custonier sand would become effective July 1, 2005
CMR:189:05 Page 1 of3
ATTACHMENT C
MEMORANDUM 1
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: MARCH 9, 2005
SUBJECT: PROPOSED INCREASE TO UTILITY SERVICE CALL AND CONNECTION
FEES
RECOMMENDATION
Staff requests that the Utilities Advisory Cominission recommend that the City Council:
1. Approve and amend Utility Connection Fee Rate Schedules E-15, W-5, G-5, S-5, and Utility
Service Call Rate Schedule C-l to be effective July 1,2005.
2. Approve and authorize staffto impose Utility Capacity Fees in confoTInance with California
Government Code Section 66000 on new service demands or service upgrades in the Water
and Wastevvater Utilities.
3. 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 Government Code 66000.
BACKGROUND
The Utilities Department provides service connections to its distribution network in order to meet
new customer's needs for electric, gas, water, and sewer services. Connections are usually finalized
after the City inspects and approves all equipment installed by the customer (i.e. contractor or
developer) and usually after the customer pays the required fees as set forth in the utility connection
fee rate schedules.
The connection fee rate schedules are developed to recover costs that the Utilities Department incurs·
to provide installation and connection services to new and existing customers. In this manner, the
cost impact from adding a new customer borne by the new customer. Connection fees are based on
a methodology which sums the costs oflabor, materials, overhead, street paving, meter costs (where
applicable), landfill dump charges, and equipment charges. Periodically, a cost of service study is
performed to determine these cost components, and the fees are updated accordingly. The CUlTent
connection fee schedules were last revised in 2002. This year, an updated cost-of-service study has
been completed and the results indicate the fees are not fully recovering costs. Therefore, staff
March 2, 2005 UAC Connectivity Fees Page 1 of 7
additional burden new developments place on the City's Water and Waste\vater Collection systems.
Instead, the utility capacity and indirect 'costs have been included in rates, causing water and
wastev·,TatercoIlection rates to be higher. This past practice has caused the ratepayers to help
subsidize new development in Palo Alto. These proposed capacity fees will not be used to pay the
construction costs to install new water ffild sewer mains, services, meter installation, inspection,
testing, etc. that serve liev·,T developments. The developer will continue to pay for the installation for
the nev,; mains and services. These proposed capacity fees would give the developers the right to
connect the new development to the existing water and wastewater collection system. .
In the past staff has required the last development that exceeded the design capacity of the utility
system to pay for all main improvements required to keep the operation of the system within the
current design standards to suppol1 that new development. All ofthe previolls developments before
the current proposai that helped to use up that main's design capacity were not j'equired to pay for
their capacity effects on the systems. This current practice places a great burden on the company or
person that forces the main over its design capacity. Additionally, staff is finding that many of our
existing mains are capacity deficient. Currently, the,City is upgrading these mains as part of ongoing
water, gas, and wastewater CIP replacement projects at an additional cost to all ratepayers. A
capacity fee will level the playing field for all users of the systems ffild place the burden for main
capacity upgrades and indirect costs back on the developers causing the capacity deficiencies. If
these proposed capacity fees are adopted, staff can equally distribute the capacity charges over all
rlew capacity demffilds (service requests). The practice of trying to force only the1ast proposed new
service request or development to pay all costs for enlarging the existing system to a new larger
design capacity can be eliminated. All lie,,, demands on the systems would share in the cost of the
necessary system capacity upgrades.
Ongoing and required upgl'ades
With the flurry of new single-family large home construction, new subdivisions, multi dvvelling lmit
blrildings, and commercial buildings currently being built and large projects being planned, the
City's systems have many new capacity demands ffild will continue to see future added demands.
placed on existing distribution/collection mains.
City water and vvastewater projects include several expensive items that are grO\vth-related.
Capacity fees need to be paid by the responsi ble developers for system capacity improvements. The
cost of these capacity related projects do not need to be included in the user rates and other charges
paid by the existing wastewater collection system customer base. Capacity upgrade projects are
required to adequately serve new customers and should be paid for by the custorners creating the
additional demands on the system.
Water
The water system study completed in December of 1999 by Carollo Engineers recommends demand-
related improvements to the City's existing water distribution system estimated at between $4.6
million and $17.2 million to reliably support current and future normal operations and fire flows.
Wastewater
The wastewater master plan report completed 111 March of 2004 by MWH Americas, Inc.
March 2, 2005 UAC Connectivity Fees Page 3 of 7
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 chrui below for comparison of some ofthe local utilities impact fees. Palo Alto is one of the few
remaining water/waste\vater utilities 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 ,
fi\gency 5/8" 1" H/2" ~" 3" ~" 6"
fi\lameda County Water Dist. $5,384 $11,484 $16,830 ~20,560 $34,033 $56,524 $83,133
City of Santa Cruz
Current $3,356 $8,390 $16,780 $26,848 $53,696 $83,900 $167,800
Proposed $6,220 $15,550 $31,100 $49,760 $108,850 $186,600 $388,750
Dublin San .Ramon Services Dist. $5,200 $13,000 $26,000 $41,600 $91,000 $260,000 $520,000
Zone 7 $15,800 $39,500 . $79,000 $126,400 $462,000 $1,320,000 $2,640,000
City of Napa ~3,800 $6,300 $12,500 $20,000
City of Benicia $7,635 $8,047 $18,084 $32,144
12,100-~7,900-.
EBMUD 3,090-45,900 82,900 160,000 ~0,600-296,000
Contra Costa Water Dist. $14,594 $36,485 $72,970 $116,752
~verage fee $11,100 $23,400 $46,100 $79,100
City of Palo Alto proposed fees,' $1,200 $2,250 $4,500 $9,000 . . Est. -Fees are estimated based on the utility deSign criteria .
WASTEWATER
!WASTEWATER
CITY OR OTHER UTILITY AG]~NCY LATERAL SIZE
4"
Central Contra Costa Sanitmy DisL 1 EDU $3,983 if qravity flow
Dublin San Ramon Services Dist. 1 EDU $11,050
EBMUD 1 EDU $605 then Est.
City of Benicia 1 EDU $7,500
Union Sanilary District 1 EDU $2,987.78
IA veragc fce 1 EDU $5,230
Citv 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 Wastewatel' Capacity Fees
March 2, 2005 UAC Connectivity Fees
$400,000 $62,500 $124,900
$72,336 $128,577 Est.
Est. Est. Est.
Est. Est. Est.
Est. Est. Est. -
6/1
Est. *
Est.
Est.
Est.
Est.
Est.
Page 4 of 7
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All demand-related, capital costs and indirect costs to the City should be included in a
comprehensive system capacity fee. These one-time fees for water and sewer improvements should
be paid at the time building permits are issued. These system capacity fees \vill give the developer
the right to connect to the City'S Water and Wastewater Collection systems. Hovvever, the capacity
. charges cmmot include the replacement cost of infrastlUcture (i.e., capital costs due to normal
deterioration and obsoiescence), \vhich will continue to be flU1ded by on-going userrate charges .
. Capital Improvement Projects can be classified into the following three categories: 1) capacity
projects that benefit only future users; 2) capacity projects that benefit both current and future users;
and 3) non-fee projects (i.e., replacement projects, items that should not be included hl the
calculation of system improvement charges). MmlY of our capital improvement projects contain
components of all three categories.
Water and sewer charges can be based on one of the follmving:
1. The customer stated demands on the utility application/load sheet.
2. The water meter size that wiUbe needed to serve a new de\relopment.
3. The diameter of the seI'vice/lateral.
4. Residential demmld factors that can be deriv.ed from utility billing records (the customer
database may need to be modified to allow classification o[residential versus nonresidential
connections). Average daily water demmld factors can be determined from billing records.
Se'vver demmld factors may be derived from water usage over the ,;.,;inter months.
Staff calculated the recommended capacity fees based on the following formulas using the total
current book value (The value at which this asset is carried on the City's Books. In other words, the
cost ofthis asset minus accumulated depreciation.) of the water or wastewater system divided by the
current demand of existing customers. The capacity fees were calculated for cost per equivalent
fixture unit and taking 1 fixture unit (PU) equal to 15 gpd
Water Impact Fee =
(Total book value of the water distribution system less the services) 1 (total current demand)
$26,211,856/13,200,000 gallons per day (gpd) = $ 1. 986/gpd XIS gpd = $301PD
Pee for standard residential 1" meter at (50 domestic PU + 25 irrigation FU) X $30/FU =
$2,250
Wastewater Impact Fee =
[(Total book value of the wastewater collection system less the laterals) + (Palo Alto's share
(percentage) of the book value of the WQCP)] I (total current demand)
[($18,057,041) +.3577($29,423,320)]/8,600,000 gpcl = $3.324/gpd = $501PU
Pee for st,mdard residential 4" sewer lateral with 50 PU X $501PU = $2,500
Based on the number of new services installed during the last 3 years, the combined additional
revenue contribution from the proposed water and wastewater capacity fees will be between 1 anel3
March 2, 2005 DAC Connectivity Pees Page 5 of 7
million dolJars per year. Based on SAP sen/ice orders created for water in 2004 we would have
collected approximately $810,993 in capacity fees for the added "vater load (through 1217/04). The
revenue generated by the capacity fee is highly variable since a Stcmford West, Stanford senior
housing or PAMF project can up the figure considerably (none of these projects occlmed in the 2004
year). The capacity fee revenue will be used to fund CIP improvements in the Water and
Wastewater Collectiori systems. These capacity fees will be in addition to the existing! Utility
Connection Fees. The Utility Connection Fees pay for the labor cmd mateJials to make the physical
connection from the water or sewer main to the customers' meter or property line c1eanout.
In researching what other utility districts and Cities are charging we found that om proposed water
capacity fees are approximately 1110 of the average capacity fees charged by other Cities or Utility
Districts cmd oW" proposed wastewater capacity fees are approximately Y2 of1he average capacity
fees.
RECOMMENDATIONS
The Utilities Department recommends the following utility capacity fees:
WATER
Size of 5/8" I" 1-1/2" 2" 3" 4" 6" 4" 6" 8"
service dom dom dOI11 dom dom dom clom fire fire lire
Utility $1,200 $2,250 $4,500 $9,000 By est. By cst. By est. $8,250 $19,970 $36,300
Capacity @$30/FU @$30/FU @$30/rU Fcc $66,750 @ $176,333 $339,667
capucity (@capucity @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. TIlerefore, 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 lU1it
March 2; 2005 UAC Connectivity Fees Page 6 of 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 t~ install it and we are not increasing that fee very
much. The new meter fee will be !50. 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
committe€) 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 result of not having
these fees in place.
Page 2 of4
Draft IVlinutes 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 of 4