HomeMy WebLinkAboutStaff Report 1857City of Palo Alto (ID # 1857)
City Council Staff Report
Report Type: Action ItemsMeeting Date: 6/27/2011
June 27, 2011 Page 1 of 8
(ID # 1857)
Summary Title: Water Utility Rate Increases for Fiscal Year 2012
Title: Adoption of a Resolution Amending the Water Utility Rate Schedules W-1,
W-3, W-4 and W-7 or Selection of an Alternative Water Utility Rate Structure
From:City Manager
Lead Department: Utilities
Recommendation
Staff recommends that the City Council direct staff to develop water rates based on one of the
two alternative options presented in this staff report. Council can also choose to adopt the
attached resolution, based on staff’s original rate proposal to:
1.Increase overall retail water rates and annual revenues for the Water Fund by 12.5
percent or $3.4 million in Fiscal Year (FY) 2012; and
2.Amend Utility Water Rate Schedules W-1, W-3, W-4, and W-7, as attached.
Direction to develop alternative water rates will trigger the notice and protest hearing
procedures under Proposition 218.
Executive Summary
Staff assessed expected costs, demand, short-term risks and reserve guidelines, and
determined the revenue requirements for the Water Fund for the next five years. Staff projects
a revenue shortfall of $6.2 million in FY 2012 and requested a revenue increase of $3.4 million
or an average rate increase of 12.5% for FY 2012. Staff also recommended, in concurrence with
Utilities Advisory Commission (UAC) and Finance Committee discussions in October and
November 2010, a redesign of the residential and commercial rate structures and a re-
allocation of revenue collection by rate class.
Both the UAC at its February 2, 2011 meeting and the Finance Committee at its March 1, 2011
meeting indicated agreement with the staff recommendation on the annual revenue increase
of 12.5% and the revenue-neutral rate adjustments between distinct rate classes reflecting the
relative cost to provide service.Both the UAC and Finance Committee also agreed to the
addition of tiers to residential and commercial rate classes and a reallocation of costs between
fixed and volumetric rate recovery mechanisms. However, neither the UAC nor the Finance
Committee was unanimous in their recommendations for the rate redesigns.
Subsequently, at their June 20, 2011 meeting, the City Council expressed concern at the
June 27, 2011 Page 2 of 8
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addition of tiers to the residential and commercial rate structures. Council directed staff to
return on June 27, 2011 with additional information for Council consideration including new
rate options as follows:
·2-tiered residential rates and 1-tiered commercial rates;
·a budget that assumes $2.8 million from the Water Rate Stabilization Reserves; and
·a Fiscal Year 2012 Financial forecast consistent with the budget;
Per Council’s direction staff presents the following two rate options:
·Alternative 1:2-tiered residential rates with the Tier 1 breakpoint at 6 ccf (same "tier
breakpoint" as in staff's proposed 3-tiered rate proposal), and Tier 1 priced at $3.60
(same as in staff's proposed 3-tiered rate proposal), and one tier for commercial rates.
·Alternative 2:2-tiered residential rates with the Tier 1 breakpoint at 7 ccf (same as rates
in effect today), and Tier 1 priced $3.95 (same as rates in effect today), and one tier for
commercial rates.
For background and perspective, staff is also presenting a comparison of the two rate
alternatives with today’s rates (those effective as of June 27, 2011) and staff’s current water
rate proposal (3 tiers for residential rates and 2 tiers for commercial rates). Table 1 compares
today’s volumetric rates for residential customers with the three other options. The rates
under the current staff proposal would become effective July 1, 2011, but the alternatives
would not be effective until October 2011 because they would trigger the notice and protest
hearing procedures under Proposition 218. The fixed charge component for a residential
customer with a 5/8’’ meter would increase from $5/month to $10/month under each option,
which is designed to phase in the full fixed charge of $14.75 over a two-year period.
Table 1: Comparison of volumetric rates under alternative rate designs for residential
customers
Tier 1 Tier 2 Tier 3
Volume Rates
(per ccf)
Volume Rates
(per ccf)
Volume Rates
(per ccf)
Today’s Rates 0 -7 ccf $3.949 Over 7 ccf $5.624 N/A
Current Staff Proposal
(Starting July 2011)
0 -6 ccf $3.60 7 -29 ccf $6.08 Over 29 ccf 7.64
Alternative 1
(Starting Oct 2011)
0 -6 ccf $3.60 Over 6 ccf $7.34 N/A
Alternative 2
(Starting Oct 2011)
0 -7 ccf $3.95 Over 7 ccf $8.10 N/A
(Note: Alternatives 1 and 2 collect the Council approved revenue requirement for the Water
Utility over a 9 month period beginning in October 2011. Staff’s proposed rates assume a 12-
month collection period beginning July 2011.)
Background
June 27, 2011 Page 3 of 8
(ID # 1857)
During Fiscal Year (FY) 2010 staff initiated a Cost of Service Analysis (COSA) for the Water
Utility. A COSA is conducted to review utility rate structures and the alignment of revenues
with the cost of providing service for each customer class. Based on the results of the COSA,
and a review of Water Utility rate structures, staff analyzed water customer use patterns and
various alternative rate structures in preparation for revisions to rate structures to ensure
equitable rates for all customer classes.
The COSA determined:
1)The appropriate percentage of revenue to be collected from each of the rate classes as a
whole;
2)The appropriate amount of revenue that should be collected as a fixed charge rate
component based on meter size; and
3)The appropriate amount of revenue that should be collected from volumetric (usage
based) charges from each rate class as a whole.
In October 2010 and November 2010, staff brought to the Utilities Advisory Commission (UAC)
and the Finance Committee respectively, an assessment of existing rate structures with respect
to the relative cost to serve distinct customer classes within the City, utilizing the cost of service
analysis. Staff also discussed with the UAC and the Finance Committee certain rate making
objectives.
Staff recommended, in concurrence with these discussions and in addition to the 12.5%
revenue increase, a redesign of the residential and commercial rate structures and a re-
allocation of revenue collection by rate class. Under the proposed changes residential rates
would increase from two to three tiers, and tiered rates (two tiers) would be introduced for
commercial rates. Tiered rates meet the objective of providing effective price signals to
promote water conservation and are in line with the California Constitution Article X, Section 2
that requires that water resources of California “be put to beneficial use to the fullest extent of
which they are capable, and that the waste and unreasonable use or unreasonable method of
use of water be prevented”. California’s Water Code, Section 375 also explicitly allows water
conservation measures to be adopted, including water “rate structure designs” that meet
certain conditions.
Although Palo Alto has sufficient water supplies from the San Francisco Public Utilities
Commission (SFPUC) in normal water years, new water supplies for the state are very expensive
to develop. Many agencies, including the SFPUC, are considering new projects to increase
water supplies such as desalination, recycled water, and new water storage reservoirs. These
new water supply resources can cost from $5 per ccf to over $20 per ccf. Tiered rates that
encourage water conservation create an incentive to use water efficiently, and help prevent
unreasonable use and waste of water, and the need for these high cost supplies.
Discussion
Table 2 and Table 3 show the rates in effect as of June 27, 2011 and staff’s proposed water
rates modifications for FY 2012 for the W1, W3, W4 and W7 rate schedules. Table 2 shows the
June 27, 2011 Page 4 of 8
(ID # 1857)
volumetric rate changes and Table 3shows the changes to the fixed charge components of the
rates by meter size. If the Council approves these current proposed rates, they will go into
effect on July 1, 2011 because the City has already completed the Proposition 218 notice and
public hearing procedures. With only 128 protests against the proposed rates, City Council can
choose to impose these rate changes.
Table 2: Staff’s Proposed Volumetric Rates for FY 2012
Current Rates Current Proposed Rates ChangeRate Schedule
Applicable
Volume
Rates
(per ccf)
Applicable
Volume
Rates
(per ccf)
Applicable
Volume
Rates
(per ccf)
First 7 ccf $3.949 0-6 ccf $3.600 ($0.349)-8.8%
Over 7 ccf $5.624 7-29 ccf $6.080 $0.456 8.1%
W1 –Residential
Over 29 ccf $7.640 $2.016 35.8%
All ccf $4.946 First 14 ccf $4.486 ($0.460)-9.3%W4 –Commercial
Over 14 ccf $4.946 $0.000 0.0%
W7 –Irrigation All ccf $4.946 All ccf $6.325 $1.379 27.9%
Table 3: Staff’s Proposed Fixed Monthly Charges for FY 2012 by Meter Size
Rate Schedule Meter
Size
Current
Monthly
Charge
Proposed
Monthly
Charge
Change ($)Change (%)
Residential / Commercial 5/8 ”$5.00 $10.00 $5.00 100.0%
Residential / Commercial 3/4 ”$5.00 $10.00 $5.00 100.0%
Residential / Commercial 1”$6.50 $13.00 $6.50 100.0%
Residential / Commercial 1 1/2 ”$12.27 $27.00 $14.73 120.0%
Residential / Commercial 2”$19.37 $43.00 $23.63 122.0%
Commercial 3”$77.65 $114.00 $36.35 46.8%
Commercial 4”$130.60 $195.00 $64.40 49.3%
Commercial 6”$260.43 $406.00 $145.57 55.9%
Commercial 8” $383.67 $644.00 $260.33 67.9%
Commercial 10”$383.67 $644.00 $260.33 67.9%
Private Fire Service 4”$4.20 $7.27 $3.07 73.1%
Private Fire Service 6”$7.00 $16.13 $9.13 130.4%
Private Fire Service 8”$10.75 $28.53 $17.78 165.4%
Private Fire Service 10”$15.75 $44.48 $28.73 182.4%
Table 4 and Table 5 show the volumetric rates in effect as of June 27, 2011 and the two
alternative volumetric water rate modifications for FY 2012 for the W1, W4 and W7 rate
schedules. The changes to the fixed monthly charges will be the same as shown in Table 3. If
City Council directs staff to return on August 1, 2011 with one of these alternative rate designs,
the City will be required to conduct the Proposition 218 notice and protest hearing procedures
again. Alternative rates will go into effect in October 2011 if there is not a majority protest
against the new rate changes. Any delay in taking a final rate recommendation to the City
Council beyond August 1, 2011 will further delay the effective increase of water rates.
June 27, 2011 Page 5 of 8
(ID # 1857)
Table 4: Alternative 1 -2-tiered residential rates with Tier 1 breakpoint and rate set same as in
current proposal, and one tier for commercial rates
Current Rates Current Proposed Rates ChangeRate Schedule
Applicable
Volume
Rates
(per ccf)
Applicable
Volume
Rates
(per ccf)
Applicable
Volume
Rates
(per ccf)
First 7 ccf $3.949 0-6 ccf $3.60 ($0.349)-8.8%W1 –Residential
Over 7 ccf $5.624 Over 6 ccf $7.34 $1.716 30.5%
W4 –Commercial All ccf $4.946 All ccf $4.93 ($0.016)-0.3%
W7 –Irrigation All ccf $4.946 All ccf $7.80 $2.854 57.7%
Table 5: Alternative 2 -2-tiered residential rates with Tier 1 breakpoint and rate set same as
rates in effect today, and one tier for commercial rates
Current Rates Current Proposed Rates ChangeRate Schedule
Applicable
Volume
Rates
(per ccf)
Applicable
Volume
Rates
(per ccf)
Applicable
Volume
Rates
(per ccf)
First 7 ccf $3.949 0-7 ccf $3.95 $0.001 0.0%W1 –Residential
Over 7 ccf $5.624 Over 7 ccf $8.10 $2.476 44.0%
W4 –Commercial All ccf $4.946 All ccf $4.93 ($0.016)-0.3%
W7 –Irrigation All ccf $4.946 All ccf $7.80 $2.854 57.7%
Table 6 shows the monthly bills and bill changes compared to today’s rates for residential
customers with a 5/8’’ meter under the current staff proposed rates and the two alternatives
To give an indication of the number of customers that fall into the residential usage levels
shown in the table below, the table is highlighted as follows:
AA Is the annual average residential usage (14 ccf for all residential customers and 13 ccf
for residential customers with a 5/8’’ meter)
SA Is the summer usage average for residential customers
WA Is the winter usage average for residential customers
The tables also indicate the number of customers at or below each usage level:
A3 Annually 30% of residential customers use 6 ccf or less
A5 Annually 50% of residential customers use 10 ccf or less
A9 Annually 97% of residential customers use 40 ccf or less
W5 In the winter 50% of residential customers use 6 ccf or less
S85 In the summer 85% of residential customers use 29 ccf or less
June 27, 2011 Page 6 of 8
(ID # 1857)
Table 6: Monthly bills and percentage increase in monthly bills under the different rate
options for a selection of residential customers
W1 Rat e for 5/8"
Current
Meter Size
3/4"5.00$ 10.00$ 10.00$ 10.00$
5/8"5.00 10.00 10.00 10.00
Tier 1 7 6 6 7
Tier 2 Over 29 Over Over
Tier 3 Over
Tier 1 3.949 3.600 3.600 3.950
Tier 2 5.624 6.080 7.340 8.100
Tier 3 7.640
All W1 Monthly Usage Bill Change Bill Change Bill Change
0 5.00 10.00 100%10.00 100%10.00 100%
1 8.95 13.60 52%13.60 52%13.95 56%
2 12.90 17.20 33%17.20 33%17.90 39%
3 16.85 20.80 23%20.80 23%21.85 30%
4 20.80 24.40 17%24.40 17%25.80 24%
5 24.75 28.00 13%28.00 13%29.75 20%
A3,W5 A3 6 28.69 31.60 10%31.60 10%33.70 17%
7 32.64 37.68 15%38.94 19%37.65 15%
8 38.27 43.76 14%46.28 21%45.75 20%
WA WA, A5 9 43.89 49.84 14%53.62 22%53.85 23%
A5 10 49.52 55.92 13%60.96 23%61.95 25%
11 55.14 62.00 12%68.30 24%70.05 27%
12 60.76 68.08 12%75.64 24%78.15 29%
AA 13 66.39 74.16 12%82.98 25%86.25 30%
AA 14 72.01 80.24 11%90.32 25%94.35 31%
15 77.64 86.32 11%97.66 26%102.45 32%
16 83.26 92.40 11%105.00 26%110.55 33%
SA 17 88.88 98.48 11%112.34 26%118.65 33%
18 94.51 104.56 11%119.68 27%126.75 34%
SA 19 100.13 110.64 10%127.02 27%134.85 35%
20 105.76 116.72 10%134.36 27%142.95 35%
21 111.38 122.80 10%141.70 27%151.05 36%
22 117.00 128.88 10%149.04 27%159.15 36%
23 122.63 134.96 10%156.38 28%167.25 36%
24 128.25 141.04 10%163.72 28%175.35 37%
25 133.88 147.12 10%171.06 28%183.45 37%
26 139.50 153.20 10%178.40 28%191.55 37%
27 145.12 159.28 10%185.74 28%199.65 38%
28 150.75 165.36 10%193.08 28%207.75 38%
S85 29 156.37 171.44 10%200.42 28%215.85 38%
30 162.00 179.08 11%207.76 28%223.95 38%
35 190.12 217.28 14%244.46 29%264.45 39%
A9 40 218.24 255.48 17%281.16 29%304.95 40%
45 246.36 293.68 19%317.86 29%345.45 40%
50 274.48 331.88 21%354.56 29%385.95 41%
55 302.60 370.08 22%391.26 29%426.45 41%
60 330.72 408.28 23%427.96 29%466.95 41%
65 358.84 446.48 24%464.66 29%507.45 41%
70 386.96 484.68 25%501.36 30%547.95 42%
Start October Delay scenarios
Proposed Two tiers Two tiers
Alt 1 Alt 2
June 27, 2011 Page 7 of 8
(ID # 1857)
Timeline
If City Council approves the current proposed water rates, they will go into effect on July 1,
2011 because the City has already completed the Proposition 218 notice and public hearing
procedures. If City Council directs staff to return on August 1, 2011 with one of the alternative
water rate designs, the City must complete another Proposition 218 procedural process, and
absent a majority protest alternative rates will go into effect in October 2011. Any delay in
taking a final rate recommendation to the City Council beyond August 1, 2011 will further delay
the effective increase of water rates.
Assuming:
·Council directs staff to return on August 1, 2011 with an alternative rate design;
·The revised water rates do not need to be reviewed by the Utilities Advisory
Commission or the Finance Committee;
·A transfer of $2.8 million from the Water Rate Stabilization Reserves (as currently
proposed); and
·No further updates to the financial forecast.
The following schedule could be achieved if there are no other delays:
August 1 ... New rates for Council review at regularly scheduled Council meeting
August 14 ... Prop 218 notices sent to customers (in coordination with refuse rates increases)
October 3 ... Public Hearing
October 4 ... New rates in effect if less than 50% +1 "no" votes
Resource Impact
If the City Council imposes the current proposed rate changes, the new rates will increase the
water fund revenues by approximately $3.4 million for FY 2012. A rate increase will have a
positive net impact to the General Fund of $20,000 with the Utilities User Tax collections
exceeding increased water costs for the General Fund by approximately $20,000. The
alternative water rates could also increase the water fund revenues by approximately $3.4
million for FY 2012 if there is not a majority protest against the new rate changes.If there was
a majority protest then the water fund revenue shortfall would increase by $3.4 million in FY
2012 beyond the projections in the approved FY 2012 budget. If a rate increase is not
approved, there would also be a negative net impact to the General Fund of approximately
$20,000.
Environmental Review
The restructuring of water rates to meet operating expenses and financial reserve needs is not
subject to the California Environmental Quality Act (CEQA), pursuant to California Public
Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec.
15273(a)(1) and (3).
June 27, 2011 Page 8 of 8
(ID # 1857)
Attachments:
·A Resolution for Water July 1 2011 (PDF)
·B W-1 effective 7-1-2011 (PDF)
·C W-3 effective 7-1-2011 (PDF)
·D W-4 effective 7-1-2011 (PDF)
·E W-7 effective 7-1-2011 (PDF)
·F Final Staff Report ID 1628_Water Util Rate Incr FY 2012 (PDF)
·Public Letters to Council (PDF)
Prepared By:Debra Lloyd, Manager
Department Head:Valerie Fong, Director
City Manager Approval: James Keene, City Manager
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-1-1 dated 7-1-2009 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to all separately metered single family residential water services.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Customer Charge: Per Month
For 5/8-inch meter ............................................................................................................$ 10.00
For 3/4 inch meter ............................................................................................................ 10.00
For 1 inch meter ............................................................................................................ 13.00
For 1 1/2 inch meter ............................................................................................................ 27.00
For 2-inch meter ............................................................................................................ 43.00
For 3-inch meter ............................................................................................................ 114.00
For 4-inch meter ............................................................................................................ 195.00
For 6-inch meter ............................................................................................................ 406.00
For 8-inch meter ............................................................................................................ 644.00
For 10-inch meter ............................................................................................................ 644.00
Commodity Rate: (To be added Customer Charge and applicable to all pressure zones.)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 usage ........................................................................................................................ $3.60
Tier 2 usage ........................................................................................................................ 6.08
Tier 3 usage (All usage over Tier 2)...................................................................................... 7.64
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $6.00
Deleted: 5.00
Deleted: 5.00
Deleted: 6.50
Deleted: 12.27
Deleted: 19.37
Deleted: 77.65
Deleted: 130.60
Deleted: 260.43
Deleted: 383.67
Deleted: 383.67
Deleted: 3.949
Deleted: (All usage over 100% of Tier
1)
Deleted: 5.624
Deleted: 2009
Deleted: 11-1-2008
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-1-2 dated 7-1-2009 Sheet No W-1-2
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Calculation of Usage Tiers
Tier 1 water usage shall be calculated and billed based upon a level of 0.2 ccf per day
rounded to the nearest whole ccf, based on meter reading days of service. Tier 2 water
usage shall be calculated and billed based on usage greater than Tier 1 and up to a level
of 0.967 ccf per day, rounded to the nearest whole ccf, based on meter reading days of
service. Tier 3 encompasses all usage over Tier 2 levels. As an example, for a 30 day
bill, the Tier 1 level would be 0 through 6 ccf, and Tier 2 would be between 7 and 29 ccf.
For further discussion of bill calculation and proration, refer to Rule and Regulation 11.
{End}
Deleted: 33
Deleted: 7
Deleted: 2009
Deleted: 11-1-2008
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-3-1 dated 11-1-2008 Sheet No W-3-1
A. APPLICABILITY:
This schedule applies to all public fire hydrants and private fire service connections.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
1. Monthly Service Charges
Public Fire Hydrant.................................................................................................... $5.00
Private Fire Service:
4-inch connection....................................................................................................... $7.27
6-inch connection....................................................................................................... 16.13
8-inch connection....................................................................................................... 28.53
10-inch connection..................................................................................................... 44.48
2. Commodity (To be added to Service Charge unless water is used for fire extinguishing or
testing purposes.)
Per Hundred Cubic Feet
All water usage .......................................................................................................... $10.00
D. SPECIAL NOTES:
1. Service under this schedule may be discontinued if water is used for any purpose other
than fire extinguishing or water used in testing and repairing the fire extinguishing
facilities. Such water used for other purposes is illegal and will be subject to the
commodity charge as noted above and fines.
2. No commodity charge will apply for water used for fire extinguishing purposes.
3. For a combination water and fire service, the general water service schedule shall apply.
4. Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
Deleted: ¶
Deleted: 4.20
Deleted: ¶
Deleted: $ 7.00
Deleted: $ 10.75
Deleted: $ 15.75
Deleted: ¶
Deleted: 11-1-2008
Deleted: 7-1-1992
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-3-2 dated 11-1-2008 Sheet No W-3-2
5. Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
water if records and documentation are supplied by the customer.
6. Unauthorized use of water which is unrelated to fire protection is subject to criminal
prosecution pursuant to the Palo Alto Municipal Code.
{End}
Deleted: 11-1-2008
Deleted: 7-1-1992
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-4-1 dated 7-1-2009 Sheet No W-4-1
A. APPLICABILITY:
This schedule applies to non-residential water service in the City of Palo Alto and its distribution
area. This schedule is also applicable to multi-family residential customers served through a master
meter.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Customer Charge Per Month
For 5/8-inch meter ................................................................................................$ 10.00
For 3/4-inch meter ................................................................................................ 10.00
For 1-inch meter ................................................................................................ 13.00
For 1 ½-inch meter ................................................................................................ 27.00
For 2-inch meter ................................................................................................ 43.00
For 3-inch meter ................................................................................................ 114.00
For 4-inch meter ................................................................................................ 195.00
For 6-inch meter ................................................................................................ 406.00
For 8-inch meter ................................................................................................ 644.00
For 10-inch meter ................................................................................................ 644.00
Commodity Rates: (to be added to Customer Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 ........................................................................................................................ $4.486
Tier 2 (All usage over Tier 1)................................................................................................ 4.946
D. SPECIAL NOTES:
Deleted: 5.00
Deleted: $5.00
Deleted: $6.50
Deleted: $12.27
Deleted: $19.37
Deleted: $77.65
Deleted: $130.60
Deleted: $260.43
Deleted: $383.67
Deleted: $383.67
Deleted: ¶
Deleted: ¶
Deleted: Per ccf
Deleted: 4.946
Deleted: 2009
Deleted: 11-1-2008
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-4-2 dated 7-1-2009 Sheet No W-4-2
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Calculation of Usage Tiers
Tier 1 water usage shall be calculated and billed based upon a level of 0.467 ccf per day
rounded to the nearest whole ccf, based on meter reading days of service. Tier 2
encompasses all usage over Tier 1 levels. As an example, for a 30 day bill, the Tier 1
level would be 0 through 14 ccf. For further discussion of bill calculation and proration,
refer to Rule and Regulation 11.
{End}
Deleted: 2009
Deleted: 11-1-2008
Formatted: Bullets and Numbering
IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-7-1 dated 7-1-2009 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential water service supplying dedicated irrigation meters in the
City of Palo Alto and its distribution area.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Customer Charge Per Month
For 5/8-inch meter ................................................................................................$ 10.00
For 3/4-inch meter ................................................................................................ 10.00
For 1-inch meter ................................................................................................ 13.00
For 1 1/2 inch meter ................................................................................................ 27.00
For 2-inch meter ................................................................................................ 43.00
For 3-inch meter ................................................................................................ 114.00
For 4-inch meter ................................................................................................ 195.00
For 6-inch meter ................................................................................................ 406.00
For 8-inch meter ................................................................................................ 644.00
For 10-inch meter ................................................................................................ 644.00
Commodity Rates: (to be added to Customer Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per Ccf ........................................................................................................................ $6.325
D. SPECIAL NOTES:
Deleted: 5.00
Deleted: $5.00
Deleted: $6.50
Deleted: $12.27
Deleted: $19.37
Deleted: $77.65
Deleted: $130.60
Deleted: $260.43
Deleted: $383.67
Deleted: $383.67
Deleted: 4.946
Deleted: 2009
Deleted: 11-1-2008
IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-7-2 dated 7-1-2009 Sheet No W-7-2
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
{End}
Deleted: 2009
Deleted: 11-1-2008
City of Palo Alto (ID # 1628)
City Council Staff Report
Report Type: Action ItemsMeeting Date: 6/13/2011
June 13, 2011 Page 1 of 6
(ID # 1628)
Summary Title: Water Utility Rate Increases for Fiscal Year 2012
Title: PUBLIC HEARING: Approval of Water Utility Rate Changes pursuant to
Proposition 218
From:City Manager
Lead Department: Utilities
Recommendation
The Finance Committee and Staff request that the City Council adopt a resolution to:
1.Increase overall retail water rates and annual revenues for the Water Fund by 12.5
percent or $3.4 million in Fiscal Year (FY) 2012; and
2.Amend Utility Water Rate Schedules W-1, W-3, W-4, and W-7, as attached.
The recommended rate increase triggered the notice and protest hearing procedures under
Proposition 218.
Executive Summary
This report and attachments discuss the projected costs and revenue requirements for the
Water Fund for FY 2012 through FY 2016,as well as recommended rate revisions for FY 2012.
Staff assessed major cost drivers and expected costs, the short-term risks, reviewed reserve
guidelines, and determined the revenue requirements for the Water Fund for the next five
years. Staff projects a revenue shortfall of $6.2 million in FY 2012 and requests a revenue
increase of $3.4 million or an average rate increase of 12.5% for FY 2012. Due to sufficient
reserve levels in the Water Rate Stabilization Reserves (WRSR), the remaining shortfall of $2.8
million in FY 2012 will be drawn out of the reserves. The five year projections beyond the
budget year indicate requirement for additional rate increases of 17%, 16% and 8% for FY 2013
through FY 2015. Staff requests the Council adoption of rate changes for FY 2012 only at this
time. The average rate adjustments projected for FY 2013 through FY 2016 are provided for
information purposes and are subject to change. The proposed rate adjustments achieve a
gradual increase of the revenue stream required to fund the expected operating expenses facing
the Water Fund over the next five years. The projected adjustments achieve the goals of
ensuring that the balance of the Water Rate Stabilization Reserve (W-RSR) is adequate and
within the Council-approved reserve guideline levels for FY 2012 and for the long-term forecast
horizon. In the interim years of FY 2013 and FY 2014, W-RSR is projected to go below the
June 13, 2011 Page 2 of 6
(ID # 1628)
minimum guidelines but recover starting in FY 2015 and end within the guidelines at the end of
the forecast horizon.
In October 2010 and November 2010, staff brought to the Utilities Advisory Commission (UAC)
and the Finance Committee respectively, an assessment of existing rate structures with respect
to the relative cost to serve distinct customer classes within the City, utilizing cost of service
analysis. Staff also discussed with the UAC and the Finance Committee certain rate making
objectives. Staff recommends, in concurrence with these discussions including feedback from
the UAC and direction provided by the Finance Committee, a re-allocation of revenue collection
by rate class, in addition to the 12.5% revenue increase. The revenue-neutral rate adjustments
result in an average rate increase of 4.2% for the residential class, an average rate decrease of
9.9% for the commercial rate class, an average increase of 14.2% for the irrigation rate class, and
an average increase of 93% for the private fire hydrant rate class. Staff also recommends
structural changes to existing residential (W-1) and commercial (W-4) rate schedules in order to
promote more efficient use of water. The structural change involves adding one more tier to
residential and commercial rate schedules resulting in a total of three tiers in residential rates
and two tiers in commercial rates. Multiple usage tiers (inclining block rates) are used to
provide a stronger price signal (financial disincentive) to high water use. They are characterized
by an increasing unit price of water for incremental water block or tier.
Both the UAC at its February 2, 2011 meeting and the Finance Committee at its March 1, 2011
meeting indicated agreement with the staff recommendation on the annual revenue increase of
12.5%, the revenue-neutral rate adjustments between distinct rate classes reflecting the relative
cost to provide service, and the addition of tiers to residential and commercial rate classes. The
UAC and the Finance Committee, however, voted differing amendments to the “within” class
rate designs, particularly regarding the allocation of costs between fixed and volumetric rate
recovery mechanisms.
The UAC voted by five to two in favor of recommending that the Council adopt the rates
proposed at the February 2011 meeting with the following modifications:
·Residential tier 1 and tier 2 prices would be increased slightly from current prices, and
the additional revenue would be used to lower the fixed service charges;
·There would be no bill reduction for commercial customers as a result of proposed rate
revisions.
The Finance Committee voted by three to one in favor of recommending that the Council adopt
the rates proposed at the March 2011 meeting with the following modification:
·Fixed service charges to be increased to 50% of the Cost of Service Analysis (COSA)
recommendation.
Table 1 shows the current and proposed water rates incorporating Finance Committee’s
modifications for FY 2012 for the W1, W3, W4 and W7 rate schedules.
June 13, 2011 Page 3 of 6
(ID # 1628)
Table 1 -Proposed Rates for FY 2012
Current Rates Proposed Rates Change
Rate Schedule Applicable
Volume
Rates
(per ccf)
Applicable
Volume
Rates
(per ccf)
$
(per ccf)
Percent
Change
W1 –Residential First 7 ccf $3.949 0-6 ccf $3.600 -$0.349 -8.8%
Over 7 ccf $5.624 7-29 ccf $6.080 $0.456 8.1%
Over 29 ccf $7.640 $2.016 35.8%
W4 –Commercial All ccf $4.946 First 14 ccf $4.486 -$0.460 -9.3%
Over 14 ccf $4.946 $0.000 0.0%
W7 –Irrigation All ccf $4.946 All ccf $6.325 $1.379 27.9%
Rate Schedule Meter
Size
Current
Monthly
Charge
Proposed
Monthly
Charge
Change ($)Change (%)
Residential / Commercial 5/8 ”$5.00 $10.00 $5.00 100.0%
Residential / Commercial 3/4 ”$5.00 $10.00 $5.00 100.0%
Residential / Commercial 1”$6.50 $13.00 $6.50 100.0%
Residential / Commercial 1 1/2 ”$12.27 $27.00 $14.73 120.0%
Residential / Commercial 2”$19.37 $43.00 $23.63 122.0%
Commercial 3”$77.65 $114.00 $36.35 46.8%
Commercial 4”$130.60 $195.00 $64.40 49.3%
Commercial 6”$260.43 $406.00 $145.57 55.9%
Commercial 8” $383.67 $644.00 $260.33 67.9%
Commercial 10”$383.67 $644.00 $260.33 67.9%
Private Fire Service 4”$4.20 $7.27 $3.07 73.1%
Private Fire Service 6”$7.00 $16.13 $9.13 130.4%
Private Fire Service 8”$10.75 $28.53 $17.78 165.4%
Private Fire Service 10”$15.75 $44.48 $28.73 182.4%
Discussion
The Water Utility’s revenue requirement increase is primarily driven by the rapidly rising cost of
water supply. The City of Palo Alto (City)’s water supply costs are projected to increase by 37
percent in the next fiscal year and double by 2016, largely as a result of the infrastructure
projects currently undertaken by the City’s primary water supplier, the San Francisco Public
Utilities Commission (SFPUC). SFPUC’s $4.6 billion initiative includes the repair, replacement
and seismic upgrades of the regional system’s deteriorating pipelines, tunnels, dams, reservoirs,
pump stations and other facilities. The City Council supports this program (CMR: 311:00), the
cost of which is shared by all of the SFPUC’s water customers.
Safe and reliable water delivery is also a local priority. The Water Utility has planned capital
improvement projects for our local City water supply infrastructure, including necessary seismic
retrofitting of Palo Alto’s water tanks and this is reflected in the new rates.
Customer Bill Impact of Proposed Rate Changes
Table 2 shows the impact of the proposed rate increase on customer bills based on different
consumption levels for the residential and commercial classes.
June 13, 2011 Page 4 of 6
(ID # 1628)
Table 2: Impact of Proposed Rate Increase on Customer Bills
Customer
Usage
(ccf)
Current
Monthly
Bill ($)
Proposed
Monthly
Bill ($)
Increase
Amount
($)
Percent
Increase
Small Residential (5/8” Meter)
6 $ 28.69 $ 31.60 $2.91 10.1%
Medium Residential (5/8” Meter)
14 72.01 80.24 8.23 11.4%
Large Residential (5/8” Meter)
35 190.12 $ 217.28 27.17 14.3%
Medium Commercial (3" Meter)
300 1,561.45 1,591.36 29.91 1.9%
Large Commercial or Industrial (6"
Meter)1200 6,195.63 6,334.76 139.13 2.2%
Large Commercial or Industrial (6"
Meter) (irrigation only) (W-7)3000 15,098.43 19,381.00 4,282.57 28.4%
If approved by Council, the proposed $3.4 million increase for FY 2012 results in a total revenue
increase of $2.5 million (17%) from the residential customers and $0.9 million (8%) from the
business customers. The impact of the proposed FY 2012 water rate adjustments is an
additional $8.23 on an average1 residential customer’s current monthly water utility bill of
$72.01. The impact on an individual customer will vary depending on customer class and
individual customer water usage levels.
Comparison of Palo Alto Water Rates and Surrounding Cities
For several years, Palo Alto's retail water rates have generally been higher than those in
surrounding areas. Staff initiated a Benchmark Study for the Water Utility in May 2010 and
presented its findings to the UAC in October 2010 and to the Finance Committee in November
2010 and submitted to the Council in March 2011. The objective of the study was to develop
benchmarks and to provide insight as to the main reasons for the higher water rates in Palo
Alto. The findings of this study highlighted some key areas such as more spending by Palo Alto
for replacement of aging infrastructure; lack of access to lower cost water supply; more
expensive service terrain to serve; higher quality of service; and higher rent payment for its use
of real estate in the service territory. Rent charges for the Water Utility’s use of real estate in
the service territory are adjusted annually to market value based on a survey conducted by the
City.
Table 3 below, which compares monthly water bills using municipal water rates as of January 1,
2011 for Mountain View, Redwood City, Santa Clara and Menlo Park, indicates that the average
residential customer in surrounding cities pays approximately 24% less than the average Palo
1 Average residential customer is defined as a single family customer with 5/8” meter using 14 ccf (hundred cubic
feet) of water per month.
June 13, 2011 Page 5 of 6
(ID # 1628)
Alto residential customer. The residential bill comparison with the average benchmark city is
seven percentage points lower this year compared to the same period a year ago as other cities
facing similar cost increases have begun raising their water rates as well. There are indications
that nearby cities that purchase water supplies from the SFPUC will continue to raise rates in FY
20122. At this time, the certainty or magnitude of their rate increases is not known.
Table 3 –Monthly Residential Water Bill Comparison (rates in effect as of Jan. 1, 2011)
Water
Customer
Usage
(ccf)
Palo
Alto
Menlo
Park
Redwood
City
Mountain
View
Santa
Clara
Average
Benchmark
(%)
Diff.
Small 6 $28.69 $38.95 $33.07 $20.78 $16.44 $27.31 -4.8%
Average 14 $72.01 $73.14 $60.37 $48.04 $38.36 $54.97 -23.7%
Large 35 $190.12 $165.38 $185.45 $153.21 $95.90 $149.98 -21.1%
Difference from CPAU 1.6%-16.2%-33.3%-46.7%-23.7%
Proposition 218 Water Rate Increase Procedure
Proposition 218 amended the California Constitution and set forth procedural requirements
that public agencies must follow in order to enact or increase a property-related fee. Since
Proposition 218 applies to the water rate increases described here, the City must provide
written notice by mail to water customers subject to the proposed fees (notices were mailed
April 25, 2011), followed by a public hearing held not less than 45 days after notice is mailed
(the June 13, 2011 Council meeting). Per the requirements, the notice included the amount of
the fee, the basis upon which the fee is calculated, the reason for the fee, and the date, time
and location of the public hearing. If a majority of customers submit written protests against
the proposed fees, the City may not impose the fee.
Possibility of Water Use Restrictions due to Water Shortage
In the event of a water shortage, the SFPUC will declare a water shortage emergency and
impose mandatory water use reductions. If this action is taken, then staff will return to the
Council with an updated proposal for a rate adjustment and water rate schedules. Staff does
not expect a water shortage for FY 2012 at this time.
Board/Commission Review and Recommendations
The Finance Committee considered staff’s recommendation at its March 1, 2011 meeting. The
Committee members discussed the five-year financial projections and the possible impacts on
the reserve levels. They also discussed the rate design changes proposed by staff and the UAC,
including the cost of service adjustments between customer classes,the impact of increasing
the fixed service charge component in one year, and the level and effectiveness of the
2 Based on the FY 2009 BAWSCA survey, the share of SFPUC as source of water supply was 89% for Menlo Park,
100% for Redwood City, 86% for Mountain View, and 12% for Santa Clara.
June 13, 2011 Page 6 of 6
(ID # 1628)
volumetric rates. Motions were made to direct staff to return to the Finance Committee with
various alternatives to the fixed and volumetric rate components.
The Finance Committee voted by three to one in favor of recommending that the City Council
approve staff’s and the UAC’s recommended Water Utility Rate Adjustments with the following
amendment:
·Fixed service charges to be increased to 50%of COSA recommendation.
An excerpt of the minutes from the Finance Committees March 1, 2011 meeting are provided
as Attachment G.
Resource Impact
Approval of this rate proposal will increase the Water Fund retail sales revenues by
approximately $3.4 million for FY 2012.
Policy Implications
This recommendation does not represent a change to current City policies.
Environmental Review
The restructuring of water rates to meet operating expenses and financial reserve needs is not
subject to the California Environmental Quality Act (CEQA), pursuant to California Public
Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec.
15273(a)(1) and (3).
Attachments:
·Attachment A: Resolution for Water Rate Changes effective July 1 2011 (PDF)
·Attachment B: W-1 effective 7-1-2011 (PDF)
·Attachment C: W-3 effective 7-1-2011 (PDF)
·Attachment D: W-4 effective 7-1-2011 (PDF)
·Attachment E: W-7 effective 7-1-2011 (PDF)
·Attachment F: Staff Report to Finance Committee (PDF)
·Attachment G: Excerpts from Finance Committee Meeting Minutes 3-1-11 (PDF)
·Prop 218 Water Protests (PDF)
Prepared By:Ipek Connolly, Sr. Resource Planner
Department Head:Valerie Fong, Director
City Manager Approval: James Keene, City Manager
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-1-1 dated 7-1-2009 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to all separately metered single family residential water services.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Customer Charge: Per Month
For 5/8-inch meter ............................................................................................................$ 10.00
For 3/4 inch meter ............................................................................................................ 10.00
For 1 inch meter ............................................................................................................ 13.00
For 1 1/2 inch meter ............................................................................................................ 27.00
For 2-inch meter ............................................................................................................ 43.00
For 3-inch meter ............................................................................................................ 114.00
For 4-inch meter ............................................................................................................ 195.00
For 6-inch meter ............................................................................................................ 406.00
For 8-inch meter ............................................................................................................ 644.00
For 10-inch meter ............................................................................................................ 644.00
Commodity Rate: (To be added Customer Charge and applicable to all pressure zones.)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 usage ........................................................................................................................ $3.60
Tier 2 usage ........................................................................................................................ 6.08
Tier 3 usage (All usage over Tier 2)...................................................................................... 7.64
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $6.00
Deleted: 5.00
Deleted: 5.00
Deleted: 6.50
Deleted: 12.27
Deleted: 19.37
Deleted: 77.65
Deleted: 130.60
Deleted: 260.43
Deleted: 383.67
Deleted: 383.67
Deleted: 3.949
Deleted: (All usage over 100% of Tier
1)
Deleted: 5.624
Deleted: 2009
Deleted: 11-1-2008
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-1-2 dated 7-1-2009 Sheet No W-1-2
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Calculation of Usage Tiers
Tier 1 water usage shall be calculated and billed based upon a level of 0.2 ccf per day
rounded to the nearest whole ccf, based on meter reading days of service. Tier 2 water
usage shall be calculated and billed based on usage greater than Tier 1 and up to a level
of 0.967 ccf per day, rounded to the nearest whole ccf, based on meter reading days of
service. Tier 3 encompasses all usage over Tier 2 levels. As an example, for a 30 day
bill, the Tier 1 level would be 0 through 6 ccf, and Tier 2 would be between 7 and 29 ccf.
For further discussion of bill calculation and proration, refer to Rule and Regulation 11.
{End}
Deleted: 33
Deleted: 7
Deleted: 2009
Deleted: 11-1-2008
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-3-1 dated 11-1-2008 Sheet No W-3-1
A. APPLICABILITY:
This schedule applies to all public fire hydrants and private fire service connections.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
1. Monthly Service Charges
Public Fire Hydrant.................................................................................................... $5.00
Private Fire Service:
4-inch connection....................................................................................................... $7.27
6-inch connection....................................................................................................... 16.13
8-inch connection....................................................................................................... 28.53
10-inch connection..................................................................................................... 44.48
2. Commodity (To be added to Service Charge unless water is used for fire extinguishing or
testing purposes.)
Per Hundred Cubic Feet
All water usage .......................................................................................................... $10.00
D. SPECIAL NOTES:
1. Service under this schedule may be discontinued if water is used for any purpose other
than fire extinguishing or water used in testing and repairing the fire extinguishing
facilities. Such water used for other purposes is illegal and will be subject to the
commodity charge as noted above and fines.
2. No commodity charge will apply for water used for fire extinguishing purposes.
3. For a combination water and fire service, the general water service schedule shall apply.
4. Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
Deleted: ¶
Deleted: 4.20
Deleted: ¶
Deleted: $ 7.00
Deleted: $ 10.75
Deleted: $ 15.75
Deleted: ¶
Deleted: 11-1-2008
Deleted: 7-1-1992
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-3-2 dated 11-1-2008 Sheet No W-3-2
5. Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
water if records and documentation are supplied by the customer.
6. Unauthorized use of water which is unrelated to fire protection is subject to criminal
prosecution pursuant to the Palo Alto Municipal Code.
{End}
Deleted: 11-1-2008
Deleted: 7-1-1992
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-4-1 dated 7-1-2009 Sheet No W-4-1
A. APPLICABILITY:
This schedule applies to non-residential water service in the City of Palo Alto and its distribution
area. This schedule is also applicable to multi-family residential customers served through a master
meter.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Customer Charge Per Month
For 5/8-inch meter ................................................................................................$ 10.00
For 3/4-inch meter ................................................................................................ 10.00
For 1-inch meter ................................................................................................ 13.00
For 1 ½-inch meter ................................................................................................ 27.00
For 2-inch meter ................................................................................................ 43.00
For 3-inch meter ................................................................................................ 114.00
For 4-inch meter ................................................................................................ 195.00
For 6-inch meter ................................................................................................ 406.00
For 8-inch meter ................................................................................................ 644.00
For 10-inch meter ................................................................................................ 644.00
Commodity Rates: (to be added to Customer Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 ........................................................................................................................ $4.486
Tier 2 (All usage over Tier 1)................................................................................................ 4.946
D. SPECIAL NOTES:
Deleted: 5.00
Deleted: $5.00
Deleted: $6.50
Deleted: $12.27
Deleted: $19.37
Deleted: $77.65
Deleted: $130.60
Deleted: $260.43
Deleted: $383.67
Deleted: $383.67
Deleted: ¶
Deleted: ¶
Deleted: Per ccf
Deleted: 4.946
Deleted: 2009
Deleted: 11-1-2008
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-4-2 dated 7-1-2009 Sheet No W-4-2
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Calculation of Usage Tiers
Tier 1 water usage shall be calculated and billed based upon a level of 0.467 ccf per day
rounded to the nearest whole ccf, based on meter reading days of service. Tier 2
encompasses all usage over Tier 1 levels. As an example, for a 30 day bill, the Tier 1
level would be 0 through 14 ccf. For further discussion of bill calculation and proration,
refer to Rule and Regulation 11.
{End}
Deleted: 2009
Deleted: 11-1-2008
Formatted: Bullets and Numbering
IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-7-1 dated 7-1-2009 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential water service supplying dedicated irrigation meters in the
City of Palo Alto and its distribution area.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Customer Charge Per Month
For 5/8-inch meter ................................................................................................$ 10.00
For 3/4-inch meter ................................................................................................ 10.00
For 1-inch meter ................................................................................................ 13.00
For 1 1/2 inch meter ................................................................................................ 27.00
For 2-inch meter ................................................................................................ 43.00
For 3-inch meter ................................................................................................ 114.00
For 4-inch meter ................................................................................................ 195.00
For 6-inch meter ................................................................................................ 406.00
For 8-inch meter ................................................................................................ 644.00
For 10-inch meter ................................................................................................ 644.00
Commodity Rates: (to be added to Customer Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per Ccf ........................................................................................................................ $6.325
D. SPECIAL NOTES:
Deleted: 5.00
Deleted: $5.00
Deleted: $6.50
Deleted: $12.27
Deleted: $19.37
Deleted: $77.65
Deleted: $130.60
Deleted: $260.43
Deleted: $383.67
Deleted: $383.67
Deleted: 4.946
Deleted: 2009
Deleted: 11-1-2008
IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-2011
Supersedes Sheet No W-7-2 dated 7-1-2009 Sheet No W-7-2
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
{End}
Deleted: 2009
Deleted: 11-1-2008
City of Palo Alto (ID # 1398)
Finance Committee Staff Report
Report Type:Meeting Date: 3/1/2011
March 01, 2011 Page 1 of 19
(ID # 1398)
Council Priority: {ResProject:ClearLine}
Title: Water Utility Rate Changes
Subject: Proposed Water Utility Rate Adjustments and Long Term Financial
Projections
From:City Manager
Lead Department: Utilities
Recommendation
Staff requests that the Finance Committee recommend that the City Council adopt a resolution
to:
1.Increase overall retail water rates and annual revenues for the Water Fund by 12.5
percent or $3.4 million in Fiscal Year (FY) 2012; and
2.Amend Utility Water Rate Schedules W-1, W-3, W-4, and W-7, as attached.
The recommended rate increase will trigger the notice and protest hearing procedures under
Proposition 218.
Executive Summary
This report discusses the projected costs and revenue requirements for the Water Fund for FY
2012 through FY 2016, as well as recommended rate revisions for FY 2012.
Staff assessed major cost drivers and expected costs, the short-term risks, reviewed reserve
guidelines, and determined the revenue requirements for the Water Fund for the next five
years. Staff projects a revenue shortfall of $6.2 million in FY 2012 and requests a revenue
requirement increase of $3.4 million or an average rate increase of 12.5%, for FY 2012 followed
by additional rate increases of 17%, 16% and 8% for FY 2013 through FY 2015. Due to sufficient
reserve levels in the Water Rate Stabilization Reserves (WRSR), the remaining shortfall of $2.8
million in FY 2012 will be drawn out of the reserves. Staff requests the Finance Committee
recommend adoption of rate changes for FY 2012 only at this time. The average rate
adjustments projected for FY 2013 through FY 2016 are provided for information purposes and
are subject to change. The proposed rate adjustments achieve a gradual increase of the revenue
stream required to fund the expected operating expenses facing the Water Fund over the next
five years. The projected adjustments achieve the goals of ensuring that the balance of the
Water Rate Stabilization Reserve (W-RSR) is adequate and within the Council-approved reserve
March 01, 2011 Page 2 of 19
(ID # 1398)
guideline levels for FY 2012 and for the long-term forecast horizon. In the interim years of FY
2013 and FY 2014, W-RSR is projected to go below the minimum guidelines but recover starting
in FY 2015 and end within the guidelines at the end of the forecast horizon.
In October 2010 and November 2010, staff brought to the Utilities Advisory Commission (UAC)
and the Finance Committee respectively, an assessment of existing rate structures with respect
to the relative cost to serve distinct customer classes within the City of Palo Alto (City), utilizing
cost of service analysis. Staff also discussed with the UAC and the Finance Committee certain
rate making objectives. Staff recommends, in concurrence with these discussions and direction
provided by the UAC and the Finance Committee, a re-allocation of revenue collection by rate
class. The revenue-neutral rate adjustments result in an average rate increase of 4.2% for the
residential class, an average rate decrease of 9.9% for the commercial rate class, an average
increase of 14.2% for the irrigation rate class, and an average increase of 93% for the private fire
hydrant rate class. At its February 2, 2011 meeting, the UAC indicated acceptance of staff
recommendation on the cost of service adjustments between various customer classes. The
UAC voted 5-2 on staff’s proposal with amendments to the “within” class rate designs,
particularly regarding the allocation of costs between fixed and volumetric rate recovery
mechanisms and the manner in which the additional $3.4 million in cost increases are proposed
to be recovered.
If approved by Council, the proposed $3.4 million increase for FY 2012 results in a total revenue
increase of $2.5 million (17%) from the residential customers and $0.9 million (8%) from the
business customers.The impact of the proposed FY 2012 water rate adjustments is an
additional $10.07 on an average residential customer’s current monthly water utility bill of
$72.01. The impact on an individual customer will vary depending on customer class and
individual customer water usage levels.
Background
The City’s Water Utility (Utility) serves about 20,000 customers over an area of approximately
26 square miles. The City’s average daily consumption of water in FY 2010 was 10.2 million
gallons per day (mgd) or 5.0 million ccf (hundred cubic feet) of water for the year. The Utility is
responsible for the operations and maintenance of the system and purchases all of its water
from the San Francisco Public Utilities Commission (SFPUC) through a contract that runs
through June 2034.
In order to maintain the financial viability of the Utility, staff conducts an annual review of
major cost drivers and expected costs facing the utility; evaluates risks and adequacy of
reserves; and determines the revenue requirements of the Water Fund for the next five years.
The revenue requirements and resulting rate adjustment targets depend on a number of
factors. They include sales projections,water supply costs, distribution system operating and
Capital Improvement Program (CIP)expenses, prudent funding of the Water Rate Stabilization
Reserve (W-RSR), the Emergency Plant Replacement (EPR) Reserve, and debt service payments.
Any change in these factors can trigger an adjustment to the revenue requirement. During the
budget process, staff forecasts customer load, revenues and utility expenses to quantify the
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annual revenue requirement. Changes to forecasted revenues or expenses are reflected in
adjustments to the budget during the mid-year budget adjustment process.
In FY 2010, staff hired Utility Financial Solutions, LLC (UFS), an external consulting firm to
conduct a cost of service analysis (COSA). COSAs are conducted to review utility rate structures
and the alignment of revenues by customer class with the cost of providing service to each
customer class. COSAs also fulfill Proposition 218 requirements for determining the proper
allocation of costs to customers. Based on the results of the COSA, and a review of existing
Water Utility rate structures, staff analyzed various alternative rate structures to ensure
equitable rates for all customer classes. Staff discussed with the UAC at its October 2010
meeting and the Finance Committee at its November 2010 meeting various alternatives to
water rate structures in order to meet certain rate making objectives, and general
recommendations from those meetings are incorporated in this report.
Discussion
Financial Projections
Table 1 below shows financial projections for the Water Fund for FY 2010 to FY 2016. For FY
2010, both budgeted and realized actuals based on City’s Audited Financial Report (CAFR) are
shown. For FY 2011, both budgeted and projected financial expectations are shown. The
projected column for FY 2011 reflects revised Retail Sales Revenue and Wholesale Water
Purchase Costs based on the actual water consumption levels realized in the first half of the
year, and revised projections for the second half.
Cost Drivers
Total expenses1 were $31.2 million in FY 2010. This is $2.9 million higher than budgeted due
mainly to debt financing expenses associated with the Water Bond issued that year. This
overage was mitigated somewhat by lower than expected purchase costs and operations
expense. In FY 2011, total expenses are expected to be slightly lower than budgeted, reaching
$32.0 million as a result of lower than expected water use in Palo Alto. Starting in FY 2012,
however, total expenses are projected to increase sharply, reaching $42.4 million in FY 2016,
driven in large part by increases in water supply purchase costs and CIP-related expenses.
1 Refers to Row 20 in Table 1: Total expenses excluding Bond Financed Capital Improvement Program (CIP).
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Table 1
Five-Year Financial Plan –Projected Costs (in $thousands)
$(000')s
Adopted Adopted
Budget Actual Budget Projected Projected Projected Projected Projected Projected
2010 2010 2011 2011 2012 2013 2014 2015 2016
1 % CHANGE IN RETAIL RATE 5.0%5.0%0.0%0.0%12.5%17.0%16.0%8.0%0.0%
2 PROJECTED SYSTEM AVERAGE RATE ($/CCF)5.21 5.23 5.21 5.21 5.86 6.85 7.95 8.59 8.59
3 PROJECTED COMMODITY COST ($/CCF)1.70 1.66 2.00 1.92 2.57 2.96 3.17 3.37 3.84
4 SALES UNITS (THOUSAND CCFs)5,543 4,955 5,504 5,143 5,256 5,195 5,170 5,143 5,120
5 PROJECTED CHANGE IN RETAIL SALES REVENUE 1,375 1,234 0 0 3,422 5,174 5,670 3,272 0
6 REVENUE
7 Utilities Retail Sales 28,948 25,851 28,808 26,926 30,795 35,539 41,013 44,174 44,113
8 Service Connection & Capacity Fees 682 694 692 692 767 776 785 795 750
9 Other Revenues plus Transfers In 131 648 766 766 158 159 161 162 162
10 Interest & Gain or Loss on Investment 1,265 1,375 1,050 1,050 595 665 627 976 1,449
11 Sub Total 31,026 28,568 31,316 29,434 32,314 37,140 42,586 46,107 46,475
12 CIP Bond Proceeds / Reserve 35,000 35,000 3,500 3,500 0 0 0 8,000 16,000
13 Total Sources of Funds 66,026 63,568 34,816 32,934 32,314 37,140 42,586 54,107 62,475
14 OPERATING EXPENSE
15 Water Supply Purhcases 10,354 9,061 12,043 10,834 14,790 16,840 17,949 18,986 21,541
16 Operations 10,094 8,428 10,721 10,721 10,603 10,709 10,816 10,924 11,034
17 Debt Service & Other Related 775 5,379 2,981 2,981 2,734 2,741 2,753 2,762 2,778
18 Rent 2,107 2,107 2,107 2,107 2,128 2,150 2,171 2,193 2,215
19 CIP (Non-Bonded)4,914 6,189 5,348 5,348 4,869 9,924 9,413 5,051 4,871
20 Sub Total 28,244 31,165 33,201 31,992 35,124 42,364 43,102 39,916 42,439
21 CIP (Bonded)22,500 22,500 3,500 3,500 8,000 16,000
22 Total Uses of Funds 50,744 53,665 36,701 35,492 35,124 42,364 43,102 47,916 58,439
23
24 Into/ (Out of) Reserves 15,282 9,903 (1,885)(2,558)(2,811)(5,224)(516)6,191 4,036
25
26 Ending Rate Stabilization Reserve 14,089 13,536 10,851 10,978 8,167 2,943 2,427 8,618 12,654
27 Portion held for Bond CIP 3,500 0
28 Ending Plant Replacement Reserve 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
29 Ending Debt Service Reserve 5,080 3,347 3,347 3,347 3,347 3,347 3,347 3,347 3,347
30
31 Short Term Assessment of Risks 3,765 3,765 3,766 4,168 4,169 5,190
32 Rate Stabilization Guidelines
33 Miniumum 4,330 3,887 4,300 4,017 4,619 5,342 6,166 6,625 6,596
34 Maximum 8,660 7,774 8,600 8,035 9,238 10,684 12,332 13,250 13,191
35
Fiscal Year
Date: Nov 30, 2010
City of Palo Alto
Water Utility Financial Projections
Water supply costs are projected to more than double from their current levels of $10.8 million
in FY 2011 to $21.5 million in FY 2016. This is due to planned infrastructure upgrade projects
that are being undertaken by the City’s primary water supplier, the SFPUC. The City Council
supports this infrastructure upgrade effort as it will repair and upgrade the regional water
supply system (CMR: 311:00). All of the SFPUC’s water customers share the cost of this project.
Chart 1 presents the SFPUC’s wholesale water prices for both the historical period from 1971 to
2011 and projections through 2021, as of January 2011. The latest wholesale price projections
are significantly higher than last year’s projections. This is primarily due to lower water use by
all SFPUC’s water customers and the fact that SFPUC’s water system costs are all fixed and not
dependent on water use levels. SFPUC is currently reviewing its wholesale water rate structures
and may propose a new rate setting approach for FY 2012. Depending on the outcome of the
rate setting mechanism adopted by SFPUC, Palo Alto’s water supply costs are projected to
increase from $10.8 million in FY 2011 to between $14.4 and $15.6 million in FY 2012. Staff
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assumed $14.8 million for the financial projections presented in this report based on an earlier
analysis.
Chart 1
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
1971
1976
1981
1986
1991
1996
2001
2006
2011
2016
2021
Commodity Cost ($/AF)
SFPUC's Wholesale Water Prices
Actual Rates
February 2010 Projection
February 2011 Projection
Another sizeable expenditure is for the new CIP projects planned for FY 2013 and FY 2014.
Recent investigations of Palo Alto’s water storage tanks have shown the need for additional
retrofits required for seismic protection as well as improvements needed for tank coatings.
These projects are projected to take three years, with costs anticipated to be $2.7 million in FY
2012, $4.0 million in FY 2013, and $4.4 million in FY 2014. Due to the new project costs
anticipated for FY 2012, an existing water main replacement project2 of $3.2 million will be
deferred from FY 2012 to FY 2013.
Bond-funded CIP projects in FY 2010 include the Water Reservoir and Well Rehabilitation
project, which is proceeding as planned. Staff is also considering another large capital project to
extend the recycled water distribution system that may impact the Water Fund within the five-
year forecast horizon. The capital expenditure for this project could total over $32 million and
significant expenditures could start in FY 2015. The sources of funds for the project have not
been identified at this time, but are likely to include a combination of state and federal grants
and a state low interest loan. Additional funds for the recycled water project could come from
2 Water Main Replacement Project # 25.
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project partners that have not yet been identified and bond proceeds for the balance of the
project costs.
For the other cost items, the Debt Service payments reflect ongoing payments on the two
outstanding water bonds of $775 thousand (2002 Utility Revenue Bonds, Series A) and $2.0
million (2009 Water Revenue Bonds, Series A). Debt Service charges for FY 2010 also include
$3.8 million for the water reservoir and well rehabilitation bond issuance.
Staff projects a long-term net cost increase of 1% per year in other operating expenditures such
as operations, maintenance and administration costs, allocated cost plan and Utilities
administration charges, rents, and other transfers.This conservative assumption reflects the
current expectations for the economic activity for the region. Depending on the final outcome
of labor negotiations and other budgetary decisions, final Operating Budget proposals will be
determined and presented to the Finance Committee at its May 2011 meeting.
Revenue Projections
Retail Sales constitute the largest source of revenue for the Water Fund. In FY 2010, total Retail
Sales amounted to $25.8 million. This was $3.1 million (10.7%) lower than budgeted. Water
demand projections are discussed in detail in the following section. Other revenues in FY 2010
include Service Connection and Capacity Fees of $694,000 and Transfers In of $648,000.
Interest and Gains on Investments totaled $1.4 million in FY 2010. Additionally, the City issued
Water Bonds of $35.0 million to finance the Emergency Reservoir and Well Rehabilitation
Project during FY 2010. Going forward, the Utility plans to acquire external funding3 for the
recycled water project related expenses shown for FY 2015 and FY 2016. Interest and Gains on
Investments in future years are calculated assuming a 3% return on investment.
Water Demand
Water demand has a significant impact on the financial position of the Water Fund. A 1% drop
in water demand results in a 0.95% loss in sales revenue or 0.87% loss in total revenue, and
since most costs facing the water utility are fixed, this results in a corresponding need to
increase water revenues and, therefore, rates.
Water demand in the City has been declining since its peak in the early 1970’s. During the last
forty years, the City and the region experienced two periods of drought, the first one during
1976-77, and the second one lasting a longer time span from 1987 through 1992. The City
aggressively pursued water conservation and community outreach programs during these
years. Coupled with drought rates, these measures resulted in an average of 38% reduction in
water consumption in the City during each occurrence. As can be seen in Chart 2, while some of
the consumption resumed after the drought was over, the City’s water use levels nevertheless
have declined since 2000 despite the growth in population and employment. While some of the
decrease was due to the availability of recycled water, significant long term reduction in water
3 Table 1 Row 12 and Row 21 –CIP Bond Proceeds and Expenses of $8.0 million in FY 2015 and $16.0 million in FY
2016
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demand was achieved as a result of continuous improvements in building plumbing codes,
various City ordinances, and resulting investments in water efficient equipment.
Recently, the region as well as the City has been experiencing another significant decline in the
demand for water. Water consumption levels observed in FY 2010 were the lowest since the
drought of 1992. The recent decline in water use is attributable to a combination of factors
including the regional weather conditions, the state of the economy and the effect of the City’s
continuing water conservation effort. The City’s water consumption in FY 2010 was 9% lower
than consumption in FY 2009 and 14% lower than consumption in FY 2008.
For financial forecasting purposes the question is how the City’s and the region’s water
consumption will continue into the future. In order to evaluate the impact of water demand on
the financial forecast for the Water Fund, three scenarios were developed.
Under the base case scenario, water demand increases by 3.6% in FY 2011, but due to slow
economic recovery and expected rate increases during the earlier part of the forecast horizon,
it is projected to decrease at an average rate of 0.7% per year for the following three years.
With the expected recovery taking effect during the latter part of the forecast horizon, demand
is expected to gradually increase at an average rate of 0.8% per year for the rest of the forecast
horizon. The base case also reflects the expected impact of planned water conservation
program implementation to meet goals in the 2005 Urban Water Management Plan. Under the
low scenario, water demand decreases an additional 5.4% in FY 2011, followed by a 1.0% per
year decline throughout the forecast horizon. In contrast, under the high scenario, water
demand increases by 8.9% in FY 2011, followed by a 1.5% per year increase for the rest of the
forecast horizon.
Chart 2 presents the historical water consumption levels in the City from FY 1960 through FY
2010 and the results of the demand scenarios analyzed. The financial projections presented in
this report are based on the base case scenario for water demand. The sensitivity of the
projections to the low and high demand scenarios is presented in the reserves and risk
assessment section.
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Chart 2
Palo Alto Water Consumption
-
1
2
3
4
5
6
7
8
9
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Millions
Fiscal Year
Annual Usage (CCF/year)
High
Base
Low
ForecastActual
Revenue Requirement
The revenue requirement of the Water Fund is the total amount of revenue that the Utility
must collect in order to meet its operations and maintenance (O&M) expenses, water supply
purchases, debt service payments and rate-financed CIP expenditures. Without a rate
adjustment, under the base scenario demand forecast, the Water Fund is projected to have a
revenue shortfall of $6.2 million and $13.1 million in FY 2012 and FY 2013 respectively. Due to
its healthy reserves in FY 2011, staff recommends smoothed rate increases of 12.5% for FY 2012
and 17% for FY 2013 rather than a smaller increase in FY 2012 and a very large (greater than
20%) increase in FY 2013.
As discussed earlier, the revenue requirement in the Water Fund is very sensitive to demand
projections. For example, even with the recommended rate adjustments, under the low
demand scenario, the Water Fund would need an additional $3.7 million in FY 2012, and $4.3
million in FY 2013, in order to maintain reserves at the same levels as in the base scenario.
Conversely under the high demand scenario, the revenue shortfall would be much lower,
estimated to be $1.4 million and $3.8 million in FY 2012 and FY 2013 respectively.
Reserves and Risk Assessment
The Water Fund’s Rate Stabilization Reserve (W-RSR) Guidelines are established by the City
Council. The Council reviews reserve adequacy periodically and adjusts the guidelines as
needed. The W-RSR Guidelines were lowered in June 2009 (CMR:281:09) from 50% and 20% to
30% and 15% of sales revenues for maximum and minimum reserve levels, respectively.
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Additionally, as required by the guidelines, staff performs an annual assessment of short-term
risks for the fund. This analysis involves estimating the revenue shortfall due to the maximum
observed budget-to-actual variance in one year during the past ten years, plus a variance of
10% of planned CIP expenditures for the budget year.
Table 2 summarizes the short-term risk assessment values for FY 2012 and FY 2013 and the
minimum and maximum guideline levels for the W-RSR. With the proposed 12.5% and 17%
rate increases for FY 2012 and FY 2013, respectively, the estimated end-of-year balance for the
W-RSR is $7.9 million in FY 2012 and $2.9 million in FY 2013. This is above both the short-term
risk assessment values as well as the minimum guidelines for FY 2012 but falls short of both the
risk assessment and minimum guideline levels for FY 2013. Staff is proposing approval of rate
adjustments for FY 2012 only at this time, and FY 2013 projections are provided for information
only. Staff will come back next year during the budget process for FY 2013 with the updated
financial projections and propose revised rate adjustments if necessary.
Due to the high volatility in water demand and the significant impact it can have on water utility
financials, staff performed an additional level of analysis this year using the low and high water
demand scenarios discussed earlier in this report. As shown in Table 2, the estimated end of
year balances under these scenarios would be significantly different. Staff will monitor and
report water sales levels throughout the fiscal year and may propose additional rate
adjustments during the mid-year budget adjustment process, if necessary.
Table 2: Water Rate Stabilization Reserve Guideline Levels and Short Term Risk Assessment
($M)
Cost of Service Analysis (COSA)
As mentioned earlier, staff hired UFS in October 2009 to conduct a COSA study for the Water
Utility. UFS has experience in completing over 300 COSA studies for municipal utilities around
the nation. The analysis involved an in-depth review of utility financial data, customer class
load profiles, and the specific costs associated with providing utility services. It was conducted
based on industry-recognized procedures involving functional classification of utility assets and
expenses, and allocation of costs to customer classes based on the cost to provide the service.
Specific customer class attributes included quantity of service and/or resource consumed;
variability of use during the year; and, peak demands created on the system by each class.
WATER RATE STABILIZATION RESERVE FY 2011 FY 2012 FY 2013
ESTIMATED END OF YEAR BALANCE -BASE 11.0 7.9 2.9
ESTIMATED END OF YEAR BALANCE -LOW 8.7 2.1 (7.4)
ESTIMATED END OF YEAR BALANCE -HIGH 12.3 11.0 8.5
RISK ASSESSMENT 4.2 4.2 5.2
MINIMUM LEVEL GUIDELINES 4.6 4.6 5.3
MAXIMUM LEVEL GUIDELINES 9.3 9.2 10.7
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The result of the study is a recommended adjustment to rate schedules to accurately align
future revenues collected from each customer class with the costs attributable to serving that
class. The original study used financial data prepared for FY 2011 Long Range Financial
Projections presented to the UAC in February 2010. The study also relied on billing data for all
of FY 2008 and part of FY 2009. The original study results were updated with FY 2010 customer
usage data as it became available in September 2010. Table 3 presents the summary of updated
COSA results for the Water Utility. Attachment G and H provide the Technical Memorandum for
the updated results and the original Cost of Service Study, respectively.
Table 3 –Summary of COSA Results
RATE
SCHEDULE
CUSTOMER CLASS PROJECTED
REVENUE
COST OF SERVICE COSA
ADJUSTMENT
W-1 RESIDENTIAL $14,304,899 $14,910,404 4%
W-4 COMMERCIAL 11,357,704 10,230,499 -10%
W-7 IRRIGATION 2,977,646 3,397,634 14%
W-3 PRIVATE FIRE HYDRANTS 25,388 49,039 93%(*)
W-3 PUBLIC FIRE HYDRANTS -78,253 N/A(**)
TOTAL $28,665,638 $28,665,830 0%
(*) The W3 Private Fire Hydrant COSA adjustment represents an adjustment to meter
charge based on meter size. For example, for a 4 inch meter, the current monthly
service charge of $4.20 must be increased to $7.20 to properly recover utility costs.
(**) The suggested adjustment for W3 Public Fire Hydrant service is an annual charge of
$78,253 for the Municipal Class. Currently the City is not charged for public fire hydrant
service.
Water Utility Customer Profile and Revenue Collection
As of June 2010, the City’s Water Utility had approximately 20,000 water service accounts.
Table 4 provides the distribution of accounts by customer segment and meter size. While
approximately 81% of customer accounts fall into the residential classification, this represents
49% of revenues. The remaining 51% of revenues are collected from commercial customers
through a combination of the W4, W7 and W3 rate schedules. Table 5 provides the distribution
of revenue by rate schedule and rate component. Currently, approximately 7% of revenues are
collected through the fixed monthly service charges and 93% through volumetric charges.
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Table 4 –Number of Accounts (FY 2010)
Meter
Size RESIDENTIAL COMMERCIAL IRRIGATION
PRIVATE FIRE
PROTECTION
W1 W4 W7 W3
5/8 "13,692 1,058 53 -
3/4 "526 80 7 -
1 "1,862 592 75 -
1 1/2"171 370 62 -
2"66 622 112 -
3"- 79 13 -
4"- 51 5 236
6"- 24 1 217
8"- 10 1 133
10"- - - 8
TOTAL 16,317 2,886 329 594
Table 5 –Sales Revenue (FY 2010)
RESIDENTIAL COMMERCIAL IRRIGATION
PRIVATE FIRE
PROTECTION TOTAL
W1 W4 W7 W3
1,049,849$ 596,544$ 73,887$ 47,296$ 1,797,900$
11,544,391$ 10,338,903$ 2,160,287$ 11,340$ 24,073,244$
12,594,239$ 10,935,448$ 2,234,173$ 58,636$ 25,871,144$ Total Revenue
REVENUE SOURCE
Service Charge
Volumetric Charge
Chart 3 shows the monthly water use profile for each customer class4. The residential sector’s
water use varies significantly throughout the year and peaks the highest, whereas the
commercial sector exhibits a flatter water use profile. Irrigation customers’ peak-to-average
ratio is the highest among all customer classes. Peak-to-average ratio is defined as the peak
month usage divided by the average usage during the year, and is used in determining how
some of the system costs are allocated among customer classes. The ratio is used to allocate
costs associated with meeting usage requirements in excess of base usage. Such costs include
operating and capital costs for plant and system capacity installed beyond that required to
meet average use consumption.A review of historical peak-to-average ratio over time as
presented in Chart 45 shows that residential customers’ ratio has increased while the ratio for
commercial customers has been in decline. As residential customers’ contribution to the peak-
to-average ratio increases relative to commercial customers so does their share of the cost of
service.
4 Customer use profile is based on two year averages of billing data covering FY 2009 and FY 2010. 5 Peak-to-average ratio is based on two year averages of billing data covering FY 2002 –2010.
March 01, 2011 Page 12 of 19
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Chart 3
Chart 4
Customer Class Peak to Average Water Use Ratio
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
2002 2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
Ratio
Residential
Commercial
Irrigation
Current Rate Schedules and Recommended COSA Alignments
Current water rates consist of two components: a monthly customer charge (service charge)
and a commodity rate (volumetric rate). The monthly service charge per customer varies based
on meter size and the volumetric rate varies for residential customers based on usage tier. The
residential volumetric rates are also referred to as “inverted block rates” where the lower
usage tiers are charged at a rate that is lower than higher usage tiers. For non-residential
accounts a single volumetric rate is used. The Tier 1 usage block for residential accounts is
March 01, 2011 Page 13 of 19
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defined as 0.233 ccf per day or, for a 30 day billing period, 7 ccf per month. Any usage over 7
ccf per month falls into Tier 2. Table 6A shows current water rates and COSA results by meter
size and customer segment for the W1, W4 and W7 rate schedules, and Table 6B shows the
same for the W3 rate schedule.
Table 6A -Current Water Rates and COSA Results
(W1, W4 and W7 Rate Schedules)
Meter
Size $/Month Customer Segment Monthly
CCF $/CCF Meter
Size $/Month Customer Segment Monthly
CCF $/CCF
3/4 "$ 5.00 0-7 3.949$ 3/4 "$ 14.75 Residential(W-1)All 4.340$
5/8 "$ 5.00 > 7 5.624$ 5/8 "$ 14.75 Commercial (W-4)All 4.120$
1 "$ 6.50 Commercial(W-4)All 4.946$ 1 "$ 19.97 Irrigation(W-7)All 5.570$
1 1/2"$ 12.27 Irrigation (W-7)All 4.946$ 1 1/2"$ 42.49
2"$ 19.37 2"$ 67.49
3"$ 77.65 3"$ 150.05
4"$ 130.60 4"$ 259.52
6"$ 260.43 6"$ 551.53
8"$ 383.67 8"$ 903.63
CURRENT RATES
Residential(W-1)
(W1, W4 & W7)
Service Charge Volumetric Charge
COST OF SERVICE RATES
(W1, W4 & W7)
Service Charge Volumetric Charge
Table 6B -Current Water Rates and COSA Results
W3 (Private Fire Hydrants) Rate Schedule
Unit Meter Size CURRENT COSA
$/month 4 "$ 4.20 $ 7.27
$/month 6 "$ 7.00 $ 16.13
$/month 8 "$ 10.75 $ 28.53
$/month 10 "$ 15.75 $ 44.48
Volumetric $/ccf All $ 10.00 N/A
CURRENT AND COSA RATES
(W3)
Service Charge
Note that the COSA results are based on FY 2011 financial projections, and do not include an
overall system-wide rate adjustment of 12.5% for FY 2012.
Rate Design
Staff presented three rate design objectives to the UAC at its meeting in September 2010 and
to the Finance Committee at its meeting in October 2010. The objectives presented were to
adjust rate schedules to:
·reflect updated COSA,
·provide effective price signals to promote water conservation, and
·avoid rate/bill shock and financial hardship.
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Based on the feedback received from both the UAC and the Finance Committee, staff proposed
a set of changes to the current rate structure for both the Residential (W-1) and the
Commercial (W-4) Rate Schedules and presented these changes to the UAC at its February 2011
meeting. With the proposed changes residential rates will increase from two to three tiers, and
tiered rates (two tiers) will be introduced for commercial rates. Tiered rates meet the objective
of providing effective price signals to promote water conservation and are in line with the
California Constitution Article X, Section 2 that requires that water resources of California “be
put to beneficial use to the fullest extent of which they are capable, and that the waste and
unreasonable use or unreasonable method of use of water be prevented”. California’s Water
Code, Section 375 also explicitly allows water conservation measures to be adopted, including
water “rate structure designs.”
Although Palo Alto has sufficient water supplies from the SFPUC in normal water years, new
water supplies for the state are very expensive to develop. Many agencies, including the
SFPUC, are considering new projects to increase water supplies such as desalination, recycled
water, and new water storage reservoirs. These new water supply resources can cost from $5
per ccf to over $20 per ccf. Tiered rates that encourage water conservation create an incentive
to use water efficiently, comply with both AB 2882 and the California constitutional directive to
avoid unreasonable use and waste of water,and help avoid the need for these high cost
supplies.
Additionally, staff proposed to increase the monthly fixed service charge in line with the cost of
service for each rate schedule. Service charges represent the costs associated with serving
customers regardless of usage level or usage characteristics. Service costs include cost of meter
reading, meter installations, billing and collection, service connections, and a portion of the
operation and maintenance expenses of the distribution system and allocated administration
costs. When aligned with cost of service levels, revenue collection through fixed charges would
increase from 5% in FY 20116 to 15% in FY 2012. This is well within the California Urban Water
Conservation Council (CUWCC) guideline level of less than 30% for conservation based rates.
With increased fixed service charges, additional tiers for both residential and commercial rate
structures, and the alignment of average rates with the cost of service by rate class, the
proposed changes meet the objectives set forth during the UAC and Finance Committee
meetings.
For the W3 and W7 rate schedules, no structural change to the rates is proposed; and proposed
FY 2012 rates consist of adjustments for COSA together with the 12.5% revenue requirement
increase applicable to the W7 rate schedule.
The UAC recommended by a vote of five to two to recommend the Council to adopt proposed
rates at the February 2011 meeting with some modifications. The requested modifications were
that:
6 Based on customer sales data used for cost of service study.
March 01, 2011 Page 15 of 19
(ID # 1398)
·Residential tier 1 and tier 2 prices would be increased slightly from current prices, and
the additional revenue would be used to lower the fixed service charges;
·There would be no bill reduction for commercial customers as a result of proposed rate
revisions.
After incorporating these modifications, the increase in fixed service charge component of the
bill is reduced from the original 200% proposed to the UAC in February 2011 to 50%. The
difference is reflected in the increase in the volumetric charges for residential tier 1 and tier 2.
Staff anticipates that with the projected 17% increase planned in FY 2013, full implementation
of fixed charges at cost of service levels will be achieved over a two year period. With these
changes, revenue collection through fixed charges is estimated to be 8%.
Table 7 shows the current and proposed water rates incorporating UAC modifications for FY
2012 for the W1, W4 and W7 rate schedules.
Table 7 -Proposed Rate for FY 2012
Meter
Size Current Proposed
3/4 "$ 5.00 $ 7.50
Monthly
CCF $/CCF Monthly
CCF $/CCF
5/8 "$ 5.00 $ 7.50 Tier 1 0-7 3.949$ 0 - 6 4.100$
1 "$ 6.50 $ 9.75 Tier 2 > 7 5.624$ 7 - 29 6.248$
1 1/2"$ 12.27 $ 18.41 Tier 3 --> 29 7.642$
2"$ 19.37 $ 29.06 Tier 1 All 4.946$ 0 - 14 4.769$
3"$ 77.65 $ 116.48 Tier 2 --> 14 4.946$
4"$ 130.60 $ 195.90 Irrigation (W-7)All All 4.946$ All 6.266$
6"$ 260.43 $ 390.65
8"$ 383.67 $ 575.51
Proposed
Service Charge ($/month)Volumetric Charge ($/CCF)
Rate Schedule Usage
Tiers
Current
Residential (W-1)
Commercial (W-4)
Customer Bill Impact of Proposed Rate Changes
Table 8 below shows the impact of the proposed rate increase on customer bills based on
different consumption levels for the residential and commercial classes.
March 01, 2011 Page 16 of 19
(ID # 1398)
Table 8: Impact of Proposed Rate Increase on Customer Bills
Customer
Usage
(ccf)
Proposed
Monthly Bill
($)
Amount of
Proposed
Increase ($)
Percent
Increase
Small Residential (5/8” Meter)6 $ 32.10 $3.41 11.9%
Medium Residential (5/8” Meter)14 82.08 10.07 14.0%
Large Residential (5/8” Meter)35 221.66 31.54 16.6%
Medium Commercial (3" Meter)300 1,597.80 36.35 2.3%
Large Commercial or Industrial (6"
Meter)1200 6,323.37 127.74 2.1%
Large Commercial or Industrial (6"
Meter) (irrigation only) (W-7)3000 19,068.65 3,970.22 26.3%
Comparison of Palo Alto Water Rates and Surrounding Cities
For several years, Palo Alto's retail water rates have generally been higher than those in
surrounding areas. Staff initiated a Benchmark Study for the Water Utility in May 2010 and
presented its findings to the UAC in October 2010 and to the Finance Committee in November
2010. The objective of the study was to develop benchmarks and to provide insight as to the
main reasons for the higher water rates in Palo Alto. The findings of this study highlighted
some key areas such as more spending by Palo Alto for replacement of aging infrastructure;
lack of access to lower cost water supply; more expensive service terrain to serve; higher
quality of service; and higher rent payment for its use of real estate in the service territory.
Rent charges for the Water Utility’s use of real estate in the service territory are adjusted
annually to market value based on a survey conducted by the City.
Table 9 below, which compares monthly water bills using municipal water rates as of January 1,
2011 for Mountain View, Redwood City, Santa Clara and Menlo Park, indicates that the average
residential customer in surrounding cities pays approximately 24 % less than the average Palo
Alto residential customer. The residential bill comparison with the average benchmark city is
seven percentage points lower this year compared to the same period a year ago as other cities
facing similar cost increases have begun raising their water rates as well. There are indications
that nearby cities that purchase water supplies from the SFPUC will continue to raise rates in FY
20127. At this time, the certainty or magnitude of their rate increases is not known.
7 Based on the FY 2009 BAWSCA survey, the share of SFPUC as source of water supply was 89% for Menlo Park,
100% for Redwood City, 86% for Mountain View, and 12% for Santa Clara.
March 01, 2011 Page 17 of 19
(ID # 1398)
Table 9 –Monthly Residential Water Bill Comparison (rates in effect as of Jan. 1, 2011)
Water
Customer
Usage
(ccf)
Palo
Alto
Menlo
Park1
Redwood
City
Mountain
View
Santa
Clara
Average
Benchmark
(%)
Diff.
Small 6 $28.69 $38.95 $33.07 $20.78 $16.44 $27.31 -4.8%
Average 14 $72.01 $73.14 $60.37 $48.04 $38.36 $54.97 -23.7%
Large 35 $190.12 $165.38 $185.45 $153.21 $95.90 $149.98 -21.1%
Difference from CPAU 1.6%-16.2%-33.3%-46.7%-23.7%
1. Menlo Park rates based on California Water Service-Bear Gulch district –proposed for
1/1/11
Proposition 218 Water Rate Increase Procedure
Proposition 218 amended the California Constitution and set forth procedural requirements
that public agencies must follow in order to enact or increase a property-related fee. Since
Proposition 218 applies to the water rate increases described here, the City must provide
written notice by mail to water customers subject to the proposed fees, followed by a public
hearing held not less than 45 days after notice is mailed. The notice must include the amount
of the fee, the basis upon which the fee was calculated, the reason for the fee, and the date,
time and location of the public hearing. If a majority of customers submit written protests
against the proposed fees, the City may not impose the fee.
Possibility of Water Use Restrictions due to Water Shortage
In the event of a water shortage, the SFPUC will declare a water shortage emergency and
impose mandatory water use reductions. If this action is taken, then staff will return to the
UAC with an updated proposal for a rate adjustment and water rate schedules. Staff does not
expect a water shortage for FY 2012 at this time.
Alternatives
Staff evaluated alternative revenue-neutral rate changes based on COSA recommendations,
and the rate making objectives identified. One alternative is to implement more tiers for both
residential and commercial rate schedules. This alternative was rejected due to the increased
complexity with this alternative and the fact that it would achieve effectively the same results
as the proposed rate structures. Another alternative is to introduce different tier usage blocks
based on meter size. This alternative has the advantage of addressing the size differences
between customers especially for commercial customers. This alternative was rejected due to
its complexity as well as the additional implementation costs required for billing system
configurations.
Board/Commission Review and Recommendations
The UAC considered staff’s recommendation at its February 2, 2011 meeting. The
Commissioners discussed in detail the rate design changes proposed by staff, including the cost
of service adjustments between customer classes, the impact of increasing the fixed service
charge component in one year, and the level and effectiveness of the volumetric rates. The
March 01, 2011 Page 18 of 19
(ID # 1398)
Commissioners also discussed the proposed 12.5% revenue requirement increase for 2012 and
that, under the current five-year projections, the Water Rate Stabilization Reserve would be
below the minimum guidelines of FY 2013 and FY 2014.
The Commission voted by five to two in favor of recommending that the City Council approve
staff’s recommended Water Utility Rate Adjustments with the following amendments:
a)The rate adjustment proposal by staff be modified so that no commercial customer’s bill
would be decreased;
b)The volumetric rates for residential customers for usage in tiers 1 and 2 be increased
and the fixed charges be reduced; and
c)The Council is made aware that the UAC is aware that the five-year financial projections
show that the balance of the Water Rate Stabilization Reserve falls below the minimum
guideline level for two years.
Draft minutes from the UAC’s February 2, 2011 meeting are provided as Attachment I.
Resource Impact
Approval of this rate proposal will increase the Water Fund retail sales revenues by
approximately $3.4 million for FY 2012.
Policy Implications
This recommendation does not represent a change to current City policies.
Environmental Review
The restructuring of water rates to meet operating expenses and financial reserve needs is not
subject to the California Environmental Quality Act (CEQA), pursuant to California Public
Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec.
15273(a)(1) and (3).
ATTACHMENTS:
·A Water Fund Financial Projections (FY2012-FY2016)(PDF)
·Attachment A: Water Fund Financial Projections (FY2012-FY2016)(PDF)
·Attachment B: Utility Rate Schedule W-1 effective 7-1-2011 (DOC)
·B W-1 effective 7-1-2011 (DOC)
·Attachment C: Utility Rate Schedule W-3 effective 7-1-2011 (DOC)
·C W-3 effective 7-1-2011 (DOC)
·Attachment D: Utility Rate Schedule W-4 effective 7-1-2011 (DOC)
·D W-4 effective 7-1-2011 (DOC)
·Attachment E: Utility Rate Schedule W-7 effective 7-1-2011 (DOC)
·E W-7 effective 7-1-2011 (DOC)
·Attachment F: Draft Resolution for Water July 1 2011 (PDF)
March 01, 2011 Page 19 of 19
(ID # 1398)
·F Draft Resolution for Water July 1 2011 (PDF)
·Attachment G: Water Technical Memorandum (DOC)
·G Water Technical Memorandum (PDF)
·Attachment H: Water Cost of Service Report (PDF)
·H Water Cost of Service Report (PDF)
·Attachment I: Draft UAC Minutes of February 2, 2011 (DOCX)
·I Draft Excerpted Minutes of February 2, 2011 UAC Meeting (PDF)
Prepared By:Ipek Connolly, Sr. Resource Planner
Department Head:Valerie Fong, Director
City Manager Approval:James Keene, City Manager
Adopted Actual Adjusted Projected Projected Projected Projected Projected
2010 2010 2011 2012 2013 2014 2015 2016
1 % CHANGE IN RETAIL RATE 5.0% 5.0% 0.0% 12.5% 17.0% 16.0% 8.0% 0.0%
2 SYSTEM AVERAGE RATE ($/CCF)5.21 5.23 5.21 5.86 6.85 7.95 8.59 8.59
3 SALES UNITS (CCFs)5,543 4,955 5,143 5,256 5,195 5,170 5,143 5,120
4 WATER UTILITY REVENUE
5 SALES REVENUE:27,493 24,679 26,783 27,373 30,438 35,437 40,896 43,971
6 RATE ADJUSTMENT 1,375 1,234 0 3,422 5,174 5,670 3,272 0
7 PRORATION IMPACT (57) (51)0 (143) (216) (236) (136)0
8 TOTAL ADJUSTED SALES 28,810 25,862 26,783 30,652 35,397 40,871 44,031 43,971
9 UNMETERED SALES/OTHER 138 (10)142 142 142 142 142 142
10 INTEREST 1,265 1,375 1,050 595 665 627 976 1,449
11 OTHER REVENUE 131 648 766 158 159 161 8,162 16,162
12 CONNECTION FEES 682 694 692 767 776 785 795 750
13 FROM RESERVES:
14 RATE STABILIZATION 0 0 6,058 2,811 5,224 516 0 0
15 CIP BOND PROCEEDS 35,000 35,000 000000
16 TOTAL FINANCIAL RESOURCES 66,026 63,568 35,492 35,124 42,364 43,102 54,107 62,475
17 OPERATING EXPENSES
18 PURCHASES 10,354 9,061 10,834 14,790 16,840 17,949 18,986 21,541
19 CUSTOMER DESIGN & CONN. (CIP)400 569 410 420 430 440 450 232
20 SYSTEM IMPROVEMENT(CIP) - Nonbond 4,514 5,620 4,938 4,449 9,494 8,973 4,601 4,639
21 SYSTEM IMPROVEMENT(CIP) - Bond 22,500 22,500 3,500 0 0 0 8,000 16,000
22 OPERATIONS, & MAINT, OTHER ADMIN.7,385 6,378 7,604 7,680 7,757 7,835 7,913 7,992
23 ALLOCATED CHARGES:
24 COST PLAN CHARGES & OTHER 1,106 410 1,076 1,087 1,097 1,108 1,119 1,131
25 UTILITIES ADMINISTRATION 1,346 1,171 1,600 1,616 1,632 1,648 1,664 1,681
26 TOTAL MAJOR ACTIVITIES 47,604 45,709 29,962 30,042 37,251 37,953 42,734 53,216
27 DEBT SERVICE & RELATED 775 5,379 2,981 2,734 2,741 2,753 2,762 2,778
28 TRANSFERS:
29 RENT 2,107 2,107 2,107 2,128 2,150 2,171 2,193 2,215
30 OTHER TRANSFER 258 282 442 221 223 225 227 229
31 SUB-TOTAL TRANSFER 2,365 2,389 2,549 2,349 2,372 2,396 2,420 2,444
32 TOTAL OPERATING EXPENSES 50,744 53,477 35,492 35,124 42,364 43,102 47,916 58,439
33 RESERVE ADDITIONS:
34 PLANT REPLACEMENT 00000000
35 RATE STABILIZATION 10,982 7,336 00006,191 4,036
36 DEBT SERVICE RESERVE 4,300 2,567 000000
37 TOTAL RESERVE ADDITIONS: 15,282 9,903 00006,191 4,036
38 TOTAL REVENUE REQUIREMENT 66,026 63,380 35,492 35,124 42,364 43,102 54,107 62,475
39 RESERVES BALANCES
40 PLANT REPLACEMENT 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
41 RATE STABILIZATION 14,089 13,536 10,978 8,167 2,943 2,427 8,618 12,654
Portion set aside for Bond 3,500
42 CIP DEBT SERVICE 5,080 3,347 3,347 3,347 3,347 3,347 3,347 3,347
43 TOTAL RESERVES BALANCES 20,169 21,383 15,325 12,514 7,290 6,774 12,965 17,001
44
45 Short Term Risk Assessment Value 3,765 3,765 4,168 4,169 5,190 9,249 9,938 9,893
46
47 Long Term Rate Stabilization Guidelines
48 RSR Minimum 4,330 3,887 4,017 4,619 5,342 6,166 6,625 6,596
49 RSR Maximum 8,660 7,774 8,035 9,238 10,684 12,332 13,250 13,191
50
2010 2010 2011 2012 2013 2014 2015 2016
City of Palo Alto Water Utility
WATER
Fiscal Year
E
X
P
E
N
S
E
S
R
E
V
E
N
U
E
S
R
E
S
E
R
V
E
S
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No W-1-1 dated 11-1-20087-1-2009 Sheet No W-1-1
A.APPLICABILITY:
This schedule applies to all separately metered single family residential water services.
B.TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C.RATES:
Per Meter
Monthly Customer Charge:Per Month
For 5/8-inch meter ...........................................................................................................$5.007.50
For 3/4 inch meter ...........................................................................................................5.00 7.50
For 1 inch meter ...........................................................................................................6.50 9.75
For 1 1/2 inch meter ...........................................................................................................12.27
18.41
For 2-inch meter ...........................................................................................................19.37
29.06
For 3-inch meter ...........................................................................................................
77.65116.48
For 4-inch meter ...........................................................................................................
130.60195.90
For 6-inch meter ...........................................................................................................
260.43390.65
For 8-inch meter ...........................................................................................................
383.67575.51
For 10-inch meter ...........................................................................................................
383.67575.51
Commodity Rate:(To be added Customer Charge and applicable to all pressure zones.)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 usage .......................................................................................................................
$3.9494.100
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No W-1-2 dated 11-1-20087-1-2009 Sheet No W-1-2
Tier 2 usage (All usage over 100% of Tier 1).......................................................................5.624
6.248
Tier 3 usage (All usage over Tier 2)......................................................................................7.642
Temporary unmetered service to residential
subdivision developers, per connection .......................................................................$6.00
D.SPECIAL NOTES:
1.Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2.Calculation of Usage Tiers
Tier 1 water usage shall be calculated and billed based upon a level of 0.233 ccf per day
rounded to the nearest whole ccf, based on meter reading days of service. Tier 2 water
usage shall be calculated and billed based on usage greater than Tier 1 and up to a level of
0.967 ccf per day, rounded to the nearest whole ccf, based on meter reading days of
service. Tier 3 encompasses all usage over Tier 2 levels. As an example, for a 30 day
bill, the Tier 1 level would be 0 through 67 ccf, and Tier 2 would be between 7 and 29
ccf. For further discussion of bill calculation and proration, refer to Rule and Regulation
11.
{End}
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 11-1-20087-1-2011
Supersedes Sheet No W-3-1 dated 7-1-199211-1-2008 Sheet No
A.APPLICABILITY:
This schedule applies to all public fire hydrants and private fire service connections.
B.TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C.RATES:
1.Monthly Service Charges
Public Fire Hydrant....................................................................................................$5.00
Private Fire Service:
4-inch connection ......................................................................................................$4.207.27
6-inch connection ...................................................................................................... $ 7.0016.13
8-inch connection ......................................................................................................$ 10.7528.53
10-inch connection ....................................................................................................$ 15.7544.48
2.Commodity (To be added to Service Charge unless water is used for fire extinguishing or
testing purposes.)
Per Hundred Cubic Feet
All water usage..........................................................................................................$10.00
D.SPECIAL NOTES:
1.Service under this schedule may be discontinued if water is used for any purpose other
than fire extinguishing or water used in testing and repairing the fire extinguishing
facilities. Such water used for other purposes is illegal and will be subject to the
commodity charge as noted above and fines.
2.No commodity charge will apply for water used for fire extinguishing purposes.
3.For a combination water and fire service, the general water service schedule shall apply.
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 11-1-20087-1-2011
Supersedes Sheet No W-3-2 dated 7-1-199211-1-2008 Sheet No
4.Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
5.Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
water if records and documentation are supplied by the customer.
6.Unauthorized use of water which is unrelated to fire protection is subject to criminal
prosecution pursuant to the Palo Alto Municipal Code.
{End}
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No W-4-1 dated 11-1-20087-1-2009 Sheet No W-4-1
A.APPLICABILITY:
This schedule applies to non-residential water service in the City of Palo Alto and its distribution
area. This schedule is also applicable to multi-family residential customers served through a master
meter.
B.TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C.RATES:
Per Meter
Monthly Customer Charge Per Month
For 5/8-inch meter ...............................................................................................$5.007.50
For 3/4-inch meter ...............................................................................................$5.007.50
For 1-inch meter ...............................................................................................$6.509.75
For 1 ½-inch meter ...............................................................................................
$12.2718.41
For 2-inch meter ...............................................................................................
$19.3729.06
For 3-inch meter ...............................................................................................
$77.65116.48
For 4-inch meter ...............................................................................................
$130.60195.90
For 6-inch meter ...............................................................................................
$260.43390.65
For 8-inch meter ...............................................................................................
$383.67575.51
For 10-inch meter ...............................................................................................
$383.67575.51
Commodity Rates: (to be added to Customer Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No W-4-2 dated 11-1-20087-1-2009 Sheet No W-4-2
Tier 1 Per ccf .......................................................................................................................
$4.9464.769
Tier 2 (All usage over Tier 1)................................................................................................4.946
D.SPECIAL NOTES:
1.Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2.Calculation of Usage Tiers
Tier 1 water usage shall be calculated and billed based upon a level of 0.467 ccf per day
rounded to the nearest whole ccf, based on meter reading days of service. Tier 2
encompasses all usage over Tier 1 levels. As an example, for a 30 day bill, the Tier 1
level would be 0 through 14 ccf. For further discussion of bill calculation and proration,
refer to Rule and Regulation 11.
{End}
IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No W-7-1 dated 11-1-20087-1-2009 Sheet No W-7-1
A.APPLICABILITY:
This schedule applies to non-residential water service supplying dedicated irrigation meters in the
City of Palo Alto and its distribution area.
B.TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C.RATES:
Per Meter
Monthly Customer Charge Per Month
For 5/8-inch meter ...............................................................................................$5.007.50
For 3/4-inch meter ...............................................................................................$5.007.50
For 1-inch meter ...............................................................................................$6.509.75
For 1 1/2 inch meter ...............................................................................................
$12.2718.41
For 2-inch meter ...............................................................................................
$19.3729.06
For 3-inch meter ...............................................................................................
$77.65116.48
For 4-inch meter ...............................................................................................
$130.60195.90
For 6-inch meter ...............................................................................................
$260.43390.65
For 8-inch meter ...............................................................................................
$383.67575.51
For 10-inch meter ...............................................................................................
$383.67575.51
Commodity Rates: (to be added to Customer Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-20092011
Supersedes Sheet No W-7-2 dated 11-1-20087-1-2009 Sheet No W-7-2
Per Ccf .......................................................................................................................
$4.9466.226
D.SPECIAL NOTES:
1.Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
{End}
*Not Yet Approved*
110126 dm 6051532
Resolution No. _________
Resolution of the Council of the City of Palo Alto Amending Utility
Rate Schedules W-1, -3, W-4 and W-7
WHEREAS, pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the
Council of the City of Palo Alto may by resolution adopt rules and regulations governing
utility services and the fees and charges therefore; and
WHEREAS, pursuant to Article XIIID Sec. 6 of the California Constitution, on
June _, 2011, the City of Palo Alto held a public hearing to consider all protests against the
proposed water rate increases; and
WHEREAS, the total number of written protests presented by the close of the
public hearing was less than fifty percent (50%) of the total number of customers and
property owners subject to the proposed water rate increases;
NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE
as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule W-1 (General Residential Water Service) is hereby amended to read
in accordance with sheets W-1-1 and W-1-2, attached hereto and incorporated herein. The
foregoing Utility Rate Schedule, as amended, shall become effective July 1, 2011.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule W-3 (Fire Service Connections) is hereby amended to read in
accordance with sheets W-3-1 and W-3-2, attached hereto and incorporated herein. The
foregoing Utility Rate Schedule, as amended, shall become effective July 1, 2011.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule W-4 (General Non-Residential Water Service) is hereby amended to
read in accordance with sheets W-4-1 and W-4-2, attached hereto and incorporated herein.
The foregoing Utility Rate Schedule, as amended, shall become effective July 1, 2011.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule W-7 (Irrigation Water Service) is hereby amended to read in
accordance with sheets W-7-1 and W-7-2, attached hereto and incorporated herein. The
foregoing Utility Rate Schedule, as amended, shall become effective July 1, 2011.
SECTION 5. The Council finds that the revenue derived from the authorized
adoption enumerated herein shall be used only for the purpose set forth in Article VII,
Section 2, of the Charter of the City of Palo Alto.
//
//
//
*Not Yet Approved*
110126 dm 6051532
SECTION 6. The Council finds that a restructuring of water rates to meet
operating expenses and financial reserve needs is not subject to the California
Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec.
21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a)(1) and (3).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Senior Deputy City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative
Services
DATE: December 7, 2010
PREPARED FOR: City of Palo Alto Utilities – Water Department
PREPARED BY: Mark Beauchamp, CPA/Utility Financial Solutions
SUBJECT: Cost of Service with Updated Billing Units
Purpose
The purpose of this technical memorandum (TM) is to compare the results of the cost of service study with
updated billing statistics for 2010. The original study was based on fiscal years 2008 and 2009 usage
patterns for each customer class. This update used the original costs with updated usage patterns using 2009
and 2010. This memorandum compares the summary results of original study with the updated usage
patterns.
Water Cost of Service Results:
Table One – Comparison of Original Study Results with Updated Study
Customer Class Original Study
With 2010 Billing
Statistics Original Study
With 2010 Billing
Statistics
W-1 Residential 15,219,495$ 14,910,404$ 6% 4%
W-4 Commercial 10,210,142 10,230,499 -10% -10%
W-7 Irrigation 3,108,767 3,397,634 4% 14%
W-3 Private Fire Protection 49,174 49,039 94% 93%
Public Fire Protection - Hydrants 78,253 78,253
Total 28,665,830$ 28,665,830$
The update of the usage patterns had the most significant impact on the W-7 Irrigation class of service. This
class uses a majority of its usage during months when customers sprinkle lawns. The cost of service study
averages the usage over a two year period in order to smooth out annual variation in billing statistics; despite
this however, there can be significant changes in cost of service results during extremely dry years that
require substantial lawn sprinkling or years with substantial rainfall that limits the amount of lawn
sprinkling. The change resulted in a 10% change in cost of service results for the irrigation class, and a 2%
change in the results for the residential class. The change for commercial class and fire protection were
insignificant.
Page Two – Updated Water Study Results
The table below is the updated cost of service results for the monthly customer and usage charges:
Table Two – Comparison of cost based charges
Customer Class Meter Size
Using 2010
Billing
Statistics
Original
Study
Using 2010
Billing
Statistics
Original
Study
W-1 Residential 3/4 14.75$ 13.94$ 4.34$ 4.52$
W-1 1 19.97 18.54 4.34 4.52
W-1 1.5 42.49 39.27 4.34 4.52
W-1 2 67.49 61.77 4.34 4.52
W-4 Commercial 3/4 14.75 13.94 4.12 4.16
W-4 1 19.97 18.54 4.12 4.16
W-4 1.5 42.49 39.27 4.12 4.16
W-4 2 67.49 61.77 4.12 4.16
W-4 3 150.05 137.16 4.12 4.16
W-4 4 259.52 236.62 4.12 4.16
W-4 6 551.53 500.00 4.12 4.16
W-4 8 903.63 812.02 4.12 4.16
W-7 Irrigation 3/4 14.75 13.94 5.57 5.10
W-7 1 19.97 18.54 5.57 5.10
W-7 1.5 42.49 39.27 5.57 5.10
W-7 2 67.49 61.77 5.57 5.10
W-7 3 150.05 137.16 5.57 5.10
W-7 4 259.52 236.62 5.57 5.10
W-7 6 551.53 500.00 5.57 5.10
W-7 8 903.63 812.02 5.57 5.10
Monthly Meter Charges CCU Charges
CITY OF PALO ALTO UTILITIES
WATER COST OF SERVICE & RATE STUDY
Fiscal Year 2011
2/3/2011 1
CITY OF PALO ALTO – WATER COST OF SERVICE STUDY
TABLE OF CONTENTS
Page No.
Introduction 2
Utility Revenue Requirements 3
Cost of Service Summary 5
Cost of Service Components 12
Significant Assumptions 13
Accountants Compilation Report 14
2/3/2011 2
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
INTRODUCTION
This report was prepared to provide the City of Palo Alto Utilities Department (CPAU) with a
water cost of service study and a comprehensive examination of its existing rate structures by an
outside party. Utility Financial Solutions was contracted to review revenue requirements and the
cost of providing service to CPAU’s water customers. This purpose of the study includes:
1) Determine Water Utility’s revenue requirements for Fiscal Year (FY) 2011 based on
budget and financial projections provided by Palo Alto staff
2) Allocate utility’s revenues requirements to customer classes
3) Identify the cost to provide service to customer classes
5) Review the current Water Utility rate structure and propose alternative rate structures.
6) If possible, propose rate structures to encourage conservation and efficient use of
resources
The report is structured in the following manner:
.
• Introduction
• Utility Revenue Requirements for Fiscal Year 2011
• Cost of Service Summary
• Recommended Rate Adjustment
• Cost of Service Components
• Significant Assumptions Used in Analysis
• Recommendations
• Compilation Report
2/3/2011 3
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
UTILITY REVENUE REQUIREMENTS
CPAU’s financial projections were used to evaluate the current and projected financial
statements. The table below is the accrual basis revenues and expenses for CPAU’s Water
Utility. (Cash basis is listed on page three of this report). CPAU’s projected rate adjustments are
incorporated into the financial projection with rate adjustments of 0.0% for FY 2011; 8% for FY
2012 and 9% for FY 2013 – FY 2015. The projected operating income for FY 2011 is $3.53
million and is projected to increase to $5.4 million in 2015.
Table One – Projected Financial Statements FY 2011 – FY 2015 (thousands)
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
RATE ADJUSTMENT 0.0% 8.0% 9.0% 9.0% 9.0%
REVENUES
SALES REVENUES 28,666$ 31,336$ 34,179$ 37,291$ 40,687$
DISCOUNTS / UNMETERED 138 138 138 138 138
OTHER / OP TRANS IN 337 341 344 348 351
CONNECTION FEES / CAPACITY FEES 767 776 785 795 804
TOTAL REVENUES 29,907$ 32,590$ 35,445$ 38,571$ 41,980$
EXPENSES
SUPPLY 12,808$ 15,018$ 17,984$ 20,342$ 22,028$
DISTRIBUTION 5,201 5,254 5,306 5,359 5,413
CUSTOMER SUPPORT SERVICES 1,612 1,628 1,645 1,661 1,678
ALLOCATED CHARGES 2,484 2,509 2,534 2,560 2,585
RENT AND TRANSFERS OUT 2,331 2,354 2,377 2,401 2,425
DEPRECIATION EXPENSE 1,943 2,077 2,214 2,354 2,479
TOTAL O&M EXPENSES 26,380$ 28,839$ 32,060$ 34,676$ 36,608$
OPERATING INCOME 3,528$ 3,750$ 3,386$ 3,895$ 5,372$
NON OPERATING INCOME AND EXPENSES
INTEREST INCOME 1,265$ 804$ 731$ 1,160$ 1,714$
INTEREST EXPENSE (1,201) (1,227) (1,262) (1,308) (1,356)
TOTAL OTHER OPR. INCOME AND EXPENSES 64$ (423)$ (532)$ (148)$ 358$
NET INCOME 3,592$ 3,327$ 2,854$ 3,747$ 5,730$
2/3/2011 4
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
UTILITY REVENUE REQUIREMENTS
The table below is projected cash flows and cash reserves from FY 2011 through FY 2015. The
projected cash available for FY 2011 is $10.3 million (excluding cash committed to previous CIP
programs). Cash is projected to decline each year and approximate $8.0 million in FY 2015.
Table Two – Projected Cash Balance (thousands)
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Add Net Income 3,592$ 3,327$ 2,854$ 3,747$ 5,730$
Add Back Depreciation Expense 1,943 2,077 2,214 2,354 2,479
Debt Service Principal 1,172 1,507 1,479 1,445 1,406
Cash Available from Operations 4,363$ 3,897$ 3,589$ 4,657$ 6,804$
Estimated Annual Capital Additions 5,348 5,479 5,612 5,003 5,106
Net Cash From Operations (985)$ (1,582)$ (2,023)$ (346)$ 1,697$
Beginning Cash Balance 14,437$ 13,452$ 11,870$ 9,847$ 9,501$
Ending Cash Balance 13,452 11,870 9,847 9,501 11,198
Bond Reserve Fund 3,155 3,155 3,155 3,155 3,155
Available Cash Reserves 10,297$ 8,715$ 6,692$ 6,346$ 8,043$
2/3/2011 5
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE
The purpose of a cost of service study is to allocate costs to customer classes based on quantity
of water consumed, variability of flow during the year, peak demands created on the system for
each class and costs associated with metering, billing and accounting. The cost of service study
is based on recognized procedures for allocating several categories of costs to customer
classifications. Costs were allocated in proportion to each classification's use of the facilities
and services.
The table below summarizes revenues projected from customers for FY 2011 and compares the
projected revenues with the cost of providing service to each class of customers.
Cost of Service = Cost of providing water service to customers
Projected Revenues = Projected revenues recovered from current rate design
Percent Difference = Variation between cost of service and current rate design
Positive = Percent increase to meet cost of service
Negative = Percent decrease to meet cost of service
Table Three – Cost of Service Summary
Class Cost of Service
Projected
Revenues
Percent
Difference
W-1 Residential 15,219,495$ 14,304,899$ 6%
W-4 Commercial 10,210,142 11,357,704 -10%
W-7 Irrigation 3,108,767 2,977,646 4%
W-3 Private Fire Protection 49,174 25,388 94%
Public Fire Protection - Hydrants 78,253 -
Total 28,665,830$ 28,665,638$ 0%
The cost of service study identified variations between the current rate design and cost of
service results a discussion of each class is listed below:
Residential Class - W-1 Rate Schedule
The cost of service results identified the need for a 6 percent overall rate adjustment for the
residential class. The variation between current charges and cost of service results are due to
reduced monthly meter charges, CPAU currently charges a $5.00/month meter charge, when
compared with cost of service charge of $13.94/month. (Please see table 9) CPAU may
consider placing greater increases in the monthly meter charge component and less of an
increase in the commodity component.
Irrigation Meters - W-7 Rate Schedule
Customers on the W-7 irrigation rate use a majority of water during the summer season and little
water the remainder of the year. The W-7 irrigation rate class contributes substantially to
CPAU’s peak system loadings and the cost of service results can vary significantly depending on
the weather patterns. The cost of service study identified a 4% increase in rates is needed to
meet cost of service requirements.
2/3/2011 6
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE
Commercial Class - W-4 Rate Schedule
The current rate charged to commercial customers is on average 10 percent greater than the
cost of providing the service. It is recommended the W-4 rate be adjusted to move the rate
closer to cost of service in future years.
Fire Hydrants – W-3 Rate Schedule
To meet cost of service requirements a 94% increase is needed for the W-3 rate (private fire
protection). Public fire protection (City Hydrants) is currently a service not allocated to the City
of Palo Alto. The total annual cost to operate and maintain public fire protection is $156,505. In
discussion with CPAU staff it was assumed 50% of the cost should be shared by all customer
classes to reflect the benefit that fire hydrants provide the entire water system. Flushing of the
hydrants helps to clean the water system and is a benefit to all users of the system. As a result,
only $78,253 (the remaining 50% of $156,505) was allocated directly to the public fire protection
– City Hydrants.
Table Four – Fire Hydrants Revenue Requirements
Cost of Service
Projected
Revenues
Percent
Difference
W-3 Private Fire Protection 49,174$ 25,388$ 94%
Public Fire Protection - City Hydrant 78,253 -
Fire Hydrants and Private Fire
Protection
*Public Fire Protection - City hydrants, $78,253 represents the full cost to be recovered.
**CPAU should consider increases to the monthly customer charges for private fire protection.
Table Five – W-3 - Comparison of Current Meter Charges and Cost of Service
Meter Size Current
Monthly Meter
Cost of
Service
W3 - Private Fire Service- 4 Inch 4.20$ 7.27$
W3 - Private Fire Service- 6 Inch 7.00 16.13
W3 - Private Fire Service- 8 Inch 10.75 28.53
W3 - Private Fire Service- 10 Inch 15.75 44.48
2/3/2011 7
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE
The allocation study was modeled after the “Base & Extra Capacity Method” for allocating costs
to customer classifications. The method is described in the 2007 and prior editions of the Water
Rates Manual, published by the American Water Works Association. The four basic categories of
cost responsibility are base, extra capacity, customer and fire protection costs. The following
discussions present a brief description of these costs and the manner in which they were
allocated.
Base Costs are costs that tend to vary with the quantity of water used, and include costs
associated with supplying, treating, pumping and distributing water to customers under average
load conditions, without the elements necessary to meet peak demands. Base costs are
allocated to customer classifications by their average daily usage.
Extra Capacity Costs are costs associated with meeting usage requirements in excess of the
base. They include operating and capital costs for plant and system capacity installed beyond
that required to meet average use consumption. The extra capacity costs are subdivided into two
categories; costs necessary to meet “maximum day extra demand” and costs to meet “maximum
hour extra demand”. The extra capacity costs are allocated to customer classifications based on
each class’s contribution to the systems maximum- day and-maximum hour usage.
Table Six - Classification Percentages between Base and Extra Capacity Costs:
Average Day Max Day Max Hour
CCF's 15,803 23,963 26,948
Average Day to Max Day Percent 66% 34%
Average Day to Max Hour Percent 59% 30% 11%
Costs related to investment in assets and a portion of the distribution costs are allocated 59
percent on usage (base costs); 30 percent on maximum day and 11 percent on maximum hour
(extra-capacity) The values were calculated using the peak to average ratios discussed below.
2/3/2011 8
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE
The table below identifies the ratios used to determine the extra capacity costs and is based on
the calculated peaking factor. Classes with higher ratios typically increase usage during peak
system times and results in greater use of system capacity. Listed below are peak ratios for
each customer type for 2008 and 2009, the average of the two years was used in the analysis to
allocate costs for 2011. (A factor of 1.0 was used for fire protection)
Table Seven – Peak to Average Usage Ratio
Customer Class
CCF Usage
during
peak month
Average
Monthly
Usage per
year - CCF
Peak to
Average
Ratio
CCF Usage
during peak
month
Average
Monthly
Usage per
year - CCF
Peak to
Average
Ratio
CCF Usage
during peak
month
Average
Monthly
Usage per
year - CCF
Peak to
Average
Ratio
W1 - Residential 351,418 228,518 1.54 343,051 213,906 1.60 694,469 442,424 1.57
W2 - Contruction Water Use 1.00 1.00 - - 1.00
W3 - Private Fire Service 1.00 1.00 - - 1.00
W4 - Commercial 199,202 155,155 1.28 253,996 187,877 1.35 453,198 343,031 1.32
W7 - Irrigation 90,509 48,840 1.85 101,013 47,196 2.14 191,522 96,036 1.99
Total System 641,129 432,513 1.48 698,060 448,978 1.55 1,339,189 881,492 1.52
2008 Peak Factor 2009 Peak Factor Two Year Average
The peaking factor is based on the ratio between the usage during the peak month and average
usage during the year for each class. The residential peak ratio of 1.57 means the usage in the
peak month is 1.57 times greater than annual usage. The commercial class usage is relatively
constant during the year with a two year average peak to average ratio of 1.32. The least
efficient class is irrigation (W-7) with a two year average peak to average ratio of 1.99. The
peaking factors in Table Seven above were applied in the table below to calculate values for
base, maximum day and maximum hour.
Customer Class Annual Use
Average
Rate
Capacity
Factor
Total
Capacity
Extra
Capacity
Capacity
Factor
Total
Capacity
Extra
Capacity
W1 - Residential0.75 2,308,194 6,323.8 1.57 9,926 3,603 1.78 11,225 4,901
W1 - Residential1 447,514 1,226.1 1.57 1,925 698 1.78 2,176 950
W1 - Residential1.5 73,178 200.5 1.57 315 114 1.78 356 155
W1 - Residential2 41,011 112.4 1.57 176 64 1.78 199 87
W1 - Residential3 33 0.1 1.57 0 0 1.78 0 0
W3 - Private Fire Service-4 185 0.5 1.00 1 1.00 1
W3 - Private Fire Service-6 463 1.3 1.00 1 1.00 1
W3 - Private Fire Service-8 350 1.0 1.00 1 1.00 1
W3 - Private Fire Service-10 72 0.2 1.00 0 1.00 0
Public Fire Hydrants - - 1.00 - 1.00 -
W4 - Commercial-0.75 247,341 677.6 1.32 895 218 1.50 1,014 336
W4 - Commercial1 205,951 564.3 1.32 745 181 1.50 844 280
W4 - Commercial1.5 265,294 726.8 1.32 960 233 1.50 1,087 360
W4 - Commercial2 740,393 2,028.5 1.32 2,680 651 1.50 3,034 1,006
W4 - Commercial3 261,040 715.2 1.32 945 230 1.50 1,070 355
W4 - Commercial4 169,826 465.3 1.32 615 149 1.50 696 231
W4 - Commercial6 141,177 386.8 1.32 511 124 1.50 579 192
W4 - Commercial8 252,711 692.4 1.32 915 222 1.50 1,036 343
W7 - Irrigation0.75 10,683 29.3 1.99 58 29 2.16 63 34
W7 - Irrigation1 25,342 69.4 1.99 138 69 2.16 150 81
W7 - Irrigation1.5 72,049 197.4 1.99 394 196 2.16 426 229
W7 - Irrigation2 163,129 446.9 1.99 891 444 2.16 965 518
W7 - Irrigation3 100,716 275.9 1.99 550 274 2.16 596 320
W7 - Irrigation4 59,577 163.2 1.99 326 162 2.16 353 189
W7 - Irrigation6 111,558 305.6 1.99 610 304 2.16 660 355
W7 - Irrigation8 70,322 192.7 1.99 384 192 2.16 416 223
Total 5,768,111 15,803 23,963 8,160 26,948 11,145
Base Maximum Day Maximum Hour
2/3/2011 9
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE
Customer Costs (Meter Costs) are costs associated with serving customers regardless of usage
level or usage characteristics. Customer costs include the operation and maintenance expenses
related to meter installation, meter readings, billing and collecting. The customer costs are
allocated to each class based on the cost of installing meters and services and the cost of
providing customer service to different classes of customers. Customer costs considered fixed
and allocated to the customer charge component include the following items:
1. Cost of meter reading
2. Cost of meter installations
3. Cost of service connections
4. Forty percent of the operation and maintenance expenses of the distribution system
(Based on the ratio of Max Day to Average Day usage)
5. Billing & collection costs
6. Allocated amount of administration costs based on total expenses as a ratio of customer
cost expenses
7. Reduced by other revenue items based on total expenses as a ratio of customer cost
expenses
The tables below are meter cost ratios and the meter demand ratios used to determine customer
costs for each meter size.
Meter Cost Ratio (Initial Cost for CPAU to install a meter)
Meter Size -
Inches
Costs to
Install a
Meter in $
0.75 147$
1 147
1.5 326
2 423
3 962
4 1,573
6 2,829
8 3,252
2/3/2011 10
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE
Meter Demand Ratio (Potential demand for water based on size of meter)
Meter
Size in
Inches
Area of
Meter -
Square
Inches
Meter Ratio
using a base
of 0.75 inch
0.75 0.44 1.00
1.00 0.79 1.78
1.50 1.77 4.00
2.00 3.14 7.11
3.00 7.07 16.00
3.00 7.07 16.00
4.00 12.56 28.44
6.00 28.26 64.00
8.00 50.24 113.78
10.00 78.50 177.78
The meter ratio is a calculated value based on the potential volume that can pass through the
meter. This value determines the maximum potential demand a customer can create on the
water system. The formula is calculated as follows:
(Radius of meter squared) X value of Pi
where: Meter Size/2 = Radius of meter and Pi = 3.14
2/3/2011 11
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE
Fire Protection Costs are costs associated with installing facilities to meet expected peak
demands of fire protection services. Operating and capital costs for hydrants were allocated
directly to fire protection classifications. Certain parts of the water system are required to be
oversized to help ensure adequate capacity exists to fight fires. Water towers are specifically
oversized to meet the fire flow requirements of the community. The portion of towers allocated
directly to fire protection is 20.6% of water tower costs and is based on the calculation listed
below.
Table Eight – Fire Hydrants Water Requirements
GPM
Hour
Requirement
Total
Requirement
in MGD
Fire Flow Requirement 6,000 6.00 2.16
Reservoir Capacity 10.50
Percent of Total 20.6%
GPM – Gallons per minute requirement
2/3/2011 12
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
COST OF SERVICE
COST OF SERVICE COMPONENTS
The table below identifies cost of service rates and identifies the monthly charge and
consumption charge for each meter size and each customer class.
Table Nine – Comparison of Current Charges with Cost of Service Charges
Customer Class Meter Size
Monthly
Meter
Charges
CCU
Charges
Average
COS Rate
Monthly
Meter
Charges
Current
Rate First
Block
Current
Rate
Second
Block
Average
Current Rate
W-1 Residential 3/4 13.94$ 4.52$ 5.61$ 5.00$ 3.949$ 5.624$ 5.11
W-1 1 18.54 4.52 5.50 6.50 3.949 5.624 5.35
W-1 1.5 39.27 4.52 5.68 12.27 3.949 5.624 5.64
W-1 2 61.77 4.52 5.77 19.37 3.949 5.624 5.78
W-4 Commercial 3/4 13.94 4.16 4.99 5.00 4.946 5.23
W-4 1 18.54 4.16 4.80 6.50 4.946 5.15
W-4 1.5 39.27 4.16 4.80 12.27 4.946 5.13
W-4 2 61.77 4.16 4.71 19.37 4.946 5.11
W-4 3 137.16 4.16 4.52 77.65 4.946 5.12
W-4 4 236.62 4.16 4.78 130.60 4.946 5.26
W-4 6 500.00 4.16 4.95 260.43 4.946 5.34
W-4 8 812.02 4.16 4.61 383.67 4.946 5.14
W-7 Irrigation 3/4 13.94 5.10 5.51 5.00 4.946 5.19
W-7 1 18.54 5.10 5.27 6.50 4.946 5.10
W-7 1.5 39.27 5.10 5.10 12.27 4.946 5.03
W-7 2 61.77 5.10 5.19 19.37 4.946 5.06
W-7 3 137.16 5.10 4.95 77.65 4.946 5.01
W-7 4 236.62 5.10 5.08 130.60 4.946 5.08
W-7 6 500.00 5.10 4.89 260.43 4.946 4.98
W-7 8 812.02 5.10 4.98 383.67 4.946 5.01
Current ChargesCost of Service Charges
2/3/2011 13
CITY OF PALO ALTO WATER UTILITY
REVENUE REQUIREMENT, COST OF SERVICE AND RATE DESIGN
SIGNIFICANT ASSUMPTIONS
This section outlines the procedures used to develop the cost of service for CPAU’s Water Utility
and related significant assumptions.
REVENUE FORECAST
Sales revenues and rate adjustments were provided by CPAU. The table below projects
revenues from FY 2011 – FY 2015.
Table Ten – Projected Revenues (thousands)
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
RATE ADJUSTMENT 0.0% 8.0% 9.0% 9.0% 9.0%
REVENUES
SALES REVENUES 28,666$ 31,336$ 34,179$ 37,291$ 40,687$
FORECASTED OPERATING EXPENSES FOR FY 2011
Forecasted expenses were provided by CPAU and are listed in the table below:
Table Eleven – Palo Alto Projected FY 2011 Expenses (thousands)
Category Amount
Supply 12,808$
Distribution 10,549
Support Services and Admin 1,612
Debt Service 2,373
Rent and Transfers Out 2,331
Rate Stabilization (985)
Other Revenues and Expense (23)
Totals 28,666$
CUSTOMER USAGE INFORMATION
Usage patterns for customer classes were based on monthly number of customers and
monthly volumetric usages listed on table seven.
Utility Financial Solutions
185 Sun Meadow Ct.
Holland, MI 49424
Phone: 616-393-9722
Fax: 616-393-9721
ACCOUNTANTS' COMPILATION REPORT
City of Palo Alto Utilities Department
The accompanying forecasted statements of revenues and expenses of the City of Palo Alto Water
Department were provided by CPAU and compiled for the year ending June 30, 2011 through June
30, 2015. CPAU’s projection was restated in accordance with guidelines established by the American
Institute of Certified Public Accountants and reflected in this report.
The purpose of this report is to assist management in determining the cost to service each customer
class. This report should not be used for any other purpose.
A compilation is limited to presenting, in the form of a forecast; information represented by
management and does not include evaluation of support for any assumptions used in projecting
revenue requirements. We have not audited the forecast and, accordingly, do not express an opinion
or any other form of assurance on the statements or assumptions accompanying this report.
Differences between forecasted and actual results will occur since some assumptions may not
materialize and events and circumstances may occur that were not anticipated, some of these
variations may be material. Utility Financial Solutions has no responsibility to update this report after
the date of this report.
This report is intended for information and use by the City of Palo Alto, Utilities Department for the
purposes stated above. This report is not intended to be used by anyone except the specified
parties.
UTILITY FINANCIAL SOLUTIONS
Mark Beauchamp, CPA, CMA, MBA
Holland, MI
January 11, 2011
EXCERPTED DRAFT MINUTES OF UTILITIES ADVISORY COMMISSION
Meeting of February 2, 2011
ITEM 1: ACTION: Proposed Water Utility Rate Adjustments and Long -Term Financial Projections
Senior Resource Planner Ipek Connolly provided a presentation on the water utility’s five-year
financial projections and proposed rate adjustments for FY 2012. Connolly noted that over the five-
year planning period, the cost of water purchases is expected to increase from $10.8 million in FY
2011 to $21.5 million in FY 2016. Regarding the rate adjustments, staff proposed to make the
cost-of-service analysis (COSA) adjustments between customer classes and between fixed and
volumetric charges in one year, along with a 12.5% ($3.5Million) increase in overall sales revenue.
This translates to a 17.4% increase in residential sales revenue and an 8% increase in business
sales revenue since the COSA realignment between customer classes is a 4% increase in
residential rates and a 10% reduction in commercial rates, and a 14% increase in commercial
irrigation rates. The adjustment to the fixed charge component would increase the revenue
collected from fixed charges from 5% to 15% of total sales revenue. The staff proposal would also
add a tier to residential and commercial rates. The financial projections illustrated the impact of the
revised (higher) SFPUC supply rate increases, lower water demand projections, and additional
capital improvement projects. Connolly also presented a couple of alternative scenarios suggested
by UAC members. One alternative was to raise rates sooner to avoid more increase later and
avoid going below the minimum reserve guideline. Another alternative was to try and achieve
stable rate increases (i.e., the same percentage over the 5 year planning horizon).
Commissioner Eglash asked for an explanation of how revenue from commercial customers was
increasing when they were getting a 10% decrease. Director Fong and Connolly explained that the
10% decrease was for the cost of service realignment between customer classes. With the
proposed FY 2012 increase of 12.5% in overall revenue requirements and the COSA increase of
14% for irrigation accounts the net increase to the commercial customers overall was 8%.
Commissioner Melton stated that he thought it was a well thought out proposal but expressed his
concern about dropping below minimum reserve guidelines for two years. He acknowledged that it
would take a large increase in FY 2012 to stay above the minimum guidelines in future years, but
requested that it be made clear to the Council of that possible outcome.
Chair Waldfogel and Commissioner Berry discussed alternatives to reduce the impact of the CIP
increase. Chair Waldfogel suggested stretching the CIP over three years, and Commissioner Berry
asked if the two new projects could be financed instead of paid for out of current ratepayer
revenues. Director Fong replied that she would not recommend delaying the projects as they were
safety related, and bond financing was not the typical way of financing such projects, but that it is
something that could be considered.
Commissioner Keller asked if the demand reduction was mainly from the business sector and
economy driven. She also observed that the reserve calculations were very sensitive to demand
projections, so the Commission should not get too focused on the reserve projections for future
years. Connolly replied that the demand reductions were partly driven by the economy, but also by
the weather and conservation actions.
Commissioner Cook asked how the tiers were determined, and if the tiers were effective in
encouraging conservation. Connolly explained that tier points had been selected based on the
percentage of customers that would fall into them for winter and summer usage. For example, tier
one was set based on winter usage and was designed so that 50% of customers would not exceed
tier one based on their winter usage. Connolly also explained that price response is low but there is
some, and the response is higher for low income customers and irrigation use.
Chair Waldfogel indicated that the UAC received a letter from Canopy and read the questions in
the letter:
1. Do we know what impact these rate changes might have on the landscape and health
of trees in particular?
2. Was Planning Arborist Dave Dockter consulted on this matter?
3. Is demand for water usually elastic to price? Does this elasticity vary tier to tier?
4. If the rate change is accompanied by additional encouragements to conserve water in
the landscape (such as the removal of irrigated lawns), could instructions be given
regarding the need to provide alternate irrigation for trees that are currently irrigated
indirectly through the watering of lawns?
Commissioner Keller recognized that the COSA resulted in a 4% residential increase, but she
asked if the cost could be split differently so that low usage customers could still have the ability to
lower their bills. She was concerned that the drop in volumetric rates for residential tiers one and
two did not give a conservation signal and was a confusing message to customers. Director Fong
stated that staff’s proposal was to increase the fixed charge to the COSA recommendation
especially since there is strong sentiment among the Council to avoid ramifications to the Water
Fund when usage drops based on the experience of the Refuse Fund. However when fixed rates
increase, volumetric rates must decrease to maintain the same revenue.
Commissioner Eglash summarized the “big picture”; water rates are rising dramatically, water is a
finite resource, and the City needs a rate structure to encourage conservation and has an
obligation to send correct price signals. There are significant avoided costs from conserving water.
He indicated that we have a responsibility to bring in the third usage tier to incent efficient use. He
recognized there was some concern about trees but he did not think most trees relied solely on
irrigation because of the relatively high water table in Palo Alto. Although he didn’t think trees
would be impacted, he indicated that if they were we would need to find a solution to that problem.
He expressed a preference for keeping commercial rates flat rather than having some commercial
customers having bill reductions and suggested applying Commissioner Keller’s suggestion to
commercial rates in not having their volumetric charges reduced.
Commissioner Foster expressed his appreciation for staff’s report and asked for clarification on
COSA legal requirements. He asked if the City was under a legal obligation to follow COSA, if
there was any arbitrariness to COSA studies, and if there was any obligation to move to the COSA
fixed charge recommendation. Staff replied that yes, regulations (Proposition 218) required that
rates be based on cost of service and the COSA study used industry standard cost causation
models for assigning cost of service. The fixed cost was a rate design issue, but that the current
low fixed costs were not collecting the full cost of service from low usage customers.
Commissioner Foster recognized that the proposed rate increases are painful and he would rather
the COSA be phased in more gradually so as to avoid the rate increase differential between low
usage residential customers and commercial customers. He would like to see all customers share
some of the required increase. He also would like a more gradual move to the fixed cost increase
(he would prefer no fixed costs). He also advised that staff communicate clearly the projected rate
increase over the next few years.
Commissioner Melton asked why staff proposed to move to full COSA alignment by customer
classes in one year although both the UAC and the Finance Committee previously indicated a
preference to move to the class alignment over more than one year. Staff indicated that since the
Water Fund’s reserves are currently healthy and, therefore, it was possible to somewhat reduce
the requested revenue increase for FY 2012 and include the COSA alignment in one year.
Additionally, staff indicated its preliminary assessment that it would recommend no increase to gas
or electric rates, so the total bill impact from the one-year COSA alignment for water rates was
doable.
Chair Waldfogel noted that the commission has several choices, including: 1) approve staff’s
proposal now; 2) approve the proposal with tweaks now; 3) appoint a subcommittee to work with
staff to develop new proposals; or 4) ask staff to return with a new proposal based on the
commission’s input. Commissioner Eglash opposed delaying action and noted that the
Commission needs to grapple with the issues now.
ACTION:
Commissioner Melton moved to recommend staff’s proposal with the change that staff make the
adjustments necessary so that no customer would get a bill decrease. Commissioner Foster
seconded the motion.
Commissioner Eglash offered a friendly amendment regarding lower usage customers: that the
volumetric rates for tiers 1 and 2 not be reduced from current levels and the fixed charge be
lowered to account for the higher volumetric charges, the tier 3 residential rate would stay at the
level proposed by staff. Commissioner Melton accepted the amendment offered by Commissioner
Eglash, but stated he would not accept elimination of the residential 3rd tier.
Chair Waldfogel offered an amendment to have a 14% increase in the revenue requirement for FY
2012 to have stable rate increases planned over the 5 year projection. Commissioner Berry
seconded the motion, but then withdrew his second when he understood the net impact on
residential customers of the revenue requirement increase and the COSA adjustment. Chair
Waldfogel offered an amendment to remove the residential tier 3, but there was no second.
Commissioners Eglash and Keller proposed modifying the first amendment so that residential tiers
1 and 2 rates would increase slightly instead of remaining at current levels. Commissioner Melton
accepted the revised amendment and reiterated his earlier request that the Council be well
apprised of the fact that the five-year financial projections show the reserves going below the
minimum guidelines for two years.
The final restated amended motion was: to recommend Council approve amendments to the water
rates such that: a) overall retail water rates and annual revenues for the Water Fund increase by
12.5%, or $3.5 million, in Fiscal Year 2012; b) the rate adjustment proposal by staff be modified so
that no customer’s bill would be decreased. These modifications will require that the volumetric
rates for residential customers for usage in tiers 1 and 2 and for commercial customers be
increased and the fixed charges be reduced; and c) the Council be made aware that the UAC is
aware that the five-year financial projections show that the balance of the Water Rate Stabilization
Reserve falls below the minimum guideline level for two years.
The motion passed (5-2) with Chair Waldfogel and Commissioner Berry opposed. Chair Waldfogel
indicated that his opposition was due to the fact that the customers most affected by the proposal
are those with large landscaped areas. Commissioner Berry indicated that he couldn’t support the
motion since he couldn’t see that actual proposed rates that would result from the proposed
modifications.
Excerpts from Finance Committee Regular Meeting March 1, 2011
2. Proposed Water Utility Rate Adjustments and Long Term Financial Projections.
Senior Resource Planner, Ipek Connolly reviewed her presentation. Staff
requested that the Finance Committee recommend adoption of the changes to
four Water Utility Rate Schedules for residential, commercial, fire hydrant, and
irrigation water services. If these changes were approved by the Council, the
rate changes would increase overall revenues for the Water Fund by 12.5
percent. There would be a 17 percent increase in residential revenues as a
result of the proposal. Different customer groups were identified because cost
drivers were different. The Cost of Service Study recommendations had been
incorporated. She reviewed a table summarizing how the proposal would affect
the customer’s monthly utility bill. For example, a residential customer that
used 14 CCF would see a $10 increase in their monthly bill. For wastewater, to
be discussed later, there would be a $3 increase. No adjustments were
expected for the electric and gas funds. With all rate changes, the total impact
would be $14 for an average customer. She discussed the background to the
changes. The proposal was brought before both the Finance Committee and
the Utilities Advisory Commission (UAC). There was general agreement on the
objectives presented. One member from each group questioned the tiered
structure. The UAC approved the proposal 5-2 with some recommended
changes. She spoke regarding the drivers for the proposed changes. The
water supply cost was a main factor. There were on-going system
improvements that factored into the proposal. She stated the water demand
levels, across the region, were dropping. She reviewed charts demonstrating
water costs and demands. The sudden drop in demand was a problem as most
of the costs were fixed. She offered a high level view of the next five years
projections. With existing rate levels, and proposed rate increases, they would
not cover their costs each year. The reserves were healthy, and therefore they
were proposing only a moderate increase in an effort to maintain the objective
of stabile prices. There will be a need in the future for increased revenues. The
City Council approved minimum and maximum levels for the stabilization fund,
and they are within those parameters. Staff had proposed full implementation
of the Cost of Service Study levels for both customer class levels and fixed
service charge levels. The UAC agreed with the proposal, but recommended
Staff redesign the volumetric versus fixed rate component so there would be an
increase in Residential Tier 1 and Tier 2. The UAC wanted to provide a price
structure that rewarded customers that conserved water. Another
recommendation was that there should not be a bill reduction for any
customers. The California Urban Water Conservation Guidelines would be met.
The volumetric charges had a number of proposed changes, including an
additional third tier. The pricing of the tiers would be higher for higher users.
The proposal included two tiers for commercial users. Irrigation rates would
increase to $6.27. Fire hydrant rates would change to $7.27, consistent with
the Cost of Service Study requirement. A residential small customer’s monthly
bill would increase by approximately $3.41. For a medium customer, the bill
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would increase by approximately $10 per month. Large customers would see a
22 percent increase. Commercial customers’ biggest impact would be seen in
irrigation. If the Finance Committee recommended a rate proposal to be
approved by the Council, letters would be sent to customers and a budget
review would be held in May. There would be a public hearing in June. If more
than 50 percent of the customers sent written protests the Council may not
adopt the proposed rates.
Council Member Shepherd asked about the consistent operational costs.
Ms. Connolly said Staff made a conservative assumption of one percent annual
growth, which may be adjusted based on labor negotiations. The amount
represented in the presentation included salaries, benefits, and all operational
expenses. The Consumer Price Index for the current year was one and a half
percent. It was her belief this would likely rise after the recession. Staff
attempted to maintain a low-level of cost.
Utilities Director, Valerie Fong said what was not spent was placed into
reserves.
City Manager, James Keene said Staff would try to correlate operational costs
with factors contained within the City’s Long Range Financial Forecast.
Council Member Shepherd inquired on the non-bond revenue. She felt the 17
percent in 2013 would not be needed until 2015.
Ms. Connolly said 17 percent was needed because of the prior four years.
Council Member Shepherd stated in W-RSR Guidelines lowered in June 2009
from 50 percent and 20 percent to 30 percent and 15 percent of sales revenues
for maximum and minimum reserve levels, respectively.
Ms. Connolly presented a graph displaying the short-term risk assessment.
Staff performed a short-term risk assessment annually. Staff made an
adjustment recommendation to Council to lower minimums.
Ms. Fong said Staff’s recommendation aligned the long term minimum with the
short term risk assessment.
Council Member Shepherd asked whether the redlined minimum indicated how
Staff expected the risk reserves to operate in managing rate increases.
Ms. Fong stated yes.
Council Member Shepherd stated the City would dip down to $2 million and
spike up with aggressive increases. She stated 2012 through 2014 could be
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problematic.
Ms. Fong said Staff was providing a forecast using current information. She
stated the biggest unknown was the water utility demand.
Council Member Shepherd stated a low projection was used on water utility use
and consumption. She stated Staff expected a large drawdown on reserves.
Ms. Fong agreed.
Ms. Connolly said Staff felt comfortable moving forward with the information
available. If conditions worsen, Staff would return with this information next
year.
Council Member Shepherd stated the Finance Committee would be
recommending 12.5 percent.
Ms. Connolly confirmed the recommendation of 12.5 percent.
Council Member Yeh inquired on the reserve levels dipping below the range.
He inquired whether the City was at risk of having its credit rating downgraded.
Ms. Fong said the City initially pledged all of its reserves to support the water
bond.
Administrative Services Director, Lalo Perez said the graph indicated the City
would return above the range. The funds were monitored on a regular basis.
Ms. Connolly said that rating agencies looked at how frequently the City
adjusted rates. Staff reviewed rates annually and adjustments were made
accordingly.
Ms. Fong said rating agencies favored Council approved Staff adjustment
recommendations.
Mr. Keene said rating agencies agreed with this type of multi-year forecasting
and adjustment. Rating agencies favored transparency.
Mr. Perez said Staff was finalizing interviews for the hiring of financial advisors.
Council Member Yeh asked if Staff would be returning to the Finance Committee
by June 2011 with additional rate adjustment recommendations.
Ms. Connolly said yes.
Council Member Yeh said water demand went down 14 percent between 2008
and 2010. He inquired whether usage would remain flat, or if there would be a
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further decrease due to water efficiency initiatives.
Ms. Fong said Staff would continue with water efficiency initiatives. She said it
would depend on business growth in Palo Alto.
Senior Resource Planner, Debra Lloyd-Zannetti stated water usage was
expected to trend down.
Council Member Yeh inquired whether fixed charges would trend upward.
Ms. Connolly said it was desirable to have a higher percentage of revenues
through fixed charges, as it provided revenue stability. On the other hand, the
more this was done the fewer customers would conserve. Staff’s plan was to
keep service charges at the levels indicated in the Cost of Service Study.
Council Member Schmid spoke on the importance of understanding the basis of
the reallocation process for residents. He inquired whether the peak-to-
average ratio, contained in the Cost of Service Study, was a driving force.
Ms. Connolly said yes. She stated that information was incorporated in the
Staff Report.
Council Member Schmid said the model assumed that if the rate varied over
time the system would be required to create an extra capacity. Thus, the share
of the basic cost would rise to manage the extra capacity.
Ms. Connolly said that was correct. Costs were allocated by the peak to
average ratio. In order to meet short-period demands, Staff was required to
have an adequate sizing mechanism and charge accordingly.
Council Member Schmid disagreed with the customer classes and peak to
average ratio. He felt it sounded perverse that if a customer, who saved water
in the summer, would end up paying more.
Ms. Connolly said one factor was how much irrigation load a customer imposed
on the system in the summer. There was a base load used in the household
throughout the year.
Council Member Schmid said the vast majority of residential users had a ¾ inch
pipe.
Ms. Connolly said it was infrastructure costs that were looked at, and not the
size of the pipe traveling to the customer.
Council Member Schmid said Staff was penalizing customers that conserved
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during certain seasons.
Ms. Connolly said there were separate meters that were dedicated to outdoor
and indoor irrigation.
Council Member Schmid said commercial customers who used large amounts of
water for irrigation had the highest peak to average ratio and should pay more.
Ms. Connolly said Attachment G showed that proposed irrigation rates were
based on updated results from the 2010 billing statistics. The method proposed
was used by the industry.
Council Member Schmid felt residents would pay a larger portion with the
proposed rate system.
Ms. Lloyd-Zannetti said residents who filled their water pipes constantly would
pay higher utility bill.
Council Member Schmid said this customer class would bear a larger share of
the total cost.
Ms. Connolly said the peak to average ratio appeared to be rising because the
Finance Committee was looking at it in terms of lower winter usage.
Council Member Schmid inquired whether the $5 million annually was due to
the water tanks on the Foothills.
Ms. Connolly said water supply costs were rising.
Council Member Schmid said the five-year fiscal plan projected a water supply
increase of $2 million, and a CIP non-bonded increase of $5 million. This figure
would potentially stay flat for two additional years creating $10 million in CIP
spending.
Ms. Connolly said that was correct. Staff considered this a one-time increase
and did not propose to increase revenues.
Council Member Schmid inquired whether the Cost of Service Study should
reflect the utility users that would benefit.
Ms. Fong said Council Member Schmid was speaking in regards to residents in
the Foothills. The benefit was mainly on fire suppression in the Foothills and
the Open Space area.
Council Member Schmid felt there were heavy water users west of the Foothills
as Council had approved an increase in square footage in this area.
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Ms. Fong said these residences would be in the higher tier.
Council Member Schmid said this would be part of the CIP discussion in 2013.
Council Member Schmid inquired why the fixed cost was not higher in the Cost
of Service Study.
Ms. Fong said Staff was operating under a recommendation from the Utilities
Advisory Commission (UAC) to balance costs between commercial uses and low
residential utility users.
Ms. Lloyd-Zannetti said the UAC wanted to ensure consistency in the City’s
message on water conservation.
Council Member Schmid said Staff felt a known fixed charge was good for the
system. He inquired why the fixed charge was not higher, with a zero volume
charge for the first five cubic feet of water.
UAC Vice Chair, Jon Foster spoke on his support for Staff’s proposal. He said
volumetric charges were important to send a rate signal to utility users.
Chair Scharff inquired whether the rate would rise 12.5 percent, plus four
percent.
Ms. Fong said that was correct for residential customers. She said it would rise
eight percent for businesses customers.
Chair Scharff said residential users would see a 16.5 percent increase. Due to
water conservation, Staff under-budgeted by ten percent or $3.1 million.
Ms. Connolly said under-budgeting, due to conservation, was only one driver to
the loss. She said weather conditions and the economic slowdown were also
drivers.
Chair Scharff said there was a ten percent reduction in water use. The
reduction in water usage directly related to the proposed 12.5 percent rate
increase. The process was similar to the Refuse Fund in that zero waste
equaled zero dollars. He inquired whether a sensitivity analysis had been
performed.
Ms. Connolly said the demand scenarios were the sensitivity analysis. The
finding was a one percent reduction annually.
Chair Scharff inquired whether the system would crash if there was a ten
percent reduction, as seen as in past years.
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Ms. Connolly said yes.
Chair Scharff said using less water translated into less revenue for the City, as
seen in the Refuse Fund.
Ms. Fong said this situation was why Staff recommended a fixed charge, and
reported to the Finance Committee annually.
Chair Scharff said returning to the Finance Committee may result in further rate
increases.
Ms. Fong said this was a possibility.
Chair Scharff said the conundrum was that higher rate increases would drive
customers to use less water. He felt Staff was subsidizing customers with fixed
rates. He inquired on cost-cutting measures.
Ms. Connolly said most costs were fixed in the Water Fund, and a demand
reduction translated into a similar percent rate increase. The City used ten
percent less water, so the bill dropped by ten percent. With a fixed cost, Staff
was achieving the same bill with a lower use of water.
Chair Scharff said residents were getting charged more for water and the rates
were increasing.
Ms. Fong said if less water was used the customer would not pay for those units
of water.
Chair Scharff said that was a volumetric charge. The Staff Report stated most
charges were fixed costs.
Ms. Fong said the City only paid for what it used annually.
Chair Scharff inquired on the percentage of fixed costs. He said 70/30 percent
was his guess.
Ms. Fong said it was approximately 50 percent water and 50 percent
distribution.
Ms. Connolly said next year whatever was not recovered would be incorporated
into the following year’s rates. She disagreed with the statement that the City
was paying more for water utilities. It was the Council’s direction to use less
resources.
Chair Scharff agreed with the use of fewer resources. He spoke on his concern
for dropping below zero and not looking into cost-cutting.
7
Ms. Fong said Staff was conscious about ensuring there were no additional
costs. It was her belief there were no programs that could be cut in utility
services.
Chair Scharff inquired whether there were ways to bring fixed costs down to
ensure that each resident received a benefit using less water over time. He
said goals and the rate structures were not aligned.
Ms. Fong said goals and the rate structure were a balancing act.
Mr. Keene said the City had other monopoly services, such as police and fire
services. There were requirements and impacts to cutting services. Staff was
conducting an organizational review in the Utilities Department.
Chair Scharff inquired on any research performed on the third tier.
Ms. Connolly said there was a general assumption of a one percent reduction
for every ten percent rate increase built into the projection.
Chair Scharff inquired whether that had held true historically.
Ms. Connolly said there had not been studies done specifically in Palo Alto.
Ms. Fong said there were aggressive conservation programs which created a
decline in water demand.
Ms. Connolly said historically water demand had gone down and rates had gone
up. The largest driver in demand had been in the change of building and
plumbing codes.
Mr. Keene said Chair Scharff’s concern was with the conservation of water
leading to higher utility rates.
Chair Scharff stated the Cost of Service Study suggested a 200 percent
increase. He inquired whether a law would be violated if this increase was not
enacted.
Ms. Fong said that Proposition 218 compliance was an issue Staff had consulted
with City Attorney’s office about. There would not be a violation of Proposition
218,
Chair Scharff inquired whether the Finance Committee should move forward
with a larger fixed charge.
Ms. Fong said the original recommendation would have created a larger bill
impact. Staff was comfortable with what the UAC recommended and felt it was
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a rational approach to develop rates for customers.
MOTION: Council Member Yeh moved, seconded by Council Member Shepherd,
that the Finance Committee recommend to the City Council the adoption of
changes to the four water utility rate schedules for residential, commercial, fire
hydrant, and irrigation water service, W-1, W-3, W-4, and W-7, per Staff
recommendations.
Council Member Yeh said the addition of the third tier and volumetric charges
sent an effective price signal to customers in terms of water conservation. He
spoke on Staff’s recommendation to phase in fixed charges.
Council Member Schmid spoke on his skepticism for the extra capacity model
and its effectiveness. He suggested a higher fixed cost model, with zero
volume for the first 600 cubic feet, and a five category ladder system with
moderate categories to provide a series of incentives.
AMENDMENT TO MOTION: Council Member Schmid moved, seconded by
Council Member XXX, to establish a higher fixed-cost model with zero volume
for the first 600 cubic feet and a five category ladder system.
Council Member Yeh said that would be a separate analysis required by Staff.
The UAC had discussed adding an additional fourth tier.
Council Member Schmid said his recommendation could not return after the
Motion.
AMENDMENT FAILED DUE TO LACK OF A SECOND
Council Member Shepherd said Council Member Yeh’s comments were to direct
Staff for next year. Next year would bring larger structural changes.
Council Member Yeh felt specifying five tiers would be too specific.
Chair Scharff inquired on the volumetric fixed charge amount that would be
established in the next two years.
Ms. Fong said the charge would be a 200 percent increase.
Ms. Connolly said the increase would go from $5 to $7.50 to $15.00.
AMENDMENT TO MOTION: Chair Scharff moved, seconded by Council
Member XXX to direct Staff to increase the service charge to $15 within two
years.
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Ms. Fong felt the Finance Committee may want to postpone this
recommendation until the bill impacts were confirmed. There may be other
rate increases on City services.
AMENDMENT FAILED DUE TO LACK OF A SECOND
Chair Scharff said Staff wanted to implement this service charge within the next
two or three years.
Ms. Fong said that was correct. Staff had not analyzed this impact with other
increases in City services.
Chair Scharff recommended that the City move toward a $15 service charge.
Council Member Shepherd spoke on the City’s labor contract and its effect on
operational costs.
Council Member Yeh inquired on the timing of Staff’s return on the fixed cost
analysis.
Ms. Fong said conducting a fixed cost analysis, on a two-year timeframe, would
be challenging because Staff did not know what was occurring with other utility
rates. After May 2011, Staff would have more information to work with.
Mr. Keene recommended an additional Motion for Staff to return with an
analysis regarding an accelerated fixed charge rate increase.
Mr. Perez recommended that the rate impact be up to $15 in the Motion.
Mr. Keene said rushing a rate increase to Council precluded them from holding
a discussion. If the rate was set at the higher level the Council would have the
authority to reduce it.
Ms. Connolly inquired whether Mr. Keene was discussing next year’s rate
increase.
Mr. Keene stated the rate increase would take effect on July 1, 2011.
Ms. Fong clarified that the Finance Committee wanted to treat all customer
classes the same.
Ms. Connolly said Ms. Fong’s clarification went back to the proposal prior to
UAC’s recommendation. Some customers would be receiving a reduction in
services, and some customers would see an increase in water utility services.
She requested clarification on the change that the Finance Committee would
like to see.
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Council Member Yeh inquired when Staff would return with an analysis on the
impact on customers’ bills.
Ms. Fong said an analysis would likely return in January 2012.
Mr. Keene said the Finance Committee sought an assessment of the proposed
changes. He felt a post budget adaption analysis could be done on the relative
impact that kept the existing factors the same without redoing the CIP.
Ms. Connolly stated Staff could provide this information.
Mr. Keene said the Finance Committee could chose to hold another session.
Staff could use the forecast to show the bill impact on distributing fixed costs
versus volumetric costs.
Ms. Fong said Staff could return with this information.
Council Member Schmid inquired whether this action was tied into the Motion.
Mr. Keene said this analysis would be brought to Finance Committee after the
rates were set for Fiscal Year 2012.
Council Member Schmid said he was convinced that a rate increase was needed
in 2012. It was important to move forward but there were outstanding issues,
including researching alternatives to the extra capacity model.
Ms. Fong said Staff could rerun the Cost of Service Study upon request.
Council Member Schmid said an outstanding question was how this rate change
would effect consumption. He said this would effect the total revenue brought
into the City.
Ms. Fong said Staff did not know which City programs, or if the economy, would
effect water consumption.
Ms. Connolly said financial projections were performed with low-demand and
high-demand scenarios. Staff could present this information upon request.
Council Member Shepherd said there would be many more Cost of Service
studies moving forward, and the Council would be revising these next year.
MOTION FAILED: 2-2, Schmid, Scharff no
Council Member Schmid said next steps were needed to deal with the Public
Utilities Commission (PUC). He said scheduling a new meeting or formulating
an alternative was needed to find a resolution.
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Chair Scharff inquired on the timeline for this item returning to the Council.
Ms. Connolly said the public notice needed to be completed by April 15, 2011.
Chair Scharff inquired on the subject matter for future Finance Committee
meetings.
Mr. Perez said items scheduled on March 15, 2011 included the Mid-Year
Budget Report and the Stanford Development Agreement.
Ms. Fong said the Amendment to the Motion would be based on the full Cost of
Service Study for the 200 percent fixed charge.
Council Member Shepherd inquired whether the former Motion contained a third
tier.
Ms. Fong said the former Motion contained a third tier.
MOTION: Chair Scharff moved, seconded by Council Member Schmid to request
Staff return to the Finance Committee with a proposal that did not include a tier
three.
MOTION FAILED: 2-2, Yeh, Shepherd no
Mr. Keene inquired whether it was best to return to the Finance Committee for
discussion, or return to the Council with alternatives.
Chair Scharff stated the Motion’s intent was for the Staff Report to return to the
Finance Committee.
Council Member Shepherd said she supported the Staff Report returning
directly to the Council.
Mr. Perez said Staff may need to run the documents without any indication of a
rate to stay with the current timeline.
Council Member Shepherd said if the Staff Report returned straight to the
Council, the Finance Committee would not need to discuss this item on March
15, 2011.
Council Member Schmid said the Staff Report could return on the March 14,
2011 Council agenda.
Mr. Keene inquired whether the Finance Committee would be able to select a
recommendation for the Council to consider if alternatives were brought back to
the Finance Committee on March 15, 2010.
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Chair Scharff said he believed they could.
Mr. Keene said, as an alternative, recommendations could be taken straight to
Council.
Chair Scharff believed there would be no timing issue if the recommendation
returned to the Finance Committee prior to Council.
Ms. Fong said if there was a split vote made by the Finance Committee, Staff
would face two production issues.
Council Member Shepherd said the Motion, as it stood, moved for the
recommendation to return straight to Council.
Mr. Keene said the March 14 Council meeting was full.
Ms. Fong said Staff had PowerPoint slides on water rates available from the UAC
meeting for the Finance Committee to view.
Chair Scharff said the issue on the table was volumetric versus non-volumetric
percentage charge. He said Council Member Yeh recommended moving the
volumetric charge up, and removing the fixed concept.
Council Member Shepherd said the matrix would shift and analysis would need
to be processed.
Ms. Connolly presented PowerPoint slides depicting the current and proposed
fixed charges, and current volumetric rates, shown on two tiers. She spoke on
UAC and Staff recommendations as proposed. She spoke on the proposal,
recommended by the UAC for an increase to Tier 1, Tier 2, and to have a fixed
charge to Tier 3. The percentage increase would be a 200 percent increase on
the fixed cost. The pre-UAC recommendation contained fixed charges, moving
to wholesale levels, where small customers would see a 28 percent increase,
medium customers 11 percent, and large customers 16 percent increase in
monthly bills. It showed a decrease on commercial customers. Meter charges
affected all customer classes and resulted in revenue collection on the
commercial sector. Staff was bound by the Cost of Service Study, and was
required to lower the volumetric charges in this instance. This scenario resulted
in a bill increase for commercial customers. The UAC recommended not using
this scenario.
Council Member Schmid inquired why Staff used the same fixed cost charge.
Ms. Connolly said it was based on Cost to Service Study revenue requirements.
13
Ms. Fong said Staff recommended that phasing be done similarly across the
board.
Ms. Connolly said customer service, at these charges, were the same for all
customer classes.
Council Member Schmid felt commercial and small customer meters were not
the same.
Ms. Connolly said commercial customers had larger meters and had a larger
customer charge. Customer charges were based on meter size.
Council Member Schmid disagreed with pushing additional costs onto residential
customers. He inquired why Staff could not collect 100 percent of fixed charges
for residential customers and 20 percent fixed charges for commercial
customers, and collect the balance for the volumetric from the commercial
customers.
Ms. Connolly stated there would be a violation of the Cost of Service Study.
Council Member Schmid said Staff remarked that they must divide commercial
and residential customers. They were therefore not treated identically.
Ms. Connolly said there were different cost types. Revenues collected through
the service charges did not vary by customer class, but varied by size of
customer.
Ms. Fong said the same principles were applied at the same levels. The
principles were consistently applied.
Council Member Shepherd said this was a large spike for residential customers
and reduction for commercial customers, except that irrigation would be
brought forward for commercial customers with large landscapes.
Mr. Keene said small and large customers had larger spike increases under
Staff’s scenario, than under the UAC scenario.
Chair Scharff confirmed that the Finance Committee had a Motion to return
both scenarios to the Council.
Ms. Fong said that was correct.
MOTION: Chair Scharff moved, seconded by Council Member Yeh to have a 100
percent increase in fixed charges for residential customers with the rate system
designed around this increase, and for the Finance Committee to accept the rest
of the increases, per Staff’s recommendations.
14
Mr. Fong inquired whether that would include the three tiers.
Chair Scharff said yes.
Council Member Yeh stated the Motion would result in a reduction for
commercial customers. He inquired whether that could be penciled out. He
was open to the decision for this to go directly to the full Council.
Ms. Connolly said that was correct.
Council Member Shepherd inquired whether the scenario would recover the
revenue in order to support the service.
Ms. Fong said Staff would construct the proposal so that it covered the service’s
expenses.
Ms. Lloyd-Zannetti said the fixed charge would increase, and there would be a
reduction in the volumetric from what was proposed this evening. But it would
be less of a reduction than the alternative presented in the PowerPoint. The
Motion would not achieve the UAC’s objectives.
Ms. Connolly said the volumetric rates would need to be decreased to create a
signal for water conservation.
Ms. Fong inquired whether the Finance Committee requested to treat residential
and commercial customers differently.
Chair Scharff said the customers could be treated equally.
Ms. Fong said every customer would get 100 percent of the fixed charge
increase, and Staff would figure out the volumetric charge to obtain the correct
revenue for the individual customer classes. She indicated the Motion would
include three tiers.
Ms. Lloyd-Zannetti said the Motion would approve 50 percent of the fixed
charge increases that were suggested, which would result in a 100 percent
increase in current fixed charges.
Chair Scharff felt this Motion would achieve the two-year timeline that Staff
proposed and allow flexibility. He felt it was a good compromise between the
UAC and the Staff proposals.
AMENDMENT TO MOTION: Council Member Schmid, seconded by Council
Member XXX moved that the first tier be relatively low so the net impact on low-
water users was minimal.
15
16
Council Member Yeh inquired whether the Amendment would create inequality
between the steps in the residential tiers.
Council Member Schmid said the steps would not be as high because more would
be covered in fixed costs.
Ms. Connolly said that would take away incentives to conserve on the small
customers by turning their bill into a primarily fixed charge bill.
Council Member Shepherd said she would not be supporting the Amendment.
She appreciated the incentives in place to conserve water resources. She
inquired whether a Cost of Service Study would be performed next year.
Ms. Fong said the current Cost of Service Study would be updated next year.
Council Member Yeh said the Motion would incentivize conservation efforts, but
not to the extent of the UAC proposal. He did not recommend returning to the
Council with no recommendation.
AMENDMENT FAILED DUE TO LACK OF SECOND
Mr. Perez said the recommendation to Council would return as part of the
Budget process in June 2011.
Council Member Yeh said, if the recommendation passed this evening, the
Proposition 218 notice would proceed with 50 percent of the increase of the
fixed charge.
Council Member Schmid felt strongly that a rate increase was needed.
MOTION PASSED 3-1, Shepherd no
J
• Robert K. Stitt ...•
919A.marilloAvenue, Pal~!Alto, CA 943~rYOF PAL .
. . Phone: 650493-5900, FAX: 650493-0636 .. .ITy CLERK~~V;' CA
. E-Mail rks3ataad@yahoo.com II H . feE
.... ~y ... S PH 2: OJ
May 2,2011
City Clerk
City of Palo Alto
250 Hamilton Ave
Palo Alto; CA 94301
RE:
Gentlemen,
Objection to Proposed Utility Rate Increases
I am writing this letter to object to the increase in the utility rates .. This increase
would adversely affect most, those with the lowest earnings and the retired and
elderly.
Very truly yours,
~--L~a?
Robert K. Stitt
Pau Acct. #: 132153-42677
I I • J _ ,,,,,, . I J I I
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I • CITY Of PALO . CITY t"l. AL10.CA CLERK S OFFICE
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Himanshu bWivedi
2410 Bryant Street
Palo Alto, CA 94301
To whom it may concern:
-.
Gel/TrY OF PALO ALTO. CA Y CLERK'S OrnCE.
, f HA Y I 2AM 10: 5!
"f'" ~'.
I am writing this letter to protest the proposed Wastewater and water rate increases. I live at 2410
Bryant Street; Palo Alto, CA.
l-i
City Clerk
City of Palo Alto
250 Hamilton Ave.
Palo Alto CA 94301
Dear City Council:
763 E. Charleston Rd.
Palo Alto CA 94303£4706
2. 0 II }llo. 23 7
CITY OF, P,~L9 ALTO, CA cn Y CLERI, S OFfICE
II HAY 26 PH 3: 32
r )
This is a protest against the proposed utility rate changes as apply to the parcel of address 763 E.
Charleston Rd., Palo Alto, CA 94303-4706.
I protest the proposed increase in the monthly wastewater rate.
I protest the proposed increase in the monthly water service charge.
Sincerely,
~~"-~e.~~~
Michael C. Fischer
May 9, 2011
City Clerk
City of Palo Alto
250 Hamilton Avenue
Palo Alto, CA 94301
e· Richard C Placone
601 Chimalus Drive CdlY OF PAL9 {~LTO,CA
Palo Alto, California 94J(J6 TY CLERK S OFFICE
Voice: (650) 493=7217 If MAY r r PM 12: 07
E-mail: rcplacone@sbcgobalnet
Re: Protest of proposed utility rates for 2011
Attn City Clerk and City Council;
Acct Number: 300 12674
Parcel Number 137-08-054-00
Address See letterhead above
This letter is written to protest the proposed increases in water rates and waste water rates. The city
currently extracts millions of dollars form the sizable profits made by the utility department,
including, if! understand this correctly, profits from the water utility. The city management and the
Council have demonstrated over the years, that the utility department profits are used to balance the
city's General Fund. While a certain amount of this transfer of profits may be justified, the ever
increasing amounts are not in my opinion, especially when the Council continues to spend funds for
special interest groups like the children's theater and zoo, while wei are faced with years of annual
deficits. Giving the Council more money only prolongs the inevitable when the Council and the
managers must bring spending to the level the city can afford and stops spending money on
unneeded consultants and such.
In addition, it is my understanding, AND I WOULD LIKE TO HA VB CORRECT INFORMATION
ON TIDS SUBJECT IF I AM WRONG, that it is against state law to use water utility profits for any
purpose other than for the water utility needs. If the city is transferring water profits along with gas
and electric profits, then the law is being violated and this practice must stop. All the more reason
why the water rates should not be increased.
That the city owns the utility department is supposed to be reason for our rates to be lower than
PG&E. They are not. The city should be making efforts to accomplish this once promised benefit.
,'1
Sincerely, ,li ....•. /./ .. y/I" .. /"I./.~{##::-;y. /.'
/t(.pc;t.&.</ ( ~~;;;~
Richard C. Placone --,,-
~
PROTESTING RATE INCREASES
f do not agree the proposed rate increase for water and waste
. water that will be effective~, 2011. .
Property owner name: ManKie Ng'
Property .address: 4250 EI Camino Real #A303. Palo Alto, Ca I:
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•
May 9, 2011
Palo Alto City Council
250 Hamilton Avenue
Alma Silverth~~
3339 Kenneth Drive
Palo Alto, California 94303
Palo Alto, California 94301
Dear Council Members:
First, thank you for your service to our city.
CITY OF PALO ALTO, CA
CITY CLERK'S OFFICE·
" KA Y I I PM 12: 0 I
Second, I wish to protest the proposed water and wastewater rate increases.
Our utilities are operating at a profit, and last year's annual payment to the
city was excessive. Public Utilities should not be operated with the same
principles as for profit corporations.
Please, give us a break for once.
Sincerely,
t/t.m/f ~/t/.ud,Ar'
Alma Silverthorn
City Clerk
250 Hamilton Ave
Palo Alto, CA 94301
• CUY OF-PALO'ALTO. CA CITY CLERK'S OFFICE .!
" HA ~ 16 AM U = 01
•
4194 King Arthur Ct
Palo Alto CA 94306
May12,2011
, '. ' ~, ,
SUBJECT: WATER RATE INCREASE PROTESTAtioN.
Location: 4194 King Arthur Ct. Palo AltoCA 94306
Parcel Number 137 .. 27-017-09
Utility Account Number 30021657
The proposed water rate increase is yet another indication of the total lack of
competent financial management in Palo Alto government.
We are requested to save water and then we are told that since we did a good job
in conserving water that we now must pay more.
Anyone can postpone truly solving fiscal problems by raising taxes and fees and
spending money we don't have. It takes a real manager to solve problems with
the means at hand. How about showing realleadersbip (and demonstrating how
we can live within our means. Unfortunately many of us who are retired do not
have the luxury of just telling government to give us more money because we
saved water.
Very truly yours
Ct))L G-.-O(fl ~ ·
John A. Martin
'"76 tuho/Y} if" P'Jo,,' c"" c""",,·
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•
CITY OF PALO ALTO, CA .r
CITY CLERK'S OFFICE
c;rq C/,tJI/z' If ,-tAY J 6 AM": 05
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~tf~~/·
$U/)d-2J~~&
City Clerk
250 Hamilton Avenue
Palo Alto, CA 94301
•
736 Layne Court
Palo Alto, CA 94306
May 10,2011
CITY OF PALO CITy CLERK'SAOLTO., CA . FFICE
II HAY 16 AM II: 0.
We hereby protest the proposed water and wastewater rate increases as announced
in your notice of April 25, 2011.
Jo Ann Fahnestock
736 Layne Court
Palo Alto, CA 94306
•
384 Madeline Court
Palo Alto, CA 94306
Utility account #: 30042376
"
RE: PROTEST AGAINST UTILITY RATE CHANGE
City Clerk
250 Hamilton Avenue
Palo Alto, CA 94301
Dear Madam/Sir:
•
CITY OF PALO ALTO. CA CITY CLERK'S OFFICE
r 'HAY-4 AM ~:26
, ~, , f ,"/.
April 30, 2011
(
This letter is to protest against the proposed increase in wastewater and water meter
service charges for the 2011 fiscal year. We urge the City of Palo Alto Utility
Department to investigate and implement cost-saving measures of operation instead of
increasing 'customer utility charges.
Sincerely,
itlJ)lfiye<
Tetyana Obukhanych
c c
CitvtlerR ccc
··~~!~r~~1;~ .
•
CITY Q& PALO ALTO CA CITY CLERK'S OF'F't'cE
l' HAY -5 PH 2=05
. c cc· •• c cccc .cc. c.c .• l,etterto protest the proposa~ the cit~ council consider~d about raising th"S~8
rnrnc .. mac"'vvat~r,.andS1 wasterwater collection services rates for the fiscal year that begms m
. c c conserve water the best we can and been doing our best in our daily life to
cccc 'th~<~nvironment. When we first moved in to the city, we have chosen to pay a much
....... cq .... c CC prpperty) price to clive in a solar powered community in the Vantage of Palo Alto. 13.2%
i'n wastewater charge and 100% increase in monthly water service charge are not
~rr''''n'r~ble, ev~n though it means less than $10 a month for our household of six.
Please reconsider your proposal. Thank you.
c Sincerely:
Kok Hoong Chan & Pei Vee Lee
Account No.: 30021250
Service Address: 935 Mallard Lane, Palo Alto, CA 94303
Larry Hootnick
To:
Cc:
Subject:
City Clerk, Palo Alto
Laurence Hootnick
Proposed Water Rate Increase
•
8HY(:Jf' PAL.U ALTO C
After reviewing the data supporting your proposecl_i:lier'Mcrease, I am extremely disappointed for the following two
reasons:
The data as presented are insufficient to make any judgment on the proposal. The premise is that the in~rease is ',~. ,~. primarily due to the cost of purchased water. Yet, nowhere do you show the actual increase for the purchased water or
any data comparing 2011 and 2012. The only data shown is a pie chart by expense element for 2011. I don't understand
why you didn't show detailed cost data by expense element for 2011 and proposed for 2012. Had you showh this, we
could see how much each element is projected to change/grow and what amount and percent of the growth is for
purchased water versus all other cost elements. Additionally, you state that the purchased water costs are expected to
double in 5 years -you should provide a 5 year projection if you have these costs.
Interestingly, for 2011 the non purchased water/capital improvements account for 52% of spending. You do not address
what actions you have taken to reduce the other 48% of the spending. For example, since debt service is 9%, have you
attempted to refinance at lower rates to reduce expenses? Also, do you have the same labor cost/pension problems in
almost every other area of the public sector? If so, what is your action plan to reduce these expenses?
Overall, this analysis is woefully inadequate and gets a no vote from me until these questions are satisfactorily
answered.
While I have no problem in concept with expanding the number of volume levels from 2 to 3 to charge residential users
more if they use a lot more, I find this proposal grossly unfair if you don't provide relief for property owners like myself
who have I~rge lots ( mine is almost an acre with mature planting). While 29 cef seems to be very reasonable for run rate
usage with non or minimal irrigation usage, it is very inadequate during the peak watering billing season from July to
October. Without any upward seasonal adjustment to cover the higher water needs for irrigation during this peak period
the proposed rate change is extremely discriminatory to owners of larger lots like myself. I would not vote for this
proposal unless there is a "peak usage" adjustment. Since your data show that irrigation accounts for 40% of total water
usage, there is no way I could be below 29cef during peak irrigation periods and maintain any reasonable level of
planting.
Overall, I vote no unless more cost data is presented to justify your proposed increases and a fair treatment for owfiers
~ma~~/}
ce-~ce Hoot~~
421 r r II rutTer.iaw.
Palo Alto, California 94306
30022624
1
May 1, 2011 .1
Subject: Protest of water and wastewater rate adjustment
Address: 3021 Ross Road"Palo Alto, CA 94303
, $,' . "'f'';'
Dear City Clerk,
I am writing to officially protest the utility rate adjustments for wastewater and water.
~~
Seavan Sternheim
Homeowner: 3021 Ross Road, Palo Alto, CA 94303
To:
Re:
City of Palo Alto
Utility Rate Change
To Whom it may concern
CITY OF PALO ALTO, CA
CITY CLERK'S g.FfICE
II HAY I 8 PM 2: 3.
__
From: Johnny Naber
~~;Ros$'Road'
I received your "Notice of Utility Rate Change" dated April 25, 2011 wherein it specified I
may submit a written protest. The following is my protest. .
I have always and will always believe that a person should take care of the~s~lvfi~ and
pay their own way through life. I have no complaint with paying my fair share$itlhe City
needs more funds to pay for the services I receive. That's only fair. What I strongly C
object to .however is the same solution the Federal Government is using, asking midtUe
class workers to bear the majority of the burden while giving special breaks to over-
privileged people and big business.
A wastewater hookup in and of itself does not put any burden at all on a wastewater
treatment plant. A burden is created only by actual waste that is sent to that plant. The
more waste that is sent the larger the burden on the treatment plant. My modest single
bathroom home sends down an extremely small amount of waste. A vast majority of that
comes from the shower and kitchen sink, both of which need little or no treatment at all.
That leaves a single toilet as my very modest burden on the wastewater treatment pJant.
l;Jasic rates tor. Residential, Restaurants and Commercial customers have all been
!ncreaSed thEi 'sam~ amount anct that's Jelir. th.eburden pl,ac.~~ qn tbe was~~w.ater tre~tment .. planfbyF{t:)staYrant~arid9qmrne.rcial c.~,~tOr1ler~'h9w,evefcah·t;)e,· a~d.· ',:',"
usually is,enormously larger ttlan what my hO'rnE)"rould pdssibl~i' breiifeso'there'is 'a
tiere~ .rate. schedule for those customers. Those rates are going down and that is the
opposite' o.f fa Jr. The waste from .Restaurants and Comrn~rcial custQmers is the source
of the vasfmajority of the burden.on a treatment plant and:theygetareduced:rate1
How do you justify that'? . (That's a rhetorical question, of'course Y9u cannot justify it.)
I have the same issue with the water rates. I do not evenwaterthelawns now to'
conserve water and I see my rates will decrease 8.8% for the first 6 Hundred Cubic Feet
but then for the next two rate tiers they go up 8.1 and 35.8%!!!!! respectively whereas
Commercial rates go down 9.3% for 14 Hundred Cubic Feet and do not increase at all
above that. Again that is the opposite of fair. Again the vast majority of the burden on the
water system/supply is coming from the Commercial sector and yet they get a bigger
break. If I for example were to use 50ccf of water it would cost $321.88 but a
Commercial customer would only pay $178.42 for the same amount of water. In fact
they could use 66.27ccf of water and still pay less than I would. Another way to describe
their s~vi.ngs is they .could get 1,627 CU,bjc Feet = 12,170,8 gailoris of, water forfree.
~~1.I~;fre~ t(),them, nQtfi"e,~ for me~ I ~nd, other m'~Q,le. ¢ICl$S.nom~pWller~ will b.e, ·paYi.ng
~~::~~~:t~f~~;~~:-~~n:~m,~~~~~~~~t(r~'~ir~~~e~Utrurgeyouto
mq':l~r:e. the.s,~me sac.rific.~$ from ~y.erY(m~,flPt.P..lAt mQstqnb~ .burden '~rl,h()s~ who can
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,///'/ / // / /.
John Naber ~~/ .'" L/·:· ( c_ t l ".r ~
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City Clerk
CITY OF P}\LO ALTO. CA
CITY CLERWS OFFICE
II MAY 26 PM 3: 32
250 Hamilton Ave
Palo Alto, CA 94301
Dear Sir,
•
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614 Wellsbury Way
Palo Alto, CA 94306
May 22,2011
We're responding to the "Notice of Utility Rate Chang~". We object
to the utility rate adjustment increases to both the water and waste water
rates. We are against all of the proposed charges.
Our assessor's parcel number is, 132-56-019-00 and our utility
account number is 300 22364.
Marjorie and David Masters
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•
TO: City of Palo Alto
FROM: Frank Kwong & Caly Chiu
CITY OF PALO ALTO CA CITY CLERK'S OFFICE
" riA Y I I PH 12: 0'
RE: Written Protest AGAINST all of the proposed charges on water, wastewater and
refuse)
DATE: 5/2/2011
WRITTEN PROTEST AGAINST ALL OF THE PROPOSED CHARGES (WATER
AND REFUSE).
Assessor's Parcel Number: 086-18-003-00
Property address: 837 Wintergreen Way Palo Alto,CA 94303
City of Palo Alto Account Number: 119973-30315
We protest the rate increase on both water and refuse.
Thank you.
Signed:
j