HomeMy WebLinkAboutStaff Report 1860
City of Palo Alto (ID # 1860)
City Council Staff Report
Report Type: Action ItemsMeeting Date: 9/19/2011
Summary Title: Water Rate Changes
Title: PUBLIC HEARING: Pursuant to Proposition 218 - Adoption of a
Resolution Amending Water Utility Rate Schedules W-1, W-3, W-4 and W-7
for a Water Rate Increase
From: City Manager
Lead Department: Utilities
Recommendation
Staff requests that the City Council adopt a resolution to amend Utility Water Rate Schedules
W-1, W-3, W-4, and W-7, as attached, which will result in an overall retail water rate increase of
20.9% effective October 1, 2011.
The recommended rate increase triggered the notice and protest hearing procedures under
Proposition 218.
Executive Summary
On June 20, 2011 the City Council directed staff to design water rate schedules that: 1) did not
include a third tier for rate schedule W1 or a second tier for rate schedule W4; and 2) would
increase Fiscal Year (FY) 2012 revenues for the Water Fund by $3.4 million, as approved during
the FY 2012 budget process. Subsequently, on June 27, 2011, City Council selected staff’s
Alternative 1 for possible implementation by October 1, 2011. Implementation of the proposed
rates are subject to a public hearing process provided for under Proposition 218, and may only
be available for approval by the City Council should written protests against the rates be
received from less than 50% of affected property owners.
Tables 1a and 1b show the current and proposed water rates incorporating Council’s
modifications for FY 2012 for the W1, W3, W4 and W7 rate schedules. Table 1a shows the
volumetric rates and 1b the fixed monthly charges by meter size. Although there is a decrease
in the volumetric rates for schedule W4 and Tier 1 (“First 7 ccf”) in schedule W1, the increase in
the monthly fixed charges results in an average rate increase for all rate classes. With the FY
2012 $3.4 million revenue increase and a re-allocation of revenue collection by rate class, the
average rate increase effective October 1, 2011 will be 29.6% for residential (W1), 4% for
residential master-metered and general non-residential (W4), and 60% for irrigation (W7)
accounts.
Table 1a - Proposed Volumetric Rates to be Effective October 1, 2011
Rate Schedule
Current Rates Proposed Rates Change
Applicable
Volume
Rates
(per ccf)
Applicable
Volume
Rates
(per ccf)
$
(per ccf)
Percent
Change
W1 – General Residential First 7 ccf $3.949 First 6 ccf $3.60 -$0.349 -8.8%
Over 7 ccf $5.624 Over 6 ccf $7.34 $1.716 30.5%
W4 – Residential
Master-Metered
and General Non-
Residential
All ccf $4.946 All ccf
$4.93 -$0.016 -0.3%
W7 – Non-Residential
Irrigation
All ccf $4.946 All ccf $7.86 $2.914 58.9%
Table 1b - Proposed Fixed Monthly Charges to be Effective October 1, 2011
Rate Schedule
Meter
Size
Current
Monthly
Charge
Proposed
Monthly
Charge
Change
($)
Change
(%)
Applicable to the following:
W1 – General Residential
W4 – Residential Master-
Metered and General
Non-Residential
W7 – Non-Residential Irrigation
5/8 ” $5.00 $10.00 $5.00 100.0%
3/4 ” $5.00 $10.00 $5.00 100.0%
1” $6.50 $13.00 $6.50 100.0%
1 1/2 ” $12.27 $27.00 $14.73 120.0%
2” $19.37 $43.00 $23.63 122.0%
3” $77.65 $114.00 $36.35 46.8%
4” $130.60 $195.00 $64.40 49.3%
6” $260.43 $406.00 $145.57 55.9%
8” $383.67 $644.00 $260.33 67.9%
10” $383.67 $644.00 $260.33 67.9%
Applicable to the following:
W3 – Fire Service Connections
2” N/A $3.63 $3.63 N/A
4” $4.20 $7.27 $3.07 73.1%
6” $7.00 $16.13 $9.13 130.4%
8” $10.75 $28.53 $17.78 165.4%
Background
In preparation for the FY 2012 budget adoption, staff assessed major cost drivers, expected
costs, short-term risks, reserve adequacy, and determined the revenue requirements for the
Water Fund. Staff projected a revenue shortfall of $6.2 million in FY 2012 and requested a
revenue increase of $3.4 million for FY 2012. Due to sufficient reserve levels in the Water Rate
Stabilization Reserves (W-RSR), the remaining shortfall of $2.8 million in FY 2012 will be drawn
out of the reserves. The proposed revenue adjustment achieves the goals of ensuring that the
balance of the W-RSR is adequate and within the Council-approved reserve guideline levels for
FY 2012.
On June 13th and 20th, 2011, staff recommended water utility rate adjustments and rate
structure changes to the City Council. Council agreed with staff’s proposed budget revenue
increase of $3.4 million (which would have resulted in an average retail water rate increase of
12.5% effective July 1, 2011) for the Fiscal Year ending June 30, 2012, but did not approve the
proposed rate structure changes. Staff was directed to return with alternative rate structures
that did not include a third tier for rate schedule W1 or a second tier for rate schedule W4.
Staff presented alternative rate structures at the June 27th Council meeting, shown in
Attachment F, and Council recommended Alternative 1 for possible implementation by October
1, 2011. To achieve a revenue increase of $3.4 million for the fiscal year with implementation
delayed to October 1, a higher average rate increase of 20.9% is required to compensate for the
months in which additional revenues can not be captured.
In addition to the $3.4 million revenue increase, the proposed rate changes also include a re-
allocation of revenue collection by rate class. These 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 residential master-metered and general non-residential class, an average increase of 14.2%
for the irrigation rate class, and an average increase of 93% for the private fire service rate class.
With the $3.4 million revenue increase requirement applied to these alignments, the average
rate increase effective October 1, 2011 will be 29.6% for residential, 4% for residential master-
metered and general non-residential, and 60% for irrigation accounts.
Discussion
The Water Utility’s revenue requirement increase is primarily driven by the rapidly rising cost of
water supply. The 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 $4.6 billion initiative includes the repair, replacement and seismic upgrades
of the regional system’s deteriorating pipelines, tunnels, dams, reservoirs, pump stations and
other facilities. The City Council supports this program (CMR: 311:00), the cost of which is
shared by all of the SFPUC’s water customers.
Safe and reliable water delivery is also a local priority. The Water Utility has planned capital
improvement projects for our local City water supply infrastructure, including necessary seismic
retrofitting of the City’s water tanks and this is also reflected in the new rates.
Customer Bill Impact of Proposed Rate Changes
Table 2 shows the impact of the proposed rate increase on customer bills based on different
consumption levels for the residential and commercial classes.
Table 2: Impact of Proposed Rate Increase on Customer Bills
Customer
Usage
(ccf)
Current
Monthly
Bill ($)
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 90.32 18.31 25.4%
Large Residential (5/8” Meter)
35 190.12 $ 244.46 54.34 28.6%
Medium Commercial (3" Meter)
300 1,561.45 1,593.00 31.55 2.0%
Large Commercial or Industrial (6"
Meter) 1200 6,195.63 6,322.00 126.37 2.0%
Large Commercial or Industrial (6"
Meter) (irrigation only) (W-7) 3000 15,098.43 23,986.00 8,887.57 58.9%
The $3.4 million revenue increase for FY 2012 results in a total revenue increase of $2.5 million
(17%) collected from the residential customers and $0.9 million (8%) from the business
customers. The impact of the proposed October 1, 2011 water rate adjustments is an additional
$18.31 on an average1 residential customer’s current monthly water utility bill of $72.01. The
impact on individual customers 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 July 1,
2011 for Mountain View, Redwood City, Santa Clara and Menlo Park, indicates that the average
residential customer in surrounding cities pays approximately 14% less than the average Palo
Alto residential customer.
Table 3 – Monthly Residential Water Bill Comparison (rates in effect as of July 1, 2011)
Water
Customer
Usage
(ccf)
Palo
Alto
Menlo
Park
Redwood
City
Mountain
View
Santa
Clara
Average
Benchmark
(%)
Diff.
Small 6 $28.69 $42.47 $36.06 $24.96 $17.94 $30.36 5.8%
Average 14 $72.01 $82.23 $65.79 $57.68 $41.86 $61.89 -14.1%
Large 35 $190.12 $189.57 $202.12 $183.87 $104.65 $170.05 -10.6%
Difference from CPAU 14.2% -8.6% -19.9% -41.9% -14.1%
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.
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
August 5, 2011), followed by a public hearing held not less than 45 days after notice is mailed
(the September 19, 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
At the June 27, 2011 Council meeting, the City Council voted 7-1 to recommend Water Rate
Alternative 1 for adoption at the September 19, 2011 public hearing .
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 Water Utility Rate Schedules October 1 2011 (PDF)
Attachment B: W-1 effective 10-1-2011 (PDF)
Attachment C: W-3 effective 10-1-2011 (PDF)
Attachment D: W-4 effective 10-1-2011 (PDF)
Attachment E: W-7 effective 10-1-2011 (PDF)
Attachment F: Staff Report ID 1857 - Revised Water Rates w/o Attachments (PDF)
Attachment G: Excerpt Draft Minutes of June 20, 2011 City Council Meeting (PDF)
Attachment H: Excerpt Draft Minutes of June 27, 2011 City Council Special Meeting
(PDF)
Prop 218 Water Protest Letters (PDF)
Prepared By: Ipek Connolly, Sr. Resource Planner
Department Head: Valerie Fong, Director
City Manager Approval: ____________________________________
James Keene, City Manager
* Not Yet Approved*
110817 dm 8450002
ATTACHMENT A
RESOLUTION NO. _________
Resolution of the Council of the City of Palo Alto Amending
Utility Rate Schedules W-1, W-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 Section 6 of the California Constitution, on
September 19, 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 October 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 October 1, 2011.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-4 (Residential Master-Metered and 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
October 1, 2011.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-7 (Non-Residential 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 October 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*
110817 dm 8450002
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, Section 21080, subdivision (b)(8) and
Title 14 of the California Code of Regulations, Section 15273(a)(1) and (3).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Acting Deputy City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative
Services
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 10-1-2011
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 (All usage over 100% of Tier 1) ....................................................................... 7.34
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $6.00
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: 3.949
Deleted: 5.624
Deleted: 7
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 10-1-2011
Supersedes Sheet No W-1-2 dated 7-1-2009 Sheet No W-1-2
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 0.2 ccf per day
rounded to the nearest whole ccf, based on meter reading days of service. As an
example, for a 30 day bill, the Tier 1 level would be 0 through 6 ccf. For further
discussion of bill calculation and proration, refer to Rule and Regulation 11.
{End}
Deleted: 33
Deleted: 7
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 10-1-2011
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:
2-inch connection....................................................................................................... $3.63
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
Deleted: $ 4.20
Deleted: $ 7.00
Deleted: $ 10.75
Deleted: $ 15.75
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 10-1-2011
Supersedes Sheet No W-3-2 dated 11-1-2008 Sheet No W-3-2
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}
Deleted: 11-1-2008
Deleted: 7-1-1992
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 10-1-2011
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
Per ccf ........................................................................................................................ $4.93
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: $383.67
Deleted: 4.946
Deleted: 7
Deleted: 2009
Deleted: 11-1-2008
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 10-1-2011
Supersedes Sheet No W-4-2 dated 7-1-2009 Sheet No W-4-2
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
{End}
Deleted: 7
Deleted: 2009
Deleted: 11-1-2008
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 10-1-2011
Supersedes Sheet No W-7-1 dated 7-1-2009 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential water service supplying dedicated irrigation meters in the
City of Palo Alto and its distribution area.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
Per Meter
Monthly Customer Charge Per Month
For 5/8-inch meter ................................................................................................$ 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 ........................................................................................................................ $7.86
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: 7
Deleted: 2009
Deleted: 11-1-2008
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 10-1-2011
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: 7
Deleted: 2009
Deleted: 11-1-2008
City 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
(ID # 1857)
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
ATTACHMENT G
CITY COUNCIL MEETING
EXCERPT DRAFT MINUTES OF JUNE 20, 2011
ACTION ITEMS
11. PUBLIC HEARING: Approval of an Ordinance 5121 Adopting the
Fiscal Year 2012 Budget, including the Fiscal Year 2012 Capital
Improvement Program, and Changes to the Municipal Fee
Schedule; Adoption of Five Resolutions: (1) Resolution 9177
Amending Utility Rate Schedules for a Storm Drain Rate
Increase; (2) Resolution 9178 Amending Utility Rate Schedules
for Fiber Optic Rate Increases; (3) Resolution 9179 Amending
Utility Rate Schedules for Wastewater Rate Increases pursuant
to Proposition 218; (4) Amending Utility Rate Schedules for
Water Rate Increases; (5) Amending the 2010-2011
Compensation Plan for the Management and Professional
Personnel and Council Appointees; and Adoption of an
Ordinance Amending Chapter 2.08 to Create a New
Department of Information Technology (Continued from June
13, 2011).
Lalo Perez, Director of Administrative Services, introduced the Item as
the second part of the City’s budget approval process. He stated that
Staff would not be making a formal presentation of the Item, but did
acknowledge Council Member Holman’s request that Staff provide
additional information regarding a resolution to change management
and professional compensation by providing a table of all eleven
proposed salary changes.
Mr. Bobel, Acting Assistant Director of Public Works, stated that Staff
intended to bring a Budget Amendment Ordinance for the Arts Center
Project before Council in July. He explained that the Budget
Amendment Ordinance would include approximately $600,000 worth of
additions to the Arts Center Project. He stated that although the
project is currently out to bid, Staff was considering a Budget
Amendment Ordinance in order to take advantage of the current
economic climate in which bid prices have been significantly lowered
and to minimize disruptions to the Arts Center Staff and Patrons as
much as possible. He noted that there would not be a need for a
Budget Amendment Ordinance if the returning bids were low enough,
but wanted Council to be aware of the possibility.
James Keene, City Manager, assured Council that if the need arose for
a Budget Amendment Ordinance, the Item would be returned at a later
date for consideration. He stated that this was being discussed now
only for the purpose of advising Council that the Item may appear at a
future meeting.
Mr. Perez asked that, if they were amenable to the proposed changes
to the Municipal Fee Schedule, Council vote to approve an amended
version of Ordinance 5121.
Council Member Holman asked for an explanation of proposed
increases to several positions in the Municipal Fee Schedule.
Mr. Perez stated that Staff was changing the structure of the Office of
Management and Budget Division within Administrative Services and
moving towards a more analytical program. He explained that these
changes were needed, and that the Finance Committee had
communicated a desire to see Staff reorganize operations and capital
budgeting and provide a more indepth analysis of services and
programs. He anticipated that the next few years would be financially
challenging and that, in response to growing budget difficulties, both
the State of California and Council were requiring more detailed
information than Staff had historically provided. He informed Council
that Administrative Services’ restructuring efforts were an attempt to
meet the growing demand for information.
Council Member Holman asked what factors were considered in
determining pay increases.
Mr. Keene explained that the increases were motivated in part because
of the City’s inability to attract the candidates needed to fill the
positions in question. He added that the Director of Information
Technology/Chief Information Officer position was created to oversee
the Information Technology Department, a newly independent
Department, no longer a division of Administrative Services. He noted
that the salary for this position reflected Staff’s intention that the
position serve as an autonomous member of the Executive Leadership
Team, and stated that Staff had conducted research to determine the
salaries paid by other agencies for similar positions.
Public Hearing opened and closed without public comment at 8:35 P.M.
Mayor Espinosa stated that there were 20,126 property owners and
water customers subject to the proposed water rate increase, and that
10, 064 protests were needed to create a majority. He asked the City
Clerk to provide the number of written protests received against the
proposed water rate increase.
Donna Grider, City Clerk, reported that there were 128 protests
received for the water rate increase.
Mayor Espinosa stated that 128 protests did not constitute a majority
protest, and that the water rate changes would be made as part of the
Ordinance adopting the budget for Fiscal Year 2012. He stated that
there were 22,232 property owners and wastewater customers subject
to the proposed wastewater rate increase, and that 11,117 protests
were needed to create a majority. He asked the City Clerk to provide
the number of written protests received against the proposed
wastewater rate increase.
Ms. Grider reported that there were 94 protests received for the
wastewater rate increase.
Mayor Espinosa stated that 94 protests did not constitute a majority
protest, and that the wastewater rate changes would be made as part
of the Ordinance adopting the budget for Fiscal Year 2012.
Molly Stump, City Attorney, reported that Council Member Klein would
recuse himself for Item Number One, which comprised those portions
of the budget relating to Stanford University.
Council Member Klein advised that he would not be participating in
deliberations for this Item, as the Item pertained to Stanford
University, where his wife was currently employed. He left the meeting
at 8:38 P.M.
MOTION: Council Member Scharff moved, seconded by Vice Mayor
Yeh to approve the Staff and Finance Committee recommendation that
the City Council adopt the portions of the Police and Fire Department
Budgets and Capital Improvement Projects relating to Stanford
University for the Fiscal Year 2012 and the Ordinance portions related
thereto.
MOTION PASSED: 7-0 Klein abstaining, Shepherd absent
Council Member Klein returned at 8:40 P.M.
Council Member Scharff stated that in his opinion the water rates as
currently proposed, with a tier 3 for residential and a tier 2 for
commercial, violated Proposition 218. He stated that Council should
not approve the rates, and observed that Staff had not completed a
Cost-of-Services Study to demonstrate that the amounts charged to
parcels would not exceed the Proposition 218 limitations.
MOTION: Council Member Scharff moved, seconded by Council
Member Klein to: 1) not approve water rate increases and Staff is to
return to Council on June 27, 2011 with new rates that do not include
Tier 3 rates for residential usage or Tier 2 rates for commercial usage;
2) and revised water rates do not need to be reviewed by Utilities
Advisory Commission or the Finance Committee; 3) a transfer of
$2.8m from the Water Rate Stabilization Reserve Fund would continue
as currently proposed; and 4) no further updates to the financial
forecast.
Council Member Scharff stated that some of the rates proposed by the
Utilities Advisory Commission did not comply with Proposition 218, and
emphasized that it was very important for Council to proceed in the
right direction with regards to this matter.
Council Member Price remarked that she felt as though she did not
have enough information to make a clear decision regarding this
matter, and requested a legal opinion regarding the proposed rates.
Ms. Stump replied that jurisdictions around the State have struggled to
address the structure of utility rates with respect to the procedural
requirements of Proposition 218 and the policy interests of
conservation, both of which were state mandated. She stated that
Council had the authority to adopt the rates as proposed.
Valerie Fong, Director of Utilities, informed Council that if a decision
were made at this meeting, than Staff would be able to return the item
by August 1, 2011. However, if the decision were not made until the
following meeting, than Staff would likely not be able to return the
proposed amendments until Sept 12, 2001, in which case the rates
would not take affect until November 2011.
Mr. Keene disagreed with the timeline presented by Ms. Fong, and
stated that he believed that Staff could begin the work necessary to
meet the August 1, 2011 deadline regardless of whether the Item
were returned to Council before then. He stated that given that the
Motion represents a new direction for Staff, he would feel more
comfortable if Staff had some time to review the proposal before a
vote of Council.
Council Member Scharff responded to Mr. Keene’s concerns, and
commented that he believed the matter was legal in nature and not an
issue of review.
Ms. Stump stated that it may be helpful to take another week to allow
Council to obtain Council Member Scharff’s proposal in written form,
along with any possible operational, legal, and policy implications, and
compare it alongside the current Staff proposal.
Council Member Scharff agreed with Ms. Stump’s suggestion, but
asked for an assurance from Ms. Fong that Staff would be able to
commit to an August 1, 2011 deadline if Council were to agree to
postpone a vote on the Motion.
Ms. Fong stated that two of the key Staff Members who would
normally work on the project would be out of the country during the
time in question.
Mr. Keene stated that he believed that Staff could meet the August 1,
2011 deadline if given a week to prepare a written report for a vote on
the Item.
Mayor Espinosa acknowledged the commitment from Mr. Keene.
Council Schmid stated that he understood the confusion caused by
introducing fundamental change to a process that had been in place
for the previous three months and was aware of the consideration that
must be given to a proposal that could potentially postpone a rate
increase for up to four months.
SUBSTITUTE MOTION: Council Member Schmid moved, seconded by
Vice Mayor Yeh to: 1) approve Staff recommendation to increase the
water rates for 6 months, 2) direct Staff to complete a Cost-of-
Services Study for the basis of new rates for April 2012.
Council Member Schmid commented that it was important to comply
with Proposition 218 and to ensure that customers were not paying to
subsidize other users. He stated that in a non-tiered rate structure,
those living in a small rental apartment would pay the same as those
with large scale landscaping. As a consequence of this structure, those
renters who comprise 55% of the community would be made to
subsidize larger users. He acknowledged that Council had already
unanimously approved the Water Management Plan, as required by the
State, and stated that by doing so Council had agreed to a five-year
Water Conservation Program which would include a rate mechanism to
encourage conservation. He urged Council to approve the rates
proposed by Staff, in order to avoid the need to draw from Budget
Stabilization Reserves to augment revenue until which time as a new
rate structure could be put into effect.
Vice Mayor Yeh stated that he agreed with Council Member Schmid’s
approach, and stated that during Finance Committee discussions there
was acknowledgement that a Cost-of-Services Study was essential to
gain an understanding of the complexity of restructuring the City’s
water rates. He maintained that direct intervention with large
landscape users did not appear to be the best approach, and that
tiered water rates created the best incentive for users to conserve
water. He stated that he felt that a delay in approving the new water
rates would be risky, but that there was still a need to investigate
subsidization across user groups and gather more information. He
commented that Council Member Schmid’s proposal would allow the
Utilities Department time to prepare the necessary Cost-of-Services
Study and would provide the opportunity to revisit the rates in six
months.
Council Member Burt asked Council Member Schmid why he
considered the six month time period necessary.
Council Member Schmid responded that from what he understood, a
one week delay in consideration would prevent Staff from providing an
adjusted rate structure until sometime in early November. He stated
that he felt that a six month period would allow Staff the time
necessary to prepare the requested information.
Council Member Burt asked Ms. Fong to clarify her timeline.
Ms. Fong stated that if Council were vote on this issue at the next
scheduled meeting in one week, the Cost-of-Services Requests for
Proposals would go out in mid July and would close in mid-August. The
Study would likely start in September and be completed and returned
to Council in November. She reported that Staff could return with new
rates in mid-January, at which time they would begin the Proposition
218 process. The results of that process could be returned to Council
in March and could potentially produce rates effective April 1, 2012.
Ms. Fong stated that the wording of the original Motion was clear, in
that the Residential Tier 3 rate and the Commercial Tier 2 rate would
be eliminated. She requested clarification regarding Council Member
Scharff’s desire to maintain compliance with Proposition 218 through
eliminating the previously mentioned tiers. She stated that she was
unclear as to whether the intent was to eliminate all tiers or only those
specifically named.
Council Member Scharff replied that in his understanding, the City had
the burden of proof regarding maintaining compliance with Proposition
218. He stated that, if challenged, the City needed to be able to
provide evidence that one rate payer class was not subsidizing
another. He remarked that in his opinion, the Residential Tier 3 rate
and the Commercial Tier 2 rate constituted a violation of the
Proposition 218 prohibition on crosssubsidization and that the
proposed rate structure was a liability without a Cost-of-Services
Study to support it.
Council Member Burt asked for clarification regarding which rates
Council Member Scharff was specifically opposed to.
Council Member Scharff replied that there was currently no Residential
Tier 3 rate or Commercial Tier 2 rate, but that the new rate structure
would create them. He was opposed to these additions, stating that
they were a violation of Proposition 218.
Council Member Burt asked for an explanation of the Utilities Staff’s
justification for the tiered rate increases.
Ms. Fong explained that Staff provided the Utilities Advisory
Commission with the financial forecast and the Cost-of-Services Study,
as well as some possible scenarios for review. She stated that the
Cost-of-Services Study examined the cost of services between
commercial and residential users and between different classes of
commercial and residential users, and after review of these materials
the Utilities Advisory Commission selected the three tiered system.
Council Member Burt asked Ms. Fong how Staff had established the
various rate structure scenarios presented to the Commission, and
what consideration was given to Proposition 218 requirements.
Ms. Fong explained that Staff had provided possible rate structuring
scenarios to the Commission, and that the Commission evaluated
those scenarios based on policy considerations provided by Council,
such as conservation.
Council Member Burt stated that he didn’t understand how Staff could
present scenarios to an advisory commission without providing legal
considerations. He acknowledged that he was torn on the issue and
that he was disappointed to be hearing about the possible negative
legal ramifications of the Item at this late date. He stated that Council
was now faced with a dilemma; they must attempt to meet the goals
of the water management plan while ensuring the City’s compliance
with Proposition 218. He noted that although the public had raised
many objections to the water rate increases, the issue of whether to
undertake a new Cost-of-Services Study would not eliminate that
increase. He emphasized the importance of alerting the public to the
fact that the Study would not only fail to prevent a rate increase, but
that it could potentially result in higher user rates down the road. He
asked that, for the benefit of the public, Staff provide a brief review of
the motivating factors behind the rate increase.
Ms. Fong stated that in considering the Tier 3 Rate, the Utilities
Advisory Commission did consider the cost of an alternative water
supply. She explained that these alternatives, such as desalination or
recycled water, are typically very expensive. She communicated that
the main motivations for the rate increases were San Francisco Public
Utilities Commission water supply costs, seismic safety improvement
costs, Capital Improvement Program costs, and a decrease in water
demand.
Council Member Burt stated that he understood that there were certain
fixed costs associated with the distribution of water and that as fewer
units were sold the price per gallon must increase to compensate, but
observed that many water customers felt penalized because although
they had conserved water, their rates continued to increase. He
explained that users must be made to clearly understand that they
were not being penalized for conserving and that what they were
experiencing was not a net increase in their bill, but an increase in
their price per gallon. He urged Staff to engage the community on this
issue and to clearly articulate the factors behind the changes that they
were seeing in their bill.
Mr. Keene stated that this was going to be an ongoing issue and stated
that Council Member Klein had asked Staff to agendize a study session
with information on the SFPUC water project, which has been
scheduled for the July 25, 2011 meeting. He explained that Staff has
arranged for some SFPUC representatives to attend and provide
information regarding some of the motivating factors behind water
rate increases.
Council Member Klein spoke in opposition to Council Member Schmid’s
Substitute Motion, and in favor of Council Member Scharff’s Original
Motion. He asserted that Council Member Schmid had incorrectly
stated that the Original Motion would require the City to draw on the
Budget Stabilization Reserve Fund, when in fact the Motion included a
provision to pro-rate the rates to compensate for the delay. He agreed
with Council Member Burt that the community needed to be aware of
the fact that the rates would increase regardless of Council’s decision
regarding the Cost-of-Services Study. He commented that the one
week delay would provide Council with an opportunity to review the
facts and determine how to proceed.
Council Member Price stated that she would support the Substitute
Motion because of the number of unanswered questions regarding the
issue and her objection to making a change in direction at this point in
the process, after the item had already been reviewed by several
committees. She agreed that there should be a concerted effort on the
part of the Utilities Staff to inform the public regarding the reasons
behind the rate increases, and suggested a statement be included in
the utility bills.
Council Member Scharff stated that the real problem was that, to his
knowledge, the issue of Proposition 218 compliance had not been
vetted by either the Finance Committee or the Utilities Advisory
Commission. He explained that his Motion was intended to allow Staff
the opportunity to provide Council with the information necessary to
remedy that oversight.
Council Member Schmid stated that the proposed rates addressed the
customer class issue clearly, and that they represented an active
attempt from Council to move towards compliance with Proposition
218. He acknowledged that the question of how to differentiate
between users in a given class was a more complex question,
deserving of another Cost-of-Services Study. He suggested that
Council move forward with the preparation of the Study before
adjusting the rates.
Vice Mayor Yeh stated that while some further analysis appeared to be
required on the issue of Proposition 218 compliance, the existing Cost-
of-Services Study indicated that the City needed to restructure their
water rates. He explained that the Original Motion would delay the
implementation of the rates, which had been developed based on
information already provided, and allow a further continuation of the
cross-subsidization that was already occurring. He noted that Council
Member Schmid was correct in acknowledging that another study was
warranted, and stated that he would continue to support the
Substitute Motion.
Mayor Espinosa stated that he would not support the Substitute Motion
because of his concern regarding the fact that a week long
continuance of the Item would place it on an agenda that is already
anticipated to be extremely long. He explained that the concerns over
Proposition 218 compliance compelled him to agree with the original
Motion.
SUBSTITUTE MOTION FAILED: 3-5 Price, Schmid, Yeh yes,
Shepherd absent
Vice Mayor Yeh requested that City Attorney explain the legal
implications of the vote, which would ensure that the new rates would
not be implemented until August 1, 2011 at the earliest.
Ms. Stump responded that she would advise Council regarding the
relative risk of the options before them during a closed session.
MOTION PASSED: 7-1 Price no, Shepherd absent
MOTION: Council Member Scharff moved, seconded by Vice Mayor
Yeh to: 1) Staff and the Finance Committee recommend that Council
approve the following:
1. The Budget Adoption Ordinance, which includes:
a. the City Manager’s Fiscal Year 2012 Proposed Budget
b. amendments to the City Manager’s Fiscal Year 2012 Proposed
Budget
c. revised pages to the Table of Organization
d. amendments to the Fiscal Year 2012 Proposed Municipal Fee
Schedule
2. Resolution amending Utility Rate Schedules for a Storm Drain Rate
Increase
3. Resolution amending Utility Rate Schedules for a Fiber Optic Rate
Increase
4. Resolution amending Utility Rates Schedule for a Wastewater Rate
Increase
5. Resolution of the Council of the City of Palo Alto amending the
2010-2011 Compensation Plan for Management and Professional
Personnel adopted by Resolution No. 9156 to add three new
positions, change the titles of six positions and update the
compensation for five positions
6. Ordinance of the Council of the City of Palo Alto amending Chapter
2.08 of Title 2 of the Palo Alto Municipal Code to add Section
2.08.240 creating a new Department of Information Technology
Vice Mayor Yeh noted that the now adopted budget highlighted the
anticipated movement within the City’s public safety negotiations, the
importance of achieving equity across the City’s labor units, and of
finding economically sustainable solutions.
Council Member Schmid expressed strong support for the budget, and
while acknowledging some remaining uncertainties, stated that Staff’s
willingness to return in 90 days to check-in with Council had a great
deal to do with his acceptance of the document.
Mayor Espinosa expressed confidence in Staff’s ability to closely
monitor any areas of uncertainty within the budget, and to meet
expected targets. He conceded that the next few years would likely
produce equally difficult budgeting constraints, but that Staff’s hard
work has kept Palo Alto financially sound in comparison to many other
cities.
MOTION PASSED: 8-0 Shepherd absent
CITY COUNCIL SPECIAL MEETING
EXCERPT DRAFT MINUTES OF JUNE 27, 2011
5. Resolution 9183 entitled “Resolution of the Council of the City of
Palo Alto Amending the Water Utility Rate Schedules W-1, W-3, W-4
and W-7 or Selection of an Alternative Water Utility Rate Structure”.
(continued from June 20, 2011).
City Manager, James Keene, referring to Council’s discussion regarding
postponing this item, stated that it would be difficult to have this
conversation in a future meeting.
Utilities Director, Val Fong noted that bringing the information back
with changed rate schedules and updated numbers would push it back
to September.
Council Member Price left the meeting at 12:24 am.
Mayor Espinosa said Staff’s request was to discuss the item and
provide feedback. He noted it had been discussed previously and
might take less time than other items.
Council Member Scharff noted that adding Tier 3 would not be in
conformance with Proposition 218, so the choice was between
Alternative 1 and 2. He stated it did not matter, but he would prefer
Alternative 1. He noted the rates were both lower on Alternative 1.
MOTION: Council Member Scharff moved, seconded by Council
Member Klein to direct Staff to move forward with Alternative 1 which
includes: 2 tiered residential rates with the Tier 1 breakpoint at 6 ccf,
priced at $3.60, and one tier for commercial rates.
Herb Borock noted that there were two California Constitutional goals
being implemented. One goal was from Proposition 218 and related to
charging users for a good and service based upon what each was
using. Another goal was conservation, which was setting up a rate
structure to benefit the entire class of users. In balancing the two
goals the rates were established. He noted that the proposed
alternatives were unclear in that they were getting the same amount
of money as in the original proposal, but in a shorter amount of time.
He thought the original proposal was better than the alternatives, and
suggested including the amount of rate differences. He noted the tiers
force conservation and as established in the Cost of Services Study,
they satisfy Proposition 218.
Council Member Scharff stated that he believed Alternative One to be
in line with Proposition 218.
Council Member Shepherd stated she strongly supported Alternative
Two.
SUBSTITUTE MOTION: Council Member Shepherd moved, seconded
by Vice Mayor Yeh to move Staff recommendation 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.
Council Member Shepherd stated that during the Finance Committee
discussions on this subject Staff provided an explanation about the
analysis of the interest that Palo Alto residents had in conservation and
moving forward with Proposition 218 compliance with fixed rates
increasing by 100% both this and next year. She stated that would be
more appropriate for the Palo Alto community.
Council Member Burt stated it should be clear to the public that under
Tier 1 there was a reduction, absent the increase in fixed rates. He
noted it was adding 100% this year, and only 50% next year.
Council Member Shepherd disagreed.
Council Member Burt asked for clarification on the increase.
Ms. Fong stated Council Member Burt was correct.
Council Member Schmid noted that there was a Cost of Services Study
that focused on customer classes. He stated that the requirements on
the residential side had not been addressed. He stated that moving
forward, even if the rates were approved, there would be a Cost of
Services study for any rate increase that might be appropriate next
year. He asked if that was correct.
Ms. Fong replied yes.
SUBSTITUTE MOTION FAILED: 3-5 Schmid, Shepherd, Yeh yes
AMENDMENT: Vice Mayor Yeh moved, seconded by Council Member
XXXX for Staff to draft a letter to State Legislators requesting
legislation to address conservation pricing for water utilities.
Council Member Scharff noted it was a constitutional requirement
trumping any legislation.
Mr. Keene noted there was some legislation related to conservation
pricing.
City Attorney, Molly Stump noted they could come back with a
strategy to address the underlying interest.
AMENDMENT FAILED DUE TO LACK OF SECOND
MOTION PASSED: 7-1 Yeh no, Price absent
Ms. Fong stated that the first tier went to 6ccf in Alternative 1.
Vice Mayor Yeh stated that he did not know if there was a Motion for
legislation regarding conservation pricing or if that was what the City
Attorney was already tasked with bringing back to Council.
Ms. Stump suggested working on it offline and coming back with
something.
1855 Bret Harte Street
Palo Alto, CA 94303
August 8, 2011
City Clerk
250 Hamilton'Avenue
Palo Alto, CA 94301
Dear City Clerk,
Please count our protests against the proposed rate and/or fee increases for water volumetric and fixed service
charges for"RBsidential W1 users. Please also count our protests against the proposed refuse rate increase,
both fixed and variable, for residential users.
Sincerely, -&~~~~~~~ ~
Cornelia K. Turkington q,.=
Our parcel number is:' 003-56-016-00 ~
Our utilities account number is: 30023439
I
/
August 20. 2011
City of Palo Alto
City Clerk
250 Hamilton Avenue
Palo Alto, CA 94301
GlJ:Y Of PALO ALTO ~ll. lttlTY CLERK'S fJFFfbl;"
"AUG 23 PH 4: I I
RE: Protest of proposed water rate changes
Dear Cit): Clerk: ,
•
For serious consideration, I am protesting the proposed utility rate adjustment as it relates
to the water rate increase stated in the July 29, 2011, notification. For whatever reason,
too little water or too much water, equally, seem to encourage the City to arbitrarily
arrive at the very same conclusion. My account number is 30005028 and my address is
515 Chaucer Street, Palo Alto, CA 94301.
Sincerely,
~~~()cue
Sheila Hoar
•. MRS •. SHEILA HOAR
515.,CHAUCER STREET
PALO AliO, CA 94301
C~C6~ aJtrJ
cL~~~
.;( SO Hafrl<.J.. ~ a.<.J-<ert.<.t...~
~ at.~ ... c.fi ~dOI
,.',e' I CITY OF OA. ." \J ~iciaBuchanan
SHY Cl'E,M.RKl9sI},LTQ ..• OA .' "'~c3E1 Centro St ~F'F11lE i ido Alto, CA 94306
" AUG 15 /J~~A 10 .i
.' .. ., PI! 2'511' ", ~ . J "ZAJFf . ~ ~ .. at6 .... '. '. '. ~~?J€\.cem:ro~.
;& ~~~~:F~'~ "
. I
August 8, 2011
2563 Greer Rd. <J'i30 3
To:
Palo Alto City Council
City Clerk, 250 Hamilton Ave.
Palo Alto, CA 94301
Dear People,
C1TY OF PALO ALI·· •.. un Y CLERK'S aFF~'e~A
" AUG 12 PH 3: 3.
I ~rite you to let you know that I strongly object to the proposed increase in the
water rate.
I am a retired person living on an income just over $32,000 a year. I receive Rate
Assistance from the City, which I greatly appreciate.
Does it make sense to further increase the cost of a service for which you help me
to pay?
Sincerely yours
~~~OA
Account No. 30010480
Assessed Parcel No. 127-02-065
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City Clerk
775 Northampton Drive
Palo Alto, CA 94303
Aug. 8, 2011
250 Hamilton Ave
Palo Alto, CA 94301
To whom it may concern:·
e
CITY OF PALO ALTO.CA
CITY CLERK'S OPFICE
II AUG 22 PH 3: 52 Account #30029774
The purpose of this communication is to protest the raising of water rates and refuse
rates for residential customers. The City should reduce spending where it its outlay is
excessive. Arbitrarily raising fees for residents is not good management.
Yours truly, .
~~c~ ~~ VI i QQ
Kay Bushnell
/
·3073 Price Court
Palo Alto, CA 94303
City Cler~
250 Hamilton Avenue
Palo Alto, CA 94301
--CITY OF PALO ALTO. CA en Y CLERK'S OFFICE
f.f AUG-9 PM 2:14
Reference: Assessor's Parcel Number 127-52-010-00
Gentlemen,
Thursday, August 04, 2011
The purpose of this letter is to protest the water rate changes to both "volumetric and
monthly service charges. Also I would like to protest the proposed refuse rate increases.
I believe a fare increase should be proportional to the size of each household's refuse can
/
"\ !
Very truly yours,
~o~~
•
August 4,2011
City Clerk
City of Palo Alto
250 Hamilton Avenue
Palo Alto, CA 94301
Richard and Joan Raiter
211 Seale Avenue
Palo Alto, CA 94301
Subject: Proposed Rate Increase/wgtef raw clJpge
~LlY OF PALO ALT CITY CL ltRX'S Ilfrt O. CA t. u,-PICE
I, AUG ~9 PH 2: 14
Dear City Clerk: ..
We are taking this' opportunity to write this letter of protest against the proposed increase
in the Water Utility water rates change. The proposed change is a very significant one
and is much higher than necessary in our opinion. We fmd the 20.9% rate increase to be
a very steep increase at one time.
We are long term. owners and occupants of our property in Palo Alto, since 1976. Please
take into consideration the older people who reside in Palo Alto and may be on a fixed
income or very close to it.
Thank you for taking this into your consideration.
Sincerely, }
Richard and Joan Raitet
211 Seale Avenue:
Palo Alto, CA 94301
650-326-0232
Pareel Number 124-18-029-00
Palo Alto Utilities Account # 30025635
CITY OF PALO ALTQ.CA
CITY CLERK'S OFFICE
IIAUG 22 PM 3: 53
City Clerk
250 Hamilton Ave
Palo Alto, CA 94301
235 Seale Ave
Palo Alto, C1\ 94301
Aug 17, 2011
Re: Protest against Volumetric and fixed service charges for Water
To Whom It May Concern:
i
. I write to protest the changes in general residential water rates over 7 cef and the
increase in the monthly fixed service charge. I consider my water use to be efficient
and moderate yet I am usually over the 7 cc.
The current water rates are already excessive. My water plus the associated sewer
charge to process waste water can together be as much as a third of my total utility
bill.
I strongly oppose the proposed changes in rates.
Sincerely,
L:,. I \ -;~ .IlI)' !/0\J~ L./~-
Susan C. Neville
Account: 30032500