HomeMy WebLinkAboutStaff Report 8171
City of Palo Alto (ID # 8171)
City Council Staff Report
Report Type: Action Items Meeting Date: 6/19/2017
City of Palo Alto Page 1
Summary Title: FY 2017 Water and Refuse Rate Public Hearing
Title: PUBLIC HEARING AND PROPOSITION 218 HEARING: Staff
Recommendation That the City Council Adopt two Resolutions: 1) Amending
Rate Schedules W-1 (General Residential Water Service), W-2 (Water Service
From Fire Hydrants), W-4 (Residential Master-Metered and General Non-
Residential Water Service), and W-7 (Non-Residential Irrigation Water
Service) to Increase Rates up to 4 Percent, and Repeal the Drought
Surcharges Effective July 1, 2017; and 2) Amending Rate Schedule R-1
(Residential Refuse Rates) to Increase Monthly Refuse Service Rates by 5
Percent Effective July 1, 2017
From: City Manager
Lead Department: Utilities
Recommendation
Staff requests that the City Council:
1. Adopt a resolution (Attachment B):
a. Amending Utility Rate Schedules W-1 (General Residential Water Service), W-2
(Water Service from Fire Hydrants), W-4 (Residential Master-Metered and General
Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water Service)
(Attachment C) to increase rates up to 4% effective July 1, 2017; and
b. Removing the drought surcharge effective July 1, 2017.
2. Adopt a resolution (Attachment D) amending Utility Rate Schedule R-1 (Residential Refuse
Rates) (Attachment E) to increase monthly refuse service rates by 5% effective July 1, 2017.
Executive Summary
The City mailed a Notice of Public Hearing (Attachment A) regarding the Water and Refuse rate
changes to property owners and customers as of May 5, 2017, informing the public that the
proposed rate changes would be considered for Council adoption at a Public Hearing on June
19, 2017 at 6 pm, and inviting the public to provide comment or protest. Council may adopt
the proposed rates unless written protests are filed by a majority of the affected customers.
City of Palo Alto Page 2
Any approved rate changes will become effective July 1, 2017.
Background
On April 4, 2017, Utilities and Public Works staff presented the Finance Committee two reports:
Utilities Advisory Commission Recommendation That the City Council Adopt: (1) a
Resolution Approving the Fiscal Year 2018 Water Utility Financial Plan; and (2) a
Resolution Increasing Water Rates by Amending Rate Schedules W-1 (General
Residential Water Service), W-2 (Water Service From Fire Hydrants), W-4 (Residential
Master-Metered and General Non-Residential Water Service), and W-7 (Non-Residential
Irrigation Water Service) and Removing the Drought Surcharge (ID #7854) (Attachment
F); and
Finance Committee Discussion and Recommendation That Council Adopt (As Part of the
Fiscal Year 2018 Annual Budget) a Resolution Amending the Residential Refuse Rates for
Fiscal Year 2018 to Cover Program Costs and Keeping All Other Rates the Same (ID
#7724) (Attachment G)
As required by Article XIIID of the State Constitution (added by Proposition 218), a Notice of
Public Hearing regarding the proposed Water and Refuse rate changes was sent to affected
property owners and customers 45 days prior to the June 19 Public Hearing. All residents and
other interested persons may submit written or oral testimony at the hearing, and may also
submit written protests to any or all of the proposed rate increases.
While in prior years rate change proposals have been considered during the Budget Adoption
Hearing, this year the Budget Adoption Hearing will occur on June 27th. The Public Hearing at
which Council will consider adoption of the proposed water and refuse rates must be opened
on June 19 as stated in the notice, but may be continued, if needed, to June 27 after the
hearing is opened.
Discussion
Water Rates
The attached water rate change will result in a 2-4% rate decrease for most customers whose
usage remains similar to pre-drought consumption, because the 4% increase to base water
rates is offset by the removal of the drought surcharges currently in effect.
The UAC reviewed the Water Financial Plan and Rate Proposals at its meeting on March 1,
2017, and unanimously recommended approval of the proposed rates and financial plan while
expressing concern that Palo Alto water utility rates were higher than comparison cities. The
Finance Committee reviewed the Water Financial Plan and Rate Proposals at its meeting on
April 4, 2017, and recommended a lower increase to base rates, 3%, but recommended that
staff perform whatever noticing is required to enable Council to adopt a 4% increase on June
19, 2017. The attached notice was formatted to enable Council to consider and adopt either a
3% or a 4% rate change. The Finance Committee also requested that additional information be
provided to regarding why Palo Alto water utility rates were higher than other communities.
City of Palo Alto Page 3
Staff provided information on water utility benchmarking at the May 18, 2017 Finance
Committee meeting (Attachment I). With this information, the Finance Committee
recommended the City Council approve the Utilities Department budget with the
understanding it reflects a 4% rate increase and drought surcharge elimination.
Refuse Rates
The Refuse Rate proposal to increase residential monthly refuse service rates by 5% for FY 2018
as presented to the Finance Committee (Attachment C) was approved unanimously (4-0). There
is no change proposed for commercial refuse rates. Excerpted minutes of the April 4, 2017
Finance Committee meeting are provided as Attachment H.
Timeline
After the Public Hearing is opened and testimony from members of the public accepted, City
Council may choose to:
1. Close the hearing and take action; or
2. Close the hearing and defer action until the Budget Adoption Hearing on June 27th; or
3. Continue the hearing until the Budget Adoption Hearing on June 27th, then on the 27th
reconvene the hearing, take any additional water and refuse rate testimony, close the
hearing, and take action.
The latter option has been used in prior years when the Budget Adoption process has spanned
multiple City Council meetings. It is customary in such circumstances to continue to accept
written protests up until the hearing is closed.
Unless written protests are filed by a majority of affected customers, Council may vote on the
proposed rate actions. If approved, they would become effective July 1, 2017.
Resource Impact
Resource impacts related to the proposed Water and Refuse rate actions are detailed fully in
the attached Finance Committee reports.
Policy Implications
The proposed water rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans, and were developed using a cost of
service study and methodology consistent with the California Constitution’s cost of service
requirements.
There are no policy changes contained in the adoption of the proposed new Refuse Rates.
Environmental Review
The Council’s adoption of the proposed FY 2018 Water and refuse rate adjustments is exempt
from CEQA review under Public Resources Code Section 21080(b)(8) as an adoption of rates to
City of Palo Alto Page 4
meet operating expenses, purchase supplies, meet reserve needs and obtain capital
improvement funds). After reviewing this staff report and all attachments presented, the
Council incorporates these documents herein and finds that sufficient evidence has been
presented setting forth with specificity the basis for this claim of CEQA exemption.
Attachments:
Attachment A: NOTICE OF PUBLIC HEARING
Attachment B: Resolution Adopting Water Rates and Deactivation of Drought Surcharge
effective July 1, 2017
Attachment C: Water Utility Rate Schedules W-1, W-2, W-4 and W-7
Attachment D: Resolution Amending Refuse Rate Schedule
Attachment E: Refuse Utility Rate Schedule R-1
Attachment F: Staff Report 7854 - FY 2018 Water Utility Rate Proposal
Attachment G: Staff Report 7724 - FY 2018 Refuse Rate Proposal
Attachment H: Excerpted Action Minutes of April 4, 2017 Finance Committee Meeting
Attachment I: Water Utility Benchmarking Study
NOTICE OF PUBLIC HEARING – PROPOSED WATER AND REFUSE RATE CHANGES
May 5, 2017
On June 19, 2017, the Palo Alto City Council will consider proposed changes to the City’s water and refuse service
rates that, if approved, will become effective on July 1, 2017. The City’s utility rates and charges are evaluated
annually to determine if adequate revenues will be collected to pay for operations and maintenance costs, provide
funds for important capital improvement programs and maintain adequate reserves. Please visit our website for
additional background information on the proposed changes: www.CityofPaloAlto.org/RatesOverview
WATER RATES
Water rates are designed to recover the City’s costs of buying and distributing water while maintaining adequate
financial reserves. These costs have been increasing, particularly the City’s wholesale cost of water. The City’s
water supplier, the San Francisco Public Utilities Commission (SFPUC), is at the end of a ten-year, $4.6 billion dollar
capital improvement program to replace aging infrastructure in the Hetch Hetchy water system and improve its
seismic reliability. Each year the SFPUC issues new debt to fund the next phase of the project, which increases its
debt service costs. The SFPUC passes these costs on to the City and to other water agencies served by the Hetch
Hetchy system. As water usage has decreased during California’s long running drought, collection of these fixed
debt costs translates to higher per unit costs for all customers.
As of July 1, 2017 the SFPUC wholesale water rate is expected to increase by roughly $0.36/CCF.1 The City is
including that increase in the proposed rate increases shown below, and continues to implement an aggressive
program to upgrade its own water distribution pipelines, as well as a multi-year project to rehabilitate and
seismically strengthen its reservoirs. The City also recently completed a project to rehabilitate wells and build a
new reservoir to bolster its emergency water supply system.
The City’s water rate schedules currently consist of three components:
1.a “volumetric” commodity charge for each CCF1 of water consumed during the billing period;
2.a monthly service charge for each customer, based on water meter size; and
3.a drought surcharge, currently equal to 20% of the volumetric charge.
No changes are proposed to the monthly water service charges this year. The drought surcharge is proposed to be
deactivated as of July 1, 2017. The proposed changes to the volumetric rates are shown below. On June 19, the
City Council will consider a four percent rate increase, although it may choose to set the increase at some lower
rate. Rates are set to recover costs, and a smaller increase will require a reduction in the water utility’s operations,
maintenance and/or capital budgets, or an increase in reserve withdrawals. It should be noted that the
combination of the Volumetric Water Charge increase and deactivation of the Drought Surcharge will result in a
net savings for customers who maintain similar consumption levels. For information, both a three percent and four
percent rate increase is shown below:
Current and Proposed Volumetric Water Charges
Rate Schedule
Applicable
Volume Current Rates Proposed Rates @ 3% Proposed Rates @ 4%
Rate Change Rate Change
($ per CCF) ($ per CCF) ($ per CCF) ($ per CCF) ($ per CCF)
W-1 – Residential First 6 CCF
Over 6 CCF
$6.30
8.82
$6.57
9.09
$0.27
0.27
$6.66
9.18
$0.36
0.36
W-2 – Hydrant All CCF 7.32 7.59 0.27 7.68 0.36
W-4 – Residential
Master-Metered and
General Non-
Residential
All CCF 7.32 7.59 0.27 7.68 0.36
W-7 – Non-Residential
Irrigation All CCF 8.72 8.99 0.27 9.08 0.36
1 1 CCF = one hundred cubic feet of water
ATTACHMENT A
REFUSE RATES
Refuse rates are designed to recover the City’s costs of collecting, processing, recycling, composting, and disposing
of materials collected curbside, as well as providing weekly street sweeping, household hazardous waste collection
programs and extensive waste diversion services. The proposed changes to the Residential refuse rates are part of
a Council-approved three year plan to fully recover the cost of providing refuse service. Originally, the plan called
for a rate increase of 8% in fiscal year 2018. This has been adjusted to a proposed 5% rate increase. All Residential
refuse service costs are included in one monthly charge based on the size of a customer’s garbage cart.
Current and Proposed Monthly Residential Refuse Rates (Schedule R-1)
Cart Size Current Rates
($ per month)
Proposed Rate
($ per month)
Change
($ per month)
Minican/20 gallon $26.48 $27.81 $1.33
32 gallon 47.69 50.07 2.38
64 gallon 95.38 100.15 4.77
96 gallon 143.07 150.22 7.15
No changes to Commercial refuse rates are proposed at this time. For information about the services included in
the refuse rates, please visit CityofPaloAlto.org/RefuseRates
YOUR OPPORTUNITY TO GET INVOLVED
After reading the information in this letter and reviewing our website, you may wish to provide input to the City
Council. Proposed rate changes will be considered by the City Council at a public hearing to be held:
June 19, 2017 at 6:00 pm, Council Chambers
250 Hamilton Avenue, Palo Alto, California, 94301
The City welcomes your feedback at the hearing. All residents and other interested persons are invited to submit
written or oral testimony at this hearing. You may also submit a written protest against any or all of the proposed
charges outlined above. The City must receive your signed, written protest prior to the close of the public
hearing on June 19, 2017.
Please include information identifying your parcel, such as the Assessor’s Parcel Number(s) of the property or
properties you own, or, at a minimum, your street address. You may also include your City of Palo Alto Utilities
account number(s) for open account(s) you have with the City that are subject to the proposed rate adjustments.
Protests are limited to one per parcel. You may submit protests directly to the City Clerk at either at the June 19,
2017 public hearing, or mail or deliver written protests in advance to:
City Clerk, 250 Hamilton Avenue, Palo Alto, California 94301
The City Clerk will follow the guidelines for the submission and tabulation of protests adopted by the City Council
on May 12, 2008 (Resolution #8815). If written protests are filed by a majority of the affected customers of a utility
(water or refuse) or with respect to a majority of the parcels affected by a utility’s proposed rate increase, the rate
increase will not be imposed for that utility.
OTHER PROPOSED RATE CHANGES – ELECTRICITY
At the June 19 public hearing, the City Council will also consider changes to the City’s electricity rates. Although the
written protest process described above is set forth by the California Constitution and only applies to changes to
the City’s water and refuse rates, the City welcomes your feedback on any of the proposed rate changes. For more
detailed information on all of the changes, please visit www.CityofPaloAlto.org/RatesOverview. For
assistance in determining the cost of the proposed rate adjustments to you, please call the City of Palo Alto
Utilities Customer Service Center at (650) 329-2161.
Attachment B
*NOT YET APPROVED *
170216 jb 6053919
Resolution No. _________
Resolution of the Council of the City of Palo Alto Increasing Water
Rates by Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service from Fire Hydrants), W-4 (Residential
Master-Metered and General Non-Residential Water Service), and
W-7 (Non-Residential Irrigation Water Service) and Repealing
Resolution No. 9542 to Deactivate the Level 2 Drought Surcharges
R E C I T A L S
A. On January 17, 2014 the Governor of the State of California proclaimed a State of
Emergency due to severe drought conditions. On April 1, 2015 the Governor issued an
Executive Order proclaiming that severe drought conditions continued to exist, and ordering
the State Water Resources Control Board to adopt regulations imposing mandatory water use
restrictions on water suppliers to achieve a 20% reduction in statewide potable water use
through February 28, 2016, or as continued or modified by the Governor.
B. On May 5, 2015, the State Water Resources Control Board adopted regulations
imposing upon Palo Alto a mandatory 24% reduction in potable water consumption from
Jun 1, 2015 through February 28, 2016. This action by the Board triggered the City Council’s
authority to activate one of the three drought surcharges available in its water rate schedules.
C. On August 17, 2015, Council adopted Resolution 9542 which established that the
Level 2 (20%) drought surcharges set forth on the City's schedule of water rates would be
collected on all City of Palo Alto Utilities water customer bills as of September 1, 2015, and
declared that the surcharge would remain in effect until rescinded or modified by the City
Council.
D. On May 9, 2016 Governor Brown issued an Executive Order calling for the State
Water Resources Control Board to adjust emergency water conservation regulations through
the end of January 2017, in recognition of the different water supply conditions across the
state. The State Board subsequently revised its regulations allowing suppliers to self-certify
that there would be no supply shortfall, assuming 3 additional dry years. . The San Francisco
Regional Water System (RWS) supply availability enabled the City of Palo Alto to self-certify a
conservation standard of zero which remains in effect.
E. While the State’s emergency regulation remains in effect, hydrological conditions as
of February 2017 indicate that the State will be largely out of drought conditions, and customer
demand has started to rise from peak conservation levels. Water storage in the RWS is at
maximum capacity.
F. Staff therefore recommends the deactivation of the level 2 drought surcharge at this
time, via the repeal of Resolution No. 9542.
Attachment C
*NOT YET APPROVED *
170216 jb 6053919
G. 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, fees
and charges.
H. On June 19, 2017, the City Council held a full and fair public hearing regarding
the proposed rate increase and considered all protests against the proposals.
I. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the June 19, 2017 public hearing was mailed to all City of Palo Alto
Utilities water customers by May 5, 2017.
J. The City Clerk has tabulated the total number of written protests presented by the
close of the public hearing, and determined that it was less than fifty percent (50%) of the total
number of customers and property owners subject to the proposed water rate amendments,
therefore a majority protest does not exist against the proposal.
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 as attached
and incorporated. Utility Rate Schedule W-1, as amended, shall become effective July 1, 2017.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-2, as amended, shall become effective July 1, 2017.
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 as attached and incorporated. Utility Rate Schedule W-4, as amended,
shall become effective July 1, 2017.
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 as
attached and incorporated. Utility Rate Schedule W-7, as amended, shall become effective
July 1, 2017.
SECTION 5. The City Council finds as follows:
a.Revenues derived from the water rates approved by this resolution do not exceed
the funds required to provide water service.
b.Revenues derived from the water rates approved by this resolution shall not be used
for any purpose other than providing water service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
Attachment C
* NOT YET APPROVED *
170216 jb 6053919
c. The amount of the water rates imposed upon any parcel or person as an incident of
property ownership shall not exceed the proportional cost of the water service
attributable to the parcel.
SECTION 6. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 7. Each of the rate schedules adopted by this resolution includes a structure
of drought surcharges that correspond to different levels of water use reduction in the City.
Effective July 1, 2017, each of the drought surcharges in the water rate schedules adopted by
this resolution are deactivated and shall not be added to applicable water rates, unless and
until such time as Council again approves both their use and the appropriate reduction level.
SECTION 8. The Council finds that the adoption of this resolution changing water
rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to maintain service 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). After
reviewing the staff report and all attachments presented to Council, the Council incorporates
these documents herein and finds that sufficient evidence has been presented setting forth
with specificity the basis for this claim of CEQA exemption.
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
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-1 Effective 7-1-20176
dated 97-1-20165 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 Sservices.
C. RATES:
Per Meter
Monthly Service Charge: Per Month
For 5/8-inch meter ..................................................................................................... $ 16.77
For 3/4 inch meter ..................................................................................................... 22.60
For 1 inch meter ........................................................................................................ 34.26
For 1 1/2 inch meter .................................................................................................. 63.40
For 2-inch meter ........................................................................................................ 98.37
For 3-inch meter ........................................................................................................ 209.11
For 4-inch meter ........................................................................................................ 372.31
For 6-inch meter ........................................................................................................ 762.81
For 8-inch meter ........................................................................................................ 1,403.94
For 10-inch meter ...................................................................................................... 2,219.92
For 12-inch meter ....................................................................................................... 2,919.34
Commodity Rate: (To be added to Service Charge and applicable to all pressure zones.)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 usage ........................................................................................................................$6.6630
Tier 2 usage (All usage over 100% of Tier 1) ........................................................................ 89.182
Attachment C
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-2 Effective 7-1-20176
dated 97-1-20165 Sheet No W-1-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity Rate for Tier 1 and Tier
2 water usage when the City Council has determined that a water reduction level is in effect for the
City as described in Section D.3. The drought surcharges in the table below are measured in dollars
per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Tier 1 0.20 0.43 0.64
Tier 2 0.58 1.21 1.85
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 0.2 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.
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-3 Effective 7-1-20176
dated 97-1-20165 Sheet No W-1-3
3. Drought Surcharge
During period of water shortage or restrictions on local water use, the City Council may,
by resolution, declare the need for citywide water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the Drought Surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-1 Effective 7-1-20176
dated 97-1-20165 Sheet No W-2-1
A. APPLICABILITY: This schedule applies to all water taken from fire hydrants for construction, maintenance, and
other uses in conformance with provisions of a Hydrant Meter Permit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water sServices.
C. RATES: 1. Monthly Service Charge.
METER SIZE
5/8 inch ........................................................................................................................... 50.00
3 inch ........................................................................................................................... 125.00 2. Commodity Rate: (per hundred cubic feet) ................................................................ $7.6832 3. Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity Rate when the
City Council has determined that a water reduction level is in effect for the City as described in
Section D.5. The drought surcharges in the table below are measured in dollars per hundred
cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES: 1. Monthly charges shall include the applicable monthly service charge in addition to usage billed at
the commodity rate. 2. Any applicant using a hydrant without obtaining a Hydrant Meter Permit or any permittee using a
hydrant without a Hydrant Meter Permit shall pay a fee of $50.00 for each day of such use in
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-2 Effective 7-1-20176
dated 97-1-20165 Sheet No W-2-2
addition to all other costs and fees provided in this schedule. A hydrant permit may be denied or
revoked for failure to pay such fee. 3. A meter deposit of $750.00 may be charged any applicant for a Hydrant Meter Permit as a
prerequisite to the issuance of a permit and meter(s). A charge of $50.00 per day will be added for
delinquent return of hydrant meters. A fee will be charged for any meter returned with missing or
damaged parts. 4. Any person or company using a fire hydrant improperly or without a permit, or who draws water
from a hydrant without a meter installed and properly recording usage shall, in addition to all other
applicable charges be subject to criminal prosecution pursuant to the Palo Alto Municipal Code.
5. During period of water shortage or restrictions on local water use, the City Council may, by
resolution, declare the need for citywide water conservation at the 10/15%, 20% or 25% level.
While such a resolution is in effect, a drought surcharge will apply. The purpose of the Drought
Surcharge is to recover revenues lost as a result of reduced consumption.
{End}
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-1 Effective 7-1-20176
dated 97-1-20165 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 Sservices.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 16.77
For 3/4-inch meter .................................................................................... 22.60
For 1-inch meter .................................................................................... 34.26
For 1 ½-inch meter .................................................................................... 63.40
For 2-inch meter .................................................................................... 98.37
For 3-inch meter .................................................................................... 209.11
For 4-inch meter .................................................................................... 372.31
For 6-inch meter .................................................................................... 762.81
For 8-inch meter .................................................................................... 1,403.94
For 10-inch meter .................................................................................... 2,219.92
For 12-inch meter .................................................................................... 2,919.34
Commodity Rates: (to be added to Service Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per ccf ............................................................................................................ $ 7.6832
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-2 Effective 7-1-20176
dated 97-1-20165 Sheet No W-4-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity Rate when the City
Council has determined that a water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet
(ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
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. Drought Surcharge
During period of water shortage or restrictions on local water use, the City Council may,
by resolution, declare the need for citywide water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the Drought Surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-1 Effective 7-1-20167
dated 97-1-20165 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 Sservices.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 16.77
For 3/4-inch meter .................................................................................... 22.60
For 1-inch meter .................................................................................... 34.26
For 1 1/2 inch meter .................................................................................... 63.40
For 2-inch meter .................................................................................... 98.37
For 3-inch meter .................................................................................... 209.11
For 4-inch meter .................................................................................... 372.31
For 6-inch meter .................................................................................... 762.81
For 8-inch meter .................................................................................... 1,403.94
For 10-inch meter .................................................................................... 2,219.92
For 12-inch meter .................................................................................... 2,919.34
Commodity Rates: (to be added to Service Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per ccf ............................................................................................................ $ 89.0872
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity Rate when the City
Council has determined that a water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf).
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-2 Effective 7-1-20167
dated 97-1-20165 Sheet No W-7-2
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.53 1.25 2.02
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. Drought Surcharge
During period of water shortage or restrictions on local water use, the City Council may,
by resolution, declare the need for citywide water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the Drought Surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
170601 jb 6053967
Attachment D
Resolution No. xxxx
Resolution of the Council of the City of Palo Alto Increasing
Refuse Rates by Amending Utility Rate Schedule R-l
(Domestic Refuse Collection)
R E C I T A L S
A. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the City
Council may by resolution adopt rules and regulations governing utility services, fees and
charges.
B. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, on June 19, 2017 the Council held a full and fair public hearing regarding the
proposed refuse rate increase and considered all protests against the proposal.
C. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the June 19, 2017 public hearing was mailed to all City of Palo Alto
Utilities refuse customers by May 5, 2017.
D. The City Clerk has tabulated the total number of written protests presented by
the close of the public hearing, and determined that it was less than fifty percent (50%) of the
total number of customers and property owners subject to the proposed refuse rate
amendments, therefore a majority protest does not exist against the proposal.
NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule R-1 (Domestic Refuse Collection) is hereby amended to read in accordance with
Sheets R-1-1, R-1-2, attached hereto and incorporated herein. The foregoing Utility Rate
Schedules, as amended, shall become effective on July 1, 2017.
SECTION 2. The rates contained in the attached Rate Schedules shall be in effect
until Council adopts a new rate structure.
SECTION 3. The Council finds that the revenue derived from the authorized
adjustments of the refuse collection rates shall not be used for any purpose other than
providing refuse service, and the purposes set forth in Article VII, Section 2, of the Charter of
the City of Palo Alto.
170601 jb 6053967
SECTION 4. The Council finds that the amount of the refuse rates imposed upon any parcel
or person as an incident of property ownership shall not exceed the proportional cost of the refuse
service attributable to the parcel.
SECTION 5. The Council finds that the fees and charges adopted by this
resolution are charges imposed for a specific government service or product provided directly
to the payor that are not provided to those not charged, and do not exceed the reasonable
costs to the City of providing the service or product.
SECTION 6. The Council finds that the adoption of this resolution changing refuse
rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to maintain service 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). After
reviewing the relevant staff reports and all attachments presented to Council, the Council
incorporates these documents herein and finds that sufficient evidence has been presented
setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST: APPROVED:
_____________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM:
_____________________________ ____________________________
Senior Deputy City Attorney City Manager
____________________________
Director of Administrative Services
DOMESTIC REFUSE COLLECTION
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City of Palo Alto (ID # 7854)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/4/2017
City of Palo Alto Page 1
Summary Title: FY 2018 Water Financial Plan and Rate Proposals
Title: Utilities Advisory Commission Recommendation That the City Council
Adopt: (1) a Resolution Approving the Fiscal Year 2018 Water Utility Financial
Plan; and (2) a Resolution Increasing Water Rates by Amending Rate
Schedules W-1 (General Residential Water Service), W-2 (Water Service From
Fire Hydrants), W-4 (Residential Master-Metered and General Non-
Residential Water Service), and W-7 (Non-Residential Irrigation Water
Service) and Removing the Drought Surcharge
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission (UAC) request that the Finance Committee
recommend that the Council:
1.Adopt a resolution (Attachment A) approving the fiscal year (FY) 2018 Water Utility
Financial Plan (Attachment B); and
2.Transfer $1.877 million from the Rate Stabilization Reserve to the Operations Reserve;
and
3.Adopt a resolution (Attachment C) increasing water rates by amending Rate Schedules
W-1 (General Residential Water Service), W-2 (Water Service from Fire Hydrants),
W-4 (Residential Master-Metered and General Non-Residential Water Service), and
W-7 (Non-Residential Irrigation Water Service) and removing the drought surcharge;
Executive Summary
The FY 2018 Water Utility Financial Plan includes projections of the utility’s costs and revenues
for FY 2018 through FY 2027. Costs are projected to rise by about 3% per year over the next
several years, primarily due to increasing water supply costs. As a result, staff projects the need
for a 4% water rate increase on July 1, 2017 and 6% rate increases in FY 2019 through FY 2023.
Uncertainty about the persistence of lower water usage achieved during the recent drought
makes these rate projections uncertain. The 4% increase for 2017 is needed to bring the unit
cost of water in line with the San Francisco Public Utilities Commission (SFPUC)’s preliminary
ATTACHMENT F
City of Palo Alto Page 2
estimates of FY 2018 wholesale water costs ($4.37/CCF).
In addition, as discussed in last year’s financial plan, staff still recommends the transfer of
$1.877 million from the Rate Stabilization Reserve to the Operations Reserve in FY 2017. This
action will reduce the Rate Stabilization Reserve to zero.
The UAC reviewed the Water Financial Plan and Rate Proposals at its meeting on March 1,
2017, and unanimously recommended approval of the proposed rates and financial plan.
Background
Every year staff presents the UAC with Financial Plans for its Electric, Gas, Water, and
Wastewater Collection Utilities and recommends any rate adjustments required to maintain
their financial health. These Financial Plans include a comprehensive overview of the utility’s
operations, both retrospective and prospective, and are intended to be a reference for UAC and
Council members as they review the budget and staff’s rate recommendations. Each Financial
Plan also contains a set of Reserves Management Practices describing the reserves for each
utility and the management practices for those reserves.
The Finance Committee reviewed preliminary financial forecasts at its March 21, 2017 meeting.
Staff has not revised the preliminary projections presented at that meeting.
Discussion
Staff’s annual assessment of the financial position of the City’s water utility is completed to
ensure adequate revenue to fund operations, in compliance with the cost of service
requirements set forth in the California Constitution (Proposition 218). This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. The
current rate proposals are also based on the cost of service methodology described in the 2012
Palo Alto Water Cost of Service & Rate Study, the 2015 Study update, and the 2015 Drought
Rate memorandum completed by Raftelis Financial Consultants.
Staff proposes to adjust water rates to the levels shown in Tables 1 and 2, below, effective July
1, 2017, to recover projected increases in the wholesale cost of water the City purchases from
the San Francisco Public Utilities Commission. These changes are projected to increase the
system average water rate by roughly 4%. These rate changes are included in the proposed
amended rate schedules in Attachment D. Prices are increasing by the same amount across all
rates as the underlying commodity cost is the same for all customers.
City of Palo Alto Page 3
Table 1: Water Consumption Charges in $/CCF (Current and Proposed)
Current
(7/1/16)
Proposed
(7/1/17)
Change*
$/CCF %
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 6.30 6.66 0.36 6%
Tier 2 Rates 8.82 9.18 0.36 4%
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 7.32 7.68 0.36 5%
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 7.32 7.68 0.36 5%
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 8.72 9.08 0.36 4%
Table 2: Current and Proposed Monthly Service Charge (No Change)
Meter
Size
Monthly Service Charge
($/month based on meter size)
Residential (W-1)
Commercial (W-4)
Irrigation (W-7)
Fire Services
(W-3)
5/8” $16.77 N/A
3/4” $22.60 N/A
1” $34.26 N/A
1 ½” $63.40 N/A
2” $98.37 $3.79
3” $209.11 N/A
4” $372.31 $23.42
6” $762.81 $68.03
8” $1,403.94 $144.97
10” $2,219.92 $260.70
12” $2,919.34 $421.11
Bill Impact of Proposed Rate Changes
Table 5 shows the impact of the proposed July 1, 2017 rate changes on residential bills. The
average increase is projected to be about four percent, which is related to commodity cost
increases. The increase represents the difference between what was projected by staff during
the FY 2017 forecasting process ($4.01/ccf) to the current estimate of what the FY 2018 SFPUC
W-25 (Wholesale Use with Long-Term Contract) rate will be. While staff forecast $4.01/ccf
based on preliminary figures provided by the SFPUC, the final rate SFPUC adopted for FY 2017
was $4.10/ccf, with reserves used to cover the difference in the City’s costs vs. revenues.
City of Palo Alto Page 4
In early January, the SFPUC provided a preliminary range for their FY 2018 increase to the W-25
wholesale rate ($4.10 to $4.37/ccf). The SFPUC will not determine the final rate until May or
June. However, in order to have the City’s rates in place for July 1, staff must provide notice to
customers by the end of April. Staff has chosen to conservatively forecast at the high end of the
SFPUC estimate.
To calculate the rate increase needed as a result of the City’s increased commodity costs, staff,
in coordination with the City’s cost of service consultant, applied the per unit commodity cost
to the volumetric component of the rates, based on the analysis and methodology from the
cost of service study. The per-unit commodity cost is the same for all classes of customers and
across all usage levels. As this proposed increase only reflects changes to commodity costs,
volumetric rates will increase by the same amount per ccf, regardless of customer type or usage
tier.
Table 5 shows the impact of the proposed changes. As the State has removed mandatory usage
restrictions for California agencies, the SFPUC has adequate water supplies, and as the Water
Fund’s reserves are within guideline levels, staff is recommending that Council deactivate the
drought surcharge at this time. The bill comparison below assumes the deactivation of the
drought surcharge.
Table 5: Impact of Proposed Rate Changes on Residential Bills (no drought surcharge)
Usage
(CCF/month)
Bill under
Existing Rates
(7/1/16)
Bill under
Proposed Rates
(7/1/17)
Change
$/mo. %
4 $41.97 $43.41 $1.44 3.4%
(Winter median) 7 63.39 65.91 2.52 4.0%
(Annual median) 9 81.03 84.27 3.24 4.0%
(Summer median) 14 125.13 130.17 5.04 4.0%
25 222.15 231.15 9.00 4.1%
Table 6 shows the impact of the proposed July 1, 2017 rate changes on various representative
commercial customer bills. As with residential rates, this comparison assumes the
discontinuation of the drought surcharge.
City of Palo Alto Page 5
Table 6: Impact of Proposed Rate Changes on Commercial Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/16)
Bill under
Proposed Rates
(7/1/17)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $104.61 $108.93 $4.32 4%
(Annual average) 64 485.25 508.29 23.04 5%
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 142 145 3 2%
(Summer median) 37 386 399 13 3%
(Winter average) 56 552 572 20 4%
(Summer average) 199 1,799 1,870 72 4%
FY 2018 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 7 shows the projected rate adjustments over the next five years and their impact on the
annual median residential water bill.
Table 7: Projected Rate Adjustments, FY 2018 to FY 2022
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
Water Utility 4% 6% 6% 6% 6%
Estimated Bill Impact ($/mo)* $3.24 $5.06 $5.36 $5.68 $6.02
* estimated annual impact on median residential water bill, which is currently $81.03.
The main driver for the increase in the water utility’s costs (and therefore rates) over the next
several years is the cost of water. Wholesale water costs are adopted by the SFPUC, and
generally change on an annual basis. Last year the SFPUC’s wholesale rate rose by 9%, and
current projections range from 0% to 7%. Over the forecast period, though, it is projected to
rise by two to three percent per year. If lower usage persists from the drought, the magnitude
of future increases will be difficult to predict. What is certain is that the SFPUC’s costs to
operate the Regional Water System are primarily fixed costs, so the water rate charged to
wholesale customers like the City of Palo Alto is highly dependent on usage by users of the
Regional Water System. The City’s FY 2018 Water Utility Financial Plan assumes that, while the
drought has ended and usage has started to increase, based on CPAU’s experience,
consumption is not anticipated to return to pre-drought levels.
The Water Utility may also see a $1 million increase in operating costs for a capital lease for
emergency generators for wells and pump stations. Aside from that, operating and CIP costs
are projected to rise roughly 2% to 4% annually over that time.
There remains some uncertainty in the forecasts of capital costs for the water utility in coming
years. Water main replacement costs have risen substantially in recent years, and it is possible
higher CIP expenditures will be required in the future. Higher bid costs and delays in project
schedules have resulted in a projected deferment of main replacement projects by two years,
City of Palo Alto Page 6
starting in FY 2017, meaning that capital investment costs will be lower for those two years.
This delay in main replacement, along with the proposed rate trajectory, should allow for the
Operations Reserve to remain well within the reserve guidelines throughout the forecast
period.
Water Bill Comparison with Surrounding Cities
Table 8 compares water bills for residential customers to those in surrounding communities as
of February 1, 2017 (under current the City’s current water rates). Palo Alto customers have the
highest monthly bills of the group, although bills for smaller water users are lower than in some
surrounding communities. It is unclear at this time what water rate changes may be
implemented in these communities for FY 2018.
Table 8: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of February 2016
Palo
Alto
Menlo
Park
Mountain
View Hayward
Redwood
City
Santa
Clara
4 43.69 44.46 46.47 34.63 33.37 19.80
(Winter median) 7 67.18 63.03 65.43 53.68 45.20 34.65
(Annual median) 9 87.24 75.43 78.07 66.38 53.09 44.55
(Summer median) 14 137.39 107.95 119.47 98.13 73.81 69.30
25 247.72 180.33 229.94 206.08 119.91 123.75
Based on the FY 2013 BAWSCA survey, the fraction of SFPUC as the source of potable
water supply was 100% for Palo Alto, 95% for Menlo Park, 100% for Redwood City, 87%
for Mountain View, 10% for Santa Clara and 100% for Hayward.
Changes from Preliminary Financial Forecast
After presenting the preliminary financial forecast to the UAC on February 1, 2017, staff re-
evaluated reserve and cost positions and determined a commodity-only increase could be
performed without negatively impacting the financial health of the utility. The final SFPUC
wholesale rate is not determined until May or June, well after Palo Alto needs to propose and
notice its rate changes to the public under Proposition 218. In the future, staff may
recommend that the SFPUC Schedule W-25 (Wholesale Cost with Long-Term Contract)
commodity cost to Palo Alto be automatically passed -through to ratepayers, similar to how gas
commodity costs are passed through on a monthly basis. Allowing commodity costs to
automatically adjust via a pass-through charge would better match revenues to the City’s
wholesale costs and avoid having to reconcile SFPUC’s commodity cost changes many months
after they are imposed.
California law implementing Prop. 218 (Government Code 53766) allows for automatic
adjustments that pass-through increases or decreases in the City’s wholesale water costs, so
long as customers are informed of the rate adjustment at least 30 days in advance of each rate
adjustment. Customers would be informed of the City’s initial intent to automatically adjust
City of Palo Alto Page 7
these costs via the standard Proposition 218 notice and hearing process. If no majority protest
occurred and Council adopted the proposed rates, future changes to the wholesale rate could
be passed through to customers upon 30 days’ notice to customers, and such notice is typically
included on the utility bill. The automatic pass-through adjustment would need to be
reapproved, via a new Proposition 218 notice and public hearing process, every five years.
Changes from Last Year’s Financial Forecast
Table 9 compares current rate projections to those projected in the last two year’s Financial
Plans. As shown, the FY 2018 rate projections are somewhat lower than projected last year.
The cumulative projected increase in rates through FY 2026 is similar to last year’s projections.
In this year’s projection, however, higher reserves allow rates to be increased gradually over
the entire forecast period, rather than increased quickly in FY 2018, FY 2019, and FY 2020, as in
last year’s projection. The overall rate increase over the forecast period is higher than projected
in the FY 2016 Financial Plan, however, and this is due to the high likelihood of some of the
water conservation habits established during the drought persisting long term, leading to lower
consumption.
Table 9: Projected Water Rate Trajectory for FY 2018 to FY 2027
Projection FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
Current
(FY 2018 Financial Plan) 4% 6% 6% 6% 6% 6% 2% 2% 2% 1%
Last year
(FY 2017 Financial Plan) 9% 9% 6% 2% 2% 2% 3% 5% 3% N/A
Two years ago
(FY 2016 Financial Plan) 8% 8% 3% 1% 2% 3% N/A N/A N/A N/A
Commission Review and Recommendation
The UAC reviewed this proposal at its March 1, 2017 meeting. Staff noted that the rate
projection had changed since the February 1, 2017 meeting as a result of new projections for
the balance of the Operations Reserve. The original six percent increase was amended down to
a four percent increase instead.
After brief discussion the UAC voted to recommend that the Council adopt resolutions
approving the FY 2018 Water Financial Plan and increasing water rates by amending Rate
Schedules W-1, W-2, W-4 and W-7. The vote was unanimous (7-0). The draft excerpted minutes
from the UAC’s March 1, 2017 meeting are provided as
Attachment E.
Timeline
Assuming the Finance Committee supports staff’s recommendation, notification of the rate
increases will be sent to customers as required by Article XIIID of the State Constitution (added
by Proposition 218). The Financial Plans and rate schedules will then go to the City Council with
City of Palo Alto Page 8
the FY 2018 budget for adoption, at which time the public hearing required by Article XIIID of
the State Constitution will be held. All residents and other interested persons may submit
written or oral testimony at the hearing, and may also submit written protests to any or all of
the proposed rate increases. Council may adopt the proposed rates unless written protests are
filed by a majority of the affected customers. Assuming the rate changes are approved, they
will become effective July 1, 2017.
Resource Impact
Normal year sales revenues for the Water Utility are projected to increase by roughly 4% ($1
million) as a result of these rate increases. See the attached FY 2018 Water Financial Plan for a
more comprehensive overview of projected cost and revenue changes for the next ten years.
Policy Implications
The proposed water rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans, and were developed using a cost of
service study and methodology consistent with the cost of service requirements of Proposition
218.
Environmental Review
The Finance Committee’s review and recommendation to Council on the FY 2018 Water
Financial Plans and rate adjustments does not meet the definition of a project requiring
California Environmental Quality Act (CEQA) review, under Public Resources Code Section
21065 and is exempt from CEQA review under Public Resources Code Section 21080(b)(8) as an
adoption of rates to meet operating expenses, purchase supplies, meet reserve needs and
obtain capital improvement funds).
Attachments:
Attachment A: Resolution Approving the FY 2018 Water Financial Plan
Attachment B: Proposed FY 2018 Water Financial Plan
Attachment C: Resolution of the Council of the City of Palo Alto Increasing Water Rates
by Amending Rate Schedules W-1, W-2, W-4, and W-7 and Deactivating the Level 2
Drought Surcharge
Attachment D: Proposed Amendments to Rate Schedules W-1_W-2_W-4, and W-7
effective 7-1-2017
Attachment E: Excerpt of Draft March 1, 2017 Utilities Advisory Commission Minutes
Attachment A
* NOT YET APPROVED *
170216 jb 6053918
Resolution No. ______
Resolution of the Council of the City of Palo Alto Approving the
FY 2018 Water Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of its
utilities with the goal of ensuring adequate revenue to fund operations. This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. It does
this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other aspects
of its operations, and regularly assesses the adequacy of these reserves and the management
practices governing their operation. The status of utility reserves and their management
practices are included in Reserves Management Practices attached to and made part of the
Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby adopts the FY 2018 Water Utility Financial Plan.
SECTION 2. The Council hereby approves the transfer of $1.877 million in FY 2018 from
the Rate Stabilization Reserve to the Operations Reserve, as described in the FY 2018 Water
Utility Financial Plan approved via this resolution.
SECTION 3. The Council finds that the adoption of this resolution does not meet the
definition of a project requiring California Environmental Quality Act (CEQA) review, under
/ /
/ /
/ /
/ /
/ /
Attachment A
* NOT YET APPROVED *
170216 jb 6053918
California Public Resources Code 21065 and CEQA Guidelines Section 15378(b)(5), because it is
an administrative governmental activity which will not cause a direct or indirect physical change
in the environment.
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
FY 2018 WATER
UTILITY
FINANCIAL PLAN
FY 2018 TO FY 2027
ATTACHMENT B
WATER UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 6 2 | P a g e
FY 2018 WATER UTILITY
FINANCIAL PLAN
FY 2018 TO FY 2027
TABLE OF CONTENTS
Section 1: Definitions and Abbreviations................................................................................ 4
Section 2: Executive Summary and Recommendations ........................................................... 4
Section 2A: Overview of Financial Position .................................................................................. 4
Section 2B: Summary of Proposed Actions .................................................................................. 5
Section 3: Detail of FY 2018 Rate and Reserves Proposals ....................................................... 5
Section 3A: Rate Design ............................................................................................................... 5
Section 3B: Current and Proposed Rates ..................................................................................... 6
Section 3C: Bill Impact of Proposed Rate Changes ...................................................................... 8
Section 3D: Proposed Reserve Transfers ................................................................................... 10
Section 4: Utility Overview .................................................................................................. 10
Section 4A: Water Utility History ............................................................................................... 10
Section 4B: Customer Base ........................................................................................................ 11
Section 4C: Distribution System ................................................................................................. 11
Section 4D: Cost Structure and Revenue Sources ...................................................................... 11
Section 4E: Reserves Structure ................................................................................................... 12
Section 4F: Competitiveness ...................................................................................................... 13
Section 5: Utility Financial Projections ................................................................................. 13
Section 5A: Load Forecast .......................................................................................................... 13
Section 5B: FY 2012 to FY 2016 Cost and Revenue Trends ........................................................ 15
Section 5C: FY 2016 Results ....................................................................................................... 16
Section 5D: FY 2017 Projections ................................................................................................ 16
Section 5E: FY 2018 – FY 2027 Projections ................................................................................ 16
Section 5F: Risk Assessment and Reserves Adequacy ............................................................... 18
Section 5G: Alternate ScenarIOS ................................................................................................ 19
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Section 5H: Long-Term Outlook ................................................................................................. 19
Section 6: Details and Assumptions ..................................................................................... 20
Section 6A: Water Purchase Costs ............................................................................................. 20
Section 6B: Operations .............................................................................................................. 21
Section 6C: Capital Improvement Program (CIP) ....................................................................... 22
Section 6D: Debt Service ............................................................................................................ 24
Section 6E: Other Revenues ....................................................................................................... 26
Section 6F: Sales Revenues ........................................................................................................ 26
Section 7: Communications Plan .......................................................................................... 26
Appendices ......................................................................................................................... 28
Appendix A: Water Utility Financial Forecast Detail ................................................................. 29
Appendix B: Water Utility Capital Improvement Program (CIP) Detail ..................................... 31
Appendix C: Water Utility Reserves Management Practices ..................................................... 33
Appendix D: Description of Water Utility Operational Activities ............................................... 36
Appendix E: Sample of Water Utility Outreach Communications ............................................. 37
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SECTION 1: DEFINITIONS AND ABBREVIATIONS
BAWSCA Bay Area Water Supply and Conservation Agency
CCF The standard unit of measurement for water delivered to water customers, equal to
one hundred cubic feet, or roughly 748 gallons.
CIP Capital Improvement Program
CPAU City of Palo Alto Utilities Department
O&M Operations and Maintenance
RFC Raftelis Financial Consultants, Inc.
SFPUC San Francisco Public Utilities Commission
SFWD San Francisco Water Department
UAC Utilities Advisory Commission
WSIP The SFPUC’s Water System Improvement Program to seismically strengthen the
transmission lines of the Hetch Hetchy regional water system.
SECTION 2: EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City’s Water Utility for the next ten years. This
Financial Plan provides revenues to cover the costs of operating the utility safely over that time
while adequately investing for the future. It also addresses the financial risks facing the utility
over the short term and long term, and includes measures to mitigate and manage those risks.
SECTION 2A: OVERVIEW OF FINANCIAL POSITION
Overall costs in the Water Utility are expected to rise by about 3% per year from fiscal year (FY)
2017 to 2027. Excluding FY 2018 (which, unlike a normal year, does not include a water main
replacement project), most costs are projected to rise by two to three percent annually through
the projection period. The costs for the Water Utility are shown in Table 1 below.
Table 1: Expenses for FY 2016 to FY 2027 (Thousand $’s)
Expenses
($000)
FY
2016
(act.)
FY
2017
(est.)
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
Water
Purchases
17,626
19,246
21,347
22,756
22,850
22,933
23,016
23,120
23,367
23,625
23,890
24,495
Operations
15,895
17,601
18,064
18,535
19,023
19,475
19,905
20,349
20,798
21,260
21,734
22,220
Capital
Projects
9,082
4,110
4,082
10,314
10,067
10,364
10,671
10,986
11,310
11,645
11,989
12,343
TOTAL
42,603
40,610
43,494
51,605
51,940
52,773
53,591
54,455
55,475
56,529
57,613
59,059
This proposed financial plan projects that the rate increases shown in Table 2 are needed to
ensure that revenues cover rising costs and reserves remain healthy. The table also shows rate
projections from last year’s Financial Plan. Last year’s plan projected earlier, more aggressive
rate increases. However, the delay of the planned FY 2017 and FY 2018 water main
replacement projects resulted in an increase in reserves, which enabled the more gradual
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increases projected in the current plan. This also means that the Rate Stabilization Reserve will
be drawn down over a longer time frame than projected in last year’s financial plan.
Table 2: Projected Water Rate Trajectory for FY 2018 to FY 2027
Projection FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
Current 4% 6% 6% 6% 6% 6% 2% 2% 2% 1%
Last year 9% 9% 6% 2% 2% 2% 3% 5% 3% N/A
2 years 8% 8% 3% 1% 2% 3% N/A N/A N/A N/A
The Water Utility has a Rate Stabilization Reserve that can be used to smooth rate increases
over several years. This Financial Plan projects that these reserves will be exhausted by the end
of FY 2017. The Water Utility also has a Capital Improvement Program (CIP) Reserve that can be
used to offset one-time unanticipated capital costs. This Financial Plan assumes that the CIP
Reserve will be used for unanticipated capital expenses or returned to the Operations Reserve
by the end of FY 2020. Table 3 shows the projected reserve transfers over the forecast period.
Table 3: Transfers To/(From) Reserves for FY 2017 to FY 2027 ($000)
Reserve FY 2017 FY 2018 FY 2019 to FY 2027
Capital Improvement - (2,726)
Rate Stabilization (1,877) - -
Operations 1,867 - 2,726
SECTION 2B: SUMMARY OF PROPOSED ACTIONS
Staff proposes the following actions for the Water Utility in FY 2018:
1. Increase rates by 4%, reflecting proposed increases to SFPUC wholesale rates. This is
described in more detail in Section 3B: Current and Proposed Rates.
2. Transfer $1.877 million from the Rate Stabilization Reserve to the Operations Reserve.
See Section 3D: Proposed Reserve Transfers for more details.
SECTION 3: DETAIL OF FY 2018 RATE AND RESERVES PROPOSALS
SECTION 3A: RATE DESIGN
The Water Utility’s rates are evaluated and implemented in compliance with the cost of service
requirements and procedural rules set forth in the California Constitution under Article 13 (per
Proposition 218). Current rates were structured based on staff’s assessment of the financial
position of the Water Utility, and updated using the methodology from the March 2012 Palo
Alto Water Cost of Service & Rate Study by Raftelis Financial Consultants, Inc. (Staff Report
2676), as well as Raftelis’ 2015 Memorandum: Proposed Water Rates updating the 2012 Study
and analyzing drought rates (Staff Report 5951). Staff plans to review and update this cost of
service study in 2 to 3 years, unless any major changes occur to the utility’s operations or
customer base that would necessitate an earlier study. Before conducting any new cost of
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service study, staff will review current rates and the scope of the study with the Utilities
Advisory Commission (UAC) and Council to determine the City’s policy priorities.
In 2015 Council adopted a drought surcharge to assist the water utility in recovering its costs
due to decreased revenue due to lower water consumption resulting from conservation
measures. Recent rains have dramatically improved the water supply outlook for the Hetch
Hetchy system, eliminating local drought impacts. Mandatory usage restrictions have been
lifted by the State of California, and while voluntary measures may still remain in place ,
customers’ usage of water has started to increase. The increasing usage, the end of the
drought, and the healthy level of Operations reserves indicate to staff that the drought
surcharge can be removed at this time.
SECTION 3B: CURRENT AND PROPOSED RATES
The current rates and surcharges were effective on July 1, 2016. Rates were adjusted in
accordance with the results of an updated cost of service study performed by Raftelis Financial
Consultants, Inc. (RFC) in 2015. The 2015 study both developed the drought surcharges and
validated the City’s water rate methodology and structure in light of court decisions
interpreting provisions of the State Constitution applicable to water rates. RFC recommended
only minor adjustments to ensure that peaking costs were equitably allocated to each customer
class and residential rate tier.
CPAU has five rate schedules: one for separately metered residential customers (W-1), one for
commercial and master-metered multi-family residential customers (W-4), and specific
schedules for irrigation-only services (W-7), services to fire sprinkler systems in buildings and
private hydrants (W-3), and for service to fire hydrant rental meters used for construction (W-
2). All customers pay a monthly service charge based on the size of their inlet meter. This
charge represents meter reading, billing, and other customer service costs, but also the cost of
maintaining the capability to deliver a peak flow for that customer corresponding to their meter
size. All customers are also charged for each CCF (one hundred cubic feet) of water used.
Separately metered residential customers are charged on a tiered basis, with the first 0.2 CCF
per day (6 CCF for a 30 day billing period) charged at the base price per CCF, and all additional
units charged a higher price per CCF. Commercial customers pay a uniform price for each CCF
used, and a higher price for separately metered irrigation service.
Table 4 shows the current and proposed consumption charges.
The average increase is projected to be about four percent, which is related to commodity cost
increases. The increase represents the difference between what was projected by staff during
the FY 2017 forecasting process ($4.01/ccf) to the current estimate of what the FY 2018 SFPUC
W-25 (Wholesale Use with Long-Term Contract) rate will be. While staff forecast $4.01/ccf
based on preliminary figures provided by the SFPUC, the final rate adopted for FY2017 was
$4.10/ccf, with reserves used to cover the difference in cost vs. revenues.
In early January, the SFPUC provided a preliminary range for their FY 2018 increase to the W-25
wholesale rate ($4.10 to $4.37/ccf). The SFPUC will not determine the final rate until May or
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June. However, in order to have rates in place for July 1, staff must notice customers by the end
of April. Staff has chosen to conservatively forecast at the high end of the SFPUC estimate.
The SFPUC does not typically provide it’s final, annual change to its wholesale rate until the
City’s retail rate is already proposed to Council for adoption. To meet Palo Alto’s timeline to
increase rates by July 1, staff has historically set retail rates based on early estimates from the
SFPUC, which are subject to change.
Changes in the SFPUC’s wholesale rate require staff to reconcile costs and revenues well after
the fact. To calculate the rate increase needed as a result of the City’s increased commodity
costs, staff, in coordination with the City’s cost of service consultant, applied the per-unit
commodity cost to the volumetric component of the rates, based on the analysis and
methodology from the cost of service study. The per-unit commodity cost is the same for all
classes of customers and across all usage levels. As this proposed increase only reflects changes
to commodity costs, volumetric rates will increase by the same amount per ccf, regardless of
customer type or usage tier.
California law implementing Prop. 218 (Government Code 53766) allows for automatic
adjustments that pass-through increases or decreases in the City’s wholesale water costs, so
long as customers are informed of the rate adjustment at least 30 days in advance of each rate
adjustment. Customers would be informed of the City’s initial intent to automatically adjust
these costs via the standard Proposition 218 notice and hearing process. If no majority protest
occurred and Council adopted the proposed rates, future changes to the wholesale rate could
be passed through to customers upon 30 days’ notice, which is typically included on the utility
bill. The automatic pass-through adjustment would need to be reapproved, via a new Prop.
218 notice and public hearing process, every five years.
Table 4: Current and Proposed Water Consumption Charges
Current
(7/1/16)
Proposed
(7/1/17)
Change*
$/CCF %
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 6.30 6.66 0.36 6%
Tier 2 Rates 8.82 9.18 0.36 4%
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 7.32 7.68 0.36 5%
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 7.32 7.68 0.36 5%
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 8.72 9.08 0.36 4%
Table 5 shows the current monthly service charges for all rate schedules. Staff is not
recommending a change to the monthly service charge schedule at this time, as they are not
affected by the SFPUC’s wholesale water rate changes.
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Table 5: Current Monthly Service Charges
Meter
Size
Monthly Service Charge
($/month based on meter size)
Residential (W-1)
Commercial (W-4)
Irrigation (W-7)
Fire Services
(W-3)
5/8” $16.77 N/A
3/4” $22.60 N/A
1” $34.26 N/A
1 ½” $63.40 N/A
2” $98.37 $3.79
3” $209.11 N/A
4” $372.31 $23.42
6” $762.81 $68.03
8” $1,403.94 $144.97
10” $2,219.92 $260.70
12” $2,919.34 $421.11
SECTION 3C: BILL IMPACT OF PROPOSED RATE CHANGES
Table 6 shows the impact of the estimated July 1, 2017 rate changes on the median residential
bill. The average increase is projected to be about four percent, but some customers may see
slightly higher or lower increases due to slight changes in the composition of the utility’s costs.
To allow for effective comparison, the sample bills shown in Table 6 do not include the
temporary drought surcharge, since this would make the bills based on the July 1, 2016 rates
appear artificially high and obscure the effects of the increases to long-term rates effective July
1, 2017. In reality, though, many customers will see a decrease in their bills due to the removal
of the drought surcharge. This is shown in Table 7.
Table 6: Impact of Proposed Water Rate Changes on Residential Bills (no surcharge)
Usage
(CCF/month)
Bill under
Current Rates
(7/1/16)
Bill under
Proposed
Rates (7/1/17)
Change
$/mo. %
4 $41.97 $43.41 $1.44 3.4%
(Winter median) 7 63.39 65.91 2.52 4.0%
(Annual median) 9 81.03 84.27 3.24 4.0%
(Summer median) 14 125.13 130.17 5.04 4.0%
25 222.15 231.15 9.00 4.1%
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Table 7: Impact of Proposed Water Rate Changes on Residential Bills (with 20% drought
surcharge)
Usage
(CCF/month)
Bill under
Current Rates
(7/1/16)
Bill under
Proposed
Rates (7/1/17)
Change
$/mo. %
4 $43.69 $43.41 ($0.28) -0.6%
(Winter median) 7 67.18 65.91 (1.27) -1.9%
(Annual median) 9 87.24 84.27 (2.97) -3.4%
(Summer median) 14 137.39 130.17 (7.22) -5.3%
25 247.72 231.15 (16.57) -6.7%
Error! Reference source not found. shows the impact of the proposed July 1, 2017 rate changes
on various representative commercial customer bills. As for the residential comparison in Table
6 above, this comparison does not include the drought surcharge. A comparison with the
existing 20% surcharge is shown in Table 9.
Table 8: Impact of Proposed Water Rate Changes on Commercial Bills (no surcharge)
Usage
(CCF/month)
Bill under
Current Rates
(7/1/16)
Bill under
Proposed Rates
(7/1/17)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $104.61 $108.93 $4.32 4%
(Annual average) 64 485.25 508.29 23.04 5%
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 142 145 3 2%
(Summer median) 37 386 399 13 3%
(Winter average) 56 552 572 20 4%
(Summer average) 199 1,799 1,870 72 4%
Table 9: Impact of Proposed Water Rate Changes on Commercial Bills (with 20% drought
surcharge)
Usage
(CCF/month)
Bill under
Current Rates
(7/1/16)
Bill under
Proposed Rates
(7/1/17)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $110.97 $108.93 ($2.04) -2%
(Annual average) 64 519.17 508.29 (10.88) -2%
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 153 145 (8) -5%
(Summer median) 37 432 399 (33) -8%
(Winter average) 56 622 572 (50) -8%
(Summer average) 199 2,047 1,870 (177) -9%
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SECTION 3D: PROPOSED RESERVE TRANSFERS
In the FY 2017 Financial Plan, staff proposed transferring $1.87 million from the Rate
Stabilization Reserve to the Operations Reserve in FY 2017. This transfer will exhaust the Rate
Stabilization Reserve, as planned for and discussed in Section 4E: Reserves Structure, and is
included in the financial projections in this Financial Plan. It will enable CPAU to maintain
adequate Operations Reserve levels while moderating the pace of increase in water rates.
However, a proposed $4 million transfer from the CIP Reserve to the Operations Reserve was
also discussed in the FY 2016 Financial Plan. As the Operations reserve is projected to end the
year at its maximum allowed level, this transfer is no longer required at this time. These funds
will be retained for unexpected CIP expenses. The impact of these transfers on reserves levels
can be seen in Section 4E: Reserves Structure and Appendix A: Water Utility Financial Forecast
Detail.
SECTION 4: UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It is intended as general
background information and to help readers better understand the forecasts in Section 5:
Utility Financial Projections and Section 6: Details and Assumptions.
SECTION 4A: WATER UTILITY HISTORY
The Water Utility was established on May 9, 1896, two years after the city was incorporated.
Voters of the 750 person community approved a $40,000 bond to buy local, private water
companies who operated one or more shallow wells to serve the nearby residents. The city
grew and the well system expanded until nine wells were in operation in 1932. Palo Alto began
receiving water from the San Francisco Water Department (SFWD) in 1937 to supplement these
sources.
A 1950 engineering report noted, “the capricious alternation of well waters and the San
Francisco Water Department water…has made satisfactory service to the average customer
practically impossible”. By 1950, only eight wells were still in operation. Despite this,
groundwater production increased in the 1950’s leading to lower groundwater tables and water
quality concerns. In 1962, a survey of water softening costs to CPAU customers determined that
CPAU should purchase 100% of its water supply needs from the SFWD. A 20-year contract was
signed with San Francisco, and CPAU’s wells were placed in standby condition. The SFWD later
became known as the SFPUC. Since 1962 (except for some very short periods) CPAU’s entire
supply of potable water has come from the SFPUC.
As the city grew, so did the number of mains in the water system. The system of mains
expanded along with the town, while existing sections of the system continued to age. In the
mid-1980s, the number of breaks in cast iron mains installed during the 1940s and earlier
started to accelerate. In FY 1994, to combat deterioration of older sections of the system, an
analysis of cost effective system improvements was performed and the rate of main
replacement was increased from one mile per year to three. A plan to replace 75 miles of
deficient mains within 25 years was begun.
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Figure 1: Cost Structure (FY 2016)
42%
37%
21%
Water Purchases
Operations
Capital
In 1999, a study of system reliability concluded that major upgrades were needed to the
distribution system to provide adequate water supply during a natural disaster. This ultimately
resulted in the $40 million Emergency Water Supply and Storage Project, completed in 2013,
which involved a new underground reservoir in El Camino Park, the siting and construction of
several emergency supply wells, and the upgrade of several existing wells and the Mayfield
pump station. Upon completion, the City began to focus its reliability efforts on its system of
water storage reservoirs and transmission lines in the Foothills.
At the same time that CPAU was evaluating the reliability of its own system, the SFPUC, in
consultation with BAWSCA members, was evaluating the reliability of the Hetch Hetchy water
system, which crosses two major fault lines between the Sierras and the Bay Area. That
evaluation concluded that major upgrades to the system were required. This planning process
culminated in the SFPUC’s $4.8 billion Water System Improvement Project (WSIP), which is
ongoing. The SFPUC continues to evaluate its aging system for other needed infrastructure
improvements.
SECTION 4B: CUSTOMER BASE
CPAU’s Water Utility provides water service to the residents and businesses of Palo Alto, plus a
handful of residential customers not in Palo Alto (Los Altos Hills, primarily). Nearly 20,300
customers are connected to the water system, approximately 16,500 (81%) of which are
separately metered residential customers and 3,800 (19%) of which are commercial, master-
metered residential, irrigation and fire service customers.
Judging from seasonal consumption patterns, between 35% and 50% of Palo Alto’s water is
used for irrigation, and that consumption is heavily weather dependent. It also varies
significantly by season. As a result of these two factors, there is significant variability in the
amount of water that is demanded from the system month to month and year to year.
SECTION 4C: DISTRIBUTION SYSTEM
To deliver water to its customers, the utility owns roughly 233 miles of mains (which transport
the water from the SFPUC meters at the city’s borders to the customer’s service laterals and
meters), eight wells (to be used in emergencies), five water storage reservoirs (also for
emergency purposes) and several tanks used to moderate pressure and deal with peaks in flow
and demand (due to fire suppression, heavy usage times, etc.). These represent the vast
majority of the infrastructure used to distribute water in Palo Alto.
SECTION 4D: COST STRUCTURE AND REVENUE SOURCES
As shown in Figure 1, water purchase
costs accounted for roughly 42% of the
Water Utility’s costs in FY 2016.
Operational costs represented roughly
37%, and capital investment was
responsible for the remaining 21%. These
percentage distributions are projected to
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Figure 2: Revenue Structure (FY 2016)
99%
1%
Sales of Water
Other Revenue
remain roughly the same over the forecast period.
The Water Utility receives nearly all of its revenue from sales of water and the remainder from
capacity and connection fees, interest on reserves, and other sources. As rates increase over
the next several years, the percentage of revenue from sales of water is expected to increase as
well. Appendix A: Water Utility Financial
Forecast Detail shows more detail on the
utility’s cost and revenue structures.
Roughly 15% of the utility’s revenues
come from fixed service charges, though
most of its costs are fixed. This is typical
for California water utilities, and
conforms to the Best Management
Practices (BMPs) of the California Urban
Water Conservation Council (CUWCC), a
statewide conservation council of
environmental groups, state agencies,
and water utilities to which the City is a
signatory. One of CUWCC’s BMPs is that a utility’s revenue from fixed service charges
constitutes at most 30% of the utility’s total revenue from all charges1.
SECTION 4E: RESERVES STRUCTURE
CPAU maintains six reserves for its Water Utility to manage various types of contingencies.
These are summarized below, but see Appendix C: Water Utility Reserves Management
Practices for more detailed definitions and guidelines for reserve management:
Reserve for Commitments: A reserve equal to the utility’s outstanding contract
liabilities for the current fiscal year. Most City funds, including the General Fund, have a
Commitments Reserve.
Reserve for Reappropriations: A reserve for funds dedicated to projects reappropriated
by the City Council, nearly all of which are capital projects. Most City funds, including
the General Fund, have a Reappropriations Reserve.
Capital Improvement Program (CIP) Reserve: The CIP reserve can be used to
accumulate funds for future expenditure on CIP projects and is anticipated to be empty
unless a major one-time CIP expenditure is expected in future years. This CIP can also
act as a contingency reserve for the CIP. This type of reserve is used in other utility funds
(Electric, Gas, and Wastewater Collection) as well.
Rate Stabilization Reserve: This reserve is intended to be empty unless one or more
large rate increases are anticipated in the forecast period. In that case, funds can be
accumulated to spread the impact of those future rate increases across multiple years.
1 See http://www.cuwcc.org/Resources/Memorandum-of-Understanding/Exhibit-1-BMP-Definitions-Schedules-
and-Requirements/BMP-1-Utility-Operations-Programs
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This type of reserve is used in other utility funds (Electric, Gas, and Wastewater
Collection) as well.
Operations Reserve: This is the primary contingency reserve for the Water Utility, and is
used to manage yearly variances from budget for operational water supply costs. This
type of reserve is used in other utility funds (Electric, Gas, and Wastewater Collection)
as well.
Unassigned Reserve: This reserve is for any funds not assigned to the other reserves
and is normally empty.
SECTION 4F: COMPETITIVENESS
Table 10 shows the current water bills for residential customers compared to what they would
be under surrounding communities’ rate schedules. CPAU has the highest monthly bills of the
group, although bills for smaller water users are less than in some surrounding communities.
Note that Palo Alto’s rates include the Level 2 (20%) drought surcharge currently in effect.2
Table 10: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of February 2017
Palo
Alto
Menlo
Park
Mountain
View Hayward
Redwood
City
Santa
Clara
4 43.69 44.46 46.47 34.63 33.37 19.80
(Winter median) 7 67.18 63.03 65.43 53.68 45.20 34.65
(Annual median) 9 87.24 75.43 78.07 66.38 53.09 44.55
(Summer median) 14 137.39 107.95 119.47 98.13 73.81 69.30
25 247.72 180.33 229.94 206.08 119.91 123.75
* All comparisons use the 5/8” meter size.
SECTION 5: UTILITY FINANCIAL PROJECTIONS
SECTION 5A: LOAD FORECAST
Figure 3 shows 40 years of water consumption history. Average water use has trended
downward over time even as Palo Alto’s population has grown. Significant water use reductions
over the 40-year history were in response to requests to reduce water use in the 1976-77 and
1988-92 drought periods. During these periods, customers invested in efficient equipment and
modified behavior to achieve the water reduction goals. More recently, water sales decreased
substantially during the 2007-2009 recession and during the current drought. Water use is
down by similar amounts among both commercial and residential customers. Both summertime
and wintertime use have decreased for all customer classes.
2 The City’s water rate schedules allow for drought surcharges to be activated by Council at Level One
(10%-15% water use reduction level), Level Two (20%), or Level Three (25%)
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Figure 3: Historical Water Consumption
Figure 4 shows the forecast of water consumption through FY 2027, as denoted by the dotted
line.
Figure 4: Forecast Water Consumption
California has until recently been experiencing drought conditions, and the State had mandated
a 24% water use restriction for Palo Alto up until May 2016. Customers continue to conserve,
but water usage has been increasing. Based on patterns experienced in previous droughts and
in recognition of continued state-level calls for conservation, this forecast assumes
consumption will only return to 50% of its pre-drought levels, then resume with the previous
trend of decreasing usage over time.
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SECTION 5B: FY 2012 TO FY 2016 COST AND REVENUE TRENDS
Figure 5 and the tables in Appendix A: Water Utility Financial Forecast Detail show how costs
have changed during the last five years as well as how they are projected to change over the
next decade.
The annual expenses for the water utility rose substantially between 2012 and 2016. The
increases were primarily related to water purchase costs, which increased 18% from $14.9
million in FY 2012 to $17.6 million in FY 2016. A more in-depth discussion of water purchase
costs will be found in Section 6A: Water Purchase Costs. Operations cost increased by about 3%
annually, while CIP costs stayed relatively flat, except in FY 2013 when water main replacement
projects were delayed to permit completion of a backlog of projects budgeted in prior years.
Figure 5: Water Utility Expenses, Revenues, and Rate Changes:
Actual Costs through FY 2016 and Projections through FY 2027
Actual Projected
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SECTION 5C: FY 2016 RESULTS
Forecasted revenues for FY 2016 were only slightly lower than projected ($39.4 million vs.
$39.6 million) due to customers conserving more than requested during the drought. Savings in
CIP spending as well as operations and maintenance expenses were the main drivers. Table 11
summarizes the variances from forecast.
Table 11: FY 2016, Actual Results vs. Financial Plan Forecast
Net Cost/
(Benefit)
Type of
change
Lower sales revenues $175,000 Revenue decrease
Capital improvement costs lower than expected ($1,957,000) Cost savings
Admin and general costs lower than expected ($715,000) Cost savings
Operations and maintenance costs lower than expected (852,000) Cost savings
Net Cost / (Benefit) of Variances ($3,349,000)
SECTION 5D: FY 2017 PROJECTIONS
The most notable change from the FY 2017 budget identified at this time is the deferral of
Water Main Replacement Project 27. Originally budgeted at $6.2 million, this project is now
anticipated to start in FY 2019. Also deferred to FY 2019 will be the design phase of Project 28,
budgeted at $585,000. Table 12 summarizes the changes from last year’s forecast.
Table 12: FY 2016 Change in Projected Results, 2016 Forecast vs 2017 Forecast
Net Cost/
(Benefit)
Type of
Change
Higher purchase costs $343,000 Cost increase
Higher sales and misc. revenues (interest
income, fees)
($327,000) Revenue increase
Capital project deferments ($6,106,000) Cost decrease
Higher Operations budgets $536,000 Cost increase
Net Cost / (Benefit) of Variances ($5,553,000)
SECTION 5E: FY 2018 – FY 2027 PROJECTIONS
As can be seen in Figure 5 above, costs for the Water Utility are not projected to change
significantly through the rest of the forecast period. Water supply costs are the largest
component, but generally projected to grow steadily by two to three percent over the coming
years. Operations and capital investment costs are also expected to increase at the same rate of
inflation used in the City’s long-term financial plans (2.5% to 3.0% per year), though there is still
uncertainty with regard to the utility’s future costs for main replacement. See Section 6: Details
and Assumptions for more detail on the costs that make up these projections, as well as the
various assumptions underlying the projections.
As shown in Figure 5, above, revenues are currently below normal year expenses. Revenues
match expenses in FY 2017 and FY 2018 due to delays in water main replacement projects,
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leading to much lower annual CIP spending in those years. As main replacement resumes,
revenues are projected to be below expenses in the future and will require annual rate
increases of around 6% per year through FY 2023 to bring revenues up to match annual
expenses. This forecast assumes the use of the Rate Stabilization Reserve to spread the
increases over multiple years.
Reserves trends based on these revenue projections are shown in Figure 6 below. The Rate
Stabilization Reserve is projected to have a zero balance by the end of FY 2017, and the CIP
Reserve is projected to decrease by $2.7 million by the end of FY 2019. Assuming these
increases in revenue, the Operations Reserve, the main contingency reserve, is expected to
remain above the minimum reserve level and will be adequate to meet all identified risks, as
discussed in Section 5F: Risk Assessment and Reserves Adequacy.
These projections assume that drought restrictions are not re-imposed by the State. The
forecast also assumes that water main projects can be resized such that costs do not increase
by more than inflation.
Figure 6: Water Utility Reserves
Actual Reserve Levels for FY 2016 and Projections through FY 2027
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SECTION 5F: RISK ASSESSMENT AND RESERVES ADEQUACY
The Water Utility currently has one contingency reserve, the Operations Reserve, and this
Financial Plan maintains reserves within the approved reserve maximum and minimum
guidelines throughout the forecast period, as shown in Figure 7. Reserve levels also exceed the
short term risk assessment for the utility.
Figure 7: Operations Reserve Adequacy
Table 13 summarizes the risk assessment calculation for the Water Utility through FY 2022. The
same methodology is used for FY 2023 through FY 2027 as well. The risk assessment includes
the revenue shortfall that could accrue due to:
1. Lower than forecasted sales revenue; and
2. An increase of 10% of planned system improvement CIP expenditures for the budget
year.
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Table 13: Water Risk Assessment ($000)
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
Total non-commodity revenue $18,406 $18,239 $19,829 $21,415 $23,129
Max. revenue variance, previous ten years 13% 13% 13% 13% 13%
Risk of revenue loss $1,819 $1,802 $1,959 $2,116 $2,285
CIP Budget $4,110 $4,082 $10,314 $10,067 $10,364
CIP Contingency @10% $411 $408 $1,031 $1,007 $1,036
Total Risk Assessment value $2,230 $2,210 $2,991 $3,123 $3,322
SECTION 5G: ALTERNATE SCENARIOS
At its February 2017 meeting, staff presented an earlier scenario with a 6% rate increase in FY
2018 followed by 6% rate increases in outer years. However, with the Operations reserve
projected to be above the target level and well within the guideline levels adopted by Council,
staff feels that a lower rate increase would be feasible, and is only proposing to increase City
retail rates to match the increase in SFPUC wholesale water rates.
SECTION 5H: LONG-TERM OUTLOOK
CPAU has put its Water Utility on strong footing by investing in its distribution system
infrastructure and emergency water facilities over the last 20 years. The Water System Master
Plan, recently completed and under review, will give CPAU a better picture of the long-term
outlook for its infrastructure and will result in a plan for an appropriate schedule for
infrastructure replacement and upgrades. In addition, CPAU’s water supplier, the SFPUC, has
replaced and seismically strengthened its water transmission infrastructure, which will benefit
Palo Alto and all Hetch Hetchy customers over the long term.
The opportunities for CPAU’s Water Utility over the long term may be in alternative water
supplies such as recycled water, groundwater, and water from the Santa Clara Valley Water
District. These alternatives have been analyzed in the past, and will be analyzed again in an
upcoming update to the Water Integrated Resource Plan. Some of these alternatives may
provide cost savings or increased drought protection.
Climate change may begin to present challenges for the Water Utility over the next 20 to 40
years. Availability of water from SFPUC’s Regional Water System may change with changing
seasonal precipitation patterns. Water consumption patterns may change. Consumption could
increase due to drier weather or decrease as customers become even more focused on water
conservation. Droughts may become more frequent. The risk of wildfire in the foothills could
increase, possibly threatening utility infrastructure or placing greater demands on it. Sea level
rise could result in greater exposure of utility infrastructure to saltwater intrusion or the need
to protect infrastructure from inundation, possibly resulting in higher maintenance and
replacement costs. It could also affect the groundwater aquifer that the utility relies on in
emergencies. Any of these could result in increases to the costs of operating the Water Utility.
As part of the Sustainability/Climate Action Plan, CPAU is currently working on a Climate
Change Adaptation Roadmap that will begin to assess some of these risks.
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SECTION 6: DETAILS AND ASSUMPTIONS
SECTION 6A: WATER PURCHASE COSTS
CPAU purchases all of the potable water supplies from the SFPUC, which owns and operates the
Hetch Hetchy Regional Water System. CPAU is one of several agencies that purchase water
from the SFPUC, all of whom are members of the Bay Area Water Supply and Conservation
Agency (BAWSCA). Palo Alto uses roughly 7% of the water delivered by the SFPUC to BAWSCA
member agencies.
The Hetch Hetchy Regional Water System begins with a system of reservoirs and tunnels in the
high Sierra in Yosemite County and is transported by a gravity-fed pipeline to the Bay Area.
Currently, the SFPUC is in the midst of a $4.8 billion bond-financed capital improvement
program (the Water System Improvement Program, or WSIP) to seismically retrofit the facilities
that transport water to the Bay Area. As of December 2016, nearly 60% of the program (by
dollar value) had been completed, while 40% was under construction.3 This has resulted in large
increases in the annual debt service costs assigned to wholesale customers like Palo Alto. The
wholesale customer debt service share of the WSIP is increasing from $53 million in FY 2010 to
over $200 million in FY 2020. As a result, the SFPUC’s wholesale water rate has already
increased from $1.43 per CCF in FY 2009 to $4.10 per CCF in FY 2017, and is forecasted to
increase to over $5.00 per CCF by FY 2025. Figure 8 shows the SFPUC’s actual wholesale water
rate since FY 2009 and a projection through FY 2027. Note that the wholesale water rate
decreased in FY 2014, but the apparent rate decrease is due to a part of the debt being directly
paid by the BAWSCA agencies. This cost is paid in addition to the wholesale water rate and
adds about $0.35 to $0.45 per CCF to the wholesale rate.
The SFPUC’s water rate projections show a less steeply increasing rate trajectory after all of the
debt for the WSIP has been issued. Parts of SFPUC’s system not included in the WSIP also may
need rehabilitation. Some of these projects are already included in the SFPUC’s rate
projections, but the SFPUC is conducting condition assessments of other “up-country” facilities,
located in the Sierras in the coming years. If the these assessments identify other facilities that
need replacement, it may result in additional rate increases beyond FY 2020 as new debt is
issued to finance the projects.
In January 2016, the SFPUC provided an early estimate for FY 2018 wholesale water rates of
$4.37 per CCF. Staff has yet to receive a new estimate, but there is much uncertainty
surrounding continued lower water usage by the BAWSCA agencies. While drought restrictions
ended in May 2016, customers’ behavior changes and wet weather may keep water usage low.
SFPUC’s rates will invariably need to increase since its costs are almost entirely fixed with no
relation to the quantity of water that delivered by the system.
As shown in Figure 8, this year’s projection of SFPUC wholesale rates has increased from the
previous year’s projection. As the drought ostensibly ended in FY 2017 and sales have started
3 Second Quarter FY 2017 WSIP Regional Quarterly Report, http://www.sfwater.org/index.aspx?page=307
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increasing, rate projections are projected to level out. However, if snow and rain do not
materialize in future years, current calls for restricted usage may continue or even be increased.
Figure 8: Historical and Projected SFPUC Wholesale Water Rate
SECTION 6B: OPERATIONS
CPAU’s Water Utility operations include the following activities:
Administration, a category that includes charges allocated to the Water Utility for
administrative services provided by the General Fund and for Utilities Department
administration, as well as debt service and other transfers. Additional detail on Water
Utility debt service is provided in Section 6D: Debt Service
Customer Service
Engineering work for maintenance activities (as opposed to capital activities)
Operations and Maintenance of the distribution system; and
Resource Management
Appendix D: Description of Water Utility Operational Activities includes detailed descriptions of
the work associated with each of these activities.
From FY 2012 to FY 2016 Operations costs (excluding debt service, rent, and transfers)
increased 3.5% per year on average (see Figure 9). The increases were driven by allocated
charges, which increased by 6% per year on average and increases in other Operations costs,
which increased by roughly 4% per year. Debt service costs increased by $2.4 million per year as
a result of a bond issued to finance the Emergency Water Supply and Storage Project. Transfers
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have varied from year to year, but are expected to remain relatively low and stable through the
forecast period.
In FY 2017 Operations costs are projected to increase by $1 million for a capital lease of
emergency generators for various wells and pump stations. This is a new ongoing cost. Aside
from that, only inflationary increases are projected for Operations costs. Underlying these
projections are assumptions for salary and benefit costs, consumer price index, and other cost
projections that match the City’s long-range financial forecast.
Figure 9: Historical and Projected Operational Costs
SECTION 6C: CAPITAL IMPROVEMENT PROGRAM (CIP)
The Water Utility’s CIP consists of the following types of projects:
Customer connections, which represents the cost when the Water Utility installs new
services or upgrades existing services at a customer’s request in response to
development or redevelopment. CPAU charges a fee to these customers to cover the
cost of these projects.
Ongoing projects, which represent the cost of replacing aging and under-recording
meters and degraded boxes and covers, minor replacements of various types of
distribution system equipment, and the cost of capitalized tools and equipment.
Actual
Regio
nal
Water
Syste
m
Projected
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One time projects, or large, non-recurring replacement of system assets (such as
reservoir rehabilitation)
Water main replacement, which represents the ongoing replacement of aging water
mains, and sometimes the services associated with those mains.
Table 14 shows the FY 2017 projected budget and the five year CIP spending plan, although
these figures are preliminary pending budget discussions starting in May. The ‘committed’
column represents funds committed to contracts for which work has not yet been completed or
invoices paid.
Table 14: Budgeted Water Utility CIP Spending ($000)
The water main replacement program funds the replacement of deteriorating water mains. The
water system consists of over 236 miles of mains, approximately 2000 fire hydrants, and over
20,000 metered service connections spanning 9 pressure zones over a 26 square mile service
area. CPAU utilizes an asset management database in conjunction with hydraulic modeling
software to prioritize capital improvements. Mains are selected by researching the
maintenance history of the system and identifying those that are undersized, corroded, and
subject to recurring breaks. CPAU uses a scoring system based on criticality in order to
prioritize which mains to replace first, and coordinates with the Public Works street
maintenance program to avoid cutting into newly repaved streets. CPAU replaces
approximately 3 miles of main per year, or 1.3% of the system.
Costs for the water main replacement program are increasing for a variety of reasons:
Fire Code regulations now mandate fire sprinklers for new residential units. To
accommodate increased fire flows, new main replacement projects require larger
diameter pipe.
CPAU has switched to high-density polyethylene (HDPE) for its mains. Installation costs
for this material are slightly higher, though lifecycle costs are lower, and the material
performs better. Joints in distribution mains are the most likely place for failure, and
sections of HDPE pipe can be fused together rather than connected with fittings. In the
long run, this will reduce losses and maintenance costs.
To take full advantage of HDPE’s fusibility, CPAU is now replacing the services along
with the water mains with new HDPE services. In the past, the existing services were
reconnected, regardless of the material. This new practice costs more in the short run,
but will provide long term benefits.
Lastly, costs have escalated after the recession.
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These factors have created some uncertainty in future water main replacement costs. If the
cost of water main replacement continues at its current levels, water main replacement
budgets will need to be increased by $1M to $2M per year to keep up the current pace of main
replacement. However, CPAU is nearing the end of a long term water main replacement
program initiated in 1993 to replace the oldest and most degraded parts of the system. Roughly
25% of the system has been replaced, and the rate of water leaks has decreased 50%. CPAU
initiated a master planning process in FY 2015 to evaluate the current state of the distribution
system and determine the necessary rate of main replacement in future years, and it was
completed in 2016. Currently the utility replaces about 1.3% of the system each year, which is
an 80-year replacement cycle.
Increases in CIP cost are a partial reason for the projected two year delay in projects. The most
recent project, when put out for bid, resulted in very few contractors competing, and project
bids were larger than budgeted. Staff will redesign this and future projects into smaller
segments to keep budgets lower, while not compromising on overall system integrity. The
other reason for delay is the University Avenue Business District project, and getting
coordination amongst all departments is taking more time than expected. Finally, there has
been an ongoing issue with keeping and maintaining qualified staff to design and work on
projects.
One project not included in this forecast is the seismic strengthening of a large water
transmission line in the foothills. Staff has engaged a consultant to investigate alternatives for
this project. The consultant is analyzing an alternative that involves installing a valve and hose
system that could be used to bypass breaks in the line while they are repaired after an
earthquake. This is a relatively low cost alternative that would not substantially affect the
financial forecast. The study is not finalized yet, however, and if it is determined that the entire
pipeline needs to be replaced, it could cost between $15 million and $20 million, which would
likely require bond financing and would substantially affect the financial forecast.
Ongoing Projects and Customer Connections are projected to cost approximately $2.5 million in
FY 2018 and increase by 3.5% per year through the end of the forecast period. Actual expenses
for these projects fluctuate annually depending on how many defective meters are discovered
and replaced during routine maintenance, as well as how much development and
redevelopment is going on that prompts the replacement or upgrade of water services. It is
worth noting that property owners pay a fee for water service replacement or expansion during
redevelopment, so when the number of projects go up (meaning higher costs for this activity),
so does fee revenue.
Aside from customer connections, the CIP plan for FY 2017 to FY 2022 is funded by utility rates
and capacity fees. The details of the plan are shown in Appendix B: Water Utility Capital
Improvement Program (CIP) Detail.
SECTION 6D: DEBT SERVICE
The Water Utility’s annual debt service is roughly $3.2 million per year. This is related to two
bond issuances, one requiring payments through 2026, the other through 2035. CPAU is in
compliance with all covenants on both bonds.
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The first bond is the 2009 Water Revenue Bond, Series A, issued for $35 million to finance
construction of the Emergency Water Supply and Storage project (the El Camino Reservoir, new
wells, rehabilitation of existing wells and tanks, etc.) and to be retired by 2035. As part of the
‘Build America’ bond program, there is an interest payment subsidy from the Federal
Government of 35%. There is always the possibility that the federal government will choose to
stop payment on this subsidy. The automatic federal spending cuts under the Budget Control
Act (BCA) of 2011 have already reduced the subsidy by $50,000 per year, and if planned cuts
through 2021 proceed without amendment, staff estimates that the subsidy would be reduced
by over $200,000 per year by 2021. The Bipartisan Budget Act of 2013, which relieved some of
the discretionary spending cuts in the 2011 BCA, did not affect automatic cuts to the subsidy,
and actually extended the automatic cuts through 2023.
The second bond issuance is the 2011 Utility Revenue Refunding Bond, Series A, which is to be
retired in 2026. This $17.2 million issuance refinanced an earlier Water and Gas Utility bond
issuance, the 2002 Utility Revenue Bonds, Series A, which was issued to finance various capital
improvements for both systems. The Water Utility’s share of the issuance was roughly $7.8
million.
The cost of debt service for the Water Utility’s share of these bond issuances for the financial
forecast period is shown in Table 15:
Table 15: Water Utility Debt Service ($000)
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
2009 Water Revenue Bonds,
Series A (net of grants) 2,012 2,031 2,046 2,064 2,079 2,101 2,151 2,151
2011 Utility Revenue Bonds,
Series A 657 656 654 656 657 657 657 658
Both the 2009 and 2011 Bonds include the following covenants: 1) net revenues plus Available
Reserves shall at least equal 125% of the maximum annual debt service, and 2) Available
Reserves shall be at least 5 times the maximum annual debt service. Note that “Available
Reserves,” as defined for both bonds, include the reserves for the Gas and Electric systems, not
just the Water system. This Financial Plan maintains compliance with these covenants
throughout the forecast period, as shown in Appendix A: Water Utility Financial Forecast Detail.
The net revenues (but not the reserves) of the Water Utility are also pledged for one other
bond as shown in Table 16 below, even though the Water Utility is not responsible for the debt
service payments. The Water Utility’s reserves or net revenues would only be called upon if the
responsible utilities are unable to make their debt service payments. Staff does not currently
foresee this occurring. Requirements of the California Constitution require that any amounts
advanced from one utility to pay debt service for another utility must be repaid by the
borrowing fund.
Table 16: Other Issuances Secured by the Water Utility’s Revenues or Reserves
Bond Issuance Responsible
Utilities
Annual Debt
Service ($000)
Secured by Water Utility’s:
Net Revenues Reserves
1995 Series A Utility
Revenue Bonds Storm Drain $680 Yes No
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SECTION 6E: OTHER REVENUES
The Water Utility receives most of its revenues from sales of water. The next largest source is
connection and capacity fees, which in FY 2016 represented 51% of revenue from sources other
than water sales. The remainder consisted of a variety of miscellaneous charges, transfers and
interest income.
Revenues from connection and capacity fees have more than doubled since FY 2009.
Connection fees are charged to new developments that need new or replacement service
connections, while capacity fees are charged to development that put additional demands on
the water distribution system. Revenue from these sources decreased slightly during the
recession, but has increased substantially since then. Staff is forecasting lower revenue from
these sources in subsequent years, but has increased connection fees that are expected to
offset these reductions to some extent.
Other revenue sources are projected to stay stable through the forecast period, though interest
income always fluctuates depending on changes in interest rates. Some uncertainty also exists
related to the Federal government’s commitment to continuing to pay the interest subsidy on
the Build America Bonds.
SECTION 6F: SALES REVENUES
Sales revenue projections are based on the load forecast in Section 5A: Load Forecast and the
projected rate changes shown in Figure 5. Except where stated otherwise, these load forecasts
are based on normal precipitation. Precipitation can vary substantially, however, even in non-
drought years, and this can affect revenues substantially. In dry years customers use more
water, increasing revenues, and in wet years they use less. These variations happen in the
winter, since summers have virtually no local precipitation regardless of whether it is a dry or
wet year. The variations are most likely related to winter irrigation demand.
SECTION 7: COMMUNICATIONS PLAN
In FY 2018, communications will continue to focus on water utility rate increases, including the
reasons why and how rates may change contingent upon continued drought conditions. The
City will also communicate how infrastructure costs and rising rates from our wholesale water
supplier, the San Francisco Public Utilities Commission, increases CPAU costs and must be
recovered through rate increases. Rates communications will include a substantial update to
information on a webpage dedicated to Utilities rates, “breaking news” on the Utility home
webpage, discussion in the Proposition 218 rate adjustment notice, bill inserts, print ads, videos
for web and television, social media posts and frequent educational updates to internal and
external stakeholders (customer service, marketing, City Manager’s Office, UAC, City Council,
business and residential customers). Other communications vehicles will include financial plans,
presentations to UAC, Finance Committee, City Council and any media coverage as a result of
the rate increases. CPAU will continue its outreach about drought conditions and importance of
water use efficiency, tying in the message that although rates are increasing, efficient usage
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should mean that a customer should not see a significant increase in water utility costs on their
bills.
Water conservation outreach will include bill inserts, web updates, email newsletters, videos
for the web and television, presentations to customer groups and the use of social media. To
keep customers apprised of the status and accomplishments of CIP projects, a network of
project web pages are maintained. Traffic is driven to the website via ads in publications,
newspaper inserts, and through the comprehensive portfolio of outreach strategies as outlined
above. Safety topics are also emphasized year-round. For all utility outreach, while print
materials and website pages still feature prominently, CPAU is placing more emphasis on digital
advertising content, direct mail, community safety/emergency preparation events and
presentations.
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APPENDICES
Appendix A: Water Utility Financial Forecast Detail
Appendix B: Water Utility Capital Improvement Program (CIP) Detail
Appendix C: Water Utility Reserves Management Practices
Appendix D: Description of Water Utility Operational Activities
Appendix E: Sample of Water Utility Outreach Communications
APPENDIX A: WATER UTILITY FINANCIAL FORECAST DETAIL
1 FISCAL YEAR FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
2
3 WATER SUPPLY
4 Purchases 5,538,305 5,532,947 5,507,153 4,671,433 4,127,085 4,164,524 4,388,840 4,618,793 4,548,794 4,477,618 4,407,222 4,342,411 4,307,346 4,274,401 4,242,367 4,274,975
5 Sales 5,062,873 5,097,392 5,047,148 4,433,016 3,858,825 3,852,185 4,037,731 4,318,572 4,253,123 4,186,573 4,120,753 4,060,155 4,027,369 3,996,565 3,966,613 3,997,101
6
7 BILL AND RATE CHANGES
8 Variable Charge (Supply)38%11%-16%25%22%9%7%2%2%2%2%2%2%2%2%2%
9 Variable Charge (Distribution)-12%17%30%-16%10%5%0%9%9%9%9%8%2%1%1%0%
10 Service Charge (Distribution)72%75%9%0%-10%3%0%7%8%8%8%7%1%1%1%1%
11 Change in System Average Rate 12%22%8%0%11%7%3%6%6%6%6%6%2%2%2%1%
12 Change in Average Residential Bill 12%21%7%-1%17%4%-3%5%5%5%5%4%1%1%1%1%
13
14 STARTING RESERVES
15 Reappropriations (Non-CIP)20,000 - - - - - - - - - - - - - - -
16 Commitments (Non-CIP)765,000 714,000 2,000 347,000 347,000 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273
17 Restricted for Debt Service 3,348,000 3,225,000 3,225,000 3,331,000 3,316,000 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194
18 Emergency Plant Replacement 1,000,000 1,000,000 1,000,000 1,000,000 - - - - - - - - - - - -
19 Capital Reserve - - - - 4,000,000 2,726,096 2,726,096 2,726,096 2,726,096 - - - - - - -
20 Rate Stabilization Reserve 10,639,000 7,996,000 17,272,000 20,133,000 6,567,000 1,877,437 - - - - - - - - - -
21 Operations Reserve - - - - 11,663,836 14,606,828 12,734,948 13,741,252 11,719,450 11,584,505 10,055,718 10,036,283 11,372,030 12,259,805 12,625,012 12,452,508
22 Unassigned - - - - - - 4,645,111 2,536,339 - - - - - - - -
23 TOTAL STARTING RESERVES 15,772,000 12,935,000 21,499,000 24,811,000 25,893,836 22,686,828 23,582,622 22,480,154 17,922,013 15,060,972 13,532,185 13,512,750 14,848,497 15,736,272 16,101,479 15,928,975
24
25 REVENUES
26 Net Sales 30,673,882 36,647,924 39,029,262 33,654,549 36,136,644 38,472,811 38,957,254 43,554,523 45,527,612 47,631,527 49,893,912 52,045,952 52,530,594 52,972,178 53,425,127 54,321,702
27 Other Revenues and Transfers In 5,892,133 6,811,461 4,053,920 7,504,848 3,258,936 3,376,354 3,433,864 3,492,074 3,550,893 3,611,902 3,677,134 3,743,736 3,831,586 3,921,772 4,014,356 4,109,403
28 TOTAL REVENUES 36,566,015 43,459,385 43,083,182 41,159,397 39,395,579 41,849,165 42,391,118 47,046,597 49,078,505 51,243,429 53,571,045 55,789,688 56,362,180 56,893,950 57,439,483 58,431,104
29
30 EXPENSES
31 Water Purchases 14,889,399 16,605,351 15,705,288 15,669,935 17,626,020 19,242,650 21,347,331 22,755,908 22,849,411 22,932,958 23,015,268 23,119,511 23,365,972 23,624,549 23,889,660 24,494,388
32 Operating Expenses
33 Administration
34 Allocated Charges 2,003,116 2,422,880 2,366,077 2,342,985 2,953,291 2,278,910 2,336,257 2,395,035 2,455,296 2,516,847 2,579,804 2,644,346 2,710,515 2,778,341 2,847,864 2,919,126
35 Rent 2,156,887 1,911,963 2,192,454 2,249,457 1,803,087 2,876,500 2,962,795 3,051,679 3,143,229 3,237,526 3,334,652 3,434,691 3,537,732 3,643,864 3,753,180 3,865,775
36 Debt Service 3,385,986 3,219,165 3,220,208 3,218,869 3,222,606 3,219,316 3,222,669 3,220,858 3,220,638 3,222,843 3,223,563 3,224,553 3,224,553 3,224,553 3,224,553 3,224,553
37 Transfers and Other Adjustments 301,963 2,241,793 335,808 63,612 (74,782) 383,630 391,302 399,129 407,111 415,253 423,558 432,030 432,030 432,030 432,030 432,030
38 Subtotal, Administration 7,847,952 9,795,801 8,114,546 7,874,923 7,904,202 8,758,356 8,913,023 9,066,700 9,226,274 9,392,469 9,561,576 9,735,619 9,904,830 10,078,787 10,257,626 10,441,484
39 Resource Management 552,972 557,910 570,040 488,331 592,744 955,380 987,746 1,020,939 1,055,358 1,085,650 1,113,619 1,142,552 1,172,547 1,203,329 1,234,919 1,267,339
40 Operations and Mtc 4,900,606 4,944,064 4,986,274 5,283,426 5,038,570 5,835,064 6,037,842 6,245,861 6,461,794 6,649,627 6,821,437 6,999,319 7,183,933 7,373,416 7,567,897 7,767,508
41 Engineering (Operating)301,278 338,659 381,502 358,128 282,472 372,459 385,617 399,118 413,142 425,250 436,259 447,663 459,507 471,664 484,143 496,952
42 Customer Service 1,544,608 1,584,759 1,677,926 1,821,447 2,076,559 2,106,862 2,181,487 2,258,058 2,337,605 2,406,207 2,468,516 2,533,069 2,600,120 2,668,946 2,739,594 2,812,112
43 Allowance for Unspent Budget - - - - - (427,532) (441,610) (456,050) (471,013) (484,354) (496,795) (509,652) (522,968) (536,631) (550,651) (565,038)
44 Subtotal, Operating Expenses 15,147,415 17,221,192 15,730,288 15,826,254 15,894,546 17,600,589 18,064,105 18,534,625 19,023,161 19,474,849 19,904,612 20,348,569 20,797,968 21,259,512 21,733,529 22,220,358
45 Capital Program Contribution 9,366,201 1,068,841 8,335,605 8,580,372 9,082,021 4,110,131 4,082,150 10,314,204 10,066,974 10,364,408 10,670,600 10,985,862 11,310,465 11,644,682 11,988,797 12,343,106
46 TOTAL EXPENSES 39,403,015 34,895,385 39,771,182 40,076,561 42,602,588 40,953,371 43,493,586 51,604,738 51,939,546 52,772,216 53,590,481 54,453,941 55,474,405 56,528,743 57,611,987 59,057,851
47 9.04 11.04
48 ENDING RESERVES
49 Reappropriations (Non-CIP)- - - - - - - - - - - - - - - -
50 Commitments (Non-CIP)714,000 2,000 347,000 347,000 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273
51 Restricted for Debt Service 3,225,000 3,225,000 3,331,000 3,316,000 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194 3,299,194
52 Emergency Plant Replacement 1,000,000 1,000,000 1,000,000 - - - - - - - - - - - - -
53 Capital Reserve - - - 4,000,000 2,726,096 2,726,096 2,726,096 2,726,096 - - - - - - - -
54 Rate Stabilization Reserve 7,996,000 17,272,000 20,133,000 6,567,000 1,877,437 - - - - - - - - - - -
55 Operations Reserve - - - 11,663,836 14,606,828 12,734,948 13,741,252 11,719,450 11,584,505 10,055,718 10,036,283 11,372,030 12,259,805 12,625,012 12,452,508 11,825,761
56 Unassigned - - - - - 4,645,111 2,536,339 - - - - - - - - -
57 TOTAL ENDING RESERVES 12,935,000 21,499,000 24,811,000 25,893,836 22,686,828 23,582,622 22,480,154 17,922,013 15,060,972 13,532,185 13,512,750 14,848,497 15,736,272 16,101,479 15,928,975 15,302,228
58
59 OPERATIONS RESERVE
60 Min (60 days of non-capital expenses)- - - 5,230,611 5,447,741 6,320,551 6,805,571 7,121,003 7,223,351 7,318,139 7,409,255 7,506,449 7,620,837 7,739,213 7,860,713 8,040,147
61 Target (90 days of non-capital expenses)- - - 9,395,240 8,849,765 9,527,750 10,273,411 10,734,869 10,891,793 11,037,461 11,177,725 11,327,238 11,511,321 11,701,700 11,897,086 12,179,700
62 Max (120 days of non-capital expenses)- - - 13,559,870 12,251,790 12,734,948 13,741,252 14,348,735 14,560,236 14,756,784 14,946,195 15,148,027 15,401,806 15,664,187 15,933,458 16,319,253
63 Risk Assessment Value 2,481,768 2,677,436 2,229,786 2,210,426 2,990,773 3,122,798 3,321,829 3,535,280 3,739,581 3,798,452 3,858,547 3,919,900 3,982,541
64
65 DEBT SERVICE COVERAGE RATIO
66 Net Revenues (125% of Debt Service)787%951%876%878%940%1044%1123%1182%1200%1216%1231%1248%1270%1292%1315%1349%
67 Available Reserves (5x Debt Service)*2.7 5.7 6.6 6.9 6.0 6.2 5.9 4.5 3.6 3.1 3.1 3.5 3.8 3.9 3.9 3.7
*For the purposes of debt covenants, the unrestricted reserves of other utilities may be counted toward the available reserves for meeting this measure. A ratio below 5x means that this utility is relying on the reserves of other utilities to meet its debt covenants.
Appendix A (continued)
1 FISCAL YEAR FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
2
3 REVENUES
4 Net Sales 84%84%91%82%92%92%92%93%93%93%93%93%93%93%93%93%
5 Other Revenues and Transfers In 16%16%9%18%8%8%8%7%7%7%7%7%7%7%7%7%
6 TOTAL REVENUES 100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%
7
8 EXPENSES
9 Water Purchases 38%48%39%39%41%47%49%44%44%43%43%42%42%42%41%41%
10 Operating Expenses
11 Administration
12 Allocated Charges 5%7%6%6%7%6%5%5%5%5%5%5%5%5%5%5%
13 Rent 5%5%6%6%4%7%7%6%6%6%6%6%6%6%7%7%
14 Debt Service 9%9%8%8%8%8%7%6%6%6%6%6%6%6%6%5%
15 Transfers and Other Adjustments 1%6%1%0%0%1%1%1%1%1%1%1%1%1%1%1%
16 Subtotal, Administration 20%28%20%20%19%21%20%18%18%18%18%18%18%18%18%18%
17 Resource Management 1%2%1%1%1%2%2%2%2%2%2%2%2%2%2%2%
18 Operations and Mtc 12%14%13%13%12%14%14%12%12%13%13%13%13%13%13%13%
19 Engineering (Operating)1%1%1%1%1%1%1%1%1%1%1%1%1%1%1%1%
20 Customer Service 4%5%4%5%5%5%5%4%5%5%5%5%5%5%5%5%
21 Allowance for Unspent Budget 0%0%0%0%0%-1%-1%-1%-1%-1%-1%-1%-1%-1%-1%-1%
22 Subtotal, Operating Expenses 38%49%40%39%37%43%42%36%37%37%37%37%37%38%38%38%
23 Capital Program Contribution 24%3%21%21%21%10%9%20%19%20%20%20%20%21%21%21%
24 TOTAL EXPENSES 100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%
25
26 RISK ASSESSMENT DETAIL
27 Distribution Revenue Variance 1,623,731 1,769,234 1,818,772 1,802,211 1,959,352 2,116,101 2,285,389 2,468,220 2,640,995 2,667,405 2,694,079 2,721,020 2,748,230
28 10% CIP Program Contingency 858,037 908,202 411,013 408,215 1,031,420 1,006,697 1,036,441 1,067,060 1,098,586 1,131,047 1,164,468 1,198,880 1,234,311
29 Total Risk Asssessment Value 2,481,768 2,677,436 2,229,786 2,210,426 2,990,773 3,122,798 3,321,829 3,535,280 3,739,581 3,798,452 3,858,547 3,919,900 3,982,541
30 Projected Operations Reserve 11,663,836 14,606,828 12,734,948 13,741,252 11,719,450 11,584,505 10,055,718 10,036,283 11,372,030 12,259,805 12,625,012 12,452,508 11,825,761
31 Operations Reserve, % of Risk Value 470%546%571%622%392%371%303%284%304%323%327%318%297%
32
33 OPERATIONS RESERVE
34 Min (60 days of non-capital expenses)- - - 5,230,611 5,447,741 6,320,551 6,805,571 7,121,003 7,223,351 7,318,139 7,409,255 7,506,449 7,620,837 7,739,213 7,860,713 8,040,147
35 Target (90 days of non-capital expenses)- - - 9,395,240 8,849,765 9,527,750 10,273,411 10,734,869 10,891,793 11,037,461 11,177,725 11,327,238 11,511,321 11,701,700 11,897,086 12,179,700
36 Max (120 days of non-capital expenses)- - - 13,559,870 12,251,790 12,734,948 13,741,252 14,348,735 14,560,236 14,756,784 14,946,195 15,148,027 15,401,806 15,664,187 15,933,458 16,319,253
37 Risk Assessment Value 2,481,768 2,677,436 2,229,786 2,210,426 2,990,773 3,122,798 3,321,829 3,535,280 3,739,581 3,798,452 3,858,547 3,919,900 3,982,541
38
39 DEBT SERVICE COVERAGE RATIO
40 Net Revenues (125% of Debt Service)787%951%876%878%940%1044%1123%1182%1200%1216%1231%1248%1270%1292%1315%1349%
41 Available Reserves (5x Debt Service)*2.7 5.7 6.6 6.9 6.0 6.2 5.9 4.5 3.6 3.1 3.1 3.5 3.8 3.9 3.9 3.7
42 *For the purposes of debt covenants, the unrestricted reserves of other utilities may be counted toward the available reserves for meeting this measure. A ratio below 5x means that this utility is relying on the reserves of other utilities to meet its debt covenants.
WATER UTILITY FINANCIAL PLAN
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APPENDIX B: WATER UTILITY CAPITAL IMPROVEMENT PROGRAM (CIP) DETAIL
Project #Project Name
Reappropriated / Carried
Forward from Previous
Years
Current Year
Funding
Proposed Budget
Amendments
Spending, Current
Year
Remaining in CIP
Reserve Fund Commitments FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
ONE TIME PROJECTS
WS-07000 Regulation Station Imp.1,092,430 - (135,541) (136,529) 820,360 624,149 - - - - -
WS-07001 Water Recycling Facilities 193,358 200,000 2,291 - 395,649 - - - - - -
WS-08001 Water Reservoir Coating 1,919,605 - (304,403) (823,254) 791,948 1,088,707 - - - - -
WS-09000 Seismic Water System 4,452,355 - (317,178) (431,985) 3,703,192 2,213,969 - - - - -
WS-13003 GPS Equipment Upgrade - - - - - - - - - - -
WS-13004 Asset Mgmt. Mobile Sys.- - - - - - - - - - -
WS-13006 Meter Shop Renovations - - - - - - - - - - -
WS-15004 Water System Master Plan 202,469 - (681) (358) 201,430 46,592 - - - - -
WS-08002 Emergency Water Supply 601,701 - - - 601,701 330,493 - - - - -
Subtotal, One-time Projects 8,461,919 200,000 (755,513) (1,392,126) 6,514,280 4,303,910 - - - - -
WATER MAIN REPLACEMENT PROGRAM
WS-20000 WMR - Project 32 - - - - - - - - - - -
WS-11000 WMR-Project 25 1,165,085 - (725,386) (270,754) 168,945 - - - - - -
WS-12001 WMR- Project 26 5,904,489 - (18,731) (51,224) 5,834,534 1 - - - - -
WS-13001 WMR - Project 27 568,065 5,680,651 (6,206,216) (42,500) - - - 6,216,841 - - -
WS-14001 WMR - Project 28 - 585,107 (585,107) - - - - 585,107 5,851,070 - -
WS-15002 WMR - Project 29 - - - - - - - - 602,660 6,026,602 -
WS-16001 WMR - Project 30 - - - - - - - - - 620,740 6,207,400
WS-19001 WMR - Project 31 - - - - - - - - - - 639,362
Subtotal, Water Main Replacement Prog.7,637,639 6,265,758 (7,535,440) (364,478) 6,003,479 1 - 6,801,948 6,453,730 6,647,342 6,846,762
WATER UTILITY FINANCIAL PLAN
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Appendix B: Water Utility Capital Improvement Program (CIP) Detail (Continued)
Project #Project Name
Reappropriated / Carried
Forward from Previous
Years
Current Year
Funding
Budget
Amendments
Spending, Current
Year
Remaining in CIP
Reserve Fund Commitments FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
ONGOING PROJECTS
WS-80014 Services/Hydrants - 400,000 - (171,657) 228,343 50,533 412,000 424,360 437,091 450,204 463,710
WS-80015 Water Meters 252,092 565,000 - (26,213) 790,879 - 565,000 500,000 515,000 530,450 546,364
WS-02014 W-G-W Utility GIS Data 82,817 366,025 (0) (87,607) 361,235 295,211 402,628 442,890 456,177 469,862 483,958
WS-13002 Equipment/Tools 20,685 50,000 - - 70,685 - - - - - -
WS-11003 Dist. Sys. Improvements 131,508 739,000 (602) (5,000) 864,906 163,985 247,000 254,000 261,620 269,469 277,553
WS-11004 Supply Sys. Improvements 95,884 239,000 (190) (73,156) 261,538 8,136 247,000 254,000 261,620 269,469 277,553
Subtotal, Ongoing Projects 582,986 2,359,025 (792) (363,633) 2,577,586 517,865 1,873,628 1,875,250 1,931,508 1,989,454 2,049,138
CUSTOMER CONNECTIONS (FEE FUNDED)
WS-80013 Water System Extensions 18,736 690,000 - (320,117) 388,619 112,897 710,700 732,021 753,981 776,601 799,899
Subtotal, Customer Connections 18,736 690,000 - (320,117) 388,619 112,897 710,700 732,021 753,981 776,601 799,899
GRAND TOTAL 16,701,281 9,514,783 (8,291,745) (2,440,354)15,483,964 4,934,673 2,584,328 9,409,219 9,139,219 9,413,397 9,695,799
Funding Sources
Connection/Capacity Fees 690,000 - 902,280 929,348 957,228 985,946 1,015,524
Other Utility Funds (Asset Mgmt, GIS Systems)244,109 - 268,418 295,260 304,118 313,242 322,640
Utility Rates 9,514,783 (8,291,745) 1,413,630 8,184,611 7,877,873 8,114,209 8,357,635
CIP-RELATED RESERVES DETAIL
6/30/2016
(Actual)
6/30/2017
(Unaudited)
Reappropriations (excl. Bond Funded)10,529,905 10,549,291
Commitments (excl. Bond Funded)6,171,376 4,934,673
WATER UTILITY FINANCIAL PLAN
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APPENDIX C: WATER UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Water Utility
Financial Plan:
Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal
years covered by the Financial Plan. For example, for the Water Utility Financial Plan
delivered in conjunction with the FY 2015 budget, FY 2015 to FY 2021 is the Financial
Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers
to the Utility’s Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net
Assets as the difference between its assets and liabilities.
d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital
assets (net of related debt) or restricted for debt service or other restricted purposes.
Section 2. Reserves
The Water Utility’s Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 3 (Reserve for Commitments)
b) For operating and capital budgets re-appropriated from previous years, as described in
Section 4 (Reserve for Re-appropriations)
c) For cash flow management and contingencies related to the Water Utility’s Capital
Improvement Program (CIP), as described in Section 5 (CIP Reserve)
d) For rate stabilization, as described in Section 6 (Rate Stabilization Reserve)
e) For operating contingencies, as described in Section 7 (Operations Reserve)
f) Any funds not included in the other reserves will be considered Unassigned Reserves
and shall be returned to ratepayers or assigned a specific purpose as described in
Section 8 (Unassigned Reserves).
Section 3. Reserve for Commitments
At the end of each fiscal year the Reserve for Commitments will be set to an amount equal
to the total remaining spending authority for all contracts in force for the Water Utility at
that time.
Section 4. Reserve for Re-appropriations
At the end of each fiscal year the Reserve for Re-appropriations will be set to an amount
equal to the amount of all remaining capital and non-capital budgets, if any, that will be re-
appropriated to the following fiscal year in accordance with Palo Alto Municipal Code
Section 2.28.090.
WATER UTILITY FINANCIAL PLAN
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Section 5. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for
capital contingencies. Staff will manage the CIP Reserve according to the following
practices:
a) The following guideline levels are set forth for the CIP Reserve. These guideline levels
are calculated for each fiscal year of the Financial Planning Period based on the levels of
CIP expense budgeted for that year.
Minimum Level 12 months of budgeted CIP expense
Maximum Level 24 months of budgeted CIP expense
b) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and
the Reserve for Commitments when funds are added or removed from to that reserve
as a result of a change in contractual commitments related to CIP projects. Any other
additions to or withdrawals from the CIP reserve require Council action.
c) Minimum Level:
i) Funds held in the Reserve for Commitments may be counted as part of the CIP
Reserve for the purpose of determining compliance with the CIP Reserve minimum
guideline level.
ii) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present
a plan to the City Council to replenish the reserve. The plan shall be delivered by the
end of the following fiscal year, and shall, at a minimum, result in the reserve
reaching its minimum level by the end of the next fiscal year. For example, if the CIP
Reserve is below its minimum level at the end of FY 2017, staff must present a plan
by June 30, 2018 to return the reserve to its minimum level by June 30, 2019. In
addition, staff may present, and the Council may adopt, an alternative plan that
takes longer than one year to replenish the reserve, or that does so in a shorter
period of time.
d) Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds
may be added to this reserve. If there are funds in this reserve in excess of the
maximum level staff must propose to transfer these funds to another reserve or return
them to ratepayers in the next Financial Plan. Staff may also seek City Council to
approve holding funds in this reserve in excess of the maximum level if they are held for
a specific future purpose related to the CIP.
Section 6. Rate Stabilization Reserve
Funds may be added to the Rate Stabilization Reserve by action of the City Council and
held to manage the trajectory of future year rate increases. Withdrawal of funds from
the Rate Stabilization Reserve requires Council action. If there are funds in the Rate
Stabilization Reserve at the end of any fiscal year, any subsequent Water Utility
Financial Plan must result in the withdrawal of all funds from this Reserve by the end of
the next Financial Planning Period.
WATER UTILITY FINANCIAL PLAN
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Section 7. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. Any portion of the Water Utility’s Fund Balance not included in the reserves
described in Section 3-Section 6 above will be included in the Operations Reserve unless this
reserve has reached its maximum level as set forth in Section 7(d) below. Staff will manage
the Operations Reserve according to the following practices:
a) The following guideline levels are set forth for the Operations Reserve. These guideline
levels are calculated for each fiscal year of the Financial Planning Period based on the
levels of Operations and Maintenance (O&M) and commodity expense forecasted for
that year in the Financial Plan.
Minimum Level 60 days of O&M and commodity expense
Target Level 90 days of O&M and commodity expense
Maximum Level 120 days of O&M and commodity expense
b) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations
Reserve are lower than the minimum level set forth above, staff shall present a plan to
the City Council to replenish the reserve. The plan shall be delivered within six months
of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its
minimum level by the end of the following fiscal year. For example, if the Operations
Reserve is below its minimum level at the end of FY 2014, staff must present a plan by
December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In
addition, staff may present, and the Council may adopt, an alternative plan that takes
longer than one year to replenish the reserve.
c) Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower
than the target level, any Financial Plan created for the Water Utility shall be designed
to return the Operations Reserve to its target level within four years.
d) Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no
funds may be added to this reserve. Any further increase in the Water Utility’s Fund
Balance shall be automatically included in the Unassigned Reserve described in Section
8, below.
Section 8. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the Water
Utility’s Fund Balance will be held in the Unassigned Reserve. If there are any funds in the
Unassigned Reserve at the end of any fiscal year, the next Financial Plan presented to the
City Council must include a plan to assign them to a specific purpose or return them to the
Water Utility ratepayers by the end of the first fiscal year of the next Financial Planning
Period. For example, if there were funds in the Unassigned Reserves at the end of FY 2015,
and the next Financial Planning Period is FY 2016 through FY 2021, the Financial Plan shall
include a plan to return or assign any funds in the Unassigned Reserve by the end of
FY 2016. Staff may present an alternative plan that retains these funds or returns them over
a longer period of time.
WATER UTILITY FINANCIAL PLAN
J u n e 1 6 , 2 0 1 4 36 | P a g e
APPENDIX D: DESCRIPTION OF WATER UTILITY OPERATIONAL ACTIVITIES
This appendix describes the activities associated with the various operational activities referred
to in Section 6B: Operations of this Financial Plan.
Administration: Accounting, purchasing, legal, and other administrative functions provided by
the City’s General Fund staff, as well as shared communications services, CPAU administrative
overhead, and billing system maintenance costs. This category also includes Water Utility debt
service and rent paid to the General Fund for the land associated with reservoirs and various
other facilities.
Customer Service: This category includes the Water Utility’s share of the call center, meter
reading, collections, and billing support functions. Billing support encompasses staff time
associated with bill investigations and quality control on certain aspects of the billing process. It
does not include maintenance of the billing system itself, which is included in Administration.
This category also includes CPAU’s key account representatives, who work with large
commercial customers who have more complex requirements for their water services.
Engineering (Operating): The Water Utility’s engineers focus primarily on the CIP, but a small
portion of their time is spent assisting with distribution system maintenance.
Operations and Maintenance: This category includes the costs of a variety of distribution
system maintenance activities, including:
investigating reports of damaged mains or services and performing emergency repairs;
testing and operating valves;
monitoring water quality and reservoir levels;
monitoring the status of the different pressure zones;
flushing water at hydrants and other closed end points of the system;
building and replacing water services for new or redeveloped buildings; and
testing and replacing meters to ensure accurate sales metering.
This category also includes a variety of functions the utility shares with other City utilities,
including:
the Field Services team (which does field research of various customer service issues);
the Cathodic Protection team (which monitors and maintains the systems that prevent
corrosion in metal tanks and reservoirs); and
the General Services team (which manages and maintains equipment, paves and
restores streets after gas, water, or sewer main replacements, and provides welding
services)
Resource Management: This category includes water procurement, contract management,
water resource planning, interaction with BAWSCA, the SFPUC, and the SCVWD, and tracking of
legislation and regulation related to the water industry.
J u n e 1 6 , 2 0 1 4 37 | P a g e
APPENDIX E: SAMPLE OF WATER UTILITY OUTREACH COMMUNICATIONS
Attachment C
* NOT YET APPROVED *
170216 jb 6053919
Resolution No. _________
Resolution of the Council of the City of Palo Alto Increasing Water
Rates by Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service from Fire Hydrants), W-4 (Residential
Master-Metered and General Non-Residential Water Service), and
W-7 (Non-Residential Irrigation Water Service) and Repealing
Resolution No. 9542 to Deactivate the Level 2 Drought Surcharges
R E C I T A L S
A. On January 17, 2014 the Governor of the State of California proclaimed a State of
Emergency due to severe drought conditions. On April 1, 2015 the Governor issued an
Executive Order proclaiming that severe drought conditions continued to exist, and ordering
the State Water Resources Control Board to adopt regulations imposing mandatory water use
restrictions on water suppliers to achieve a 20% reduction in statewide potable water use
through February 28, 2016, or as continued or modified by the Governor.
B. On May 5, 2015, the State Water Resources Control Board adopted regulations
imposing upon Palo Alto a mandatory 24% reduction in potable water consumption from
Jun 1, 2015 through February 28, 2016. This action by the Board triggered the City Council’s
authority to activate one of the three drought surcharges available in its water rate schedules.
C. On August 17, 2015, Council adopted Resolution 9542 which established that the
Level 2 (20%) drought surcharges set forth on the City's schedule of water rates would be
collected on all City of Palo Alto Utilities water customer bills as of September 1, 2015, and
declared that the surcharge would remain in effect until rescinded or modified by the City
Council.
D. On May 9, 2016 Governor Brown issued an Executive Order calling for the State
Water Resources Control Board to adjust emergency water conservation regulations through
the end of January 2017, in recognition of the different water supply conditions across the
state. The State Board subsequently revised its regulations allowing suppliers to self-certify
that there would be no supply shortfall, assuming 3 additional dry years. . The San Francisco
Regional Water System (RWS) supply availability enabled the City of Palo Alto to self-certify a
conservation standard of zero which remains in effect.
E. While the State’s emergency regulation remains in effect, hydrological conditions as
of February 2017 indicate that the State will be largely out of drought conditions, and customer
demand has started to rise from peak conservation levels. Water storage in the RWS is at
maximum capacity.
F. Staff therefore recommends the deactivation of the level 2 drought surcharge at this
time, via the repeal of Resolution No. 9542.
Attachment C
* NOT YET APPROVED *
170216 jb 6053919
G. 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, fees
and charges.
H. On ____, 2017, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
I. As required by Article XIII D, Section 6 of the California Constitution and applicable
law, notice of the ________ 2017 public hearing was mailed to all City of Palo Alto Utilities
water customers by _______, 2017.
J. The City Clerk has tabulated the total number of written protests presented by the
close of the public hearing, and determined that it was less than fifty percent (50%) of the total
number of customers and property owners subject to the proposed water rate amendments,
therefore a majority protest does not exist against the proposal.
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 as attached
and incorporated. Utility Rate Schedule W-1, as amended, shall become effective July 1, 2017.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-2, as amended, shall become effective July 1, 2017.
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 as attached and incorporated. Utility Rate Schedule W-4, as amended,
shall become effective July 1, 2017.
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 as
attached and incorporated. Utility Rate Schedule W-7, as amended, shall become effective
July 1, 2017.
SECTION 5. The City Council finds as follows:
a. Revenues derived from the water rates approved by this resolution do not exceed
the funds required to provide water service.
b. Revenues derived from the water rates approved by this resolution shall not be used
for any purpose other than providing water service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
Attachment C
* NOT YET APPROVED *
170216 jb 6053919
c. The amount of the water rates imposed upon any parcel or person as an incident of
property ownership shall not exceed the proportional cost of the water service
attributable to the parcel.
SECTION 6. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 7. Each of the rate schedules adopted by this resolution includes a structure
of drought surcharges that correspond to different levels of water use reduction in the City.
Effective July 1, 2017, each of the drought surcharges in the water rate schedules adopted by
this resolution are deactivated and shall not be added to applicable water rates, unless and
until such time as Council again approves both their use and the appropriate reduction level.
SECTION 8. The Council finds that the adoption of this resolution changing water
rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to maintain service 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). After
reviewing the staff report and all attachments presented to Council, the Council incorporates
these documents herein and finds that sufficient evidence has been presented setting forth
with specificity the basis for this claim of CEQA exemption.
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
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-1 Effective 7-1-20176
dated 97-1-20165 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 Service Charge: Per Month
For 5/8-inch meter ..................................................................................................... $ 16.77
For 3/4 inch meter ..................................................................................................... 22.60
For 1 inch meter ........................................................................................................ 34.26
For 1 1/2 inch meter .................................................................................................. 63.40
For 2-inch meter ........................................................................................................ 98.37
For 3-inch meter ........................................................................................................ 209.11
For 4-inch meter ........................................................................................................ 372.31
For 6-inch meter ........................................................................................................ 762.81
For 8-inch meter ........................................................................................................ 1,403.94
For 10-inch meter ...................................................................................................... 2,219.92
For 12-inch meter ....................................................................................................... 2,919.34
Commodity Rate: (To be added to Service Charge and applicable to all pressure zones.)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 usage ........................................................................................................................$6.6630
Tier 2 usage (All usage over 100% of Tier 1) ........................................................................ 89.182
ATTACHMENT D
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-2 Effective 7-1-20176
dated 97-1-20165 Sheet No W-1-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity Rate for Tier 1 and Tier
2 water usage when the City Council has determined that a water reduction level is in effect for the
City as described in Section D.3. The drought surcharges in the table below are measured in dollars
per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Tier 1 0.20 0.43 0.64
Tier 2 0.58 1.21 1.85
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 0.2 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.
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-3 Effective 7-1-20176
dated 97-1-20165 Sheet No W-1-3
3.Drought Surcharge
During period of water shortage or restrictions on local water use, the City Council may,
by resolution, declare the need for citywide water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the Drought Surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-1 Effective 7-1-20176
dated 97-1-20165 Sheet No W-2-1
A. APPLICABILITY:
This schedule applies to all water taken from fire hydrants for construction, maintenance, and
other uses in conformance with provisions of a Hydrant Meter Permit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides water services.
C. RATES:
1. Monthly Service Charge.
METER SIZE
5/8 inch ........................................................................................................................... 50.00
3 inch ........................................................................................................................... 125.00
2.Commodity Rate: (per hundred cubic feet) ................................................................ $7.6832
3. Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity Rate when the
City Council has determined that a water reduction level is in effect for the City as described in
Section D.5. The drought surcharges in the table below are measured in dollars per hundred
cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
1.Monthly charges shall include the applicable monthly service charge in addition to usage billed at
the commodity rate.
2.Any applicant using a hydrant without obtaining a Hydrant Meter Permit or any permittee using a
hydrant without a Hydrant Meter Permit shall pay a fee of $50.00 for each day of such use in
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-2 Effective 7-1-20176
dated 97-1-20165 Sheet No W-2-2
addition to all other costs and fees provided in this schedule. A hydrant permit may be denied or
revoked for failure to pay such fee.
3.A meter deposit of $750.00 may be charged any applicant for a Hydrant Meter Permit as a
prerequisite to the issuance of a permit and meter(s). A charge of $50.00 per day will be added for
delinquent return of hydrant meters. A fee will be charged for any meter returned with missing or
damaged parts.
4. Any person or company using a fire hydrant improperly or without a permit, or who draws water
from a hydrant without a meter installed and properly recording usage shall, in addition to all other
applicable charges be subject to criminal prosecution pursuant to the Palo Alto Municipal Code.
5.During period of water shortage or restrictions on local water use, the City Council may, by
resolution, declare the need for citywide water conservation at the 10/15%, 20% or 25% level.
While such a resolution is in effect, a drought surcharge will apply. The purpose of the Drought
Surcharge is to recover revenues lost as a result of reduced consumption.
{End}
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-1 Effective 7-1-20176
dated 97-1-20165 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 Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 16.77
For 3/4-inch meter .................................................................................... 22.60
For 1-inch meter .................................................................................... 34.26
For 1 ½-inch meter .................................................................................... 63.40
For 2-inch meter .................................................................................... 98.37
For 3-inch meter .................................................................................... 209.11
For 4-inch meter .................................................................................... 372.31
For 6-inch meter .................................................................................... 762.81
For 8-inch meter .................................................................................... 1,403.94
For 10-inch meter .................................................................................... 2,219.92
For 12-inch meter .................................................................................... 2,919.34
Commodity Rates: (to be added to Service Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per ccf ............................................................................................................ $ 7.6832
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-2 Effective 7-1-20176
dated 97-1-20165 Sheet No W-4-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity Rate when the City
Council has determined that a water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet
(ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
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.Drought Surcharge
During period of water shortage or restrictions on local water use, the City Council may,
by resolution, declare the need for citywide water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the Drought Surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-1 Effective 7-1-20167
dated 97-1-20165 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 Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 16.77
For 3/4-inch meter .................................................................................... 22.60
For 1-inch meter .................................................................................... 34.26
For 1 1/2 inch meter .................................................................................... 63.40
For 2-inch meter .................................................................................... 98.37
For 3-inch meter .................................................................................... 209.11
For 4-inch meter .................................................................................... 372.31
For 6-inch meter .................................................................................... 762.81
For 8-inch meter .................................................................................... 1,403.94
For 10-inch meter .................................................................................... 2,219.92
For 12-inch meter .................................................................................... 2,919.34
Commodity Rates: (to be added to Service Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per ccf ............................................................................................................ $ 89.0872
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity Rate when the City
Council has determined that a water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf).
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-2 Effective 7-1-20167
dated 97-1-20165 Sheet No W-7-2
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.53 1.25 2.02
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. Drought Surcharge
During period of water shortage or restrictions on local water use, the City Council may,
by resolution, declare the need for citywide water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the Drought Surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
Attachment E
EXCERPTED DRAFT MINUTES OF THE MARCH 1, 2017
UTILITIES ADVISORY COMMISSION
ITEM 3: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend
that the City Council Adopt: (1) a Resolution Approving the Fiscal Year 2018 Water Utility
Financial Plan; and (2) a Resolution Increasing Water Rates by Amending Rate Schedules W-1
(General Residential Water Service), W-2 (Water Service from Fire Hydrants), W-4 (Residential
Master-Metered and General Non-Residential Water Service, and W-7 (Non-Residential
Irrigation Water Service) and Removing the Drought Surcharge
Acting Senior Resource Planner Eric Keniston gave a presentation on the financial forecasts for
the water utility. Forecasted rate increases for July 1, 2017 had decreased from 6% to 4% from
the last year’s forecast. Future year rate increases were projected to be roughly 6% per year.
Cost increases by rising wholesale costs due to major capital expenditures for seismic
improvements and rehabilitation to the Hetch Hetchy water system. Expenditures were
projected to be lower than normal in FY 2017 and FY 2018 due to delays in water main
replacement investments. This would result in an increase in reserves, which would allow rate
increases to be phased in over multiple years. Lastly, water demand had decreased during the
drought, but with recent precipitation and an end to mandatory reduction requirements,
demand was beginning to slowly rise again. It was not clear whether it would return to pre-
drought levels. As a result, staff would recommend removing the drought surcharge.
Commissioner Schwartz said it was important to remove the drought surcharge given the
recent precipitation.
Keniston said that even with the 4% rate increase, the removal of the drought surcharge meant
that customers would see an overall decrease in their bills.
ACTION: Commissioner Schwartz moved, seconded by Commissioner Trumbull to recommend
that the City Council adopt the staff recommendation. The motion carried unanimously (6-0,
with Vice Chair Danaher and Commissioners Trumbull, Forssell, Danaher, Schwartz, Ballantine,
and Johnston voting yes and Commissioner Cook absent).
City of Palo Alto (ID # 7724)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/4/2017
City of Palo Alto Page 1
Council Priority: Environmental Sustainability
Summary Title: Finance Committee Recommendation to Adopt the Refuse
Rates for FY 2018
Title: Finance Committee Discussion and Recommendation That Council
Adopt (As Part of the Fiscal Year 2018 Annual Budget) a Resolution Amending
the Residential Refuse Rates for Fiscal Year 2018 to Cover Program Costs and
Keeping All Other Rates the Same
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends the Finance Committee:
Recommend Council adopt (as part of the Fiscal Year 2018 Annual Budget) the
attached resolution (Attachment A) amending Utility Rate Schedule R-1
(Residential Refuse Rates)(Attachment B).
Executive Summary
Staff proposes a 5% increase in FY 2018 to complete the three-year plan of
residential rate adjustments,balancing residential sector revenues and expenses
(SR #5566). The proposed residential rate increase of 5% is less than the
previously projected third-year rate increase of 8%due to program expense
reductions. The 5% residential rate increase brings residential revenues fully in
line with that sector’s expenses, consistent with state law requirements. Staff is
not proposing any changes to the commercial rate at this time.
Background
Refuse Services
Residential and commercial refuse rates pay for more than just garbage
ATTACHMENT G
City of Palo Alto Page 2
collection,including the following:
·Garbage service –Curbside collection of the black garbage cart, processing
the garbage at the Sunnyvale Material and Recovery Transfer (SMaRT)
Station and landfilling the residual at Kirby Canyon Landfill in San Jose.
·Recycling service –Curbside collection of the blue recycling cart, sorting the
recyclables into saleable commodities at the GreenWaste Recovery Charles
Street Material Recovery Facility (MRF).
·Compost service –Curbside collection of the green cart;processing and
anaerobic digestion of yard trimmings and food scraps at the Zero Waste
Energy Development (ZWED) facility in north San Jose to produce compost
and green energy.
·Street Sweeping service –Weekly street sweeping services during the leaf
season and bi-weekly sweeping the rest of the year.
·Annual Clean Up Day – Once a year each single-family residential refuse
customer can contact GreenWaste to pick up four large items that cannot
fit in the black garbage cart, in addition to contained garbage, recyclables
and yard trimmings.
·Zero Waste Palo Alto support – Residents and businesses can contact Zero
Waste staff to gain valuable information on home composting, reducing
food waste and zero waste events.
·Household Hazardous Waste (HHW) service –Weekly collection program at
the HHW Station located at the Palo Alto Regional Water Quality Control
Plant.
·Palo Alto Landfill post closure maintenance and monitoring – Ongoing
maintenance and monitoring at the now-closed Palo Alto Landfill.
The cost of refuse services for each program area is listed in Table 1. Zero waste
program support is included in the “Solid Waste” category.
Table 1.Refuse Program Costs Preliminary Budget FY 2018 $31.1 million*
Solid Waste Recycling Compost Landfill Hazardous
Waste
Street
Sweeping
$15.6 m $4.0 m $5.6 m $3.9 m $0.6 m $1.4 m
*The final FY 2018 budget amounts may differ from these estimates.
Single-Family Residential Refuse Rates (R-1)
City of Palo Alto Page 3
In 2015, the City contracted with a consultant to prepare a Solid Waste Rate
Structure and Analysis Report. The report noted the revenue collected from
residential refuse customers was less than the cost to service the residential
customers. The Finance Committee approved staff’s proposed plan to increase
residential rates 28% (for most customers) over three years to provide sufficient
revenue to cover all residential expenses by FY 2018 (SR #5566). Residential rates
were increased 9% in FY 2016, 9% in FY 2017,and in FY 2018 staff proposes a 5%
increase to complete the three-year balancing plan.
Discussion
Commercial Rates (RC)
No changes are recommended to commercial rates at this time.
Single-Family Residential Rates
This proposed 5%rate increase is less than the previously projected increase of
8% primarily due to GreenWaste depreciation expenses and reductions in the
Sunnyvale Materials and Recycling Transfer (SMaRT) Station debt services budget.
As the initial projected FY 2018 budget of $31.1 million is roughly $300,000 more
than the FY 2017 budget of $30.8 million, a 5% rate increase is all that is needed
to fully fund the residential sector refuse expenses. Although a small proportion
of customers will “downsize” their garbage cart, staff does not anticipate this
significantly impacting overall revenue. Table 2 lists the various garbage cart sizes
available and current corresponding rates and recommended rate increases.
Table 2: Recommended FY 2018 Adjustments (R-1 Single-Family Residential Rate
Schedule)
Cart Size Current Rates
(monthly)
Recommended
FY 2018 Rates
(monthly)
Dollar Increase Percentage
Increase
20 gal $26.48 $27.81 $1.33 5%
32 gal $47.69 $50.07 $2.38 5%
64 gal $95.38 $100.15 $4.77 5%
96 gal $143.07 $150.22 $7.15 5%
To cover projected expenses through FY 2021, staff projects residential rate
increases of 5% in FY 2018, 3% in FY 2019, 3% in FY 2020, and 3% in FY 2021.
City of Palo Alto Page 4
The City offers one of the most comprehensive Refuse,Zero Waste, street
sweeping and household hazardous waste collection programs in the region.
Nonetheless, the City’s least expensive rate option, a mini-can,is priced within
the range of neighboring cities (Table 3). The Palo Alto rates are proposed for July
1, 2017. Cities with lower monthly rates generally offer fewer services.
Table 3: Regional Single-Family Residential Monthly Rate+Comparison
City Least Expensive Rate
Palo Alto $27.81
Menlo Park $13.99
Mountain View $20.05
San Jose $32.07*
Santa Clara $19.93
Sunnyvale $38.23*
+As of March 2017
* Does not offer a minican/20 gallon cart
To minimize the need for rate increases, staff implemented several significant
cost saving measures in recent years, including but not limited to (1) accelerating
the filling and closing of the City’s landfill; (2) contracting street sweeping
operations and moving to less frequent sweeping during the non-leaf season; and
(3) improvements and efficiencies gained in the City’s household hazardous waste
collection program.
Note, approximately two-thirds of Refuse Program expenses are based on CPI
increases built into respective agreements. The projections for FY 2018 and near-
term future are based on these 3% CPI increases and are addressed in the
recommended rates.
Timeline Refuse Rate Implementation Schedule
Task Schedule
Finance Committee final rate approval as part
of the budget process
April 4, 2017
Proposition 218 notices mailed May 1, 2017
Council approval June 12, 2017
New Refuse Rates take effect July 1, 2017
City of Palo Alto Page 5
Resource Impact
The impacts of the proposed FY 2018 refuse rate increases will implement the
third year of a three-year phased program to realign rates between the
residential, commercial and roll-off sectors so that residential revenues are
sufficient to cover expenses. Rates in all sectors are sufficient to cover expenses
and continue rebuilding refuse reserves to appropriate levels.
Policy Implications
There are no policy changes contained in the adoption of the proposed new
Refuse Rates.
Environmental Clearance/CEQA
Adjustments of rates are statutorily exempt from the California Environmental
Quality Act (CEQA) (Section 21083, Public Resources Code; Reverence Section
21080(b)(8), Public Resource Code.
Attachments:
·Attachment A: Refuse Rates Resolution
·Attachment B: R1 7-1-2017
Attachment A
Resolution No. ______
Resolution of the Council of the
City of Palo Alto Amending the Utility Rate Schedule
R-l for a Refuse Rate Increase
RECITIALS
A. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the City Council may by
resolution adopt rules and regulations governing utility services and the fees and charges therefore; and
B. The Council has considered the need for an adjustment in refuse collection rates to avoid a
decrease in the Refuse Fund Rate Stabilization Reserve levels; and
C. Pursuant to Article XIIID Sec. 6 of the California Constitution, on June XX, 2017 the Council of the
City of Palo Alto held a public hearing to consider all protests against the proposed refuse rate fee increases;
and
D. 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 subject to the proposed refuse rate fee increases.
The Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule R-
l (Domestic Refuse Collection) is hereby amended to read in accordance with Sheets R-l-l, R-1-2,attached
hereto and incorporated herein. The foregoing Utility Rate Schedules, as amended, shall become effective on
July 1, 2017.
SECTION 2. The rates contained in the attached Rate Schedules shall be in effect until Council
adopts a new rate structure.
SECTION 3. The Council finds that the revenue derived from the authorized adjustments of the
refuse collection rates shall be used only for the purposes set forth in Article VII, Section 2, of the Charter of
the City of Palo Alto.
/ /
/ /
/ /
/ /
SECTION 4. The Council finds that the adoption of this resolution does not constitute a project
under the California Environmental Quality Act, California Public Resources Code section 21080, subdivision
(b)(8).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
_______________________________________________________
City Clerk Mayor
APPROVED AS TO FORM:APPROVED:
_______________________________________________________
City Attorney City Manager
_____________________________
Director of Public Works / City Engineer
_____________________________
Director of Administrative Services
DOMESTIC REFUSE COLLECTION
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FINANCE COMMITTEE
ACTION MINUTES
Page 1 of 2
Special Meeting
Tuesday, April 4, 2017
Chairperson Filseth called the meeting to order at 7:02 P.M. in the Community
Meeting Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Filseth (Chair), Fine, Holman, Tanaka
Absent:
Oral Communications
None.
Action Items
1.Finance Committee Discussion and Recommendation That Council Adopt
(as Part of the Fiscal Year 2018 Annual Budget) a Resolution Amending the
Residential Refuse Rates for Fiscal Year 2018 to Cover Program Costs and
Keeping all Other Rates the Same.
MOTION: Council Member Fine moved, seconded by Council Member Holman to
recommend the City Council adopt (as part of the Fiscal Year 2018 Annual Budget)
a Resolution amending Utility Rate Schedule R-1 (Residential Refuse Rates).
MOTION PASSED: 4-0
The Committee took a break from 8:04 P.M. to 8:06 P.M.
2.Utilities Advisory Commission Recommendation That the City Council
Adopt: (1) a Resolution Approving the Fiscal Year 2018 Water Utility
Financial Plan; and (2) a Resolution Increasing Water Rates by Amending
Rate Schedules W-1 (General Residential Water Service), W-2 (Water
ATTACHMENT H
ACTION MINUTES
Page 2 of 2
Finance Committee Action Minutes
April 4, 2017
Service From Fire Hydrants), W-4 (Residential Master-Metered and General
Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water
Service) and Removing the Drought Surcharge.
MOTION: Council Member Tanaka moved, seconded by Council Member Fine to
recommend the City Council:
1. Adopt a Resolution approving the Fiscal Year (FY) 2018 Water Utility
Financial Plan; and
2. Transfer $1.877 million from the Rate Stabilization Reserve to the
Operations Reserve; and
3. Adopt a Resolution increasing water rates by amending Rate Schedules W-1
(General Residential Water Service), W-2 (Water Service from Fire
Hydrants), W-4 (Residential Master-Metered and General Non-Residential
Water Service), and removing the drought surcharge with the following
change:
A. That the increase in water rates be 3 percent beginning July 1, 2017
MOTION PASSED: 4-0
MOTION: Council Member Tanaka moved, seconded by Council Member Fine to
authorize Staff the ability to notice the increase in water rates at an amount up to
4 percent.
MOTION PASSED: 4-0
City of Palo Alto (ID # 8057)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 5/18/2017
City of Palo Alto Page 1
Summary Title: Follow-up Information on Water Utility Rate Comparisons
Title: Follow-up Information on Water Utility Rate Comparisons
From: City Manager
Lead Department: Utilities
Recommendation
This is a discussion item and no action is required.
Background
At its April 4, 2017 meeting, the Finance Committee requested more information on why water
bills for Palo Alto’s residential customers were higher than those of surrounding agencies. This
report provides background on water utility benchmarking efforts undertaken since 2010. In
addition, preliminary insights from a 2014 staff benchmarking effort are discussed.
Discussion
Staff has attached an April 15, 2014 Finance Committee staff report (Staff Report ID 4480,
Discussion of Water Utility Benchmarking Studies and Future Work Plan) summarizing the
results of past efforts in 2010 and 2013 (Attachment A). To supplement that report, Attachment
B provides an informal 2014 staff analysis comparing CPAU water utility rates with several
nearby agencies.
The findings of the 2010, 2013 and 2014 benchmarking studies are largely consistent. Some of
the key insights are:
1.As indicated by these analyses, it has long been recognized that water utility rates in Palo
Alto are higher than some nearby agencies. It should be noted that CPAU’s relatively low
electric and gas utility rates typically result in lower total utility bills for customers;
however, water rates are relatively high and have been regularly reviewed over the past
several years.
2.Comparison among agencies can be difficult due to varying system sizes, and benchmarking
is complicated by factors unique to each agency such as geography, residential/commercial
customer mix, and capital improvement practices.
3.Single family residential customer usage in Palo Alto is relatively high among the
ATTACHMENT I
City of Palo Alto Page 2
comparison agencies, 25-35% above median, contributing to higher monthly bills.
4. Single family residential customers represent 41% of overall CPAU consumption, contrasting
with 24% and 27% in Mountain View and Santa Clara, respectively. That means that a
greater share of the water utility’s fixed costs are allocated to single-family customers than
in other service territories since Palo Alto’s single-family customers use a greater share of
system capacity than other agencies’ customers do.
5. Debt service currently constitutes roughly 7% of CPAU rates, primarily related to the El
Camino Reservoir and related emergency storage projects. Many other systems have no
debt service.
6. Operating costs are relatively high per square mile of urban service area. Salary and
benefit costs are relatively high due to a greater number of employees than any comparison
agencies. In part, the greater number of employees had to do with the greater number of
miles of water main per customer, due to the less dense nature of Palo Alto’s urban core.
Even with the Foothills areas omitted, Palo Alto has a lower population and customer
density than other cities. Employee counts are much more comparable between Palo Alto
and other cities when compared on the basis of number of employees per mile of water
main.
7. Capital spending for distribution and water supply (excluding recycled water) was found to
be substantially higher on an absolute (rather than normalized) dollar basis in Palo Alto,
even though Palo Alto was the smallest of the five agencies in the study. That included both
cash investments in capital spending and debt service costs (see Attachment B).
Benchmarking is a complex exercise due to the different physical layouts of different systems,
different consumption characteristics of the populations, and different methods of accounting,
making it hard to discern clear, simple reasons for cost differences. Even choosing a basis for
cost comparison can be challenging. For example, differences in consumption patterns can
heavily skew comparison on a cost per CCF basis. Differences in the ratio of commercial to
residential customers can skew a comparison on a cost per customer basis. A cost per mile of
main comparison basis can be helpful for some types of costs, but hides differences in density
of the service territories that affect customer bills, since customers in a less dense service
territory require a greater length of water main to serve each customer, leading to higher bills
for each customer in a less dense territory. These differences are addressed in the 2014
benchmarking study.
Benchmarking is an ongoing effort, as is cost-effectiveness review and implementation of
operational changes. Staff is continuing to review opportunities for improving efficiency and
minimizing customer rates, and will report to the Committee and Council as this effort
proceeds.
Timeline
Staff plans to schedule further discussions of this topic in the fall of 2017.
Resource Impact
City of Palo Alto Page 3
These discussions will be accomplished with existing staff. No additional resources are required.
Policy Implications
There are no policy implications associated with a discussion of water utility operating costs
and rates.
Environmental Review
Discussion of water utility operating costs and rates does not meet the California Environmental
Quality Act’s definition of a project, pursuant to Public Resources Code Section 21065, thus no
environmental review is required.
Attachments:
Attachment A: Staff Report ID 4480, Water Utilities Benchmarking Review and Future
Work Plan
Attachment B: Comparison of Capital Spending by Water Utility
Attachment C: Final Excerpted Minutes of the April 15, 2014 Finance Committee
Meeting
City of Palo Alto (ID # 4480)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/15/2014
City of Palo Alto Page 1
Summary Title: Water Utility Benchmarking Review and Future Work Plan
Title: Discussion of Water Utility Benchmarking Studies and Future Work
Plan
From: City Manager
Lead Department: Utilities
Recommendation
This report presents two benchmarking studies previously done of the City’s Water Utility, and
presents some possible future areas for analysis. No action is required, but staff requests input
on its work plan regarding future benchmarking for the Water Utility.
Executive Summary
The Water Utility’s rates have been rising over the last several years, primarily due to seismic
upgrades to the Hetch Hetchy system that are leading to steeply increasing wholesale water
costs, a large investment in the utility’s emergency water supply and storage system, and the
levels of investment required to maintain and replace Palo Alto’s aging distribution mains. The
rising water rates have led to increased interest in the difference between Palo Alto’s rates and
the rates of those neighboring agencies who also receive water from the Hetch Hetchy system.
Two benchmarking studies of the Water Utility have been performed in the last several years.
The first, completed in 2010 and based on Fiscal Year (FY) 2009, focused only on the Water
Utility. The second was done as part of an organizational assessment done by SAIC for the City
and delivered on March 18, 2014. The common theme in these studies is that Palo Alto has
older water infrastructure than other agencies and has higher levels of capital investment and
operations and maintenance expense as a result.
Staff is planning to complete a deeper analysis of some of these questions in 2014, and has
listed some topics for further investigation later in this report. Staff would like the Finance
Committee’s comments on its work plan.
ATTACHMENT A
City of Palo Alto Page 2
Background
This report is offered in response to a recommendation by the Finance Committee during the
FY 2014 budget process in May of 2013. The Finance Committee asked staff to return at a later
date for a review of the City’s water costs. This topic has been discussed in depth once before,
in 2010, and a recent analysis by SAIC also addressed some of these issues. In addition, staff did
some of its own preliminary analysis in late 2013 in an attempt to delve more deeply into some
of the issues raised by these two studies. Staff presented some of this preliminary analysis to
the Utilities Advisory Commission (UAC) at its January 8, 2014 meeting, and the UAC
recommended completing more in-depth analysis before proceeding to the Finance
Committee. Staff concurs, and is providing this report as background for the Finance
Committee on the results of previous benchmarking efforts, and to provide an opportunity for
the Committee to communicate any specific questions it would like to have addressed.
Discussion
The City has completed two benchmarking studies in the last several years related to the City’s
Water Utility.
2010 Benchmarking Study
In 2010 the City hired HF&H Consultants to perform a benchmarking study that focused solely
on the Water Utility. This study sought to answer the following questions:
1. Why are the City of Palo Alto Utilities’ (CPAU’s) water rates higher than neighboring
utilities?
2. How does the Water Utility budget compare with other neighboring utilities?
3. What qualitative and quantitative information explains the differences in major cost
categories, such as water purchase costs, operations costs, staff costs, and capital costs?
4. How do the neighboring utilities compare with respect to the state of their respective
utility infrastructures, emergency preparedness, and reliability?
5. What are CPAU customers getting for the extra money collected for water utility
services?
HF&H compared the Water Utility with Redwood City, Mountain View, Milpitas, Hayward, Santa
Clara, and California Water Service Company’s Bear Gulch District. The consultant found that
CPAU’s rates were higher than average for several reasons:
City of Palo Alto Page 3
1. The Water Utility puts more staff resources and capital into maintaining and replacing
its older facilities.
2. Economies of scale are greater for the comparison cities.
3. Palo Alto’s service area is more broadly spread, with more pumping zones, all of which
makes it more expensive to serve.
4. Palo Alto experiences more seasonal variation in its demand, which requires a higher
level of operating capability.
5. Palo Alto provides a higher quality of service, with a lower number of complaints
received and a lower number of system outages.
6. Palo Alto’s cost of water supplies is higher than some of the agencies that purchase
some water from Santa Clara Valley Water District and/or pump groundwater.
HF&H’s Water Utility Benchmarking Study was presented to the Finance Committee on
November 2, 2010 (CMR: 393:10). That report is provided as Attachment A.
2014 SAIC Organizational Assessment
On March 18, 2014, the Finance Committee received a report from SAIC Energy, Environment &
Infrastructure, LLC describing an organizational assessment of CPAU as a whole. The report
found that CPAU was a “well-run, reliable, and innovative organization,” and that its water
utility was “performing well,” though it should continue its efforts to manage O&M costs and
water supply costs. To form these conclusions SAIC benchmarked the Water Utility against a
number of other water utilities across California and in other parts of the country. The results
are shown in the table below that was taken from the SAIC study.
City of Palo Alto Page 4
Benchmarking Results from SAIC Study
CPAU Results (CY 2011)
Measure
Better
than
Average
At or
Near
Average
Worse
Than
Average
Water
Revenue per Million Gallons Delivered (Fig. 3-17) √
Net Income per Revenue Dollar (Fig. 3-18) √
Retail Water Customers per FTE (Fig. 3-19) √
O&M Expense per Million Gallons (Fig. 3-20) √
O&M Expense per Water Retail Customer (Fig. 3-21) √
O&M Expense per Mile of Water Main (Fig. 3-22) √
A&G Expense per Retail Water Customer (Fig. 3-23) √
A&G Expense per Million Gallons Processed (Fig. 3-24) √
Million Gallons per Day Delivered per FTE (Fig. 3-25) √
Average Monthly Residential Water Bill (Fig. 3-26) √
SAIC noted that CPAU was worse than average on Operation and Maintenance (O&M) expense
per mile of water main and in water delivered per Full-Time Equivalent (FTE). The consultant
attributed higher O&M expense to the higher attention paid to its older water infrastructure,
noting that CPAU, unlike most other utilities, is currently implementing an aggressive water
distribution system infrastructure replacement program. The consultant also urged caution in
interpreting the water delivery numbers, since Palo Alto appears to directly allocate
administrative and customer service FTEs to its utility in contrast to other utilities that do an
indirect allocation of overhead costs. This artificially deflates CPAU’s water delivery per FTE.
Future Staff Work Plan
Staff has done some preliminary analysis of the Water Utility’s typical comparison agencies, and
has come to similar initial conclusions as HF&H and SAIC. Palo Alto was developed earlier than
the comparison cities and has maintained lower growth rates than its neighbors, which is likely
responsible for its substantially older infrastructure. This older infrastructure requires higher
levels of Capital Improvement Program (CIP) and O&M investment. Palo Alto has been aware
of this need for a long time. In 1990 an in-depth assessment of infrastructure costs was
performed that found that CPAU’s aging water infrastructure required an increased level of
investment to maintain the health of the system. As the accelerated main replacement
program ramped up, CPAU’s rates went from being comparable to its neighboring agencies to
City of Palo Alto Page 5
being above them. By 2000, CPAU’s average residential bill was as high relative to other
agencies as it is today. This suggests that infrastructure, both for SFPUC’s regional water
system and CPAU’s local distribution system, is the main driver of CPAU’s high water rates
relative to other agencies.
Staff has also found some other avenues that are worth investigating, including the following:
1. CPAU bills are not necessarily the highest for all customer classes and usage levels. This
is because allocations of system costs between residential and non-residential
customers appear to differ from utility to utility. Presumably these differences in
allocations are due to different service territory characteristics, since most utilities use
similar cost allocation methodologies.
2. Different agencies have different ratios of units of water delivered per mile of water
main, which affects rates. The lower cost comparison agencies tended to deliver more
water per mile of main, meaning that the maintenance costs for each mile of main were
spread over more sales units, leading to lower rates. This is reflective of the fact that
Palo Alto is more spread out than its neighboring cities, as noted in the 2010
Benchmarking Study, meaning that more mains are required to deliver water to the
same number of customers.
Staff plans to extend its preliminary analysis over the course of 2014 to answer a variety of
other questions, if possible. Since the data required to answer these questions is not easily
found in a comparable format in public documents, it will require the cooperation of other
agencies. The extent to which staff can answer these questions depends on the extent to which
these agencies are willing to take the time to extract the data and answer clarifying questions
about it. Some of the questions staff will seek to answer are:
1. Taking into account the physical differences between service territories, how do CPAU’s
O&M costs compare to those for other BAWSCA agencies?
2. How do CPAU’s administration, allocated overhead, and customer service costs
compare to other BAWSCA agencies?
3. How do CPAU’s salaries and benefits compare to other BAWSCA agencies?
4. How are costs allocated between residential and non-residential customer classes for
comparable BAWSCA agencies, and what drives those allocations?
5. How would costs need to change for rates to become competitive?
Staff welcomes comments on these questions and suggestions for additional avenues of inquiry
to be incorporated into the study.
City of Palo Alto Page 6
Timeline
Staff plans to complete its review by December 2014 and will return to the UAC and Finance
Committee with its conclusions.
Resource Impact
Staff estimates it will require approximately 0.1 FTE in 2014 to complete this analysis. This will
be absorbed with existing staff.
Environmental Review
The Finance Committee’s discussion of these benchmarking studies does not meet the
definition of a project, pursuant to Section 21065 of the California Environmental Quality Act,
thus no environmental review is required.
Attachments:
Attachment A: CMR 393:10 Water Utility Benchmark Study (PDF)
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES ATTENTION: FINANCE COMMITTEE
DATE: NOVEMBER 2, 2010 CMR: 393:10
SUBJECT: Water Utility Benchmark Study
This report is informational only and no action is required.
EXECUTIVE SUMMARY Staff has received comments in various forums that the City’s water rates have been among the highest in the region. The water utility benchmarking study was conducted by an outside
consultant to obtain an independent assessment of the factors that could explain this difference.
This study compared the City’s water utility with six nearby water suppliers.
The study revealed that the City does have higher water purchase cost than average as it gets all of its water supplies from San Francisco, which is more expensive than groundwater or other
supplies from the Santa Clara Valley Water District. In addition, due to its size, Palo Alto does
not benefit from the economies of scale available to larger agencies. Palo Alto’s water system is
more expensive than average to operate since the City is spread out and includes sparser development in hillier terrain. Palo Alto’s main distribution pipelines are also the oldest within
the group, and older infrastructure is more expensive to maintain and replace.
Another objective of the benchmarking study was to identify benefits that Palo Alto rate payers
may receive from the higher rates they pay. The study indicates that Palo Alto provides a higher quality of service based on the lower number of complaints received and fewer system outages.
BACKGROUND
During its review of the Utilities long-term financial projections and the review of the Fiscal
Year (FY) 2011 budget in the Spring of 2010, the Utilities Advisory Commission (UAC) and the Finance Committee recommended that a benchmark study for the Water Utility be prepared.
Staff engaged a consultant (HF&H Consultants, LLC) to complete the benchmarking study. This
report summarizes the findings of the study, which staff presented to the UAC at its October 6,
2010 meeting.
CMR: 393:10 Page 1 of 6
ATTACHMENT A
Current Rates and Bills For further background information the following two figures compare monthly bills using
current water rates. Several cities implemented water rate increases in FY 2011 while Palo Alto
has not increased water rates since July 1, 2009. These later water rate increases were not
incorporated in the bill comparisons provided in the consultant report. The figure below represents monthly bills for single-family residential customers using current water rates. Hayward is shown twice in the following two figures, outer city rates (Hayward-O) and inner
city rates (I).
Palo Alto
Redwood City
Mountain View
Milpitas
Hayward ‐I
Hayward ‐O
Santa Clara
Bear Gulch ‐MP
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Mo
n
t
h
l
y
Bi
l
l
($
)
Usage Per Monthly Bill (CCF)
Single Family Residential Monthly Bills
Benchmark City Comparisons
5/8" meter
Water bills for non-residential customers are shown in the chart below for different usage levels.
Note that although bills in Palo Alto are higher than average, they are not the highest in the
group of comparator cities.
CMR: 393:10 Page 2 of 6
Palo Alto Redwood City
Mountain View
Milpitas
Hayward ‐I
Hayward ‐O
Santa Clara
Bear Gulch ‐MP
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
0 250 500 750 1000 1250 1500 1750 2000
Mo
n
t
h
l
y
Bi
l
l
($
)
Usage Per Monthly Bill (CCF)
Commercial Monthly Bills
Benchmark City Comparisons
5/8" meter
DISCUSSION
Study Objectives and Approach
Given the concerns expressed by the UAC and the Council Finance Committee about Palo Alto’s
water rates, staff initiated a benchmark study for the Water Utility in May 2010. The objective of the study was to develop benchmarks to provide insight into key questions such as:
o Why are Palo Alto water rates higher than neighboring cities?
o How does Palo Alto’s water utility budget compare with others? o What qualitative and quantitative factors explain the differences? o How does Palo Alto’s infrastructure, emergency preparedness and reliability compare with its neighbors?
o What benefits do Palo Alto rate payers receive from higher rates?
Six neighboring cities with comparable size and location were selected for the benchmark comparisons. The scope of the study was defined to capture information from readily available documents on the benchmarks identified in the first phase and then, as a potential second phase,
to conduct further evaluation of the most informative benchmarks. HF&H Consultants, LLC
completed the first phase of the study and then staff followed up with further surveying and
CMR: 393:10 Page 3 of 6
compiling additional information from the benchmark cities. The Water Utility Benchmark Study is provided as Attachment A. The study focused on areas such as:
o Rate structures and related charges o Service area and customer characteristics o Operating and capital budgets o Infrastructure condition
o Staffing and operational requirements
o Quality of service
Study Conclusions 1. Service Area and Infrastructure Benchmarks
The benchmark cities selected have the overall characteristics shown in the following table:
City Population Service Area
(square miles)
Water Deliveries
(million gallons per day)
Palo Alto 63,400 26.0 12.3
Hayward 150,878 62.5 18.6
Milpitas 70,817 13.6 11.2
Mountain View 74,762 12.0 11.4
Redwood City 83,895 35.0 10.4
Santa Clara 117,242 19.3 22.2
California Water Company’s Bear
Gulch District (serves parts of Menlo
Park, Atherton and Woodside)
57,108 45.3 13.1
The study concluded that Palo Alto’s population is smaller than average and, therefore, does not benefit from economies of scale, suggesting higher costs to serve its customers. In addition, Palo
Alto is less densely populated which may imply higher cost per capita for service. Palo Alto has
larger single family home lot sizes suggesting higher water use for irrigation. This results in a
higher ratio of peak to average usage translating to costlier service requirements. 2. Water Use Benchmarks
Palo Alto’s overall average water usage per account is about the same as the average for the
group. Comparing single family water use per account with the average for the group yields a
similar result. However, Palo Alto’s single-family residential customers water use per account is actually the second highest after Bear Gulch, which has very different characteristics (much larger average lot size). This provides one reason for higher average residential water bills.
Palo Alto’s fraction of “lost and unaccounted for” water (total sales volumes divided by total
purchase volumes) is in line with the industry average of 8-9%. Santa Clara’s fraction of lost and unaccounted for water was extremely low and could partly explain their low water rates. Staff examined Santa Clara’s policy regarding minimizing their water losses. Staff will further
investigate whether similar emphasis on reducing water losses could have a significant impact on
Palo Alto’s costs.
CMR: 393:10 Page 4 of 6
3. Operations and Maintenance (O&M) Benchmarks O&M benchmarks can be used to determine how efficient water distribution operations are. The
study found that Palo Alto mains are the oldest average age in the benchmark cities. This
suggests that the City’s infrastructure is more expensive to maintain. In addition, Palo Alto has a
higher variation between peak and minimum month flows, which would suggest the need for greater infrastructure needs (and cost) to meet peak flow requirements, and greater operational cost to serve a wider range of flows.
Palo Alto has a greater number of employees per gallon delivered and per account. However,
other cities use staff from other departments for services such as meter reading and billing and pay for these services in the form of an allocation, rather than directly in employee costs. In addition, Palo Alto does its own engineering design in-house while other entities contract out for
these services.
Overall, Palo Alto’s operations costs are somewhat higher than average, which is consistent with the higher level of service provided and Palo Alto’s lower economy of scale.
4. Quality of Service Benchmarks
Palo Alto receives below average complaints for taste, odor, turbidity, and high or low pressure
problems. These factors indicate that customer satisfaction is higher than average in Palo Alto. In addition, Palo Alto has fewer outages per gallon of water delivered and per mile of main suggesting better system maintenance and operations.
5. Utility Infrastructures, Emergency Preparedness, and Reliability
Palo Alto plans to replace its water utility infrastructure within the average service lives of the facilities, which is a more aggressive replacement plan than other utilities. Palo Alto’s incidence of main breaks, leaks, and outages is below average, which is further evidence of higher/better
reliability. Although Palo Alto has less storage capacity than average, and, therefore, could be
viewed as less reliable, the City is in the process of constructing additional storage.
6. Other Conclusions
Water purchase costs
Palo Alto currently pays more for water than the average benchmark comparator since some of
the agencies use less expensive groundwater or treated water from the Santa Clara Valley Water
District. In addition, other agencies supplement their supplies with recycled water, the full cost of which may not be included in their water utility budgets. Palo Alto is currently entirely reliant
on the San Francisco Public Utilities Commission (SFPUC) for its drinking water supply. The
cost of SFPUC’s water will increase steeply in the next few years before leveling off. In
anticipation of these cost increases, Palo Alto has set its rates to generate reserves to smooth out
the increased cost.
Capital costs (past, present and projected)
Since Palo Alto’s main distribution lines are the oldest within the group, Palo Alto has
aggressively invested in facilities to improve system reliability and in programs to improve its
water use efficiency. Palo Alto’s Capital Improvement Plan (CIP) expenditure levels are
CMR: 393:10 Page 5 of 6
generally higher than other benchmark cities. Some of the benchmark cities also receive
significant revenues from connection fees that are used to fund capital improvements.
Rent
Palo Alto's Water Utility pays rent to the City's General Fund for its use of land. Palo Alto's
costs in this category are generally higher than other cities.
ATTACHMENTS
A. Water Utility Benchmark Study
B. Draft minutes from the UAC October 6,2010 meeting
PREPARED BY:
REVIEWED BY:
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
CMR: 393:10
IPEKCONNOLLY -'C-
Senior Resource Planner 1':11
SHIV A SWAMINATHAN "'(;ib
Senior Resource Planner
DEBBIE LLOYD J) L
Acting Assistant Director, Resource Management
~Pclt-~
JAMES KEENE
City Manager
Page 6 of6
HF&H CONSULTANTS, LLC
Managing Tomorrow’s Resources Today
201 North Civic Drive, Suite 230 Robert D. Hilton, CMC Walnut Creek, California 94596 John W. Farnkopf, PE Tel: (925) 977-6950 Laith B. Ezzet, CMC Fax: (925) 977-6955 Richard J. Simonson, CMC hfh-consultants.com Marva M. Sheehan, CPA
TECHNICAL MEMORANDUM
To: Ipek Connolly, City of Palo Alto
Jane Ratchye, City of Palo Alto
From: John Farnkopf, HF&H Consultants, LLC
Sima Mostafaei, HF&H Consultants, LLC
Greg Trueblood, HF&H Consultants, LLC
Date: September 21, 2010
Subject: Water Utility Benchmarking Study
This technical memorandum summarizes the results of our benchmarking study
performed for the City of Palo Alto Utilities (CPAU) to assist in its rate-setting process
and potentially other purposes such as operational performance evaluation. This study
evaluated benchmarks at a reconnaissance level based on readily available data within the
project schedule and contract budget. This technical memorandum contains the
following sections:
I. Introduction
II. Service Area Benchmarks
III. Water Use Benchmarks
IV. O&M Benchmarks
V. Quality of Service Benchmarks
VI. Expense and Revenue Benchmarks
VII. Rate Benchmarks
VIII. Customer Bill Benchmarks
IX. Findings
X. Concluding Remarks and Possible Next Steps
Additional detail is included in the appendix.
I. Introduction
As part of its process of continuous self-assessment, the CPAU compares its utility rates
with similar neighboring cities. It has been observed and reported that the City’s water
rates have been among the highest in the region. The need for a benchmarking study
stemmed from the desire by the CPAU to obtain an independent assessment of the
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 2
factors that explain this difference. The purpose of the study is to provide answers to
the following questions:
1) Why are CPAU water rates higher than other neighboring utilities?
2) How does the CPAU water utility budget compare with other neighboring
utilities?
3) What qualitative and quantitative information explains the differences in major
cost categories (e.g., water purchase costs, operations costs, staff costs, capital
costs (past, present, and projected), transfers out).
4) How do the neighboring utilities compare with respect to the state of their
respective utility infrastructures, emergency preparedness and reliability?
5) What are CPAU customers getting for the extra money collected for water utility
services?
In this study, the City of Palo Alto’ water utility was compared with six other water
suppliers: the Cities of Redwood City, Mountain View, Milpitas, Hayward, and Santa
Clara and California Water Service Company’s Bear Gulch District.1
Within this group,
there is considerable variation in size, as shown below.
As can be seen, there are some disproportionate relationships. For example, Palo Alto’s
and Cal Water’s surface areas are large given their populations; Santa Clara’s surface
area for its population is comparatively small. Such examples illustrate the difficulty in
making statistical comparisons with a sample size of seven in which there may be
outliers that can skew the statistics and when data were not always available for all
seven agencies.
In the text of this report, Palo Alto is compared against the mean for the group and the
highest and lowest individual values. This comparison is intended to simplify
understanding each benchmark. Readers are urged, however, to also review the
appendix, which shows the values for each agency. In this way, the affects of
disproportionate relationships, outlier values, and missing data can aid in drawing
conclusions.
Documents from readily available sources were used in preparing this study. For most
but not all of the seven agencies, the following documents were reviewed:
• Budgets
• Comprehensive Annual Financial Reports
1 Cal Water is unusual among the agencies studied. It is the only member of the group that is a regulated water company; all the others are cities. It serves a disproportionately high single-family residential population in affluent
portions of Menlo Park, Atherton, and Woodside whose customers have large lots.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 3
• Capital improvement programs
• Urban Water Management Plans
• Drinking Water Reports
• Master fee schedules
• Official statements
• General Plans
• Service Efforts and Accomplishments Report and other reports specific to Palo
Alto only
• Written responses provided by cities to the survey conducted by CPAU staff
Over 60 published source documents exceeding 5,000 pages were relied upon. In a few
cases, telephonic interviews were also conducted. In addition to HF&H’s research,
CPAU staff conducted additional targeted surveys and interviews to supplement in
areas of the greatest interest such as the condition of infrastructure, past and projected
capital improvement programs, funding sources, areas of staff deployment, and capital
improvement plan implementation. In view of the large volume of data and limited resources
available for research and analysis, this study should be regarded as a reconnaissance level study,
as was intended within the scope of services for this project.
The data extracted from these documents represents a recent timeframe, but not the
same timeframe for each benchmark or for each agency. As such, the report represents
conditions typically ranging from the last few years up to the current year, depending
on the benchmark. Whereas benchmarks concerning historical trends can extend into
prior decades, benchmarks concerning rates reflect rates that are either currently in
effect or adopted but not yet effective.
II. Service Area and Infrastructure Benchmarks
Service area benchmarks compare general differences in the service areas that could
lead to differences in providing service. Infrastructure benchmarks combined with
service area benchmarks allow for additional definition of the physical differences
among the agencies. Figure 1 summarizes the key benchmarks that were evaluated.
Palo Alto’s population ranks it smaller in the sample and, as a result, Palo Alto does not
benefit from the economies of scale available to larger agencies. Palo Alto also appears
to be less densely developed compared to the mean for the group based on the number
of residents and accounts per square mile and the miles of main per square mile. In
effect, Palo Alto’s water utility infrastructure may be spread over a larger area. It is
likely that Palo Alto may have significant undeveloped open space compared to the
other agencies.2
2 This could be verified by reviewing land use data.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 4
Figure 1. Service Area and Infrastructure Benchmarks
Benchmark Palo Alto Mean
Palo
Alto vs.
Mean High Low Significance of Benchmark
Service area characteristics
Population 63,400 88,300 -28%150,878 57,108 Size affects economies of scale.
Population growth over last ten years 8.6%8.2%4%17.9%-1.7%Growth affects need to expand.
Accounts 19,443 21,777 -11%32,382 16,463 Size affects economies of scale.
Surface area (square miles) 26.0 30.5 -15%62.5 12.0 Size affects economies of scale.
Residents per square mile 2,438 3,717 -34%6,230 1,261 Population density; larger is denser.
Accounts per square mile 748 900 -17%1,436 405 Development density; larger is denser.
Average Temperature (deg F)58.0 57.0 2%59.2 48.6 Irrigation needs; lower is cooler.
Average annual precipitation (in) 15.37 16.35 -6%19.81 14.03 Irrigation needs; lower is drier.
Infrastructure
Miles of distribution mains 219 262 -16%350 175
Accounts per mile of main 89 84 5%98 57 Infrastructure density; larger is denser.
Miles of main per square mile 8.42 10.51 -20%15.28 5.60 Infrastructure density; larger is denser.
Average age of distribution mains (years)61 45 34%61 33 Age affects need for O&M and R&R
Capital Assets (net book value)
Capital assets per account $3,288 $3,085 7%$5,087 $1,541 Investment
Capital assets per hcf $10.65 $10.14 5%$19.73 $5.51
Capital assets per square mile $2,458,500 $2,553,050 -4%$3,528,231 $798,273 Infrastructure concentration
Palo Alto’s average temperature is slightly above average and its precipitation is
slightly below average, the combined effect of which is a slightly higher irrigation
requirement for similar landscapes. Land use is also a significant influence in irrigation
water use.3
Larger lots in hotter, drier climates can lead to higher irrigation water use.
The values reported by the agencies indicated that Palo Alto’s distribution mains are
the oldest within the group. Older infrastructure is more expensive to maintain and
replace. The value of Palo Alto’s capital assets per account and per unit of water
delivered is slightly higher than the mean. Because of Palo Alto’s sparser development,
the value of its capital assets per square mile is slightly less than the mean.
III. Water Use Benchmarks
Water use benchmarks can indicate relative water use efficiency. More efficient water
use is presumed to be less expensive to supply per account. Palo Alto’s single-family
residential water use is near average for the group. Palo Alto’s multi-family use is much
less than average because it has fewer, smaller multi-family accounts. Palo Alto’s
commercial, institutional, and industrial (CII) use is somewhat above average. Overall,
for all its classes, Palo Alto’s average use per account is near the average.
3 A review of land use data could indicate differences in average lot size, which would assist in understanding
differences in irrigation among the agencies.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 5
Figure 2. Water Use Benchmarks
Losses are an indicator of a number of broad conditions. Systems with low losses can
have better maintained distribution mains with pressures held within recommended
limits so that leaks and breaks are minimized. Systems with low losses can also indicate
better controlled reservoirs with fewer spills and more accurate and better maintained
meters.
Based on published sources,4 Palo Alto’s water losses are below average.5
City staff
partially attributes the low losses to inaccurate SFPUC master meters, which under-
record deliveries to the City; other factors are also pending further review. Other
agencies in the group reported low losses due to under-recording SFPUC meters. As a
result of the lack of accurate data on losses, it is not possible to make meaningful
comparisons about losses. However, based on Palo Alto’s internal water loss reports,
Palo Alto’s losses are within industry norms.
IV. O&M Benchmarks
Operations and Maintenance (O&M) benchmarks indicate how service area and water
use characteristics affect O&M. Palo Alto’s O&M benchmarks suggest areas that could
lead to higher operating costs. For example, the employee data indicate that Palo Alto
uses more employees per millions of gallons delivered than the average for the group
and has fewer accounts per employee.
Benchmarks relying on the number of employees are problematic because of the
differences among the agencies in how they account for staff. For example, the CPAU
includes its meter reading staff as part of its water utility; other cities provide these staff
from other departments, which may result in undercounting their water utility staff. In
other cases, attributions of public works or other non-water utility staff to an agency’s
water utility may use approximate formulae rather than direct attribution from time
4 Bay Area Water Supply and Conservation Agency Annual Survey, FY 2008-09.
5 Palo Alto has subsequently verified that the water losses are in the 8% to 9% range, in line with industry average.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 6
sheets. Palo Alto also provides its own design staff, whereas some of the other agencies
contract design work to consultants.
Figure 3. O&M Benchmarks
Benchmark Palo Alto Mean
Palo
Alto vs.
Mean High Low Significance of Benchmark
Operations and maintenance
Mgd per employee 0.28 0.36 -22%0.49 0.28 Efficiency; larger is more efficient.
Accounts per employee 445 576 -23%745 445 Efficiency; larger is more efficient.
Miles of main per O&M employee 8.4 12.7 -34%17.7 8.4 Efficiency; larger is more efficient.
Mgd per O&M employee 0.47 0.72 -35%1.07 0.47 Efficiency; larger is more efficient.
O&M employees as a percent of total employees 59%52%15%64%40%
Load factors
Peak month to average monthly demand 1.50 1.45 4%1.70 1.25 Design conditions; smaller is better.
Peak month to minimum monthly demand 3.21 2.52 28%4.26 1.57 Operational extremes; smaller is better.
Mgd per booster pump station 2.05 1.64 25%2.65 0.22 Pumping cost; larger is more expensive.
Square miles per pressure zone 3.25 4.28 -24%10.42 1.22 Pumping cost; smaller is more expensive.
Square miles per booster pump 4.33 4.05 7%8.93 0.77 Pumping cost; smaller is more expensive.
Days of Storage 0.85 1.35 -37%2.04 0.84 Emergency preparedness; larger is better.
Gallons of potable storage per account 540 854 -37%1,071 540 Emergency preparedness; larger is better.
Load factors indicate a higher variation of flow between peak and minimum month
flows. Higher load factors can require greater operational skill, instrumentation, etc. in
serving a wider range of flows. Higher load factors will also lead to designing larger,
more expensive facilities to meet peak flows. In Palo Alto’s case, its hillier and more
extended service area calls for higher pumping rates with the associated increase in
power cost.
Palo Alto’s distribution system storage is below average compared with the group.
Further evaluation of this metric is needed to confirm that the data are comparable
(some of the other agencies in the sample have raw water storage that may have been
included with their treated water storage). We note that the City is currently
constructing additional storage that is not included in this report.
V. Quality of Service Benchmarks
O&M practices are ultimately reflected in the quality of service, which reflects customer
complaints and outages. Based on recent Drinking Water Reports submitted to the
Department of Public Health, Palo Alto’s complaints are overall below average,
specifically in taste and odor, turbidity, and high or low pressure. Palo Alto also has
fewer outages per million gallons per day (mgd) and per mile of main.
City of Palo Alto Water Utility Benchmarking Study
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Figure 4. Quality of Service Benchmarks
VI. Expense and Revenue Benchmarks
Palo Alto’s service area characteristics (specifically population size and distribution and
infrastructure age) contribute toward more costly operations. In meeting its operational
challenges, Palo Alto provides a comparatively high level of service. This level of
service comes at a cost, however, as indicated by the financial benchmarks in Figure 5.
Figure 5. Financial Benchmarks
Benchmark Palo Alto Mean
Palo
Alto vs.
Mean High Low Significance of Benchmark
Expenses
Total expenses (excl non-oper revenue)$25,903,000 $21,548,215 20%$27,088,382 $17,006,605 Magnitude of expenditures
Budgeted expenses per account $1,332 $1,013 32%$1,332 $837 Cost of providing service; lower is cheaper.
Operations
O&M cost per account $338 $288 17%$444 $150 Cost of operations.
Salary and benefits per employee $123,822 $119,191 4%$143,833 $96,667 Salary cost.
Average cost of purchased water ($/hcf)$0.17 $0.15 12%$0.17 $0.12 Supply cost.
Cost of purchased water as % of total budget 40%49%-18%58%34%Cost of supply (SFPUC and SCVWD).Recent Annual CIP (within last 10 years)$4,100,000 $2,925,000 40%$4,400,000 $750,000 Magnitude of expenditures
Current Annual Capital Improvements
Annual CIP expense $6,298,750 $4,432,725 42%$6,298,750 $2,125,000 Magnitude of expenditures
Annual CIP expense per account $324 $218 48%$370 $66
Annual CIP expense per hcf $1.05 $0.69 52%$1.11 $0.23
Annual CIP expense per employee $144,136 $101,568 42%$144,136 $41,262
Annual CIP expense per mile of main $28,761 $19,160 50%$29,975 $6,071
Annual CIP expense compared to depreciation 538%337%60%558%108%Funding depreciation
Debt service as a percent of total budget 14%7%100%14%3%Indebtedness.
Debt service, per account $184 $83 122%$184 $28 Indebtedness.
Rent as a percent of expenses 7%3%148%8%0%
Revenues
Total annual revenue per account $1,489 $1,108 34%$1,489 $859 Customer cost; larger is more expensive.
Connection fee revenue as a percent of rate rev 2.4%2%42%8%0%Cost recovery from growthConnection fees per 3/4" connection $3,600 $3,825 -6%$5,726 $1,787 Contributes toward funding capital projects.
Palo Alto’s overall budgeted operating and capital expenses per account are 32% higher
than the mean. Although O&M costs per account are 17% higher, salary costs are close
to average per employee. Palo Alto’s cost of water is slightly above average because its
sole source of supply is the SFPUC and less expensive alternatives such as groundwater
are not currently being used. Palo Alto’s cost of purchased water as a percent of the
total budget is not as high because Palo Alto has other expenses (e.g., debt service, rent
paid on land for water infrastructure) that are not present to such a degree in the other
agencies’ budgets.
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Palo Alto’s annual capital expenditures are higher for all of the benchmarks. The
amount by which Palo Alto’s average annual CIP currently exceeds depreciation
indicates that Palo Alto’s CIP more than keeps up with depreciation and is much higher
than the average for the group.
Palo Alto’ Water Fund pays rent to the General Fund. Other agencies have a similar
charge (although they may not characterize it as rent). Palo Alto’s charge is higher than
the mean.
Palo Alto’s annual revenues per account need to cover its higher expenses. We note
that Palo Alto’s connection fees, which produce revenue from growth to offset capital
expenses, are near average; the associated revenue is dependent on growth rates that
vary among the agencies. Revenue from connection fees can fund significant portions
of capital improvement programs, thereby taking some of the pressure off rates.
VII. Rate Benchmarks
Rate benchmarks aid in understanding the impact of costs on rates and the question of
whether rates are commensurate with costs and the level of service. For this
benchmark, there are two components: quantity charges and service charges, the sum of
which comprises the bill. A customer’s quantity charge will depend on its water use,
and the service charge depends on the size of the service. The combined structure of
these two rate components must be designed to meet the agency’s rate-making
objectives, among which are typically revenue sufficiency and water conservation.
Figure 6 graphically compares the current adopted residential quantity charges for each
of the members of the group, some of which rates have not increased recently (e.g., Palo
Alto) and some of which have increased significantly. All of the members have tiered
rates.6
Palo Alto’ rates are initially higher than the other agencies in the group but not
for demand beyond 25 hcf, at which point Mountain View’s and Redwood City’s rates
are higher. Hence, claims that “Palo Alto’s rates are the highest” are over simplify the
case.
Figure 7 provides benchmarks related to rate design, which are useful in understanding
the relationship between each member’s costs and the rate structure designed to
generate revenue to recover its costs. Palo Alto’s residential quantity charges have
fewer tiers than the average. Palo Alto’s residential tiers step up quickly, which
provides a strong price signal but the ratio of the top tier to lowest tier is not as great as
the average.
Palo Alto’s quantity charges are generally higher, but that is consistent with also having
lower service charges for the majority of its customers. For an average residential
6 Santa Clara’s minimum charge structure effectively provides the first 3 hcf at no cost; hence, the quantity charge for
its first tier is $0.00/hcf.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 9
customer, only 6% of the bill comes from the service charge, which is well within the
California Urban Water Conservation Council’s guidelines.
Figure 7 also shows benchmarks for the service charges, which are graduated in
proportion to the size of the service. Palo Alto’s service charges are all much lower than
average (i.e., again, Palo Alto’s rates are not always the highest). Lower service charges
provide stronger price signals to encourage water use efficiency because more of the
revenue must be recovered from the quantity charge. The California Urban Water
Conservation Council guidelines call for generating at least 70% of rate revenue from
quantity charges. At 94%, Palo Alto is the highest in the group, which evidences a very
potent conservation orientation.
Figure 6. Comparison of Residential Quantity Charges
$0
$1
$2
$3
$4
$5
$6
$7
$8
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69
Qu
a
n
t
i
t
y
C
h
a
r
g
e
(
$
/
H
C
F
)
HCF Per Monthly Bill
Mountain View
Palo Alto
CWS Bear Gulch
Milpitas
Hayward
Santa Clara
Redwood City
City of Palo Alto Water Utility Benchmarking Study
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Figure 7. Rate Benchmarks
Benchmark Palo Alto Mean
Palo
Alto vs.
Mean High Low Significance of Benchmark
Rates Structures - -
Quantity charge price signal - residential - -
Number of tiers 2.00 2.71 -26%4.00 1.00 Component of variable price signal.
Slope of tiers from lowest to highest ($/hcf)$0.239 $0.098 143%$0.239 $0.000 Higher slope produces stronger price signal
Ratio of top tier to lowest tier 1.42 2.06 -31%4.09 1.00 Higher ratio produces stronger price signal.
Quantity charge price signal - non-residential
Number of tiers 1.00 1.57 -36%3.00 1.00 Component of price signal.
Slope of tiers from lowest to highest ($/hcf)$0.000 $0.021 -100%$0.129 $0.000 Higher slope produces stronger price signal
Ratio of top tier to lowest tier 1.00 1.22 -18%1.99 0.90 Higher ratio produces stronger price signal.
Service charges
For 5/8 inch meter $5.00 $11.55 -57%$22.41 $5.00
For 3/4 inch meter $5.00 $14.39 -65%$27.03 $5.00
For 1 inch meter $6.50 $21.81 -70%$45.05 $6.50
For 1 1/2 inch meter $12.27 $37.68 -67%$90.10 $12.27
For 2 inch meter $19.37 $58.96 -67%$144.15 $19.37
For 3 inch meter $77.65 $135.56 -43%$270.29 $58.70
For 4 inch meter $130.60 $222.53 -41%$450.49 $92.25
For 6 inch meter $260.43 $411.49 -37%$900.97 $184.70
For 8 inch meter $383.67 $604.00 -36%$996.05 $294.05
Average monthly bills
Single-family residential - average
Monthly consumption (hcf)14 13 4%26 9 Average water use per residence.
Monthly quantity charge $72.64 $46.29 57%$105.96 $21.24 Customer cost for water.
Service: 3/4"$5.00 $14.39 -65%$27.03 $5.00 Lower charge recovers less fixed cost.
Total $77.64 $60.69 28%$124.65 $34.41 Lower is less expensive.
Quantity charge portion 94%73%28%94%47%Conservation signal; CUWCC prefers > 70%
Annual SFR bills as percent of MHI 0.74%0.67%10%0.83%0.47%Affordability; EPA threshold = 2%.
VIII. Customer Bill Benchmarks
The combination of the quantity and service charge structures yields bills for customers
that depend on their monthly water use and service connection size. Figures 8 and 9
graph bills for ranges of consumption for residential customers (assuming a 3/4”
service and monthly consumption up to 70 hcf per month7
) and non-residential
customers (assuming a 3” service and monthly consumption up to 1,000 hcf per month).
Palo Alto’s residential bills are not the highest for use below 12 hcf per month; at some
point to the right of Figure 9, Mountain View’s and Redwood City’s rates will produce
higher bills than Palo Alto’s rates.
7 In calculating residential bills, the average monthly flow per single-family residence was used for each agency.
Hence, the bills reflect both the differences in rate structure as well as the differences in average use per account.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 11
Figure 8. Residential Customer Bills
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70
Mo
n
t
h
l
y
B
i
l
l
(
$
)
Usage Per Monthly Bill (HCF)
Palo Alto
CW Bear Gulch
Milpitas
Hayward
Santa Clara
Redwood City
M
Mountain
View
Figure 9 shows that Palo Alto’s non-residential bills are never the highest in large part
because Palo Alto’s service charges for larger services are well below average. However,
Palo Alto’s non-residential bills are higher than the mean.
Figure 10 presents a comparison of average single-family residential water bills in
relation to the population of the agency’s service area. This graph also shows a trend
line for the group. By plotting bills versus population, it is possible to see how the size
of the agency affects its costs. As the smallest agencies in the group, Cal Water and Palo
Alto will not benefit from the economies of scale that the larger agencies receive. Palo
Alto is not the only member of the group above the trend line. The agencies below the
trend line may also benefit from other advantages, such as later development with
correspondingly younger infrastructure, which would not require as much capital
investment to maintain. It is also possible that regardless of the age of their
infrastructure, the agencies below the trend line are simply not making the investment
that is being made by those above the trend line.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 12
Figure 9. Non-Residential Customer Bills
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Mo
n
t
h
l
y
B
i
l
l
(
$
)
Usage on Monthly BIll (HCF)
Mountain View
Palo Alto
Redwood City
Hayward
MilpitasCW Bear Gulch
Santa Clara
Figure 10. Population versus Average Single-Family Residential Water Bill
Palo Alto
Redwood City
Mountain View
Milpitas HaywardSanta Clara
CWS -Bear Gulch
$-
$20
$40
$60
$80
$100
$120
$140
50,000 70,000 90,000 110,000 130,000 150,000
Mo
n
t
h
l
y
B
i
l
l
Population
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 13
IX. Findings
The purpose of this benchmarking study was to provide answers to the following
questions:
Why are CPAU water rates higher than other neighboring utilities? As a precursor to
answering this question, it is important to distinguish between the components of the
rates, some of which are not higher in Palo Alto when compared to the members in the
group. Palo Alto’s highest residential and non-residential volume charges are lower
than Mountain View’s and Redwood City’s. Moreover, all of Palo Alto’s service
charges are lower than the average.
It is also important to distinguish between rates and bills. The City’s residential volume
rates are generally higher; however, based on assumptions about the size of the
connection and average monthly water consumption at each agency, customer bills
vary. Water bills for low-use residential customers compared to the average are only
slightly higher. Water bills for high-use residential customers are lower in Palo Alto
than in Mountain View and Redwood City, but higher than the other agencies. For the
average residential customer, it is true that Palo Alto’s bills are higher than the average
for the group. Part of the reason is due to Palo Alto’s rates and part is due to Palo Alto’s
average water use.
The following benchmarks help explain why Palo Alto’s rates are generally higher than
average:
1) Palo Alto puts more staff resources and capital into maintaining and replacing its
older facilities.
2) Palo Alto’s population and water sales are below average. Economies of scale
are greater for other members of the group.
3) Palo Alto’s service area is more broadly spread with more pumping zones.
Sparser development in hillier terrain is more expensive to serve because of the
cost of constructing the infrastructure and the cost of O&M, particularly
pumping.
4) Palo Alto experiences more seasonal variation in its demand, which requires a
higher level of operating capability, particularly in operating pumping, storage,
SCADA, and water quality monitoring equipment.
5) Palo Alto provides a higher quality of service based on the lower number of
complaints received and system outages.
6) Palo Alto’s cost of water supplies is higher compared to some of the agencies that
purchase water from SCVWD, pump groundwater, and use recycled water.
7) Palo Alto’s utility pays rent for land occupied by water facilities. Some other
cities have similar, lower charges.
How does the CPAU water utility budget compare with other neighboring utilities?
The CPAU budget for FY 2009 is 20% above average in total dollars and 32% above
average when measured in terms of dollars per account. O&M and debt service are a
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 14
greater percentage of Palo Alto’s budget than average but its cost of purchased water is
smaller portion of the budget than average.
What qualitative and quantitative information explains the differences in major cost
categories (e.g., water purchase costs, operations costs, staff costs, capital costs (past,
present, and projected), transfers out)?
This question raises a number of specific points:
1) Water purchase costs – Palo Alto is currently almost entirely reliant on the
SFPUC for its water supply, with no less expensive options used at present (e.g.,
local wells or treated water from the SCVWD). The SFPUC’s cost of water will
increase steeply in the next few years before leveling off. Palo Alto has set its
rates to generate reserves in anticipation of increases in the cost of water among
other cost increases. Palo Alto also does not use significant amounts of
groundwater, which is significantly cheaper than SFPUC water. In addition,
agencies, including Palo Alto, supplement their supplies with recycled water, the
full cost of which may not be included in their water utility budgets. 8
2) Operating costs – Palo Alto’s operating costs are somewhat higher than average,
which is consistent with the higher level of service that appears to be provided
and the Palo Alto’s lower economy of scale.
3) Staff costs – Our reconnaissance level analysis indicates that while salary costs
are comparable to other members of the group, Palo Alto attributes a larger
number of staff to its water utility. As a result, Palo Alto may have higher salary
costs, although a careful review of direct and allocated staff should be conducted
to confirm this9
4) Capital costs (past, present, and projected) – Palo Alto has invested in facilities
and programs to improve its water use efficiency and reliability. By doing so,
Palo Alto has a greater margin of safety during supply shortages. It is possible in
the future that Palo Alto will be able to offset some of this investment with
revenue from the lease of its unused SFPUC entitlement to other BAWSCA
members.
.
5) Transfers out – Very little information was available about transfers out (or in) to
the general fund, reserves, or other enterprises. Further analysis should look at
transfers to determine (1) the types of transfers that are made within each water
utility (e.g., to operating and capital reserves, (2) the minimum and target
balance for each reserve within each water utility, and (3) the types of transfers
made outside each water utility.
8 More expensive recycled water is used on the golf course and Greer Park.
9 Subsequent inquiries have revealed CPAU has larger number of directly assigned staff. Other utilities tend to have
staff residing in the general fund and then the cost is allocated to the water utility.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 15
Summarizing the key points from the benchmark categories in this report adds to the
answer:
Benchmark Category Key Findings
Service Area and Infrastructure
• Hillier topography, sparser development, and drier, hotter
climate.
• Capital investment is above average.
• Smaller size has lower economies of scale.
Water Use • Single-family use is near average
• CII use is above average.
• Overall use is average.
Operations and Maintenance • Fully staffed for meter reading, customer service, design.
• Higher peak flows.
• Less storage and more pumping.
Quality of Service • Fewer taste, odor, and pressure complaints.
• Fewer service interruptions.
Financial • Higher current O&M expenses.
• Higher historic and projected capital expenses.
• Rents charged for land occupied by water utility
These findings indicate reasons for why Palo Alto’s costs are higher and its quality of
service is superior.
How do the neighboring utilities compare with respect to the state of their respective
utility infrastructures, emergency preparedness, and reliability? Palo Alto plans to
replace its water utility infrastructure within the average service lives of the facilities.
Palo Alto has the oldest infrastructure of those agencies for which data were available,
with younger/recent growth cities having relatively new infrastructure. All agencies
are focused on replacing old infrastructure, with Palo Alto having one of the more
aggressive capital improvement programs. In some cases, agencies are or will be
converting their customer meters to automated reading technology. The overall effect is
an increased level of capital improvements that will be funded from a combination of
debt and cash.
All of the members of the group provide emergency contacts at all times. All agencies
have on-call crews that allow for quick responses to leaks. Another measure of
emergency preparedness is evidenced by the amount of daily storage that is available;
Palo Alto’s is below average but is constructing more. Palo Alto’s incidence of main
breaks, leaks, and outages is below average, which is further evidence of reliability.
What are CPAU customers getting for the extra money collected for water utility
services? The average residential customer is paying $16.95 or 28% more per month in
Palo Alto compared with other members of the group. Part of the reason is due to the
higher use by Palo Alto’s average customer: Palo Alto residents pay more for more
water. In addition to providing an above-average quantity of water, there are
indications that Palo Alto provides an above-average quality of service based on below-
average complaints and that Palo Alto’s facilities are in above-average repair.
City of Palo Alto Water Utility Benchmarking Study
HF&H Consultants, LLC September 21, 2010 16
Determining whether the above-average cost is commensurate with an above-average
level of service can be approached in various ways. For example, contingent valuation
techniques could be used to poll customers to find out if they would be willing to pay a
specified amount less for a specified lower level of service. Customers could also be
surveyed to determine their satisfaction level, as has been done by the City for the past
seven years. The most recent Service Efforts and Achievements Report notes:
Operating expense for the water utility totaled $19.4 million, including $8.4 million in water
purchases (26% more than five years ago). The average residential water bill has increased
27% over the five-year period. Average residential water usage per capita is down 9% from
five years ago. 81% of surveyed residents rate water quality as good or excellent.10
At a point when costs are climbing and demand is declining, Palo Alto’s rate payers
express a commendable level of satisfaction.
X. Concluding Remarks and Possible Next Steps
The City is one of a few California cities that provides a broad range of utility services.
In actively seeking to improve its services, the City continuously compares itself with
other municipalities. The present benchmarking study is the latest of such efforts. This
study focused on the City’s water utility, which the City’s previous studies identified as
having comparatively high rates.
Comments received on the draft report noted areas where additional work may be
required to completely answer certain questions, to provide greater detail, and to
further support conclusions. The following are some examples of these comments:
• Water losses – The low water losses reported in this study came from the most
recent published sources. City staff is aware that meter inaccuracy in the
SFPUC’s master meters is the primary cause for the low losses. Additional work
is needed to resolve this discrepancy. In addition to reviewing the underlying
meter data, meter calibration and replacement programs could also be compared
among the survey group.
• Reserves – Rates generate revenue not only for current cash flow but also to fund
operating, capital, and other reserves. Palo Alto has set its rates in anticipation of
increases in the SFPUC’s cost of water and other cost increases that may exceed
what has been done by other members in the group. Additional work is needed
to compare information on the types of reserves, fund balances, target balances,
and annual contributions to reserves.
• Non-rate revenue - This report notes that revenue from other non-rate sources
such as connection fees may provide funding for other agencies that helps hold
their rates down. Additional work is needed to determine how differences in
non-rate revenue among the survey group accounts for differences in rates.
10 Service Efforts and Accomplishments Report. City of Palo Alto. December 14, 2009. Page v.
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HF&H Consultants, LLC September 21, 2010 17
• Confirmation - This report relies on our interpretation of information that should
be confirmed by each member in the survey group. All of the data in the
appendix could be submitted to each member for review and confirmation.
• Timeframe – It should be recognized that the analysis is sensitive to the
timeframe for which data were available. Using data for another timeframe
could lead to different findings. A more detailed investigation would use data
from multiple years, rather than for a snapshot of the most recent year (which
varied by benchmark and by agency), in order to spot any trends and to take
short-term anomalies out of the evaluation.
The conclusions reached in the current study could change if additional information
were available or time were available to confirm that our interpretation of data is
correct. Moreover, it should be recognized that the analysis is sensitive to the
timeframe for which data were available. Using data for another timeframe could lead
to different findings.
HFH Consultants, LLC
9/22/2010 1 Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
1. BENCHMARKS
Benchmark Palo Alto
Redwood
City
Mountain
View Milpitas Hayward Santa Clara
CWS Bear
Gulch Mean
Palo
Alto vs.
Mean High Low
Population 63,400 83,895 74,762 70,817 150,878 117,242 57,108 88,300 -28%150,878 57,108
Surface area (square miles) 26.0 35.0 12.0 13.6 62.5 19.3 45.3 31 -15%63 12
Water deliveries (million gallons per day) 12.3 10.4 11.4 11.2 18.6 22.2 13.1
Service area characteristics
Population 63,400 83,895 74,762 70,817 150,878 117,242 57,108 88,300 -28%150,878 57,108
Population growth over last ten years 8.6%1.1%-1.7%8.9%17.9%14.4%8.2%4%17.9%-1.7%
Accounts 19,443 23,110 17,229 16,463 32,382 25,481 18,329 21,777 -11%32,382 16,463
Surface area (square miles) 26.0 35.0 12.0 13.6 62.5 19.3 45.3 30.5 -15%62.5 12.0
Residents per square mile 2,438 2,397 6,230 5,207 2,414 6,075 1,261 3,717 -34%6,230 1,261
Accounts per square mile 748 660 1,436 1,211 518 1,320 405 900 -17%1,436 405
Average Temperature (deg F)58.0 59.2 58.0 48.6 58.9 59.0 57.0 2%59.2 48.6
Average annual precipitation (in) 15.37 19.81 15.80 15.04 18.03 14.03 16.35 -6%19.81 14.03
Infrastructure
Miles of distribution mains 219 265 175 203 350 295 324 262 -16%350 175
Accounts per mile of main 89 87 98 81 93 86 57 84 5%98 57
Miles of main per square mile 8.42 7.57 14.58 14.93 5.60 15.28 7.15 10.51 -20%15.28 5.60
Average age of distribution mains (years)61 33 45 43 45 34%61 33
Capital Assets (net book value)
Capital assets per account $3,288 $4,345 $2,279 $2,385 $1,541 $2,672 $5,087 $3,085 7%$5,087 $1,541
Capital assets per hcf $10.65 $19.73 $7.08 $7.18 $5.51 $6.27 $14.54 $10.14 5%$19.73 $5.51
Capital assets per square mile $2,458,500 $2,869,170 $3,271,835 $2,886,913 $798,273 $3,528,231 $2,058,424 $2,553,050 -4%$3,528,231 $798,273
Water use characteristics
Total water supply in mgd (incl losses)12.30 10.43 11.37 11.21 18.57 22.24 13.14 14.18 -13%22.24 10.43
Applied water over service area (feet)0.83 0.52 1.66 1.44 0.52 2.02 0.51 1.07 -23%2.02 0.51
Average flow per account (gpd)
Single-family residential 345 260 241 276 234 323 645 332 4%645 234
Multi-family residential 748 1,183 1,249 673 2,521 935 2,963 1,467 -49%2,963 673
Commercial/Institutional/Industrial 2,061 1,125 1,450 2,136 1,474 3,210 1,039 1,785 15%3,210 1,039
Average 603 433 606 590 483 847 688 607 -1%847 433
Flow distribution by class
Single-family residential 41.5%46.3%24.6%30.1%34.0%24.7%82.1%40.5%3%82.1%24.6%
Multi-family residential 13.6%22.3%27.2%11.0%18.0%20.5%1.7%16.3%-17%27.2%1.7%
Commercial/Institutional/Industrial 40.2%27.2%39.9%45.6%32.2%51.8%12.1%35.6%13%51.8%12.1%
Subtotal 95.3%95.9%91.8%86.7%84.2%97.1%95.9%92.4%3%97.1%84.2%
Losses 4.7%4.1%8.2%13.3%15.8%2.9%4.1%7.6%-38%15.8%2.9%
Total 100.0%100.0%100.0%100.0%100.0%100.0%100.0%
HFH Consultants, LLC
9/22/2010 2 Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
1. BENCHMARKS
Benchmark Palo Alto
Redwood
City
Mountain
View Milpitas Hayward Santa Clara
CWS Bear
Gulch Mean
Palo
Alto vs.
Mean High Low
Operations and maintenance
Mgd per employee 0.28 0.34 0.32 0.36 0.49 0.36 -22%0.49 0.28
Accounts per employee 445 745 492 629 566 576 -23%745 445
Miles of main per O&M employee 8.4 17.7 12.5 10.6 14.2 12.7 -34%17.7 8.4
Mgd per O&M employee 0.47 0.70 0.81 0.56 1.07 0.72 -35%1.07 0.47
O&M employees as a percent of total employees 59%48%40%64%46%52%15%64%40%
Load factors
Peak month to average monthly demand 1.50 1.49 1.53 1.38 1.28 1.25 1.70 1.45 4%1.70 1.25
Peak month to minimum monthly demand 3.21 2.43 2.36 1.88 1.89 1.57 4.26 2.52 28%4.26 1.57
Mgd per booster pump station 2.05 1.04 2.24 2.65 0.22 1.64 25%2.65 0.22
Square miles per pressure zone 0.00 0.00 0.00 0.00 0.00 0.00 #DIV/0!- -
Square miles per booster pump 0.00 0.00 0.00 0.00 0.00 0.00 #DIV/0!- -
Days of Storage 0.85 2.04 1.50 1.45 1.51 1.23 0.84 1.35 -37%2.04 0.84
Gallons of potable storage per account 540 919 987 990 868 1,071 600 854 -37%1,071 540
Quality of service
Complaints per total mgd
Taste and Odor 0.49 1.32 0.45 0.05 0.94 0.81 -40%1.32 0.05
Color 1.22 1.14 0.80 0.48 0.40 1.01 20%1.22 0.40
Turbidity 0.33 1.50 0.54 0.00 0.04 0.60 -46%1.50 -
Worms and other 0.16 0.00 0.00 0.00 0.00 0.04 300%0.16 -
Pressure (High or Low)0.00 0.18 3.21 0.00 0.00 0.85 -100%3.21 -
Other 0.00 2.99 0.00 1.83 0.09 1.23 -100%2.99 -
Total 2.20 7.12 4.99 2.37 1.48 4.54 -52%7.12 1.48
Breaks, leaks, outages per mile of main
Per mgd 3.66 1.41 11.33 6.09 4.00 6.62 -45%11.33 1.41
Per mile of main 0.21 0.09 0.63 0.32 0.30 0.39 -47%0.63 0.09
Expenses
Total expenses (excl non-oper revenue)$25,903,000 $22,171,090 $17,762,098 $17,006,605 $27,088,382 $21,945,000 $18,961,329 $21,548,215 20%$27,088,382 $17,006,605
Budgeted expenses per account $1,332 $959 $1,031 $1,033 $837 $861 $1,034 $1,013 32%$1,332 $837
Operations
O&M cost per account $338 $444 $381 $247 $150 $192 $267 $288 17%$444 $150
Salary and benefits per employee $123,822 $143,833 $112,442 $96,667 $119,191 4%$143,833 $96,667
Average cost of purchased water ($/hcf)$0.17 $0.15 $0.16 $0.16 $0.16 $0.12 $0.15 $0.15 12%$0.17 $0.12
Cost of purchased water as % of total budget 40%34%51%51%55%58%51%49%-18%58%34%
Recent Annual CIP (within last 10 years)$4,100,000 $2,000,000 $4,400,000 $750,000 $4,000,000 $2,300,000 $2,925,000 40%$4,400,000 $750,000
Current Annual Capital Improvements
Annual CIP expense $6,298,750 $3,200,000 $3,420,000 $6,085,000 $2,125,000 $5,467,600 $4,432,725 42%$6,298,750 $2,125,000
Annual CIP expense per account $324 $138 $199 $370 $66 $215 $218 48%$370 $66
Annual CIP expense per hcf $1.05 $0.63 $0.62 $1.11 $0.23 $0.50 $0.69 52%$1.11 $0.23
Annual CIP expense per employee $144,136 $103,226 $97,714 $41,262 $121,502 $101,568 42%$144,136 $41,262
Annual CIP expense per mile of main $28,761 $12,075 $19,543 $29,975 $6,071 $18,534 $19,160 50%$29,975 $6,071
Annual CIP expense compared to depreciation 538%168%207%442%108%558%337%60%558%108%
Debt service as a percent of total budget 14%4%3%7%100%14%3%
Debt service, per account $184 $37 $28 $83 122%$184 $28
Rent as a percent of expenses 7%0%0%0%8%5%0%3%148%8%0%
HFH Consultants, LLC
9/22/2010 3 Benchmark Matrix 7Sep10 v4
City of Palo Alto - Water Utility Benchmark Study
1. BENCHMARKS
Benchmark Palo Alto
Redwood
City
Mountain
View Milpitas Hayward Santa Clara
CWS Bear
Gulch Mean
Palo
Alto vs.
Mean High Low
Revenues
Total annual revenue per account $1,489 $1,140 $1,069 $961 $859 $892 $1,348 $1,108 34%$1,489 $859
Connection fee revenue as a percent of rate rev 2.4%0.5%0.1%0.0%8.3%0.5%0.0%2%42%8%0%
Connection fees per 3/4" connection $3,600 $1,787 $4,620 $1,910 $5,726 $5,305 $3,825 -6%$5,726 $1,787
Rates Structures - -
Quantity charge price signal - residential - -
Number of tiers 2.00 4 3 2 4 1 3 2.71 -26%4.00 1.00
Slope of tiers from lowest to highest ($/hcf)$0.239 $0.093 $0.205 $0.098 $0.029 $0.000 $0.026 $0.098 143%$0.239 $0.000
Ratio of top tier to lowest tier 1.42 2.93 4.09 2.10 1.60 1.00 1.26 2.06 -31%4.09 1.00
Quantity charge price signal - non-residential
Number of tiers 1.00 2 3 1 2 1 1 1.57 -36%3.00 1.00
Slope of tiers from lowest to highest ($/hcf)$0.000 $0.129 $0.017 $0.000 $0.003 $0.000 $0.000 $0.021 -100%$0.129 $0.000
Ratio of top tier to lowest tier 1.00 1.63 1.99 1.00 0.90 1.00 1.00 1.22 -18%1.99 0.90
Service charge structure
Service charge multipliers
For 5/8 inch meter $5.00 $18.02 $5.60 $22.41 $9.00 $8.40 $12.45 $11.55 -57%$22.41 $5.00
For 3/4 inch meter $5.00 $27.03 $5.60 $23.82 $12.20 $8.40 $18.69 $14.39 -65%$27.03 $5.00
For 1 inch meter $6.50 $45.05 $11.20 $33.83 $18.50 $13.40 $24.20 $21.81 -70%$45.05 $6.50
For 1 1/2 inch meter $12.27 $90.10 $18.20 $42.67 $40.60 $24.20 $35.74 $37.68 -67%$90.10 $12.27
For 2 inch meter $19.37 $144.15 $33.90 $55.69 $71.40 $34.10 $54.13 $58.96 -67%$144.15 $19.37
For 3 inch meter $77.65 $270.29 $58.70 $149.09 $180.20 $96.60 $116.42 $135.56 -43%$270.29 $58.70
For 4 inch meter $130.60 $450.49 $92.25 $188.93 $357.00 $134.20 $204.26 $222.53 -41%$450.49 $92.25
For 6 inch meter $260.43 $900.97 $184.70 $288.32 $629.80 $263.90 $352.33 $411.49 -37%$900.97 $184.70
For 8 inch meter $383.67 $900.97 $294.05 $377.74 $871.80 $403.70 $996.05 $604.00 -36%$996.05 $294.05
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1. BENCHMARKS
Benchmark Palo Alto
Redwood
City
Mountain
View Milpitas Hayward Santa Clara
CWS Bear
Gulch Mean
Palo
Alto vs.
Mean High Low
Average monthly bills
Single-family residential - average
Monthly consumption (hcf)14 10 10 11 9 13 26 13 4%26 9
Monthly quantity charge $72.64 $27.05 $28.81 $21.24 $30.00 $38.36 $105.96 $46.29 57%$105.96 $21.24
Service: 3/4"$5.00 $27.03 $5.60 $23.82 $12.20 $8.40 $18.69 $14.39 -65%$27.03 $5.00
Total $77.64 $54.08 $34.41 $45.06 $42.20 $46.76 $124.65 $60.69 28%$124.65 $34.41
Quantity charge portion 94%50%84%47%71%82%85%73%28%94%47%
Annual SFR bills as percent of MHI 0.74%0.74%0.47%0.58%0.83%0.66%0.67%10%0.83%0.47%
Single-family residential - half of average
Monthly consumption (hcf)7 5 5 6 5 7 13 7 4%13 5
Monthly quantity charge $33.27 $14.40 $11.78 $21.24 $34.00 $19.18 $51.90 $26.54 25%$51.90 $11.78
Service: 3/4"$5.00 $27.03 $5.60 $23.82 $12.20 $8.40 $18.69 $14.39 -65%$27.03 $5.00
Total $38.27 $41.43 $17.38 $45.06 $46.20 $27.58 $70.59 $40.93 -7%$70.59 $17.38
Quantity charge portion 87%35%68%47%74%70%74%65%34%87%35%
Single-family residential - two times average
Monthly consumption (hcf)28 21 19 22 19 26 52 27 4%52 19
Monthly quantity charge $157.00 $60.60 $66.29 $50.28 $67.40 $73.98 $228.44 $100.57 56%$228.44 $50.28
Service: 3/4"$5.00 $27.03 $5.60 $23.82 $12.20 $8.40 $18.69 $14.39 -65%$27.03 $5.00
Total $162.00 $87.63 $71.89 $74.10 $79.60 $82.38 $247.13 $114.96 41%$247.13 $71.89
Quantity charge portion 97%69%92%68%85%90%92%85%14%97%68%
- -
Multi-family residential (1 1/2" meter)- -
Monthly consumption (hcf)30 48 51 27 102 38 120 59 -49%119.81 27.21
Monthly quantity charge $104.73 -$14.67 $34.07 $21.24 $33.50 $38.36 $107.48 $46.39 126%107.48 (14.67)
Service: 1 1/2"$12.27 $90.10 $18.20 $42.67 $40.60 $24.20 $35.74 $37.68 -67%90.10 12.27
Total $117.00 $75.43 $52.27 $63.91 $74.10 $62.56 $143.22 $84.07 39%143.22 52.27
Quantity charge portion 90%-19%65%33%45%61%75%50%79%0.90 (0.19)
Commercial/Institutional/Industrial
Monthly consumption (hcf)83 45 59 86 60 130 42 72 15%130 42
Monthly quantity charge $334.62 $290.50 $341.57 $349.00 $217.63 $132.54 $164.87 $261.53 28%$349.00 $132.54
Service: 3"$77.65 $270.29 $58.70 $157.45 $180.20 $96.60 $116.42 $136.76 -43%$270.29 $58.70
Total $412.27 $560.79 $400.27 $506.45 $397.83 $229.14 $281.29 $398.29 4%$560.79 $229.14
Quantity charge portion 81%52%85%69%55%58%59%65%24%85%52%
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2. RATE STRUCTURES AND BILLS
Monthly Service Charge Resi Non-Resi
For 5/8 inch meter $5.00 $18.02 $5.60 $22.41 $23.64 $9.00 $8.40 $12.45
For 3/4 inch meter $5.00 $27.03 $5.60 $23.82 $25.14 $12.20 $8.40 $18.69
For 1 inch meter $6.50 $45.05 $11.20 $33.83 $35.77 $18.50 $13.40 $24.20
For 1 1/2 inch meter $12.27 $90.10 $18.20 $42.67 $45.10 $40.60 $24.20 $35.74
For 2 inch meter $19.37 $144.15 $33.90 $55.69 $58.82 $71.40 $34.10 $54.13
For 3 inch meter $77.65 $270.29 $58.70 $149.09 $157.45 $180.20 $96.60 $116.42
For 4 inch meter $130.60 $450.49 $92.25 $188.93 $199.48 $357.00 $134.20 $204.26
For 6 inch meter $260.43 $900.97 $184.70 $288.32 $304.49 $629.80 $263.90 $352.33
For 8 inch meter $383.67 $900.97 $294.05 $377.74 $398.94 $871.80 $403.70 $996.05
For 10 inch meter $383.67 $900.97 $429.15 $546.80 $577.47 $1,050.40 $498.30 $1,431.82
For 12 inch meter $640.20 $2,054.36
For 14 inch meter $2,801.39
Residential Flow Charges, Per HCF, Per month
Tier 1 0-7 $3.95 0-10 $2.40 0-3 $1.65 0-20 $1.77 0-8 $2.90 All Units $2.74 0-10 $3.65
Tier 2 7+$5.62 11-25 $3.05 4-25 $3.41 20+$3.72 9-25 $3.40 11-36 $3.86
Tier 3 26-50 $4.98 25+ $6.77 26-60 $4.25 36+$4.58
Tier 4 50+ $7.03 60+$4.65
Commercial Flow Charges, Per HCF, Per month
Tier 1 All Units $4.95 0-15 $3.05 0-20 $3.41 All Units $4.04 0-200 $3.65 All Units $2.74 All Units $3.92
Tier 2 15+$4.98 21-200 $3.67 200+$4.20
Tier 3 200+$6.77
Tier 4
Bear GulchPalo Alto Redwood City Mountain View Milpitas Hayward Santa Clara
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3. SERVICE AREA CHARACTERISTICS
Palo Alto Redwood
City
Mountain
View Milpitas Hayward Santa
Clara
CWS Bear
Gulch
Service Area Characteristics
Population [5]63,400 83,895 74,762 70,817 150,878 117,242 57,108
# of Households [4]28,291 29,301 33,680 19,376 48,561 44,729
Occupancy Per Household [4]2.33 2.65 2.29 3.54 3.13 2.63
Population, 1999 [5]58,400 83,000 76,025 65,000 128,000 102,500 65,830
10-year Population Increase 9%1%-2%9%18%14%-13%
Median Household Income [1]126,741$ 88,163$ 88,637$ 93,531$ 60,689$ 85,571$
Average Temperature [3]58.0 59.2 58.0 48.6 58.9 59.0
Average annual precipitation (in) [3]15.37 19.81 15.80 15.04 18.03 14.03
Number of SFPUC Connections [5]5 13 6 4 4 2 8
Area size (square miles) [5]26.00 35.00 12.00 13.60 62.50 19.30 45.30
Number of Accounts [5]
Single-family residential 14,804 18,616 11,620 12,232 27,001 17,005 16,723
Multi-family residential 2,243 1,969 2,476 1,839 1,327 4,883 76
Commercial/Institutional/Industrial 2,396 2,525 3,133 2,392 4,054 3,593 1,530
Total accounts 19,443 23,110 17,229 16,463 32,382 25,481 18,329
[1] American Community Survey, 2008
[3] 2005 Urban Water Management Plan (For each respective jurisdiction)
[4] California Department of Finance, City/County Population and Housing Estimates, 1/1/2009 (Table 2, E-5)
[5] BAWSCA 08-09 survey
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4. FACILITIES
Palo Alto Redwood
City
Mountain
View Milpitas Hayward Santa
Clara
CWS
Bear
Gulch
Miles of Mains [5]219 265 175 203 350 295 324
Average age, years 61.00 33.00 44.70 43.10
Number of Booster Pump Stations [5]6 10 5 7 59
Number of Treatment Plants --1
Number of pressure zones [5]8 14 3 6 37
Age distribution of mains
0-10 years 8%4%
11-20 years 9%9%
21-30 years 5%10%
31-40 years 13%30%
41-50 years 38%25%
50-60 years 25%20%45%
>70 years 2%2%
100%100%
Storage Reservoirs
Number reservoirs [5]6 12 2 5 6 7 35
Local Storage (mg) [5]10.5 21.24 17 16.3 28.1 27.3 11
Wells
Number of wells 3 7 1 5 27
Capacity (gpm)3575
[5] BAWSCA 08-09 survey
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5. OPERATIONS
Palo Alto Redwood
City
Mountain
View Milpitas Hayward Santa Clara CWS Bear
Gulch
Employees
Efficiency/Supply 3.00 3.00 3.00 1.00
Administrative 2.00 4.00 3.70
Engineering 7.00 2.00 4.50
Customer Service/Meter Reading 5.70 7.00 7.00 13.50
Other 2.00 14.00 15.00
O&M 26.00 15.00 14.00 33.00 20.80
Total (FTE)43.70 31.00 35.00 0.00 51.50 45.00
Sources of Supply [5]
SFPUC 100%100%86%65%100%12%89%
SCVWD 11%35%0%17%0%
Local 3%0%0%71%11%
Consumption by class (hcf) [5]
Single-family residential 2,491,120 2,358,295 1,365,679 1,645,525 3,083,003 2,682,139 5,264,948
Multi-family residential 818,496 1,136,209 1,509,045 603,880 1,632,319 2,227,045 109,867
Commercial/Institutional/Industrial 2,409,832 1,385,607 2,216,207 2,493,279 2,916,640 5,627,166 775,960
Subtotal 5,719,448 4,880,111 5,090,931 4,742,684 7,631,962 10,536,350 6,150,775
Losses 281,893 210,903 457,025 728,091 1,428,455 316,566 262,269
Total 6,001,341 5,091,014 5,547,956 5,470,775 9,060,417 10,852,916 6,413,044
Losses as a percent of total supplies 4.7%4.1%8.2%13.3%15.8%2.9%4.1%
Consumption by class (mgd) [5]
Single-family residential 5.11 4.83 2.80 3.37 6.32 5.50 10.79
Multi-family residential 1.68 2.33 3.09 1.24 3.35 4.56 0.23
Commercial/Institutional/Industrial 4.94 2.84 4.54 5.11 5.98 11.53 1.59
Subtotal 11.72 10.00 10.43 9.72 15.64 21.59 12.61
Losses 0.58 0.43 0.94 1.49 2.93 0.65 0.54
Average Daily Demand (mgd) [5]12.30 10.43 11.37 11.21 18.57 22.24 13.14
[5] BAWSCA 08-09 survey, Table 4A
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6. FINANCIAL
Palo Alto Redwood City Mountain View Milpitas Hayward Santa Clara CWS Bear Gulch
Revenue from rates
Quantity charge revenue 28,948,000$ 17,675,000$ 18,423,146$ 15,828,000$ 24,900,000$ 22,737,489$ 24,716,456$
Service charge revenue -$ 8,661,000$ -$ -$ 2,900,000$ -$ -$
Total rate revenue 28,948,000$ 26,336,000$ 18,423,146$ 15,828,000$ 27,800,000$ 22,737,489$ 24,716,456$
Non-Operating Revenue
Non-Operating Revenue $334,000 $295,000 $417,000 $500,000 $264,387
Connection fee revenue $682,000 $120,000 $10,000 $2,300,000 $113,000
Interest Income $1,265,000 $744,887
PILOT (franchise fees, rent)$1,900,000 $0 $0 $2,180,000 $1,167,000
Total non-operating revenue $4,181,000 $1,159,887 $10,000 $417,000 $4,980,000 $1,280,000 $264,387
Expenses
Salaries & Benefits $5,411,000 $4,458,810 $2,364,447 $5,790,743 $4,350,000
Operating & Maintenance Costs $6,563,000 $10,271,562 $6,561,190 $4,072,073 $4,846,550 $4,895,000 $4,886,474
Water Purchased $10,354,000 $7,440,718 $9,093,359 $8,722,000 $14,800,000 $12,700,000 $9,717,855
Administrative Expenses $1,474,449 $3,859,955
Transfers to the General Fund $0 $1,848,085 $741,518
Property and other taxes $497,045
Debt Service $3,575,000 $633,100 $0 $909,571
Total expenses $25,903,000 $22,171,090 $17,762,098 $17,006,605 $27,088,382 $21,945,000 $18,961,329
Net Revenue $7,226,000 $5,324,797 $671,048 ($761,605)$5,691,618 $2,072,489 $6,019,514
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7. CAPITAL IMPROVEMENTS
Palo Alto Redwood City Mountain
View Milpitas Hayward Santa Clara CW Bear Gulch
Main replacement
Annual historical main replacement (feet)8,000
Annual projected main replacement (feet)15,840
Capital Assets [1]12,075,000$ 20,582,045$ 4,915,623$ 4,915,623$ 4,446,473$ 2,859,744$ 4,003,286$
Land And Construction in Progress 51,846,000$ 79,838,908$ 34,346,397$ 34,346,397$ 45,445,587$ 65,235,120$ 89,243,321$
Depreciable Assets 63,921,000$ 100,420,953$ 39,262,020$ 39,262,020$ 49,892,060$ 68,094,864$ 93,246,607$
Total capital assets (net book value)1,171,000$ 1,908,781$ 1,653,293$ 1,376,544$ 1,976,578$ 979,338$ 2,177,634$
Depreciation Expense [1]2.3%2.4%4.8%4.0%4.3%1.5%2.4%
Depreciation as a percent of depreciable assets 44.3 41.8 20.8 25.0 23.0 66.6 41.0
Replacement cycle (years)$2,458,500 $2,869,170 $3,271,835 $2,886,913 $798,273 $3,528,231 $2,058,424
Capital assets (net book value) per square mile $10.65 $19.73 $7.08 $7.18 $5.51 $6.27 $14.54
Capital assets (net book value) per hcf $3,288 $4,345 $2,279 $2,385 $1,541 $2,672 $5,087
Capital Improvements $27,414,000 $3,200,000 $3,420,000 $5,300,000 $2,155,000 $2,513,000
Budgeted Capital Improvements $3,500,000
FY 04-05 $2,900,000
FY 05-06
FY 06-07
FY 07-08 $6,085,000 $2,000,000
FY 08-09 $27,414,000 $3,420,000 $2,000,000
FY 09-10 $8,173,000 $2,000,000
FY 10-11 $5,067,000 $2,000,000 $5,834,000
FY 11-12 $6,338,000 $2,000,000 $5,958,000
FY 12-13 $5,617,000 $2,000,000 $5,927,000
FY 13-14 $2,500,000 $6,463,000
FY 14-15 $2,500,000 $3,156,000
FY 15-16 $6,298,750 $3,200,000 $3,420,000 $6,085,000 $2,125,000 $5,467,600
[1] FY 2009 CAFR for each Jurisdiction, respectively
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8. SERVICE QUALITY
Palo Alto Redwood
City
Mountain
View Milpitas Hayward Santa Clara CWS Bear
Gulch
Complaints Reported (1)
Taste and Odor 6 15 5 1 21
Color 15 13 9 9 9
Turbidity 4 17 6 0 1
Worms and other 2 0 0 0 0
Pressure (High or Low)0 2 36 0 0
Illnesses (Waterborne)0 0 0 0 0
Other (Specify) (2)34 0 34 2
Total 27 0 81 56 44 33 0
System Problems (1)
Service Connection Breaks/ Leaks 32 4 86 -
Main Breaks/Leaks 13 12 27 89
Water Outages --2 0 -
Boil Water Orders ---0 -
Total 45 0 16 127 113 89 0
(1) From Report to the Drinking Water Program, 2008
(2) Santa Clara: hardness and entrained air.
(2) Mountain View: fluoride, NHCL2, filtrations, particle, gasket degradation and testing.
(2) Hayward: Air in Water and Solids
125
ATTACHMENT B
EXCERPTED DRAFT MINUTES OF UTILITIES ADVISORY COMMISSION
Meeting of October 6, 2010
ITEM 4: DISCUSSION: Water Benchmarking Study
Senior Resource Planner Shiva Swaminathan presented the Water Benchmarking Study results to the
UAC.
Commissioner Keller asked about the City’s water losses and the relation to inaccurate master meter data.
Staff explained that Palo Alto has both internal and external master meters and has requested that SFPUC
calibrate its meter. Staff also explained that while the City’s losses were at an industry standard level,
further study will be done to see if we can learn from Santa Clara which has low lost and unaccounted for
levels.
The Commissioners and staff discussed the anticipated water increases over the next few years (7-8% per
year) and how these anticipated increases are communicated to the Council annually. Commissioner
Melton also stated that every opportunity be taken to educate the Council about increasing water rates.
Commissioner Cook asked if staff had looked at groundwater as an alternative source. Staff replied that
this had been evaluated and ruled out because the sustainable yield from the groundwater, according to a
consultant report, is only 500 acre-feet per year, or less than 5% of the City’s total usage. It can, however,
use groundwater for emergencies and during a drought.
1
Comparison Agencies
ATTACHMENT B
2
Statistical Information
2013 Consumption (in CCF)
Population Single Family Per Account Multifamily Per Unit Nonresidential
Palo Alto 66,368 2,442,016 160 741,684 69 1,913,692
Mountain View 77,839 1,338,585 111 1,376,460 80 2,250,719
Redwood City 80,875 2,252,558 119 825,507 75 1,500,632
Santa Clara 120,250 2,603,029 152 2,106,663 98 5,736,888
Hayward 151,582 2,913,392 105 1,300,217 75 2,964,826
3
Comparison Bases
Per Square Mile basis Per CCF basis Per Customer Account basis Per Mile of Main basis
Pros:
Allows cost comparisons without
being skewed by usage patterns or
characteristics of the customer
base. Helps highlight differences
in system characteristics, such as
higher density of development.
Pros:
Provides lowest
common denominator
for the costs
underlying the
volumetric rates.
Pros:
Shows financial impact on each
customer account, allowing
comparison between cities
whose customers use different
amounts of water on average.
Pros:
Allows comparison
between differently sized
cities based on system
characteristics.
Cons:
Must account for large uninhabited
areas within agency boundaries.
(Excluded in this report, due to the
help of Claire Lin, Summer Intern
with the City of Palo Alto)
Cons:
Higher water
consumption can
result in lower rates
with no change in
costs, which can hide
the underlying cost
disparities.
Cons:
Difficult to compare multi-
family and commercial
customer classes on this basis,
since multi-family and
commercial accounts vary
greatly in size and water use.
Cons:
Not all costs are related
to pipeline maintenance.
Differences in pipeline
density can obscure
underlying differences in
operational costs.
•All metrics are presented on per square mile of urban area basis to enable better comparisons
between cities
Comparison bases considered for this report
4
Water Consumption and Revenues
Collected by Customer Class
49%
26%
48%
29%
40%
15%
29%
19%
23%
22%
36% 45%
33%
48%
38%
48%
27%
49%
25%
41%
15%
28%
18%
20%
18%
38% 45%
33%
55%
41%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
PA MTV RC SC HW
Single Family Revenues Multifamily Revenues
Nonresidential Revenues Single Family Water Consumption
Multifamily Water Consumption Nonresidential Water Consumption
5
Single Family Residential Customers
Annual Bill
$253
$61 $117 $82 $68
$260
$130
$231
$86 $126
$182
$90
$114
$77 $71
$45
$22
$40
$19 $22
$417
$234
$244
$212 $245
$1,157
$537
$747
$476
$532
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
PA MTV RC SC HW
Distribution Capital Investment Distribution Operations (Non-Salary)Distribution Operations (Salary)
Non-revenue Water Water
6
Multifamily Residential Customers
Annual Bill
$105
$45 $79 $55 $63
$108
$96
$156
$57
$111
$75
$67
$77
$51
$65
$45
$22
$40
$19
$22
$146
$168
$152
$134
$224
$480
$398
$505
$316
$486
$0
$100
$200
$300
$400
$500
$600
PA MTV RC SC HW
Distribution Capital Investment Distribution Operations (Non-Salary)Distribution Operations (Salary)
Non-revenue Water Water
7
Nonresidential Customers
Annual Bill
$1,070
$414 $753 $656 $337
$1,097
$885
$1,485
$684
$599
$767
$612
$735
$618
$352
$45
$22
$40
$19
$22
$1,905
$1,722
$1,789
$1,827
$1,303
$4,884
$3,655
$4,803
$3,804
$2,613
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
PA MTV RC SC HW
Distribution Capital Investment Distribution Operations (Non-Salary)Distribution Operations (Salary)
Non-revenue Water Water
8
Total Costs per Square Mile
$728,723
$264,140 $493,984 $280,730 $211,016
$747,057
$565,444
$973,829
$293,061 $390,789
$522,762
$390,872
$481,866
$264,549 $220,705
$112,384
$60,925
$125,367
$43,272 $43,320
$1,328,659
$1,113,810
$1,199,339
$790,393 $830,317
$3,439,586
$2,395,192
$3,274,386
$1,672,005 $1,696,147
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
PA MTV RC SC HW
Distribution Capital Investment Distribution Operations (Non-Salary)Distribution Operations (Salary)
Non-revenue Water Water
9
Budgeted Capital Spending
(FY 2009-2013)
* Estimated based on total budgeted in CIP budgets
$1,410,170
$634,930
$685,437
$254,740
$449,585
$1,634,686
$1,772,123
$226,214
$257,381
$362,308
$1,036,416 $287,849
$253,398
$445,472
$0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000
Palo Alto
Mountain View
Redwood City*
Santa Clara
Hayward*
Distribution Supply Recycled Water Other
10
Total Cost per CCF
$1.52
$0.62 $1.01 $0.47 $0.71
$1.56
$1.34
$1.98
$0.49
$1.32
$1.09
$0.92
$0.98
$0.44
$0.75
$3.00
$2.78
$2.70
$1.39
$2.95
$7.17
$5.67
$6.67
$2.79
$5.73
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
Palo Alto Mountain View Redwood City Santa Clara Hayward
Distribution Capital Investment Distribution Operations (Non-Salary)Distribution Operations (Salary)Water*
11
Total Cost per Mile of Main
$36,039 $18,415 $19,273 $15,428 $16,834
$36,945
$39,420 $37,994
$16,105
$31,175
$25,853
$27,250 $18,800
$14,538
$17,607
$5,558
$4,247
$4,891
$2,378
$3,456
$65,708
$77,650
$46,792
$43,436
$66,239
$170,103 $166,983
$127,751
$91,885
$135,310
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
Palo Alto Mountain View Redwood City Santa Clara Hayward
Distribution Capital Investment Distribution Operations (Non-Salary)Distribution Operations (Salary)
Non-revenue Water Water
12
Total Cost per Connection
$419
$184 $229 $207 $170
$429
$394 $452
$216 $315
$301
$272 $224
$195 $178
$65
$42 $58
$32 $35
$764
$776 $557
$582 $669
$1,977
$1,668 $1,521
$1,230
$1,367
$0
$500
$1,000
$1,500
$2,000
$2,500
Palo Alto Mountain View Redwood City Santa Clara Hayward
Distribution Capital Investment Distribution Operations (Non-Salary)Distribution Operations (Salary)
Non-revenue Water Water
FINAL MINUTES
Finance Committee Special Meeting
Minutes 4/15/2014
FINANCE COMMITTEE
FINAL EXCERPT
Special Meeting
Tuesday, April 15, 2014
5.Discussion of Water Utility Benchmarking Studies and Future Work
Plan.
Valerie Fong, Utilities Director noted the Agenda Item was for discussion
only. Staff wished to inform the Finance Committee (Committee) regarding
their plans to conduct additional studies. Committee input regarding topics
to review would be appreciated.
Lalo Perez, Director of Administrative Services and Chief Financial Officer
added that the Committee requested Staff return with more information.
Jon Abendschein, Senior Resource Manager reported that Staff provided
summaries of two benchmarking studies conducted over the last few years.
The first was a 2010 study that concluded in 2010. The study reviewed six
comparison agencies and publicly available information and conducted
interviews with staff at those utilities. The City had a higher replacement
cost for facilities and higher Operations and Maintenance (O&M) costs
because Palo Alto's facilities were substantially older than neighboring
agencies' facilities. The consultant discussed the characteristics of the City's
service territory and said Palo Alto was geographically spread out, it had
more hilly terrain and was more seasonally varied. Those characteristics
required a higher level of operating capability and higher expenses. The consultant noted a higher quality of service, for example, a lower number of
outages and fewer complaints. The second survey was an organizational
assessment focused on all Palo Alto utilities, which included a benchmarking
study of Palo Alto Utilities against utilities nationwide. The second study also
found higher O&M expenses. Palo Alto also had more Full Time Employees (FTE) per unit of water delivered than other utilities. The study cautioned
that this measure was affected by the fact that the City directly allocated
administrative FTEs to the Water Fund; whereas, other utilities utilized an
indirect allocation. Staff also reviewed the Fiscal Year (FY) 2012 Bay Area
Water Supply and Conservation Agency (BAWSCA) annual survey and FY
2012 financial statements for comparison cities. Palo Alto residents did have
higher water use per capita than other BAWSCA agencies. Climate and
property characteristics explained the higher usage. The City's older system
ATTACHMENT C
FINAL MINUTES
Finance Committee Special Meeting
Minutes 4/15/2014
resulted in higher O&M and Capital Improvement Program (CIP) expenses.
Staff presented their preliminary analysis to the Utilities Advisory
Commission (UAC), which recommended that Staff complete a more in-
depth analysis. Over the summer Staff planned on performing an in-depth review of data from neighboring cities. The City's rates were higher than
many comparison agencies because of the higher cost of Hetch Hetchy
water. However, some comparison agencies also utilized Hetch Hetchy
water. The question was why the City's costs were higher than the costs of
comparison agencies who used Hetch Hetchy water. One explanation was
that the City was delivering a higher level of service to its customers.
Ideally Staff determined methods to modify costs such that rates were
competitive with comparison agencies' rates. As much of the needed
information was not public record, Staff had to rely on cooperation from
neighboring agencies to obtain data.
Garth Hall, Utilities Advisory Commissioner indicated the UAC agreed with
the next steps that Staff identified and agreed that Staff was halfway
through an important exercise. Palo Alto was known as having higher water
rates. Substantive comparisons of these topics produced much needed
information.
Council Member Holman noted each comparison city was larger than Palo
Alto in terms of population. It appeared as though the City was not
comparing its utility with a comparable population.
Mr. Abendschein explained that each utility was different, and the ones listed
were the closest comparators to Palo Alto.
Council Member Holman felt the City was making an argument that suited its
purpose.
Mr. Abendschein reported economy of scale was not the only factor in any of
the benchmarking studies. There were many other factors discussed in the
comparison of Palo Alto to other utilities.
Council Member Holman requested clarification of the statement that Palo
Alto experienced more seasonal variation in demand, which required a higher level of operating capability.
Mr. Abendschein indicated Palo Alto lot sizes tended to be larger than in
other cities, resulting in more seasonal irrigation.
Council Member Holman interpreted seasonal variation as different weather.
Seasonal variation did not seem logical when reviewing the comparison
cities.
Mr. Abendschein stated there was a great deal of hidden information in the
FINAL MINUTES
Finance Committee Special Meeting
Minutes 4/15/2014
words seasonal variation. Seasonal variation included the peakier loads
associated with larger lot sizes and slightly warmer and dryer microclimate
for Palo Alto
Council Member Holman requested Staff compare Palo Alto to entities that
purchased water from Santa Clara Valley Water District. Palo Alto did have
more FTEs per unit of water; however, Palo Alto provided very good utility
services. She suggested Staff determine whether service would suffer if
there were fewer FTEs. She was interested in a comparison of salary and
benefit costs to other BAWSCA agencies. The next steps needed to include
analysis of the allocation of costs between residential and non-residential
customer classes. The presentation mentioned a cost comparison of
BAWSCA agencies; however, she did not find a comparison related to
allocation.
Ms. Fong remarked that the presentation was an attempt to provide a broad
overview. The Staff report indicated that Staff would ask that question.
Council Member Burt inquired whether Staff intended to determine the
degree to which direct allocation of administrative services affected the cost
per unit delivered.
Mr. Abendschein advised that was the ideal next step. Staff intended on
performing that analysis to the extent that the information was available.
Council Member Burt noted in the 2010 report that Palo Alto's percentage of
lost and unaccounted for water aligned with the industry average of eight to
nine percent; however, Santa Clara County's rate was extremely low. The
2010 benchmark study indicated that factor could be a significant cause for
Santa Clara County's lower water rate.
Mr. Abendschein agreed it could make some difference; however, there were
many factors to consider.
Council Member Burt did not believe a single factor would explain the entire
rate difference. He asked if the purchase of water accounted for half of the
City's costs.
Mr. Abendschein indicated by 2020, water purchases would total approximately half of costs.
Council Member Burt stated three to four percent of total cost was not
insignificant but it could be 10 percent of the difference in cost.
Mr. Abendschein recommended the Committee use caution regarding
outliers and measurement quality.
Ms. Fong reported Staff had some of the same questions as the Committee.
FINAL MINUTES
Finance Committee Special Meeting
Minutes 4/15/2014
That was one question Staff wanted to investigate.
Council Member Burt assumed the economics of recycling wastewater for
irrigation had improved drastically and would become even more economical
by 2020. He asked if Staff would analyze that as a factor in the City's higher
water rates and whether use of recycled wastewater helped close the gap in
rates.
Ms. Fong was not sure a recycled water project was financially viable on its
own. A recycled water project relied on grants. However, Staff said they
would review use of recycled water as a factor.
Council Member Burt recalled that the Santa Clara Valley Water District
volunteered to participate in the City's recycled water project. The
economics were going to be very different in 2020. He requested Staff
include that as a topic for analysis. He wanted a clear explanation of the
respective cost impacts of having storage for emergency water supply and
serving the customers in the foothills area. Staff indicated costs were higher
because the City had to store water. The report needed to state costs were
higher because the City stored water for emergencies and other cities did
not. That comparison was not provided either. He preferred Staff not utilize
the table in the recent benchmarking study because the casual reader might
misread the benchmark on net revenue and think it was a bragging point.
With respect to the accelerated main replacement program, he asked if the
rate of spending would need to continue or would it end once replacement
was complete.
Mr. Abendschein advised that the study of the distribution system would
address the rate of replacement.
Council Member Burt requested an explanation as to why Menlo Park or San
Carlos were not utilized as comparators.
Mr. Abendschein reported the 2010 benchmark study did include Menlo Park.
Council Member Burt asked if Menlo Park would be included in the next
evaluation and how the City compared in 2010.
Mr. Abendschein would need to review the study to answer that question.
Council Member Burt generally recollected that Palo Alto had higher rates
than Menlo Park; yet, Palo Alto had a better economy of scale.
Mr. Hall remarked that Palo Alto was more advanced than many other
utilities in terms of pipe replacement programs. There was a general
consensus among water utility professionals that cities had neglected
replacement programs. When Staff began benchmarking, it would be helpful
to have some type of assessment of where other cities were in terms of
FINAL MINUTES
Finance Committee Special Meeting
Minutes 4/15/2014
replacement. Many utilities utilized bond financing for capital programs,
while the City utilized cash.
Council Member Burt believed the City needed to convey the value of line
replacement to the community.
Chair Berman inquired whether the Hayward designations of outer versus
inner meant a more concentrated population in a smaller geographic area.
Mr. Abendschein explained that a different set of rules applied to water
utilities selling water outside their boundaries. Hayward essentially acted as
a private water seller to people outside their service territory, and the utility
charged those customers higher rates.
Vice Mayor Kniss left the meeting at 9:23 P.M.