HomeMy WebLinkAboutStaff Report 3597 City of Palo Alto (ID # 3597)
City Council Informational Report
Report Type: Informational Report Meeting Date: 4/1/2013
April 01, 2013 Page 1 of 1
(ID # 3597)
Title: Quarterly Utilities Update
Subject: City of Palo Alto Utilities Quarterly Update - 2nd Quarter of Fiscal Year
2013
From: City Manager
Lead Department: Utilities
This report is provided for the Council’s information and no action is required.
Executive Summary
This update, on the City of Palo Alto’s water, gas, electric, wastewater collection and fiber
utilities, efficiency programs, legislative and regulatory issues, and a utility financial summary, is
for the Council’s information. This update has been prepared to keep the Utilities Advisory
Commission and Council apprised of the major issues that are facing the water, gas, electric,
wastewater collection and fiber utilities. The UAC received this informational report at its
March 6, 2013 meeting.
Attachments:
Attachment A: Quarterly Utilities Report for the Second Quarter of FY 2013 (PDF)
i
Utilities Update for Second Quarter of FY 2013
March 2013
Table of Contents
I. Electricity ................................................................................................................................. 1
Western Area Power Administration Issues ................................................................................................. 1
Calaveras Hydroelectric Project Issues ......................................................................................................... 1
Electric Load and Resource Balance ............................................................................................................. 2
Electric Market Price History and Projections .............................................................................................. 3
Electric Transmission Alternatives ................................................................................................................ 4
Electric Budget and Portfolio Performance Measures ................................................................................. 4
II. Natural Gas .............................................................................................................................. 8
Gas Supply Portfolio ...................................................................................................................................... 8
Gas Market Price History and Projections .................................................................................................... 8
Gas Pool Portfolio Average Cost vs. Market ............................................................................................... 10
Gas Budget and Portfolio Performance Measures ..................................................................................... 11
III. Water ..................................................................................................................................... 15
Water Availability ........................................................................................................................................ 15
Regional Water Usage Trends ..................................................................................................................... 15
Bay Area Water Supply and Conservation Agency (BAWSCA) Activities .................................................... 15
Water Budget Performance Measures ....................................................................................................... 16
IV. Fiber Utility ............................................................................................................................ 17
Commercial Dark Fiber Service ................................................................................................................... 17
V. Public Benefit and Demand Side Management Programs ....................................................... 17
Renewable Energy Programs ...................................................................................................................... 17
Key and Major Accounts ............................................................................................................................. 18
Measurement & Evaluation Results of Energy Efficiency Programs........................................................... 19
VI. Research and Development and Innovation ........................................................................... 19
Energy Efficient Research & Development ................................................................................................. 19
Emerging Technologies Program ................................................................................................................ 19
VII. Legislative and Regulatory Issues ........................................................................................... 20
State Legislative Issues ................................................................................................................................ 20
Federal Legislative Issues ............................................................................................................................ 21
State Electric Regulatory Proceedings ........................................................................................................ 23
Gas Regulatory Proceedings ....................................................................................................................... 24
VIII. Utility Financial Summary ...................................................................................................... 25
Electric Utility .............................................................................................................................................. 25
Gas Utility .................................................................................................................................................... 30
Water Utility ................................................................................................................................................ 33
Wastewater Collection Utility ..................................................................................................................... 36
Fiber Utility .................................................................................................................................................. 38
Utility Reserves Summary ........................................................................................................................... 38
ii
List of Figures
Figure 1: Electric Supply Resource Projection, 2013 to 2015 – as of February 1, 2013............................... 2
Figure 2: Northern California Peak Electric Prices – as of February 1, 2013 ................................................ 3
Figure 3: Actual vs. Budgeted Electric Consumption ................................................................................... 4
Figure 4: Electric Supply Cost – Budget vs. Actual ....................................................................................... 5
Figure 5: FY 2013 (Jul‐Dec) Electric Supply Costs by Category – Budget vs. Actual ..................................... 5
Figure 6: FY 2013 Electric Load and Resource Balance ................................................................................ 6
Figure 7: FY 2013 (Jul‐Dec) Electric Supply Resources – Budget vs. Actual ................................................. 6
Figure 8: FY 2013 Electric Market Prices – Budget vs. Actual ...................................................................... 7
Figure 9: FY 2013 Electric Forward Market Purchase Cost vs. Spot Market ................................................ 7
Figure 10: Fixed‐Price Gas Commitments ..................................................................................................... 8
Figure 11: Natural Gas Prices – Historical and Projected ............................................................................. 9
Figure 12: Projected Drawdown from Gas Supply Reserve in FY 2013 and FY 2014 ................................. 10
Figure 13: Natural Gas Cost – Actual vs. Market Benchmarks ................................................................... 11
Figure 14: Redwood Pipeline Cost vs. Market Benchmarks ...................................................................... 12
Figure 15: Natural Gas Consumption – Budget vs. Actual ......................................................................... 13
Figure 16: Natural Gas Cost – Budget vs. Actual ........................................................................................ 13
Figure 17: FY 2013 Natural Gas Prices ($/MMBtu) – Expected vs. Actual ................................................. 14
Figure 18: Water Consumption – Budget vs. Actual .................................................................................. 16
Figure 19: Water Cost – Budget vs. Actual ................................................................................................. 16
List of Tables
Table 1: Electric Retail Sales and Rate ........................................................................................................ 25
Table 2: Electric Operating Activity ............................................................................................................. 26
Table 3: Electric Supply Rate Stabilization Reserve .................................................................................... 27
Table 4: Electric Distribution Rate Stabilization Reserve ............................................................................ 28
Table 5: Residential Electric Bill Comparison .............................................................................................. 29
Table 6: Commercial Electric Bill Comparison ............................................................................................ 29
Table 7: Gas Retail Sales and Rate .............................................................................................................. 30
Table 8: Gas Operating Activity ................................................................................................................... 30
Table 9: Gas Supply Rate Stabilization Reserve .......................................................................................... 31
Table 10: Gas Distribution Rate Stabilization Reserve ................................................................................ 32
Table 11: Residential Natural Gas Bill Comparison ..................................................................................... 32
Table 12: Commercial Natural Gas Bill Comparison ................................................................................... 33
Table 13: Water Retail Sales and Rate ........................................................................................................ 33
Table 14: Water Operating Activity ............................................................................................................ 34
Table 15: Water Rate Stabilization Reserve ................................................................................................ 35
Table 16: Residential Water Bill Comparison .............................................................................................. 35
Table 17: Wastewater Operating Activity ................................................................................................... 36
Table 18: Wastewater Collection Rate Stabilization Reserve ..................................................................... 37
Table 19: Residential Wastewater Collection (Sewer) Bill Comparison...................................................... 37
Table 20: Fiber Operating Activity .............................................................................................................. 38
Table 21: Fiber Rate Stabilization Reserve .................................................................................................. 38
Table 22: Utilities Reserves Summary ........................................................................................................ 39
Utilities Update for Second Quarter of FY 2013
March 2013
1
I. Electricity
Western Area Power Administration Issues
Western Operations
For Fiscal Year (FY) 2012, the Western Base Resource supply was 407 Gigawatt‐hours (GWh),
which is about 7% above the long‐term average level. Assuming median precipitation levels
going forward, Western is projected to deliver approximately 426 GWh in FY 2013 (12% above
long‐term average levels, and a 17% increase from the projection in the Q1 update) and 375
GWh in FY 2014 (2% below long‐term average levels).
Calaveras Hydroelectric Project Issues
Calaveras Operations
Calaveras generation for FY 2012 was 108 GWh, which is 18% below the long‐term average
level. Assuming median precipitation levels going forward, Calaveras generation is projected to
deliver 103 GWh in FY 2013 (22% below long‐term average levels), and 123 GWh in FY 2014 (6%
below long‐term average levels).
Utilities Update for Second Quarter of FY 2013
March 2013
2
Electric Load and Resource Balance
The size of the committed and planned market purchases over the next three calendar years
(CYs) (shown in Figure 1 below) reflects an approximately average level of hydroelectric output,
as discussed above. It also assumes that the Western GeoPower geothermal project begins
commercial operations in late 2014 at the full project size that was originally planned at the
time of the execution of the agreement. The projections also incorporate the output of the
recently approved Brannon Solar 20 MW project starting in August 2014.
For CYs 2013 through 2015, committed fixed‐price forward purchases currently account for
approximately 402 GWh, which represents 13% of the City’s total load for that three‐year
period. Planned market purchases represent 9% of the City’s total load for this period. Long‐
term resources (everything but forward and planned market purchases) currently account for
77% of the City’s total load over this three‐year period.
Figure 1: Electric Supply Resource Projection, 2013 to 2015 – as of February 1, 2013
‐
200
400
600
800
1,000
1,200
2013 2014 2015
An
n
u
a
l
GW
h
Calendar Year
Planned Market
Purchases
Committed Market
Purchases
Geothermal
Solar
Wind
Landfill Gas
Calaveras
Western
14% Deficit 15% Deficit
Utilities Update for Second Quarter of FY 2013
March 2013
3
Electric Market Price History and Projections
As of February 1, 2013, the price for on‐peak energy for the prompt month (March 2013) in
Northern California was $40 per megawatt‐hour (MWh), while the prices for April and May
were both $39/MWh. These values are approximately equal to where they were at the time of
the last quarterly report.1 On‐peak prices for calendar year strips range from $47/MWh for
2014 up to $59/MWh for 2018. Prices for 2014 and 2015 are also at approximately the same
level as they were at the time of the last quarterly report, while prices for the outer years have
risen by about $2‐3/MWh. Figure 2 below illustrates historical monthly prices and projected
monthly forward prices for Northern California from 2004 through 2017. The forward prices for
2014 and beyond are for a flat annual calendar year product.
Figure 2: Northern California Peak Electric Prices – as of February 1, 2013
0
20
40
60
80
100
120
140
160
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Pe
a
k
Ele
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Pri
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($/
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ProjectedHistorical
1 Market prices for the previous quarterly report were from November 6, 2012.
Utilities Update for Second Quarter of FY 2013
March 2013
4
Electric Transmission Alternatives
In October 2012, CPAU submitted the SLAC project in the California Independent System
Operator’s (CAISO’s) transmission planning process as an alternative to evaluate against PG&E’s
Ames project. The CAISO released its draft 2012‐2013 transmission plan on February 1, 2013, in
which it stated that it has identified the issues that are critical to the City’s proposal and is
ready to evaluate the multiple proposals submitted once more information becomes available.
CPAU and Stanford are working on a memorandum of understanding and a firm proposal for
SLAC and the Department of Energy (DOE). Currently CPAU’s consultant is rerunning the load
flow studies to incorporate new load assumptions for SLAC and Stanford. CPAU and Stanford
are also moving forward on right‐of‐way, land use, and routing options.
Electric Budget and Portfolio Performance Measures
Figure 3, Figure 4, and Figure 5 below show the City’s electric consumption by month as well as
the supply cost by month and by cost category. The aggregate supply cost for the first half of
FY 2013 was $32.0 million, approximately $7.0 million less than the adopted budget of $38.9
million. The lower costs for the year so far are due to lower than expected transmission costs,
fewer market purchases than expected due primarily to the fact that Palo Alto electric load was
less than forecasted in the budget, and also due to large one‐time interconnection costs related
to new renewable projects due to commence operation in Q2 of FY 2013, but which are now
not expected to come online until late FY 2013 or mid FY 2014.
Figure 3: Actual vs. Budgeted Electric Consumption
200
400
600
800
1,000
1,200
Lo
a
d
(
G
W
h
)
Actual Budget
Utilities Update for Second Quarter of FY 2013
March 2013
5
Figure 4: Electric Supply Cost – Budget vs. Actual
$0
$10
$20
$30
$40
$50
$60
$70
$80
Co
s
t
(
$
M
)
Actual Budget
Figure 5: FY 2013 (Jul‐Dec) Electric Supply Costs by Category – Budget vs. Actual
8.04 5.58
1.07
0.73
1.47
1.59
4.72
4.73
6.01
6.08
8.94
5.92
8.65
7.33
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Adopted Budget Actual
Co
s
t
(
$
M
)
Net Market +
Net Surplus
Energy
Renewables
Calaveras Debt
and O&M
Western
NCPA Services
Local Capacity
Transmission
Adopted Budget
Utilities Update for Second Quarter of FY 2013
March 2013
6
Figure 6 and Figure 7 below summarize the City’s electric supply sources for FY 2013. Most of
the City’s long‐term resources are delivering as much energy as expected in the budget, but
load has been lower than budgeted, leading to fewer market purchases.
Figure 6: FY 2013 Electric Load and Resource Balance
0
10
20
30
40
50
60
70
80
90
100
GW
h
Spot Market
Purchases
Forward
Market
Purchases
Wind
Landfill
Calaveras
Western
Load
Figure 7: FY 2013 (Jul‐Dec) Electric Supply Resources – Budget vs. Actual
169.4 174.4
46.8 29.6
34.6 35.4
64.4 61.7
77.3
202.0
141.4
-11.6
-100
0
100
200
300
400
500
600
Adopted Budget Actual
GW
h
Uncommitted/
Spot Market
Forward Market
Purchases
Wind
Landfill
Calaveras
Western
Utilities Update for Second Quarter of FY 2013
March 2013
7
Figure 8, below, shows that market electricity prices are fairly close to budget projections.
Figure 8: FY 2013 Electric Market Prices – Budget vs. Actual
$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
Av
e
r
a
g
e
P
r
i
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e
(
$
/
M
W
h
)
Prices Used for Budget Actual Price (CAISO Load Aggregation Point)
Figure 9 compares the current strategy of making laddered fixed‐price forward purchases to a
strategy of buying all market power in the spot market. As of Q2 FY 2013 the cost of energy
purchased through the City’s Electric Master Agreements was roughly equivalent to what it
would have cost to purchase the same energy at spot market prices.
Figure 9: FY 2013 Electric Forward Market Purchase Cost vs. Spot Market
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Cu
m
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a
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o
s
t
(
$
m
i
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)
p
Cost of Forward Market Purchases
Cost at Spot Market Prices (CAISO Load Aggregation Point)
Utilities Update for Second Quarter of FY 2013
March 2013
8
II. Natural Gas
Gas Supply Portfolio
Figure 10 shows the completed fixed‐price purchases compared to the portfolio load as of
February 5, 2013. While fixed‐price gas purchases have been suspended, prior commitments to
fixed‐price gas purchase remain through October 2013. Currently, fixed‐price purchases make
up 17% and 4% of the expected Portfolio load in FY 2013 and FY 2014, respectively.
Figure 10: Fixed‐Price Gas Commitments
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
MM
B
t
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/
m
o
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t
h
Gas Supply Procurement Program
February 5, 2013
Expected
Portfolio
Load
Fixed-Price
Commitments
17% fixed-price
purchasesfor remaining
FY13
4% fixed-price purchases
for FY14
Gas Market Price History and Projections
Gas prices have been trending up since bottoming out in May 2012. The monthly gas price
index at PG&E Citygate settled at $4.08 per Million British Thermal Units (MMBtu) for
December 2012 but has since dropped back to $3.66/MMBtu for February 2013. Forward gas
prices at PG&E Citygate currently average $3.98/MMBtu for the remaining of 2013 and
$4.35/MMBtu for 2014. Gas prices at PG&E Citygate are expected to remain under $6/MMBtu
through 2020.
Figure 11 below shows historical monthly bidweek index prices and forward natural gas prices
at PG&E Citygate as of February 5, 2013. Also shown in Figure 11 are high and low ranges for
Utilities Update for Second Quarter of FY 2013
March 2013
9
the projected future prices. The high and low prices are derived using current call option
premiums to estimate the market’s perception of future price volatility.
Figure 11: Natural Gas Prices – Historical and Projected
$0
$2
$4
$6
$8
$10
$12
$14
Pri
c
e
s
(
$
/
M
M
B
t
u
)
Natural Gas Wholesale Prices at PG&E Citygate
as of February 5, 2013
Actual
Projected
High
Low
* High and low prices in the 75th and 25th
percentile projected using Black Scholes model
Utilities Update for Second Quarter of FY 2013
March 2013
10
Gas Pool Portfolio Average Cost vs. Market
Because of prior fixed‐price purchases, the City’s weighted average cost of gas (WACOG) differs
from the current forward market price. The City’s estimated WACOG for the Pool load is
$4.28/MMBtu for FY 2013, or approximately 16% higher than the actual/projected market cost
weighted by monthly load. As expected, since Pool customers are now charged a market‐based
gas commodity rate, there will be an under‐collection of gas commodity revenue through
October 2013. Figure 12 shows the drawdown on the Gas Supply Rate Stabilization Reserve
based on the mark‐to‐market (value minus cost) of the fixed‐price gas purchases to be
delivered in FY 2013 and FY 2014. This under‐collection and reserve drawdown were
anticipated and are reflected in the FY 2013 budget.
Figure 12: Projected Drawdown from Gas Supply Reserve in FY 2013 and FY 2014
$(1.0)
$(0.1)
$(1.7)
$(0.2)
$(1.6)
$(0.1)
$(1.7)
$(0.3)
$(3.0)
$(2.5)
$(2.0)
$(1.5)
$(1.0)
$(0.5)
$-
$0.5
$1.0
Mi
l
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i
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s
Portfolio Mark-to-Market for FY 2013 and FY 2014
February 5, 2013
FY13 Budget prices Expected High Prices Low Prices
FY 2013 FY 2014
Utilities Update for Second Quarter of FY 2013
March 2013
11
Gas Budget and Portfolio Performance Measures
The monthly average natural gas purchase cost is compared to different market benchmarks in
Figure 13. The figure compares the actual commodity purchase costs for FY 2013, which
includes some purchases made under the City’s former gas purchasing strategy (the gas
laddering strategy) to the current strategy of purchasing gas indexed to monthly or daily PG&E
Citygate prices. The cumulative actual cost of gas for the fiscal‐year‐to‐date is $614,000 (13%)
higher than if the gas were purchased at monthly index prices and $1,038,000 (24%) higher
than if CPAU had purchased gas at the daily index prices. The last delivery month for which
forward purchases were made under the former strategy is October 2013, after which the
CPAU cost of gas will closely track the monthly index price.
Figure 13: Natural Gas Cost – Actual vs. Market Benchmarks
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
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Actual Cost Value at Monthly Bidweek Index Value at Daily Index Price
Utilities Update for Second Quarter of FY 2013
March 2013
12
Value of CPAU’s Share of Redwood Pipeline Capacity
The City’s share of the Redwood pipeline provided a net savings of approximately $118,000 in
the second quarter of FY 2013. This is calculated as the difference between the value of
Redwood capacity of $228,000 (found from the difference of monthly bidweek prices at both
ends of the Redwood pipeline in Malin Oregon and PG&E Citygate) and the transportation cost
of using the Redwood pipeline of $120,000. Figure 14 below shows the cost of Redwood
transmission compared to the value at month‐ahead spot market prices as well as daily spot
market prices.
Figure 14: Redwood Pipeline Cost vs. Market Benchmarks
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
$450.0
Mo
n
t
h
l
y
C
o
s
t
Th
o
u
s
a
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d
s
Actual Cost Value at Monthly Bidweek Index Value at Daily Index Price
Utilities Update for Second Quarter of FY 2013
March 2013
13
Natural Gas Consumption and Costs: Budget vs. Actual
Figure 15 and Figure 16 below demonstrate natural gas use and costs in comparison with the FY
2013 budget. Natural gas use for the year to date is 6% below the budget forecast, but costs
were $1.3 million (18%) lower than budgeted amounts. The lower costs were primarily due to
gas prices that were lower than in the budget forecast (see Figure 17) combined with the fact
that a larger percentage of the City’s gas purchases being made in the month‐ahead or day‐
ahead market.
Figure 15: Natural Gas Consumption – Budget vs. Actual
0
5
10
15
20
25
30
35
Cu
m
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(
T
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)
Mi
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Actual Consumption
Budget Consumption
Figure 16: Natural Gas Cost – Budget vs. Actual
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
Cu
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Mi
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Actual Cost
Budget Cost
Utilities Update for Second Quarter of FY 2013
March 2013
14
Figure 17: FY 2013 Natural Gas Prices ($/MMBtu) – Expected vs. Actual
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
y g
CG
Budget
CG
Actual
Utilities Update for Second Quarter of FY 2013
March 2013
15
III. Water
Water Availability
Precipitation at Hetch Hetchy had a slow start to the 2013 Water Year (October 1, 2012 through
September 2013), jumped dramatically with the heavy rains in December, and leveled off
through January. Current precipitation levels are slightly above median for the water year to
date. The most recent hydrological report includes an assessment of snowpack as a percentage
of median April 1st snowpack conditions. The April 1st snowpack measurement is an important
indicator in assessing water supplies for the coming year. The current snowpack is
approximately 58% of the April 1st median.
Regional Water Usage Trends
The latest SFPUC Regional Water Consumption Report details the current level of water usage
relative to the 5 year average from 2008 to 2012. Consumption for the January 1st to January
21st time period is approximately 5.96 % below the index year. Palo Alto is part of the South
Bay/East Bay customer group. Palo Alto’s consumption for the same period is 20% below the
index period.
Bay Area Water Supply and Conservation Agency (BAWSCA) Activities
A major Water System Improvement Program (WSIP) project, the Calaveras Dam Replacement,
is experiencing cost and schedule delays. Recent reports estimate a $117 million cost increase
and a 25 month time extension. Funds are available in the WSIP program reserve, but the
additional cost depletes the reserve and provides little contingency in the event there are
additional costs. BAWSCA and the SFPUC have begun a thorough evaluation of the WSIP
program in an effort to close out projects and free up additional funds and keep the program
within budget.
After the potential dry year transfer between San Francisco and the Modesto Irrigation District
was abandoned several months ago, SFPUC has been discussing a new transfer with the
Oakdale Irrigation District. Due to favorable water supply conditions and the reduced likelihood
of a dry year, the discussions have been extended into 2013.
BAWSCA completed a recent debt issuance to prepay capital debt owed to the SFPUC, with Palo
Alto’s net present value savings being $4.9 million, which works out to about $289,000 saved
per year. The savings were over twice what was expected for a variety of reasons, including
aggressive marketing and favorable market conditions. For the BAWSCA members as a whole,
the net present value savings from this prepayment‐‐‐at an interest rate of 3.14%‐‐‐are over
$62 million on a total debt of over $356 million. The savings from this prepayment effort will
help offset expected future water rate increases.
Utilities Update for Second Quarter of FY 2013
March 2013
16
Water Budget Performance Measures
Figure 18 and Figure 19 below compare actual water consumption and water supply cost to the
budget projections. Actual water use as of Q2 of FY 2013 was 4% lower than budgeted and
actual supply costs were 2% below the budget.
Figure 18: Water Consumption – Budget vs. Actual
0
1,000
2,000
3,000
4,000
5,000
6,000
CC
F
T
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a
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SFPUC Invoiced
Budget Purchases
Figure 19: Water Cost – Budget vs. Actual
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Co
s
t
($0
0
0
)
SFPUC Invoiced
Budget Purchases
Utilities Update for Second Quarter of FY 2013
March 2013
17
IV. Fiber Utility
Commercial Dark Fiber Service
In the second quarter of FY 2013, the total number of commercial dark fiber customers
remained the same as compared to the first quarter (81). The total number of active dark fiber
service connections serving commercial customers and the City is 208. Seventy‐six percent
(76%) of dark fiber license revenues are generated by commercial customers. From July 1, 2012
through December 31, 2012, eleven new service connections were completed to existing and
new customers. Nine dark fiber service connections were disconnected.
New customers take service under Fiber Optic Rate Schedule EDF‐3. Some existing customers
with earlier, unexpired agreements take service under Fiber Optic Rate Schedule EDF‐1, the
cost of which is adjusted annually by the Consumer Price Index. Customers under the EDF‐1
rate schedule account for 56% of revenues. Customers under the EDF‐1 rate schedule account
for 44% of revenues.
Palo Alto Unified School District
In December 2012, the City and the Palo Alto Unified School District amended its existing Dark
Optical Fiber License Agreement to extend dark fiber service connections to eighteen District
facilities. The project will provide dark fiber service connections to the District’s Business
Office, fifteen Palo Alto‐based schools, and two schools located on the Stanford campus. The
estimated completion date of the project is on or after July 1, 2013. This network expansion
will serve the needs of both the City and the District. The District will get a high speed, highly
reliable network that offers all of the advantages of a state‐of‐the‐art communications
backbone. The expansion of the network to previously unserved areas allows the City to
provide service as well as additional diverse routes, creating new value for the fiber network.
Under the amended license agreement with the District, the City and the District will share
equally in the cost of the $425,910 capital project and the City will allow the District to pay its
share of the cost over a ten‐year period.
V. Public Benefit and Demand Side Management Programs
Renewable Energy Programs
PaloAltoGreen
The City’s award‐winning voluntary 100% renewable electric supply alternative has traditionally
provided wind and solar options for electric utility customers. For calendar year 2013, 100%
solar Renewable Energy Certificates will provide an avenue for customers to provide a strong
support of the solar industry. As the City moves toward a climate neutral electric portfolio, the
PaloAltoGreen program is being retooled.
Utilities Update for Second Quarter of FY 2013
March 2013
18
Solar Water Heating Program
California natural gas utilities were legislatively mandated to implement a solar water heating
program for customers. CPAU introduced a program during 2008 to encourage installation of
these systems. The program incentive is an up‐front rebate applied towards the installed cost
of a new system. This program has paid rebates for 40 residential and two commercial solar
water heating installations through December 2012, despite gas price conditions that make this
measure have an extremely long payback. The program for both investor‐owned utilities and
Palo Alto was modified slightly this year, allowing higher rebates for replacement of natural gas
water heaters ($2,719) than for electric or propane ($1,834).
Solar Photovoltaic (PV Partners) Program
The PV Partners Program provided over $7.7 million in rebates to 518 customers for installing
3.6 MW of photovoltaic systems from 1999 through December 2012.
Home Energy Reports
The Home Energy Reports are being sent to about 19,000 customers every other month,
through May 2013. A Request for Proposals process is being undertaken to bring additional
behavior based programs for staff to review and recommend a program to City Council.
Behavior based programs are expected to continue to provide a significant portion of the
residential savings for the next 10 years.
Smart Energy
The City provides rebates to residents who install energy efficient appliances and equipment in
their homes or on their property. Among these are home heating and cooling systems,
insulation, water heaters, pool pumps and power strips. Palo Alto pays rebates to customers
who recycle older model, inefficient refrigerators and freezers through the City’s program. The
LED holiday light exchange was quite successful this year. Residents responded positively to
being able to exchange lights at two local hardware stores.
Residential Refrigerator Recycling Program
A total of 15 operational refrigerators and freezers were picked up and recycled through the
contractor JACO in the first quarter of FY 2013 (the latest this information is available).
Low Income Program, Residential Energy Assistance Program (REAP)
Customer involvement continues to remain high in this program. In the first three months of
the fiscal year, 49 residents have been assisted with this program. All have received education,
weatherization and lighting upgrades. Also, eight furnaces and eight refrigerators have been
replaced.
Key and Major Accounts
Key Account Representatives continue to work with large customers on efficiency,
conservation, rate and fiber installation issues. Seven customers (with 15 buildings) received
the Green Business Leader award for completing building‐level benchmarking through the
EPA’s Portfolio Manager and receiving scores of at least 75 for efforts through mid‐2012.
Utilities Update for Second Quarter of FY 2013
March 2013
19
Training was again held in February 2013 to prepare more buildings for a future award in 2013.
A recently completed inventory of the equipment of more than 100 small businesses in Palo
Alto has yielded contact information and data for the companies that will be useful to staff in
promoting additional services and programs at these locations.
Measurement & Evaluation Results of Energy Efficiency Programs
On an annual basis, CPAU budgets 4 to 5% of its total Energy Efficiency (EE) program budget on
Evaluation, Measurement and Verification (EM&V) activities by an independent consultant as
required by regulations. In addition to meeting legislative requirements (AB2021, 2006), the
goals of the EM&V effort are three‐fold: (1) obtain feedback and recommendations to improve
CPAU’s EE programs; (2) assess the effectiveness of the EE programs and the quality of the
program data; and (3) increase confidence in reported EE program results to meet ongoing
supply and climate goals.
The EM&V effort is currently underway for programs ended FY 2012. This year, Enovity’s
Commercial and Industrial Energy Efficiency Program (CIEEP), Ecology Action’s Right Lights+
program and the newly implemented Hospital Program are being reviewed for impacts.
Additionally, the Commercial Advantage Program (CAP) with its many complex and custom
rebates measures was included for impact evaluation. Results are expected after February
2013.
VI. Research and Development and Innovation
Energy Efficient Research & Development
The American Public Power Association (APPA) awarded CPAU a $35,000 grant to develop and
demonstrate an innovative schools outreach program, designed to develop a culture of energy‐
efficiency in local Palo Alto schools. CPAU used the funds to work with the non‐profit
organization, Zilowatt, to create materials and tools for classrooms on energy use behavior.
The program is completed. Some of the tools can be viewed at www.zilowatt.org.
Emerging Technologies Program
The CPAU Innovation Test Bed Program (www.cityofpaloalto.org/UTLInnovation) includes the
option for businesses in the area to submit proposals to CPAU for review and potential
assistance. Since its inception in June 2012 the Innovation Test Bed Program has received eight
applications. Of these applications: 3 were accepted and are in various stages of progress; 4
were declined because the proposals did not meet the program objectives; and one application
is still under consideration.
In addition to proposals received through this program, CPAU also is proactively working on
number of emerging technology programs for the benefit of customers. A list of currently
active programs is provided below:
Utilities Update for Second Quarter of FY 2013
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20
1. The Stanford/Bidgely application to learn about residential appliance electricity usage
patterns using CPAU’s Automated Meter Reading (AMR) infrastructure.
2. Evaluation of mounting PV panels on street light poles and installation of up to 10
systems for testing.
3. Installation of distribution feeder sensor to characterize feeder loading and explore the
feasibility of Conservation Voltage Regulation (CVR) and assist customers increase the
power factor of their loads.
4. Test software from Xatori, another Palo Alto based start‐up, is expected to enable CPAU
to get access to EV charging patterns in the City.
5. Collaboration with SAP Labs in Palo Alto and PG&E to develop an EV buyer smart phone
application that will improve the experience of customers at local EV dealerships.
6. Implementation of Time‐of‐Use (TOU) residential electric rates for an initial group of 17
customers in January 2013. Additional customers will be enrolled in the summer and
towards the year end.
7. Progress is being made to implement the CustomerConnect pilot to deploy advanced
electric, gas and water meters and customer analytical tools at 300 customer homes:
More than 350 applications were received for the program.
Among the 200 applicants who requested TOU rates, staff will select the 150
customers to participate in the TOU rate during the pilot phase of the program. Net
metering customers with PV systems are not eligible for the TOU rates at this time.
Approximately 73 applicants were EV owners, fewer than staff had anticipated.
Actual installation of advanced electric meters and gas/water meter radios
commenced in mid‐February and is expected to be completed by the end of May.
Customers will be provided web‐based tools to monitor and analyze their utility use
in June.
Notification of customers who were accepted to the pilot program was sent at the
end of February.
Once all 300 electric meters are installed throughout the City this summer, the
voltages at these customer sites could also be monitored to determine the health of
the distribution system. CPAU has sponsored an intern application for a grant from
the American Public Power Association to analyze ways to more efficiently operate
CPAU’s electric distribution system.
VII. Legislative and Regulatory Issues
State Legislative Issues
CPAU staff participates on the legislative committees of the California Municipal Utilities
Association (CMUA) and NCPA. This is the first year of California’s two‐year 2013‐2014
legislative session. February 22, 2013 is the last day for new bills to be introduced this year,
Utilities Update for Second Quarter of FY 2013
March 2013
21
but, because bills can always be amended during the year, new bills of interest may arise during
the year. Bills are still developing at this stage, but the following may be of interest to CPAU.
Energy Related Bills:
AB 122 (Rendon) – Nonresidential Building Energy Retrofit Financing: This bill would enact the
Nonresidential Building Energy Retrofit Financing Act of 2012 and would require the CEC to
establish the Nonresidential Building Energy Retrofit Financing Program and to develop a
request for proposal for a third‐party administrator by July 1, 2013, to develop and operate the
program to provide financial assistance, through authorizing the issuance of, among other
things, revenue bonds, to owners of eligible nonresidential buildings for implementing energy
improvements for their properties.
SB 124 (Corbett) – Public Contracts: Bid Preferences: Clean Energy: This bill would authorize a
public agency to award a contract based on the fact that a clean energy device, technology, or
system was manufactured or assembled in the state if the contract is an energy service contract
determined to be in the best interest of the public agency.
AB 29 (Williams)/AB 39 (Skinner)/AB 114 (Salas)/SB 39 (de Leon & Steinberg)/SB 64 (Corbett)
– Proposition 39 Implementation: California Proposition 39 (Income Tax Increase for Multistate
Businesses) passed in November 2012 and creates the Clean Energy Job Creation Fund. The
fund will receive $550 million annually for five years (FY 2014 – FY 2018). A number of bills
have been introduced to direct the use of these funds with many bills focusing on energy
efficiency installations/programs for schools.
Water Related Bills:
AB 7 (Wieckowski)/SB 4 (Pavley) – Hydraulic fracturing: These bills would require an operator
of a well to record and include all data on hydraulic fracturing treatment, including the risk
posed by potential seismicity, as a part of the history of the drilling of the well. The bills would
also require adoption of a number of rules and regulations specific to hydraulic fracturing,
including governing the construction of wells and well casings and full disclosure of the
composition and disposition of hydraulic fracturing.
AB 145 (Perea)/SB 117 (Rubio) – Drinking water: State Resources Control Board: These bills
would transfer to the State Water Resources Control Board (SWRCB) the various duties and
responsibilities imposed on the State Department of Public Health by the California Safe
Drinking Water Act.
AB 142 (Perea), SB 36 (Rubio), SB 40 (Pavley), SB 42 (Wolk) – Water Bond update: These bills
would amend the Safe, Clean, and Reliable Drinking Water Supply Act of 2012, potentially
reducing the amount of the $11.14 billion bond.
Federal Legislative Issues
While deficit reduction remains a primary focus in Washington, there is legislative debate over
cybersecurity, federal hydropower regulatory reform, and fixes to the Commodity Futures
Utilities Update for Second Quarter of FY 2013
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22
Trading Commission’s (CFTC) swap dealer definition. NCPA continues to try to focus attention
with the Bureau of Reclamation and the Western Area Power Administration to urge further
progress in resolving the issue of Central Valley Project power customers paying a
disproportionately higher assessment of the Restoration Fund than intended in the Central
Valley Project Improvement Act.
Cyber Security
Two House Democratic leaders (Energy and Commerce Committee Member Henry Waxman
and Natural Resources Committee Ranking Member Ed Markey) have sent a letter to
approximately 50 public and private electric utilities across the country inquiring about their
efforts to protect generation and transmission assets from cyber threats, geomagnetic storms,
and physical attacks. Congressman Markey has been particularly active on cybersecurity issues
in the past, advocating for passage of the GRID Act, legislation that would give FERC the ability
to circumvent the North American Electric Reliability Corporation (NERC) process and
independently author cybersecurity standards. NCPA is coordinating with the American Public
Power Association (APPA) to identify which systems received the letter, and to ensure those
recipients have the information they need to respond. At this point Palo Alto has not received
the letter.
On February 12, President Obama signed an Executive Order on cybersecurity, which
establishes a national cybersecurity policy for critical infrastructure across the nation. The
effort will focus on two important areas: information sharing and the development of risk‐
based standards intended to protect the nation from cyber‐related attacks.
The Department of Energy (DOE), the designated agency for the energy sector, will use these
guidelines to create a voluntary program for the energy sector. The Order gives DOE the
discretion to call for voluntary standards to be converted into mandatory ones if the current
framework of cybersecurity standards already developed at NERC and overseen at the Federal
Energy Regulatory Commission (FERC) is deemed to be inadequate. While many of the
implementation details have yet to be determined, the Order avoids a “one‐size‐fits‐all”
approach, leaving FERC and the electric industry’s ongoing stakeholder effort with NERC to
continue down the path established in the 2005 Energy Policy Act to protect the grid and
establish standards.
Federal hydropower regulatory reform
U.S. Representatives Cathy McMorris Rodgers (R‐WA) and Diana DeGette (D‐CO) reintroduced
their hydropower regulatory reform bill, legislation that was approved by the House last
summer with strong bipartisan support. The Hydropower Regulatory Efficiency Act (H.R. 267)
would, among other things, raise the current Federal Energy Regulatory Commission (FERC)
licensing exemption threshold for small hydropower projects from 5 MW to 10 MW and
remove conduit projects under 5 MW from FERC jurisdiction altogether. Similar legislation
offered by Energy and Natural Resources Committee Chairman Lisa Murkowski was unable to
make it to the floor due to partisan gridlock over energy issues. While the recent election has
done little to change that dynamic, there is anticipation that Chairman Wyden will focus on
Utilities Update for Second Quarter of FY 2013
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23
moving several non‐controversial “bitesized” pieces of legislation this year rather than a larger
energy package. The Chairman is also a strong proponent of hydropower and his staff has
stated that hydropower regulatory reform will be near the top of his legislative agenda.
CFTC swap dealer definition
The American Public Power Association (APPA) has begun working on a legislative fix to the
CFTC’s swap dealer definition, which has inadvertently limited the ability of consumer‐owned
utilities to engage in business‐related commodity swaps. NCPA has been actively engaged in
this effort. The CFTC’s new rules establish low annual thresholds for counterparties doing
business with government‐owned “special entities,” a category that includes public electric and
natural gas utilities. The low threshold discourages counterparties from participating with
consumer‐owned utilities since doing so would require them to register as swap dealers,
unnecessarily increasing their cost and regulatory exposure. APPA petitioned the CFTC to revise
its swap‐dealer definition, so as to exclude consumer‐owned utilities’ operations‐related swaps
from counting towards the low threshold. So far, the CFTC has issued a “No Action” letter to
provide temporary relief but has yet to act on revising the definition. In the face of this
inaction, APPA has approached House Agriculture Committee staff about the possibility of a
legislative fix – either as part of bill to amend the Dodd‐Frank Act, or as part of anticipated
legislation reauthorizing the CFTC.
PMA recommendations
In January, NCPA submitted its comments to the Joint DOE‐Western Outreach Team (JOT) on
the latter’s draft Power Marketing Administrations (PMA) recommendations to Secretary of
Energy Steven Chu in response to his March 16, 2012 memo. The JOT published these
recommendations prior to November 22, triggering a sixty‐day comment period that closed
January 22. NCPA’s comments pointed out that that some of the recommendations exceed
Western’s legal authority or conflict with its core mission; that they risk imposing costs on
preference customers contrary to the cost‐causation principle that has long governed
Western’s actions; that they will divert Western’s limited resource away from its basic
functions; and that they fail to employ a transparent, bottom‐up process for identifying
Western’s weaknesses or developing solutions. Secretary Chu has since announced that he will
step down from his cabinet post sometime in the next few months. It is unclear how the timing
of Secretary Chu’s departure will impact the process initiated by his March 16, 2012 memo on
the future of the PMAs. The JOT hopes to transmit its revised recommendations, after
reviewing the submitted comments, to the Secretary in the next two weeks. That should give
Secretary Chu more than enough time to issue a binding set of directives on the matter.
State Electric Regulatory Proceedings
California Air Resources Board (CARB) and AB 32 Implementation
CARB’s full focus remains on implementation of the cap‐and‐trade program. CPAU designated
its 2013 allocation of cap‐and‐trade allowances to be deposited in the holding account for
consignment to the CARB auctions, and received $1.15 million in revenue from allowances it
consigned to the November 2012 auction. The second auction for cap‐and‐trade allowances
was on February 19, 2013.
Utilities Update for Second Quarter of FY 2013
March 2013
24
California Energy Commission Rulemaking on Emission Performance Standards (EPS)
The CEC issued an order in January 2012 opening a rulemaking to consider whether to modify
its regulations to, among other things, establish a filing requirement for all POU investments in
non‐EPS compliant facilities regardless of whether the investment could be considered a
covered procurement. The intent was for the POUs to provide more reports and information
for review and is specifically related to out‐of‐state coal fired generation. This reporting
requirement would not impact CPAU but subsequent filings proposed dropping the current EPS
below the 1,100 pounds of carbon dioxide for each megawatt of power that is generated to
something as low as 825‐850 pounds per megawatt hour. This could have significant impacts
on California energy prices and the ability of the state to develop new gas fired generation for
integrating increased levels of renewable intermittent power such as solar and wind
generation. The current CEC proceeding will not address the EPS standard, but there will be a
joint CEC/CPUC proceeding to look into whether the standard should be lowered.
California Energy Commission Renewable Portfolio Standard Enforcement Regulations
The current draft regulations would still significantly expand the City’s RPS reporting
requirements to the CEC. NCPA’s position is that the CEC has the authority to only determine
whether local governing boards and districts are correctly applying the RPS statute. The
anticipated release of CEC’s staff next draft regulations is now delayed to February 2013. Staff
will continue to coordinate with NCPA and CMUA, who are actively involved in the CEC
proceeding.
State Water Resources Control Board (SWRCB) and Delta Reform Act
Delta Flow Criteria refer to new rules requiring flows into the Delta (released from reservoirs)
to be based on high fractions of unimpaired inflow levels in winter and spring months when
reservoirs are normally trying to refill by retaining most inflow water. The currently proposed
flow criteria, if implemented, would have the effect of shifting the majority of summer water
releases to early Spring, and would thereby reduce the value of Central Valley Project (CVP)
generation, increase the cost of electricity, and undermine ongoing environmental restoration
activities. In January, the SWRCB announced that Chairman Charles Hoppin will step‐down
from his post in the Spring. A farmer in Yolo and Sutter Counties, Hoppin was appointed by
Governor Schwarzenegger in 2006, and has served as chair since 2009. As Chairman, Mr.
Hoppin called for a SWRCB workshop designed to explore the impacts that any new Delta flow
objectives would have on hydropower generation. The workshop was an outgrowth of
advocacy efforts by a coalition of power and water interests that included NCPA and CMUA. It
was the first public forum provided to highlight power‐related concerns since the SWRCB
introduced Delta flow objectives in August 2010. No timeline for the appointment of a
successor has been announced by Governor Brown’s office and the direction the SWRCB will
take under a new Chairman is unknown at this time.
Gas Regulatory Proceedings
In its Gas Pipeline Safety Enhancement Plan submitted by PG&E to the CPUC in August 2011,
PG&E proposed an increase of the local transmission rate, which for Palo Alto, would double
Utilities Update for Second Quarter of FY 2013
March 2013
25
the existing rate from $0.025 per therm to $0.050 per therm. A proposed decision authorized
PG&E to include less than 40% of that amount in its rate base, disallowing costs for pressure
testing pipelines for which test records are missing and costs for PG&E’s record management
improvement project. In addition, shareholders will be at risk for cost overruns. The decision
did not impose any reduction on PG&E’s rate of return nor did it require an independent
monitor to oversee PG&E’s pipeline safety implementation activities. If the proposed decision
stands, Palo Alto’s existing local transmission rate will increase from $0.025 per them to about
$0.035 per therm.
VIII. Utility Financial Summary
Electric Utility
Retail Sales Volume and System Average Retail Rate
Table 1 below shows the Electric Fund’s retail sales volumes and resulting system average retail
rate for FY 2012 and FY 2013. For the period ending December 31, 2012, sales volumes were
7.1% lower than budget estimates, and the system average retail rate was 0.1% higher.
Demand has been lower across all customer groups, but the main driver of the decrease is a
delay in the schedule of a significant load addition for a large customer.
Table 1: Electric Retail Sales and Rate
Electric ‐ Retail FY 2012
Unaudited
Actuals
FY 2013
Adopted
Budget
FY 2013
Unaudited
Actuals
Difference of
Adopted
Budget and
Actuals
%
Variance
to Budget
Jul 11‐Jun 12 Jul 12‐Dec 12 Jul 12‐Dec 12
Sales Units (kWh) 942,561,974 516,058,225 479,648,133 (36,410,092) ‐7.1%
System Average
Retail Rate ($/kWh)
0.11558 0.12019 0.12034 0.00015 0.1%
Utilities Update for Second Quarter of FY 2013
March 2013
26
Operating Activity
Table 2 below contains a summary of the Electric Fund’s overall activity for FY 2013.
Table 2: Electric Operating Activity
Electric ‐ Operating
Activity
All figures in thousands (000’s)
Adopted
Budget
FY 2013
Unaudited
Actuals
Jul 12‐Dec 12
Projected
Activity
Jan 13‐Jul 13
Projected
FY 2013
Activity
Variance
to
Budget
Electric Supply Fund
Net Sales * $ 70,800 $ 34,266 $ 33,905 $ 68,171 $(2,629)
Other revenues 12,551 4,089 6,765 10,853 (1,698)
Purchase cost to serve retail
load
(71,476)(30,075)(27,682) (57,757) 13,719
Other expenses ** (15,067)(7,320)(7,613) (14,933) 134
Surplus Energy costs (1,577)(636)(3,948) (4,583) (3,006)
Surplus Energy revenues 1,627 366 3,133 3,499 1,872
Total $ (3,142)$ 690 $ 4,560 $ 5,250 $ 8,392
Electric Distribution Fund
Net Sales * $ 47,341 $ 23,565 $ 22,218 $ 45,783 $ (1,558)
Other revenues 2,930 1,665 1,264 2,930 ‐
Other expenses ** (50,509) (24,151)(24,560) (48,711) 1,797
Total $ (238)$ 1,079 $ (1,078) $ 1 $ 239
* Includes misc. sales, adjustments, discounts, and bad debt
** Includes debt service, reserve transfers, salaries, allocated charges, other misc. expenses and
encumbrances
As of December 2012, the cost of purchases to serve retail load for FY 2013 was expected to be
$13.7 million lower than the adopted budget, primarily due to decreased load, but also due to
lower renewables costs related to the delay in the start of three landfill‐gas‐to‐energy
renewable energy projects, lower than projected transmission rates, greater than expected
congestion and loss revenues, lower local capacity costs, and greater than projected hydro
generation. Net sales have been reduced by $2.6 million to reflect lower sales to date figures.
Revenues related to carbon allowances are projected to be lower by $187,000, and Central
Valley Project Operations and Maintenance (CVP O&M) repayments are projected to decrease
by $1.5 million, which is offset by an equal decrease in CVP O&M costs that is factored into the
purchase costs2. Surplus energy sales are projected to decrease, but with lower hydro costs
2 CVP O&M Loan Advance and Loan Credits are planned payments and equal amounts of credits associated with
the financing of operations and maintenance of eleven federal dams, power plants, and transmission facilities as
part of the Western Area Power Administration’s CVP system. The loan advance and loan credits are a financing
mechanism to facilitate the maintenance and upgrades at these federal facilities. The actual cost of these projects
is included in the charges associated with the Western Power.
Utilities Update for Second Quarter of FY 2013
March 2013
27
surplus revenues are projected to increase by $1.9 million. Corresponding surplus energy costs
are projected to increase by $3 million. The net effect of these changes is a $5.3 million funding
of the Electric Supply Rate Stabilization Reserve (E‐SRSR) rather than the budgeted drawdown
of $3.1 million from the E‐SRSR.
For the Electric Distribution Fund, the net sales are expected to be $1.6 million below the
budget estimates for FY 2013. Also included are $1.8 million of projected CIP related funds
being returned to operating reserves. Half of these funds are for decreases to current fiscal
year project costs, while the remaining amount reflects surplus funds in completed projects.
This results in no change to balance in the Electric Distribution Rate Stabilization Reserve (E‐
DRSR) as opposed to the budgeted $238,000 drawdown.
Electric Supply Rate Stabilization Reserve
As a result of the changes in operating activity, the E‐SRSR is expected to have an ending
balance of $71.2 million, which is above the long‐term maximum E‐SRSR reserve guideline level
as shown in Table 3 below.
Table 3: Electric Supply Rate Stabilization Reserve
Estimated Electric Supply Rate Stabilization Reserve
All figures in thousands (000’s)
FY 2013 Adopted Budget Beginning Balance $ 60,702
Changes to FY 2013 Beginning Balance per FY 2012 Accounting $ 5,227
FY 2013 Beginning Balance after accounting changes $ 65,929
Net sum of FY 2013 Unaudited Actuals to date * $ 690
Current Projected Reserve Balance as of End of FY 2013 $ 66,619
Net sum of Projected Activity through Year End $ 4,560
Estimated FY 2013 Ending Balance $ 71,179
Adopted Budget E‐SRSR Minimum Guideline $ 31,721
Adopted Budget E‐SRSR Maximum Guideline $ 63,442
* Includes Encumbrances for CIP & Operations
Utilities Update for Second Quarter of FY 2013
March 2013
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Electric Distribution Rate Stabilization Reserve
As a result of the changes described above, the E‐DRSR is expected to have an ending balance
of $8.7 million, which is within the E‐DRSR long‐term minimum and maximum reserve guideline
levels as shown in Table 4 below.
Table 4: Electric Distribution Rate Stabilization Reserve
Estimated Electric Distribution Rate Stabilization Reserve
All Figures in thousands (000’s)
FY 2013 Adopted Budget Beginning Balance $ 10,995
Changes to FY 2013 Beginning Balance per FY 2012 Accounting $ (2,275)
FY 2013 Beginning Balance after accounting changes $ 8,680
Net sum of FY 2013 Unaudited Actuals to date * $ 1,079
Current Projected Reserve Balance as of End of FY 2013 $ 9,759
Net sum of Projected Activity through Year End $ (1,078)
Estimated FY 2013 Ending Balance $ 8,681
Adopted Budget E‐SRSR Minimum Guideline $ 6,747
Adopted Budget E‐SRSR Maximum Guideline $ 13,494
* Includes Encumbrances for CIP & Operations
Electric Special Projects (ESP) Reserve
No new projects have been identified for funding from the ESP Reserve. The largest project
being evaluated is a second transmission line that could have the potential of using a significant
amount of the ESP Reserve. The estimated balance of the ESP Reserve is $50.32 million as of
the end of FY 2013 (the same as the balance at the end of FY 2012).
Utilities Update for Second Quarter of FY 2013
March 2013
29
Bill Comparison
The last electric rate adjustment was a 10% increase effective July 1, 2009. Table 5 presents
residential monthly bills for Palo Alto and surrounding cities for a several usage levels for the
winter (November through April) billing period based on published rates as of February 1, 2013.
As shown, Palo Alto has the lowest bills for low usage residential customers. For those using
the median amount of electricity, Palo Alto is the second lowest for winter bills. For larger
users, Santa Clara customers have the lowest bills with Palo Alto the second lowest. Note that
for the median residential usage, PG&E customers pay 22% more than Palo Alto’s customers in
the winter.
Table 5: Residential Electric Bill Comparison
Residential Monthly Electric Bill
As of February 1, 2013
Season Usage (KWh/mo) Palo Alto PG&E Santa Clara Roseville
Winter
(Nov‐Apr)
300 $ 28.57 $ 39.69 $ 30.37 $ 43.99
(Median) 453 $ 48.49 $ 61.78 $ 46.43 $ 61.32
650 $ 76.33 $ 120.43 $ 67.11 $ 90.52
1200 $ 172.03 $ 305.49 $ 124.84 $ 182.32
Table 6 presents monthly electric bills for commercial customers for various usage levels. Note
that Palo Alto commercial customer bills are significantly lower than PG&E’s and comparable to
those in Santa Clara and Roseville.
Table 6: Commercial Electric Bill Comparison
Commercial Monthly Electric Bill
As of February 1, 2013
Usage (KWh/mo) Palo Alto PG&E Santa Clara Roseville
1,000 $ 127 $ 165 $ 156 $ 137
160,000 $ 17,245 $ 19,294 $ 17,750 $ 20,567
500,000 $ 50,430 $ 55,319 $ 54,349 $ 48,687
2,000,000 $ 178,800 $ 228,489 $ 210,125 $ 185,556
Utilities Update for Second Quarter of FY 2013
March 2013
30
Gas Utility
Retail Sales Volume and System Average Retail Rate
Table 7 below shows the Gas Fund’s retail sales volume and system average retail rate for FY
2012 and FY 2013. For FY 2013, as of the end of December 2012, sales have been lower than
budgeted by 6.6%. Note that the system average rate for the gas utility reflects market rates
for the commodity portion for all natural gas customers, which have been lower than budgeted.
Table 7: Gas Retail Sales and Rate
Gas – Retail FY 2012
Unaudited
Actuals
FY 2013
Adopted
Budget
FY 2013
Unaudited
Actuals
Difference of
Adopted
Budget and
Actuals
%
Variance
to Budget
Jul 11‐Jun 12 Jul 12‐Dec 12 Jul 12‐Dec 12
Sales Units (Therms) 29,983,129 12,023,252 11,224,531 (798,721) ‐6.6%
System Average
Rate ($/Therm)
1.389 1.277 1.199 (0.078) ‐6.1%
Operating Activity
Table 8 below contains a summary of the Gas Fund’s overall activity for FY 2013.
Table 8: Gas Operating Activity
Gas ‐ Operating Activity All figures in thousands $ (000’s)
Adopted
Budget
FY 2013
Unaudited
Actuals
Jul 12‐Dec 12
Projected
Activity
Jan 13‐Jul 13
Projected
FY 2013
Activity
Variance to
Budget
Gas Supply Fund
Net Sales * 16,053 5,151 8,068 13,219 (2,834)
Other revenues 237 92 145 237 ‐
Purchase costs (16,334)(6,000)(7,699)(13,699) 2,635
Other expenses ** (860)(2,367)1,507 (860) ‐
Total (904) (3,124)2,021 (1,103) (199)
Gas Distribution Fund
Net Sales * 21,824 8,252 12,762 21,014 (810)
Other revenues 1,419 834 586 1,419 ‐
Other expenses ** (25,723) (13,836)(11,484) (25,320) 403
Total (2,480)(4,751)1,864 (2,887) (407)
* Includes misc. sales, adjustments, discounts, and bad debt
** Includes reserve transfers, salaries, allocated charges, other misc. expenses and encumbrances
For the Gas Supply Fund, the variance of $2.8 million in net sales is due to the lower than
expected market rates for gas. This is also reflected in lower purchase costs of $2.6 million.
PG&E’s transportation rates to Palo Alto were budgeted to increase this year but as of
Utilities Update for Second Quarter of FY 2013
March 2013
31
November the expected increase in PG&E transportation rates had not materialized. Council
reduced the transportation rates charged to customers effective January 1, 2013. However,
PG&E recently informed the California Public Utilities Commission (CPUC) of its intention to
raise the transportation rate, but no final decision has been made by the CPUC as to what PG&E
will be allowed to collect.
For the Gas Distribution Fund, net sales are slightly below budget estimates due to the reduced
gas usage. This results in a drawdown of $2.9 million from the Gas Distribution Rate
Stabilization Reserve as opposed to the budgeted $2.5 million drawdown.
Gas Supply Rate Stabilization Reserve
As shown in Table 9 below, based on activity to date and projections for the fiscal year, the Gas
Supply Rate Stabilization Reserve (G‐SRSR) is expected to have an ending balance of $6.5
million, which is within the long‐term minimum and maximum G‐SRSR guideline levels.
Table 9: Gas Supply Rate Stabilization Reserve
Estimated Gas Supply Rate Stabilization Reserve
All Figures in thousands (000’s)
FY 2013 Adopted Budget Beginning Balance $ 6,630
Changes to FY 2013 Beginning Balance per FY 2012 Accounting $ 988
FY 2013 Beginning Balance after accounting changes $ 7,618
Net sum of FY 2013 Unaudited Actuals to date * $ (3,124)
Current Projected Reserve Balance as of End of FY 2013 $ 4,494
Net sum of Projected Activity through Year End $ 2,021
Estimated FY 2013 Ending Balance $ 6,515
Adopted Budget G‐SRSR Minimum Guideline $ 4,072
Adopted Budget G‐SRSR Maximum Guideline $ 8,144
* Includes Encumbrances for CIP & Operations
Utilities Update for Second Quarter of FY 2013
March 2013
32
Gas Distribution Rate Stabilization Reserve
As shown in Table 10 below, the Gas Distribution Rate Stabilization Reserve (G‐DRSR) is
expected to have an ending balance of $5.5 million, which is within the long‐term minimum and
maximum G‐DRSR guideline levels.
Table 10: Gas Distribution Rate Stabilization Reserve
Estimated Gas Distribution Rate Stabilization Reserve
All Figures in thousands (000’s)
FY 2013 Adopted Budget Beginning Balance $ 7,299
Changes to FY 2013 Beginning Balance per FY 2012 Accounting $ 1,075
FY 2013 Beginning Balance after accounting changes $ 8,374
Net sum of FY 2013 Unaudited Actuals to date * $ (4,751)
Current Projected Reserve Balance as of End of FY 2013 $ 3,623
Net sum of Projected Activity through Year End $ 1,864
Estimated FY 2013 Ending Balance $ 5,487
Adopted Budget G‐DRSR Minimum Guideline $ 3,339
Adopted Budget G‐DRSR Maximum Guideline $ 6,678
* Includes Encumbrances for CIP & Operations
Bill Comparison
Table 11 presents residential monthly bills for Palo Alto and surrounding cities for several usage
levels for the winter (November through March) billing period based on published rates as of
February 1, 2013. As Palo Alto’s gas commodity rates now fluctuate monthly with short‐term
market prices, bills have decreased and are comparable to PG&E’s for all usage levels. For the
median usage level, PG&E customer bills are 4% lower than Palo Alto customer’s bills.
Table 11: Residential Natural Gas Bill Comparison
Residential Monthly Natural Gas Bill
As of February 1, 2013
Season Usage Palo Alto
Menlo Park, Redwood City,
Mountain View, Los Altos, and
Santa Clara (PG&E Zone X)
Roseville
(PG&E
Zone S)
therms $ $ $
Winter
(Nov‐Mar)
30 35.12 29.38 29.38
(Median) 54 55.31 52.88 52.88
80 87.49 84.18 85.09
150 182.46 173.81 174.71
Utilities Update for Second Quarter of FY 2013
March 2013
33
Table 12 below presents monthly gas bills for commercial customers for various usage levels.
Note that bills for Palo Alto customers are slightly higher than for PG&E customers for smaller
commercial customers, but bills are significantly higher for larger commercial customers due to
larger relative distribution costs.
Table 12: Commercial Natural Gas Bill Comparison
Commercial Monthly Natural Gas Bill
As of November 1, 2012
Usage Palo Alto PG&E
Therms/mo $ $
500 571 464
5,000 5,034 4,202
10,000 9,993 7,455
50,000 49,571 31,740
Water Utility
Retail Sales Volume and System Average Retail Rates
Table 13 below shows the Water Fund’s retail sales volume and the system average retail rate
for FY 2012 and FY 2013. For the period ending December 31, 2012, sales have been slightly
higher by 1.3% from the adopted budget for the same period.
Table 13: Water Retail Sales and Rate
Water – Retail FY 2012
Unaudited
Actuals
FY 2013
Adopted
Budget
FY 2013
Unaudited
Actuals
Difference
of Adopted
Budget and
Actuals
%
Variance
to
Budget
Jul 11‐Jun 12 Jul 12‐Dec 12 Jul 12‐Dec 12
Sales Units (CCF) 5,062,873 2,839,224 2,875,714 36,490 1.3%
System Average Rate ($/CCF) 5.859 7.001 7.020 0.019 0.3%
Utilities Update for Second Quarter of FY 2013
March 2013
34
Operating Activity
Table 14 below contains a summary of the Water Fund’s overall activity for FY 2013. While
water sales and revenues have been higher by 1.3% for the first six months (amounting to
$310,000), due to the variable nature of sales this is not projected as a net change in expected
sales for the fiscal year as a whole. The same can be said for purchase costs, which have been
lower than expected to date. This is due to both lower losses (purchase quantities minus sales
quantities) and differences in timing between the wholesale SFPUC billing periods and CPAU’s
retail billing periods.
The more significant change to FY 2013 expenses is the reduction and return of CIP project
funds. In mid‐year budget adjustment proposals, staff is proposing to defer $2.74 million for
current CIP projects from this year’s budget to FY 2014. In addition, the mid‐year budget
adjustment proposal includes $1.85 million in previously budgeted funds being returned as
costs were lower than expected.
Table 14: Water Operating Activity
Water ‐ Operating
Activity
All figures in thousands (000’s)
Adopted
Budget
FY 2013
Unaudited
Actuals
Jul 12‐Dec 12
Projected
Activity
Jan 13‐Jul 13
Projected FY
2013 Activity
Variance
to
Budget
Net Sales to date * $ 35,963 $ 20,452 $ 15,511 $ 35,963 $ ‐
Other revenues to date 2,624 2,457 167 2,624 ‐
Purchase costs to date (15,940)(8,292)(7,648)(15,940) ‐
Other expenses to date ** (24,302)(18,159)(1,560)(19,718) 4,584
Total $ (1,655)$ (3,541)$ 6,470 $ 2,929 $ 4,584
* Includes misc. sales, adjustments, discounts, and bad debt
** Includes reserve transfers, salaries, allocated charges, other misc. expenses, and
encumbrances
Utilities Update for Second Quarter of FY 2013
March 2013
35
Water Rate Stabilization Reserve
As shown in Table 15, an addition of $2.9 million to the Water Rate Stabilization Reserve (W‐
RSR) is expected as opposed to the drawdown of $1.7 million that was budgeted. This results in
a projected W‐RSR ending balance of $10.9 million. While this is slightly above the long‐term
maximum guideline level for the W‐RSR, water reserves are heavily influenced by water usage
in spring and summer and therefore these estimates are subject to change.
Table 15: Water Rate Stabilization Reserve
Estimated Water Rate Stabilization Reserve
All Figures in thousands (000’s)
FY 2013 Adopted Budget Beginning Balance $ 9,488
Changes to FY 2013 Beginning Balance per FY 2012 Accounting $ (1,492)
FY 2013 Beginning Balance after accounting changes $ 7,996
Net sum of FY 2013 Unaudited Actuals to date * $ (3,541)
Current Projected Reserve Balance as of End of FY 2013 $ 4,455
Net sum of Projected Activity through Year End $ 6,470
Estimated FY 2013 Ending Balance $ 10,925
Adopted Budget W‐RSR Minimum Guideline $ 5,427
Adopted Budget W‐RSR Maximum Guideline $ 10,854
* Includes Encumbrances for CIP & Operations, bond related debt removed
Bill Comparison
Palo Alto’s overall water rates increased on July 1, 2012 by 15%. Table 16 presents monthly
residential bills for Palo Alto and surrounding cities for various usage levels based on published
rates as of February 1, 2013.
Table 16: Residential Water Bill Comparison
Residential Monthly Water Bill ($/month)
As of February 1, 2013
Usage CCF/mo Palo Alto
Menlo
Park
Redwood
City
Mountain
View
Los
Altos
Santa
Clara Hayward
4 31.90 34.97 33.72 17.59 26.25 12.68 22.20
(Winter median) 7 48.04 51.12 44.09 30.85 36.28 22.19 37.35
(Annual median) 9 62.16 61.87 51.53 39.69 42.97 28.53 47.45
(Summer median) 14 97.46 90.00 73.67 61.79 60.54 44.38 74.50
25 175.12 152.56 140.55 110.41 99.60 79.25 143.25
Based on the FY 2011 BAWSCA survey, the fraction of SFPUC as source of potable water supply was
100% for Palo Alto, 90% for Menlo Park, 100% for Redwood City, 86% for Mountain View, 12% for Santa
Clara and 100% for Hayward.
Utilities Update for Second Quarter of FY 2013
March 2013
36
Wastewater Collection Utility
Operating Activity
Table 17 contains a summary of the Wastewater Collection Fund’s overall activity for FY 2013.
Sales are very stable for the Wastewater Collection fund and are predicted to remain so for the
future. Staff plans to propose a mid‐year budget change related to CIP expenditures, with
$540,000 being returned to operating reserves ($310,000 related to a main replacement
budgeted for this fiscal year but moved to FY 2014, and $230,000 in funds from prior projects
which have been completed.)
Table 17: Wastewater Operating Activity
Wastewater Collection
‐ Operating Activity
All figures in thousands (000’s)
Adopted
Budget
FY 2013
Unaudited
Actuals
Jul 12‐Dec 12
Projected
Activity
Jan 13‐Jul 13
Projected
FY 2013
Activity
Variance
to
Budget
Net Sales to date * $ 14,980 $ 7,460 $ 7,520 $ 14,980 $ ‐
Other revenues to date 1,449 1,283 166 1.449 ‐
Treatment costs to date (8,556)(4,278)(4,278)(8,556) ‐
Other expenses to date ** (9,553)(5,990)(3,024)(9,013) 540
Total $ (1,680)$ (1,525)$ 385 $ (1,140) $ 540
* Includes misc. sales, adjustments, discounts, and bad debt
** Includes reserve transfers, salaries, allocated charges, other misc. expenses, and
encumbrances
Wastewater Collection Rate Stabilization Reserve
The Wastewater Collection Fund sales revenues are very stable as 53% is from residential
customers, whose rate consists of fixed monthly service charges. A component of business
sales revenues is based on winter water use levels which are rather stable as well. At this time
there are no significant projected changes to budgeted projections.
Utilities Update for Second Quarter of FY 2013
March 2013
37
As shown in Table 18, the adopted budget reserve drawdown is projected to be $1.53 million,
resulting in a Wastewater Collection Rate Stabilization Reserve (WC‐RSR) ending balance of
$3.6 million. This is within the long‐term minimum and maximum reserve guideline levels.
Table 18: Wastewater Collection Rate Stabilization Reserve
Estimated Wastewater Collection Rate Stabilization Reserve
All Figures in thousands (000’s)
FY 2013 Adopted Budget Beginning Balance $ 6,579
Changes to FY 2013 Beginning Balance per FY 2012 Accounting $ (1,828)
FY 2013 Beginning Balance after accounting changes $ 4,751
Net sum of FY 2013 Unaudited Actuals to date * $ (1,525)
Current Projected Reserve Balance as of End of FY 2013 $ 3,226
Net sum of Projected Activity through Year End $ 385
Estimated FY 2013 Ending Balance $ 3,611
Adopted Budget WC‐RSR Minimum Guideline $ 2,253
Adopted Budget WC‐RSR Maximum Guideline $ 4,506
* Includes Encumbrances for CIP & Operations, bond related debt removed
Bill Comparison
Palo Alto’s wastewater collection rates changed on July 1, 2012. The rate change resulted in a
5% increase in overall revenues. Table 19 presents typical monthly residential bills for Palo Alto
and surrounding cities based on published rates as of February 1, 2013. Note that, even after
the residential rate increase, the bill for a Palo Alto customer is just 76% of the average of the
bills for the six comparator cities.
Table 19: Residential Wastewater Collection (Sewer) Bill Comparison
Residential Monthly Wastewater Collection Bill
As of February 1, 2013
Palo Alto Menlo Park Redwood City Mountain View Los Altos Santa Clara Hayward
29.31 62.67 57.88 24.25 29.25 29.20 27.27
Utilities Update for Second Quarter of FY 2013
March 2013
38
Fiber Utility
Operating Activity
Table 20 contains a summary of the Fiber Fund’s overall activity for FY 2013.
Table 20: Fiber Operating Activity
Fiber – Operating
Activity
All figures in thousands $ (000’s)
Adjusted
Budget
FY 2013
Unaudited
Actuals
July 12‐Dec 12
Projected
Activity
Jan 13‐June 13
Projected
FY 2013
Activity
Variance
to
Budget
Net Sales to date * 3,574 1,558 2,016 3,574 0
Other revenues to date 303 177 126 303 0
Other expenses to date ** (1,789)(685) (1,104)(1,789) 0
Total 2,088 1,050 1,038 2,088 0
* Includes misc. sales, adjustments, discounts, and bad debt
** Includes reserve transfers, salaries, allocated charges, other misc. expenses, and encumbrances
Fiber Rate Stabilization Reserve
Actual sales data and actual expenses for dark fiber service connections in the second quarter
indicate no variance as compared to the budget for FY 2013. The Fiber Optics Fund has
encumbered $446,000 and $259,000 from prior year budgets for customer connections and
network system improvements, respectively.
As shown in Table 21, the Fiber Optics Rate Stabilization Reserve (F‐RSR) is projected to be
$14.6 million as of the end of FY 2013. This is above the F‐RSR long‐term maximum guideline
level of $1.8 million for FY 2013.
Table 21: Fiber Rate Stabilization Reserve
Estimated Fiber Rate Stabilization Reserve
All Figures in thousands (000’s)
FY 2013 Adopted Budget Beginning Balance $ 11,729
Changes to FY 2013 Beginning Balance per FY 2012 Accounting $ 741
FY 2013 Beginning Balance after accounting changes $ 12,470
Net sum of FY 2013 Unaudited Actuals to date * $ 1,050
Current Projected Reserve Balance as of End of FY 2013 $ 13,520
Net sum of Projected Activity through Year End $ 1,038
Estimated FY 2013 Ending Balance $ 14,558
Adopted Budget F‐RSR Maximum Guideline $ 1,788
* Includes Encumbrances for CIP and Operations
Utility Reserves Summary
A summary of fiscal year beginning and expected ending reserve balances along with minimum
and maximum guidelines is provided for each Utility reserve in Table 22.
Utilities Update for Second Quarter of FY 2013
March 2013
39
Table 22: Utilities Reserves Summary
Beginning
Reserve
Balance as
of 6/30/12
FY 2012
(ASD)
Current
Projected
Reserve
Balance as
of 12/31/12
FY 2013
(ASD)
Current
Projected
Reserve
Balance for
06/30/13
FY 2013
(Util)
Projected
Reserve
Balance
(based on
Budget) for
FY 2013
Minimum Maximum
Electricity
Supply/Commodity 65,930$ 66,620$ 71,179$ 31,721$ 63,442$ 57,560$
Distribution 8,680 9,759 8,681 6,747 13,494 10,717
CIP 14,545 20,095 N/A
Public Benefit 1,149 1,149 1,261 1,261
ESP 50,320 50,320 50,320 50,320
All Others 6,681 7,739 N/A
Sub total Cash Reserves 147,305 155,682 N/A
Net Capital Investment 166,085 164,944 N/A
Total 313,390$ 320,626$ N/A
Gas
Supply/Commodity 7,618 4,553$ 6,221$ 4,072$ 8,142$ 5,726$
Distribution 8,374 3,623 5,894 3,339 6,678 4,819
CIP 16,015 21,810 N/A
All Others 4,999 7,067 1,000 1,000
Sub total Cash Reserves 37,006 37,053 N/A
Net Capital Investment 76,606 76,546 N/A
Total 113,612$ 113,599$ N/A
Water
Distribution 7,996$ 4,455$ 6,341$ 5,427$ 10,854$ 7,833$
CIP 13,382$ 17,861 N/A
All Others 4,940$ 13,460 1,000 1,000
Sub total Cash Reserves 26,318 35,776 N/A
Net Capital Investment 70,454$ 67,860 N/A
Total 96,772$ 103,636$ N/A
Fiber Optic
Distribution 12,470$ 13,336$ 14,559$ 715$ 1,788$ 13,818$
CIP 697 979 N/A
All Others 1,085 1,031 1,000 1,000
Sub total Cash Reserves 14,252 15,346 N/A
Net Capital Investment 7,226 7,181 N/A
Total 21,478$ 22,527$ N/A
Wastewater Collection
Distribution 4,751$ 3,226$ 3,611$ 2,253$ 4,506$ 4,899$
CIP 10,944 14,437 N/A
All Others 1,100 1,255 1,000 1,000$
Sub total Cash Reserves 16,795 18,918 N/A
Net Capital Investment 67,677 67,436 N/A
Total 84,472$ 86,354$ 4,611$
Budgeted Reserve
Guideline Range for
FY 2013
City Of Palo Alto
Utility Fund Reserve
Quarterly Projections - Unaudited
As of 12/31/2012 - UNAUDITED
(in thousands)