HomeMy WebLinkAbout2000-03-06 City Council (17)City of Palo Alto
C ty Manager’s Report
TO:HONORABLE CITY COUNCIL
11
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:MARCH 6, 2000 CMR:164:00
SUBJECT:RESOLUTION ADOPTING A CHANGE TO THE FEES FOR
DARK FIBER LICENSING
RECOMMENDATIONS
Staff recommends that the City Council approve:
The proposed Rate Schedule EDF-1, with revised prices for Dark Fiber
Licensing, and
A resolution to establish revised prices for Dark Fiber Licensing in Rate
Schedule EDF- 1
BACKGROUND
On August 5, 1996, Council approved the establishment and funding for a dark fiber optic
ring around Palo Alto with the intent of enhancing the deployment of advanced broadband
telecommunications services in Palo Alto. The purpose of the fiber ring was to promote
competition by licensing dark fibers to individual customers and telecommunication service
providers. This was intended to reduce the cost of developing new infrastructure, allowing
more customers and service providers to avoid a significant portion of these costs and
economically provide competitive telecommunications services in Palo Alto.
As part of the dark fiber licensing business, the City developed a price structure for
licensing dark fiber, based on a formula that utilizes a minimum and maximum price,
with discounts for distance, being part of a ring, quantity of fibers, and quantity of buffer
tubes (groups of 12 fibers) used. This methodology has successfully been used to date
CMR:164:00 Page 1 of 3
with the City’s existing 16 customers. Prices were also established and utilized for
advanced engineering fees, interconnection fees, and drop cable management fees.
The pricing structure was formalized by Council in the approval of the original cotitract
with the City’s first dark fiber license customer in April 1997. All subsequent contracts
have used the same pricing methodology, so as not to be discriminatory to any one
customer. The pricing is also listed on the Utility’s Web Page.
DISCUSSION
The original pricing structure established for dark fiber licensing has been adequate in
pricing the fiber. Some potent!al customers have indicated that the fiber license price and
the installation charges are too high when compared with competitive alternatives.
Recently, while developing a new customer proposal, it was found that the current pricing
structure for a large quantity of fibers was not competitive compared’to the economics of the
customer constructing its own fiber facilities. This is in direct conflict with the original
intent of the fiber ring. Staff believes that the pricing structure needs to be revised to be
more competitive for large quantities of fiber over long distances, using ring connections for
reliability. It is the City’s intent to be the dark fiber provider of choice in Palo Alto, rather
than encourage the installation of additional fiber by third parties.
At the same time, staffhas reviewed all fees and revised them to make the City’s dark fiber
more attractive to potential customers. All the changes have been incorporated into the
existing price structure, and shown on a new rate Schedule, Rate Schedule EDF-
l(Attachment B). The pricing shown on Rate Schedule EDF-1, will make the City’s dark
fiber prices extremely competitive especially as compared to the price of new construction
while retaining revenue return to the City. In addition, revisions have also been made to the
interconnection fee and drop cable management fee to more accurately reflect actual costs
of installation while at the same time making the licensing of dark fiber from the City more
attractive to potential customers. Rate Schedule EDF-1 also allows customers to spread
their installation costs over the length of their contract, up to five years. Interest will be
charged at the City’s rate in effect at the time of the contract.
These changes will help the City be competitive over a wide range of requests for licensing
dark fiber.
RESOURCE IMPACT
Current revenue from the existing licensed customers is expected to be $680,000 this
calendar year. Revisions to the existing pricing structure have the potential of attracting
CMR: 164:00 Page 2 of 3
calendar year. Revisions to the existing pricing structure have the potential of attracting
additional customers and revenue, some of which could be quite substantial ($200,000+ per
year per customer). This change will also help in retaining our current customers. Revisions
to the drop cable fee will require reducing the price in existing contracts to the new price,
which will mean a loss of revenue of approximately $58,000 per year. This loss will be
more than made up for with the increase in new customers from the more competitively
priced installation cost.
POLICY IMPLICATIONS
This recommendation that Council approve Rate Schedule EDF-1 does not represent any
change to existing City policies.
ENVIRONMENTAL REVIEW
Adoption of the resolution to establish Rate Schedule EDF-1 does not constitute a project
under the California Environmental Quality Act.
ATTACHMENTS:
Resolution
Rate Schedule EDF-1
PREPARED BY: Larry Starr and Mohammad Fattah
DEPARTMENT HEAD APPROVAL
CITY MANAGER APPROVAL:
Director of Utilities
Manager
CMR:164:00 Page 3 of 3
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
ADOPTING NEW UTILITY RATE SCHEDULES EDF-I OF THE
CITY OF PALO ALTO UTILITIES RATES AND CHARGES
PERTAINING TO DARK FIBER LICENSING SERVICES
The Council Of the City of Palo Alto does hereby RE~OLVE as
follows:
SECTION I.Pursuant to Section 12.20.010 of the Palo
Alto<Municipal Code, new Utility Rate Schedule EDF-I (Dark Fiber
Licensing Services) is hereby added to read in accordance with
Sheets EDF-I-I through EDF-I-4, inclusive, attached hereto and
incorporated herein. The foregoing Utility Rate Schedule shall
become effective March 15~ 2000.
SECTION 2.The Council finds that the revenue derived
from the authorized adoption enumerated herein s~all be used only
for the purposes set forth in Article VII, Section 2, of the
Charter of the City of Palo Alto.
SECTION 3.The counhil 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:APPROVED:
City Clerk
APPROVED AS TO FOhM:
Senior Asst. City Attorney
Mayor
City Manager
Director of Utilities
Director of Administrative
Services
000301 syn 0071831
A. APPLICABILITY:
DARK FIBER LICENSING SERVICES
UTILITY RATE SCHEDULE EDF-1
This rate schedule applies to Dark Fiber Services that are provided to various public agencies and private
entities. The schedule specifies interconnection fees that must be pre-paid by the customer to connect their
facilities or buildings to the City’s Dark Fiber Backbone 03ackbone). The schedule also specifies the annual
usage fees in return for the privilege of using the Backbone.
B. TERRITORY:
Within the incorporated limits of the City of Palo Alto and land owned or leased by the City.
C. PREPAYMENT OF FEES:
All interconnection fees must be paid, in advance, n~ to the scheduling of any construction or connection
to the City’s Backbone. Customers are responsible for the actual costs where an estimate is shown herein.
Adjustments will be made if actual costs vary significantly from estimated costs.
All recurring annual Backbone License Fees must be paid to the City annually, and.in advance, in return fbr
the privilege to use the Licensed Fibers
D. DARK FIBER PRICING METHODOLOGY:
The City will license. Dark Fiber to all interested parties that are*willing to agree to the terms and conditions
associated with the Council-approved license agreement. Access and pricing will be offered in a
competitively neutral, non-discriminatory manner. Actual prices paid by a licensee will be established on
a case-by-case basis in accordance with a consistent set of pricing principles that will be used to determine
the pricing for all licensees. The Annual License Price is a calculated value resulting in a value that is
described by the following parameters: $ per Fiber-Mile-Year ($/FMY). The Annual License Fee is
equivalent to Pdee X Quantity. Quantity refers to the number of Fiber-Miles (FM) actually licensed by the
customer.
The charge for licensed Dark Fiber on the Backbone will be calculated in accordance with a formula equal
to the greater of the minimum charge for the Licensed Fibers or the maximum charge for the Licensed
Fibers, reduced by the sum total of all price discounts to which the Licensee may be entitled
The Fiber Price for a given licensee will be determined in accordance with the following formula:
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 3/15/00
Original Sheet No. EDF-I-:I.
DARK FIBER LICENSING SERVICES
UTILITY RATE SCHEDULE EDF-1
Fiber Price = max [ Pmin, Pmax - Discounts]
Licensees are entitled to the followirig Dark Fiber discounts. The discounts are applicable to those Licensees
who: (1) use larger quantities of Dark Fiber along a given segment; (2) simultaneously acquire Dark Fibers
in groups of 12 (i.e., complete buffer tubes) along a given segment; (3) use greater route distances; (4)
completely.utilize one or more of the available route-diverse rings; (5) sign an agreement with a term of
more than 1 year; and (6) provide a substantial, public benefit.
E. SUMMARY OF FEES:
1. ADVANCED ENGINEERING FEES:
The Advanced Engineering Fee is a non-refundable fee required to cover the cost of preparing an
Advanced Engineering Study which produces a detailed estimate (to within +/- 10%) of the cost and
time required for the City of Palo Alto Department of Utilities to complete the intercormection of
the customer’s building(s) to the Backbone. If the project is constructed, the Advance Engineering
Fee will be credited against the Interconnection Fee. This Fee is required to start any project and is
Charged in multiples, based on the number of buildings proposed or singularly if only the existirig
Backbone is involved.
Advanced Engineering Fee (per new drop cable proposed) ....................................$500.00
2. DARK FIBER INTERCONNECTION FEES:
The Dark Fiber Intercormection Fee covers the cost of installing drop cables and associated
equipment between .the customer’s building and the Backbone Splice Point. The Dark Fiber
Intercormection Fee is project-specific, the value of which is a ~esultant of the Advanced Engineering
Study.
Dark_Fiber License~s have the option to spread the Interconnection Fee over the term of their
contract up to a maximum of 5 years. Customers electing to take this option will be billed at the
beginning of the year, and will pay an annual payment which includes the principal plus interest.
Dark Fiber Interconnection Fees ................¯ ................................................:.By Estimate
’Interest Rate for an Extended Repayment Plan of the Intercormection Fees ............Applicable Rate
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 3/15/00
Original Sheet No. EDF-1-2
3. DARK FIBER DIscONNECTION FEES:
DARK FIBER LICENSING SERVICES
UTILITY RATE SCHEDULE EDF-1
" (Continued)
A Dark Fiber Disconnection Fee will be charged to disconnect any Drop Cable from the Backbone.
Dark Fiber Disconnection Fees (per Fiber) .........- ...................................................$25.00
4. DARK FIBER BACKBONE LICENSE FEES:
The current values or ranges, which may be revised from time to time, for each of these pricing
components are shown below in 2000 dollars. The License Fee includes the cost of splicing the
Backbone at all intermediate Splice Points.
Fiber Price Range:
Pmin = $500/FMY
Pmax = $2,792/FMY
Fiber Discounts:
Dfiber quantity = $0 - $558/FMY
Dbuffer tube = $558/FMY
Drou~ a~m¢,= $0 - $726/FMY
Dr~g topology = $223/FMY
Dt~rm = 05 - $450/FMY
Dpublio benefii = $500iFMY
Dpublie benefit is a place holder that is reserved to.allow an extra discount for licensees that provide a
substantial public benefit in Palo Alto (e.g., a provider of advanced telecommunications on a
universal service basis).
5. DARK. FIBER CUSTOM CABLE FEES:
If a Custom Cable requested by the Licensee cannot be installed in existing conduit or attached to
existing poles from the first demarcation point to the second demarcation point, then the Licens.ee
may request that the City install new conduit and cable at the Licensee’s sole expense, and then the
Licensee shall pay an annual Customer Cable Management Fee.
Custom Cable Management Fees (per Foot, for the first 12-Fibers)"$2.69
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 3/15/00
Original Sheet No. EDF-1-3
DARK FIBER LICENSING SERVICES
UTILITY RATE SCHEDULE EDF-1
Custom Cable Management Fees (per Foot, each additional set of 12-Fibers) ....................$0.54
(Continued)
6. OTHER DARK FIBER FEES:
If the License Fees, or Custom Cable Management Fees for a full or partial Contract Year or other
charges are not paid as required, an Administrative Charge for processing and simple interest on the
unpaid shall accrue until paid.
Fee for Unpaid Balance of Fees (per month)¯1% of the Balance
Administrative Charge due to Unpaid Balance .....................................................$200.00
Minimum Total Annual Dark Fiber License Fee .....................................’ ..............$4,191.00
F. SPECIAL NOTES:
1.The minimum term for all License Agreements is 1 year. The maximum term is currently limited
to 10 years.
Issued ,by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 3/15/00
Original Sheet No. EDF-I-,~