HomeMy WebLinkAboutStaff Report 10295
City of Palo Alto (ID # 10295)
City Council Staff Report
Report Type: Action Items Meeting Date: 6/17/2019
City of Palo Alto Page 1
Council Priority: Fiscal Sustainability
Summary Title: FY 2020 Proposed Rates and Financial Plans
Title: PUBLIC HEARING & PROPOSITION 218 HEARING: Staff
Recommendation That the City Council Adopt the Following Resolutions:
Approving the Fiscal Year (FY) 2020 Electric Utility Financial Plan; Adopting
an Electric Rate Increase and Amending Utility Rate Schedules E -1, E-2, E-2-G,
E-4, E-4-G, E-4 TOU, E-7, E-7-G, E-7 TOU, E-14, E-EEC and E-NSE; Approving the
FY 2020 Gas Utility Financial Plan; Adopting a Gas Rate Increase and
Amending Utility Rate Schedules G -1, G-2, G -3 and G -10; Approving the FY
2020 Wastewater Collection Utility Financial Plan; Adopting a Wastewater
Collection Rate Increase and Amending Utility Rate Schedules S -1, S-2, S-6
and S-7; Approvin g the FY 2020 Water Utility Financial Plan; Adopting a
Water Rate Increase and Amending Utility Rate Schedules W -1, W-2, W-3, W-
4 and W-7; Amending Utility Rate Schedule D -1 to Increase Storm Drain Rates
4.5 Percent per Month per Equivalent Residential Uni t for FY 2020; Adopting
a Dark Fiber Rate Increase of 4.5 Percent and Amending Utility Rate
Schedules EDF -1 and EDF -2
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Finance Committee recommend that the City Council approve and adopt the
following:
1. Resolutions of the City Council of the City of Palo Alto:
a. Approving the FY 2020 Electric Financial Plan and proposed transfers
(Attachments A and B);
b. Adopting an Electric Rate Increase and Amending Utility Rate Schedules E-1, E-2,
E-2-G, E-4, E-4-G, E-4 TOU, E-7, E-7-G, E-7 TOU, E-14, E-EEC and E-NSE
(Attachments C & D);
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c. Approving the FY 2020 Gas Utility Financial Plan and proposed transfers
(Attachment E, F, G & H);
d. Adopting a Gas Rate Increase and Amending Utility Rate Schedules G-1, G-2, G-3
and G-10 (Attachments I & J);
e. Approving the FY 2020 Wastewater Collection Utility Financial Plan and proposed
transfers (Attachments K & L);
f. Adopting a Wastewater Collection Rate Increase and Amending Utility Rate
Schedules S-1, S-2, S-6 and S-7 (Attachments M & N);
g. Approving the FY 2020 Water Utility Financial Plan and proposed transfers
(Attachments O, P & Q);
h. Adopting a Water Rate Increase and Amending Utility Rate Schedules W-1, W-2,
W-3, W-4 and W-7 (Attachments R & S);
i. Amending Utility Rate Schedule D-1 to Increase Storm Water Management Fee
Rates by 4.5 Percent per Month per Equivalent Residential Unit for FY 2020
(Attachments T & U); and
j. Adopting a Dark Fiber Rate Increase of 4.5 Percent and Amending Utility Rate
Schedules EDF-1 and EDF-2 (Attachments V & W);
Executive Summary
During April and May 2019, the Finance Committee reviewed various rate changes
recommended by staff for Fiscal Year 2020. This report summarizes the hearings that occurred,
including all staff recommendations and changes to recommendations. This comprehensive
utility rates report includes separate sections for each of the Utilities with recommended rate
changes: electric, gas, water, wastewater collection, dark fiber, and storm drainage and surface
water. Each of these rate changes is included in the FY 2020 budget assumptions. This report
outlines the actions requested, transmits the resolutions from these reviews, and requests City
Council approval and adoption.
In addition, during the City Council’s June 11, 2018 meeting, Council Member DuBois
encouraged Staff and the Utilities Advisory Commission to consider budget-based pricing for
water to incentivize customers to conserve water. The City of Palo Alto engaged Raftelis
Financial Consultants to prepare a brief memo on considerations in evaluating water budget-
based rate structures. The memo provides a high-level overview of water budget-based rate
structures and the advantages and disadvantages of such a structure as well as factors to
consider in evaluating the feasibility of developing and implementing a water budget-based
rate structure for the City of Palo Alto. The memo (Attachment X) is for the Council’s
information and no action is required.
Background
On April 16, 2019, Utilities and Public Works staff presented the Finance Committee three
reports:
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• Utilities Advisory Commission Recommendation that the City Council Adopt: (1) a
Resolution Approving the Fiscal Year 2020 Water Utility Financial Plan; and (2) a
Resolution Increasing Water Rates by Amending Rate Schedules W-1 (General
Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service
Connections),W-4 (Residential Master-Metered and General Non-Residential Water
Service), and W-7 (Non-Residential Irrigation Water Service) (Staff Report #101491); and
• Utilities Advisory Commission Recommend that the City Council Adopt: (1) a Resolution
Approving the Fiscal Year 2020 Wastewater Collection Financial Plan; and (2) a
Resolution Increasing Wastewater Rates by 7 Percent by Amending Rate Schedules S-1
(Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater
Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal) and S-7
(Commercial Wastewater Collection and Disposal – Industrial Discharger) (Staff Report
#101072)
• Recommendation that the Finance Committee recommends the City Council adopt a
resolution amending Utiity Rate Schedule D-1 (General Storm and Surface Water
Drainage) to implement a 4.5 percent rate increase consistent with the applicable
Consumer Price Index, increasing the monthly charge per Equivalent Residential Unit by
$0.63, from $14.05 to $14.68 for Fiscal Year 2020(Staff Report #101473)
The Finance Committee unanimously recommended approval of all three increases.
As required by Article XIIID of the State Constitution (added by Proposition 218), the City mailed
a Notice of Public Hearing to property owners and customers on May 3, 2019 regarding the
proposed water and wastewater collection rate changes. This notice informed the public that
the proposed rate changes would be considered for Council adoption at a Public Hearing on
June 17, 2019 at 5 pm, and outlined the process for submitting written or oral testimony and
written protests to any or all of the proposed rate increases. Council may consider and adopt
the proposed water and wastewater rates unless written protests are filed by a majority of the
affected customers. Any approved water and/or wastewater collection rate changes will
become effective July 1, 2019.
The Public Hearing at which Council will consider adoption of the proposed water and
wastewater collection rates must be opened on June 17th as stated in the notice, and may be
continued, if needed.
On May 15, 2019, Utilities and Public Works staff presented the Finance Committe e two
reports:
• Utilities Advisory Commission Recommendation that the City Council Adopt: (1) a
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Resolution Approving the Fiscal Year 2020 Electric Utility Financial Plan and Proposed
Transfers; and (2) a Resolution Increasing Electric Rates by Amending Rat e Schedules E-1
(Residential Electric Service), E-2 (Small Non-Residential Electric Service), E-2-G (Small
Non-Residential Green Power Electric Service), E-4 (Medium Non-Residential Electric
Service), E-4-G (Medium Non-Residential Green Power Electric Service), E-4 TOU
(Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-Residential
Electric Service), E7-G (Large Non-Residential Green Power Electric Service), E-7 TOU
(Large Non-Residential Time of Use Electric Service), E-14 (Street Lights), E-NSE (Net
Metering Net Surplus Electricity Compensation), and E-EEC (Export Electricity
Compensation) (Staff Report #102174); and
• Utilities Advisory Commission Recommend that the City Council Adopt: (1) a Resolution
Approving the Fiscal Year 2020 Gas Utility Financial Plan and Proposed Transfers; and (2)
a Resolution Increasing Gas Utility Rates by Amending Rate Schedules G-1 (Residential
Gas Service), G-2 (Residential Master-Metered and Commercial Gas Service), G-3 (Large
Commercial Gas Service), and G-10 (Compressed Natural Gas Service) (Staff Report
#102555)
The Finance Committee unanimously recommended approval of both increases.
Discussion
From March through May 2019, the Utilities Advisory Commission and Finance Committee
received and reviewed various utility financial plans, transfer requests, and rate changes
recommended by staff. This report outlines the actions requested, transmits the resolutions
from these reviews, and requests City Council approval and adoption.
Attached to this report are a number of documents, referenced throughout the
recommendation language and the report. In addition, this report also includes links to the
City’s website for all the staff reports presented throughout the review process to the Utilities
Advisory Commission, Finance Committee, and City Council.
Staff and the Finance Committee recommend that the City Council approve the Utility financial
plans and rate changes listed below. These financial plans and rate changes were reviewed and
approved by the Utilities Advisory Commission between March and May of 2019, and by the
Finance Committee between April and May of 2019.
Proposed Rate Changes and Financial Plans
Electric
The FY 2020 Electric Utility Financial Plan (Attachment B) includes projections of the utility’s
costs and revenues through FY 2024. Costs for electric supply purchases are primarily increasing
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as a result of increases in statewide transmission costs. Substantial additional capital
investment in the electric distribution system is planned for FY 20 20 through FY 2024, and
operational costs are increasing. There has been some decrease in the City’s electric load.
Lastly, revenues are below costs as of FY 2019.
Because of these rising costs and other factors, an increase in sales revenues is required. An 8
percent overall rate increase is proposed for July 1, 2019, with 4 percent increases in the
following years. A breakdown of the primary drivers for the rate increase is shown in Figure 1
below. More than half of the increase is related to rising supply costs, mainly driven by
transmission related costs. These are due to rehabilitation and replacement of the existing
statewide electric transmission system as well as expansion of that system to accommodate
new generation, mostly renewable. Operations and Capital Improvement expenses account for
another 2.4%. A portion of the increase is attributable to making up existing revenue shortfalls,
as well as increases needed to make up for system load loss.
Figure 1: Electric Rate Increase
While 8 percent represents the overall increase in average rates, different customer classes will
see slightly different increases ranging from 4 to 9 percent. The overall rate change for the
residential class is roughly 4 percent. Actual rate increases are calculated using the 2016 cost of
service analysis (COSA) model created for the City by EES Consulting, which was implemented
on July 1, 2016.
In addition, the plan proposes transfers of up to: a) $4 million from the Hydro Stabilization
Reserve to the Supply Operations Reserve, to maintain reserve adequacy; b) $9.011 million
from the Rate Stabilization reserve to the Supply Operations Reserve; and c) $2 million from the
Supply Operations to the Distribution Operations reserve, to maintain reserve adequacy.
Reserve balance projections for FY 2019 have taken these transfers into account. To effect
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these transfers, staff is re-ratifying the following transfer proposals, which were previously
approved in resolution 9692 to take place in FY 2017, but which were not performed: 1)
transfer up to $9.0 million from the Hydroelectric Stabilization Reserve to the Supply
Operations Reserve, 2) transfer up to $9.011 million from the Supply Rate Stabilization Reserve
to the Supply Operations Reserve, and 3) transfer up to $4.5 million from the Supply Operations
Reserve to the Distribution Operations Reserve. For more information, see Staff Report 102176,
approved by the Finance Committee on May 15, 2019.
Gas
The FY 2020 Gas Utility Financial Plan (Attachment F) includes projections of the utility’s costs
and revenues for FY 2020 through FY 2024. Gas utility costs are made up of supply-related costs
(35 percent of costs) and distribution-related costs (65 percent of costs). Supply-related costs
(and customer rates) vary monthly with the gas markets, but customer rates for gas distribution
are evaluated annually and set by Council action like other utility rates. Ga s rates related to
distribution costs were last increased by 6 percent on July 1, 2018. The proposed FY 2020 Gas
Utility Financial Plan includes an 8 percent overall increase in distribution rates on July 1, 2019.
Because distribution accounts for only 65 percent of the average customer’s bill, this is
projected to increase system rate revenues (and billings) by approximately 5 percent overall.
Further distribution increases of 5 to 12 percent are projected over the following four years
(with a 4 to 8 percent increase in overall gas rates).
A breakdown of the primary drivers for the distribution rate increase are shown in Figure 2
below. More than half of the rate increase is driven by Capital Improvement expense increases,
while much of the remainder is from O&M related expenses. A portion of the increase can also
be attributed to an anticipated decrease in usage, which is consistent with long term trends.
Figure 2: Gas Distribution Rate Increase
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With the completion of the 2019 Natural Gas Cost of Service and Rates Study (Attachment H),
staff and the consultants have identified a realignment in cost allocations required for the gas
customer rate classes. While the distribution rate increase across all customer classes is
proposed to be 8 percent, the residential (G1) class will see a larger increase of 13.25 percent,
while the commercial classes (G2 and G3) will see between a 2. 87 and 5.07 percent increase
respectively, as detailed below. These correspond to an overall system rate increase of 5%, and
rate increase (including supply) of 8.1 percent for residential and of 3.0 and 1.5 percent for the
two commercial classes. These cost shifts between customer classes are a result of increased
fixed costs, declining customer usage and shifts in how customers use the gas system. These
changes are outlined in Table 1 below. The proposed Gas rate schedules are included as
Attachment J.
Table 1: Revenue Allocation by Customer Class in FY 2020
Projected FY
2020 Revenues
under
Current Rates
Net
Distribution
Revenue
Requirement
Projected
Deficiency in FY
2020 Revenue
Based on
Current Rates
Revenue
Increase
needed for
Distribution
Charges
Increase for
Combined
Commodity
and
Distribution
Charges
G1 – Residential $8,928,944 $10,111,795 $1,182,850 13.25% 8.1%
G2 - Small Commercial $9,921,058 $10,423,850 $502,792 5.07% 3.0%
G3 – Large Commercial $3,463,070 $3,562,355 $99,286 2.87% 1.5%
TOTAL $22,313,072 $24,098,000 $1,784,928 8.0% 4.7%
In addition, the plan proposes transfers to the Operations Reserve of up to $6.3 million from
the Rate Stabilization Reserve and up to $6 million to the CIP Reserve from the Operations
Reserve, to ensure that there are appropriate financial reserves for contingencies. The Rate
Stabilization Reserve is projected to be zero by the end of FY 2020. For more information, see
Staff Report 102557, approved by the Finance Committee on May 15, 2019.
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Wastewater Collection
The FY 2020 Wastewater Collection Utility Financial Plan (Attachment L) includes projections of
the utility’s costs and revenues through FY 2024. The Financial Plan projects costs to rise
substantially for the next several years due primarily to increasing treatment costs related to
capital improvements and increasing operational costs at the Regional Water Quality Control
Plant (RWQCP), as well as increasing collection system costs for operations and capital. In
addition, current revenues are only 90 percent of cost. Staff proposes a 7 percent wastewater
collection rate increase in FY 2020, and projects rate increases of 6 percent annually through FY
2024 to raise rate revenues to cover current and projected costs. In addition, the financial plan
proposes a transfer of up to $978,000 from the CIP reserve to the Operations Reserve, to
maintain reserve adequacy. Further information can be found in the FY 2020 Wastewater
Collection Financial Plan, presented here as Attachment L. The proposed Wastewater Collection
rate schedules are included as Attachment N. For more information, see Staff Report #10107,
approved by the Finance Committee on April 16, 2019.
Water
The FY 2020 Water Utility Financial Plan (Attachment P) includes projections of the utility’s
costs and revenues for FY 2019 through FY 2024. Costs are projected to rise on average by
about 3 to 4 percent per year over the next several years. As a result, staff projects the need for
a 1 percent overall water rate increase on July 1, 2019 and 2 to 6 percent rate increases in later
years. The 1 percent increase in FY 2020 is needed to raise revenue for rising capital and
operations expenses.
The current rate proposals are based on the cost of service (COS) methodology described in the
2012 Palo Alto Water Cost of Service and Rate Study, the 2015 Study update, the 2015 Drought
Rate memorandum, and the 2019 Study update titled “Proposed FY 2020 Water Rates”
(Attachment Q), each completed by Raftelis Financial Consultants.
The overall proposed change in customer bills is between -2% to 2%, depending on customer
class, though the change may be higher (up to 5%) depending on usage. As noted above, staff
has updated the 2015 COS study according to the attached memo. It was updated to reflect the
most current customer consumption patterns, which have normalized several years after the
drought. It also reflects changes to the utility’s cost structure . The updated COS study
generated some shifts in the way cost s should be allocated across customer classes. Over the
past several years, customer usage patterns have changed. This may be because of customer
experiences and changes that occurred during the recent drought of 2014 – 2017. These
changes create different peak usage levels, or peaking factors, that each customer class
imposes on the water system. Peaking factors are the rate of use compared to the average rate
of use of any class or of the water system as a whole. These changed usage patterns and
peaking factors, together with the updated costs, reflect the current cost of water service.
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Based on the analysis, the relative changes to customer class groups are shown in Table 2
below:
Table 2: Revenue Allocation by Customer Class in FY 2020
Customer Class Customer Class Revenue Difference Customer Class
Percentage of Total
Revenue at Current
Rates
Customer Class
Percentage of Total
Revenue at Cost of
Service
At Current
Rates
At Cost of
Service
Residential – W1 $21,269,490 $21,770,016 2% 47% 48%
Master MFR/Commercial – W4 $17,477,323 $17,187,130 (2%) 39% 38%
Irrigation – W7 $5,744,331 $5,877,794 2% 13% 13%
Construction – W2 $52,010 $51,546 (1%) 0% 0%
Fire Service – W3 $611,593 $606,922 (1%) 1% 1%
TOTAL $45,154,747 $45,493,408 1% 100% 100%
As a result of the COS update, residential customers (W1) will see a 2% increase (on average),
Commercial Irrigation (W7) a 2% increase, and the other customer classes (W2, W3, W4) will
see between a -1 to -2% decrease.
In addition, the financial plan proposes a transfer of up to $5 million from the Operations
Reserve to the CIP reserve. Further information on the transfer can be found in the FY2020
Financial Plan, presented here as Attachment P. The Rate Schedules have been revised and are
presented here as Attachment S. For more information on the original proposal, see Staff
Report #10149, presented to the Finance Committee on April 16, 2019.
Storm Water and Surface Water Drainage
On April 11, 2017, a majority of Palo Alto property owners approved a ballot measure
approving a monthly Storm Water Management Fee. This fee will fund thirteen storm drain age
capital improvement projects listed in the ballot measure, enhanced maintenance of the storm
drainage system, and a variety of stormwater quality protection programs. The approved ballot
measure allows for an annual adjustment based on the Consumer Price Index (CPI) or six
percent, whichever is less. The General Storm Water and Surface Drainage Rate (Attachment U)
will increase 4.5 percent, effective July 1, 2019, to reflect the annual CPI change. See Staff
Report #101478 for more information.
Dark Fiber
Since 2007, the EDF-1 and EDF-2 rates for Dark Fiber (Attachment W) customers have increased
annually by the annual December change in the Consumer Price Index for All Urban Consumers
(CPI-U) in the San Francisco area, as stated in their dark fiber contract agreements. Based on
prior Utilities Advisory Committee and City Council direction, these rate changes are routinely
included as part of the Budget adoption process and rather than in a separate staff report. This
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year’s change in CPI-U was 4.5 percent, as reported by the Bureau of Labor Statistics.
Water Budget Rate Structure Evaluation
Staff has also included a memorandum on water budget rate structures as an informational
item. A water-budget rate structure “is a form of increasing block rates where the amount of
water within the first block or blocks is based on the estimated efficient water needs of the
individual customer.”9 For example, the water budget could take into consideration the
efficient indoor needs based on the number of people living in a residence and the efficient
outdoor use based on the square footage of landscape, weather conditions and other factors.
The result of water budget-based rates is that customers pay a lower rate for water use within
the budget and a higher rate for water use above the budget.
Water budget-based rates have been in use in Southern California since the early 1990s. Water
agencies have used water budget-based rates to incentivize efficient water use under uncertain
water supply conditions. Since that time, water budget-based rate structures have been
implemented by at least 25 water providers across the United States (see Attachment X for
more details). There are advantages and disadvantages to using water budget -based rates to
take into consideration when evaluating the possible use of this type of rate structure in Palo
Alto.
Water budget-based rate structures promote a culture of using water efficiently. In instances
where agencies have faced supply shortages, water budget-based rates have been shown to
reduce inefficient and wasteful water use. Conversely, water budget rate structures are
complex to understand and implement, and the costs of implementation and administration
vary by agency and can be substantial.
If the City of Palo Alto decides to consider water budget rates further, staff believes the costs
would likely be higher than reflected in Attachment X due to testing and change management
efforts of billing and customer service staff as well as marketing and additional staff time
associated with implementation and maintenance. Developing a more detailed cost estimate
warrants further investigation to inform decisions regarding Palo Alto’s further consideration of
water budget rate structures.
Timeline
Water and Wastewater Collection Rates
After the June 17th Public Hearing is opened and testimony from members of the public
accepted, City Council may choose to:
1. Close the hearing and take action; or
2. Close the hearing and defer action until the close of the Budget Adoption Hearing on
9 American Water Works Association. Manual of Water Supply Practices-M1, Seventh Edition, Principles of Water
Rates, Fees, and Charges, Chris Woodcock, Rick Giardina, Todd Cristiano, 2017.
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June 17th; or
3. Continue the hearing until the end of the Budget Adoption Hearing (should the Budget
Adoption Hearing be continued to another Council meeting), and t hen reconvene the
hearing, take any additional water and wastewater collectio n rate testimony, close the
hearing, and take action.
The latter option has been used in prior years when the Budget Adoption process has spanned
multiple City Council meetings. It is customary in such circumstances to continue to accept
written protests up until the hearing is closed. Unless written protests are filed by a majority of
affected water and wastewater customers, Council may vote on the proposed rate actions. If
approved, the water and wastewater rates will become effective July 1, 2019.
Electric, Gas, Dark Fiber and Storm Water rates, as well as Utility Financial Plans
The written majority protest process described above is set forth by the California Constitution
and applies to changes to the City’s water and wastewater rates. The electric, gas, dark fiber
and storm drainage rates and plans are will also be considered at the June 17, 2019 public
hearing. Should the City Council take action to approve any or all of these rates or plans, they
will become effective July 1, 2019.
Resource Impact
Resource impacts related to the proposed Water, Wastewater Collections, Electric, Gas, and
Storm Drainage rate actions are detailed fully in the attached Finance Committee reports and
are in alignment with assumptions used in the development of the FY 2020 budget that is to be
considered by the City Council on June 17, 2019.
Policy Implications
Policy Implications related to the proposed Water, Wastewater Collections, Electric and Gas
rate actions are detailed fully in the linked Finance Committee reports.
There are no policy changes contained in the adoption of the proposed new Dark Fiber and
Storm Drainage Rates.
Environmental Review
Adoption of the attached Financial Plans and budgeted transfers does not meet the California
Environmental Quality Act’s definition of a project, pursuant to Public Resources Code Section
21065 and CEQA Guidelines Section 15378(b)(4) and (5), because it is a governmental fiscal and
administrative activity which will not cause a direct or indirect physical change in the
environment. Adoption of the proposed electric, gas, water, wastewater collection and dark
fiber rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to mainta in service is not subject to
the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code
Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After
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reviewing the staff report and all attachments presented to Council, the Council incorporates
these documents herein and finds that sufficient evidence has been presented setting forth
with specificity the basis for this claim of CEQA exemption.
Attachments:
• ID 10295 Attachment Sheet list
• Attachment A: Resolution Approving FY 2020 Electric Utility Financial Plan and Proposed
Transfers
• Attachment B: FY 2020 Electric Utility Financial Plan
• Attachment C: Resolution Adopting Electric Rates effective July 1, 2019
• Attachment D: Proposed Electric Rate Schedules E-1, E-2, E-2-G, E-4, E-4-G, E-4-TOU, E-
7, E-7-G, E-7-TOU, E-14, E-NSE and E-EEC
• Attachment E: Resolution Adopting FY 2020 Gas Utility Financial Plan and Proposed
Transfers
• Attachment F: FY 2020 Gas Utility Financial Plan
• Attachment G: Info item - Gas Hedging Memo
• Attachment H: Draft Palo Alto Gas Cost of Service Memo 2019
• Attachment I: Resolution Amending Gas Utility Rates G-1, G-2, G-3 and G-10 Effective
July 1, 2019
• Attachment J: Proposed Gas Utility Rate Schedules G-1, G-2, G-3 and G-10
• Attachment K: Resolution Approving FY 2020 Wastewater Collection Utility Financial
Plan and Proposed Transfers
• Attachment L: FY 2020 Wastewater Collection Utility Financial Plan
• Attachment M: Resolution Adopting Wastewater Collection Rate Schedules S-1, S-2, S-6
and S-7
• Attachment N: Proposed Wastewater Collection Rate SchedulesS-1, S-2, S-6 and S-7
• Attachment O: Resolution Adopting FY 2020 Water Utility Financial Plan and Proposed
Transfers
• Attachment P: FY 2020 Water Utility Financial Plan
• Attachment Q - Palo Alto Water Cost of Service Memo 2019
• Attachment R: Resolution Adopting Water Utility Rates Effective July 1, 2019
• Attachment S: Proposed Water Utility Rate Schedules W-1, W-2, W-3, W-4 and W-7
• Attachment T: Resolution Amending Storm Water Management and Drainage Rate
Schedule D-1
• Attachment U: Proposed Storm Water and Surface Water Drainage Schedule D -1
• Attachment V: Resolution Amending Dark Fiber Rate Schedules EDF-1 and EDF-2
• Attachment W: Proposed Dark Fiber Rate Schedules EDF-1 and EDF-2
• Attachment X: Water Budget Rates Memorandum
Staff Report 10295
Attachment Sheet
Attachment B: FY 2020 Electric Utility Financial Plan
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Attachment D: Proposed Electric Rate Schedules E-1, E-2, E-2-G, E-4, E-4-G, E-4-TOU, E-7, E-
7-G, E-7-TOU, E-14, E-NSE and E-EEC
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Attachment F: FY 2020 Gas Utility Financial Plan
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D=71364
Attachment G: Gas Hedging Memo
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Attachment H: Palo Alto Gas Cost of Service Memo 2019
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Attachment J: Proposed Gas Rate Schedules G-1, G-2, G-3 and G-10
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Attachment L: FY 2020 Wastewater Collection Utility Financial Plan
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Attachment N: Proposed Wastewater Collection Rate Schedules S-1, S-2, S-6 and S-7
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Attachment P: FY 2020 Water Utility Financial Plan
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D=71368
Attachment Q: Palo Alto Water Cost of Service Memo 2019
https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=48180.98&BlobI
D=71405
Attachment S: Proposed Water Rate Schedules W-1, W-2, W-3, W-4 and W-7
https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=61959.92&BlobI
D=71369
Attachment U: Proposed Storm and Surface Water Drainage Rate Schedule D-1
https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=62120.81&BlobI
D=71370
Attachment W: Proposed Dark Fiber Rate Schedules EDF-1 and EDF-2
https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=66234.43&BlobI
D=71371
Attachment X: Water Budget Rates Memorandum
https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=48331.38&BlobI
D=71406
Attachment A
* NOT YET APPROVED *
6055193
Resolution No. _________
Resolution of the Council of the City of Palo Alto Approving the Fiscal
Year 2020 Electric Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes
making long-term projections of market conditions, the physical condition of the system, and
other factors that could affect utility costs, and setting rates adequate to recover these costs.
This is done with the goal of providing safe, reliable, and sustainable utility services at
competitive rates. The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby approves the FY 2020 Electric Utility Financial Plan.
SECTION 2. The following transfers that were previously approved by resolution 9692
to take place in FY 2017, but which were not performed due to staff error, are hereby
reauthorized in FY 2019: 1) transfer up to $9.0 million from the Hydroelectric Stabilization
Reserve to the Supply Operations Reserve, 2) transfer up to $9.011 million from the Supply Rate
Stabilization Reserve to the Supply Operations Reserve, and 3) transfer up to $4.5 million from
the Supply Operations Reserve to the Distribution Operations Reserve.
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Attachment A
* NOT YET APPROVED *
6055193
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SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s (CEQA) definition of a project under Public Resources
Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
See Attachment Sheet List to below document Link
FY 2020 Electric Utility Financial Plan
Attachment C
*NOT YET APPROVED *
6055196 1
Resolution No. _________
Resolution of the Council of the City of Palo Alto Adopting an Electric
Rate Increase and Amending Rate Schedules E-1 (Residential Electric
Service), E-2 (Residential Master-Metered and Small Non-Residential
Electric Service), E-2-G (Residential Master-Metered and Small Non-
Residential Green Power Electric Service), E-4 (Medium Non-
Residential Electric Service), E-4-G (Medium Non-Residential Green
Power Electric Service), E-4 TOU (Medium Non-Residential Time of
Use Electric Service), E 7 (Large Non-Residential Electric Service), E-7-
G (Large Non-Residential Green Power Electric Service), E-7 TOU
(Large Non-Residential Time of Use Electric Service), E-14 (Street
Lights), E-NSE (Net Metering Net Surplus Electricity Compensation),
and E-EEC (Export Electricity Compensation).
R E C I T A L S
A.Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-1 (Residential Electric Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule E-1, as amended, shall become effective July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-2 (Residential Master-Metered and Small Non-Residential Electric Service) is
hereby amended to read as attached and incorporated. Utility Rate Schedule E-2, as amended,
shall become effective July 1, 2019.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-2-G (Residential Master-Metered and Small Non-Residential Green Power
Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule
E-2-G, as amended, shall become effective July 1, 2019.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4 (Medium Non-Residential Electric Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-4, as amended, shall become effective July
1, 2019.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4-G (Medium Non-Residential Green Power Electric Service) is hereby
Attachment C
* NOT YET APPROVED *
6055196 2
amended to read as attached and incorporated. Utility Rate Schedule E-4-G, as amended, shall
become effective July 1, 2019.
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4 TOU (Medium Non-Residential Time of Use Electric Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule E-4 TOU, as amended,
shall become effective July 1, 2019.
SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7 (Large Non-Residential Electric Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-7, as amended, shall become effective
July 1, 2019.
SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7-G (Large Non-Residential Green Power Electric Service) is hereby amended to
read as attached and incorporated. Utility Rate Schedule E-7-G, as amended, shall become
effective July 1, 2019.
SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7 TOU (Large Non-Residential Time of Use Electric Service) is hereby amended
to read as attached and incorporated. Utility Rate Schedule E-7 TOU, as amended, shall become
effective July 1, 2019.
SECTION 10. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-14 (Street Lights) is hereby amended to read as attached and incorporated.
Utility Rate Schedule E-14, as amended, shall become effective July 1, 2019.
SECTION 11. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-NSE (Net Metering Net Surplus Electricity Compensation) is hereby amended
to read as attached and incorporated. Utility Rate Schedule E-NSE, as amended, shall become
effective July 1, 2019.
SECTION 12. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-EEC (Export Electricity Compensation) is hereby amended to read as attached
and incorporated. Utility Rate Schedule E-EEC, as amended, shall become effective July 1, 2019.
SECTION 13. The Council makes the following findings:
a. The revenue derived from the adoption of this resolution shall be used only for the
purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
b. The fees and charges adopted by this resolution are charges imposed for a specific
government service or product provided directly to the payor that are not provided
Attachment C
* NOT YET APPROVED *
6055196 3
to those not charged, and do not exceed the reasonable costs to the City of
providing the service or product.
c. The adoption of this resolution changing electric rates to meet operating expenses,
purchase supplies and materials, meet financial reserve needs and obtain funds for
capital improvements necessary to maintain service is not subject to the California
Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec.
21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After
reviewing the staff report and all attachments presented to Council, the Council
incorporates these documents herein and finds that sufficient evidence has been
presented setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
See Attachment Sheet List to below document Link
Proposed Electric Rate Schedules E-1, E-2, E-2-G, E-4, E-4-G, E-4-TOU, E-7,
E-7-G, E-7-TOU, E-14, E-NSE and E-EEC
Attachment E
*NOT YET APPROVED *
MM001
Resolution No. _________
Resolution of the Council of the City of Palo Alto Approving the
FY 2019 Gas Utility Financial Plan
R E C I T A L S
A.Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes
making long-term projections of market conditions, the physical condition of the system, and
other factors that could affect utility costs, and setting rates adequate to recover these costs. It
does this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B.The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby adopts the FY 2020 Gas Utility Financial Plan.
SECTION 2. The Council hereby approves the transfer of up to $6.3 Million from the
Rate Stabilization Reserve to the Operations Reserve, and up $6 Million from the Operations
Reserve to the CIP Reserve, as described in the FY 2020 Gas Utility Financial Plan approved via
this resolution.
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//
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//
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//
Attachment A
* NOT YET APPROVED *
MM001
//
//
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s (CEQA) definition of a project under Public Resources
Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental assessment is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
See Attachment Sheet List to below document Link
FY 2020 Gas Utility Financial Plan
See Attachment Sheet List to below document Link
Gas Hedging Memo
City of Palo Alto
Prepared by:
570 Kirkland Way, Suite 100
Kirkland, Washington 98033
A registered professional engineering corporation with offices in
Kirkland, WA; Portland, OR and La Quinta, CA
Telephone: (425) 889-2700 Facsimile: (425) 889-2725
City of Palo Alto
Natural Gas Cost of Service
and Rate Study
Draft
May 16, 2019
DRAFT
CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY i
Contents
CONTENTS .............................................................................................................................................................. I
EXECUTIVE SUMMARY ........................................................................................................................................... 1
REVENUE REQUIREMENT ................................................................................................................................................. 1
COST OF SERVICE ANALYSIS.............................................................................................................................................. 2
RATE DESIGN OVERVIEW ................................................................................................................................................. 4
RECOMMENDATION ....................................................................................................................................................... 5
OVERVIEW OF RATE SETTING PRINCIPLES .............................................................................................................. 7
OVERVIEW AND ORGANIZATION OF REPORT ........................................................................................................................ 7
OVERVIEW OF THE ANALYSES ........................................................................................................................................... 7
OVERVIEW OF REVENUE REQUIREMENT METHODOLOGIES ..................................................................................................... 8
OVERVIEW OF COST ALLOCATION PROCEDURES ................................................................................................................... 8
RATE DESIGN AND ECONOMIC THEORY .............................................................................................................................. 8
DEVELOPMENT OF THE REVENUE REQUIREMENT .................................................................................................. 9
OVERVIEW OF CPA’S REVENUE REQUIREMENT METHODOLOGY ............................................................................................. 9
DEVELOPMENT OF NATURAL GAS COMMODITY COSTS ........................................................................................................ 10
OTHER OPERATIONS AND MAINTENANCE EXPENSES ........................................................................................................... 10
GENERAL FUND TRANSFER ............................................................................................................................................. 11
DEBT SERVICE AND RATE-FUNDED CAPITAL IMPROVEMENT PROGRAM (CIP) .......................................................................... 11
MISCELLANEOUS REVENUES ........................................................................................................................................... 11
TRANSFERS FROM RESERVES .......................................................................................................................................... 11
SUMMARY OF REVENUE REQUIREMENT ............................................................................................................................ 12
RECOMMENDATION ..................................................................................................................................................... 12
COST OF SERVICE ANALYSIS ................................................................................................................................. 13
COSA DEFINITION AND GENERAL PRINCIPLES ................................................................................................................... 13
FUNCTIONALIZATION OF COSTS ....................................................................................................................................... 14
CLASSIFICATION AND ALLOCATION OF COSTS ..................................................................................................................... 15
REVIEW OF CUSTOMER CLASSES OF SERVICE ..................................................................................................................... 21
COST OF SERVICE RESULTS ............................................................................................................................................. 22
RATE DESIGN ....................................................................................................................................................... 28
RATE DESIGN – DISTRIBUTION ........................................................................................................................................ 28
RATE DESIGN – NATURAL GAS SUPPLY (COMMODITY) ........................................................................................................ 29
PROPOSED RATE DESIGN ............................................................................................................................................... 29
TECHNICAL APPENDIX .......................................................................................................................................... 37
COST OF SERVICE MODEL
DRAFT
CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 1
Executive Summary
The City of Palo Alto (CPA) retained EES Consulting, Inc. (EES) to perform a natural gas cost of
service analysis (COSA) and rate study as part of its ongoing efforts to maintain fi scally prudent
and fair, cost-based rates for its natural gas customers. The purpose of this report is to discuss
the data inputs, assumptions and results that were part of developing the rate study.
A comprehensive rate study generally consists of three separate, yet interrelated analyses.
These three analyses are the revenue requirement, the COSA, and the rate design.
Revenue Requirement
A revenue requirement analysis compares the overall revenues of the utility to its expenses and
helps determine whether an overall adjustment to rate levels is required. CPA has prepared a
financial analysis that includes a forecast of FY2020 sales, revenues and expenses to determine
the need for an overall rate increase for the natural gas utility. For this COSA, a “cash basis”
method was used for determining CPA’s revenue requirement based on CPA’s financial
forecast.
A base case was defined to develop the COSA. This base case assumed the following:
◼ Historic/recorded year is FY 2018 (July 2017 – June 2018).
◼ Test year/allocation year is FY 2020.
◼ Billing determinants were based on FY 2020 forecasts.
◼ Expenses were based on forecasted FY 2020 expenses.
◼ An overall rate increase of 8.0% for the distribution portion rates was used, as provided by
the financial forecast.
FY 2020 natural gas commodity costs were included in the COSA based on the financial forecast
for the year. However the rate of the CPA’s supply (commodity) charge to its gas customers is
adjusted monthly to pass-through actual commodity rates charged to CPA by its wholesaler.
Therefore, supply charges are not set on the basis of the COSA. The COSA is used for setting
the distribution charges for the year.
If CPA’s rates currently in effect remain unchanged, FY 2020 revenues from all sources would
equal $38.0 million (including revenues associated with natural gas commodity charges) and
$22.3 million for distribution charges only. Budgeted expenses are $39.8 million with the cost
of natural gas commodity included, and $24.1 million for distribution related costs alone. With
no rate change, forecasted sales revenues for FY 2020 are short by $1.8 million, which means
an 8.0% increase is required in the distribution charges overall (and an approximately 4.7%
change in total bills). The increases for individual customer classes of service will vary, as
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 2
discussed in the section on the COSA. A summary of the draft revenue requirement is shown in
Table 1. Additional detail can be found in Schedule 3.1.
Table 1
Summary of the Revenue Requirement
FY: 2019-2020
Revenue Requirement
Purchased Gas Supply $15,718,000
Distribution O&M $6,022,000
Customer Accounts and Services $2,501,000
Administration and General $3,832,000
Debt Service & CIP from Rates $3,150,000
General Fund Transfer $7,106,000
Total Expenses $38,329,000
Transfers to Reserves $2,872,000
Other Revenues ($1,385,000)
Total Revenue Required from Rates (Revenue Requirement) $39,816,000 with Gas Supply
$24,098,000 without Gas Supply
Revenues Based on Rates Currently in Effect $38,031,072 with Gas Supply
$22,313,072 without Gas Supply
Additional Rate Revenue Needed $1,784,928
Total Required Rate Revenue Increase (Decrease) 4.7% with Gas Supply
8.0% without Gas Supply
Cost of Service Analysis
A COSA is concerned with the equitable allocation of the revenue requirement to the various
customer classes of service. As is standard procedure for COSAs, the revenue requirement
shown in Table 1 for CPA was functionalized, classified and allocated. This process is described
in detail in the section below titled “Cost of Service Analysis.”
Table 2 shows the results of the COSA. It shows the revenues that would be realized in FY 2020
without any rate changes (i.e. keeping the rates currently in effect), the share of the FY 2020
revenue requirement that should be allocated to each rate class as determined by the COSA,
and the deficiency in revenue if current rates are left unchanged. Without a rate change, FY
2020 revenues will be less than allocated FY 2020 costs for every class of service. Note that the
revenues and costs in Table 2 are based on distribution charges/costs only.
The COSA is not used to set the gas commodity rates, however, the FY 2020 projected natural
gas commodity costs for each month are included in the COSA. Natural gas commodity costs
are flowed through on the basis of actual costs, updated each month. Any changes in natural
gas supply costs that differ from the forecast will be passed on to customers b ut are not
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 3
included in the COSA results. The COSA results are used to set the distribution costs for each
customer class.
The required rate increases by class are shown on a percentage basis in Table 2 for distribution
costs alone and for the combined distribution and commodity charges. More detail is
presented in Schedules 1.1 and 1.2, and the COSA methodology is described in more detail
below in the “Cost of Service Analysis” section of this report.
Table 2
Summary of Cost of Service Analysis for FY 2020 Test Year
Distribution Costs Only
Projected FY
2020 Revenues
under
Current Rates
Net
Distribution
Revenue
Requirement
Projected
Deficiency in FY
2020 Revenue
Based on
Current Rates
Revenue
Increase
needed for
Distribution
Charges1
Increase for
Combined
Commodity
and
Distribution
Charges
G1 – Residential $8,928,944 $10,111,795 $1,182,850 13.25% 8.1%
G2 - Small Commercial $9,921,058 $10,423,850 $502,792 5.07% 3.0%
G3 – Large Commercial $3,463,070 $3,562,355 $99,286 2.87% 1.5%
TOTAL $22,313,072 $24,098,000 $1,784,928 8.0% 4.7%
Overall CPA needs an 8% increase in distribution rates for FY 2020. The results show that
residential customers need a larger than average increase while small and large commercial
customers need a rate increase that is less than the average.
As is typical with most rate schedules, particularly those without large fixed charges, when
energy consumption increases or decreases significantly, a COSA may reveal the need for
realignment of revenue collection among classes of service. Classes whose consumption and
demand have decreased since the last COSA will typically see higher rate increases so they are
paying their share of fixed system costs, while classes with increasing consumption and demand
will see lower rate increases. If energy use declines, these fixed costs may be spread over a
lesser amount of sales, driving up the per on a per therm basis. The impacts to each class
required as a result of the analysis done in the COSA are described below:
◼ Energy consumption per customer has decreased by roughly 10 percent for the Residential
class of service when compared to the 2012 COSA. This means that the fixed costs
associated with the Residential class are spread among a smaller amount of therms,
increasing the per unit cost for the class. While energy consumption has declined, the peak
day demand has not declined as much for the residential cl ass. Because a large portion of
costs are allocated to customer classes on the basis of peak day demand, the residential
class still sees a large percentage of costs assigned to them. Because the allocated cost has
1 Projected FY 2020 revenue deficiency divided by projected FY 2020 revenue based on rates currently in effect.
Numbers rounded to the nearest tenth of a percent.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 4
not declined as fast as their energy use, they end up needing a larger than average rate
increase when compared to other classes.
◼ Small Commercial use per customer has also decreased by roughly 10 percent since the
2012 COSA. Both the use per customer and load factor are higher than for the Residential
class, leading to a lower average cost than for the residential class.
◼ While the Large Commercial class has seen a much larger drop in use per customer (40%),
that is partly the result of more mid-size customers qualifying for this rate as the number of
Large Commercial customers has increased since the 2012 COSA. This class has the highest
use per customer and the highest load factor, and therefore is allocated less costs per
therm than the other two classes.
The growth in the costs within different functions of the utility also has an impact on the cost of
service by class. Overall, costs related to the distribution system have increased by only 8%
between 2012 and 2020. The majority of this cost increase occurred in the specific distribution
operations and maintenance (O&M) expense category. The distribution O&M cost represents
roughly 25 percent of the overall distribution cost and relates to the physical distribution
system.
As part of the COSA, the composition of each rate class was reviewed to determine whether
classes should be combined, or additional classes created. Options were considered where the
largest customers in the Small Commercial class would be moved to the Large Commercial class
or the Small and Large Commercial classes would be combined. After reviewing the results, we
do not recommend changing the rate classes at this time.
Rate Design Overview
The final step in the rate study process is to design rates for each class of service. In California,
local governments are subject to Article XIII C of the California Constitution, as amended by
Proposition 26 (2010). As a result, CPA has been setting rates to match the COSA results for
each class.
All of the rate classes are charged a monthly service charge and distribution charge per therm
to cover distribution costs. The residential class has a tiered distribution charge per therm
while the two commercial classes do not. No change in the rate design structure is proposed at
this time.
The rates for the Residential and Commercial customers are designed to reflect the differences
in costs among the various rate classes. The costs per class differ based on the seasonal shape
of consumption (referred to as energy use) as well as the daily peak demand for each class.
Differences in energy use by season and the level of peak demand have an impact on the
utility’s need for distribution facilities and the costs to operate and maintain those facilities.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 5
The Residential G1 rate class is fairly homogenous in energy and peak demand use compared to
the other rate classes, and the additional cost associated with peak demand can be captured in
a tiered rate design. For the two Commercial classes, there are inherent size differences, in
terms of both physical space and energy use, related to the types of business within the
commercial rate classes. It is not appropriate to charge large businesses more through a tiered
rate just because of the size of the business due to the fact that the larger sized customers do
not have higher distribution costs on a per therm basis . For that reason, the distribution charge
for Commercial rates are the same for all therms.
For each class, the proposed rates are based on the unit costs resulting from the COSA. Table 3
provides a comparison of the proposed rates to current rates for each customer class.
Table 3
Comparison of Proposed Rates to Current
Current Rate Proposed Rate $ Change Percent Change
Residential G1
Monthly Service Charge $10.94 $13.35 $2.41 22.0%
Distribution Charge ($/therm)
Tier 1: First 60 therms winter
First 20 therms summer $0.4239 $0.4835 $0.0596 14.1%
Tier 2: Over 60 therms winter
Over 20 therms summer $0.9948 $1.04260 $0.0478 4.8%
Small Commercial G2
Monthly Service Charge $82.94 $104.95 $22.01 26.5%
Distribution Charge ($/therm) $0.6183 $0.6102 -$0.0081 -1.3%
Large Commercial G3
Monthly Service Charge $400.08 $690.45 $290.35 72.6%
Distribution Charge ($/therm) $0.60980 $0.60560 -$0.00420 -0.7%
For each of the three classes, the proposed percentage rate increase for the monthly service
charge is higher than the percentage rate increase for the distribution charges per therm. For
the residential class, the proposed Tier 1 charge has a larger rate increase than the proposed
Tier 2 charge.
Recommendation
Based on the projected revenue requirement and COSA analysis, the following observations can
be made for CPA:
◼ CPA will need to increase overall distribution revenues by 8 percent for FY 2020 in order to
recover sufficient revenues to meet costs.
◼ Revenues for each rate class should be aligned with the costs allocated to that rate class.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 6
◼ The residential class needs an above average rate increase while the two commercial
classes need a below average rate increase to reflect the cost of service.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 7
Overview of Rate Setting Principles
EES Consulting, Inc. (EES) was retained by the City of Palo Alto (CPA) to perform a
comprehensive natural gas cost of service and rate study for the natural gas utility. Performing
a natural gas rate study is necessary to assure that CPA’s rates are structured to be fair,
equitable and based on the cost of providing service to all City customers.
In conducting a cost of service and rate study, three inter-related analyses are performed:
1. Revenue Requirement Analysis: This analysis examines the various sources and uses of
funds for the utility and determines the overall revenue required to operate the utility.
2. Cost of Service Analysis (COSA): The COSA is used to determine the fair and equitable
allocation of the total revenue requirement to the various customer classes of service (e.g.
residential, small commercial, large commercial). This analysis provides a determination of
the level of revenue responsibility of each class of service and the adjustments from current
revenues required to meet the cost of service.
3. Rate Design Analysis: The third analysis involves evaluating the rate design options
available and designing rate schedules that can be applied to each rate class to equitably
collect revenues that match the cost to serve each customer in that class.
Overview and Organization of Report
This report is divided into sections that follow these three analyses . This first section is a
generic discussion of the theory and financial principles behind setting rates. This is followed
by a section discussing the development of the natural gas revenue requirement analysis for
CPA. The next section discusses the COSA. Finally, rate design options are presented in the
fourth and final section. A technical appendix is attached at the end of this report that provides
details of the various analyses. The schedules contained in the technical appendix are
referenced throughout the report.
The purpose of this section of the report is to provide a brief overview of the fundamentals of
cost identification and allocation for purposes of developing natural gas rates. From this base-
level of knowledge, more insight and understanding can be obtained from the following
sections of the report that discuss the specifics of the Revenue Requirement, Cost of Service,
and Rate Design analyses mentioned above.
Overview of the Analyses
All utility rate cost allocation methodologies share the same basic framework. That is, in
allocating natural gas costs, multiple separate yet interrelated analyses (revenue requirement
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 8
analysis, COSA, and rate design analysis) are performed. A variety of reasonable methodologies
exist within each of these separate analyses.
Overview of Revenue Requirement Methodologies
For this study, a cash basis was used to determine CPA’s natural gas utility’s revenue
requirement. The cash basis methodology aligns well to most Publicly Owned Utility (POU)
budgetary processes and is the standard approach used by CPA for budgeting and financial
forecasting. Under a cash basis approach, the revenue requirement includes debt service and
capital improvement projects (CIP) funded from rates. It does not include the depreciation of
assets.
Overview of Cost Allocation Procedures
After the total revenue requirement has been determined, it is allocated to the various
customer classes of service based upon a cost-based methodology that reflects cost causation
and cost-causal relationships between customer characteristics and the production and
distribution of the services. This analytical exercise usually takes the form of a COSA. A COSA
begins by assigning each cost in a utility’s revenue requirement into major categories that
reflect the utility’s capital investment and services provided to customers, such as natural gas
natural gas supply, transmission, distribution and customer. This is called “functionalization.”
Next, the functionalized costs are linked to categories (such as demand-, energy-, and
customer-related costs) and a direct assignment category. This is called “classification.”
Allocation factors are then used to allocate each cost to each class of service. At that point the
revenue requirement has been allocated to each class of service and a determination of the
necessary revenue adjustments between classes of service can be made.
Rate Design and Economic Theory
The final step in the rate study process is to design rates for each class of service. Rates can be
structured in many ways, but, ultimately, they should reflect the types of costs that the utility
incurs to serve the customer (e.g. natural gas supply, distribution and customer-related costs),
and should collect the required level of revenues to safely and reliably operate the utility.
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 9
Development of the Revenue Requirement
This section of the report presents the development of the natural gas revenue requirement for
CPA. Simply stated, a revenue requirement analysis compares the overall revenues of the
utility to its expenses and determines the overall adjustment to rate levels that is required.
Overview of CPA’s Revenue Requirement Methodology
As discussed in the previous section of the report, CPA utilizes the “cash basis” approach for
determining its revenue requirement. In summary form, CPA’s components to its revenue
requirement include the elements shown in Table 4.
Table 4
Elements of a Cash Basis Revenue Requirement
+ Operating Expenses
✓ Natural Gas Supply Expense
✓ Distribution O&M Expense
✓ Customer Accounting Expenses
✓ Administrative and General Expense
+ Capital Improvements funded from Rates
+ General Fund Transfer
= Total Revenue Requirement
- Transfers from Reserves
- Miscellaneous Revenue Sources
= Net Revenues Required From Rates
From this basic analytical framework, the next step in determining the revenue requirement
methodology is to select a time period over which to review revenue and expenses. In the case
of CPA, a fiscal year test period was utilized (July through June) rather than a calendar year test
period. The test period may either be a past fiscal year or a fu ture fiscal year. The former is
appropriate when costs do not change significantly from year to year, while the latter is more
appropriate when costs are expected to change significantly. CPA provided a financial forecast
of costs for FY 2020 (July 2019 through June 2020).
The next step in the analysis was to translate the CPA-budgeted costs into the system of
accounts used by a natural gas utility. The detailed FY 2020 revenue requirement by account is
provided in Schedule 3.1, as provided in the Technical Appendix.
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 10
Development of Natural Gas Commodity Costs
As with most natural gas utilities, a major expense associated with operating the utility is the
cost of natural gas supply. Approximately $15.7 million or 39 percent of the FY 2020 total
revenue requirement of the utility is natural gas supply costs, as shown in Schedule 3.1. CPA
acquires natural gas to serve its customers through the market, with a mix of different contract
lengths. While the cost of natural gas supply is included in the COSA, it is treated as a separate
category as the cost of natural gas supply is collected through separate rate components.
Natural gas supply is a pass through of costs and the r ates adjust monthly to reflect actual
wholesale costs.
Other Operating Expenses
CPA’s proposed FY 2020 Operating Budget was also used for the derivation of all distribution-
related expenses. Total FY 2020 expenses for distribution (i.e. excluding natural gas supply) are
projected to be $24 million. As shown in Schedules 1.4 and 3.1, this is made up of the
following:
◼ Physical system expenses of $6.0 million. These costs include the operation and
maintenance of distribution system infrastructure such as distribution mains, regulators and
meters.
◼ Customer service related costs of $2.5 million. These costs include meter reading, billing,
key account representatives and general customer service.
◼ Administrative and general costs of $3.8 million. These costs include functions like
accounting, benefit overhead, insurance, and other types of administrative overhead.
The customer service category includes expenses for efficiency, demand side management, and
low income programs. These expenses are incurred by the gas enterprise as part of a program
established by the CPA pursuant to Public Utilities Code Section 898. By virtue of this program,
gas customers are exempted from a state surcharge that would otherwise be collected on
utility bills pursuant to Public Utilities Code Section 890. These programs reduce customer gas
demand, and therefore are designed to reduce the need for capital expenditures to expand the
capacity of the gas distribution system.
The FY 2020 natural gas utility expense for CPA is $24.1 million without natural gas supply and
$39.8 million when combined with natural gas supply, as shown in Schedule 3.1.
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 11
General Fund Transfer
CPA calculates the equity transfer from its natural gas utility based on a methodology adopted
by Council in 2009,2 which has remained unchanged since then. The General Fund Transfer will
be $7.1 million in FY 2020, as shown in Schedule 3.1.
Debt Service and Rate-Funded Capital Improvement Program (CIP)
CPA must cover its capital projects (CIP) through either debt or cash from rates. For FY 2020
CPA has debt service payments of $800,000 for past borrowings to fund CIP. No new debt is
planned for FY 2020.
The majority of CIP is funded through cash from rates. For FY 2020, the budgeted CIP is $2.3
million, as shown in Schedule 3.1. This amount is offset, in effect, by customer contributions
made in the form of connection fees. The $1.1 million in connection fees in included in other
revenues, which is discussed below.
Miscellaneous/Other Revenues
CPA receives additional operating and non-operating revenues and contributions. These come
in the form of interest revenues, connection fees and other miscellaneous service revenues.
Interest revenues represent interest on the utility’s reserves. Connection fees are contributions
paid by customers to cover the cost of new facilities built on their behalf. For FY 2020 the
projection for such revenues and contributions is $1.4 million, as shown in Schedule 3.1. These
revenues are outside of the revenue collected from the natural gas rates charged to retail
customers. For that reason, they are used as an offset to the revenue requirement. That way,
the revenue requirement and COSA reflect the amounts that need to be collected from retail
rates only.
Transfers to/from Reserves
In its FY 2020 natural gas financial plan, CPA is anticipating that $2.9 million in rate revenues
will be added to the reserve fund in FY 2020 to cover future CIP costs and for rate stabilization.
CPA is planning on low CIP expenditures in FY 2020, followed by much larger CIP expenditures
in FY 2021. Because CIP amounts are not consistent across years, reserve funds are used to
balance out that amount and avoid large swings in rates due to CIP schedules. The use of the
reserve fund allows CPA to have more stable and gradual rate increases over time. For that
2 City of Palo Alto City Manager’s Report (CMR) 280:09, “Adoption of an Ordinance Adopting the Fiscal Years 2010
and 2011 Budget, Including the Fiscal Year 2010 Capital Improvement Program, Changes to the Municipal Fee
Schedule, Utility Rates and Charges, Equity Transfer Methodology Change and Changes to Compensation Plans,”
June 15, 2009 and CMR 260:09, “Recommendation to City Council to Change the Methodology Used to Calculate
the Equity Transfer from Utilities Funds to the General Fund,” May 26, 2009.
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 12
reason, a reserve fund contribution is included for FY 2020 so that CPA has sufficient funds to
pay for the larger CIP amount expected in FY 2021 without a corresponding large increase in
rates. Each year in the future, CPA will need to look at the use of reserves as a way to pay for
CIP and mitigate future rate increases.
Summary of Revenue Requirement
Once all of the components of the cash basis revenue requirement have been determined, the
parts can be summed to equal the total revenue requirement. CPA’s revenue requirement for
the FY 2020 test period is summarized in Table 5. More detail on the individual components of
the revenue requirement can be found in Schedule 3.1.
Table 5
Summary of the Revenue Requirement
FY: 2019-2020
Revenue Requirement
Gas Supply $15,718,000
Distribution O&M $6,022,000
Customer Accounts and Services $2,501,000
Administration and General $3,832,000
Debt Service & CIP from Rates $3,150,000
General Fund Transfer $7,106,000
Total Expenses $38,329,000
Transfers from Reserves $2,872,000
Other Revenues ($1,385,000)
Total Revenue Required from Rates (Revenue Requirement) $39,816,000 with Gas Supply
$24,098,000 without Gas Supply
Revenues Based on Rates Currently in Effect $38,031,072 with Gas Supply
$22,313,072 without Gas Supply
Additional Rate Revenue Needed $1,784,928
Total Required Rate Revenue Increase (Decrease) 4.7% with Gas Supply
8.0% without Gas Supply
Recommendation
CPA’s revenues are not sufficient to cover its projected expenses in FY 2020 under current
rates. The proposed rate increase for the distribution rates is 8.0%. It is important to note that
CPA’s revenue-to-cost balance needs to be continually monitored.
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 13
Cost of Service Analysis
The objective of the cost of service analysis (COSA) is to allocate the costs in the revenue
requirement to each customer class of service to determine the cost to serve those customers.
An essential principle of cost allocation is the concept of cost-causation. Cost-causation
evaluates which customer or group of customers causes the utility to incur certain costs by
linking system facility investments and the operating costs to serve certain facilities to the way
customers use those facilities and services. This section of the report will discuss the general
approach used to apportion the CPA’s costs, and will provide a summary of the results.
COSA Definition and General Principles
A COSA study allocates the costs of providing utility service to the variou s customer classes
served by the utility based upon the cost-causal relationship associated with specific expense
items. This approach is taken to develop a fair and equitable designation of costs to each class
of service. The COSA allocates joint and common costs among the various classes using factors
appropriate to each type of expense. The COSA is the second step in a traditional three -step
process for developing natural gas service rates, after development of the revenue requirement
but before designing rates.
A COSA study can be performed using embedded costs or marginal costs. Embedded costs
generally reflect the actual costs incurred by the utility and closely track the costs kept in its
accounting records. Marginal costs reflect the cost asso ciated with adding a new customer and
are based on costs of facilities and services if incurred at the present time. This study uses an
embedded COSA as its standard methodology, however it uses some marginal concepts, (for
example, the examination of the relative cost of new meters in determining cost allocation
between rate classes).
There are three basic steps to follow in developing a COSA, namely:
◼ Functionalization
◼ Classification
◼ Allocation
Functionalization separates costs into major categories that reflect the different services
provided to customers and the types of assets used to provide those services . The primary
functional categories for CPA are natural gas supply and distribution. Shared services
(overhead) to be allocated across multiple functional categories are also identified in this
phase.
Classification determines the portion of each cost that is related to specific cost-causal factors,
or “classifiers.” These classifiers might be demand-related (related to the class of service’s peak
energy usage over a given period), energy-related (related to the total energy used by the class
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 14
of service over a given period), or customer-related (costs incurred as a result of receiving
service, regardless of the energy use or peak demand). Natural gas supply or commodity costs
are related to the amount of natural gas purchased and are therefore considered energy-
related. The distribution system is designed to extend service to all customers attached to the
system and to meet both the peak day demand and the annual energy requirement of each
customer, meaning that costs are both demand-related and energy-related. Some operational
costs, such as billing, are generally customer-related. Costs can also be classified based on
system revenues or directly assigned to a customer or group of customers if appropriate.
Allocation of costs to specific classes of service happens after those costs have been classified.
Allocation factors are chosen to allocate the costs assigned to each classification, and the share
of costs allocated to each class of service are based on the class’s contribution to the specific
allocation factor selected. For example, certain distribution costs might be classified as partially
demand-related and partially energy-related. The demand-related costs would be allocated to
the classes of service using each class’s contribution to the annual system peak day demand
(the highest day for the system as a whole at any time during the year), while the energy-
related costs would be allocated to classes based on their annual energy usage. In this
example, the allocation factors are 1) each class of service’s contribution to the annual system
peak day demand and 2) the annual energy usage of each class of service. An analysis of
customer requirements, loads, and usage characteristics is completed to develop allocation
factors reflecting each of the classifiers employed within the COSA.
Functionalization of Costs
As discussed above, the first step in the COSA process following finalization of the revenue
requirement is to functionalize the revenue requirement.
Certain types of costs in the revenue requirement (primarily O&M costs associated with various
types of capital assets) are allocated based on the use of the underlying capital assets by
customer class. To determine this, the underlying capital assets of the utility (the “rate base”)
are functionalized into cost categories and allocated to customer classes. The functionalization,
classification, and allocation of the rate base will be used as a basis for functionalization,
classification, and allocation of certain types of operating expenses in the revenue requirement,
such as maintenance of the capital assets included in the rate base.
In CPA’s case, the rate base and revenue requirement are functionalized into Natural Gas
Supply , Distribution, and Shared Services categories. Schedule 3.1 shows the functional
category for each cost in the revenue requirement, while Schedule 3.3 shows the results of the
functionalization and classification of each cost. Schedules 4.1 and 4.2 show the same
information for the rate base. The functional categories are described in more detail below:
◼ Natural Gas Supply. The natural gas supply function category includes all costs associated
with the procurement of natural gas. This includes the commodity purchases from the
market, gas transportation purchased to deliver the purchased gas to the CPA system,
alternative energy programs, cap and trade compliance and carbon offsets. It also includes
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 15
certain amounts for rent and administration related to the natural gas supply function. CPA
does not have any rate base items that are associated with natural gas supply.
◼ Distribution. Distribution services include all services required to move the natural gas
from the point of interconnection to CPA’s system to the end user of the natural gas. These
primarily include service lines and gas mains.
◼ Shared Services. Shared services include assets used across multiple functions or costs that
apply across multiple functions, such as facilities used for general management of the
operation or insurance or benefits costs. Assets and costs in the shared services category
are not shown in the attached schedules as a separate functional category. Instead, they are
allocated across the Natural Gas Supply and Distribution functions as overhead.
Classification and Allocation of Costs
The next step in performing a COSA is to classify and allocate the functionalized expenses. The
classifications and allocations are directly related to specific consumption behavior or system
configuration measurements such as peak day demand, energy consumption, or number of
customers. Each cost in the rate base and revenue requirement will be classified into one or
more categories and will then be allocated to customer classes of service based on a specific
allocator.
The classification and allocation factors used for each component of the rate base and revenue
requirement are shown in Tables 6 and 7 and are discussed in more detail below. Descriptions
of each factor are included in Table 8. In general, the same methodology employed for the
2012 COSA was used for the FY2020 COSA.
The following are the specific classifiers used in CPA’s COSA within the Natural Gas Supply and
Distribution functions. As noted earlier, the Shared Services function is spread across the
Natural Gas Supply and Distribution functions as overhead, so it does not have its own
classifiers:
◼ Natural Gas Supply Function
Within this study, natural gas supply costs are classified as 100% energy-related based on
discussion with CPA staff related to cost causation. Gas purchases are made from the
market at sufficient levels to meet all of the gas requirements of CPA’s customers. All costs
related to the provision of natural gas supply are passed through to the cu stomer in energy
rates that vary with costs each month.
◼ Distribution Function
Distribution services include all services required to get gas supply from the point of
interconnection to the City delivered to the customer. Distribution costs are split between
demand, energy and customer components. The demand component reflects the portion
of costs driven by peak day demand for natural gas. The energy component is related to
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 16
costs incurred to serve the annual energy amount of natural gas to customers. The
customer component is the cost of facilities that varies with the number of customers, such
as meters. The following are the specific classifiers used for CPA’s distribution function:
Demand. Demand-related costs are those that vary with the peak day demand or the
maximum rates of natural gas supply to classes of service. Customer and system
demands for this analysis are measured in peak day therms. Demand costs are
generally related to the size of facilities needed to meet a customer’s maximum daily
demand.
Energy. Energy-related costs are those that vary with the total amount of natural gas
consumed by a customer. Usage measured in therms is used in this portion of the
analysis. Energy costs are the costs of consumption over a specified period of time, such
as a month or year.
Customer. Customer-related costs are those that vary with the number of customers.
Customer costs may be weighted to account for differences in the cost of providing
services to those customers. For example, the service drop and metering associated
with serving a large commercial customer is more costly and requires substantially more
work and material than the service and meter for a small residential customer.
Direct Assignment. Some costs are directly assigned to specific classes of service. Costs
associated with providing account representatives to large customers are allocated
directly to those classes of service.
The methodology for functionalization, classification, and allocation of CPA’s rate base is
summarized in Table 6 and in Technical Appendix Schedule 4.1. The results of the process for
the rate base can be found in Schedule 4.2.
Note that the rate base does not reflect the annual expenses associated with running the utility
but instead reflects the capital investments made by the utility for the physical assets in the
distribution system. The purpose of looking at the rate base in the COSA is to set the cost
causation associated with the physical assets, which are then used to guide the allocation of the
annual expenses. Working capital is traditionally added to cover the cash on hand needed to
run the utility. An estimate of 1/8th of operating costs is typically used to reflect the lag time
between revenue collections and accounts payable.
The same information for the revenue requirement can be found in Table 7, Schedule 3.1, and
Schedule 3.3. More detail on the classification and allocation factor codes used in the
classification and allocation process can be found in Table 8. Schedule 6.1 shows how each
code is used to separate costs into functions (natural gas supply and distribution) and
classifications (demand, energy, customer, and direct assignment). Schedule 6.2 shows the way
each code then allocates the costs within each classification across classes of service.
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 17
Table 6
Rate Base Functionalization, Classification, and Allocation
Asset Description FY 2020
Total
Functionalization
Category
Classification and Allocation
Factor Code3
Distribution Plant
Equip-Meters $10,668,188 D CUSTM
Equip-Services $47,991,995 D SERVICES
Equip-Misc $1,704,032 D AE
Equipment-Regulators $976,067 D AE
Equip-Distribution Mains $66,908,410 D MAINS
Equip-Measuring $2,211,951 D AE
Total Distribution Plant $130,460,643
General Plant
Building-Gen Plant $1,910,425 D GPLT
Equip-Gen Plant $2,490,102 D GPLT
Total General Plant $4,400,527
Total Gross Plant in Service $134,861,170
Less: Accumulated Depreciation
Distribution Plant $35,044,144 D RBD
General Plant $2,880,125 D RBGP
Total Accumulated Depreciation $37,924,268
Total Net Plant $96,936,902
Working Capital
1/8 Operating Costs $1,544,375 D OMWOP
Total Working Capital $1,544,375
TOTAL RATE BASE $98,481,277
CWIP
Distribution Plant $2,903,905 D RBD
Total CWIP $2,903,905
TOTAL RATE BASE plus CWIP $101,385,182
Table 7
Revenue Requirement Functionalization, Classification, and Allocation
3 See Table 8 for more detail and fully spelled-out acronyms
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 18
Plant Description FY 2020 Total
Functionalization
Category
Classification and
Allocation Factor
Code4
Gas Supply Expenses
Supply Commodity $14,362,000 S Therm
General Admin and Overhead $1,356,000 S Therm
Total Gas Supply $15,718,000
Distribution
Engineering Support $373,000 D RBD
Operations & Maintenance $5,649,000 D RBD
Total Distribution $6,022,000
Customer Service, Accounts, & Sales
Admin - Customer & Marketing $139,000 D CUSTW
Meter Reading $328,000 D CUSTM
Utility Billing $338,000 D CUSTW
Credit & Collections $37,000 D CUSTW
Key & Major Accounts $111,000 D DA1
Customer Service $679,000 D CUSTW2
Research & Development $14,000 D CUSTW
Low Income Programs $12,000 D therm
Efficiency - Demand Side Management $843,000 D therm no CNG
Total Customer Service, Accounts &
Sales $2,501,000
Administrative & General
Administrative & General Salaries $338,000 D OMAG
Services & Facilities Provided by
CPA/Enterprises $3,494,000 D OMAG
Total Administrative & General $3,832,000
Total Costs with A&G $28,073,000
Interest and Debt Service Expense
Interest on Long-Term Debt $156,000 D NETPLT
Principal on Long-Term Debt $644,000 D NETPLT
Customer Design & Connection $1,342,000 D NETPLT
System Improvement $1,008,000 D NETPLT
Total Debt Service /CIP Expense $3,150,000
General Fund Transfer $7,106,000 D NETPLT
Reserves $2,872,000 D OMAG
Revenue Requirement Before Other
Revenues
$41,201,000
4 See Table 8 for more detail.
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 19
Table 7
Revenue Requirement Functionalization, Classification, and Allocation
Plant Description FY 2020 Total
Functionalization
Category
Classification and
Allocation Factor
Code4
Other Revenues/Discounts
Customer Discounts -$110,000 D OMAG
Connection Fees $1,111,000 D CUSTM
Misc. Revenue (Other) $31,000 D OMAG
Transfer Credits $96,000 D OMAG
Income (Loss) from Equity Investments $257,000 D NETPLT
Total Other Revenues $1,385,000
REVENUE REQUIREMENT for COST
ALLOCATION - With Gas Supply $39,816,000
REVENUE REQUIREMENT for COST
ALLOCATION - Without Gas Supply $24,098,000
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 20
Table 8
Classification and Allocation Factors
Factor Code Factor Name Classification Allocation Basis
AE Average and Excess 100% Demand
An allocation of demand costs that
calculates the difference between the peak
demand and average demand
Therm Annual Energy (therm) 100% Energy Energy consumption of each class of service
in annual therms
therm no CNG Annual Energy (therm)
w/o CNG 100% Energy Energy consumption of each class of service
in annual therms, excluding CNG sales
CUSTW Customers Weighted for
Accounting/Metering 100% Customer # customers weighted for cost of billing, and
account management
CUSTM Customers Weighted for
Meters and Services 100% Customer # customers weighted for cost of installing,
maintaining and reading meters
CUSTW2 Customers Weighted for
Accounting/Metering w/o G3 100% Customer # customers weighted for cost of billing, and
account management excluding G3
DA1 Direct Assignment for Large
Commercial 100% Customer Direct assignment of key account costs to G3
large commercial class
RBD On the Basis of Distribution
Rate Base Shared
Classified and allocated to classes of service
based on the net book value of all shared
services assets and other capital assets
assigned to each class of service
OM On the Basis of All O&M Shared Allocated on the basis of all other O&M
costs in the revenue requirement.
OMAG On the Basis of O&M (w/o Gas
Supply and A&G) Shared Allocated based on O&M without Gas
Supply or A&G costs
OMD On the Basis of Distribution
O&M Shared Allocated based on O&M for all distribution
accounts
GPLT
On the Basis of Gross Plant
(w/o General Plant &
Intangible)
Shared
Allocated on the basis of the gross book
value of all capital assets (initial cost)
assigned to each class of service.
NETPLT On the Basis of Net Plant Shared
Allocated on the basis of the net book value
of all capital assets (initial cost less
accumulated depreciation) assigned to each
class of service.
OMWOP On the Basis of O&M (w/o
Purch. Gas Supply) Allocated based on O&M without the cost of
Purchased Gas Supply
MAINS 58% Energy, 42% Avg & Excess 58% Energy
42% Demand
Classified on the basis of load factor, with a
portion allocated on the basis of energy and
a portion allocated on the basis of peak
demand using the average and excess
method
SERVICES 40% CUSTM, 35% Energy, 25%
Avg & Excess
40% Customer
35% Energy
25% Demand
A classification that splits costs between
customer-related, energy-related and
demand-related; the split was developed for
the 2012 COSA
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 21
Review of Customer Classes of Service
Customer classes of service refer to the arrangement of customers into groups that reflect
common usage characteristics or facility requirement. The classes of service used within this
study were as follows:
◼ Residential G1
◼ Small Commercial G2
◼ Large Commercial G3
The one CNG customer was excluded from the COSA because their service differs from the
other classes.
Before finalizing the classes of service used for the COSA, two alternative cases were looked at.
In the first case, all commercial customers were broken out between customers with usage
above and below 10,000 therms. There are 275 existing Small Commercial (G2) customers with
usage above 10,000 therms.
Based on the COSA, the per unit cost for demand and energy-related costs for all customers
above 10,000 therms were lower than for all customers below 10,000 therms. The costs for all
customers above 10,000 therms were close to, but higher than, the per unit cost for the Large
Commercial (G3) customers. This is expected because larger customers typically have more
even gas use throughout the year and are less driven by peak day demand as are smaller
customers. Because this occurs gradually between large and small customer s, there is no clear
delineating point where costs are all of a sudden lower for customers above a certain size.
The customer-related costs, however, were the same for all Small Commercial (G2) customers,
regardless of whether they were above or below 10,000 therms, and much lower than the
customer-related costs for Large Commercial (G3) customers. This is based in large part
because the meter cost is roughly the same for all G2 customers while the meter costs are
higher for the G3 customers.
Similarly, a case was looked at where the Small Commercial (G2) and Large Commercial (G3)
customers were combined into one class. The result would be a higher customer-related cost
and lower demand and energy-related costs.
When the Small Commercial customers over 10,000 therms were included with the Large
Commercial class, their customer-related cost went up substantially, leading to higher bills than
if they remained in the Small Commercial class. This is due to the fact that the G3 monthly
service charge (designed to cover customer-related expenses) is substantially higher than for
the G2 class.
In the combined case, the energy costs differ by less than 1 percent. But the customer-related
cost for the Large Commercial (G3) customers would be roughly one-fourth of the cost if they
remained a separate class. This would reduce the overall rate increase for Large Commercial
(G3) customers at the expense of a slightly higher rate increase for the Small Commercial (G2)
class.
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6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 22
In both cases, some or all of the Small Commercial (G2) customers would see higher bills and
the Large Commercial (G3) customers would see lower bills.
When looking at different options for assigning commercial customers into various categories,
cost differences occurred between classes under all of the configurations considered. Because
costs change gradually over the continuum of customers based on usage levels, there was no
clear delineation in costs by size that would be an improvement over the current split of
customers into the G2 and G3 classes. For that reason, no changes in the customer classes are
recommended at this time.
CPA may want to monitor this over time and consider alternatives in the future if costs change
in the future.
Cost of Service Results
Given the key assumptions listed above, the COSA was completed. Tables 9 and 10 provide a
summary of the Rate Base and Revenue Requirements allocated across the various customer
classes. Schedules 3.4 and 4.3 in the appendix also show the detailed functionalized and
classified rate base and revenue requirement allocated to each class of service. These schedules
are calculated by multiplying the applicable classification and allocation factors to each cost in
the revenue requirement or rate base.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 23
Table 9
Rate Base Allocated Across Customer Classes
Asset Description FY 2020 Total G1 Residential G2 Commercial
G3 Large
Commercial
Distribution Plant
Equip-Meters $10,668,188 $4,552,164 $5,961,270 $154,755
Equip-Services $47,991,995 $19,219,240 $23,120,736 $5,652,020
Equip-Misc $1,704,032 $699,609 $703,108 $301,315
Equipment-Regulators $976,067 $400,735 $402,739 $172,593
Equip-Distribution Mains $66,908,410 $25,634,887 $28,791,312 $12,482,212
Equip-Measuring $2,211,951 $908,141 $912,682 $391,128
Total Distribution Plant $130,460,643 $51,414,776 $59,891,845 $19,154,022
General Plant
Building-Gen Plant $1,910,425 $752,902 $877,038 $280,486
Equip-Gen Plant $2,490,102 $981,354 $1,143,156 $365,593
Total General Plant $4,400,527 $1,734,256 $2,020,193 $646,078
Total Gross Plant in Service $134,861,170 $51,414,776 $59,891,845 $19,154,022
Less: Accumulated Depreciation
Distribution Plant $35,044,144 $13,810,961 $16,088,058 $5,145,125
General Plant $2,880,125 $1,135,062 $1,322,207 $422,855
Total Accumulated Depreciation $37,924,268 $14,946,023 $17,410,265 $5,567,980
Total Net Plant $96,936,902 $38,203,009 $44,501,773 $14,232,120
Working Capital
1/8 Operating Expenses $1,544,375 $674,736 $655,352 $214,287
Total Working Capital $1,544,375 $674,736 $655,352 $214,287
TOTAL RATE BASE $98,481,277 $38,877,745 $45,157,125 $14,446,407
CWIP
Distribution Plant $2,903,905 $1,144,434 $1,333,124 $426,347
Total CWIP $2,903,905 $1,144,434 $1,333,124 $426,347
TOTAL RATE BASE plus CWIP $101,385,182 $40,022,179 $46,490,249 $14,872,753
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 24
Table 10
Revenue Requirement Allocated Across Customer Classes
Plant Description FY 2020 Total G1 Residential
G2
Commercial
G3 Large
Commercial
Operation & Maintenance Expense
Supply Commodity $14,362,000 $5,217,326 $6,364,134 $2,780,540
General Admin & Overhead $1,356,000 $492,598 $600,875 $262,527
Total Gas Supply $15,718,000 $5,709,924 $6,965,009 $3,043,067
Distribution
Engineering Support $373,000 $147,000 $171,237 $54,763
Operations & Maintenance $5,649,000 $2,226,281 $2,593,342 $829,377
Total Distribution $6,022,000 $2,373,281 $2,764,579 $884,140
Customer Service, Accounts, & Sales
Admin - Customer & Marketing $139,000 $101,706 $32,775 $4,518
Meter Reading $328,000 $139,959 $183,283 $4,758
Utility Billing $338,000 $247,315 $79,698 $10,987
Credit & Collections $37,000 $27,073 $8,724 $1,203
Key & Major Accounts $111,000 $0 $0 $111,000
Customer Service $679,000 $513,517 $165,483 $0
Research & Development $14,000 $10,244 $3,301 $455
Low Income Programs $12,000 $4,359 $5,317 $2,323
Efficiency - Gas DSM $843,000 $306,239 $373,553 $163,208
Total Customer Service, Accounts & Sales $2,501,000 $1,350,412 $852,136 $298,452
Administrative & General
Administrative & General Salaries $338,000 $147,672 $143,429 $46,899
Allocated Charges $2,113,000 $923,168 $896,646 $293,185
Rents $571,000 $249,470 $242,302 $79,228
Transfers to Non-Enterprise Funds $120,000 $52,428 $50,922 $16,650
Transfers to Enterprise Funds $690,000 $301,461 $292,800 $95,740
Total Administrative & General $3,832,000 $1,674,198 $1,626,100 $531,702
Total Operating Expenses with A&G $28,073,000 $11,107,816 $12,207,823 $4,757,361
Interest and Debt Service Expense
Interest on Long-Term Debt $156,000 $61,480 $71,616 $22,904
Principal on Long-Term Debt $644,000 $253,802 $295,647 $94,551
Customer Design & Connection $1,342,000 $528,885 $616,085 $197,030
System Improvement $1,008,000 $397,255 $462,752 $147,993
Total Debt Service /CIP Expense $3,150,000 $1,241,421 $1,446,101 $462,478
General Fund Transfer $7,106,000 $2,800,487 $3,262,221 $1,043,291
Reserves $2,872,000 $1,254,775 $1,218,726 $398,499
Revenue Requirement Before Other
Revenues
$41,201,000 $16,404,499 $18,134,871 $6,661,630
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 25
Table 10
Revenue Requirement Allocated Across Customer Classes
Plant Description FY 2020 Total G1 Residential
G2
Commercial
G3 Large
Commercial
Other Revenues
Customer Discounts -$110,000 -$48,059 -$46,678 -$15,263
Connection Fees $1,111,000 $474,069 $620,815 $16,116
Misc. Revenue (Other) $31,000 $13,544 $13,155 $4,301
Transfer Credits $96,000 $41,942 $40,737 $13,320
Income (Loss) from Equity Investments $257,000 $101,285 $117,983 $37,732
Total Other Revenues $1,385,000 $582,780 $746,012 $56,208
REVENUE REQUIREMENT for COST
ALLOCATION - With Gas Supply $39,816,000 $15,821,719 $17,388,859 $6,605,422
REVENUE REQUIREMENT for COST
ALLOCATION - Without Gas Supply $24,098,000 $10,111,795 $10,423,850 $3,562,355
Table 11 provides a summary of the COSA results when just the distribution costs are
considered. These results are the basis for the distribution charges. Summary data and
additional detail is presented in Schedules 1.1 and 1.2.
Table 11
Summary of Cost of Service Analysis for FY 2020 Test Year
Distribution Costs Only
Projected FY 2020
Revenues under
Rates Currently in
Effect
Net Revenue
Requirement
Projected Deficiency
in FY 2020 Revenue
Based on Rates
Currently in Effect
Revenue
Increase
needed5
G1 - Residential $8,928,944 $10,111,795 $1,182,850 13.25%
G2 - Small Commercial $9,921,058 $10,423,850 $502,792 5.07%
G3 – Large Commercial $3,463,070 $3,562,355 $99,286 2.87%
TOTAL $22,313,072 $24,098,000 $1,784,928 8.0%
The results show that with present rates, CPA will not collect sufficient revenues to meet FY
2020 costs. As discussed previously in the report, the amount of additional revenue required
varies by class of service.
While the COSA is used to set distribution rates, with natural gas supply cost flowed through on
the basis of actual costs updated each month, the overall impact on customer bills is important
to consider. The COSA uses the FY2020 projected natural gas costs for each month. Any
changes in natural gas supply costs that differ from the forecast will be passed on to customers
5 Projected FY 2020 revenue deficiency divided by projected FY 2020 revenue based on rates currently in effect.
Numbers rounded to the nearest tenth of a percent.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 26
but are not included in the COSA results. Table 12 shows the COSA results when both natural
gas supply costs and distribution costs are combined. On a combined basis, the rate increases
required for each class are lower than those shown in Table 9.
Table 12
Summary of Cost of Service Analysis for FY 2020 Test Year
Natural Gas Supply and Distribution Costs Combined
Projected FY 2020
Revenues under
Rates Currently in
Effect
Net Revenue
Requirement
Projected Deficiency
in FY 2020 Revenue
Based on Rates
Currently in Effect
Revenue
Increase
needed6
G1 – Residential $14,638,868 $15,821,719 $1,182,850 8.1%
G2 - Small Commercial $16,886,067 $17,388,859 $502,792 3.0%
G3 – Large Commercial $6,506,136 $6,605,422 $99,286 1.5%
TOTAL $38,031,072 $39,816,000 $1,784,928 4.7%
As described throughout this section, costs are allocated to customers based on their
consumption patterns, particularly energy consumption and peak demand . As customer
consumption patterns change, some of the utility’s costs change as well, but others are fixed
over the short term. For example, some charges to the utility, like market natural gas
purchases, are directly related to energy consumption. These co sts decrease as customer
energy consumption decreases, usually in real-time. If a customer class uses less energy, fewer
of these costs will be allocated to them and their revenue requirement will decrease. Other
costs only change slowly over time, such as the amount of distribution capacity the utility builds
and maintains. These costs are largely fixed and change over the long term with changes in
peak day demand or energy use. The majority of the City of Palo Alto’s cost change slowly over
the long term. If energy use declines, these fixed costs may be spread over a lesser amount of
sales, driving up the per on a per therm basis.
The growth in the costs within different functions of the utility also have an impact of the cost
of service by class. Overall, costs related to the distribution system have increased by only 8%
between 2012 and 2020. The majority of this cost increase occurred in the distribution
operations and maintenance (O&M) expenses.
Rates for each customer class are set based on the energy and peak demand patterns over the
study period. If energy use and peak demand decrease or increase after the rate study is
completed, costs that change only over the long term might not change. When a subsequent
COSA is performed, different revenue ad justments may need to be made for each customer
class. The impacts to each class required as a result of the analysis done in the COSA are
described below:
6 Projected FY 2020 revenue deficiency divided by projected FY 2020 revenue based on rates currently in effect.
Numbers rounded to the nearest tenth of a percent.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 27
◼ Energy consumption per customer has decreased by roughly 10 percent for the Residential
class of service when compared to the 2012 COSA. This means that the fixed costs
associated with the Residential class are spread among a smaller amount of therms,
increasing the per unit cost for the class. Also, because many of the costs are allocated on
the basis of the number of customers or the peak day demand, more costs are allocated to
the Residential class than if energy use was the only allocator. While energy consumption
has declined, the peak day demand has not declined as much for the residential class.
Because a large portion of costs are allocated to customer classes on the basis of peak day
demand, the residential class still sees a large percent age of costs assigned to them.
Because the allocated cost has not declined as fast as their energy use, they end up needing
a larger than average rate increase when compared to other classes. Because the
Residential class has the lowest use per customer, and the lowest load factor (average use
relative to peak day use), the resulting cost of service for the class is higher on a per unit
basis. This results in a required rate increase of 13.25%, which is above the average rate
increase of 8.0%.
◼ Small Commercial use per customer has also decreased by roughly 10 percent since the
2012 COSA. Both the use per customer and load factor are higher than for the Residential
class. Therefore, the COSA shows they need a 5.07% increase, which is below the average
increase of 8.0%.
◼ While the Large Commercial class has seen a much larger drop in use per customer (40%),
that is partly the result of more mid-size customers qualifying for this rate as the number of
Large Commercial customers has increased since the 2012 COSA. This class has the highest
use per customer and the highest load factor, and therefore is allocated less costs per
therm than for the other two classes. The resulting rate increase required is only 2.87%.
When examining the results, it is important to note that the inter-class cost allocation is based
on load data estimates and usage pattern assumptions. Since these can vary from year to year,
the results of applying this COSA may deviate from these allocations over time. To avoid these
deviations, the COSA model built for CPA can be updated when necessitated by significant
changes to customer consumption patterns or the CPA’s costs.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 28
Rate Design
The final step in the rate study process is to design rates fo r each class of service. In California,
local governments are subject to Article XIII C of the California Constitution, amended by
Proposition 26 (2010). As a result, CPA has set rates to match the COSA results for each class. It
is important to note that the results of the revenue requirement and COSA study are based on
forecasted load data estimates and usage pattern assumptions. Actual load and usage patterns
may differ from forecast. For this study, rates are developed based on the forecast loads an d
observed historical usage patterns for each rate class.
The rates for the Residential and Commercial customers are designed to reflect the differences
in costs among the various rate classes. The costs per class differ based on the seasonal shape
of consumption (referred to as energy use) as well as the daily peak demand for each class.
Differences in energy use by season and the level of peak demand have an impact on the
utility’s need for distribution facilities and the costs to operate and maintain those facilities.
The Residential G1 rate class is fairly homogenous in energy and peak demand use compared to
the other rate classes, and the additional cost associated with peak demand can be captured in
a tiered energy rate design.
For the two Commercial classes, there are inherent size differences, in terms of both physical
space and energy use, related to the types of business within the commercial rate classes. It is
not appropriate to charge large businesses more through a tiered rate just be cause of the size
of the business due to the fact that the larger sized customers do not have higher distribution
costs on a per therm basis. For that reason, the distribution charge for Commercial rates are
the same for all therms.
Rate Design – Distribution
The COSA and rate design for FY 2020 is primarily concerned with setting the distribution rates
for each customer class. Costs associated with the distribution system, meter reading and
billing, customer service, administration and general costs, debt service, capital costs and
transfer to the City’s general fund are all included in the distribution charge. These various
costs are classified and allocated on the basis of some combination of customer, demand and
energy-related costs, as discussed in the previous section. The distribution charge is made up
of a monthly service charge (tied to customer-related costs) and a distribution charge per therm
(tied to combined demand-related and energy-related costs). As the rate design does not
include a peak day demand charge, all demand -related costs are included in the energy rate.
Once the distribution charges are set, they remain in place until the following year’s budget is
established and the need for any overall rate changes are determined.
The allocation of distribution costs among the various rate classes is based on an analysis of the
base and excess monthly energy and capacity costs associated with that rate class, also known
as the Average and Excess method. The Average and Excess method compares the baseline
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 29
capacity and energy used (the “average,” or “baseline”) against the maximum capacity and
energy used on a seasonal basis (the “excess”). This captures the level of system capacity
required to serve the customer during peak times as opposed to average times.
The rate design for the Residential G1 class is tiered, with the first tier reflecting the baseline
usage, which is defined as energy usage below 60 therms per day in the winter and 20 therms
per day in the summer. The costs per therm associated with the average use (as defined in the
Average and Excess method) apply to both Tier 1 and Tier 2 use. Costs associated with the
excess use of the system were applied only to the Tier 2 use, and added to the cost associated
with average use to get the Tier 2 cost per therm.
Rate Design – Natural Gas Supply (Commodity)
The commodity component of the rate design is based on differences in the cost of energy from
the market and is changed each month to reflect actual costs. The Natural Gas supply charges
are the same per therm for each customer class. The total charge is made up of four separate
components, as follows:
◼ Commodity Rate
◼ Cap and Trade Compliance Charge
◼ Transportation Charge
◼ Carbon Offset Charge
For the FY 2020 financial forecast, the average cost for Natural Gas Supply is $0.563 per therm.
Unlike the distribution charge, the actual commodity cost will vary in real time and is not being
set as part of the COSA and rate design process.
The cost of Natural Gas Supply is included in the COSA, primarily to show the impact on
customers when the cost is combined with the distribution costs.
Proposed Rate Design
This section of the report will review the present rate structures for CPA and will provide a
comparison with the proposed rates based on this cost of service study.
Residential G-1
The present Residential rate design is composed of a monthly service charge, a two-tier rate per
therm for distribution charges, and separate rates for natural gas supply charged on the basis of
energy use that can vary each month. The Tier 1 distribution charge applies to usage below 60
therms in the winter months (November-March) and below 20 therms in the summer months
(April-October). This compares to average winter use of 63 therms per customer and average
summer use of 23 therms per customer. No change is proposed to the overall rate structure for
the Residential class.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 30
Presented below, in Table 13, are the present and proposed rates for the Residential G1
customers.
Table 13
Comparison of Proposed Rates to Current –Residential G1
Current
Rate
Proposed
Rate
$
Change
Percent
Change
Monthly Service Charge $10.94 $13.35 $2.41 22.0%
Distribution Charge ($/therm)
Tier 1: First 60 therms winter
First 20 therms summer $0.4239 $0.4835 $0.0596 14.0%
Tier 2: Over 60 therms winter
Over 20 therms summer $0.9948 $1.0426 $0.0478 4.8%
Average Natural Gas Supply Charge ($/therm) $0.563
Overall Distribution Rate Change 13.25%
Overall Combined Gas Supply and Distribution Rate
Change
8.1%
Based on the proposed rates relative to current rate levels, Tables 14 and 15 show the bill
impacts at various usage levels with and without the Natural Gas Supply charge included. The
average forecast rate for FY 2020 is used for the supply charge for comparison purposes. Actual
supply charges per therm will differ each month.
For distribution charges, the percentage increase is higher than the average 13.25% for bills
with usage up to 30 therms in the summer and up to 75 therms in the winter. This is because
both the monthly service charge and Tier 1 distribution charge have a larger than average
increase. The dollar impacts for these customers are below $4.00 per month in the summer
and $7.00 per month in the winter. Note that the average bill increase for all Residential
customers is $4.63 per month. The customers with higher usage levels see a larger dollar
impact, but a smaller percentage increase than average.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 31
Table 14
Rate Impacts at Different Usage Levels –Residential G1
Distribution Charges Only
Therms per month Current Rate Proposed Rate $ Change Percent Change
Summer
5 $13.06 $15.77 $2.71 21%
10 $15.18 $18.19 $3.01 20%
15 $17.30 $20.60 $3.30 19%
20 $19.42 $23.02 $3.60 19%
25 $24.39 $28.23 $3.84 16%
30 $29.37 $33.45 $4.08 14%
35 $34.34 $38.66 $4.32 13%
40 $39.31 $43.87 $4.56 12%
50 $49.26 $54.30 $5.04 10%
60 $59.21 $64.72 $5.51 9%
Winter
20 $19.42 $23.02 $3.60 19%
40 $27.90 $32.69 $4.79 17%
60 $36.37 $42.36 $5.99 16%
75 $51.30 $58.00 $6.70 13%
90 $66.60 $74.04 $7.44 11%
125 $101.04 $110.13 $9.09 9%
150 $125.91 $136.19 $10.29 8%
175 $150.78 $162.26 $11.48 8%
200 $175.65 $188.32 $12.68 7%
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 32
Table 15
Rate Impacts at Different Usage Levels –Residential G1
Combined Distribution and Supply Charges
Therms per month Current Rate Proposed Rate $ Change Percent Change
Summer
5 $15.88 $18.58 $2.71 17%
10 $20.81 $23.82 $3.01 14%
15 $25.75 $29.05 $3.30 13%
20 $30.68 $34.28 $3.60 12%
25 $38.47 $42.31 $3.84 10%
30 $46.26 $50.34 $4.08 9%
35 $54.05 $58.37 $4.32 8%
40 $61.84 $66.40 $4.56 7%
50 $77.42 $82.46 $5.04 7%
60 $93.00 $98.51 $5.51 6%
Winter
20 $29.29 $32.89 $3.60 12%
40 $47.64 $52.43 $4.79 10%
60 $65.99 $71.98 $5.99 9%
75 $88.32 $95.02 $6.70 8%
90 $111.22 $118.65 $7.44 7%
125 $162.74 $171.83 $9.09 6%
150 $199.95 $210.24 $10.29 5%
175 $237.16 $248.64 $11.48 5%
200 $274.37 $287.05 $12.68 5%
Small Commercial G2
The present Small Commercial G2 rate design is composed of a monthly service charge and flat
distribution charge per therm No change is proposed in the overall design of the rate. The
COSA shows in Schedule 1.1 that the overall rate increase for the class is less than the average
for the utility overall, but that the monthly service charge needs to increase significantly.
Presented below, in Table 16, are the present and proposed rates for the Small Commercial G2
customers.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 33
Table 16
Comparison of Proposed Rates to Current –Small Commercial G2
Current Rate Proposed Rate $ Change Percent Change
Monthly Service Charge $82.94 $104.95 $22.01 26.5%
Distribution Charge ($/therm) $0.6183 $0.61020 -$0.0081 -1.3%
Average Natural Gas Supply Charge ($/therm) $0.563
Overall Distribution Rate Change 5.07%
Overall Combined Rate Change 3.0%
Based on the proposed rates relative to current rate levels, Table 1 7 shows the bill impacts at
various usage levels with and without the Natural Gas Supply commodity charge included. The
average forecast rate for FY 2020 is used for the commodity charge for compariso n purposes.
Actual commodity charges will differ each month.
For distribution charges, the percentage increase is higher than the average 5.07% for usage
under 500 therms per month, as shown in Table 17. This is because the monthly service charge
has a much higher percentage increase than the distribution charge per therm. The average bill
increase for all Small Commercial customers is roughly $18 per month. The customers with
higher usage levels see a larger dollar impact, but a smaller percentage increase than average.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 34
Table 17
Rate Impacts at Different Usage Levels –Small Commercial G2
Distribution Charges Only
Therms per month Current Rate Proposed Rate $ Change Percent Change
Distribution Charges Only
50 $114 $135 $22 19.0%
75 $129 $151 $21 16.6%
100 $145 $166 $21 14.6%
200 $207 $227 $20 9.9%
300 $268 $288 $20 7.3%
400 $330 $349 $19 5.7%
500 $392 $410 $18 4.6%
600 $454 $471 $17 3.8%
700 $516 $532 $16 3.2%
800 $578 $593 $16 2.7%
900 $639 $654 $15 2.3%
1,000 $701 $715 $14 2.0%
1,200 $825 $837 $12 1.5%
1,500 $1,010 $1,020 $10 1.0%
Combined Distribution and Commodity Charges
50 $142 $164 $22 15.2%
75 $172 $193 $21 12.5%
100 $201 $222 $21 10.5%
200 $319 $340 $20 6.4%
300 $437 $457 $20 4.5%
400 $556 $574 $19 3.4%
500 $674 $692 $18 2.7%
600 $792 $809 $17 2.2%
700 $910 $926 $16 1.8%
800 $1,028 $1,044 $16 1.5%
900 $1,146 $1,161 $15 1.3%
1,000 $1,264 $1,278 $14 1.1%
1,200 $1,501 $1,513 $12 0.8%
1,500 $1,855 $1,865 $10 0.5%
Large Commercial G3
The present Large Commercial G3 rate design is composed of a monthly service charge and flat
distribution charge per therm. No change is proposed in the overall design of the rate. This
class is proposed to get the smallest rate increase, based on the COSA results. While the
monthly service charge needs a higher increase than the distribution charge per therm, as
shown in Schedule 2.1, it is not as high as the customer charge increase required for the
Residential or Small Commercial class based on the results of the COSA.
Presented below, in Table 18, are the present and proposed rates for the Large Commercial G3
customers.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 35
Table 18
Comparison of Proposed Rates to Current –Large Commercial G3
Current Rate Proposed Rate $ Change Percent Change
Monthly Service Charge $400.08 $690.44 $290.37 72.6%%
Distribution Energy Charge ($/therm) $0.60980 $0.60560 -$0.00420 -0.7%
Average Natural Gas Supply Charge ($/therm) $0.563
Overall Distribution Rate Change 2.87%
Overall Combined Rate Change 1.5%
Based on the proposed rates relative to current rate levels, Table 1 9 shows the bill impacts at
various usage levels with and without the Natural Gas Supply commodity charge included. The
average forecast rate for FY 2020 is used for the commodity charge for comparison purposes.
Actual commodity charges will differ each month.
For distribution charges, the percentage increase does not vary significantly for customers at
different usage levels. While the monthly service charge requires a larger increase than the
distribution charge per therm, the monthly service charge makes up a smaller portion of the
overall bill than it does for the other two rate classes. The average bill increase for all Large
Commercial customers is $236 per month.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 36
Table 19
Rate Impacts at Different Usage Levels –Large Commercial G3
Therms per month Current Rate Proposed Rate $ Change Percent Change
Distribution Charges Only
5,000 $3,449 $3,718 $269 7.8%
6,000 $4,059 $4,324 $265 6.5%
8,000 $5,278 $5,535 $257 4.9%
10,000 $6,498 $6,746 $248 3.8%
9,815 $6,385 $6,634 $249 3.9%
13,000 $8,327 $8,563 $236 2.8%
15,000 $9,547 $9,774 $227 2.4%
18,000 $11,376 $11,591 $215 1.9%
20,000 $12,596 $12,802 $206 1.6%
25,000 $15,645 $15,830 $185 1.2%
30,000 $18,694 $18,858 $164 0.9%
Combined Distribution and Commodity Charges
5,000 $6,265 $6,534 $269 4.3%
6,000 $7,438 $7,703 $265 3.6%
8,000 $9,784 $10,041 $257 2.6%
10,000 $12,130 $12,378 $248 2.0%
9,815 $11,913 $12,162 $249 2.1%
13,000 $15,649 $15,884 $236 1.5%
15,000 $17,995 $18,222 $227 1.3%
18,000 $21,514 $21,728 $215 1.0%
20,000 $23,859 $24,066 $206 0.9%
25,000 $29,724 $29,910 $185 0.6%
30,000 $35,589 $35,754 $164 0.5%
1,000 $1,220 $1,288 $68 5.6%
1,200 $1,447 $1,524 $76 5.3%
1,500 $1,789 $1,877 $88 4.9%
CNG Rate G10
There is one CNG customer on the system and that customer differs in the use of facilities than
the other classes, requiring a unique analysis in the COSA. It is expected that the costs to serve
the CNG customer have increased at the same rate as for the distribution expenses overall. For
that reason, it is proposed that the customer receive an average 8% rate increase overall. That
percentage could either be applied to both the monthly service charge and distribution charge
per therm. Alternatively, the Distribution charge per therm could be held constant and the
monthly service charge would absorb all of the rate increase. That would result in a monthly
service charge of $64.00 per month.
DRAFT
6055205 CITY OF PALO ALTO —NATURAL GAS COST OF SERVICE AND RATE STUDY 37
Technical Appendix
Attachment I
*NOT YET APPROVED *
MM002
Resolution No. _________
Resolution of the Council of the City of Palo Alto Increasing Gas
Rates by Amending Rate Schedules G-1 (Residential Gas Service),
G-2 (Residential Master-Metered and Commercial Gas Service), G-3
(Large Commercial Gas Service), and G-10 (Compressed Natural Gas
Service Service)
R E C I T A L S
A.Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utilit y services,
fees and charges.
B.On ____, 2019, the City Council heard and approved the proposed rate increase
at a noticed public hearing.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-1 (Residential Gas Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule G-1, as amended, shall become effective July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-2 (Residential Master-Metered and Commercial Gas Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule G-2, as amended, shall
become effective July 1, 2019.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-3 (Large Commercial Gas Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule G-3, as amended, shall become effective July 1, 2019.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-10 (Compressed Natural Gas Service Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule G-10, as amended, shall become effective
July 1, 2019.
SECTION 5. The City Council finds as follows:
a.Revenues derived from the gas rates approved by this resolution do not exceed the
funds required to provide gas service.
b.Revenues derived from the gas rates approved by this resolution shall not be used
for any purpose other than providing gas service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
Attachment C
* NOT YET APPROVED *
MM002
SECTION 6. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 7. The Council finds that the adoption of this resolution changing gas rates
to meet operating expenses, purchase supplies and materials, meet financial reserve needs and
obtain funds for capital improvements necessary to maintain service is not subject to th e
California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec.
21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing
the staff report and all attachments presented to Council, the Council incorporates these
documents herein and finds that sufficient evidence has been presented setting forth with
specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
See Attachment Sheet List to below document Link
Proposed Gas Rate Schedules G-1, G-2, G-3 and G-10
Attachment K
*NOT YET APPROVED *
6055183
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the
FY 2020 Wastewater Utility Financial Plan
R E C I T A L S
A.Each year the City of Palo Alto (“City”) assesses the financial position of its
utilities with the goal of ensuring adequate revenue to fund operations. This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. It does
this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B.The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made a
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
Plan.
SECTION 1. The Council hereby approves the FY 2020 Wastewater Utility Financial
SECTION 2. The Council hereby approves the transfer of up to $978,000 in FY 2020
from the Capital Improvement Projects Reserve to the Operations Reserve, as described in the
FY 2020 Wastewater Utility Financial Plan and approved via this resolution.
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s definition of a project under Public Resources Code
Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
Attachment K
* NOT YET APPROVED *
6055183
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
See Attachment Sheet List to below document Link
FY 2020 Wastewater Collection Utility Financial Plan
Attachment M
*NOT YET APPROVED *
6055185
Resolution No. _________
Resolution of the Council of the City of Palo Alto Increasing
Wastewater Rates by Amending Rate Schedules S-1 (Residential
Wastewater Collection and Disposal), S-2 (Commercial Wastewater
Collection and Disposal), S-6 (Restaurant Wastewater Collection and
Disposal) and S-7 (Commercial Wastewater Collection and Disposal –
Industrial Discharger)
R E C I T A L S
A.Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
B.On ____, 2019, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
C.As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the ________ 2019 public hearing was mailed to all City of Palo Alto
Utilities wastewater customers by _______, 2019.
D.The City Clerk has tabulated the total number of written protests presented by
the close of the public hearing, and determined that it was less than fifty percent (50%) of the
total number of customers and property owners subject to the proposed wastewater rate
amendments, therefore a majority protest does not exist against the proposal.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule S-1 (Residential Wastewater Collection and Disposal) is hereby amended to read
as attached and incorporated. Utility Rate Schedule S-1, as amended, shall become effective
July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule S-2 (Commercial Wastewater Collection and Disposal) is hereby amended to read
as attached and incorporated. Utility Rate Schedule S-2, as amended, shall become effective
July 1, 2019.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule S-6 (Restaurant Wastewater Collection and Disposal) is hereby amended to read
as attached and incorporated. Utility Rate Schedule S-6, as amended, shall become effective
July 1, 2019.
Attachment M
* NOT YET APPROVED *
6055185
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger) is
hereby amended to read as attached and incorporated. Utility Rate Schedule S-7, as amended,
shall become effective July 1, 2019.
SECTION 5. The Council finds that the revenue derived from the wastewater rates
approved by this resolution do not exceed the funds required to provide wastewater service,
and the revenue derived from the adoption of this resolution shall be used only for the
purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 6. The Council finds that the fees and charges adopted by this resolution
are charges imposed for a specific government service or product provided directly to the p ayor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 7. The Council finds that the adoption of this resolution changing
wastewater collection rates to meet operating expenses, purchase supplies and materials, meet
financial reserve needs and obtain funds for capital improvements necessary to maintain
service is not subject to the California Environmental Quality Act (CEQA), pursuant to Californ ia
Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec.
15273(a). After reviewing the staff report and all attachments presented to Council, the
Council incorporates these documents herein and finds that sufficient evidence has been
presented setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
Attachment M
* NOT YET APPROVED *
6055185
___________________________
Director of Utilities
___________________________
Director of Administrative Services
See Attachment Sheet List to below document Link
Proposed Wastewater Collection Rate Schedules S-1, S-2, S-6 and S-7
Attachment O
*NOT YET APPROVED *
6055182
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the
FY 2020 Water Utility Financial Plan
R E C I T A L S
A.Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. The City
does this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B.The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby adopts the FY 2020 Water Utility Financial Plan.
SECTION 2. The Council hereby approves the transfer of up to $5,000,000 in FY 2020
from the Operations Reserve to the Capital Improvement Projects Reserve, as described in the
FY 2020 Water Utility Financial Plan and approved via this resolution.
.
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s (CEQA) definition of a project under Public Resources
Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
Attachment O
* NOT YET APPROVED *
6055182
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
See Attachment Sheet List to below document Link
FY 2020 Water Utility Financial Plan
See Attachment Sheet List to below document Link
Palo Alto Water Cost of Service Memo 2019
Attachment R
*NOT YET APPROVED *
6055179
Resolution No.
Resolution of the Council of the City of Palo Alto Increasing Water
Rates by Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service
Connections), W-4 (Residential Master-Metered and General Non-
Residential Water Service), and W-7 (Non-Residential Irrigation
Water Service)
R E C I T A L S
A.Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
B.On , 2019, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
C.As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the 2019 public hearing was mailed to all City of Palo Alto
Utilities water customers by , 2019.
D.The City Clerk has tabulated the total number of written protests presented by
the close of the public hearing, and determined that it was less than fifty percent (50%) of the
total number of customers and property owners subject to the proposed water rate
amendments, therefore a majority protest does not exist against the proposal.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-1 (General Residential Water Service) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-1, as amended, shall become effective July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-2, as amended, shall become effective July 1, 2019.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-3 (Fire Service Connections) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-3, as amended, shall become effective July 1, 2019.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-4 (Residential Master-Metered and General Non-Residential Water Service) is
hereby amended to read as attached and incorporated. Utility Rate Schedule W-4, as amended,
shall become effective July 1, 2019.
Attachment R
* NOT YET APPROVED *
6055179
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-7 (Non-Residential Irrigation Water Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule W-7, as amended, shall become effective
July 1, 2019.
SECTION 6. The City Council finds as follows:
a. Revenues derived from the water rates approved by this resolution do not exceed
the funds required to provide water service.
b. Revenues derived from the water rates approved by this resolution shall not be used
for any purpose other than providing water service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
c. The amount of the water rates imposed upon any parcel or person as an incident of
property ownership shall not exceed the proportional cost of the water service
attributable to the parcel.
SECTION 7. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 8. The Council finds that the adoption of this resolution changing water
rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to maintain service is not subject to
the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code
Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After
reviewing the staff report and all attachments presented to Council, the Council incorporates
these documents herein and finds that sufficient evidence has been presented setting forth with
specificity the basis for this claim of CEQA exemption.
Attachment R
* NOT YET APPROVED *
6055179
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
See Attachment Sheet List to below document Link
Proposed Water Rate Schedules W-1, W-2, W-3, W-4 and W-7
NOT YET APPROVED
1
Resolution No. ______
Resolution of the Council of the City of Palo Alto Amending Utility Rate
Schedule D-1 (Storm and Surface Water Drainage) to Increase Storm
Water Management Fee Rates by 4.5% Per Month Per Equivalent
Residential Unit for Fiscal Year 2020
The Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule
D-1 (Storm and Surface Water Drainage) is hereby amended to read in accordance with sheet D-
1-1, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended,
shall become effective July 1, 2019.
SECTION 2. The Council finds that this rate increase is being imposed to offset the effects of
inflation on labor and material costs pursuant to the annual inflationary fee escalator provision
of the Storm Water Management Fee ballot measure, which was approved by a majority of Palo
Alto property owners on April 11, 2017.
SECTION 3. The Council finds that the revenue derived from the authorized adoption enumerated
herein shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the
City of Palo Alto.
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
NOT YET APPROVED
2
SECTION 4. The Council finds that modification and approval of this change to the Utility Rate
Schedule D-1 (Storm and Surface Water Drainage) for the purpose of meeting operating expenses
is statutorily exempt from California Environmental Quality Act (CEQA) review, pursuant to Public
Resources Code Section 15273(a), as a modification of a rate or charge for the purpose funding
capital projects and operating expenses necessary to maintain service within existing service
areas.
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ _____________________________
Assistant City Attorney City Manager
_____________________________
Director of Public Works
_____________________________
Director of Administrative Services
See Attachment Sheet List to below document Link
Proposed Storm and Surface Water Drainage Rate Schedule D-1
Attachment V
*NOT YET APPROVED *
1
Resolution No. _________
Resolution of the Council of the City of Palo Alto Adopting a Dark
Fiber Rate Increase and Amending Rate Schedules EDF-1 (Dark Fiber
Licensing Services) and EDF-2 (Dark Fiber Connection Fees)
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule EDF-1 (Dark Fiber Licensing Services) is hereby amended to read as attached and
incorporated. Utility Rate Schedule EDF-1, as amended, shall become effective July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule EDF-2 (Dark Fiber Connection Fees) is hereby amended to read as attached and
incorporated. Utility Rate Schedule EDF-2, as amended, shall become effective July 1, 2019.
SECTION 3. The Council finds that the revenue derived from the adoption of this
resolution shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of
the City of Palo Alto.
SECTION 4. The Council finds that the adoption of this resolution increasing dark fiber
rates by the Consumer Price Index to meet operating expenses, purchase supplies and
materials, meet financial reserve needs and obtain funds for capital improvements necessary to
maintain service is not subject to the California Environmental Quality Act (CEQA), pursuant to
California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of
Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to
Council, the Council incorporates these documents herein and finds that sufficient evidence has
been presented setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
Attachment V
* NOT YET APPROVED *
2
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
See Attachment Sheet List to below document Link
Proposed Dark Fiber Rate Schedules EDF-1 and EDF-2
See Attachment Sheet List to below document Link
Water Budget Rates Memorandum