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Home My WebLink About0274.093~ , r, / ,. r .. t, ,- - ~. ' da" BUDGETr)j-94 ~) =teI)Ol t~ ________ -----, { May '5, 1993 THE HONORABLE CITy COuNCIL Palo Alto, California Attention:-Finance Comnli ttee Proposed: .ater Rate Deers8.se and Return to N.onp.al water servic. Prielnq Members of the Council: Report in IJriet' This report recommends Council adoption of the attached resolution 'Which authorizes a $1. 1 million 'Water revenue de.crease ar,·:! implements revised water rate schedules to return to normal water pricing effective July 1, 1993. This rate proposal is contingent upon approval of a minimum 32 percent wholesale rate decrease by the San Fra~cisco Board of Supervisors prior to July 1, 1993. BAckgroun4 Palo Alto1 s 'Wl"'.olesale supplier of ..... ater is t.he San F'rar:!C'isco Water Department {SFWD}. On April 14, 1993, SFWD declared th.:it due to higher sales and lower costs, it intends to propose a 32 percent wholesale yater rate decrease before the San Francisco Public Utilities com:nission (Co:rrunission). 'I'he Commission meeting is currently scheduled for May 11. However, the Bay Area Water Users Association may arque that the decrease should be 40 percent based on a rate analysis by thair consultant. Thus, the size of the rate decrease is expected to be in the range of 32 to 40 p~rcent. To Decome final, any percentage decrease adopted by the Commission will still require approval in June by the San Francie;co Board of Supervisors. The anticip~ted effective date of the ~holasale rate decrease is July 1, 1993. CI<11: 274,93 1 Despite this tmcertail"lty. staff plans to ac-t immediately in the event the SF'WD rate proposal is approved in June. staff IS reco:mmended ... ater rates contained herein are continge.nt upon tl-.e Soan Francisco Board of Supervisor rs approval of at least a 3.2 p6:t'cent wholesale rate decrease to \ioIho:! esale customers such as Palo Alto. This represents a savings to Pale Alto in purchased "';ater costs of approximately '$1.78 million. Ba::;ed on the Utility's objectives for rate stability and funding of reserves at prudent le ..... els, staff recomme:1ds that a portion ($660 1 000) of the $1.78 million savings be retained by the water Fund and the residual savings of $1.1 million be p.a$sed through to the ratep3yers by decreasing rates. For the ~ater Fund, this represents a~ averag~ decrease i:'l water revenue of approxinately 7 percent~ It' the San Francisco Board of Supervisors approves a wholesale rate decrease at a level higher than 32 percent, staff reco~ends s~ch additional purchased water savinss go into the appropriate ~ater Fund reserve. HO':ll'ever, in the event the. SFWD rate dec!'ease .is not approved, or is materially changed, staff plans to go directly to COlJ.ncil -with revised water r;:lte schedules before July 1. The FY 1992-94 two year budget adopted last year provides for a 24 percent water rate increase in F'l 1993-94. The $3.0 million rate increase was based on the drought continuing, the need to finance the Infrastructure Project {$1.4 million increase), to fund reserves ($.5 million increase), to increase the ~ransfer to the General FUnd based on a full rate of return ($0.6 million increase) and other costs. The most important need for the rate increase ~as based on drought conditions continuing and a sales level forecast of 4:.5 million urlits annually. Given the improve:d .... ater supply situation .2Ind the end of the six- year drought, .. ater sales have been rising and are projected to reach approximately 5.6 Inillion units by the end of f'i 1993"'94 in Palo Al to. This rising sales level has negated the need to raise rates to finance the aforementioned expenditures. Accordingly, staff recollllllends cancellation of the scheduled 24 p-ercent rate increase for f'Y 1993-9'4, re9'~rdless of any rate decrease the-SFwD may take. Recommend.atior.. ~9 Lov •. ~ .. ~.J:l. water Fund. Tran5l(er to the Genera} .runCl Another contributing faclor to foregoing the rate inct"ease is a staff recommendation to reduce the Transfer to the Gene~al Fund for F'i 1993-94 from the budgeted $1~7 million to $1.3 :c:illion~ The CKR:2H:93 , , ! f I ! r I " , $1.7 mi Ilion tra!".sfer was tased on d. full rate of return on rate-base. (or as is sometimes referred to as return on equity). However, in ""ccordance .. .-ith the Utility Enterprise Methodo!ogy. the Council can choose to base the Transfer to the General Fund on a lo'Wer rate of return. In this regard, staff reco'e'.mends that council adopt a $1.3 million Trans!er from the water Fund tor FY 1993-94 based on an e percent rate of return on ratebase (rath~r than 11.25 percent)~ Council adopted a $1.1 million Transfer to the General Fund !or F'l1992-9J. 'Which ""as similarly based on a reduced rate of return. Adoption of the lower amount recogni~~5 the need to keep Pale Alto wa,ter rates competitive 'With rates in surrounding conurlunities. It should be noted that it the water Fund financial health improves, staff plans to "'ramp up" the Transfer to the General Fund over the rlext two to three year period to a full rate of return. Given certain conditions, it is possible that the Water Fund's reserves will be restored to their respective minimum levels yithin the ne¥t t .... o fiscal y-ear'o~ Next year, staff plans "t,o perform a ""ater rate comparison cetween palo Alto and surrounding communities. Bas~d on this (::ompari50n~ a staft decision to recOliUllend a 'T:t'ansfer to the General FUnd based on a full rate of return 'Will be evaluated, in terms of the competitiveness of Palo Alto's water rates and the condition of the Wat~r Fund reserves at that time. RETURN TO NORMAL .JfA'l'~R PRICING In response to SFWD's cancellation of mand.ator)~ \tfater rationing and in recognition that the 'Water sUPFly situation has improved sUbstantially, staff recommends termination of the current Drouqh~ Rate Schedules and a reblrn to nomal water service pricing. Ho-.,.,ever, pro1ll.oting conservation continues to be a rate"Olakin9 objective. Therefore, staff reco~~ends retaining an inverted rate structure/ ~hich has been Palo Altats rate structure af choice for all customer classes since 1976. Reinstating normal "'-ater pricing \Will necessarily result in reversing the process used to achieve steeply inverted drought rates. Since the drought began in 1987, small water \",;sers have received rate decreases or relati'Jely small rate increases, while large water users haVe received a much larger share of tr.e rate increases. Consequently. thi! transition to normal ...... ater service schedules will generally result in small users experiencing relatively ll!inor bill decreases, ito'hile larger users ",,·ill experience substantially decreased bills. Finally, from the utility's perspective, the transition from drought rate schedules to normal wat.er sendee :r-ate schedules involves a degree of uncertainty in terms of forecasting sales CK1"2H:n 3 L • ----,,~ , ';i; .--' .. . 1 t· .l ~.' ~' ..;:.~: . .>" "'"1'.' ., ~. . .... '::>-': I I .. :1- ~I · ...... r-. ··l _ .... _---_ ... -... _.,,- - revenue. 'l'he accuracy in estimating sales revenue is made difficult by the fact that ~ major change in sales is forecast, a lower rever.ue r....,quirement exist.s. new rates 3.re proposed, and new rate blocks are proposed. Staff liill continue to monitor .... ater sales and revenue on a monthly basis and advi~e the cou~cil during t'he mid-year report of the sta;tus and \oIhet.hcr any signi ficant chenges are projected. Propose~ _ate . .%' Re.te, CUr-cent resioe.'1tial drought rates range in price from '$1.45 per unit to $9.20 per un it. The proposed residential Wate~ Rate Schedule W-l contains three rate blocks, which asc~nd in price fro~ $1.40 per unit to $3.40 per unit. Based on recent cor::sump'tion trends, staff projects that approximarely three-quarters of all residential usage will fall ~ithin the first t~o rate blocks j while ene-fourth will be priced at the tailblock rate. ~he rate schedule has be~n designed to achieve t .. o objectives: (1) produce an average rate for the residential cla5S approximately equivalent to the FY 1993-94 Water Fund syste~ average rate of $2.64 per unit sold, and (2) to collapse the steeply inVerted drought cates as much as possible, while still providing for some level of percentage decrease in the custO!!l.er's bill. The: resulting rate differential between the highest and lowest rate block is approximately 140 percent4 Prior to entering the drought, thz rate differential was appro~imately 70 percent. Primarily to promote conservation and avoid the diEruptive e!!~cts cf water xa~ioning, the rate differential was increased by 1800 percent during the drought~ The cu~rent non-residential drought rates range from $2.10 per unit to $9.60 per unit. The propo5ed non-residential wat.er rates range from $2 per unit to $3 per unit and have been similarly designed to achieve the two objec:th'es mentioned above. St~ff proposes introduction of Water Rat.e Scnf:"dule W-4 applicable to all non residential customers and to mu.lti-family residential accounts served through a master n:.eter ~ Because of the extreme di versi ty of 'Water use patterns c":'.monq non-residential cU5tom.:!rs l sta.ff reco::nmends three separate rate structures: based on meter size applicable to this class. Customers served by a water :meter smaller than 1/2 inch in size will be billed under rate structure W-4A, customers with ~eters between 2 inches and 4 incnes will be billed '.mder rate structure ""-48 and customers with meters greater than 4 inches ~ill be served under rate structu:re W-4C. This distinction based en meter size is common among water utilities and recognizes that all customers have legitimate req'..lirements for water I which can vary due to operatlonal and functional factors, as well as the $ize of the facility itself. CMR.:274:93 • L I r t ~ .. -. - ;.-". As an alternative rate dasign applL::able to th'E! l'lon-residenti-!l custClmers, staff considered a flat rate which is another standard rate structure employed b:t .. ate_t" util i ties. The <ldv~ntages of this rate structure are jts simplicity, o::::ustomer acceptance, and the fact that it facilit::1tgs utility accuracy in revenue forecasting. The disadvantage is that it does not pro~ide customer price signals as consumption rise::; and, therefore, does not !!1eet tl".e l:"eso'.Jrce conservation objective compared to an inv-erted rate structure. On balance, staff could support either a flat or inverted rate structure for non-t~sidential customers. The staff recommendation in this report to retain an inverted rate structure is based en the possibility that if a drought occurs in any year, retention of an inverted rate structure .. ill facili t:3te the transition back to a orought rate str~cture. !~t on customer Bills As mentioned ea::lier , the transition to normal water service pricing from the steeply ~nverted drought rates lr,"ill result in relatively larger decreases as usaga levels rise. The higher the consumption level, the higher the percentage decrease in comparing arought rates to normal 'Water rates. The table bela .. indicates the impact on customer bills. To compare non-residential water rates with the drought rates, cef~rence is made to the Baseline ConsuJllption ~'llowal'lce (BCA) .... ·r,ict' .. I;.·ill end Jllly 1, 1993. l'ne j"'i 1993-94 water rates planned for neighboring cities are unknown at this time. Staff vill make further attempts in the ~eek$ ahead to obtain the new water rates in surrounding communities for rate co:mp~risons. usage Monthly Amount of Percent CUstomer ~~_f.l ~ Decrea.se DaC%...!I:Jls8 sngl~Fam.Re5idential 7 $ 13.80 $ .35 2 Sngl.Fam.Rcsidential 14 31.1'15 .98 3 Sngl.Fam.Residential 20 52.05 17.78 25 Sngl.Fam.Residential 35 103.05 l{l4.78 50 Sr.ql.Fam.Reside~tial 50 154.05 191.78 55 Non-Residential: (5/S' meter, 1 BeA) 9 22.00 1.40 6 (5/8' meter, 2 SeA) le 43.20 8.80 11 (5/8 • meter, 3 BeA) 27 64. SO 64.2Q 50 (2"-4" i!leter. 1 BCA) 100 211.30 15.00 7 (2--4" meter. 2 SCA) 200 411. 30 )40.00 25 (2"-4" :meter, 3 BeA) 300 711.30 900.00 53 (6"-8-meter, 1 BeA) 600 1230.00 90.00 7 (6"-8" meter, 2 BO.) 12QO 2830.00 3950.00 58 (6 111 -8" meter, J BCA) 1800 4510.00 12.560.00 74 CJoIII: 274: 93 5 . ·~~~~Y?~~fl:r 'i~ji~~~I' ,", ..... " . tsaooptndatioD Sta~f rccom~ends Council approval of the attached Resolution ~hich decreases water revenue approximately $1.1 lnillion a::1d reinstates normal watar service rate schedules effective July 1, 1993~ This recommendation is contingent upon the San Franc:! s.::o Board C'f Supervisol's approval of a minimum 32 percent \,ihclesale water decrease from SFWO pri~r to July 1{ 1993. Respectfully submitted, --U./ aU; 1;;tJ.-_ W. RAlIOY BALDSCHUll Assistant Director of UtilitiEs, Admini5~::;V~ S~ices f. !///~' EDW~' J ~ KEnZEK Interim Director of u,tili'cies ~:W~ City Manager Attachments. Resolution Rate Schedules W-l and W-4 C.II" 274: 93 6 -----:". L - - R£SOL1..1'1'ION NO. RESOLU7ION OF T"dE COUNCIL OF 'mE c-iTY OF P.i\LO AL'T'O AMENDING UTILITY RATE SCHEDULE W·l AND 'ESTABLISHING tJTIL!TY RATE SCHEDU"1.JE 'tII'-4 OF THE CITY OF PALO ALTO 'lTTILI:'!ES RATES AND CHAP.CBS FERTAINING 'I'D GENERAl. WATBR SERVICE WHEREAS, the Council has considered t~e need for an adjustment in general water service rates; NOW. ?dEREFORE. the Council of the City of Pal-:. Alto does hereby RSSOLVE as follows: SECTION 1. Pursuant to Secr.ior.. 12.20 .01Q of the Palo Alto MUnicipal Code~ Schedule W-l of the Palo ~to Utilities Rates and charges (Ger.eral Residential Water Service) is amended and Utility Rate Schedule W-4 (General Non-Residential Water Service) of the Palo Alto Utilities Rates and Charges is established to read in accordance with the i3heets captioned W-l-l. W·4-1~ and W-4-2~ attached hereto and inco~~orated he~ein by this refe~ence. The foregoing Utility Rate Schedules shall become effective on July 1, 1993. SEiCTION __ ~. The Council finds that the revenue derived from the Iluthorized adj ustments of the general water service rates shall be used only for the purposes set forth in Article VII, Section 2~ of the Cnarter of the City of palo Alto. SPCTION 3. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act~ California PuLlic Reso~rces Code section 21080. subdivision (b) (8). AYES: NOES: ABSENT: ABSTENTIONS: APPROVED: Mayor AP PROVBD AS TO FeRM; City Manager Senior ABst. City Attorney Director of UtilitieS-- Q~ lye 0070';61 - GENERAL RESIDENTIAL WATER SERVICE UTILITY RATE SCHEDULE 1'.'-1 A. APPUCABIUTY: This schedule appfles to all residential srng!e family water service. B. TER RITO RY: Inside and outside the ineorporat.ed limits of the Cirt 01 Palo Me and land owned or leased by the City. C. RATES: SeNice Charg!3: For 5/B-"""~ meter ........... . For 3/4 inch meter ............. . For 1 inch meter ........... .. . For 1 1/2 inch meter .. Per Meter i'fLMQr,tn . . ...... . " $ 4.00 . ............... 4.00 . ............... 4.50 .... .. ...... 5.20 For 2-inch meter For 3-inch meter For 4-inch meter For B-L'lch meter For 8-inch meter Fo< lO-inch meter ..................... 6.80 ...................................... 11.30 ..... " .... " ....... '" ...... ' ........ 16.20 ...................................... ~OO .............................. 46.75 ............................. 5800 Commodily fl~ (To be added Se,vice Charge and applicable to all pressure zooes.) Pel Mete, ~Meter Per Hundred Cubic Feet Air PresilJre Zones F~st Next Over 7 CcI .............. " . . .. . .... . . .. . .. . . .. . .. $1.40 7 CcI . . . . . .... . . . ....... ' . . .. . .. . . ... 2.55 14 CcI ......................................... 3.40 Temporary unme1ered se:vice to residential subdivision de ... e I~ers, per COrtnect~on CITY OF PALO ALTO UTIUTIES Issued by the City Council Supersedes Sheet No. W-l-1 dated 7-1-92 .............. $4.00 Effective 7-1-93 Sheet No W-1-1 I GENERAL NO~l·RESIDENTIAL WATER SERVICE UTILITY RATE SCHEOULE):i'~ A. APPLICAB!LITY: This schedu;e spplles to non-residential wa!er saNiee in the Sity of Pa!o Alto and fts distribution area, This schedu~e is also appricabre to mutti~fami'Y residential customers served thrO'Jgh a master meter. B. TERRITORY: Inside the incocporated limits of the City of Palo Alto, on land owned or leased by the City, and any other <and serviced by the Palo Alto Water Utility. C. RATES' Service Charge Per Meter Per MQr1th fa< SIS-inch meter. . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.00 For 3j4-inch meier. . . . . . . . . . . . . . . ....... 4.00 FOi 1-lnch meter ....... , ... ,... . . . . . . . . . . . ... _ . 450 For 1 1/2 inch meter . . . . . . . . . . 5.20 For 2 inch meter ............... .... .. .. .. .. . .. (80 For 3-inch meter _......... . . . . . . . 11.30 For 4-inch meter ............. . . . . . . . . . . . . . . . . . 16.20 For 6-inch meter . . . . . . . . . . .................... 30.00 For 8-inch meter . . . . . . . . ... . . . . . . . . . . . . . . ... 46.75 For 1 D-inch meter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58. DO Com'11odity RateKjjO be add. d 10 Service Ch~ Based on Meter Slzes £I~$tructu,e W-4 " For Meier SIZes SIB-Inch, 3/4 inch, 1 Inch. 1-112 Inch Per Meier . Per Month First 10 Cct Next 20 Cd Over 30 Cct CITY OF PALO ALTO UTILITIES issued by the City Council L Per Hundred CubiC Feet A;\ Pressu.r~~_~ ... , $2.00 2.40 .. 3.00 Effective 7-1-93 Original Sheet No. W+l _-.cc,,~ I --; 1 i ~ { • I 1 - -.~ . Based on Meter Sizes Bale Structure W,-Ul For Ma!er Sizes 2 Inch, 3 Inch, 4 Inch Per Meier Per Month First 200 Ccf Next 200 Ccf Rate Structure W-4-C For All Metsrs Greater t"an 4 Inch Per Meter Per Month First 700 Ccf Over 700 Ccf CITY OF PALO ALTO UTILITIES Issued by the City Council GENERAL NON-RESIDENTIAL WATER SERVICE J.JItUIY P.A TE SCHEDULE W-4 ((Continueal Per Hundred Cubic Feel AH Pressure Zones $2.00 3.00 Per Hundred C'Jbic Feet A~I Pressure ZQ~ $2.00 2.84 Effective 7-'-93 Original Sheet No. W-Jj-2 \ ,