1 City Council
Special Meeting
Monday, September 19, 2022
5:00 PM
Council Chamber & Virtual
Amended Agenda
Amended agenda items appear below in red
Pursuant to AB 361 Palo Alto City Council meetings will be held as “hybrid” meetings with the option to attend by teleconference/video conference or in person. To maximize public safety while still maintaining transparency and public access, members of the public can choose to participate from home or attend in person. Information on how the public may observe and participate in the meeting is located at the end of the agenda. Masks are strongly encouraged if attending in person.
HOW TO PARTICIPATE
VIRTUAL PARTICIPATION
CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900-6833
The meeting will be broadcast on Cable TV Channel 26, live on YouTube at https://www.youtube.com/c/cityofpaloalto, and s t r e a m e d t o Midpen Media Center at https://midpenmedia.org.
TIME ESTIMATES
Time estimates are provided as part of the Council's effort to manage its time at Council meetings. Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public.
REVISED PUBLIC COMMENTS
Public Comments will be accepted both in pe rson and via Zoom for up to three minutes or an amount of time determined by the Chair. All requests to speak will be taken until 5 minutes after the staff’s presentation. Written public comments can be submitted in advance to [email protected] and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your email subject line.
PowerPoints, videos , or other media to be presented during public comment are accepted only by email to [email protected] at least 24 hours prior to the meeting. Once received, the City Clerk will have them sha red at public comment for the specified item. To uphold strong cybersecurity management practices, USB’s or other physical electronic storage devices are not accepted. 2 Special Meeting September 19, 2022
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org.
CALL TO ORDER
CLOSED SESSION (5:00 - 6:30 PM)
Public Comments: Members of the public may speak to the Closed Session item(s); three minutes per speaker.
1. CONFERENCE WITH CITY ATTORNEY - EXISTING LITIGATION Subject:
Charles Scrivner v. City of Palo Alto Santa Clara County Superior Court Case No. 18 -CV-333834 (One Case, as Defendant) Authorit y:
Government Code Section 54956.9(d)(1)
2. CONFERENCE WITH CITY ATTORNEY - EXISTING LITIGATION Subject:
Eric Figueroa, et al. v. City of Palo Alto Santa Clara County Superior Court, Case No. 21 CV38374O Authority: Government Code Sectio n 54956.9(d)(1)
CONSENT CALENDAR (6:30 - 6:45 PM)
Items will be voted on in one motion unless removed from the calendar by three Council Members.
3. Adopt a Resolution Authorizing the City Manager to Purchase a Portion of the City’s Natural Gas Requirement s From Certain Preq ualified Natural Gas Suppliers Under Specified Terms and Conditions for Delivery During Calendar Years 2023 Through 2032, Inclusive, With a $300 Million Maximum Aggregate Transaction Limit
4. Adoption of a Resolution to Appoint Adriane D . McCoy of Baker Ti lly US, LLP as Interim City Auditor Through January 31, 2023
AGENDA CHANGES, ADDITIONS AND DELETIONS
PUBLIC COMMENT (6:45 – 7:00 PM)
Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes.
CITY MANAGER COMMENTS (7:00 - 7:15 PM)
STUDY SESSION
5. 3400 El CAMINO REAL [22PLN -00227]: Request for Prescreening of the Applicant's Proposal to Rezone the Subject Site From Various Zoning Districts t o Planned Housing Z one (PHZ) to Allow Construction of 382 Residential Rental Units (44 studios, 243 one-bedroom, 86 two- bedroom and 9 three -bedroom units) in two Buildings. Environmental Assessment: Not a Project. Zoning District: CS, CS(H), RM-20 (Service Commercial, Hotel, Multi-Family Residential). (7:15 – 8:15 PM) *This item has been rescheduled to October 17th, 2022.
Presentation
3 Special Meeting September 19, 2022
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org.
6. Joint Study Session With City Council and Utilities Advisory Commission (UAC) Regarding Fiber -to-the-Premise Efforts (7:15 – 10:00 PM) Supplemental Report Added
COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS
Members of the public may not speak to the item(s)
ADJOURNMENT
INFORMATION REPORTS
Information reports are provided for informational purposes only to the Council and the pub lic but are not listed for action during this meeting’s agenda.
7. Rental Residential Vacancy Rate Determination for Three or More Dwelling Units for 1st Half of 2022
OTHER INFORMATION
Standing Committee Meetings
Finance Committee Meeting September 20, 2022
Rail Committee Meeting September 21, 2022
Public Comment Letters
Schedule of Meetings
Public Letters
Presentation
Sub-
Committee
Presentation
4 Special Meeting September 19, 2022
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org.
PUBLIC COMMENT INSTRUCTIONS
Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone.
1. Written public comments may be su bmitted by email to [email protected].
2. Spoken public comments using a computer will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom -based meeting. Please read the following instructions carefully.
A. You may download the Zoom client or connect to the meeting in - browser. If using your browser, make sure you are using a current, up-to-date browser: Chrome 30+, Firefox 27+, Micr osoft Edge 12+, Safari 7+. Certain functionality may be disabled in older brow sers including Internet Explorer.
B. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak.
C. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak.
D. When called, please limit your remarks to the time limit allotted.
E. A timer will be shown on the computer to help keep track of your comments.
3. Spoken public comments using a smart phone will be accepted through the teleconference meeting. To address the Council, download the Zoom application onto your phone from the Apple App Store or Google Play Store and enter the Meeting ID below. Please follow the instructions B-E above.
4. Spoken public comments using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted.
CLICK HERE TO JOIN Meeting ID: 362 027 238 Phone:1(669)900-6833 City of Palo Alto (ID # 14551)
City Council Staff Report
Meeting Date: 9/19/2022 Report Type: Consent Calendar
City of Palo Alto Page 1
Title: Adopt a Resolution Authorizing the City Manager to Purchase a Portion of the City’s Natural Gas Requirements From Certain Prequalified Natural Gas Suppliers Under Specified Terms and Conditions for Delivery During Calendar Years 2023 Through 2032, I nclusive, With a $300 Million Maximum Aggregate Transaction Limit
From: City Manager
Lead Department: Utilities
Recommendation
Staff recommends that the City Council:
1. Adopt the attached resolution (Attachment A) authorizing the City Manager or their designee to purchase a portion of the City’s natural gas requirements from certain prequalified natural gas suppliers under specified terms and conditions (“Master Agreements”) for delivery during calendar years 2023 through 2032, inclusive, subject to the following limitations:
a. The date for natural gas delivery for each transaction shall not exceed 36 months from the date the transaction is executed;
b. The delivery date for any transaction shall not extend beyond December 2032; c. The maximum aggregate transaction limit under each Master Agreement shall be $300 million.
Executive Summary
An active set of creditworthy counterparties is essential to ensure that the City of Palo Alto Utilities (“City”) meets its obligation to meet customers’ natural gas demands. I n 2007, via Ordinance 4936 , Council authorized the City Manager to transact with a set of prequ alified natural gas suppliers for the purchase and sale of natural gas via North American Energy Standards Board, Inc. Contracts (“NAESB Contracts”, or “Master Agreements” ). Ordinance 4936 authorized the City Manager to transact with those counterparties under specified terms and conditions including a maximum expenditure of $65 million per Master A greement. In 2016, Council adopted Resolution 9586 updating and replacing Ordinance 49 36, authorizing the City Manager to enter into natural gas purchase transactions with the pre -qualified suppliers through calendar year 2022 and increasing the maximum expenditure to $100 million per Master Agreement. An increase in the maximum expenditure limit from $100 million to $300 3 Packet Pg. 5
City of Palo Alto Page 2
million is needed to continue to purchase natural gas for the City’s retail load for delivery during calendar years 2023 through 2032.
All natural gas purchase transactions are subject to the Palo Alto Municipal Code and the City’s Energy Risk Management Policy, Guidelines and Procedures . Staff will seek Council approval prior to execution of any transaction outside of the above limitations.
Background
Approved Counterparties
In 2007, Council approved a set of gas Master A greements (via adoption of Ordinance 4936) enabling the City to transact for natural gas and ga s-related products. The approved Master Agreements were with the following counterparties:
1. BP Energy Company;
2. Coral Energy Resources, L.P.;
3. Sempra Energy Trading Corporation;
4. ConocoPhillips Company;
5. J.P. Morgan Ventures Energy Corporation; and
6. Powerex Corporation.
The current set of Council -approved counterparties which accounts for changes in corporate structure or ownership since 2007 includes:
1. BP Energy Company;
2. ConocoPhillips Company;
3. EDF Trading North America, L.L.C.;
4. Powerex Corp; and
5. Shell Energy North America (US), L.P.
Expenditure Limits
On April 19, 2012, Council adopted Resolution 9244 amending the Gas Utility Long -Term Plan (GULP) Objectives, Strategies, and Imple mentation Plan to discontinue the laddering purchase strategy and implement gas supply rates that change monthly according to market prices as noted in Staff Report 2552 . With t he exception of a few de minimis fixed -price transactions executed in the summer months to monetize excess pipeline capacity, all transactions are priced at the short -term monthly and daily market indices. Because the City does not purchase gas via long -term contracts , there is not a need to diversify purchases across multiple counterparties to minimize credit risk.
Under Resolution 9586 , Council delegated authority to the City Manager to transact under Master agreements subject to certain conditions and restrictions including a $100 million expenditure limit applied to each Master Agreeme nt. BP Energy Company and EDF Trading North America, L.L.C. are active bidders for the City’s index -based purchases, and $36.1 million out of the $100 million approved expenditure remains for EDF Trading North America, L.L.C. as of June 28, 2022.
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City of Palo Alto Page 3
Discussion
All transactions under the Master Agreements will be executed by staff in accordance with the Council-approved Energy Risk Management Policy, and internally approved Energy Risk Management Guidelines and Procedures. Council is provided with an update of all executed transactions under the Master Agreements in the quarterly Energy Risk Management reports.
The cost of natural gas purchased under the Master Agreements is a function of market prices and the City’s actual gas use. The City’s gas commodity c ost is expected to be $16.2 million in fiscal year (FY) 2023 alone; however, gas prices are volatile and unpredictable and actual costs incurred and passed through to ratepayers could be different.
While the City currently has 5 enabled gas suppliers, i t is likely that most transactions will be executed with the 2 suppliers that have been most active over the past several years. Staff recommends a maximum transaction limit of $300 million for each Master Agreement. This increased limit will leave enough headroom, under the most heavily used contract, for an estimated ten years of gas purchases.
There are efforts underway to expand the number of counterparties enabled under gas Master Agreements, including the adoption in 2016 (via Resolution 9628 ) of a standard form gas Master Agreement that new counterparties can sign on to at any time . Any new Master Agreements will be presented to Council for approv al with recommended conditions and restrictions including a maximum expenditure limit for each Master Agreement.
Policy Implications
Authorizing the City Manager to buy and sell natural gas to meet load obligations under the Master Agreements conforms to existing Council-approved Energy Risk Management Policy and the Palo Alto Municipal Code. Further, the recommendation is consistent with the Council - approved GULP Objectives and Utilities Strategic Plan objective to manage supply cost by negotiating supply contracts to minimize financial risk.
Alternatives
Council could elect to approve different expenditure limits; however, lower limits could reduce staff’s ability achieve the lowest cost for gas supplies if limits are reached for a given supplier.
Resource Impacts
Approval of the recommendation will not impact the FY 2023 budget.
Environmental Review
Council’s authorization for the City Manager to purchase natural gas from prequalified suppliers does not meet the definition of a project for the purpose s of the California Environmental Quality Act, under Public Resources Code Section 21065 and CEQA Guidelines Section 3 Packet Pg. 7
City of Palo Alto Page 4
15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment.
Attachments:
• Attachment3.a: Attachment A: Resolution
3 Packet Pg. 8
6055624
Resolution No. ____
Resolution of the Council of the City of Palo Alto Authorizing the City Manager to Purchase a Portion of the City’s Natural Gas Requirements from Certain Prequalified Natural Gas Suppliers Under Specified Terms and Conditions for Delivery during Calendar Years 2023 through 2032, Inclusive
RECITALS
A. Sinc
e April 19, 2012, the Council implemented gas supply rates that change monthly according to market prices, as described in Staff Report #2552.
B. In a
ccordance with the City’s Gas Utility Long-Term Plan (GULP), last updated June 5, 2017 (Staff Report #7967) the City must purchase and, incidental to purchases, sell gas to meet the needs of its gas customers by contracting for terms varying from less than one month to one month. The City's Energy Risk Management Policies, last updated December 17, 2018 (Staff Report #9813), provide that the City will purchase only that quantity of gas meeting its load requirements at the time a transaction is executed.
C. By O
rdinance No. 4936, adopted March 12, 2007, Council authorized the City Manager to negotiate and sign new, amended, or restated North American Energy Standards Board, Inc. contracts (each a “NAESB Contract” or “Master Agreement”) with BP Energy Company, Coral Energy Resources, L.P., Sempra Energy Trading Corporation, ConocoPhillips Company, J.P. Morgan Ventures Energy Corporation, and Powerex Corporation, and further authorized the City Manager or his designee, the Director of Utilities, to negotiate one or more individual transactions, including, but not limited to, negotiating contracts, addenda, confirmations and transactions. The authorization extended to individual transactions executed under any number of NAESB Contracts with the referenced suppliers; provided, however, (a) the maximum expenditure under any NAESB Contract shall not exceed $65 million in the aggregate; and (b) the maximum term of any transaction shall not exceed three years, commencing on the delivery date of the transaction.
D. On May 16, 2016, Council adopted Resolution No. 9586, authorizing the City Manager to enter into natural gas purchase transactions with one or more of the pre- qualified suppliers through December 31, 2022 and increasing the maximum expenditure under any NAESB contract to $100 million.
E. The current list of Council-approved counterparties which accounts for changes in corporate structure or ownership since Council’s adoption of Ordinance No. 4936 and Resolution No. 9586 includes: BP Energy Company, ConocoPhillips Company, EDF Trading North America, L.L.C., Powerex Corporation, and Shell Energy North America (U.S.), L.P.
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6055624
F. The
City intends to purchase natural gas from one or more of these pre- qu
alified suppliers for delivery during calendar years 2023 through 2032, inclusive, so long as the supplier with whom the City negotiates a specific purchase transaction continues to be qualified and otherwise eligible to transact with the City.
G. Sinc
e Council’s approval of Resolution No. 9586, BP Energy Company and EDF Trading North America, L.L.C. have been active bidders for the City’s index-ba sed gas
purchases, and $36.1 million of the approved $100 million expenditure limit remains for EDF Trading North America, L.L.C. as of June 28, 2022.
H. An increase in the maximum expenditure limit is needed to continue to purchase natural gas for the City’s retail load for delivery during calendar years 2023 through 2032.
N
OW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. The Council hereby authorizes the City Manager or his designee, the Director of Utilities, to purchase a portion of the City’s natural gas requirements from the prequalified suppliers by negotiating one or more individual transactions, including, but not limited to, contracts, addenda, confirmations and transactions. The authorization shall extend to individual transactions executed under any number of NAESB Contracts or Master Agreements with the suppliers referenced in Recital E.
SECTION 2. The purchases negotiated under Section 1 shall conform to the following requirements:
a. The maximum expenditure under any Master Agreement will be $300 million; b. The maximum term of any transaction shall not exceed three years, commencing on the d elivery date of the transaction. The sentence preceding notwithstanding, the City may enter into a transaction greater than three years, if the Council grants prior approval to such transaction. c. No transaction entered into with any of the referenced suppliers shall extend beyond December 31, 2032.
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SECTION 3. The Council hereby finds and determines that the adoption of this Resolution does not meet the definition of a project for the purposes of the California Environmental Quality Act (CEQA), 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.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST: APPROVED:
_____________
___________________ ________________________________
City Clerk Mayor
________________________________ ________________________________ Assistant City Attorney City Manager
________________________________
Director of Administrative Services
________________________________
Director of Utilities
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City of Palo Alto (ID # 14760)
Office of the CAO
City Council CAO Report
Meeting Date: 9/19/2022 Report Type: Consent Calendar
Title: Adoption of a Resolution to Appoint Adriane D. McCoy of Baker Tilly US, LLP as Interim City Auditor Through January 31, 2023
From: Lesley Milton, City Clerk
Recommendation
The City Council is recommended to adopt a resolution appointing Adriane D. McCoy, Certified Internal Auditor (CIA) of Baker Tilly US, LLP, as Palo Alto’s Interim City Auditor through January 31, 2023 (Attachment A).
Background
The Palo Alto Charter provides that the City Council appoint an Auditor who serves at the Council’s will. The Charter describes the Auditor’s key duties. (See Charter, Art. IV, sections 1 and 12.)
In February 2020, the Council directed the Council Appointed Officers (CAO) Committee to conduct a solicitation for outsourced internal auditing services. After an extensive procurement process, the CAO Committee recommended finalists for Council consideration. On September 28, 2020, the Council appointed Kyle O’Rourke, MPA, CAI, CGAP, CRMA, Senior Consulting Manager with Baker Tilly US, LLP, as Palo Alto’s City Auditor. The Council executed a contract with Baker Tilly for the services of Mr. O’Rourke and other supporting personnel, effective October 1, 2020 through June 30, 2022, for a not-to-exceed amount of $1,300,000. On May 9, 2022, the CAO Committee recommended and the Council approved an amendment to the contract to extend the term to June 30, 2025, revise the project scope, and increase the contract amount by $2,126,250 to a not-to-exceed amount of $3,426,250 over five years.
Baker Tilly is a comprehensive professional services firm with a group dedicated to state and local governmental clients. Baker Tilly’s experience extends across more than 40 states with specific public sector clients in California such as the cities of Carlsbad, Riverside, Burbank, Modesto and Richmond and several utility clients including Sacramento Municipal Utility District, Imperial Irrigation District, Northern California Power Agency, San Diego Gas & Electric, Glendale Utilities, Pasadena Water and Electric, Anaheim Public Utilities, and the California Public Utilities Commission. This is notable as Palo Alto owns and operates its own utilities. 4 Packet Pg. 12
Discussion
On August 17, 2022, the City received the attached letter from Baker Tilly Managing Partner Vicki Hellenbrand informing the City that Mr. O’Rourke resigned from Baker Tilly on August 15, 2022, and will no longer serve as Palo Alto’s City Auditor.
On August 22, 2022 the City Council took action to “request up to three individuals to interview from Baker Tilly to act as an interim Auditor, and the Council Appointed Officers Committee to meet to address the next steps for filling the Auditor position for the medium to long term.” The City’s contract with Baker Tilly (Exhibit A, Scope of Services under “Designation of City Auditor”) addresses the potential for a vacancy in the City Auditor appointment:
On August 30, the Council interviewed three candidates and requested staff bring forward the appropriate actions to appoint Adriane D. McCoy of Baker Tilly US, LLP as the Interim City Auditor through January 31, 2023.
Adriane D. McCoy is a public sector
services professional with more than
25 years of experience as a trusted
business partner to staff and
management, consulting on ways to
strengthen and improve operations to
reduce risk and improve process
efficiencies.
She is a Certified Internal Auditor (CIA),
a Certified Government Auditing
Professional (CGAP), and holds a
Master of Science with a concentration
in cyber security, network and
infrastructure and Bachelor of Science
in operations management,
accounting. She holds several other
industry certifications and related
4 Packet Pg. 13
training.
Resource Impact
There is no resource impact associated with this interim appointment. The BakerTilly contract is executed and budgeted in the FY 2023 Adopted Budget.
Stakeholder Engagement
This work has been based on extensive prior discussion and direction from the City Council during multiple public meetings beginning in 2020. Staff in coordination with Baker Tilly and the City Council completed the interviews to bring forward this action. Further discussion and engagement is expected with the Council Appointed Officers Committee , as directed by Council, to meet to address the next steps for filling the Auditor position for the medium to long term.
Environmental Review
This action is exempt from CEQA and requires no further environmental review.
ATTACHMENTS:
• Attachment4.a: Attachment A: Resolution Appointing Adriane D. McCoy as Palo Alto Interim City Auditor (DOC)
4 Packet Pg. 14
NOT YET APPROVED
Resolution No. ____
A Resolution of the City Council for the City of Palo Alto Appointing Adriane D. McCoy, Director with Baker Tilly US, LLP, as the Palo Alto Interim City Auditor.
R E C I T A L S
A. The Palo Alto City Charter specifies the duties and functions of the City Auditor for the City of Palo Alto;
B. The Charter further specifies that the City Council shall appoint the City Auditor; C. The Council received notification that its current City Auditor, Kyle O’Rourke, is no longer with the City’s service provider, Baker Tilly US, LLP and will no longer serve as Palo Alto’s City Auditor;
D. The Council requested up to three candidates from Baker Tilly US, LLP and conducted interviews with candidates to serve as City Auditor;
NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. The Council hereby appoints Adriane D. McCoy, Director for Baker Tilly US, LLP, as interim City Auditor for the City of Palo Alto; SECTION 2. Adriane D. McCoy shall serve as interim City Auditor at the will of the Council as provided by the Charter, and shall further serve according to all of the terms and provisions of the Charter, the Municipal Code and the agreement for outsourced internal auditing services between the City of Palo Alto and Baker Tilly US, LLP; and SECTION 3. Nothing in this action confers employment or other employee rights, responsibilities and obligations to Adriane D. McCoy or Baker Tilly US, LLP.; and / /
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/ /
/ /
/ /
/ /
/ /
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NOT YET APPROVED
SECTION 4. This resolution shall be effective immediately. The appointment of Adriane D.
McCoy as interim City Auditor shall begin immediately and end on January 31, 2023 or on the expiration of the agreement for outsourced internal auditing services between the City of Palo Alto and Baker Tilly US, LLP, including any amendment, extension or termination approved by the Council, whichever is sooner.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________ City Clerk Mayor
APPROVED AS TO FORM:
__________________________
City Attorney
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City of Palo Alto (ID # 14595)
City Council Staff Report
Report Type: Study Session Meeting Date: 9/19/2022
City of Palo Alto Page 1
Summary Title: 3400 El Camino Real: Prescreening for 382 Rental Units Title: 3400 El CAMINO REAL [22PLN -00227]: Request for Prescreening of the Applicant's Proposal to Rezone the Subject Site From Various Zoning Districts to Planned Housing Zone (PHZ) to A llow Construction of 382 Residential Rental Units (44 studios, 243 one -bedroom, 86 two -bedroom and 9 three - bedroom units) in two Buildings. Environmental Assessment: Not a Project.
Zoning District: CS, CS(H), RM -20 (Service Commercial, Hotel, Multi- Family Residential).
From: City Manager
Lead Department: Planning and Development Services
This item has been removed from consideration and will be rescheduled for October 17 th, 2022
at 5:0 PM.
City of Palo Alto (ID # 13956)
City Council Staff Report
Meeting Date: 9/19/2022 Report Type: Study Session
City of Palo Alto Page 1
Title: Joint Study Session With City Council and Utilities Advisory Commission (UAC) Regarding Fiber -to-the-Premises Efforts
From: City Manager
Lead Department: Utilities
Recommendation
This item is being presented for the City Council's and Utility Advis ory Commission (UAC)’s information and discussion only. Staff is not providing any recommendations at this time.
Executive Summary
The Council and UAC are holding a joint session to discuss the City’s fiber expansion plan and specifically Fiber-to-the-Premises (FTTP). This report summarizes information presented to the UAC and UAC Fiber Subcommittee earlier this summer and is intended to foster further Council discussion on whether the City should pursue FTTP and become a new internet service provider (ISP) serving all residents and businesses in Palo Alto.
City Council and the UAC have had several discussions about FTTP and staff is seeking input at this stage in the evaluation of this effort. This joint session provides an opportunity to review the curren t status of this effort, and seek Council and UAC feedback on any remaining outstanding information for Council direction.
Areas for Council and UAC discussion include, but are not limited to:
• The tradeoffs of offering FTTP to the community as a service and the capital and operating investment needed for build out and program support • Becoming a new internet service provider and the benefits and risks associated • Financial models and organizational structure options The report includes the following information for Council as it considers FTTP next steps:
• Engineering design details
• Fiber construction cost estimates
• Market analysis results
• Financial models, and organizational structure options • Stakeholder engagement summary
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City of Palo Alto Page 2
While recognizing that thi s is a significant volume of information, this report reflects the recognition that making progress across these topic areas is important to enabling informed decisions on next steps.
In 2021 the City Council identified Fiber-to-the-Premises (FTTP) as a City Priority Initiative under the Community and Economic Recovery work plan and directed staff to accelerate key phases of the integrated fiber expansion approach to a) upgrade the existing dark fiber optic network and b) explore the feasibility of a FTTP enterprise. As a result, the engineering design for the City fiber optic backbone and FTTP distribution network is 90% complete, and in June 2022 the project team commenced a community survey to gauge market potential. These efforts enabled the project team to develop and analyze three business models for a City-operated ISP.
The three models cover a range of potential staffing scenarios: (1) 100% in -house staffing; (2) hybrid in -house and contract; and (3) 100% contract. The composition of in -house City st aff versus non-City staff may be altered in the models to change over time or as needs evolve.
The City’s Fiber Enterprise Fund has been fiscally sustainable over the past 15 years. From a competitive perspective, the City’s current licensing of dark fibe r to end users is a service which isn’t normally offered by retail internet service providers. These providers instead offer only “managed” network services to homes and businesses. Conversely, FTTP is a competitive market served by major incumbent ISPs, AT&T and Comcast.
It is unclear whether the existing dark fiber network business model serves as a springboard to FTTP. The City’s fiber network has proven to be a valuable asset for supporting internal communication needs and serving a limited base of com mercial and institutional customers.
The City is also an established provider of several utilities (i.e. electric, gas, water, sewer, stormwater, and refuse). However, the competitive landscape for FTTP is very different from dark fiber licensing and managing other City -owned utilities. Although the City has long -term experience in building and maintaining its fiber optic infrastructure, offering FTTP internet services in a competitive marketplace poses new and different challenges. The City must not only build a reliable FTTP distribution network capable of delivering ultra -high-speed Internet options, but also capture market share, provide responsive customer service and support, efficiently implement and install FTTP services, and respond to competitors’ efforts.
Staff plans to return to the City Council before the end of the year with any additional information needed. This could enable actions to solidify the FTTP financial model, organization structure associated, and budgetary actions.
Background
The City of Palo Alto’s dark fiber optic backbone network was conceived in the mid-1990s and is maintained and operated by the City of Palo Alto Utilities (CPAU). Dark fiber is unused fiber through which no light is transmitted or installed fiber optic cable not carrying a signal. The basic business model is to provide dark fiber connectivity to customers requiring access to large 6 Packet Pg. 55
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amounts of bandwidth , and c ustomers are responsible for providing and maintaining the equipment to “light -up” or provision li censed fiber strands. Dark fiber is licensed or leased by the City , the provider in this case, without the accompanying transmission service. The City’s fiber network infrastructure is comprised of underground conduits (underground housing for fiber optic cables, or “underground infrastructure”) and utility pole attachments (overhead or “aerial infrastructure”). The dark fiber optic network has been expanded over the years to accommodate the needs of the City, as well as the commercial sector and Palo Alto Unified School District (PAUSD).
The Fiber Enterprise Fund has operated with fiscal sustainability over the past 15 years, accumulating over $34 million in Fiber Fund Reserves to provide a dark fiber network for City communication purposes and dark fiber licensing for commercial purposes. During efforts to upgrade the existing fiber network infrastructure, the City also explored the feasibility of expanding its fiber services and building out the network further to connect to homes and businesses with a c itywide FTTP distribution network that would offer retail services such as broadband and possibly more services. This is commonly known as building out the “last mile” in a network. When considering the deployment of the last mile, a key metric for analysi s is market share or “take rate.” Within the context of fiber network investment, take rate is an economic driver of the investment and a key metric for network viability and success.
During recent efforts to upgrade the existing fiber network infrastruc ture (see these efforts outlined in Linked Document), Council directed staff to explore how best to fully leverage the expansion of the fiber network, and coordinate efforts to potentially reduc e the incremental cost of extending fiber to the premise s. On October 5, 2020, City Council approved a multi - phased Fiber Network Expansion plan ( CMR #11580) to upgrade and expand the existing dar k fiber optic network, and explore adding the last mile for FTTP distribution in the network. There was a unanimous approval to pursue the upgrade of the dark fiber optic backbone , and to adopt a workplan to establish a City -operated ISP model for providin g FTTP service within five years. The City retained the services of a consulting firm, Magellan Broadband, to work on the engineering design, community engagement, FTTP business models and market analysis. Details and findings are summarized and shared for further discussion below.
Discussion
The following discussion topics cover studies conducted by City staff and the City’s consultant, Magellan Broadband and presents key findings used to build business models which will fit the framework of the City’s fin ancial, operational, and organizational requirements. The business models include business risk analyses across a spectrum of providing FTTP services and the impact those risks may have on the financial sustainability of the fiber utility over time.
Engineering Design for Dark Fiber Optic Backbone and FTTP Distribution Network Magellan provided an engineering design of the dark fiber optic backbone and FTTP network to inform on physical feasibility and help determine construction costs. To accelerate the fiber expansion plan, the City combined the detailed engineering designs for the City fiber optic 6 Packet Pg. 56
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backbone and FTTP networks. The combined approach included a more integrated design for both networks, streamlined constructability analysis, reduced costs fo r onsite fielding and engineering, and optimal redundancy. The engineering design will provide a comprehensive construction blueprint including cable sizes, vault locations, splice details, existing infrastructure, laterals, drops, and slack locations. Mag ellan estimates $10.9 million of shared construction savings if both networks are to be built in parallel.
The engineering design of the dark fiber optic backbone will support a dedicated communication network for City substations, advanced metering infra structure (AMI), supervisory control and data acquisition (SCADA) of critical utility infrastructures, and wireless field communication for City staff. The engineering design for the FTTP portion includes three optimal hut locations (i.e. Colorado Power Station, Hale Well, Briones Park) for fiber distribution and allocates specific fibers for future broadband usage throughout the City. Magellan designed the FTTP network using a phased approach based on the City’s departmental business needs, commercial dark fiber opportunities and to provide affordable, reliable, fast, and equitable access to broadband for the Palo Alto community.
The Citywide FTTP network is segmented across the City into many “fiber zones,” which allows the City to determine the order of construction for the network. This construction phasing approach is also incorporated into the business models discussed in further detail in t he report.
Magellan will continue working with the City to refine the construction phasing based on the considerations such as connecting priority areas, minimizing community impact, and maintaining a sufficient take rate. Additionally, construction in areas with aerial infrastructure is quicker and less costly than in underground areas, and this could influence deci sions regarding construction phasing.
As of July 2022, Magellan completed 90% of the engineering design for the City fiber optic backbone and FTTP networks, which is currently under review for further refinements.
Construction cost estimates have been ref ined at the 90% design stage from original estimates provided during the initial design process in 2021. The remaining 10% is anticipated to be completed around October 2022 and includes finishing the make -ready pole analysis and final construction package s for the network, and final construction methodologies and standards.
Estimates from local construction contractors are obtained to ensure pricing represents the local construction environment and costs and is likely higher than prior estimates.
Magellan’s engineering design is consistent with the high -level 30% design developed earlier this year. The amount of additional mileage anticipated for the fiber backbone is 44.92 miles and for FTTP is 176.01 miles.
• Fiber optic backbone: 144-count loose-tube fiber cable for electric, to support reliability, redundancy, and future grid modernization growth.
• FTTP: 432-count loose -tube fiber cable for City departments, fiber enterprise and broadband expansion
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For the remaining 10% design, Magellan will finalize construction methodologies and standards.
A summary of the key construction methods includes:
Underground
Construction will typically utilize directional drilling and trenching • 24” to 36” depth unless Palo Alto has a greater depth requirement • 12” separati on from other utilities unless Palo Alto has a greater separation requirement
• Soft and hard surface restoration, erosion control per City standards. The detailed engineering design will codify all City requirements.
Aerial
Construction will utilize strand and lash on existing utility poles • Utility pole loading and make ready analysis is being conducted and total make ready estimates (including pole replacement) will be provided in the final 100% design.
• Estimates of make ready costs based on a representat ive portion of pole surveys has been included in the overall construction costs.
Pricing fluctuations are anticipated for construction cost estimates as final refinements in the design may affect pricing to some degree, and supply chain shortages have re sulted in higher - than-average inflation. Additional contingencies have been budgeted in the figures below to account for the current environment. Based on the 90% engineering design, there is an increase in cost saving of $10.9 million if fiber backbone an d FTTP were constructed in parallel due to network overlap.
Description 2021 Estimates 2022 Estimates % Change
Fiber Backbone $22.3 M $25.6 M 15.0%
Fiber-To-The-Premises (FTTP) $86.0 M $102.3 M 19.0%
Cost Savings if Built Together ($4.5) M ($10.9) M 143.1% Working Capital Set Aside $12.5 M $15.0 M 20.0%
Total Costs $116.3 M $132.0 M 13.5%
Market Analysis for FTTP Distribution
The market analysis was conducted to provide insight into the community appetite for municipal FTTP services and build the value proposition (who are the beneficiaries, what are the services being offered) of the business models with analytics. As part of the development of the market analysis, the project team designed a survey to learn more about internet preference, service needs, and the overall market landscape from Palo Alto residents and 6 Packet Pg. 58
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businesses. A further description of the survey instruments and results are in Attachment A.
Market Research Summary.
Survey Background
On June 23, 2022, the City launched the Palo Alto Fiber Market Research Survey and Fiber Deposit program through SurveyGizmo from Magellan and sent 21,925 survey e -mails to residents and businesses. 3,254 surveys were completed (14.8% response rate) and 703 deposits received as of August 3, 2022. The original statistical goals in the survey were to achieve a 95% confid ence interval with a 5% margin of error, which translated to receiving 380 surveys. Given the actual survey responses received and analyzed exceeded 380, the calculated confidence interval is 98% with a 2.2% margin of error, which significantly improves th e statistical validity of the survey.
The survey questions address the following factors required to perform the competitive analysis:
1. What speeds should be provided?
2. What features are most important?
3. What do competitors charge today/future?
4. What should Palo Alto charge?
5. How elastic is the market?
a. What impact do price changes have on take rates?
b. What is the expected take rate at the optimal price? The responses provide insights for defining service details such as broadband service tiers, features, pricin g, and speeds. The deposit program allowed residents and businesses to voluntarily submit a $50 deposit for the Palo Alto Fiber project to demonstrate their support for locally owned and controlled municipal internet services.
Survey Results, Market Analysis
The survey utilizes a set of behavioral questions to understand importance and satisfaction levels with current internet service and helps craft a market strategy. The survey also incorporates conjoint analysis, and more specifically choice -based conjoint simulation (CBC) to predict how many households would sign up for service. CBC is a n industry standard methodology utilized among major broadband providers, wireless companies and other consumer-direct businesses to determine what features of a product or service are important to consumers. By simulating the actual buying decisions of consumers through presenting a series of offers in the survey, the surveyor may understand the relationships between different features of a product or service. Here, spee d, price, and brand were utilized to determine the preferences of households for different internet offers, including those of existing providers and the potential fiber internet offering from the City. The statistical relationships derived from the survey data are used to predict market shares, or “take rates” for each product and service. 6 Packet Pg. 59
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High-level findings from survey results in Attachment A. Market Research Summary are provided below:
1. 28.4% of households are either very dissatisfied or somewhat dissatisfied with their current internet services. An additional 14.4% are neither satisfied nor dissatisfied.
2. 53% of households subscribe to internet streaming only and do not subscribe to cable television which is also known as “cutting the cord”. An additional 18% of customers would consider canceling cable television and using only internet streaming.
3. Top three reasons to switch from current provider s (in priority order) are lower price, faster speed, and higher reliability.
Competitive Risk and Mitigation
Staff identified several significant competitive risk factors an d potential risk mitigation strategies:
1. Market demand for a municipal broadband offering:
Below are some risks to attaining required take rates, and mitigation strategies for maintaining interest in the community while the FTTP network gets built out.
Risks Strategies
Incumbent ISPs may employ aggressive tactics
such as deep discounts to discourage potential
customers from switching.
▪ Continuous customer acquisition campaigns and
community engagement prior to and during FTTP
construction.
▪ Differentiate c ompetitor with higher reliability,
service quality, and customer service.
▪ Develop customer retention tactics to counter
promotional pricing from competitors.
▪ Maintain the message City of Palo Alto ISP keeps
resident and business dollars in the community
and provides more local control over an essential
service.
Multi-year deployment may lead to waning
interest and significantly decrease the
assumed take rate.
▪ Maintain strong Palo Alto Fiber presence and
long-term engagement through continuous
outreach, c ommunity events, and media/social
networks.
▪ Recruit and train influencers to champion City
FTTP by being able to communicate features and
benefits.
▪ Expand engagement to include other agencies
and groups such as professional associations.
Difficulty access ing the new FTTP network
could significantly impact the take rate. Multi -
dwelling units (MDUs), such as apartment
▪ Conduct early exploratory outreach to MDUs
before and after construction commences.
Develop fiber access agreements for residential
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buildings, condominium complexes and office
parks may encounter challenges accessing the
new network (Note: approximately 39% 1of
the resident ial dwellings in Palo Alto are in
MDUs).
and commercial MDUs.
▪ Explain the benefits to MDU owners and property
managers o f providing their tenants with more
choice for broadband services.
▪ Research legal and regulatory issues concerning
MDU access for facilities -based broadband
service providers.
2. FTTP speed to market
The speed at which the City establishes a fiber business presence (speed to market) is critical to meet the anticipated take rate goals. With existing providers of the service, the competitive pressure grows when implementation is prolonged.
Risks Strategies
Dependency on other stakeholders may delay
certain p rocesses, for example wood utility
pole make-ready and replacements are highly
dependent on the cooperation of other pole
attachers (e.g., AT&T Fiber, Comcast, AT&T
Mobility, Verizon Wireless, Crown Castle,
CPAU electric power) completing pole make -
ready and/or pole replacement work in a
timely manner.
Communicate early in the FTTP network
construction process with the other incumbents
about utility pole make ready work and/or pole
replacements required, including the City’s
expectation that cooperation w ill be facilitated
under existing pole attachment agreements.
Fiber construction methods may adversely
affect street conditions (e.g., open trench,
directional/horizontal boring, micro -
trenching), which may cause delays.
Work closely with the Department of Public Works
to review fiber construction standards and methods
to ensure street conditions are preserved after
fiber plant is installed in undergrounded areas of
the City.
Potential resident opposition towards
installing fiber network facilities in t he public
rights-of-way and other City-owned properties
(e.g., fiber cabinets, hub sites and
underground vaults).
Develop outreach campaigns to communicate with
neighborhood groups and homeowner associations
about the construction of the FTTP network on
utility poles and underground in the public rights -
of-way.
City processes may impede timeliness, such as
the permitting process.
Work with the Development Center and Public
Works to implement a streamlined permitting
process.
1 Source: American Community Survey 2020, ACS 5-Year Estimates Data Profiles, City of Palo Alto, Table DP04 6 Packet Pg. 61
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3. Vendor contract management and employee recruitment:
Dependent on the operational model selected (insource, outsource and hybrid insource/outsource) deployment of a FTTP network will rely heavily on contactors for daily operations, a Network Operations Center (NOC), marketing and sales activities, service installations and other customer fulfillment activities.
Risks Strategies
Finding qualified contractors in the current
competitive telecom job market may be
difficult.
▪ Evaluate and develop a list of potential
contractors to co ver functions identified in the
business model
▪ Develop a standard Request for Proposals
(RFPs) to quickly evaluate and engage potential
customers
▪ Negotiate strong services level agreements
(SLAs) with effective corrective action plans
based on performance and/or service delivery
▪ Hire experienced project management team to
manage vendor contracts and resolve issues
Recruitment and employee retention are
difficult in a competitive telecom job market.
Various job descriptions need to be
developed, including compensation ranges
and consideration of existing labor
agreements as applied to new telecom
positions. In-house staff is subject to City/Civil
Service hiring processes and practices.
Additionally, CalPERS pension obligations as
applied to new telecom pos itions need to be
evaluated and finalized
▪ Contingent upon approval of the FTTP network
build, the City can pre -emptively develop final
job descriptions and compensation ranges in
preparation for recruiting in -house staff.
Additionally, the City may use a recruitment
firm specializing in telecom industry positions to
find qualified in-house staff
Staff also addressed concern over technology obsolescence while the project is under construction, such as if Fixed Wireless Access (FWA) and/or Mobile 5G become s a viable alternative service to traditional wireline broadband services. In the short -term, FWA poses a relatively minor risk since it requires a significant investment in infrastru cture and network security (e.g., small cell antennas, fiber backhaul, ma cro towers) from cellular carriers , in addition to deploying new wireless spectrum at comparable download and upload speeds currently delivered by traditional wireline broadband services. Although there may be technological advancements creating new entran ts in the future, as an existing provider of fiber, the City is positioned to adopt the new technologies or seek strategic partners to utilize the new technologies. Fiber is arguably considered the gold standard infrastructure for 6 Packet Pg. 62
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broadband. Fiber has a l ife expectancy of two to four decades with unlimited capacity and is the most-reliable internet service.
If City of Palo Alto establishes itself as the third major ISP provider in Palo Alto, it is unlikely new ISPs will enter Palo Alto in the future. ISPs are profit driven and are going to deploy their capital into markets where they can attain a large market share and those that are not highly competitive. Palo Alto Fiber will be an entrenched provider with significant market share.
Comcast and AT&T wil l also remain as competitors in the market. This would likely be an unattractive market for new providers with highly competitive, entrenched providers, all with superior technology to wireless. Wireless providers have dominated the rural markets because no competitive wireline providers exist. They are not widely found in urbanized markets because the technology is less superior to cable and fiber.
Financial Models for FTTP Distribution
For each of the business models outlined, Magellan developed a financial model demonstrating how the finances may flow. The components of the financial plans with the greatest impacts on the anticipated outcomes are Staffing; Take Rate; Construction and Operations; and the Debt Repayment. Please see Attachment B. Financial Plans for further details.
Staffing
Staffing is a major component which varies greatly in a business model, it impacts how a business operates depending on a) composition of in -house City staff augmented by non -City staff; and b) count of FTEs. To cover a broad spectrum of potential City -operated ISP business models, Ma gellan compared three staffing models, contrasting two with one “in -the-middle” hybrid composition. The FTE count in all three models ramp up over time to align with a fully implemented City-operated ISP business model:
• Insource: 100% in-house staffing
• Hybrid: 70% insource and 30% outsource*
• Outsource: Most functions are outsourced to multiple strategic vendors *Note: The s taffing composition of the hybrid model can be altered for more or less in - house staff since outsourced functions have the potential to be absorbed in -house and vice versa.
All three models assume the same take rate of 40%, construction phasing with starting year FY 2023, and the same key functions needed to deliver a fully implemented fiber business. Certain functions, such as customer s ervice or accounts payable were identified as core competencies existing among current City staff. Other functions require new expertise which the City would need to acquire or outsource, for example Network Operations Center (NOC) technicians.
Magellan hi ghlighted specific advantages and disadvantages for each model, which will be further discussed at the meeting.
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Table 1 Summary of pros and cons from a staffing perspective Insource
This model begins with an anticipated 7.0 minimum FTE at the start of implementation and ramps up to 25.0 in -house FTE by 2026. Staffing costs range from $1.93M at the start of implementation, to $5.6M when staffing levels reach 25.0 FTE.
Pros Cons
✓ Total control;
✓ Quality of service;
✓ Institutional knowledge
Highest labor costs;
More training costs
Hybrid
This model begins with an anticipated 7.0 minimum FTE at the start of implementation and ramps up to 17.0 in -house FTE by 2025 . Staffing costs (including anticipated vendor costs) range from $1.93M at the start of implementation, to $3.7M when staffing levels reach 17.0 in-house FTE.
Pros Cons
✓ Flexible start-up;
✓ Scalability
✓ Some Institutional knowledge
✓ Some control of service levels
High labor costs;
Higher contract costs; Contract risks
Outsource
This model begins with an anticipated 3.0 minimum FTE at the start of implementation and ramps up to 5.0 in -house FTE by 2024 . Staffing costs (including anticipated in -house costs to manage vendors) range from $0. 8M at the start of implementation, to $ 1.3M when staffing levels reach 5.0 in-house FTE.
Pros Cons
✓ Lower labor costs;
✓ Experienced vendors
✓
Low control of service levels;
Low institutional knowledge;
Contract costs and risks
While all three financial business models are viable, the operating margins (profit and loss) with an insource model may be less compared to the outsource model. However, a potential trade- off of outsourcing is lower control over the quality of outsourced services and contract risks.
Take Rates
Take rates, or the perc entage of potential subscribers who subscribe, are used in fiber market research and play a key role in anticipating revenue. Nationwide, the take rates for retail municipal systems after three to five years of operation are between 40% - 55%. This is much higher than the take rate of larger incumbent service providers and is also well above the typical FTTP business plan 30% - 40% take rate. Based on the City’s available customer base and fiber business model, for the City of Palo Alto to break even, a 27% - 30% take rate is necessary.
The three business models compared in the Financial Business Model section of this report assumes a conservative take rate on the lower end of potential take rates and project the City to reach 37% - 42% after the first 5 yea rs. Many factors contribute to take rates, most of which 6 Packet Pg. 64
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depend on a successful business execution. It is important to note, take rate s should not be analyzed in a vacuum, but in relation to all other factors that impact the broadband business.
Construction Phasing
Due to the scale of construction necessary to build the infrastructure to reach every premises in the City, construction will most likely proceed in a multi -phased approach. This approach is reflected in the business models, which reflect a cons truction timeline beginning in FY 2023, ramping up within five years, and completing based on market take rates. With a multi -phased approach, the City can accelerate or de-accelerate certain phases to adapt to market conditions but the complete buildout in Palo Alto may take up to 15 years.
Sensitivity Analysis
Magellan conducted sensitivity analysis models for fiber broadband including take rate, construction cost, and internet pricing to include for further analysis (Linked Document Sensitivity Analysis ). Analyzing the interrelation of these important parameters helps demonstrate how these assumptions influence revenue projection, net income, and becoming a fiscally sustainable fiber broadband utility. In a business environment with unfavorable circumstances, the City would have mitigation strategies to deploy (i .e. decelerate buildout, scale down operations) to address these situations.
Financing Options
Based on the current business models and anticipated construction costs for the fiber backbone and FTTP distribution network the project team estimates a fundin g gap of approximately $98 million, with costs allocated to both the Fiber Fund and Electric Fund. The allocation of construction costs between the two funds and the bond financing structure are still under evaluation.
Costs Original Estimates 2021 Current Estimates 2022
Fiber Backbone $22.3 M $25.6 M
Fiber-to-the-Premise $86.0 M $102.3 M
Working Capital Set Aside $12.5 M $15.0 M
Total Costs $120.8 M $142.9 M
Funding Original Estimates 2021 Current Estimates 2022 Cost Savings if Built Jointly ($4.5 M) ($10.9 M)
Existing Fiber Fund ($32.5 M) ($34.0 M)
Total New Funding Required $83.8 M $98.0 M
New Funding Allocation* Fiber $70 M - $75 M
Electric $10 M - $15 M
Fiber $80 M - $85 M
Electric $13 M - $18 M
*New funding allocation will depend on final construction costs.
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Magellan analyzed two financing options to deploy fiber to the entire City.
Option 1. Fiber reserve with bond financing: FTTP buildout within five years Option 2. Fiber reserve without bond financing: FTTP buildout within 15 years
Option 1: Funding from Fiber Reserve and Revenue Bonds
As a long-term capital improvement project with a large funding gap estimated at $98.0 million, a cost-effective option to finance this project is with a Utility Revenue Bond. Staff is curren tly exploring various revenue bonds structures and potential bonds rating assumptions for the fiber backbone and FTTP distribution network. The bonds are anticipated to be issued by both the Fiber Optics Fund (for FTTP construction) and the Electric Fund ( for the fiber backbone expansion). Given the financial strength (i.e. reserves, assets) and lack of current debt by the Electric utility, the new revenue bonds for the backbone and FTTP should not prevent additional future Electric bond issuance(s). The Electric utility is the City’s the strongest utility (financially) and the other City utilities with outstanding bonds have a triple A credit ratings from Standard and Poor’s. Therefore, staff anticipates the Electric utility will also receive the highest credit rating as well. The credit rating for the Fiber utility is uncertain, as is the credit rating for a combined (Fiber and Electric) bonds issuance is also unknown. The allocation of construction costs between the two funds and the bond financing structu re are still under evaluation, and the potential bond rating will be determined after a rating presentation (usually occurs a month prior to the bond issuance ). The table below shows the p reliminary potential bond structures estimated on a 30 -year $ 98 million (par) bond issuance needed to fund the project gap for the following scenarios:
Scenario Rating Capitalized
Interest
All-In True
Interest
Cost
Annual
Average Debt
Service
Total Debt
Service
(net of Capl)
1* AA+ 18 months 4.42% $6.47 M $186.82 M
2** AA+ None 4.42% $5.96 M $179.45 M
3* AA 18 months 4.49% $6.52 M $188.34 M
4** AA None 4.49% $6.01 M $180.80 M
*Scenarios 1 and 3: 18 months Capitalized Interest. First three (interest only) semi -annual debt service payments during project construction are paid by bond funds. Th is amount is added to the principal bond issuance.
**Scenarios 2 and 4: No capitalized interest. First debt service would be due six months after the bond issuance.
Option 2: Funding from Fiber Reserve without Bond Financing An incremental approach to de ployment would allow the City to first target areas with higher potential take rates , which minimizes the amount of funding needed at the beginning of the project although overall project costs typically increase when construction is prolonged . The revenue realized from initial deployments could then be reinvested each year to build out more 6 Packet Pg. 66
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of the fiber network in subsequent areas on an incremental basis. This model would eventually cover 100% of the City.
The following map illustrates if the City provide s FTTP to 46% or 12,412 homes and 558 businesses located in the aerial construction area with the higher density within three years utilizing funding from the existing $3 4 million fiber reserve. Depending on the take rate and reserve level, the City could reinvest an additional $3 million annually in the 4th to 10th years to provide FTTP to an additional 25% or 7,092 homes and 537 businesses. The remaining 7,000 homes and 200 businesses will require another $ 50-$60 million in capital expenditures to complete the citywide buildout. The City would seek companion infrastructure projects (i.e. undergrounding, grid modernization) to accelerate FTTP buildout whenever opportunities arise.
Other Funding Options Explored
Magellan worked with the City to ass ess funding available from federal, state, and regional agencies to support a FTTP deployment in Palo Alto . Magellan engaged with these agencies to help determine applicability of various grant programs to fund a portion of the City’s fiber build and found federal and state broadband funding released thus far has been restricted to unserved, underserved (less than 45 Mbps download and 15 Mbps upload) and rural areas which Palo Alto does not qualify under. Magellan will continue to evaluate potential federal , state programs from Housing and Urban Development, Transportation, Homeland Security and related agencies to identify grant opportunities, and if available, assess how they may fit into the City’s fiber construction project. For example, Magellan has been monitoring California’s SB 156 Broadband Program and the federal Broadband Equity, Access, and Deployment (BEAD) Program to identify funding opportunities to municipalities . As grant opportunities are identified, Magellan will provide the City with its p rogram rules, constraints, timing, and an action plan to target these funding opportunities.
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Organizational Structure
Apart from potential business models, staff is seeking Council’s guidance on whether to explore organizational structures other than a City-owned and operated ISP to better address perceived challenges associated with operating in a competitive market (staffing costs/capabilities, procurement policies, rate pricing models). The table below summarizes some potential organizational structures for the Council’s consideration:
Table 2. Potential organizational structures
Organizational Structure Definition
City Owned & Operated
(City ISP)
The City provides the service either through an existing department, new departmen t, or managing a fully outsourced staffing model. The City Council may be responsible for developing policies and procedures for the fiber enterprise.* Joint Powers Authorities
(JPA) Operated
The City forms a JPA with at least one other public agency, sharing a common power to jointly implement programs, build facilities and provide the service. The JPA board may be responsible for developing policies and procedures for the fiber enterprise.
Nonprofits(NP) The City forms or partners with a nonprofit entit y that serves the governing body to provide the service. The nonprofit may be responsible for developing policies and procedures for the fiber enterprise.
Private/Partnership
(Partner ISP)
City operates the network and partners with a private entity to provide the ISP service. The partner entity could develop and adopt its own policies and procedures to closely align with the business model the board selects.*
*See previous discussion for background on City ISP vs Partner ISP in (CMR 12117) If the City Council is interested in exploring alternative organizational structures, staff would need to revise the analysis discussed in above sections to account for factors such as expanding the network outside the City’s boundaries (JPA) and other financing options (Private/Partnership).
Stakeholder Engagement
The community engagement and education campaign for FTTP was launched in October 2021 to build awareness of the City’s efforts, inform the community about the overall effort and gain community input. In October 2021, the City launched a new digital engagement platform offering an interactive map to “pin” yo ur home, gain resources about the effort underway and answer community questions about fiber. The community engagement and communications efforts generally included a dedicated fiber social media series and blog series to inform and 6 Packet Pg. 68
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build awareness, the launch of a new digital newsletter dedicated to fiber, printed and mailed materials, videos, and updates shared on the City’s website and the creation of a project web page specific to fiber . These outreach tactics have supported community education about th e fiber effort throughout each phase, garnering both community engagement in the process and building awareness of the effort underway.
City staff and Magellan teamed up to host an information session in February 2022. Over 80 community members attended t o learn about the fiber effort, its benefits, the market survey details and why that was important to gain market information , and answer community questions. The recording of the information session and PowerPoint presentation were made available to commu nity members on the Palo Alto Fiber City project web page for those weren’t able to attend the live meeting (Palo Alto Information Session).
The table below provides a snapshot of the public info rmation efforts and community engagement seen between October 2021 to August 3, 2022:
Communications Tool Metrics
Palo Alto Fiber Hub - Visits: 12,221
- Neighborhood Pins: 2743
Palo Alto FIBERLink Digital Newsletter - Subscribers: 949 - Average Open Rate: 75.2%
Palo Alto Fiber Blog Series - Views: 2,448
Information Session and recording views -80 attendees, 105 views Fiber videos -535 Views
Social media series
Reach and Impressions
Twitter: 10,952
Facebook: 12,380
Instagram: 13,671
LinkedIn: 5,428
Nextdoor: 15,049
Market Survey 3,561 surveys completed
738 deposits received
Utilities Advisory Commission Meetings
Over the last two years, the UAC has held several discussions relevant to FTTP, including:
• Overview of fiber network expansion project by phases (August 5, 202 0; Staff Report #11468; Minutes; Video)
• Recommend the City Council develop community engagement, accelerate engineering designs, explore public -private partnership, and evaluate funding (April 21, 2021; Staff Report #12118; Minutes; Video)
• Update of community engagement activities and engineering designs (October 6, 2021; Staff Report #13591; Minutes; Video)
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• Communication and community eng agement efforts for Palo Alto Fiber (February 8, 2022; Staff Report #13939; Minutes; Video)
• Preliminary financial business models for Palo Alto Fiber (April 6, 2022; Staff Report #14200; Minutes;
Video)
• Preliminary internet survey results and financial business models for Palo Alto Fiber (August 3, 2022; Staff Report #14582; Video)
Resource Impact
This report is for a study session so there is no resource impact . Based on Council and UAC input, staff will return with specific actions associated with the FTTP effort.
Environmental Review
This report is not a project for the purpose of the California Environmental Quality Act (CEQA)
Attachments
• Attachment A: Market Research Summary
• Attachment B: Financial Plans
Attachments:
• Attachment6.a: Attachment A: Market Research Summary
• Attachment6.b: Attachment B: Financial Plans
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Quantitative Market Research Summary Page 1
Palo Alto Fiber
Quantitative Market Research Summary
The purpose of the market research assessment was to understand how Palo Alto’s citizens felt about the City providing internet services and to determine approximately how many Palo Alto households would sign up for Palo Alto Fiber’s internet service if provided.
Secondary goals of the survey included:
1. To help the City better understand citizens’ attitudes and perceptions of current providers and services, satisfaction levels and current issues. This information could help the City focus its marketing strategy on the aspects of service that are most important to citizens.
2. To help the City better understand what features were most important in citizens’ internet services, to help the City craft service plans that were most attractive to citizens and ensure competitiveness with the current market.
3. Gain market intelligence to determine the City would best approach the competitive market, in terms of its go to market strategy for internet services.
Individual surveys were distributed electronically via email. Households received a unique survey identifier and link, which only allowed a single response from the household. A weblink was also provided on the Palo Alto Fiber Hub and on various City communications for those that may have not taken the survey through the link.
The survey contained a behavioral portion, which solicited information on current residential and business internet services and included information on pricing, satisfaction, importance and household demographics. The survey also contained a choice-based conjoint (“CBC”) portion which determined quantitative demand for services by asking respondents to select their preferred choice from a series of market offers, as well as a City-provided offer. Surveys were analyzed to determine take rates resulting from the CBC, while the behavioral portion of each survey provided additional insight into the preferences of customers.
The survey instrument utilized an online platform for distribution of surveys to 21,925 utility accounts.
A total of 3,254 surveys were completed by Palo Alto households with a 14.8% response rat. The results yielded a 98% confidence interval with a 2.2% margin of error.
Attachment B
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Distribution of Responses
The figure below illustrates the distribution of survey responses across th e City. The engineering team utilized the fiber to the home design to partition the City into smaller fiber zones, which were used as a boundary to count survey responses. By doing so, the City can easily identify the levels of interest in Palo Alto Fiber at a granular neighborhood by neighborhood level.
Surveys Per Fiber Area
LJ 1 - 4
0 5 - 9
□ 10 - 14
15 - 19
■ 20 - 24
■ 25 - 29
■ 30 - 33
■ 34 - 37
■ 38 - 41
■ 42 - 48
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Internet Service Providers
Households
subscribe to the internet providers illustrated in Figure 1. Comcast is the dominant provider in the market today, with the majority share of the market at 69.6%. AT&T follows at 23.2%.
The remaining 7.2% is made up of smaller providers including Sonic, Etheric and satellite providers.
Figure 1: Palo Alto Residential Provider Market Share
4. What company provides your internet service at home? 70% Comcast/Xfinity70% Comcast/Xfinity
23% AT&T23% AT&T
4% Sonic4% Sonic
0% Etheric0% Etheric
0% Unsure0% Unsure
3% Other - Write In3% Other - Write In
Value Percent Responses
Comcast/Xfinity 69.6% 2,081
AT&T 23.2% 694
Sonic 3.7% 111
Etheric 0.2% 6
Unsure 0.3% 10
Other - Write In 2.9% 87
Totals: 2,989
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Residential Internet Prices
About 50% of Palo Alto households pay between $60 - $100 for internet service per month. About 29% of households pay between $41 – $60 per month. Prices are on par with other communities where at least one high-speed internet provider exists. Palo Alto is a bit different than the typical community because AT&T also provides competitive high-speed internet over fiber. AT&T’s service competes with Comcast/Xfinity’s cable-based broadband services to at 1 gigabit and lower speeds.
However, AT&T’s service is not available in all areas.
Figure 2: Prices Paid by Palo Alto Households for Internet Services
3. How much do you pay each month for your internet services, not including other services such as television or telephone.
7% $20 - $40 Per Month7% $20 - $40 Per Month
29% $41 - $60 Per Month29% $41 - $60 Per Month
28% $61 - $80 Per Month28% $61 - $80 Per Month
20% $81 - $100 Per Month20% $81 - $100 Per Month
8% $101 - $120 Per Month8% $101 - $120 Per Month
8% More Than $1208% More Than $120
Value Percent Responses
$20 - $40 Per Month 7.3% 216
$41 - $60 Per Month 28.9% 854
$61 - $80 Per Month 28.3% 837
$81 - $100 Per Month 19.6% 581
$101 - $120 Per Month 8.4% 250
More Than $120 7.5% 221
Totals: 2,959
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Satisfaction
Satisfaction levels for internet services include 28% of households that are dissatisfied with their internet service, 14.4% which are neutral and 57.2 % that are satisfied with their internet services.
These figures assume satisfaction levels at the rates households currently pay for their services.
Satisfaction levels for each aspect of respondents’ internet service were also gathered.
Figure 3: Satisfaction Levels for Internet Services
Figure 4: Satisfaction Levels for Individual Aspects of Internet Services
10. Please rate your overall satisfaction level with your home internet service.
7% Very dissatisfied7% Very dissatisfied
22% Somewhat dissatisfied22% Somewhat dissatisfied
14% Neither satisfied nor
dissatisfied
14% Neither satisfied nor
dissatisfied39% Somewhat satisfied39% Somewhat satisfied 18% Very satisfied18% Very satisfied
Value Percent Responses
Very dissatisfied 6.7% 176
Somewhat dissatisfied 21.7% 567
Neither satisfied nor dissatisfied 14.4% 376
Somewhat satisfied 39.4% 1,031
Very satisfied 17.8% 466
Totals: 2,616
Very
dissatisfied
Somewhat
dissatisfied
Neither
satisfied nor
dissatisfied
Somewhat
satisfied
Very
satisfied Responses
Speed
Count
Row %
270
8.1%
668
19.9%
519
15.5%
1,129
33.7%
766
22.9%
3,352
Price
Count
Row %
484
14.5%
1,070
31.9%
775
23.1%
750
22.4%
270
8.1%
3,349
Reliability
Count
Row %
327
9.7%
791
23.6%
463
13.8%
1,094
32.6%
683
20.3%
3,358
Customer
service
Count
Row %
465
13.9%
757
22.7%
1,006
30.1%
724
21.7%
390
11.7%
3,342
In-Home
Technical
support
Count
Row
%
338
10.2%
561
16.9%
1,526
46.1%
566
17.1%
321
9.7%
3,312
Totals
Total
Responses
3358
11. Please rate your satisfaction level with each aspect of your home internet service.
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Quantitative Market Research Summary Page 6
Bundling
Respondents were also asked what other services they “bundle” with their internet services. The purpose of asking this question is to understand whether the City should consider offering bundled services such as cable tv and home telephone along with its internet services in order to gain higher market share. Figure 5 illustrates what percentage of Palo Alto households bundle services. The responses indicate a low rate of bundling, with only 30% of residents bundling cable tv and 24% bundling home phone. At these low rates, the additional cost of providing these services may not be worth the additional customer subscriptions. In other words, the costs of providing bundled services may exceed the revenues generated by them, which would be unfavorable to the overall financial business case.
Further, respondents were asked whether they would “cut the cord,” i.e. cancel their cable tv subscriptions and utilize streaming services like Netflix or Hulu over the next 3 years. As illustrated in Figure 6, most respondents have already discontinued their cable tv or plan to in the next 3 years , reinforcing the argument that cable tv is not needed as a complementary service for Palo Alto Fiber.
Figure 5: Other Services that Palo Alto Households Purchase from their Internet Provider
6. Do you purchase other services with your home internet services? Percent
Cable Television Home telephone service Other - Write In None of the above, I only subscribe to internet
through my provider
0 10
20 30
40 50
60 7
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Figure 6: Cord-Cutting Preferences of Palo Alto’s Residents
7. If you use cable television at home, would you consider switching to an internet streaming service like Netflix or Hulu over the next year? 18% Yes, I would cancel cable
television and use just internet
streaming
18% Yes, I would cancel cable
television and use just internet
streaming
53% I already subscribe to internet
streaming and don't have cable
television
53% I already subscribe to internet
streaming and don't have cable
television
12% No, I would keep cable
television and add internet
streaming
12% No, I would keep cable
television and add internet
streaming
3% No, I would keep cable
television, I'm not interested in
internet streaming
3% No, I would keep cable
television, I'm not interested in
internet streaming
15% I'm not sure, I need more
information about internet
streaming
15% I'm not sure, I need more
information about internet
streaming
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Reasons to Switch
The survey asked respondents to rank the top 3 reasons they would switch from their current provider to Palo Alto Fiber. Price ranked highest, which is customary for responses to this question. Faster speeds ranked second and reliability ranked third. The ranking spread between speed and reliability was relatively strong, showing a higher preference for switching based on higher speeds rather than higher reliability.
Figure 7: Reasons to Switch
Item
Overall
Rank Rank Distribution Score
No. of
Rankings
Lower price 1 4,579 1,967
Faster speed 2 4,273 1,959
Higher reliability 3 3,679 1,911
Faster upload speeds 4 836 504
No data caps 5 822 527
Better customer
service
6 812 526
Online privacy 7 535 348
14. If the City of Palo Alto were to offer high-speed internet services to your home, please select the top 3 reasons why you would switch from your current provider.
Lowest
Rank
Highest
R
ank
506
1 -
-
I I
11 11
11 ■ I ■
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Market Share Calculations
Choice-based-conjoint analysis, or CBC, provides a predictive assessment of take rates that the City could achieve if it offered internet services. CBC is used by broadband providers nationwide to help them understand which product and service features customers value over others, which gives useful insight to determine pricing, speeds and other aspects of internet service.
CBC analysis asks citizens to make choices about their internet service in the same fashion as consumers normally do, by trading off features one against the other when presented with multiple offers. The survey presented ten pairs of offers to respondents and for each pair, asked which offer the respondent preferred.
Results of the CBC analysis determined an estimate of market share that the City could attain if it provided internet services to households. Part-worth utilities were calculated for the three attributes:
Speed, Brand and Price, along with the relative importance of each attribute.
From these part-worth utilities, take rates (market share preferences) were calculated through use of a market share simulator. This process converted part-worth utilities into shares of market preference, for each provider (brand) studied and provided a market share preference for each product offered by the provider. This was valuable in determining the right product mix of speeds and prices that would drive the greatest market share for the City.
It was also important for the analysis to discount expected market share by the execution risk that the City faces in building and operating its network. The CBC analysis only predicts customer behavior to derive take rates, it does not consider the risks and threats of providing internet services that may reduce overall take rates.
The City will be a new market entrant that must build its network, operations and salesforce from scratch.
The City should also anticipate that competitors will react by lowering rates and by negotiating long- term contracts with their customers. These three forces together may yield lower take rates for the Palo Alto Fiber than if it was an existing operator in the marketplace.
Therefore, market share from the CBC analysis was discounted based on the business and competitive threats that are part of any new business venture. The City will need to successfully execute sales, marketing, construction and operations functions for Palo Alto Fiber to achieve the market shares that are predicted by the CBC analysis. This discounting process reduced the predicted take rates to a reasonable level based on an analysis of the many risks that Palo Alto Fiber will experience as an ISP.
Preliminary market share from the conjoint analysis indicated a 62.2% overall take rate for the City.
Using the risk discounting method, this study discounted the 62.2% by 22% to arrive at a final take rate of 40.26%.
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Figure 8: Market Share Calculations
Provider Provider and Service Offering Base Market
Share from CBC
Discounted for Execution
Risk
Predicted
Market Share
City of
Palo Alto
1 Gigabit at $89.99 22% 13.00%
40.26% 500 Megabit at $69.99 44% 26.19%
100 Megabit at $49.99 2% 1.07%
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FINANCIAL PLANS (INSOURCE)
Prepared by Magellan Broadband
Attachment C. Financial Plans
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Pro Forma (Insource)
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Service Revenues
New Residential Internet ‐$ 495,489$ 2,288,619$ 5,452,596$ 7,915,096$ 8,974,130$ 9,609,627$ 9,915,164$ 10,230,307$ 10,555,354$ Existing Dark Fiber 1,700,000$ 1,734,000$ 1,768,680$ 1,804,054$ 1,840,135$ 1,876,937$ 1,914,476$ 1,952,766$ 1,991,821$ 2,031,657$ New Business Internet ‐$ 282,540$ 1,305,029$ 3,109,208$ 4,513,388$ 5,117,276$ 5,479,653$ 5,653,878$ 5,833,580$ 6,018,930$ Subtotal: Service Revenues 1,700,000$ 2,512,029$ 5,362,328$ 10,365,858$ 14,268,618$ 15,968,343$ 17,003,756$ 17,521,808$ 18,055,708$ 18,605,942$ Installation Revenues
Residential ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Business ‐$ 18,731$ 48,118$ 68,123$ 18,110$ 13,991$ 1,201$ 1,237$ 1,275$ 1,313$ Subtotal: Installation Revenues ‐$ 18,731$ 48,118$ 68,123$ 18,110$ 13,991$ 1,201$ 1,237$ 1,275$ 1,313$ Equipment Rental Revenues
Residential ‐$ 14,791$ 68,317$ 162,764$ 236,272$ 267,884$ 286,855$ 295,975$ 305,382$ 315,085$ Business ‐$ 11,352$ 52,434$ 124,922$ 181,340$ 205,603$ 220,163$ 227,163$ 234,383$ 241,830$ Subtotal: Equipment Rental Revenues ‐$ 26,143$ 120,751$ 287,687$ 417,611$ 473,488$ 507,017$ 523,138$ 539,765$ 556,915$ TOTAL REVENUES 1,700,000$ 2,556,903$ 5,531,196$ 10,721,667$ 14,704,339$ 16,455,822$ 17,511,975$ 18,046,183$ 18,596,747$ 19,164,170$ Cost of Services
Direct Staff 427,041$ 2,640,168$ 3,852,253$ 4,196,255$ 4,301,161$ 4,408,690$ 4,518,908$ 4,631,880$ 4,747,677$ 4,866,369$ Internet Peering 61,500 $ 63,038$ 64,613$ 66,229$ 67,884$ 69,582$ 71,321$ 73,104$ 74,932$ Bandwidth (Transport & Internet) 178,800 $ 178,800$ 190,304$ 214,825$ 233,307$ 234,855$ 236,411$ 237,974$ 239,545$ Overnight Customer Management 6pm ‐ 6am ‐$ 63,687$ 212,543$ 422,386$ 476,810$ 517,832$ 521,267$ 524,720$ 528,190$ 531,677$ Subtotal: Cost of Services 427,041$ 2,944,155$ 4,306,634$ 4,873,559$ 5,059,025$ 5,227,714$ 5,344,612$ 5,464,332$ 5,586,946$ 5,712,524$ GROSS PROFIT 1,272,959$ (387,253)$ 1,224,562$ 5,848,108$ 9,645,315$ 11,228,108$ 12,167,363$ 12,581,851$ 13,009,802$ 13,451,646$ Operating Costs
General & Administrative Staff 540,354$ 1,315,750$ 1,348,644$ 1,382,360$ 1,416,919$ 1,452,342$ 1,488,651$ 1,525,867$ 1,564,014$ 1,603,114$ Fiber Plant Maintenance ‐$ 89,828$ 184,148$ 283,128$ 386,942$ 396,615$ 406,531$ 416,694$ 427,111$ 437,789$ Data Center Maintenance 128,125$ 131,328$ 134,611$ 137,977$ 141,426$ 144,962$ 148,586$ 152,300$ 156,108$ Vehicle Maintenance 47,663$ 48,854$ 50,075$ 51,327$ 52,610$ 53,926$ 55,274$ 56,656$ 58,072$ Software Maintenance 138,375$ 141,834$ 145,380$ 149,015$ 152,740$ 156,559$ 160,473$ 164,484$ 168,597$ Facilities Maintenance 66,625$ 68,291$ 69,998$ 71,748$ 73,542$ 75,380$ 77,265$ 79,196$ 81,176$ Reporting & Compliance 35,875$ 36,772$ 37,691$ 38,633$ 39,599$ 40,589$ 41,604$ 42,644$ 43,710$ Utilities 41,000$ 42,025$ 43,076$ 44,153$ 45,256$ 46,388$ 47,547$ 48,736$ 49,955$ Legal (Increase by 3X, first 3 years) 102,500$ 105,063$ 107,689$ 110,381$ 113,141$ 115,969$ 118,869$ 121,840$ 124,886$ 128,008$ Office Expense 61,500$ 63,038$ 64,613$ 66,229$ 67,884$ 69,582$ 71,321$ 73,104$ 74,932$ 76,805$ Pole Attachment Fees (Subtract out
electric) 91,877$ 183,754$ 190,185$ 196,842$ 203,731$ 210,862$ 218,242$ 225,880$ 233,786$ Sales & Marketing 350,000$ 350,000$ 250,000$ 256,250$ 262,656$ 269,223$ 275,953$ 282,852$ 289,923$ 297,171$ Subtotal: Sales, General & Administrative 1,054,354$ 2,473,218$ 2,607,953$ 2,769,365$ 2,937,236$ 3,012,636$ 3,089,989$ 3,169,347$ 3,250,763$ 3,334,291$ Depreciation 1,421,379$ 2,629,968$ 3,954,717$ 5,400,771$ 5,526,806$ 5,618,035$ 5,792,092$ 6,063,659$ 6,071,376$ 6,079,132$ Interest on Long‐Term Debt 669,837$ 1,812,319$ 2,993,047$ 4,237,370$ 4,168,027$ 4,095,217$ 4,018,766$ 3,938,493$ 3,854,206$ NET INCOME (1,202,774)$ (6,160,275)$ (7,150,426)$ (5,315,075)$ (3,056,097)$ (1,570,590)$ (809,935)$ (669,922)$ (250,831)$ 184,017$ Principal on Long Term Debt 201,640$ 558,677$ 950,453$ 1,386,858$ 1,456,201$ 1,529,011$ 1,605,461$ 1,685,734$ 1,770,021$ Operating Reserve Fund ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Renewal
& Replacement Fund 1,476,872$ 1,502,129$ 1,520,601$ 1,547,110$ 1,594,043$ 1,595,605$ 1,597,176$ Capital Budget 25,396,732$ 23,051,287$ 24,173,243$ 25,836,899$ 1,683,761$ 1,231,447$ 1,767,294$ 3,128,855$ 104,168$ 104,688$ TOTAL NON‐OPERATING, CAPITAL AND RESERVES
25,396,732$ 23,252,927$ 24,731,920$ 28,264,224$ 4,572,748$ 4,208,249$ 4,843,415$ 6,328,359$ 3,385,507$ 3,471,885$ Cash Flow
Beginning of Year ‐$ 13,218,605$ 9,486,658$ 5,732,271$ 3,390,642$ 1,288,603$ 1,127,800$ 1,266,543$ 331,921$ 2,766,959$ Add: Net Income (1,202,774)$ (6,160,275)$ (7,150,426)$ (5,315,075)$ (3,056,097)$ (1,570,590)$ (809,935)$ (669,922)$ (250,831)$ 184,017$ Add: Depreciation 1,421,379$ 2,629,968$ 3,954,717$ 5,400,771$ 5,526,806$ 5,618,035$ 5,792,092$ 6,063,659$ 6,071,376$ 6,079,132$ Add: New Debt 13,396,732$ 23,051,287$ 24,173,243$ 25,836,899$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Add: Existing Funds 25,000,000$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Less: Non‐Operting, CAPITAL and RESERVES 25,396,732$ 23,252,927$ 24,731,920$ 28,264,224$ 4,572,748$ 4,208,249$ 4,843,415$ 6,328,359$ 3,385,507$ 3,471,885$ End of
Year 13,218,605$ 9,486,658$ 5,732,271$ 3,390,642$ 1,288,603$ 1,127,800$ 1,266,543$ 331,921$ 2,766,959$ 5,558,222$ Prepared by Magellan Broadband
Attachment C. Financial Plans
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Staffing Plan (Insource)
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Year # 1 2 3 4 5 6 7 8 9 10
Total Subscribers 0 1,353 4,745 9,429 10,644 11,560 11,637 11,714 11,791 11,869 Total FTE
Customer Service Rep ‐ 3 3 3 3 3 3 3 3 3
NOC Technicians ‐ 2 3 4 4 4 4 4 4 4
Customer Service Supervisor ‐ 1 2 2 2 2 2 2 2 2 Billing Tech ‐ 1 1 1 1 1 1 1 1 1
Revenue & Accounting Manager 1 1 1 1 1 1 1 1 1 1 Network Designer 1 1 2 1 1 1 1 1 1 1
Network Engineer 1 1 2 3 3 3 3 3 3 3
Installation & Service Tech ‐ 2 3 3 3 3 3 3 3 3 Maintenance & Repair Tech ‐ 2 2 2 2 2 2 2 2 2
Field Services Manager 1 1 1 1 1 1 1 1 1 1
Commercial Account Manager ‐ 1 1 1 1 1 1 1 1 1 Sales & Marketing Manager 1 1 1 1 1 1 1 1 1 1
Assistant Director 1 1 1 1 1 1 1 1 1 1
Operations & Engineering Manager 1 1 1 1 1 1 1 1 1 1 Total FTE 7.00 19.00 24.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 Total Costs
Customer Service Rep ‐ 405,646 415,787 426,182 436,837 447,758 458,952 470,425 482,186 494,241 NOC Technicians ‐ 322,437 495,747 677,520 694,458 711,820 729,615 747,856 766,552 785,716 Customer Service Supervisor ‐ 159,485 326,944 335,118 343,496 352,083 360,885 369,907 379,155 388,634 Billing Tech ‐ 149,084 152,811 156,631 160,547 164,560 168,675 172,891 177,214 181,644 Revenue & Accounting Manager 253,688 260,030 266,530 273,194 280,024 287,024 294,200 301,555 309,094 316,821 Network Designer 263,835 270,431 554,383 284,121 291,224 298,505 305,968 313,617 321,457 329,494 Network Engineer 336,559 344,973 707,194 1,087,311 1,114,494 1,142,356 1,170,915 1,200,188 1,230,192 1,260,947 Installation & Service Tech ‐ 364,042 559,714 573,707 588,049 602,751 617,819 633,265 649,097 665,324 Maintenance & Repair Tech ‐ 364,042 373,143 382,471 392,033 401,834 411,880 422,177 432,731 443,549 Field Services Manager 312,881 320,703 328,721 336,939 345,362 353,996 362,846 371,917 381,215 390,746 Commercial Account Manager ‐ 208,024 213,224 218,555 224,019 229,619 235,360 241,244 247,275 253,457 Sales & Marketing Manager 295,969 303,368 310,952 318,726 326,694 334,861 343,233 351,814 360,609 369,624 Assistant Director* 135,300 138,683 142,150 145,703 149,346 153,080 156,907 160,829 164,850 168,971 Operations & Engineering Manager 336,559 344,973 353,597 362,437 371,498 380,785 390,305 400,063 410,064 420,316 Direct Staff 854,081$ 2,640,168$ 3,852,253$ 4,196,255$ 4,301,161$ 4,408,690$ 4,518,908$ 4,631,880$ 4,747,677$ 4,866,369$ General & Administrative Staff 1,080,709$ 1,315,750$ 1,348,644$ 1,382,360$ 1,416,919$ 1,452,342$ 1,488,651$ 1,525,867$ 1,564,014$ 1,603,114$ Total Costs 1,934,790$ 3,955,918$ 5,200,897$ 5,578,615$ 5,718,081$ 5,861,033$ 6,007,558$ 6,157,747$ 6,311,691$ 6,469,483$ Prepared by Magellan Broadband
Attachment C. Financial Plans
3 of 15
*The Assistant Director position will be revised to reflect full-time costs, which will not be a material change to overall costs
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Assumptions (Insource)
Type Per Unit Annual Change
Cost of Services
Direct Staff Calculated Separately
Internet Peering Flat Fee 60,000 $ 2.50%
Bandwidth (Transport & Internet) Per Subscriber 2.00$ 0.00% Wholesale Voice Per Subscriber 7.00$ 0.00%
Customer Management Per Subscriber 3.50$ 2.50%
Operating Costs
General & Administrative Staff Calculated Separately
Fiber Plant Maintenance Per Mile Per Year 950$ 2.50%
Data Center Maintenance Fixed Annual 125,000$ 2.50%
Vehicle Maintenance Fixed Annual 46,500$ 2.50%
Software Maintenance Fixed Annual 135,000$ 2.50%
Facilities Maintenance Fixed Annual 65,000$ 2.50%
Reporting & Compliance Fixed 35,000$ 2.50%
Utilities Fixed Annual 40,000$ 2.50%
Legal & Professional Services Fixed 100,000$ 2.50%
Office Expense Fixed 60,000$ 2.50%
Pole Attachment Fees Fixed 178,740$ 3.50%
Sales & Marketing Fixed 250,000$ 2.50%
FTE Salaries FTE Salary Fully Loaded Annual Increase
Customer Service Rep 78,000$ 128,700$ 2.50%
Service Techs 93,000$ 153,450$ 2.50%
Customer Service Supervisor 92,000$ 151,800$ 2.50%
Billing Tech 86,000$ 141,900$ 2.50%
Revenue & Accounting Manager 150,000$ 247,500$ 2.50%
Network Designer 156,000$ 257,400$ 2.50%
Network Engineer 199,000$ 328,350$ 2.50%
Installation & Service Tech 105,000$ 173,250$ 2.50%
Maintenance & Repair Tech 105,000$ 173,250$ 2.50%
Field Services Manager 185,000$ 305,250$ 2.50%
Commercial Account Manager 120,000$ 198,000$ 2.50%
Sales & Marketing Manager 175,000$ 288,750$ 2.50%
Assistant Director 229,000$ $ 377,850 2.50%
Engineering & Operations Manager 199,000$ 328,350$ 2.50% Salary & Benefit Overhead Percent of Salary 65%
Depreciation Lifetime
Equipment (Averaged, 5, 7, 10 Year) Auto ‐Calculated 10 Infrastructure (Fiber, Facilities) Auto ‐Calculated 20
Financial Assumptions
Fund Type Percentage
Operating Reserve Fund % of Operating Costs 0.00%
Renewal & Replacement Fund % of Cumul. Capital 1.50%
Capital Expansion Fund % of Cumul. Capital 0.00%
Expense Categories Capitalize
Materials Materials Yes
Equipment Equipment Yes
Labor Labor Yes
Annual Inflation Adjustment (CPI) CPI 2.50%
Interest Rate 5.00%
Operating Cost Assumptions
Prepared by Magellan Broadband
Attachment C. Financial Plans
4 of 15
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Type Per Unit Annual Inc/Dec
Cost to Connect + Home Equipment
Materials Cost
6 Count tight buffer fiber drop (120 ft @ $.60/ft) 72.00$ 0.00% APC Fiber Unicam Connector (4 @ $16 ea) 64.00$ 0.00%
Mounting Hardware 60.00$ 0.00%
Total Materials Cost Per Passing 196.00$
Equipment Cost
Inside Wiring 50.00$ 0.00%
Optical Network Terminal + Power Supply 350.00$ 0.00% Wireless Gateway 100.00$ 0.00%
2 STBs with 1 Master Whole‐Home DVR 0.00%
Total Equipment Cost 500.00$
Labor Cost
Install Aerial Cable Drop (120 Ft @ $2/foot), Terminate Ped/Home 450.00$ 0.00% Premise Equipment Installation Per Passing
(2 Hours) ‐ Installers Included in Staffing Plan 175.00$ 0.00% Premise Inside Wiring Per Passing ‐ Installers Included in Staffing Plan 75.00$ 0.00% Total Labor Cost Per Passing 700.00$
Total Cost to Connect + Home Equipment 1,396.00$
Equipment Costs
Fiber Termination 35,000$ 0.00%
Equipment Racks 15,000$ 0.00%
Intra‐facility cabling 20,000$ 0.00%
Ladder/raceway 50,000$ 0.00%
Core switch routers 350,000$ 0.00%
Edge routers ‐$ 0.00%
Firewalls 45,000$ 0.00%
Access Equipment 31,512$ 0.00%
Billing Systems 300,000$ 0.00%
Provisioning Systems 300,000$ 0.00%
Network Management Systems 50,000$ 0.00%
Fiber Management Systems 50,000$ 0.00%
Workforce Management Systems 75,000$ 0.00%
Trouble Ticketing Systems 100,000$ 0.00%
Project & Construction Management 2,700,000$ 0.00%
Facility & Office Improvements
Data Center Retrofit Existing Facility 500,000$ 0.00% Network Operations Center 0.00%
Sales & Administrative Offices 0.00%
General Equipment
Service Vans 85,000$ 0.00%
Bucket Trucks 275,000$ 0.00%
Maintenance Trucks 115,000$ 0.00%
Splicing Trailers 50,000$ 0.00%
OTDRs 20,000$ 0.00%
Mobile Test Sets 7,000$ 0.00%
Fusion Splicers 20,000$ 0.00%
Toolkits 10,000$ 0.00%
Miscellaneous Equipment 0.00%
Capital Cost Assumptions
Prepared by Magellan Broadband
Attachment C. Financial Plans
5 of 15
6.b
Packet Pg. 85
FINANCIAL PLANS (HYBRID)
Prepared by Magellan Broadband
Attachment C. Financial Plans
6 of 15
6.b
Packet Pg. 86
Pro Forma (Hybrid) Proprietary & Confidential Property of the City of Palo Alto 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Year # 1 2 3 4 5 6 7 8 9 10
Service Revenues
New Residential Internet ‐$ 495,489$ 2,288,619$ 5,452,596$ 7,915,096$ 8,974,130$ 9,609,627$ 9,915,164$ 10,230,307$ 10,555,354$ Existing Dark Fiber 1,700,000$ 1,734,000$ 1,768,680$ 1,804,054$ 1,840,135$ 1,876,937$ 1,914,476$ 1,952,766$ 1,991,821$ 2,031,657$ New Business Internet ‐$ 282,540$ 1,305,029$ 3,109,208$ 4,513,388$ 5,117,276$ 5,479,653$ 5,653,878$ 5,833,580$ 6,018,930$ Subtotal: Service Revenues 1,700,000$ 2,512,029$ 5,362,328$ 10,365,858$ 14,268,618$ 15,968,343$ 17,003,756$ 17,521,808$ 18,055,708$ 18,605,942$ Installation Revenues
Residential ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Business ‐$ 18,731$ 48,118$ 68,123$ 18,110$ 13,991$ 1,201$ 1,237$ 1,275$ 1,313$ Subtotal: Installation Revenues ‐$ 18,731$ 48,118$ 68,123$ 18,110$ 13,991$ 1,201$ 1,237$ 1,275$ 1,313$ Equipment Rental Revenues
Residential ‐$ 14,791$ 68,317$ 162,764$ 236,272$ 267,884$ 286,855$ 295,975$ 305,382$ 315,085$ Business ‐$ 11,352$ 52,434$ 124,922$ 181,340$ 205,603$ 220,163$ 227,163$ 234,383$ 241,830$ Subtotal: Equipment Rental Revenues ‐$ 26,143$ 120,751$ 287,687$ 417,611$ 473,488$ 507,017$ 523,138$ 539,765$ 556,915$ TOTAL REVENUES 1,700,000$ 2,556,903$ 5,531,196$ 10,721,667$ 14,704,339$ 16,455,822$ 17,511,975$ 18,046,183$ 18,596,747$ 19,164,170$ Cost of Services
Direct Staff 427,041$ 2,026,498$ 2,381,005$ 2,440,530$ 2,501,544$ 2,564,082$ 2,628,184$ 2,693,889$ 2,761,236$ 2,830,267$ Internet Peering 61,500$ 63,038$ 64,613$ 66,229$ 67,884$ 69,582$ 71,321$ 73,104$ 74,932$ Bandwidth (Transport & Internet) 178,800$ 178,800$ 190,304$ 214,825$ 233,307$ 234,855$ 236,411$ 237,974$ 239,545$ Wholesale Voice ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Overnight Customer Management 6pm ‐ 6am ‐$ 272,945$ 910,899$ 1,810,225$ 2,043,470$ 2,219,278$ 2,234,002$ 2,248,800$ 2,263,671$ 2,278,617$ Subtotal: Cost of Services 427,041$ 2,539,743$ 3,533,742$ 4,505,674$ 4,826,067$ 5,084,552$ 5,166,623$ 5,250,420$ 5,335,985$ 5,423,361$ GROSS PROFIT 1,272,959$ 17,160$ 1,997,454$ 6,215,994$ 9,878,272$ 11,371,270$ 12,345,352$ 12,795,763$ 13,260,762$ 13,740,809$ Operating Costs
General & Administrative Staff 540,354$ 1,315,750$ 1,348,644$ 1,382,360$ 1,416,919$ 1,452,342$ 1,488,651$ 1,525,867$ 1,564,014$ 1,603,114$ Fiber Plant Maintenance ‐$ 89,828$ 184,148$ 283,128$ 386,942$ 396,615$ 406,531$ 416,694$ 427,111$ 437,789$ Data Center Maintenance 128,125$ 131,328$ 134,611$ 137,977$ 141,426$ 144,962$ 148,586$ 152,300$ 156,108$ Vehicle Maintenance 47,663$ 48,854$
50,075$ 51,327$ 52,610$ 53,926$ 55,274$ 56,656$ 58,072$ Software Maintenance 138,375$ 141,834$ 145,380$ 149,015$ 152,740$ 156,559$ 160,473$ 164,484$ 168,597$ Facilities Maintenance 66,625$ 68,291$ 69,998$ 71,748$ 73,542$ 75,380$ 77,265$ 79,196$ 81,176$ Reporting & Compliance 35,875$ 36,772$ 37,691$ 38,633$ 39,599$ 40,589$ 41,604$ 42,644$ 43,710$ Utilities 41,000$ 42,025$ 43,076$ 44,153$ 45,256$ 46,388$ 47,547$ 48,736$ 49,955$ Legal (Increase by 3X, first 3 years) 102,500$ 105,063$ 107,689$ 110,381$ 113,141$ 115,969$ 118,869$ 121,840$ 124,886$ 128,008$ Office Expense 61,500$ 63,038$ 64,613$ 66,229$ 67,884$ 69,582$ 71,321$ 73,104$ 74,932$ 76,805$ Pole Attachment Fees (Subtract out electric) 91,877$ 183,754$ 190,185$ 196,842$ 203,731$ 210,862$ 218,242$ 225,880$ 233,786$ Sales & Marketing 350,000$ 350,000$ 250,000$ 256,250$ 262,656$ 269,223$ 275,953$ 282,852$ 289,923$ 297,171$ Subtotal: Sales, General & Administrative 1,054,354$ 2,473,218$ 2,607,953$ 2,769,365$ 2,937,236$ 3,012,636$ 3,089,989$ 3,169,347$ 3,250,763$ 3,334,291$ Depreciation 1,421,379$ 2,629,968$ 3,954,717$ 5,400,771$ 5,526,806$ 5,618,035$ 5,792,092$ 6,063,659$ 6,071,376$ 6,079,132$ Interest on Long‐Term Debt 669,837$ 1,812,319$ 2,993,047$ 4,237,370$ 4,168,027$ 4,095,217$ 4,018,766$ 3,938,493$ 3,854,206$ NET INCOME (1,202,774)$ (5,755,863)$ (6,377,534)$ (4,947,190)$ (2,823,139)$ (1,427,428)$ (631,946)$ (456,010)$ 129$ 473,179$ Principal on
Long Term Debt 201,640$ 558,677$ 950,453$ 1,386,858$ 1,456,201$ 1,529,011$ 1,605,461$ 1,685,734$ 1,770,021$ Operating Reserve Fund ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Renewal & Replacement Fund 1,476,872$ 1,502,129$ 1,520,601$ 1,547,110$ 1,594,043$ 1,595,605$ 1,597,176$ Capital Spending
Capital Budget 25,396,732$ 23,051,287$ 24,173,243$ 25,836,899$ 1,683,761$ 1,231,447$ 1,767,294$ 3,128,855$ 104,168$ 104,688$ TOTAL NON‐OPERATING, CAPITAL AND RESERVES 25,396,732$ 23,252,927$ 24,731,920$ 28,264,224$ 4,572,748$ 4,208,249$ 4,843,415$ 6,328,359$ 3,385,507$ 3,471,885$ Cash Flow
Beginning of Year ‐$ 13,218,605$ 9,891,070$ 6,909,576$ 4,935,832$ 3,066,751$ 3,049,109$ 3,365,841$ 2,645,131$ 5,331,129$ Add: Net Income (1,202,774)$ (5,755,863)$ (6,377,534)$ (4,947,190)$ (2,823,139)$ (1,427,428)$ (631,946)$ (456,010)$ 129$ 473,179$ Add: Depreciation 1,421,379$ 2,629,968$ 3,954,717$ 5,400,771$ 5,526,806$ 5,618,035$ 5,792,092$ 6,063,659$ 6,071,376$ 6,079,132$ Add: New Debt 13,396,732$ 23,051,287$ 24,173,243$ 25,836,899$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Add: Existing Funds 25,000,000$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Less: Non‐Operting, CAPITAL and RESERVES 25,396,732$ 23,252,927$ 24,731,920$ 28,264,224$ 4,572,748$ 4,208,249$ 4,843,415$ 6,328,359$ 3,385,507$ 3,471,885$ End of Year 13,218,605$ 9,891,070$ 6,909,576$ 4,935,832$ 3,066,751$ 3,049,109$ 3,365,841$ 2,645,131$ 5,331,129$ 8,411,555$ Prepared by Magellan Broadband
Attachment C. Financial Plans
7 of 15
6.b
Packet Pg. 87
Staffing Plan (Hybrid) Proprietary & Confidential Property of the City of Palo Alto 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Year # 1 2 3 4 5 6 7 8 9 10
Total Subscribers 0 1,353 4,745 9,429 10,644 11,560 11,637 11,714 11,791 11,869 Total FTE
Customer Service Rep ‐ 1 2 2 2 2 2 2 2 2
NOC Technicians ‐ 1 2 2 2 2 2 2 2 2
Customer Service Supervisor ‐ 1 1 1 1 1 1 1 1 1 Billing Tech ‐ 1 1 1 1 1 1 1 1 1
Revenue & Accounting Manager 1 1 1 1 1 1 1 1 1 1 Network Designer 1 1 1 1 1 1 1 1 1 1
Network Engineer 1 1 1 1 1 1 1 1 1 1
Installation & Service Tech ‐ 1 1 1 1 1 1 1 1 1 Maintenance & Repair Tech ‐ 2 2 2 2 2 2 2 2 2
Field Services Manager 1 1 1 1 1 1 1 1 1 1
Commercial Account Manager ‐ 1 1 1 1 1 1 1 1 1 Sales & Marketing Manager 1 1 1 1 1 1 1 1 1 1
Assistant Director 1 1 1 1 1 1 1 1 1 1
Operations & Engineering Manager 1 1 1 1 1 1 1 1 1 1 Total FTE 7.00 15.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 Total Costs
Customer Service Rep ‐ 135,215 277,192 284,121 291,224 298,505 305,968 313,617 321,457 329,494 NOC Technicians ‐ 161,218 330,498 338,760 347,229 355,910 364,808 373,928 383,276 392,858 Customer Service Supervisor ‐ 159,485 163,472 167,559 171,748 176,041 180,442 184,954 189,577 194,317 Billing Tech ‐ 149,084 152,811 156,631 160,547 164,560 168,675 172,891 177,214 181,644 Revenue & Accounting Manager 253,688 260,030 266,530 273,194 280,024 287,024 294,200 301,555 309,094 316,821 Network Designer 263,835 270,431 277,192 284,121 291,224 298,505 305,968 313,617 321,457 329,494 Network Engineer 336,559 344,973 353,597 362,437 371,498 380,785 390,305 400,063 410,064 420,316 Installation & Service Tech ‐ 182,021 186,571 191,236 196,016 200,917 205,940 211,088 216,366 221,775 Maintenance & Repair Tech ‐ 364,042 373,143 382,471 392,033 401,834 411,880 422,177 432,731 443,549 Field Services Manager 312,881 320,703 328,721 336,939 345,362 353,996 362,846 371,917 381,215 390,746 Commercial Account Manager ‐ 208,024 213,224 218,555 224,019 229,619 235,360 241,244 247,275 253,457 Sales & Marketing Manager 295,969 303,368 310,952 318,726 326,694 334,861 343,233 351,814 360,609 369,624 Assistant Director* 135,300 138,683 142,150 145,703 149,346 153,080 156,907 160,829 164,850 168,971 Operations & Engineering Manager 336,559 344,973 353,597 362,437 371,498 380,785 390,305 400,063 410,064 420,316 Direct Staff 854,081$ 2,026,498$ 2,381,005$ 2,440,530$ 2,501,544$ 2,564,082$ 2,628,184$ 2,693,889$ 2,761,236$ 2,830,267$ General & Administrative Staff 1,080,709$ 1,315,750$ 1,348,644$ 1,382,360$ 1,416,919$ 1,452,342$ 1,488,651$ 1,525,867$ 1,564,014$ 1,603,114$ Total Costs 1,934,790$ 3,342,248$ 3,729,649$ 3,822,890$ 3,918,463$ 4,016,424$ 4,116,835$ 4,219,756$ 4,325,250$ 4,433,381$ Prepared by Magellan Broadband
Attachment C. Financial Plans
8 of 15
*The Assistant Director position will be revised to reflect full-time costs, which will not be a material change to overall costs
6.b
Packet Pg. 88
Assumptions (Hybrid) Proprietary & Confidential Property of the City of Palo Alto Cost of Services
Direct Staff Calculated Separately
Internet Peering Flat Fee 60,000$ 2.50%
Bandwidth (Transport & Internet) Per Subscriber 2.00$ 0.00% Wholesale Voice Per Subscriber 7.00$ 0.00%
Customer Management Per Subscriber 15.00$ 2.50%
Operating Costs
General & Administrative Staff Calculated Separately
Fiber Plant Maintenance Per Mile Per Year 950$ 2.50%
Data Center Maintenance Fixed Annual 125,000$ 2.50%
Vehicle Maintenance Fixed Annual 46,500$ 2.50%
Software Maintenance Fixed Annual 135,000$ 2.50%
Facilities Maintenance Fixed Annual 65,000$ 2.50%
Reporting & Compliance Fixed 35,000$ 2.50%
Utilities Fixed Annual 40,000$ 2.50%
Legal & Professional Services Fixed 100,000$ 2.50%
Office Expense Fixed 60,000$ 2.50%
Pole Attachment Fees Fixed 178,740$ 3.50%
Sales & Marketing Fixed 250,000$ 2.50%
FTE Salaries FTE Salary Fully Loaded Annual Increase
Customer Service Rep 78,000$ $ 2.50%
Service Techs 93,000$ $ 2.50%
Customer Service Supervisor 92,000$ $ 2.50%
Billing Tech 86,000$ $ 2.50%
Revenue & Accounting Manager 150,000$ $ 2.50% Network Designer 156,000$ $ 2.50%
Network Engineer 199,000$ $ 2.50%
Installation & Service Tech 105,000$ $ 2.50% Maintenance & Repair Tech 105,000$ $ 2.50% Field Services Manager 185,000$ $ 2.50% Commercial Account Manager 120,000$ $ 2.50% Sales & Marketing Manager 175,000$ $ 2.50% Assistant Director 229,000$ $ 2.50%
Engineering & Operations Manager 199,000$ $ 128,700
153,450
151,800
141,900
247,500
257,400
328,350
173,250
173,250
305,250
198,000
288,750
377,850
328,350
2.50%
Salary & Benefit Overhead Percent of Salary 65%
Depreciation Lifetime
Equipment (Averaged, 5, 7, 10 Year) Auto‐Calculated 10
Infrastructure (Fiber, Facilities) Auto‐Calculated 20
Financial Assumptions
Fund Type Percentage
Operating Reserve Fund % of Operating Costs 0.00%
Renewal & Replacement Fund % of Cumul. Capital 1.50%
Capital Expansion Fund % of Cumul. Capital 0.00%
Expense Categories Capitalize
Materials Materials Yes
Equipment Equipment Yes
Labor Labor Yes
Annual Inflation Adjustment (CPI) CPI 2.50%
Interest Rate 5.00%
Operating Cost Assumptions
Prepared by Magellan Broadband
Attachment C. Financial Plans
9 of 15
6.b
Packet Pg. 89
Assumptions (Hybrid) Proprietary & Confidential Property of the City of Palo Alto Cost to Connect + Home Equipment
Materials Cost
6 Count tight buffer fiber drop (120 ft @ $.60/ft) 72.00$ 0.00% APC Fiber Unicam Connector (4 @ $16 ea) 64.00$ 0.00%
Mounting Hardware 60.00$ 0.00%
Total Materials Cost Per Passing 196.00$
Equipment Cost
Inside Wiring 50.00$ 0.00%
Optical Network Terminal + Power Supply 350.00$ 0.00% Wireless Gateway 100.00$ 0.00%
2 STBs with 1 Master Whole‐Home DVR 0.00%
Total Equipment Cost 500.00$
Labor Cost
Install Aerial Cable Drop (120 Ft @ $2/foot), Terminate Ped/Home 450.00$ 0.00% Premise Equipment Installation Per Passing (2 Hours) ‐ Installers Included in S 175.00$ 0.00% Premise Inside Wiring Per Passing ‐ Installers Included in Staffing Plan 75.00$ 0.00% Total Labor Cost Per Passing 700.00$
Total Cost to Connect + Home Equipment 1,396.00$
Equipment Costs
Fiber Termination 35,000$ 0.00%
Equipment Racks 15,000$ 0.00%
Intra‐facility cabling 20,000$ 0.00%
Ladder/raceway 50,000$ 0.00%
Core switch routers 350,000$ 0.00%
Edge routers ‐$ 0.00%
Firewalls 45,000$ 0.00%
Access Equipment 31,512$ 0.00%
Billing Systems 300,000$ 0.00%
Provisioning Systems 300,000$ 0.00%
Network Management Systems 50,000$ 0.00%
Fiber Management Systems 50,000$ 0.00%
Workforce Management Systems 75,000$ 0.00%
Trouble Ticketing Systems 100,000$ 0.00%
Project & Construction Management 2,700,000$ 0.00% Facility & Office Improvements
Data Center Retrofit Existing Facility 500,000$ 0.00% Network Operations Center 0.00%
Sales & Administrative Offices 0.00%
General Equipment
Service Vans 85,000$ 0.00%
Bucket Trucks 275,000$ 0.00%
Maintenance Trucks 115,000$ 0.00%
Splicing Trailers 50,000$ 0.00%
OTDRs 20,000$ 0.00%
Mobile Test Sets 7,000$ 0.00%
Fusion Splicers 20,000$ 0.00%
Toolkits 10,000$ 0.00%
Miscellaneous Equipment 0.00%
Capital Cost Assumptions
Prepared by Magellan Broadband
Attachment C. Financial Plans
10 of 15
6.b
Packet Pg. 90
FINANCIAL PLANS (OUTSOURCE)
Prepared by Magellan Broadband
Attachment C. Financial Plans
11 of 15
6.b
Packet Pg. 91
Pro Forma (Outsource)
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Year # 1 2 3 4 5 6 7 8 9 10
Service Revenues
New Residential Internet ‐$ 495,489$ 2,288,619$ 5,452,596$ 7,915,096$ 8,974,130$ 9,609,627$ 9,915,164$ 10,230,307$ 10,555,354$ Existing Dark Fiber 1,700,000$ 1,734,000$ 1,768,680$ 1,804,054$ 1,840,135$ 1,876,937$ 1,914,476$ 1,952,766$ 1,991,821$ 2,031,657$ New Business Internet ‐$ 282,540$ 1,305,029$ 3,109,208$ 4,513,388$ 5,117,276$ 5,479,653$ 5,653,878$ 5,833,580$ 6,018,930$ Subtotal: Service Revenues 1,700,000$ 2,512,029$ 5,362,328$ 10,365,858$ 14,268,618$ 15,968,343$ 17,003,756$ 17,521,808$ 18,055,708$ 18,605,942$ Installation Revenues
Residential ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Business ‐$ 18,731$ 48,118$ 68,123$ 18,110$ 13,991$ 1,201$ 1,237$ 1,275$ 1,313$ Subtotal: Installation Revenues ‐$ 18,731$ 48,118$ 68,123$ 18,110$ 13,991$ 1,201$ 1,237$ 1,275$ 1,313$ Equipment Rental Revenues
Residential ‐$ 14,791$ 68,317$ 162,764$ 236,272$ 267,884$ 286,855$ 295,975$ 305,382$ 315,085$ Business ‐$ 11,352$ 52,434$ 124,922$ 181,340$ 205,603$ 220,163$ 227,163$ 234,383$ 241,830$ Subtotal: Equipment Rental Revenues ‐$ 26,143$ 120,751$ 287,687$ 417,611$ 473,488$ 507,017$ 523,138$ 539,765$ 556,915$ TOTAL REVENUES 1,700,000$ 2,556,903$ 5,531,196$ 10,721,667$ 14,704,339$ 16,455,822$ 17,511,975$ 18,046,183$ 18,596,747$ 19,164,170$ Cost of Services
Direct Staff ‐$ 260,030$ 266,530$ 273,194$ 280,024$ 287,024$ 294,200$ 301,555$ 309,094$ 316,821$ Internet Peering 61,500$ 63,038$ 64,613$ 66,229$ 67,884$ 69,582$ 71,321$ 73,104$ 74,932$ Bandwidth (Transport & Internet) 178,800$ 178,800$ 190,304$ 214,825$ 233,307$ 234,855$ 236,411$ 237,974$ 239,545$ Wholesale Voice ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Overnight Customer Management 6pm ‐ 6am ‐$ 564,085$ 1,882,524$ 3,741,132$ 4,223,171$ 4,586,508$ 4,616,938$ 4,647,519$ 4,678,254$ 4,709,142$ Subtotal: Cost of Services ‐$ 1,064,415$ 2,390,892$ 4,269,244$ 4,784,248$ 5,174,724$ 5,215,574$ 5,256,806$ 5,298,426$ 5,340,440$ GROSS PROFIT 1,700,000$ 1,492,487$ 3,140,304$ 6,452,423$ 9,920,091$ 11,281,098$ 12,296,401$ 12,789,377$ 13,298,322$ 13,823,730$ Operating Costs
General & Administrative Staff 383,914$ 995,047$ 1,019,923$ 1,045,421$ 1,071,557$ 1,098,346$ 1,125,804$ 1,153,949$ 1,182,798$ 1,212,368$ Fiber Plant Maintenance ‐$ 89,828$ 184,148$ 283,128$ 386,942$ 396,615$ 406,531$ 416,694$ 427,111$ 437,789$ Data Center Maintenance 128,125$ 131,328$ 134,611$ 137,977$ 141,426$ 144,962$ 148,586$ 152,300$ 156,108$ Vehicle Maintenance 47,663$ 48,854$ 50,075$ 51,327$ 52,610$ 53,926$ 55,274$ 56,656$ 58,072$ Software Maintenance 138,375$ 141,834$ 145,380$ 149,015$ 152,740$ 156,559$ 160,473$ 164,484$ 168,597$ Facilities Maintenance 66,625$ 68,291$ 69,998$ 71,748$ 73,542$ 75,380$ 77,265$ 79,196$ 81,176$ Reporting & Compliance 35,875$ 36,772$ 37,691$ 38,633$ 39,599$ 40,589$ 41,604$ 42,644$ 43,710$ Utilities 41,000$ 42,025$ 43,076$ 44,153$ 45,256$ 46,388$ 47,547$ 48,736$ 49,955$ Legal (Increase by 3X, first 3 years) 102,500$ 105,063$ 107,689$ 110,381$ 113,141$ 115,969$ 118,869$ 121,840$ 124,886$ 128,008$ Office Expense 61,500$ 63,038$ 64,613$ 66,229$ 67,884$ 69,582$ 71,321$ 73,104$ 74,932$ 76,805$ Pole Attachment Fees (Subtract out electric) 91,877$ 183,754$ 190,185$ 196,842$ 203,731$ 210,862$ 218,242$ 225,880$ 233,786$ Sales & Marketing 350,000$ 350,000$ 250,000$ 256,250$ 262,656$ 269,223$ 275,953$ 282,852$ 289,923$ 297,171$ Subtotal: Sales, General & Administrative 897,914$ 2,152,515$ 2,279,232$ 2,432,426$ 2,591,874$ 2,658,639$ 2,727,143$ 2,797,430$ 2,869,548$ 2,943,546$ Depreciation 1,421,379$ 2,629,968$ 3,954,717$ 5,400,771$ 5,526,806$ 5,618,035$ 5,792,092$ 6,063,659$ 6,071,376$ 6,079,132$ Interest on Long‐Term Debt 669,837$ 1,812,319$ 2,993,047$ 4,237,370$ 4,168,027$ 4,095,217$ 4,018,766$ 3,938,493$ 3,854,206$ NET INCOME (619,292)$ (3,959,832)$ (4,905,964)$ (4,373,821)$ (2,435,958)$ (1,163,604)$ (318,051)$ (90,478)$ 418,905$ 946,846$ Principal on Long Term Debt 201,640$ 558,677$ 950,453$ 1,386,858$ 1,456,201$ 1,529,011$ 1,605,461$ 1,685,734$ 1,770,021$ Operating Reserve Fund ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Renewal & Replacement Fund 1,476,872$ 1,502,129$ 1,520,601$ 1,547,110$ 1,594,043$ 1,595,605$ 1,597,176$ Capital Budget 25,396,732$ 23,051,287$ 24,173,243$ 25,836,899$ 1,683,761$ 1,231,447$ 1,767,294$ 3,128,855$ 104,168$ 104,688$ TOTAL NON‐OPERATING, CAPITAL, & RESERVES 25,396,732$ 23,252,927$ 24,731,920$ 28,264,224$ 4,572,748$ 4,208,249$ 4,843,415$ 6,328,359$ 3,385,507$ 3,471,885$ Cash Flow
Beginning of Year ‐$ 13,802,086$ 12,270,582$ 10,760,658$ 9,360,283$ 7,878,382$ 8,124,566$ 8,755,192$ 8,400,015$ 11,504,788$ Add: Net Income (619,292)$ (3,959,832)$ (4,905,964)$ (4,373,821)$ (2,435,958)$ (1,163,604)$ (318,051)$ (90,478)$ 418,905$ 946,846$ Add: Depreciation 1,421,379$ 2,629,968$ 3,954,717$ 5,400,771$ 5,526,806$ 5,618,035$ 5,792,092$ 6,063,659$ 6,071,376$ 6,079,132$ Add: New Debt 13,396,732$ 23,051,287$ 24,173,243$ 25,836,899$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Add: Existing Funds 25,000,000$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Less: Non‐Operting, CAPITAL, & RESERVES 25,396,732$ 23,252,927$ 24,731,920$ 28,264,224$ 4,572,748$ 4,208,249$ 4,843,415$ 6,328,359$ 3,385,507$ 3,471,885$ End of Year 13,802,086$ 12,270,582$ 10,760,658$ 9,360,283$ 7,878,382$ 8,124,566$ 8,755,192$ 8,400,015$ 11,504,788$ 15,058,881$ Prepared by Magellan Broadband
Attachment C. Financial Plans
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Staffing Plan (Outsource)
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Year # 1 2 3 4 5 6 7 8 9 10
Total Subscribers 0 1,353 4,745 9,429 10,644 11,560 11,637 11,714 11,791 11,869 Total FTE
Customer Service Rep ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ NOC Technicians ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Customer Service Supervisor ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Billing Tech ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Revenue & Accounting Manager ‐ 1 1 1 1 1 1 1 1 1 Network Designer ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Network Engineer ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Installation & Service Tech ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Maintenance & Repair Tech ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Field Services Manager ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Commercial Account Manager ‐ 1 1 1 1 1 1 1 1 1 Sales & Marketing Manager 1 1 1 1 1 1 1 1 1 1
Assistant Director 1 1 1 1 1 1 1 1 1 1
Operations & Engineering Manager 1 1 1 1 1 1 1 1 1 1 Total FTE 3.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Total Costs
Customer Service Rep ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ NOC Technicians ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Customer Service Supervisor ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Billing Tech ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Revenue & Accounting Manager ‐ 260,030 266,530 273,194 280,024 287,024 294,200 301,555 309,094 316,821 Network Designer ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Network Engineer ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Installation & Service Tech ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Maintenance & Repair Tech ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Field Services Manager ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Commercial Account Manager ‐ 208,024 213,224 218,555 224,019 229,619 235,360 241,244 247,275 253,457 Sales & Marketing Manager 295,969 303,368 310,952 318,726 326,694 334,861 343,233 351,814 360,609 369,624 Assistant Director* 135,300 138,683 142,150 145,703 149,346 153,080 156,907 160,829 164,850 168,971 Operations & Engineering Manager 336,559 344,973 353,597 362,437 371,498 380,785 390,305 400,063 410,064 420,316 Direct Staff ‐$ 260,030$ 266,530$ 273,194$ 280,024$ 287,024$ 294,200$ 301,555$ 309,094$ 316,821$ General & Administrative Staff 767,828$ 995,047$ 1,019,923$ 1,045,421$ 1,071,557$ 1,098,346$ 1,125,804$ 1,153,949$ 1,182,798$ 1,212,368$ Total Costs 767,828$ 1,255,077$ 1,286,454$ 1,318,615$ 1,351,580$ 1,385,370$ 1,420,004$ 1,455,504$ 1,491,892$ 1,529,189$ Prepared by Magellan Broadband
Attachment C. Financial Plans
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*The Assistant Director position will be revised to reflect full-time costs, which will not be a material change to overall costs
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Assumptions (Outsource)
Type Per Unit Annual Change
Calculated Separately
Flat Fee 60,000$ 2.50%
Per Subscriber 2.00$ 0.00%
Per Subscriber 7.00$ 0.00%
Per Subscriber 31.00$
2.50%
Calculated Separately
Per Mile Per Year 950$ 2.50%
Fixed Annual 125,000$ 2.50%
Fixed Annual 46,500$ 2.50%
Fixed Annual 135,000$ 2.50%
Fixed Annual 65,000$ 2.50%
Fixed 35,000$ 2.50%
Fixed Annual 40,000$ 2.50%
Fixed 100,000$ 2.50%
Fixed 60,000$ 2.50%
Fixed 177,540$ 3.50%
Fixed 250,000$ 2.50%
FTE Salary Fully Loaded Annual Increase
78,000$ 128,700$ 2.50%
93,000$ 153,450$ 2.50%
92,000$ 151,800$ 2.50%
86,000$ 141,900$ 2.50%
150,000$ 247,500$ 2.50%
156,000$ 257,400$ 2.50%
199,000$ 328,350$ 2.50%
105,000$ 173,250$ 2.50%
105,000$ 173,250$ 2.50%
185,000$ 305,250$ 2.50%
120,000$ 198,000$ 2.50%
175,000$ 288,750$ 2.50%
229,000$ $ 377,850 2.50%
199,000$ 328,350$ 2.50%
Percent of Salary 65%
Lifetime
Auto‐Calculated 10
Auto‐Calculated 20
Percentage
% of Operating Cost 0.00%
% of Cumul. Capital 1.50%
% of Cumul. Capital 0.00%
Capitalize
Materials Yes
Equipment Yes
Labor Yes
CPI 2.50%
3.50%
15.00%
15.00%
Cost of Services
Direct Staff
Internet Peering
Bandwidth (Transport & Internet)
Wholesale Voice
Customer Management
($30/hour, 2 FTEs, 12 Hour Shift, 365 Days,
Plus OH)
Operating Costs
General & Administrative Staff
Fiber Plant Maintenance
Data Center Maintenance
Vehicle Maintenance
Software Maintenance
Facilities Maintenance
Reporting & Compliance
Utilities
Legal & Professional Services
Office Expense
Pole Attachment Fees
Sales & Marketing
FTE Salaries
Customer Service Rep
Service Techs
Customer Service Supervisor
Billing Tech
Revenue & Accounting Manager
Network Designer
Network Engineer
Installation & Service Tech
Maintenance & Repair Tech
Field Services Manager
Commercial Account Manager
Sales & Marketing Manager
Assistant Director
Operations & Engineering Manager
Salary & Benefit Overhead
Depreciation
Equipment (Averaged, 5, 7, 10 Year)
Infrastructure (Fiber, Facilities)
Financial Assumptions
Fund Type
Operating Reserve Fund
Renewal & Replacement Fund
Capital Expansion Fund
Expense Categories
Materials
Equipment
Labor
Annual Inflation Adjustment (CPI)
Interest Rate
Contingencies
Contingency‐Design
Contingency‐Labor
Contingency‐Materials
15.00%
Operating Cost Assumptions
Prepared by Magellan Broadband
Attachment C. Financial Plans
14 of 15
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Type Per Unit Annual Inc/Dec
Cost to Connect + Home Equipment
Materials Cost
6 Count tight buffer fiber drop (120 ft @ $.60/ft) 72.00$ 0.00% APC Fiber Unicam Connector (4 @ $16 ea) 64.00$ 0.00% Mounting Hardware 60.00$ 0.00%
Total Materials Cost Per Passing 196.00$
Equipment Cost
Inside Wiring 50.00$ 0.00%
Optical Network Terminal + Power Supply 350.00$ 0.00% Wireless Gateway 100.00$ 0.00%
2 STBs with 1 Master Whole‐Home DVR 0.00%
Total Equipment Cost 500.00$
Labor Cost
Install Aerial Cable Drop
(120 Ft @ $2/foot), Terminate Ped/Home 450.00$ 0.00% Premise Equipment Installation
Per Passing (2 Hours) ‐ Installers Included in
Staffing Plan 175.00$ 0.00%
Premise Inside Wiring Per Passing ‐
Installers Included in Staffing Plan 75.00$ 0.00% Total Labor Cost Per Passing 700.00$
Total Cost to Connect + Home Equipment 1,396.00$
Equipment Costs
Fiber Termination 35,000$ 0.00%
Equipment Racks 15,000$ 0.00%
Intra‐facility cabling 20,000$ 0.00%
Ladder/raceway 50,000$ 0.00%
Core switch routers 350,000$ 0.00%
Edge routers ‐$ 0.00%
Firewalls 45,000$ 0.00%
Access Equipment 31,512$ 0.00%
Billing Systems 300,000$ 0.00%
Provisioning Systems 300,000$ 0.00%
Network Management Systems 50,000$ 0.00%
Fiber Management Systems 50,000$ 0.00%
Workforce Management Systems 75,000$ 0.00%
Trouble Ticketing Systems 100,000$ 0.00%
Project & Construction Management 2,700,000$ 0.00%
Facility & Office Improvements
Data Center Retrofit Existing Facility 500,000$ 0.00% Network Operations Center 0.00%
Sales & Administrative Offices 0.00%
General Equipment
Service Trucks 40,000$ 0.00%
Bucket Trucks 150,000$ 0.00%
Maintenance Trucks 40,000$ 0.00%
Splicing Trailers 50,000$ 0.00%
OTDRs 20,000$ 0.00%
Mobile Test Sets 7,000$ 0.00%
Fusion Splicers 20,000$ 0.00%
Toolkits 10,000$ 0.00%
Miscellaneous Equipment 0.00%
Wireless Equipment
Sector Antenna Equipment 0.00%
Line & Antenna Equipment 0.00%
Attachment Hardware 0.00%
Miscellaneous Wireless Equipment 0.00%
Capital Cost Assumptions
Prepared by Magellan Broadband
Attachment C. Financial Plans
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City of Palo Alto (ID # 14664)
City Council Staff Report
Report Type: Information Reports Meeting Date: 9/19/2022
City of Palo Alto Page 1
Summary Title: Condominium Conversion Report
Title: Rental Residential Vacancy Rate Determination for Three or More Dwelling Units for 1st Half of 2022
From: City Manager
Lead Department: Planning and Development Services
Recommendation:
This is an informational report and City Council action is not required.
Executive Summary:
This staff report transmits the biannual reporting of the vacancy rates of three 1 or more residential rental units for May of 2022. The vacancy rate is 1.16%. When the vacancy r ate is less than the 3% threshold, applications to convert residential rental units to ownership units through the subdivision process are not eligible for consideration.
Background:
Planning and Development Services (PDS) Department staff prepares the R esidential Vacancy Rate Determination Report twice per year to meet the requirements of Palo Alto Municipal Code (PAMC) Section 21.40.040, Determination of Vacancy Rate and Surplus. Section 21.40.040 states the following:
“In April and November of each ye ar, the director of planning and community environment shall determine from the city utility meter records the vacancy rate and the vacancy surplus, if any, within the city limits. New market -priced rental units available to the general public, for which a certificate of use and occupancy has been issued since the last vacancy survey, shall be added on a unit -for-unit basis either to reduce the vacancy deficiency or to increase the vacancy surplus”.
1 Three or more housing units on the same parcel of land are considered Multiple Family Residential housing 7 Packet Pg. 96
City of Palo Alto Page 2
All conversions involving a change in the type of ownersh ip of three or more rental units are subject to the provisions of this chapter. Vacancy surplus is defined as the number of rental units being offered for rent or lease in excess of the 3% vacancy rate.
No tentative or preliminary parcel map application for a subdivision for condominium purposes, created from a conversion from rental units, may be filed with and/or considered by the city unless there is a vacancy surplus of 3% or more as of the most recent determination pursuant to Section 21.40.040.
The Planning and Development Services Department has records of tracking the three-plus units’ rental vacancy rate since 2002. Historically, the vacancy rate varied from 1.2% to 1.9%.
Discussion:
The purpose of the ordinance requiring this report is to seek a reasonable balance of rental and ownership housing in the city in a variety of individual choices of tenure, type, price, and location of housing. It is also to protect the supply of multi -family rental housing stock in the city for low - and moderate-income families. Finally , it is intended to help reduce and avoid displacement of tenants, particularly seniors and
families.
Staff prepares this report using various data sources. As per PAMC Section 21.40.040, staff uses the City of Palo Alto’s utility met er records to access the total number of “active” multi -family apartments. The Bureau of the Census Decennial 2010 data is used as a baseline for the total rental stock data in Palo Alto. Changes (addition or demolition) to the total rental dwelling unit stock are tracked by staff biannually using building permit issuance data. Both data points are used to generate the vacancy rate.
In 2021, staff initiated a data reconciliation effort to increase the accuracy of the database. Staff from Utilities, Infor mation Technology (IT), and Planning & Development Services (PDS) collaborated to ‘join,’ relate, and refine the Utilities account database to the Geographic Information System (GIS) database system. In the report produced in March of 2021 for the calendar year 2020, the data reconciliation work was still in progress and the generated data was less accurate. Since then, further refinement and quality control in the data set was completed leading to a cleaner and more dependable data set.
Updated Utilities Database
In November 2020, the City’s Utility Department upgraded its legacy data recording system.
This major system upgrade was necessary to accommodate data storage and software issues.
For this upgrade, some data reconciliation and refinements were mad e to the old data recording system, enabling staff to take advantage of data points previously unavailable . This 7 Packet Pg. 97
City of Palo Alto Page 3
resulted in a more precise dataset relative to the previous year's reporting in the legacy system used prior to November 2020.
The system upgrades permitted address reconciliation between the Utility accounts database and the City’s GIS address database. This significant cross-department work effort created a link between certain attributes or data points in the City’s GIS and the Utility accoun t database. This ‘linkage’ facilitated a more accurate unit count focused on rental multifamily utility accounts instead of all multifamily accounts, which includes ownership/condominium type and rental multifamily utility accounts. The collaboration succe ssfully identified most Utility accounts associated with 3+ rental units; for various reasons, not all accounts could be identified (e.g. , GIS address may not exactly match Utility account addresses on corner lots or address formatting discrepancies betwee n GIS address and Utility account databases). Staff will continue to research discrepancies on a case-by-case basis to further enhance both datasets.
During this effort, staff also recognized that several multi-family residential ( MFR, 3+ units) rental ho using utility accounts have one utility meter for all rental units (e.g. , 657 Everett Middlefield Rd) or individual unit accounts that were always billed or invoiced to the property manager or owner regardless if the unit is occupied or vacant (e.g. , senior housing apartment units).
Some MFR (3+) rental housing units’ individual utility accounts also have been ‘inactive’ or have not had a utility bill for some time. It is difficult to determine whether the unit associated with the account is vacant or is no longer available to rent; in other words, ‘taken off the rental market’ altogether. These variations between the GIS and Utility account datasets help clarify the discrepancy between the estimated number of 3+ rental housing units (~8,057) and the number of ‘identified’ active Utility accounts in 3+ rental housing (~4,639).
Latest Vacancy Rate
For the May 2022 data reporting cycle, the multifamily rental vacancy number is 1.16 % percent (based on reconciled data source). Applications to convert residential rental units to ownership units through the subdivision process are not eligible for consideration at this time since the vacancy rate is less than the 3% threshold.
Table 1: Average Annual Rental Vacancy Rates
Year
Estimated
Housing
Units
Estimated Vacancy Rate
(yearly average of biannual
report)
Estimated
Vacant Units
2015 7,901 1.22% 92
2016 7,912 1.45% 118
2017 7,928 1.58% 131
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2018 7,928 1.52% 132
2019 7,931 1.83% 141
2020 8,057 2.8% 226
2021 8,057 1.13% 91*
2022
(thru May 2022) 8,057 1.16% 93
*03/21/2022 Condo Conversion report had a typographical error. The correct value for Estimated Vacant Units for 2021 is 91.
Policy Implications:
This report is prepared as a requirement for Municipal Code 21.40.040 and provides information on the City’s rental vacancy rate and whether conversion from rental housing to ownership condominium units is permitted . Based on recent data, conversions are not permitted at this time.
Resource Impact:
Planning staff prepare this report biannually and there are no resource impacts.
Timeline:
This informational memo is prepared twice a year for Planning division staff use. The previous report, discussing estimated vacancy rate for calendar year 2021, was delayed due to the updated Utilities database discussed above and completed in March 2022. The next report will be prepared in November/December 2022.
7 Packet Pg. 99
Schedule of Meetings
Published September 8, 2022
This is a courtesy notice only. Meeting dates, times, and locations are subject to change. Almost all Palo Alto Council and some Standing Committee meetings are cablecast live on Channel 26. If there ha ppens to be concurrent meetings, one meeting will be broadcast on Channel 29.
Persons with disabilities who require auxiliary aids or services in using City facilities or programs, or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact: ADA Coordinator, City of Palo Alto, 650-329-2550 (voice) or 329-1199 (TDD), [email protected]. Listening assi stive devices are available in th e Council Chambers. S ign language interpreters will be provided upon request with 72 hours advance notice. Please advise the City Clerk's Office (650-329-2571) of meetings or changes by 3:00 p.m. on Wednesdays for inclusion in the following week’s schedule. 9/8/2022
Meetings are held in-person and by virtual teleconference.
THURSDAY, September 8
Historic Resources Board Meeting, Cancelled
Human Relations Commission Meeting, 6:00 p.m.
MONDAY, September 12
Sp. City Council Meeting, 5:00 p.m.
TUESDAY, September 13
Policy and Services Committee Meeting, 7:00 p.m.
WEDNESDAY, September 14
Utilities Advisory Commission Meeting, 6:00 p.m.
Planning and Transportation Commission Meeting, 6:00 p.m.
THURSDAY, September 15
Architectural Review Board Meeting, 8:30 a.m.
City School Liaison Committee Meeting, 8:30 a.m.
Public Art Commission Meeting, 7:00 p.m.
MONDAY, September 19
Sp. City Council Meeting, 5:00 p.m.
TUESDAY, September 20
Finance Committee Meeting, 5:30 p.m.
WEDNESDAY, September 21
Rail Committee Meeting, 1:00 p.m.
THURSDAY, September 22
Historic Resources Board Meeting, 8:30 a.m.
MONDAY, September 26
Sp. City Council Meeting, 5:00 p.m.
TUESDAY, September 27
Parks and Recreation Commission Meeting, 7:00 p.m.
WEDNESDAY, September 28
Planning and Transportation Commission Meeting, 6:00 p.m.
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(ID # 14792)City of Palo Alto
City Council Supplemental Memo
Item 6
Meeting Date: 9/19/2022 Report Type: Study Session
City of Palo Alto Page 1
Title: The UAC is Submitting the Fiber Subcommittee Colleagues Memo for Council Consideration as Part of the Joint Study Session From: City Manager
Lead Department: Utilities
Executive Summary
The UAC met on Wednesday, September 14, 2022 to discuss the Fi ber Subcommittee Colleagues Memo (Linked Document) where they moved on a 7 -0 vote to approve presenting the UAC Fiber Subcommittee memo to Council and noted that the full UAC has not yet taken a position.
Background
The purpose of this memorandum (Linked Document) is to provide the results of the UAC sub- committee for FTTP
Initiative investigation and work with City Staff and 3rd party Magellan Advisors on the proposed implementation of a City-Owned FTTP network and a City-Owned Internet Service Provider (ISP).
Discussion
The UAC Fiber Subcommittee researched, a complete review of the business and financial models, as well as the results of the City of Palo Alto survey.
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