June 17, 2024 www.cityofpaloalto.org
UTILITY
FINANCIAL PLANS
AND PROPOSED RATE
CHANGES FOR FY 2025
Presenters: Lisa Bilir and Micah Babbitt,
Senior Resource Planners
2 Residential System Average Rate Projections
1) FY 2025 projection incorporates results of cost-of-service analysis 2) Based on general fund transfer of 14.5% of gross revenue in FY25; gas rate changes shown with commodity rates held constant; actual gas commodity rates vary monthly
3) Stormwater fees increase by CPI index annually per approved 2017 ballot measure (2.6% in FY 2025) 4) Based on an FY 2023 monthly residential bill of $369 Attachment B
FY 2024
(effective July
1, 2023)
FY 2025
(Projected) FY 2026 FY 2027 FY 2028 FY 2029
-$5.80 $7.00 $4.60 $4.80 $5.10 $5.30
-5% 9% 5% 5% 5% 5%
$5.20 $8.80 $3.90 $5.00 $5.30 $4.60
8% 12.5% 5% 6% 6% 5%
$4.00 $7.30 $5.00 $5.50 $5.30 $5.00
9% 15% 9% 9% 8% 7%
$5.20 $9.80 $10.60 $11.60 $12.30 $13.10
5% 9.5% 9% 9% 9% 9%
$0.00 $0.00 $1.50 $1.50 $1.60 $1.60
0% 0% 3% 3% 3% 3%
$0.80 $0.40 $0.40 $0.50 $0.50 $0.50
5% 2.6% 3% 3% 3% 3%
$9.40 $34.50 $27.10 $29.90 $31.10 $31.40
3% 9% 7% 7% 7% 6%Monthly Bill Change (4)
Electric Utility (1)
Gas Utility (2)
Wastewater
Water Utility
Refuse
Stormwater (3)
3 Wastewater Collection Proposal
• Staff Recommendation: 15% rate increase in FY 25, $7.29 per residential customer per month
• Reduced-size sewer replacement (1.25 miles in FY 2026) • $2M Pump station retrofit in FY 28
• Both staff recommendation and alternative will:
• Resume 2.5 miles per year of sewer main replacement in FY 28 • Recommend Council approval of a short-term loan from the Fiber Optics Fund Reserve to the Wastewater Collection Fund Operations Reserve not to exceed $3 million for FY 24
• Staff re-evaluating the utility’s cash and reserve requirements as the transition to 5-mile sewer replacements continues and may propose modifications in next year’s Financial Plan
11% 7% 0%
3% 3%
9%
15% 9% 9%
8% 7%
$0
$5
$10
$15
$20
$25
$30
$35
$40
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Actual Projected
Cost/Revenue $ (Millions)
Fiscal Year
Collection Capital & Debt *
Collection Operations
Treatment Capital & Debt
Treatment Operations
Revenue
4 Wastewater Collection Cost and Revenue Projections
* Includes changes due to commitments/reappropriations and funds transferred to the CIP Reserve Note: assumes reduced size sewer replacement in FY 2025 and 2026 and $3 million short-term loan from the Fiber Optics Fund in FY 2024 that is repaid in FY 2026. 5 Wastewater Collection Monthly Bill ($) as of Nov 2023 Palo Alto is currently 26% below comparison city average Attachment B
Residential
Non-Residential
6 Water Rate Proposal
• Proposal FY 2025: 9.5% total water rate increase (10% distribution rate increase) • FY 2023 year-end Operations Reserve near minimum guideline due to drought Projected Water Distribution Rate Changes
Projected Total Water Rate Changes
• Commodity rate projected to increase to $5.67/CCF or 8.8% (per SFPUC April 12, 2024 rate notice) • Proposal revised based upon Finance Committee Recommendation from 4/23/24
7 Water Cost and Revenue Projections
* Includes changes due to commitments/reappropriations and funds transferred to the CIP Reserve 3% 1% 0% 0% 5% 5%
9.5% 9%
9%
9% 9%
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
FY 2019
FY 2020
FY 2021
FY 2022
FY 2023
FY 2024
FY 2025
FY 2026
FY 2027
FY 2028
FY 2029
Actuals Projected
Millions
Capital*
Operations
Water Supply
Debt Service
Revenue
Rate Changes
8 FY 2025 Rate Proposal
• 12.5% overall gas rate increase (20.9% distribution rate increase) • 5% to 6% overall rate increase annually from FY 2026 to FY 2029 • Gas General Fund Transfer of 14.5% of FY 2023 gross revenue or $10.917 million in FY 2025 ($2 million in addition to the 11.9% transfer alternative)
Gas Rate Proposal
4% 5%
2%
3%
3%
8% 12.5% 5%
6%
6%
5%
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Actual Projection
$ Millions
Fiscal Year
Capital
Gas Supply
Operations
Transfers
Debt Service
Note: Gas Revenue Rate % Changes (excludes supply-related rate changes) Revenue
9 Gas Cost and Revenue Projections
Transfer 14.5%
*Revenue excludes Cap-and-Trade auction
sales revenue, which goes directly to the
Cap-and-Trade reserve
**FY23 Commitments and Reappropriations
reserves balances for Operations and Capital
Investment are anticipated to be utilized in
FY24 and FY25
10 FY 2025 Proposal
• Cost of Service Analysis completed March 2024 – requires rate changes varying by customer class and consumption pattern to match the cost to serve • 9% ($7.00/month) increase for the median residential customer • 0.5% increase in revenue – lower than last year’s 5% forecasted revenue increase • This is manageable due to large one-time electric supply revenues in FY 2024 – FY 2026 • Will mitigate the bill impacts of incorporating COSA changes Future Years
• 5% rate increase per year projected for FY 2026-FY 2029 • Issue debt for Grid Modernization by end of FY25
• Reflects continuing transmission cost increases, other rising supply costs, grid modernization Electric Rate Proposal
11 Electric Cost and Revenue Projections
Cost/Revenue
12 Recommendation
The Finance Committee recommends that the City Council adopt resolutions by approving:
Wastewater
• The FY 2025 Wastewater Collection Financial Plan (Attachment A, Exhibit 1), including approval of a short-term loan from the Fiber Optics Fund Reserve to the Wastewater Collection Fund Operations Reserve not to exceed $3,000,000 for FY 2024; and
• Amending the Wastewater Collection Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment A, Exhibit 2)
Water
• The FY 2025 Water Utility Financial Plan (Attachment B, Exhibit 1); and • Amending the Water Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment B, Exhibit 2)
Gas
• The FY 2025 Gas Utility Financial Plan (Attachment C, Exhibit 1), including amending the Gas Utility Reserve Management Practices (Attachment C, Exhibit 2); and
• Amending the Gas Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment C, Exhibit 3)
Electric
• Accepting the 2024 City of Palo Alto Electric Cost of Service and Rate Study (Attachment D, Exhibit 1.1); and
• The FY 2025 Electric Utility Financial Plan (Attachment D, Exhibit 2), including amending the Electric Utility Reserve Management Practices (Attachment D, Exhibit 4); and
• The reserve transfers in FY 2024 and FY 2025; and
• Amending the Electric Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment D, Exhibit 3)
Dark Fiber
• Amending the Fiber Optic Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment E, Exhibit 1), consistent with the applicable Consumer Price Index
Stormwater
• Amending the Stormwater Management Fee Rate Schedule Effective July 1, 2024 (FY 2025), (Attachment F, Exhibit 1), consistent with the applicable Consumer Price Index
Refuse
• There are no rate changes