Recommendation to receive and file the results of the user fee and cost recovery studies for the Energy Resources and Public Works Departments and associated departmental recommendations.  (Citywide)
I received. Thank you. Item 26 Report from Financial Management Recommendation to receive and file the results of the user fee and cost recovery studies for the Energy, Resources and Public Works Department citywide. So, Mr. Mayor, we've done this several times with the council over the last probably two years where we pick a department and we go through and we do a really in-depth analysis of the fee structure of what a service costs and what a fee should be set at and determining the right subsidy level. And so we do have a presentation for you tonight. We have gone in-depth into public works and energy resources. You're not adopting or approving any fees tonight. Tonight is the ability to get informed on the work, to ask us questions, to raise any concerns you have. And then we'll come back in April with the actual fee increases and changes. And so I will be turning the presentation over to our finance team to walk through it with the departments. Great. Thanks, Tom. This is Grace. Good evening, Mayor, and members of the city council. As Tom mentioned, this is our second round of the city wide field study and has been completed for two departments, public works and energy resources. And as Tom mentioned, there are no actual changes to the master fee and charges schedule being proposed tonight. But again, the purpose of today's presentation is to provide you all with an overview and an opportunity to make comments, and we will come back for formal approval on April 12th. So with that, I will pass it over to Geraldine Vallejo, our revenue officer, who will be first providing a general background on fees and the citywide fee study. Then we will turn the presentation over to public works and energy resources will each go over the highlights of their department's study findings and their recommended fee changes. Thank you, Grace. If I can get next slide. Next slide. Next slide. Good evening, Mayor, and members of the city council. As a reminder, fees and charges include two types of categories user fees and regulatory fees, both of which are included in the city wide measure fees and charges, schedule rent and penalties are also included in master fees and charges. Schedule for convenience, but are not subject to the cost of service limitations. Next slide. User fees and regulatory fees may not exceed the estimated reasonable cost of providing the service or program. City policy requires that fees are set at the cost of service, except where there is a greater public benefit using a lower fee . As the department presentations will highlight. This includes pandemic related financial hardship and maintaining and encouraging access to popular services. Next slide. The city currently has routine processes in place to ensure that these are reviewed and updated regularly to capture annual cost increases. The city implements an annual inflation adjustment based on city cost increases called the City Cost Index. The master fees and charges schedules are adopted each year with the budget with any proposed changes by the departments and CPI updates. Mid-Year adjustments are also periodically submitted to City Council. The next citywide fee adjustment letter will be presented to City Council on April 12. Next time. Each Fee Adjustment Council letter includes an estimated revenue impact from proposed changes. The revenue impacts are theoretical and may not necessarily result in a budgeted revenue change by the same amount. Any adjustments to actual budgeted revenues must be evaluated holistically and consider a variety of factors such as the stability and certainty of the revenue source, as well as whether the department is meeting its current overall budgeted revenue commitments. This review and update is typically part of the overall budget development process. Next slide. The next slide. As a reminder, in fiscal year 19 and at council's direction, staff initiated an updated city wide study. Each department study will identify and review the fees charged, calculate the full service cost, determine intervention rates by comparing fee revenue to the full cost of service and provide recommendations or fee levels or structures. Next slide. This is a multiyear project, and the project continues to move forward with city manager departments anticipated to be completed by the end of 2022. The first round concluded in fiscal year 21 and covered development services, parks and a portion of health. The second round includes energy, resources and public works. We'll be presenting study findings and department recommendations today. The third round is in progress and includes by our city manager and the remainder of Health and Human Services. Preliminary results and department recommendations are anticipated for summer 2022. Next slide. The consultant applied a consistent methodology across all department studies. Cost components are based on the 21 budget and includes direct costs and indirect costs. The cost components are then included into a fully burdened hourly rate per position. The allocated cost is determined by multiplying the fully paid in hourly rate to the staff time spent to support each service. After the fully allocated service cost is determined, it is compared to current fee revenues to identify the source of the revised service. Next ranks. This table is a summary of the cost, recovery and subvention rates per department and shows that the city is under-recovery for calculated service cost by 2.4 million. More information will be included as part of the fee department presentations. The cost and subvention rates are reported as general service categories or areas. Next site. The departments have reviewed the results of the studies and have the same recommendations. The majority of department recommendations align with the study but do deviate in some cases based on prioritizing different goals other than full cost recovery, as I noted earlier. These factors will be noted as part of each departmental presentation. Next slide. The departments will share more information on the recommendations. But to summarize here, the first table is a summary of the department's 22 midyear recommendations, which include no changes to current fees, rate increases and decreases. New and revised fee structures to align the services. And finally, there are fee deletions related to revised fee structures, as well as clean up to fees schedules for services no longer provided by the city. The department recommendations are anticipated to result in a theoretical annual revenue impact of $334,777, which will be reviewed during the budget process and will vary based on usage and market or economic conditions. Next. This concludes this overview. I will now turn it over to Joshua Hickson of the Public Works Department for an overview of study findings and the department's recommendations for fiscal year 22. All right. Good evening. Thank you for that overview, Geraldine. And good evening, Mayor, and members of the City Council. The next time, please. Perfect. Thank you. The Pew study before you here tonight is really focused around the public works fees that are recovered based on the cost of services provided. So this study does not include fees related to reviews which are being studied separately as part of another effort and other fees that are not determined based on cost of services . Next slide, please. So the study's broken down. Into four different groups and overall the current fees are below the cost of service provided. Note The one exception is traffic engineering services, which we'll dove into a little bit further on a future slide. Next slide. In aggregate, taking into account the. Fee increases, the decreases in the percentage of cost recovery that Geraldine had had mentioned. Theoretically, the recommendations, if approved, could have a positive revenue impact of over 400,000. Next slide, please. So a couple of key items that we want you to consider. The proposed changes further enhance and streamline our planning, checking, permitting and inspection efforts that have been underway for the last couple of years. The commonly requested items that we receive, such as curb painting, have been added and the costs have been spread out over the next three years to avoid a steep increase given the importance of these items to the community. And finally want to highlight the traffic control plan review is separate from the planned check the as currently outlined in the current schedule. This recommendation will reflect the true cost of services which are actually higher than the cost of service today. Next slide, please. So roughly a quarter of the fees are recommended to be decreased based on processing efficiencies. Since the last study, a quarter are recommended to be removed to align with the current business practices. And you can see a couple examples here on the slide. Next slide, please. Another quarter are recommended to increase for full cost recovery. And approximately the last quarter of the fees are new fees or a restructure to existing fees to better align with today's current operations and to continue providing the critical services to the community. Next slide, please. So in. Summary, if. The recommendations are approved, the public works fees will be in line with or slightly lower than other local agencies. And this concludes the public works portion of the presentation. I'm going to go ahead and turn it over to Tony Foster with energy resources so he can move forward with presenting his portion of the presentation. Good evening, mayor and city council members. I'm here with our utility services office serving some of our teenagers to present a brief overview of the Energy Resources Department. Cost Recovery Fees, study results. Next slide, please. I'll keep it on the slide. Currently, Energy Resources lists 81 fees on the master fees and charges schedule. 75 of those fees are reviewed under this cost of services study. The remaining the remaining six fees were not included in the study because those are not what we call customer facing fees, but are rather related to internal administrative fees that do not impact cost to gas utility customers or ratepayers. The subject fees being discussed here fall across four service categories construction and pipeline, gas services, engineering and Construction and Utility Services. Call center of these fees, the overall department cost recovery is 85%. Therefore, subvention currently falls at 15%. Next slide, please. Okay. This matrix illustrates cost recovery intervention rates at current levels across the four service categories by revenue and by percentage of total service costs across all four categories. The total calculated cost of services was 9.8 million, of which 8.3 million was collected, yielding a subvention of 1.5 million or 85% recovery. This is the first time, to our knowledge, that a study of this type has been performed. So as you can see, the cost of recovery by service categories are not uniform. Next slide, please. All right. Based on the energy resources cost recovery frame, study results. Staff recommends proceeding with 56 rate changes in order to recoup costs and maintain operational needs. If all of the study recommendations were to be accepted, the estimated theoretical revenue impact is $8,675. In other words, energy resources would collect roughly 80,000 more than it currently qualifies. However, Energy Resources staff emphasized that this theoretical increase would present a hardship for many of the gas utility customers and ratepayers and support a partial acceptance of these recommended changes. The recommended total theoretical impact based on partial acceptance of the recommended changes is projected to reduce the pension to $104,525 based upon certain assumed variables such as the number of certain services or projects undertaken. In other words, based on the partial acceptance of the recommendations, if the projected number of product projects and services is accurate, energy services subvention losses fall to under $34,000. Next slide, please. Again, full cost recovery is not being recommended for all fees as some relate to. Utility. Ratepayers and department staff strongly believe that increasing these rates would cause a hardship to our customers during the rebound period from the COVID 19 pandemic and should therefore be delayed. The decision to proceed with changes to 56 fee items is based on infrastructure and operational needs as identified by the study. It is related to new construction, engineering projects, gas meter purchase and installations driven by requests for new services. For example, no contract or developer developers request for new gas services. Next slide, please. The next two slides summarize energy resources staff recommendations by change, which, for example, increase or decrease, no change and so on. So let's look at no change. Of the 17 fees recommended not to change, eight in the gas services and utility services were validated as accurate and are currently at cost. Recovery nine Gas services and utility services fees are recommended by staff to hold at current levels for the future, i.e. post-pandemic for review by staff and present. Tony. I think you got muted. Oh, I'm sorry. That's odd. So let's just start going with slide 30 here, if that's okay with you. So for the Fiji decrees, three fees in the engineering and construction services are recommended to decrease to better align with cost recovery and operational need. 16 fees and the gas services segment are recommended to increase to better align with cost recovery and operational need and 35 fees across all energy resource services areas are recommended for restructure to better align with the provision of service. The detailed breakdown of these fees are presented in the attachment. B2 Next slide. The Energy Resources Department's rate structure does not easily compare across utilities in other jurisdictions. A primary reason for jurisdictional uniqueness is due to the specific policy goals and objectives of each city or utilities governing body. And it's important to note, however, that energy resources does consider consumer utility costs as they relate to the Southern California Gas Company to ensure fair and equitable rates. Specific fees are not compared to so-called gas, as energy resources is a municipality as opposed to an investor owned utility and therefore mandated to follow specific local and state guidelines . And this concludes our report, and we're happy to answer any questions. Thank you, Tony. So to wrap up this presentation and summary, three key points. The city is generally under-recovery for cost based on the study done for public works and energy resources. E through departments have proposed recommendations that generally align with the study's finding for full cost recovery. Exceptions to full cost recovery is based on the prioritization of other goals, such as resident's needs and the ability to pay and maintaining access to popular city services. And lastly, the theoretical revenues potentially generated from the proposed fee changes will be evaluated and included as appropriate as part of the proposed budget process in line with our financial policy. And again, we'll come back we're scheduled to come back April 12th, where city council can officially adopt these changes at that stage. This concludes the presentation. And Geraldine, the department and I are available for questions. If you have a motion by Councilmember Ringo to make it a second place. Second Bay Councilmember Sara Canterbury Aranda. Examiner During the presentation I saw some of my questions were answered in regards to where we stand with a market study in terms of where our fees lie compared to our competitors or our neighboring cities. Are we competitive? Are we in line? Or what's what's the status of our fees as compared to those of other jurisdictions? Geraldine? Yes. Council member. Each department presentation included the the comparison to comparable jurisdictions. And in it we found that we were generally inline, but it will depend on particular services or areas that you are inquiring about. So if you had a specific area as part of this presentation, will be happy to have the department answer that. Service calls an example. So, for example, getting on certain stuff is good. We're not changing the rules. Yeah, but those remain the same. And in short, they are comparable to other jurisdictions, in our case, Southern California Gas Company. Yes, it's a careful analysis because while we the city charter does mandate that our rates are comparable to their rates, their rates do bake in some cost of services, like turn on turnovers. As you mentioned, our laws do not. So it's not quite apples to apples, but we are mindful of equitable charges for our services. Q What do you see as challenges in the future as we continue with this pandemic? Should it go on another another year or even possibly two? That's a great question. You know, we the state is not giving much guidance as to when we can end moratoriums. In a in a recent memorandum that's coming to you, we plan to end our moratoriums against shutoffs no earlier than June of this year. So with that, you know, as our arrearages continue to grow, you know, we need to try to be mindful of maintaining operations. And it's going to be a balancing act to make sure that we're mindful of hardships to customers but being whole as a as a gas utility. So we'll just move forth cautiously. We're awaiting some assistance from the state in terms of mitigating some of those arrearages. And then when we can finally return to the end of moratorium and. Have a tool to encourage payments will be in a better position to evaluate what total cost of services will be. Okay. Thank you very much. That's all I have there. Council member, Sarah. Thank you, Mayor. So I definitely understand why we need to make sure that we are evaluating if our fees are ensuring that we're breaking pretty much a balance of it being even and not. And but at the same time, it's always hard when we have to increase fees, especially when it's things like and you know, that impacts the quality of life of our residents that could range from, you know, parking permit, driveway parking permit to, you know, driveway type repaint and all of that. So I'm just wondering how how, how, how, how would we go about making sure that the fees, like some of them, they're increased by almost 50%, if not some higher, and there's some 82 where it's recommended to lower fee. So I'm just wondering, at what point do you decide, hey, we're going to maybe break those costs out over a number a year? Or like, for example, is it the percent threshold that you say, well, we're going to break them up into two years increment of how we increase it, 25%, one year and then 25 the next. And I'm just wondering how how would we go about making sure it doesn't impact people kind of kind of shop in the fees changing and also making it kind of palatable for for residents. Well, with regard to the gas fees, yes, Councilwoman Sara, we're very mindful of that. And so any fee that throwback recommended for a substantial increase, we will defer those increases and implement them slowly so as not to be an undue hardship on ratepayers. Some fees we are quite happy to keep at current levels simply because we can maintain operations at those subvention levels. But where we are massively under collective, we do need to slowly roll in. So to better. Manage the cost of our services. Thank you. What about public works? Is that similar or because there's there's a lot of things here that might. You know, removing certain things that you in the city like in front of businesses as well. I'm just wondering, is that the same approach to. It is the same approach. Yes. And as far as implementing over a period of time, specifically for a couple of those items that you mentioned, the the curb painting and the the other items there, we are facing those in over a period of three years. So it'll be one third each year over the next three years, which would then get us to two whole in year three moving forward. Yeah, because I didn't realize there was 175 per location and then it would be increased to 325 just to do a painting, a driveway like painting the red. Right, kind of red, what you call red tips, right? Yeah, that's correct. So the study takes into account all of the efforts to actually get out there and do it, including the labor and the materials. The existing fee is currently 175 for the driveway tips and the repaint is 87. So the RCC study did recommend a higher fee to recover those costs, but we do understand it was a pretty significant increase and therefore our phasing it in over the three year period. And thank you so much. Thank you. I have council member Austin. Thank you so much for the presentation and I do understand, you know, the need and I do I think we need to be smarter as a city in terms of, you know, recuperating our our cost for poor services. At the same time, I'm also mindful of the fact that we are not for profit entity. And many of the services that we provide as a city will never bring the cost for. And that is that that goes along with public works and our gas and energy, energy and gas departments, but with several other departments as well . I am. And I guess it may be lost on some, but for me I'm concerned. Any time we're talking about raising rates or fees on the gas, the increase in gas fees for services has me a little concerned because of where we are right now with the the the rates going up and increasing literally. At the same time, I think to to councilmember sorrows point, you know, children are concerned about the impacts on our our lower income residents and those seniors who are on fixed incomes and who are being challenged with those of. The rising price of natural gas. But also, you know, now the city is is looking at raising fees for various services. And so, you know, I would ask that we would be doing very, very well with extreme caution here and being very sensitive to the those of those individuals who we all represent, say senior citizens, low income families who would be impacted by by these fees, rates and or fee increases. Also wanted to. And I. Raise this issue with the city manager a little earlier. But I think it's worthy, too, for a public discussion here. You know, some of the services that our public works department provides are obviously indirect services to businesses and residents. But, you know, we as city council members, we may get a complaint. We may be responding to a constituent request or just a notice, for example, you know, painting curves in a business district. Right. Anything, you know, of green curves. Of red curves. These are these are things that we don't necessarily you know, they're not celebrated and talked about. The city council members have to be attentive to those those issues, particularly in support of our our businesses, communities and where it relates to the safety of it in those those areas . My question to the city staff is how if a city council office would request those type of services, are we going to be charged to see a budget that we may control for such fees? Or is it coming from somewhere else? Can't remember. This is Eric Lopez. I know you won't be charged. We still have our regular maintenance crews that do street maintenance that will handle some of these requests. This is for either more regular service from, say, an apartment complex or another private property owner. Not for our regular maintenance. So no, you will not get charged for the regular work will still continue repairs incurred in our right away and maintaining them. This is this is just an added an added work to recover some fees for working extra work. Well, thank you for the clarification. It helps a lot, you know, from time to time. You know, Mr. Lopez, you know, we have a request, special request waiting in the alley. Know whatever it may be, sometimes those photos or even of speed bumps. Right. Because those those those are those works. Those come from our our our our district budgets. All right. I just wanted to get some clarification and show that this was a where we were going. So thank you so much for that. Again, like I say, my concerns, you know, please do not take this into account. Are our rate increases or fee increases for for those who are already rate payers or for gas and energy who are lowest income. I think we need to build in some small provisions to account for those type of hardships. Thank you. Councilman. Awesome. Thank you so much for your comments. I just really want to emphasize that of the proposed fee increases, none of them are to individual ratepayers. All of the increases are directed at construction and new development in fee increases. Nothing to that an individual gas ratepayer would incur. I definitely appreciate that clarification. Thank you. If you count on her supernova. Thank you staff for the report. I have kind of a general question and I hope there's a simple answer, but my question is, how do we how did we get to this point? I, I just to foster use the phrase areas where we are massively interconnected. So if we have a city price index, I'm just wondering how we get so far behind. I assume that might be due to regulations that you're subject to. But if there's a simple answer, I would like to hear it. Council member. So our last piece of citywide study that we had was back in 2006. So fast forward to now, it is through this citywide study where we are taking a very close look at our fees and charges and realigning to the cost of service. So it's been some time and even in the interim, we do have the routine processes in place for us to review as well as the city cost index. The city cost index is a general inflator that is applied to all departments, are all applicable fees and of course that's captured across all departments versus this more specific in-depth study per department at the service level area. Okay. So if I hear you correctly, it's it's it's the the time passage that has done this. So we 2006, that's a while back. So if we did this on a more regular, consistent basis, we probably wouldn't fall this far behind. That is correct. Councilmember And I do want to note that following the completion of the study, there is a cost of service model that will be available to departments as applicable. And as we move forward, departments will be able to reassess their cost and then also their levels of fees and charges. Okay. Thank you. Thank you. I have Councilmember Allen. Inky so much. I just have a couple of questions. I thank everyone for the presentation. I am with regards to temporary no parking fines. Does that fee change also apply to no parking fines related to neighborhood cleanups or community events? Absolutely. It does not apply. So the idea that it does not apply. Okay, great. Thank you. And then also, Bob, thank you for your your informative presentation. I wanted to ask if your team has looked into subsidizing like home weatherization, like insulating attics or the walls as a way to incentivize gas uses reduction in older homes. I see Bob's on the line, but I can I can answer that question. The short answer is yes. We do have several home efficiency programs that are available offering rebates and in-house services to help customers be more efficient in their consumption of natural gas. Wonderful. Thank you. Thank you. Very public comment. On this report. If there's any members of the public who'd like to speak on this item, please press star nine or use the right hand function. Our first speaker is Dave Shuker. Good evening. Nice to see this agenda. Right after the previous item. Can you hear me? Yes. We hear you. Thank you for confirming. So. We're talking about gas and energy, but not specifically about which utilities other than gas, not electricity, not waste services refuse collection. It'd be nice to only see some more specificity, but how these different institutions relate in the city now specifically calling for a market study for comparisons is a very good idea. And yes, it depends on which particular services the city kind of wants. This is something I think community choice aggregations as well as the DWP. I mean, there's different models, but more integrated models are just better for, you know, deployment. They're they're more effective. They're faster, more responsive. The community owned and controlled the city owns its own assets. It's something I got to keep telling you until we're entirely corporatized. Um. What else? Oh, yeah. So, what are the big things that I wanted to say on this item when I first read it last night was that I'd like to see some dark sky principles for our city lighting and city contracts with lighting. Look at Pittsburgh as a comparison. It works for safety. It works for cost. It works for the environment. There's a lot of things in the city that we could do. But again, you know, we need to. We need to we need to do so. Here is an immediate truth and reconciliation freebie. It's not a rape, nor is it a read. A real estate investment trust. Moderate. But you could restructure measure U.S.. To be in line with signal. That's that there was a missed opportunity. Putting it indexing it to the consumer price index instead of the producer price index. And that would more than double the money, especially now that we're going to have a period of ramp up in the markets, even though we shouldn't. With oil and gas, this is the year. Ladies and gentlemen, science tells us we should stop oil and gas. Period. So every moment that you delay is something that you know you're doing wrong. And it's important to say that on the record. But yeah, you know, if we're going to keep using oil, tax it properly and let us use those moneys properly. Thank you. That concludes public comment for this item. Thank you. Roll call vote, please. District one. My district to my district three I. District four. I. District five I, District six. I. District seven. I. District eight. I. District nine. I. Motion is carried.