Uploaded: Fri, Apr 11, 2014, 9:18 am
Faced with 'uncertainties,' Palo Alto considers raising water rates
Utilities staff, commission split over proposed 4 percent rate increase
Palo Alto's plan to give the city's water customers a rare reprieve from rising rates has been jeopardized by an unexpected spike in the cost of replacing aged mains, according to Utilities Department officials.
Now, officials are considering raising rates by 4 percent in November, an increase that they say would allow expected future rate hikes to be relatively small. The recommendation, which was presented to the Utilities Advisory Commission on March 26 and which the City Council's Finance Committee will consider Tuesday night, was a departure from the department's original plan to keep all utility rates steady in fiscal year 2015, which begins July 1.
Jon Abendschein, a senior resource planner at the Utilities Department, said the new recommendation to raise rates in the fall was driven by several "uncertainties" that have recently emerged relating to capital improvements. Bids for two major water-main-replacement projects have come back much higher than expected, he said. And costs for work on the city's 25-year-old water-main replacement program have generally gone up because of a hotter construction climate in an improved economy, he said. At the same time, the city is now using pipes with larger diameters because of fire code regulations and is switching to HDPE (high density polyethylene) pipes, which he said have a lower life-cycle cost but a higher upfront cost.
Because of the various cost increases, Abendschein said staff felt it was prudent to raise water rates by 4 percent on Nov. 1.
Staff is also uncertain about the scope of the city's next water-main-replacement program, which typically occurs in a 25-year cycle. The department has commissioned a major study to analyze the water utility's capital-improvement program. Initially slated for completion in 2016, the deadline has been moved to the end of this year.
"If it had just been one source of uncertainty or maybe even two, I think we may have been able to proceed with a zero percent increase, but with all the uncertainties that have started to add up over the last month or so, we think it's prudent to do a 4 percent rate increase this year," Abendschein told the commission.
Utilities Director Valerie Fong said staff is considering the proposed water-rate increase in the context of an overall utilities bill. Electric and gas rates would remain flat in the coming year, she noted. However, the city also plans to raise wastewater rates by 4 percent in conjunction with the water-rate increase. This would mitigate increases in future years, Abendschein said. Right now, the city estimates that wastewater rates would have to be raised by 6 to 7 percent in the three years after this one to pay for various planned improvements at the Regional Water Quality Control Plant. If the city raises them by 4 percent this year, future increases would be around 4 to 5 percent.
Fong also noted that the water rate increase would kick in after the summer months, when irrigation costs are higher.
"It has a nominal bill impact for this fiscal year but also helps mitigate bill impacts going forward, when we have to raise rates for the other utilities," Fong said.
The utilities commission wasn't sold on these arguments. Several members said they felt uncertainty isn't a good enough reason to further raise water bills that are already some of the largest in the region. The city has recently completed two studies evaluating the city's water rates; each pointed to the fact that Palo Alto has older infrastructure and "higher levels of capital investment and operations and maintenance expense as a result," according to a Utilities Department report.
The city raised water rates by 7 percent last year, largely to pay for for the rising cost of water supply. The city's water provider, the San Francisco Public Utilities Commission, is also now in the midst of a $4.6-billion effort to upgrade the Hetch Hetchy system. All agencies that draw water from the system are chipping in for the repair costs.
At that time, the average water bill in Palo Alto came in at about $72 a month, about 24 percent higher than in surrounding cities (Menlo Park, where bills were slightly higher, was an exception).
Given the many years of rising water rates, utility commissioners said they were pleased to learn in February that they would finally have a year in which rates can remain flat. They were less thrilled to learn about the latest 4-percent increase proposal.
Commissioner Garth Hall said the city doesn't have enough information yet to make a credible argument for increasing water rates further.
"I think we've got a very big burden of demonstrating to our ratepayers that we have understood and can explain why we're higher," Hall said. "We're not there yet."
Commissioner Steve Eglash agreed, saying he is worried about "the appearance of bringing in money when we don't yet know what we need it for." He proposed having no rate increases and adjusting rates as needed in the future, when the city has more information about the capital-improvement costs.
The commission voted 4-1 to accept Eglash's proposal. John Melton, the sole dissenter, (Asher Waldfogel and Audrey Chang were absent), said he would prefer to just leave the number blank until the city has a better idea of what the costs would be. The decision over rates should be deferred until the city has more data about construction costs.
"It seems to me that this is just another guess and is likely to change in three months," Melton said.
Posted by Wayne Martin
a resident of Fairmeadow
on Apr 15, 2014 at 9:35 am
City employee Debra Katz claims:
> We are a community-owned utilities operation
This is not strictly true. The Utility is wholly owned by the City of Palo Alto, which is a Municipal Corporation. The community does not "own" the Municipal Corporationwhich exists as an entity under State Law. The Municipal Corporation owns the Utility. The Community has very little to say about its operation, under the current City Manager form of government. The Community can elected nine Council Members, but history has shown that they have exercised very little oversight of the Utility since the end of the Council/Commission form of government, in 1950.
Government claims about "community ownership" simply are not true. Government owns the Utility.
> our documents are public
I have been denied access to some Utility documents via Public Information Requests.
> You better believe our founding father's goal of cheaper,
> HIGHER QUALITY utilities has worked out...in spades.
This is truly a bizarre statement. The use of the phrase "founding fathers" is generally restricted to the "founding fathers" of the United States of Americanot the City of Palo Alto. The City's owning the local utility is bound up in the history of the so-called Progressive Era/Movement which ran from the 1880s until about 1920. Ownership of municipal utilities was a mantra of the Progressiveswho were fiercely anti-Corporate, at the time.
There were private utilities operating here in Palo Alto before the City decided to assume ownership of all of the distribution facilities. The people who were pressing for municipal ownership offered many argumentsmost of which revolved around the cost of the utility "products", not the "quality". Between 1900 and 1910, water, gas and electricity were being provided by vendors from outside of Palo Alto. Telephone and Telegraph services were also provided by outside sources.
Those promoting municipal ownership were concerned about the cost of service, not the "quality". ("Quality" would mean reliability, presumably. There doesn't seem to be any claims of numerous service interruptions by the private vendors, by the way.)
The Charter language, adopted in 1909, went to great ends to set the stage for Municipal Ownership of just about every human activity in the City:
9. To acquire, construct, maintain and operate all
necessary works for the supplying of the city and its in-
habitants with water, light, heat, power, telegraphic and
telephonic communication, and for the conveyance of
passengers and freight over, under and upon public
streets and rights of way secured therefor; to fix rates
for all commodities furnished or services rendered, and
to dispose of commodities produced or render service in
connection with such works outside of the boundaries of
10. To improve the rivers, streams, bays, inlets and
channels flowing through the City or adjoining the same ;
to widen, straighten and deepen the channels thereof,
and remove obstructions therefrom ; to control and im-
prove the water front of the city ; to construct and main-
tain embankments and other works to protect the City
from overflow ; and to acquire, own, construct, maintain,
and operate on any lands bordering on any navigable
bay, inlet, river, creek, slough or arm of the sea, within
the limits of the City or contiguous thereto, wharves,
chutes, piers, breakwaters, bath houses and life saving
11. To establish and change the grade and lay out
open, extend, widen, change, vacate, pave, re-pave, or
otherwise improve all public streets and highways and
public places, construct sewers, drains and culverts, to
plant trees, construct parking, and to remove shrubs and
weeds ; to levy special assessments to defray the whole or
any part of the cost of such works or improvements.
Also to provide for the repair, cleaning and sprinkling
of such streets and public places.
12. To acquire, construct and maintain all works
necessary for the disposition of sewage, garbage and
waste; and to define and abate nuisances.
13. To establish and maintain hospitals, indigent
homes, and all other charitable institutions.
14. To acquire and maintain parks, play-grounds,
theaters, and places for recreation, and to establish boule-
vards and regulate traffic thereon.
15. To acquire and maintain markets, baths, and
16. To establish and maintain schools, libraries,
museums, gymnasiums, and to do all things to promote
the education of the people.
17. To equip and maintain a fire department and to
make all necessary regulations for the prevention of fires.
18. To acquire, construct and maintain all buildings
necessary for the transaction of public business.
19. To exercise the right of eminent domain for the
purpose of acquiring real and personal property of every
kind for any public use.
20. To grant permits to use the streets or public
property, revokable at any time without notice.
21. To regulate and establish rates and charges to be
imposed and collected by any person or corporation for
commodities or services rendered under or in connection
with any franchise, permit or license heretofore or here-
after granted by the town or city or other authority.
22. To exercise such other powers as are now or
may be hereafter granted by the legislature to the munici-
palities within the state unless the exercise of such powers'
is contrary to the provisions of this charter.
23. To exercise all other needful powers for the effi-
cient adminstration of the municipal government, whether
such powers are herein expressly enumerated or not.
24. Lastly, this grant of power is to be liberally con-
strued for the purpose of securing the well being of the
municipality and its inhabitants.
Source: 1909 City of Palo Alto Freeholder's Charter
From reading through this 1909 Charter language (found in the section labeled "Powers of the City"), it's pretty clear that those who fashioned what is called the "Freeholders' Charter" (1909) were intent on making the City a place where private enterprise was not very welcome. Given that twelve of the fifteen members of the Freeholders' Committee were actually prominent businessmen, it's somewhat difficult to understand their intentions about giving the City Government so much power.
The Freeholders' Charter did, on the other hand, create citizens' commissions, which were the effective management of the operating departmentswith department heads reporting to citizen-run committees for the next forty years.
The main purpose of City ownership, based on the reading of historical documents and newspapers of the time, was to run the private companies out of town, and to be the one, and only, service provider of virtually all of the core utility services needed by the residents.
This mindset lasted until the late 1930s, when the City realized that it could not continue to provide water to its residents from the artesian wells that had been providing water since the early days (ca. 1890). At that time, it started buying water from San Francisco's Hetch Hetchy source. Growth of the city also brought its ability to generate electricity locally to an end, and in the late 1930s/early 1940s, the City began buying power from PG&Ea corporate entity that the so-called "founding fathers" had vilified. The City continues to purchase power from sources outside its boundaries todayalthough its anti-corporate rhetoric is somewhat lower than in the early 1900s--particularly since it must use PG&E transmission lines to ferry power to Palo Alto.
As to the use of "spades" in justify the seizure of private property (use of eminent domain to seize PG&E infrastructure during the annexation of Mayfield, starting around 1925), this may be the view of the employees of the City's Utilitybut it's not clear that it's the view of everyone concerned. (PG&E certainly did not feel it was compensated appropriately at the time.)
It's a shame that Utility Personnel can not stick to facts, rather than interjecting personal opinion under the Seal of Authority.