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.


Like this comment
Posted by Wayne Martin
a resident of Fairmeadow
on Apr 11, 2014 at 10:03 am

There is a lot of missing information in this article. For example, the article reports a City claim that recent pipeline replacement project bids have come in higher than expected. Well, how much higher? Why not report some detail about the projects in question, and provide the estimated costs (by the Utility Planners) and the actual estimates (from the contractors). Are we talking hundreds of thousands of dollars difference, or millions of dollars difference?

And then there is financing. Will these projects be financed with bonds, or will they be pay-as-you-go, funded with reserves and additional money from higher rates? While we are at it, will this increase be temporary, or another of those increases that never goes away—as the cost of living in Palo Alto continues to skyrocket.

We also might be interested in knowing if these projects can be deferred for a couple of years, in the hope of attracting lower bids.

With a community of 75% BS/MS, or better, it’s a shame that we can’t get more details about the activities of City government from our local papers.

Like this comment
Posted by Midtown
a resident of Midtown
on Apr 11, 2014 at 11:51 am

Since the city owns the utilities any rate increase is a perversion of prop 13.

Like this comment
Posted by j99
a resident of Barron Park
on Apr 11, 2014 at 12:22 pm

No more rate increases. We pay too much already and the city raises most utility rates every year. That is to pay for hiring more than a dozen more people for the planning department when all PA needs to do is declare a moratorium on building. That would make Palo Alto residents very happy because there are too many apartments, especially "affordable housing" apartments, which also increase the crime rate and increase the need for police overtime and more personnel. Stop building apartments, townhouses, new hotels, businesses and go on a budgetary diet and stop constantly stealing our money by arbitrarily increasing utility rates every year.

Like this comment
Posted by Jim Hols
a resident of Community Center
on Apr 11, 2014 at 12:46 pm

Palo Alto keeps electricity and gas costs low compared to PG&E?

But they make up for it with fixed utility fees. With one small refuse can, my fixed costs are $75.58/month. So no matter how much I conserve I pay that amount.

This amounts to a regressive tax for those that conserve. I'd be more accepting of a water useage increase if the pricing structure were changed to eliminate fixed costs and charge more for electricity, gas, and water actually used.

Like this comment
Posted by Debra Katz
a resident of Downtown North
on Apr 11, 2014 at 1:31 pm

Let me address a couple of items in the comments so far:

1) MISSING INFORMATION---NOT! We are a community-owned utilities operation and our documents and transactions are public; anyone who is truly interested in details such as budgets, cost estimates, request for bid proposal content, etc. these kinds of things are availalbe, and most are posted to the web. When staff makes presentations to the Utilities Advisory Commission or the Council, those documents are also always posted to the website. These kinds of documents have both exact number detail as well as background and explanations for recommendations and decisions. I do not think it is realistic to expect a newspaper article to provide that level of detail and frankly, few readers would want to plow through it.

2)The article unfortunately does not make clear that NO WATER RATE INCREASES are being proposed in the current staff report going before the Finance Committee. There was some excellent debate on this point at the last Utilities Advisory Commission meeting and the consensus was that there were too many unknowns to warrant a near-term increase. If you want to actually read the report and form an opinion based on the facts, Web Link

I always welcome constructive comments and criticism--feel free to contact me directly anytime at the email address below.

Debra Katz
Utilities Communications Manager
City of Palo Alto

Like this comment
Posted by anonymous
a resident of Duveneck/St. Francis
on Apr 11, 2014 at 1:37 pm

Sounds like ANY excuse to raise rates, water rates, whatever rates, is the way our local government operates. I have been stunned at the increased cost of living here since moving here about 10 yrs ago (I am not referring to my mortgage).
We should all take reasonable steps to conserve water, of course, and in an educated community I think we all are well aware of this and DO take these steps. It is also true that city governments may be unaware of the number of persons in a household, the activities in that household, and it is concerning that a set limit may be placed on our water consumption or major rate raise.
The one area I would urge consideration of is that if it gets bad enough, why not have homeowners drain residential pools?
But consider that aside from the schools and central location, another main feature of the attraction/high value of Palo Alto is the high quality landscaping - from the major focus of this city on arborist activity/street trees and landscaping to the huge effort most of us homeowners put on our private residential landscaping, this is a MAJOR distinction of Palo Alto vs. numerous other localities. To let it all go to dead grass (as we came close to doing, in 1988, in another local city when we were not permitted to water our yard/garden to maintain it reasonably) would be very detrimental and an eyesore. The rains will return.

Like this comment
Posted by David Pepperdine
a resident of Another Palo Alto neighborhood
on Apr 11, 2014 at 3:42 pm

Let's make this simple:

Palo Alto Utilities sucks.

Like this comment
Posted by Peter Carpenter
a resident of Atherton
on Apr 11, 2014 at 3:54 pm

Peter Carpenter is a registered user.

"why not have homeowners drain residential pools?"

One, draining a pool does not save water. Adding water to keep a pool full would use water.

Two, empty pools are both a hazard and, in areas with a high water table, can pop out of the ground.

Like this comment
Posted by musical
a resident of Palo Verde
on Apr 11, 2014 at 5:00 pm

That big hole in my backyard is not a pool. It's a reservoir.

Like this comment
Posted by Check the facts
a resident of Professorville
on Apr 12, 2014 at 9:47 am

The Utility Department should check in with the US Weather Service.

Satellite photos indicate that a large El Niño is brewing in the Pacific, and we will have early, heavy rains is fall, winter, and next spring.

Palo Alto, prepare for the second 100-year flood in less than 20 years!

Like this comment
Posted by Don
a resident of Midtown
on Apr 13, 2014 at 10:51 am

The original reason for Palo alto having its own utilities was to provide cheaper utilities to the residents. It hasn't worked out that way. The City uses our utility bills as a cash cow for City expenses, and we can't do much about it. It amounts to a huge tax, and we can't vote on it. Our utilities cost more than other cities in this area. Why? Mismanagement? Disguised taxes? For such an educated population, Palo Alto residents seem stupid to meekly accept this and keep paying up (and up and up).

Like this comment
Posted by Debra Katz
a resident of Downtown North
on Apr 14, 2014 at 7:56 am

You better believe our founding father's goal of cheaper, HIGHER QUALITY utilities has worked spades.

Please consider such things as that fact that our electric rates alone have not only been lower than PG&E for generations (if you're a long -time Palo Alto resident or business you've saved a fortune), but there has been no electric rate increase here since 2009!

Further, in cases such as with our water utility, rate increases have primarily been related to major improvements (seismic upgrades to Hetch-Hetchy, build-out of our emergency water system, aggressive schedule for replacement of aging water pipelines etc. This has meant both higher water quality and MUCH greater security against future problems than virtually any other city on the Peninsula.

Equally important to all the above is the fact that, if you read your history, our founding fathers also had the inspiration that a community-owned utility could be a source of funds to help the City provide more services and better facilities. To the extent that some portion of utilities rates has supported services like police, fire, libraries, parks etc.---all of which are among the best in the country!---this has been a boon to everyone here in Palo Alto.

I am very proud to work for CPAU, where as corny as it sounds, the "u" truly stands for "you," our community owners. Anything the majority of voters want to change can be changed. The fact that we remain a municipal utilities operation after over 100 years is a testament to the fact that the public as a whole feels they are getting what they pay for.

Debra Katz
City of Palo Alto Utilities Communications Manager

Like this comment
Posted by SteveU
a resident of Barron Park
on Apr 14, 2014 at 8:25 am

SteveU is a registered user.

I recently talked to a homeowner in Menlo Park. They had no water METER. They paid $150 per year---FLAT RATE.
That is just 10 months of THE MINIMUM PA meter charge WITH ZERO water used.

Every rate increase has an +almost hidden+ 6% Utility Users TAX gain. (Since the RATE has not changed, this does not violate prop 13). It is time to modify the UUT to only tax that CONSUMED and not base service.

Like this comment
Posted by Don
a resident of Midtown
on Apr 14, 2014 at 9:47 am

Rates reflecting the actual costs of utilities are one thing. Adding on or raising rates to support other city services or high salaries are another. Utilities are a necessity, like food. People have to use heat in winter, and they have to do laundry, shower, use toilets, etc. In this affluent city, there are nevertheless many people on limited or fixed incomes, and not only seniors. It is a real hardship for many people, and the tax burden should be separated out from the necessary utilities, plus, people should be allowed to vote for the taxes.

Like this comment
Posted by Crescent Park Dad
a resident of Crescent Park
on Apr 14, 2014 at 10:18 am

My Mom lives in Menlo and we handle paying her bills, etc. PG&E, trash, sewer, Cal water --- all of these are more expensive than CPAU. Do the research, do the math.

The difference is that we pay a utilities tax that goes into the PA general fund.

If you're going to get PO'd about anything, point your anger at the tax, not the utility *rates* that we pay.

The idea that the city has the time and equipment to measure each person's trash can, then bill by the pound or cubic foot is so silly. At some point you should just suck it up and pay for your one can. Optionally - stop trash pick up altogether and take it to the Sunnyvale refuse center yourself --- then you'll get an idea of what it costs by the cubic foot.

Like this comment
Posted by Fast HOTwater
a resident of Midtown
on Apr 14, 2014 at 11:19 am

"We need FAST hot water, otherwise we wast a lot of water going out..

Like this comment
Posted by Silly
a resident of Embarcadero Oaks/Leland
on Apr 14, 2014 at 1:10 pm

So tired of the never-ending rate increases. Whenever I compare rates with friends in Menlo Park or Los Altos, I get sick at how much we pay.

I'm tired of paying for my personal storm drain when I have a perpetual lake in front of my driveway for days after each rain. This breeds mosquitoes yet I pay extra for mosquito abatement.

I've complained about this to Palo Alto since 2012 and still NOTHING has been done.

I'm tired of rates going up to subsidize declining sales tax revenues.

I'm tired of increased usage fees, continued mailings about how to cut energy use and then we get higher rates because we're not using enough. I'm tired of all the contests and ads and other COSTLY silliness to promote conservation when just looking at your bill is enough to make you try to conserve and then you get higher rates because we don't use enough.

Palo Alto manages to make PG&E look good which is real accomplishment.

Like this comment
Posted by DC
a resident of Old Palo Alto
on Apr 14, 2014 at 2:39 pm

1) Good to know that city officials read these posts. Thanks, Ms Katz.
2) "Anonymous": Agree. The shady streets, lush and variable landscaping t/o Palo Alto is a HUGE plus for maintaining quality of life here. As a contrast, look only to Embarcadero - that (dreaded word alert) "gateway" to Palo Alto - to see what happens to unwatered/neglected land and streetscapes...the dead, brown grass/plants and dirt along the curbs, untrimmed trees...pitiful.
3) "Crescent Park Dad": Thanks. Now we ALL know we do NOT have it worse than everyone in the world.
4)" fast Hot water": Have you considered going tankless? MUCH faster hot water, so less waste.

Like this comment
Posted by Crescent Park Dad
a resident of Crescent Park
on Apr 14, 2014 at 5:28 pm

4b: Consider installing a recirculating hot water system. Install at the farthest point away from your hot water tank --- hot water at every tap without waiting.

Like this comment
Posted by Frustrated
a resident of Community Center
on Apr 14, 2014 at 9:42 pm

Our rates for utilities are horrendous! And now they want more money, it is disgraceful. We pay higher utility rates than ANY of our nearby cities, just check. Is there any way to get rid of our present utility department people that constantly RAISE our rates? Especially the people who erroneously point out our 'Palo Alto Utilities' are cheaper than other cities. Not so!

Like this comment
Posted by common sense
a resident of Midtown
on Apr 14, 2014 at 9:49 pm

About $40 million is transferred from the utilities to the city to pay for services and pet projects of the city council. This $40 million comes from the Utility Tax, the "Return on Investment" that the city says it deserves because it owns the utilities, and from rents that the city charges the utilities for using property that the city owns or leases (particularly egregious is the land that the city rents from Stanford for $1 per year, and turns around and "rents" it to the utility department for hundreds of thousands per year).

Divided among every resident, this amounts to $600 per resident per year!

Like this comment
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 Corporation—which 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 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 America—not 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 Progressives—who 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 arguments—most 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
said City.

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
public halls.

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 departments—with 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&E—a corporate entity that the so-called “founding fathers” had vilified. The City continues to purchase power from sources outside its boundaries today—although 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 Utility—but 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.

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