Palo Alto Weekly

News - May 4, 2012

Gas rates set to drop in Palo Alto

New gas-purchasing strategy to bring short-term savings, long-term uncertainty

by Gennady Sheyner

After seeing their utility bills grow in recent years, Palo Alto's gas customers will finally get a break this year a rate adjustment that would bring the average residential bill down by more than 20 percent.

The proposed gas-rate adjustment from the Utilities Advisory Commission reflects the City Council's decision last month to get away from the city's traditional "laddering" policy, which locks in gas prices for long periods of time, to adjusting the gas rate every month based on market prices. The new strategy is set to take effect in July.

With market prices falling in recent months, the switch means short-term savings for local customers. But it also means uncertainty and potential volatility down the line. At its April 23 meeting, Councilmen Larry Klein and Pat Burt warned that the policy may look less attractive in the future, when the gas market heats up.

"This is going to work really well right until the prices go up, and then it doesn't work as well," Burt said at the April 23 meeting.

Burt advocated a strategy that balances price stability with the free market. He was the only dissenter in the council's decision to switch from the laddering strategy to market rates.

Klein said he welcomed the change but stressed the need to prepare ratepayers for possible gas-rate increases in the years ahead. The city, he said, needs to send the message that "we're going to follow the market, and that means we're going to follow the market up as well as down."

The proposed rate adjustment was endorsed on Wednesday afternoon by the city's Utilities Advisory Commission, with Asher Waldfogel the only dissenter (Steve Eglash and Marilyn Keller were absent). The adjustment would decrease the average monthly residential gas bill by an amount somewhere in the neighborhood of $15, though the exact impact is unknown because of the fluctuations in the gas market.

According to a report from Utilities resource planners Ipek Connolly and Eric Keniston, staff had projected a $12.32 decrease in the average residential monthly bill based on market prices in November 2011, when staff was putting together the utilities budget. By March 2012, gas market prices have fallen further, bringing the average reduction in a residential bill to $18.03, or about one third of the bill.

The rate adjustment would bring local gas bills much closer to those in neighboring cities, most of which are served by PG&E. According to the Utilities Department report, the median monthly gas bill in Palo Alto is currently $30.22 in the summer and $80.16 in the winter. In Menlo Park, Redwood City, Mountain View and Santa Clara (all of which get their gas from PG&E), the median summer and winter bills are $17.25 and $51.76, respectively.

If the City Council were to approve the Utilities Department's proposed rate adjustments, Palo Alto's median residential bills would drop to $23.52 in the summer and $50.80 in the winter.

The new rates also aim to address recent findings from the Utility Department's cost-of-service study, which aims to align the rates for each customer class with the cost of providing service for that class. While residential customers would benefit from the realignment, the city's largest commercial customers would actually see their gas rates increase dramatically. The average monthly gas bill for the largest commercial customers would rise from $31,606 to $46,646 under the rate adjustment.

Overall, however, gas rates are projected to drop by about 10 percent.

The gas-rate adjustment is a rare bit of good news for local ratepayers, who will soon see their trash, water and wastewater rates go up (electric rates are expected to stay the same). The average residential customer will see an $8.52 increase in his or her water bill and a new $4.06 fee in the trash bill. The fee is intended to cover the cost of street sweeping, annual cleanup days and household-hazardous-waste services.

According to City Manager James Keene's proposed budget for fiscal year 2013 (which begins on July 1), the average household residential utility bill is set to rise by about $8.94, or 3.8 percent.

Staff Writer Gennady Sheyner can be emailed at gsheyner@paweekly.com.

Comments

Posted by Common-Sense-Utility-Pricing, a resident of Another Palo Alto neighborhood
on May 3, 2012 at 8:28 am

The fact that natural gas was more expensive in Palo Alto than in PG&E territory is old news. Unfortunately, few people knew anything about it, and too many people kept claiming that the quasi-socialistic model of Palo Alto government ownership of the utility redistribution/sale saved people money—even when the gas prices were somewhat higher.

What's missing from this article, and from the public's attention, is the past, and soon-to-be-current pricing models that the PAU have been using for utilities pricing. There realignment has been driven by Prop.208 lawsuits against (primarily) the LA DWP (Department of Water and Power). It's a shame that Palo Alto was not sued also, so that the history of the Utility's monopoly pricing models could have been obtained, and made public.

> The average monthly gas bill for the largest commercial
> customers would rise from $31,606 to $46,646 under the
> rate adjustment.

A price increase like this comes to about 30%. This means that under the new pricing model (which is presumably now legal under Prop.208 mandates), the commercial accounts were being subsidized by the residential accounts for decades. No doubt this was someone's idea of making Palo Alto "business friendly", but it certainly was not something that was generally known to everyone who was a customer—meaning the home owners. While the commercial customers generally consume around 85% of the electricity sold by the PAU, they only consume about 15% of the natural gas. With the dollar amounts specified in this article, residents have probably been overpaying upwards of $1,500 every ten years. This overpayment was likely used to effectively subsidize the pricing of gas for the commercial accounts.

> Larry Klein said: "The city needs to send the message that "we're
> going to follow the market, and that means we're going to
> follow the market up as well as down."

And how is this pricing model any different than anything else in life? The older model, which tried to avoid market pricing, led to the City's negotiating fairly short contracts which locked in whatever prices they could negotiate. Because the PAU is a fairly small customer, there were few gas resellers that were interested in dealing with the City. So, the contracts that were negotiated were more expensive than the spot-price of gas, which is what PG&E pays, and how it can sell more cheaply than the PAU.

It's not that hard to look at your monthly utility costs on a year-by-year basis instead of a month-by-month basis. If the Council had the slightest bit of common sense, they would insist that the bills, and the PAU's web site would provide month-by-month, and year-by-year average cost for all of the commodities that it sells. This would provide people both views of what their utility commodity purchases are costing them. It wouldn't hurt to post the PG&E equivalent pricing too.

This change is long overdue. It's a shame that we don't have a well documented history of how utility commodity price changes have been determined, over the years.


Posted by Anonymous, a resident of Another Palo Alto neighborhood
on May 3, 2012 at 8:36 am

Gas prices have been far below the Enron contract price for some time and will be in the near term. Since natural gas is used for many electric power generators, the electrical rates should also drop.

Web Link


Posted by Up or Down?, a resident of Old Palo Alto
on May 3, 2012 at 4:12 pm

Amazing!
Right as we have received notice of proposed rate hikes from PAU!!


Posted by Resident, a resident of Another Palo Alto neighborhood
on May 3, 2012 at 6:25 pm

This is a joke? Right?


Posted by Carlito Waysman, a resident of Old Palo Alto
on May 4, 2012 at 12:44 pm

We need to take away the power to raise our utilities rates at will from the City of Palo Alto. The way things are now, gas, water, electricity, garbage are just a sure way to provide funds to the City's general fund. It doesn't matter how good you are at using less water, gas, electricity, producing less garbage, it doesn't matter anyways, you will see your rates going up. When you call the City to explain the reasons of the rate increases, they come up with the most moronic explanations.


Posted by Karen, a resident of Midtown
on May 4, 2012 at 12:54 pm

"The way things are now, gas, water, electricity, garbage are just a sure way to provide funds to the City's general fund."

That is the nut of the issue.

Good post, Carlito.


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