The proposed rate increase aims to address projected revenue shortfalls in the city's water operation, deficits that are driven largely by the rising cost of purchasing water wholesale. The city buys its water from the San Francisco Public Utilities Commission (SFPUC), which is in the midst of upgrading the Hetch Hetchy water system that supplies water to Palo Alto and other members of the Bay Area Water Supply and Conservation Agency.
The multi-year effort to upgrade the system is being funded by all the agencies that rely on the SFPUC for water, including Palo Alto. For local ratepayers, this has resulted in annual rate hikes, including the 12.5 percent increase that went into effect in Palo Alto Oct. 1.
According to a new report from the Utilities Department, the city's Water Fund faces a projected $1 million increase in the cost of purchasing water in fiscal year 2012 (which begins in July), as well as an $800,000 increase in operations costs and a $1.6 million increase in capital costs.
The new proposed rate increase would add $8.54 to a typical residential monthly water bill, according to the report. It would go into effect July 1, pending City Council approval. It would add $4.7 million in revenues to the city's water fund in fiscal year 2013 and help close a projected deficit of $5.6 million. The remainder of the funding gap would be covered by drawing $900,000 from a reserve fund.