tility rates for Palo Alto homes and businesses are proposed to rise sharply next year, likely setting up future increases.
The proposed hikes to the city-provided electricity, water and natural gas services are tied to a number of factors ranging from higher prices for the city to the end of flush contracts to a demand for emergency supplies, city officials said.
Electricity rates are proposed to increase 8.5 percent next year. Water rates could see a 10 percent jump. Natural gas prices are proposed for a 9.9 percent rise.
All rate increases ultimately need to be approved by the Palo Alto City Council, and would take effect July 1.
At the same time as rates are set to rise, so is the utility department's budget. The city plans to use income from the Utilities Department to pay for services affected by diminishing sales tax revenues. However, the city says the rate increases are unrelated to the department's increased expenditures.
The reason for the change in electricity prices is mainly due to the end of a 40-year hydroelectric energy contract with Western Area Power Agency on Jan. 1, 2005.
"We're forecasting rate increases for electric just about every year for the next few years," Director of Utilities John Ulrich said.
The contract, initially been seen as a foolish risk, has turned into one of the best investments in the city's history.
To make up for the loss, the city is getting new sources of energy, including wind power. It is also considering building a power plant to supply cheaper energy. But rates might still need to increase more than 35 percent over the next few years to make up for the increased costs, officials said.
"There's still a lot of uncertainly about how that will impact us," Utilities Advisory Commissioner George Bechtel said.
Much of the proposed water rate hike is related to future costs to fix the ailing Hetch Hetchy water system, where Palo Alto gets most of its water.
The system of pipes that bring water from the Sierra Nevada to the San Francisco Bay Area is old and subject to major failure in the event of a severe earthquake. Repairing it is estimated to cost approximately $3 billion, split between San Francisco and the Bay Area's suburban cities.
Officials are also trying to create new emergency water wells inside the city, and has considered placing one under a park for years.
"It's been delayed because of a combination of fiscal, physical and political issues," said Utilities Advisory Commissioner Dexter Dawes.
The proposed gas price increase is almost entirely driven by rising prices for supplies, thanks to the market.
Next month, the Utilities Advisory Commission will make a recommendation to the City Council about the proposed increases. The commission preliminarily reviewed the proposals on Wednesday night.
The Utilities Department is budgeted to provide more than $13 million to the city's general fund this year, and that amount is proposed to increase 3 percent next year.
That figure also doesn't take into account the fact that the Utilities Department pays high prices for numerous properties it rents from the city, Dawes said.
Bill D'Agostino can be e-mailed at bdagostino@paweekly.com
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