Palo Alto's Utilities Department is a well-run operation that provides a high level of service to its customers. But several improvements and changes will need to be made if it is to be competitive when deregulation opens up the electric and gas markets in 1998.
That was the overall message of a consultant's study presented to the Palo Alto City Council last week examining the city's $145-million-a-year utilities operation, which has been a boon to Palo Alto since the early 1900s.
Providing responsive and reliable service will be paramount in keeping the utilities' customer base in the new competitive marketplace, said consultant Tom Resh of Theodore Barry & Associates, which conducted the study with Resource Management International Inc.
"The bar of performance is going to continue to be raised, and the people raising that bar will be the customers," Resh said.
The "organization review" of the utilities department, which was initiated by the council two years ago, follows a similar study of all the city's General Fund departments that was completed in 1994 by Hughes, Heiss & Associates. That three-year-long study came up with more than $800,000 in net savings, although only about $244,000 in cuts were implemented at that time.
The utilities review could have much more impact in light of the new competitive environment and the city's longstanding practice of transferring utility profits to help balance the General Fund budget. This year $12.8 million is being transferred, 15 percent of the $84.6 million General Fund budget.
To avoid severe cutbacks, the city will have to focus hard on maintaining its biggest commercial electric customers. About 80 percent of the electric utility's revenue is from commercial and industrial customers, and about 20 percent from residential customers.
"How can municipal utilities compete with large utilities like PG&E?" asked Council member Gary Fazzino. "What can we offer a Hewlett-Packard or a Varian that others can't?"
"We can compete, but we'll have to do business very differently," responded City Manager June Fleming.
However, there are several factors in Palo Alto's favor, the consultants noted. Its rates are among the lowest in California. It has unusually high customer satisfaction rates. Its power costs don't contain "stranded costs" like many other utilities that are saddled with far greater debts from large infrastructure investments. And the city knows its customers better. Many people just prefer dealing with their local utility, Resh said.
--Peter Gauvin
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