A proposal by Palo Alto's Utilities Department to raise the city's water rates by an average of 12.5 percent in July earned the endorsement of a City Council committee Tuesday night.
After a lengthy debate, the council's Finance Committee voted 3-1, with Nancy Shepherd dissenting, to increase the water rates this summer. The four committee members agreed that the rates have to be raised to keep up with the spiking costs of wholesale water. The wholesale price of water is scheduled to double by 2016 because of a $4.6 billion effort by the San Francisco Public Utilities Commission (SFPUC), the city's water supplier, to repair the aged water structure.
"I feel strongly that we do need a rate increase," Councilman Greg Schmid said after hearing the staff presentation. "The SFPUC has put the burden on us and we have to respond.
"I think this moves us in the right direction."
The increased rates would bring the Utility Department an estimated $3.1 million in extra revenue, which will be used to help offset a projected deficit of $6.2 million in the Water Fund. The balance of the deficit would be covered by the city's reserves.
Though all committee members supported the increase, members split over how much of the water rate should be comprised of fixed monthly costs and how much should consist of "volumetric charges," which vary by usage. Fixed charges currently constitute about 7 percent of the fund's revenues, while volumetric charges add up to the other 93 percent.
A recent Cost of Service Study recommended increasing the fixed-service component of the bill. Staff had initially proposed raising the fixed rate for most residential mains from $5 to $14 a month, but revised its proposal after members of the Utilities Advisory Commissioners argued that volumetric costs should comprise a large part of the bill to encourage conservation. After the UAC's review, staff proposed increasing the fixed cost from $5 to $7.50 for most residential customers.
The Finance Committee ultimately settled on what Vice Mayor Yiaway Yeh characterized as a "compromise" between the two proposals. The committee voted 3-1 to increase the fixed charge for most residential water customers from $5 to $10.
"I think it's a good middle ground," Yeh said. "It does increase some of the structures to push for conservation measures and get customers to think about that."
The full council is scheduled to discuss the rate increases in June. The new rates would take effect July 1.