Palo Alto residents should brace themselves for a dramatic spike in their utility bills in July, with electricity, gas, water and wastewater rates all set to go up at the same time.
That is the early projection from the city's Utilities Department, which is planning to raise electricity rates this year for the first time since 2009. While the tentative plan calls for bumping the rates by 10 percent, staff said Wednesday that the increase could end up being 12 percent or higher.
Altogether, the rate changes are expected to add about 9 percent to the median residential utility bill, or about $23.25 per month. As of last July, the median residential bill in Palo Alto was $245.23.
Though growing bills are a familiar trend to Palo Alto's utility customers, particularly during a time of drought, this year could mark the first time in decades that all rates will rise at the same time. Jane Ratchye, assistant director of the Utilities Department, noted Wednesday that the 2016 increases had been projected a year ago, when officials were coming up with rates for the current fiscal year. Even so, the new projections show that the rate hikes will have to be more sizeable than initially expected.
"We know it's going to be quite a big hit for everyone," Rates Manager Eric Keniston told the Utilities Advisory Commission Wednesday. "We know electricity will probably be higher than the 10 percent (shown here). We're hoping we can get through this OK."
The reasons for the increases are many, though in most cases they are tied to the ongoing drought. Because the city usually draws about half of its electric load from hydroelectric sources, the drought means that Palo Alto has had to buy its electricity from elsewhere. At the same time, the electric utility's hydro stabilization reserve, which the department dipped into in prior years to avoid rate increases, has all but dried up, making rate hikes unavoidable, according to staff.
The goal, Keniston said, is to get the utility back to cost-recovery levels. The big wildcard, he noted, is the drought, which is now in its fourth year.
"The longer this goes on, the more we have to go out and buy market power, which is more expensive," Keniston said.
Other factors that could further impact the electricity rates include the addition of a new transmissoin line and new smart-grid initiatives, according to staff.
Water rates, which went up by 13 percent last July, are also expected to continue on their upward trajectory. Staff expects to raise water rates by 9 percent in July and projects similar increases in the following two years.
These bumps are generally tied to the cost of buying water wholesale from the San Francisco Public Utilities Commission. While the cost hovered around $1 per 100 cubic feet of water a decade ago, it stands at more than $4 today.
Palo Alto is also contributing toward the commission's ambitious $4.8-billion effort to upgrade the Hetch Hetchy system. The rate hikes aren't expected to stop this year. Staff is projecting raising the water rates by another 10 percent in July 2017 and again in July 2018.
The rates for natural gas, meanwhile, are expected to go up by 7 percent in July, driven in large part by the growing costs of transporting the gas through PG&E's pipelines. According to staff, PG&E's transportation costs are projected to nearly double in the current year. The city's own efforts to upgrade its gas infrastructure -- including a large-scale crossbore inspection program and gas-main replacements -- are also contributing to the higher costs.
Unlike the electricity rates, the gas rates are effectively in line with staff's predictions from last year of about 7 percent. At the same time, the Utility Department is now expecting to see larger-than-anticipated increases in the next few years. The city's prior forecast for 2016-2022 predicted gas rates would go up by 7 percent this year and by 4 percent in each of the next three years. Now, the forecast calls for following this year's rate increase with three consecutive 5 percent bumps.
The rising gas rates are also driven partially by the fact that people have been using less gas in the past year, which results in less revenue for the gas utility. Because the Utilities Department still has to face the high fixed cost of delivering the gas, it has to compensate for the lower revenues by raising rates.
Then there is wastewater, which has become more expensive to treat, according to utilities staff. Like with gas, staff is envisioning several years of increases, starting with 9 percent in fiscal year 2017 (which begins on July 1, 2016) and then moving to 10 percent in each of the next two fiscal years.
The figures are still tentative and subject to revision, staff told the utilities commission Wednesday. Next month, the commission will see a more detailed report with projected rate changes. The City Council is expected to consider them in June.
The commission didn't spend much time discussing the rates Wednesday, though Commissioner Steve Eglash asked staff to take another look at the various reserves and come back with figures showing what the "smallest possible bill change" could be. Commissioner James Cook said that while no one likes to see rate increases, it is critical for the city to run "prudent reserves" and to have a "safe and reliable infrastructure."
"While we don't want increases, we also don't want to be Flint, Michigan," Commissioner James Cook said, referring to the city where the water was found to be contaminated with lead. "We want to make sure this is done prudently."