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Utility rates set to rise in Palo Alto

Combination of drought, growing capital costs could add 9 percent to average bill

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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."

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41 people like this
Posted by common sense
a resident of Midtown
on Feb 5, 2016 at 6:09 am

Another cost is dollar spent on market rate electricity is a dollar spent on fossil fuel generated electricity, and the buying of "carbon offsets".

Remember the guest opinion about electric cars? just adding more to global warming.

Carbon offsets are like littering, paying a fine, and claiming to help clean up the environment.

60 people like this
Posted by It's a Joke
a resident of Another Palo Alto neighborhood
on Feb 5, 2016 at 8:54 am

Carbon Offsets are the modern-day equivalent of the medieval Catholic Church's " sin exemption cards", that wealthy parishioners paid huge sums of money for in order to be off the hook for future sins,

They are both hoaxes.

In light of the poor service residents receive, especially in regards to garbage, as well as raising water rates because residents were not using enough water, the Utility Department should not be allowed to raise rate on thin dime.

Has anyone contacted the PUC about PAUD?

39 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Feb 5, 2016 at 10:34 am

> Has anyone contacted the PUC about PAUD?

As a municipal utility, the PUC has virtually no oversight power over the Palo Alto Utility. Oversight is supposed to be provided by the City Council.

Anyone ever hear the Council talk intelligently about rates, or anything about the utility's administration? Probably not. The utility operates with little oversight. The utility advisory commission has no oversight authority, and does little more than act as a cheering squad all too often.

40 people like this
Posted by Richard Placone
a resident of Barron Park
on Feb 5, 2016 at 10:55 am

Interesting that there is no comment in the article or the responses above about the rake-off the city takes as its share of investment return. With the city claiming to enjoy ballooning revenues from property taxes, hotel receipts and so on, one could ask if the residents could participate in this largess by holding the line on on the return on investment the city enjoys. While our rates are going up, is the city's share of income going down? Not likely.

7 people like this
Posted by Marc
a resident of Midtown
on Feb 5, 2016 at 10:57 am

You do understand the concept of "fixed costs"? The reduction in water usage has nothing to do with reducing the costs to deliver water. Same costs / less units = higher cost per unit.

A reduction in water usage doesn't make the infrastructure smaller, doesn't lay off any employees, etc.


Like this comment
Posted by juan olive
a resident of Old Palo Alto
on Feb 5, 2016 at 11:01 am

Palo Alto is the new Utopia that I believe will save the world.

22 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Feb 5, 2016 at 11:12 am

> A reduction in water usage doesn't make the
> infrastructure smaller,
> doesn't lay off any employees, etc.

This is true as long as there is a commitment not to manage effectively. Yahoo’s revenues are down significantly, and Yahoo is planning to downsize its workforce accordingly. Employee headcount is not a “fixed cost” in the private sector, for most situations. Why should it be so in the government sector?

The comment about infrastructure needs review. If the infrastructure is generally paid off, then the costs of infrastructure necessarily must go up on a yearly basis?

If the price increases are solely linked to the increased acquisition of “market rate” power—then perhaps the rate increases are justified. Of course, we are left having to trust that the utility has actually done its best finding the lowest cost power to buy. (Most of us still remember the Enron fiasco of some years ago that cost us all millions.)

3 people like this
Posted by SteveU
a resident of Barron Park
on Feb 5, 2016 at 12:42 pm

SteveU is a registered user.

Utilities seems to be doing pretty good maintaining the infrastructure. You don't hear of many leaks/outages that were not caused by construction/accident.

What seems out of line is the surcharges for Hetch Hetchy line MAINTENANCE. Consumption charges should be paying for IMPROVEMRNTS (or the portion above maintenance costs. I need to replace the 12" pipe, but I need a 16" pipe to meet demand. We should only be surcharged for the amount that 12" would cost).
BUT aren't maintenance charges already built into wholesale cost CPAU pays? Are we being Flim Flamed?

36 people like this
Posted by MichaelW.
a resident of South of Midtown
on Feb 5, 2016 at 2:51 pm

I have lived in Palo Alto since 1969. The entire utility bill then was about $50. I soon learned that the City owns it's own utility company to "help keep the resident's prices lower than surrounding cities."
This is in stark contrast to today where the city boasts about the "revenue they are entitled to make from their investment." It seems the attitude of city officials has changed from governing their residents with our interests in mind, to everything is a cash cow. Money, money and more money!

36 people like this
Posted by water waster
a resident of Community Center
on Feb 5, 2016 at 3:12 pm

this is ludicrous. another scam and waste of money by the City. pave streets, dig up streets. more building high rises. more traffic. more taxes to the citizens to move the City into socialism--only this scheme is take from the "poor" so that the rich can do whatever they want. what hypocrisy! all these excuses for raising prices is due to ineptitude by the City utilities department.

10 people like this
Posted by Inflated Anger
a resident of another community
on Feb 5, 2016 at 3:32 pm

So Michael W, you're saying that your Utility bill is effectively cheaper now, due to inflation? Web Link

37 people like this
Posted by stop the nonsense
a resident of Duveneck/St. Francis
on Feb 5, 2016 at 4:37 pm

enough with the constant rise in utility prices. this has gone too far. stop the nonsense. it has now become a money grub for the City. who's paying for their outrageous salaries?

2 people like this
Posted by Patrick
a resident of Evergreen Park
on Feb 5, 2016 at 4:37 pm

Go ask someone who lives on campus at Stanford about their utility costs and you will feel much better about the Palo Alto residential costs. That said, I appreciate all you whistle blowers keeping checks and balances working.

36 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Feb 5, 2016 at 4:50 pm

It seems to me that we are in constant upturns of utility rate charges. It was only a few months ago that our garbage rates went up for a poorer quality service. I expect that these new charges will also result in a poorer quality service.

We still have third world power supply at the mercy of any strong storm to take out our power. We still have power poles in back yards which require a great number of reasons for workers to require access to backyards and tree trimmers to hack at trees with only cables in mind and no concern as to what it might do to the condition of the trees.

Many of the gas lines are right under city owned trees.

Many of our sewers are old and subject to tree root invasion.

Ground water dispersal causes flooding whenever we have serious rains. Even the yellow wheelchair curbs seem to puddle whenever it rains making the intersections a difficult place for strollers and wheelchairs in rainy conditions.

And for this type of service, we get increases in charges. If we use less, we get surcharged for the cost of maintenance due to reduced usage.

Blah, blah, blah. Heard it all before. Nothing changes. And we certainly get no improvements in infrastructure.

24 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Feb 5, 2016 at 7:00 pm

I'd like to see a breakout of the costs of the incessant mailings and ads telling us to conserve energy, how to compost, how to beat our neighbors in energy conservation blah blah.

Remember, the more you conserve, the more you'll pay because you don't use enough. I love how they can project out how much the rates are going to rise EACH year through 2021!

Really, how much is being siphoned off from Utilities to go into the General Revenue Fund? I'd love to see an article on that. How much have we spent on studies and consultants wondering whether we should all demolish our kitchens for their latest all-electric craze?

9 people like this
Posted by SF Transplant
a resident of College Terrace
on Feb 5, 2016 at 7:15 pm

Palo Alto utility rates are much lower than PG&E in SF and more reliable in my experience (no "rolling blackouts"!. I don't mind paying a bit more.

44 people like this
Posted by Chris
a resident of Midtown
on Feb 5, 2016 at 7:48 pm

None of the departments communicate with each other. They are nothing more
than departments of waste. They spend our money on this waste, then always want money off us.

Here is a good example of this cities waste that I've witnessed time and time again. The road resurfacers come along and put a nice smooth layer over the roads, because they are all cracking up, or have been previously dug up. Then the utility folks come along a few weeks later and they start digging it up again, making more deep holes in it. There's those bumpy roads back again!

Why don't the road diggers do their digging up first, then have the resurfacing done?

What kind of city logic is it to always do it the other way around? We are getting constant utility increases for all that waste! That is not how a city should be ran. I'm afraid that this city is not being ran by professional, logical thinking people.

Palo Alto is a city of waste and the citizens are being forced to pay for it!

Then there's the city trees in front of each home verses water usage. We're watering those trees to keep them alive for the very important appearance of this city to others, while running our water bills up. Now your penalizing us for doing it with water rate increases?

Then there's the garbage sorting and collections we have to do, which has become more time consuming, smelly, and has increased the rat population around my house.
So now you want to raise the fees on that too, while we do all the work?

When does the gouging stop? When do the lies for justifications stop? How long will it take before the city stops taking us for blind idiots?
The announcement of ALL utility increases is for city revenue, amounts to greed.

32 people like this
Posted by Stan
a resident of Downtown North
on Feb 5, 2016 at 9:52 pm

In past decades, the City of Palo Alto has excessively charged all utilities customers, in effect using the utility bill as a mostly undocumented and unregulated tax on residents. Most recently, this 'discovered' source of cash Web Link was hi-jacked to fund the dark fiber dream in city hall that just won't die.

How much cash is the Utilities Dept hoarding now? What is being held for? and if there is cash on hand, why are rates going up?

38 people like this
Posted by Carlito's Waysmann
a resident of Old Palo Alto
on Feb 5, 2016 at 10:05 pm

Chris is right, lets take the example of Alma St between the Oregon Expressway overpass and Churchill st; in the last 5 years or so it has been resurfaced and repaved at least couple times, and every time barely couple months after, there were some work crews cutting up the road again and covering the holes with those metal plates that have those tabs sticking out waiting to poke a hole on your tires. Insanity.

The Utilities department must stop sending millions of dollars every year to the City General fund. The Utilities Department operates at a nice profit that covers all its expenses and they operate in the black , with a healthy surplus.

13 people like this
Posted by Midtown
a resident of Midtown
on Feb 6, 2016 at 1:03 pm

For folks on Social Security the increase should be the same as the increase in cost of living increase each year. The last two years that has been zero. So should the utilities increase.

13 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Feb 6, 2016 at 3:22 pm

> How much cash is the Utilities Dept hoarding now?
> What is being held for?

There was an audit of the Enterprise Funds reserves in 2012--

Web Link

18 people like this
Posted by Marie
a resident of Midtown
on Feb 6, 2016 at 3:32 pm

Marie is a registered user.

Given utility costs are rising far more than inflation, the department should save wherever it can. It is time to dump buying carbon offsets which is a "feel good" expenditure at best. Just because we pay more, does not mean that there is any reduction in the carbon load from electricity generated by coal. It is just that someone else pays less.

Coal is the only easily expandable way to increase electricity and Palo Alto's use of electricity is so miniscule to the market as a whole, that our sacrifice to buy carbon offsets is futile at best and only increases expenses for utility customers. If there is a big increase in demand for electricity, it will be filled by first gas and then coal. And now they want us to volunteer to pay for offsets for natural gas, when electricity produced by gas is much cleaner than coal?

I support federal research to encourage more development of solar and wind energy and other alternative energy sources. Having one small utility company voluntarily pay more for energy to create more demand for alternative energy is nuts. And most of our "clean" demand is not supplied by solar or wind but instead by recapturing methane from garbage dumps in the central valley. Does this really even reduce net carbon emissions? I haven't seen any actual financial analysis that answers that question.

18 people like this
Posted by jc
a resident of Crescent Park
on Feb 7, 2016 at 7:46 pm

And the pundits and politicians and economists all say there is no inflation!!!!!

5 people like this
Posted by Johnny
a resident of Midtown
on Feb 8, 2016 at 4:18 am

Did is what we get for blindly supporting environmentalist Democrats, handing them the keys to the city, and letting them wreak havoc on the free markets with their half-baked ideological pursuits.

Government officials fail to realize what their job really is.

16 people like this
Posted by member
a resident of Crescent Park
on Feb 8, 2016 at 6:18 am

Why not have the PA general funds flush by the present-day tax boom) reverse flow into PA utilities? At least return the siphoned off monies plus interest!

But no, administrators need more compensation and several assistants to do the job (see city attorney) and employee unions must have more.

The refrain of life here is: "You live in PA. Pay me."

12 people like this
Posted by Online Link
a resident of Embarcadero Oaks/Leland
on Feb 8, 2016 at 8:27 am

Joe, thanks for the link to the audit of the Enterprise Fund reserves. I tried to read and understand it but it sure was tough to figure anything out from it or to find the bottom line.

Could you translate it for us mere mortals?

The report WAS beautifully formatted though.

11 people like this
Posted by joel
a resident of Barron Park
on Feb 8, 2016 at 11:56 am

I am on a fixed income and choose to not use my electric heat throughout the year in order to be able to live in this community. I bundle up and get out of my house most of the day. It has been quite cold for my old bones. I agree with the "Social Security" suggested pay scale for those on fixed incomes. There is a city program that helps lower income earners but when you became 701/2 years old you are forced to take out a Required Minimum Reduction from one's pension. Thus putting me in a category that cannot use the city's program. I hope that when increases happen that the program also increases its minimum amount needed to take advantage of the program.
I know this is a whiny letter but thought I might not be the only one having to make the choices I have made.

11 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Feb 13, 2016 at 10:24 am

Today's New York Times reported that given the huge drop in oil prices it is now cheaper NOT to recycle plastic.

Elsewhere it was recently reported that Palo Alto has siphoned off more than $17,000,000 from the Utilities Dept. into the general fund.

Given that the Utilities Dept. is running a surplus and should be saving money on cheaper energy costs, it defies logic that we're seeing huge rate increases through 2021.

Enough already.

2 people like this
Posted by Anonymous
a resident of Another Palo Alto neighborhood
on Feb 14, 2016 at 10:12 am

Maybe Palo Alto should do a zero based review of its fixed costs. 25% reduction in water usage. Oil and Gas prices hitting record lows. Result is at least a 7% rate increase in electricity, gas and water and probably higher. I'd like to see a breakout of fixed costs in my bill rather than hiding it in the rates.

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