News

Drought drives up electric costs in Palo Alto

New projections show rates rising by 11 percent in July

After seven years of stability, Palo Alto's electric ratepayers could soon be in for a series of jolts, as the state's prolonged drought continues to take its toll on both the city's hydroelectric supplies and its cash reserves.

According to projections presented to the City Council's Finance Committee on Tuesday night, electric rates are set to go up by 11 percent on July 1, a slight increase from the 10 percent increase that Utilities Department staff projected last month. Rates are also expected to go up by another 8 percent next July before stabilizing, according to the projections.

Much like with water rates, which are also projected to rise in July, the drought is the main driver. Half of the city's electric supply comes from hydroelectric sources and with the dry spell stretching into its fifth year, Palo Alto has been forced to buy wholesale electricity at market prices, which tend to be higher.

Water rates, meanwhile, are set to go up by 6 percent – down from the 9 percent estimate in staff's prior assessment. This is because the San Francisco Public Utilities Commission, the city's water supplier, has revised its own projections for future rate hikes. Utilities staff also project 9 percent increases in each of the following years.

The drought is even affecting the city's wastewater operation. According to Utilities Department staff, with less water flowing through the system, there is a greater concentration of chemicals at the end source, which increases the treatment costs. Wastewater rates are projected to go up by 9 percent in July, said Eric Keniston, rates manager for City of Palo Alto Utilities, which would add about $2.88 per month to a residential bill. They are also projected to go up by 10 percent in each of the next two years.

Even gas utility isn't insulated from the drought's impacts. A warm winter means less heating, and as people use less water, they heat less water, which means gas consumption dips and the city's revenues fall below expenditures. That's part of the reason why gas rates are projected to go up by 7 percent in July and by 5 percent in each of the following three years.

"The drought is a huge driver for all the funds," Assistant Utilities Director Jane Ratchye told the committee Tuesday. "We know this is unusual for us to have a rate increase in every single fund."

Altogether, the bundle of rate bumps (which also includes a 9 percent increase in the refuse rate and a 2 to 3 percent increase in storm drain rates) are expected to add about $23.25 to a resident's monthly bill, which as of last July totaled $245.23.

Councilman Greg Schmid observed that the city is coming out of a period of time when things were stable and where market conditions were going in the city's favor. Now, he said, "we seem to have a number of special circumstances on the other side."

"We have the drought which affects both the electricity and water in a unique way and given that we've had no rain during February, it's hard to write that off quickly," Schmid said.

Schmid and his three committee colleagues – Chair Eric Filseth, Councilwoman Karen Holman and Councilman Cory Wolbach – generally accepted staff's recommendations, though the council won't be asked to formally approve any rate changes until June.

In some ways, everyone recognized, the increases are inevitable. The electric utility's stabilization reserves, which had been used to cushion ratepayers from sharp increases in recent years, has been largely used up. In the years ahead, the city will be trying to rebuild these reserves, which will also contribute to rising rates.

Judith Schwartz, a member of the city's Utilities Advisory Commission, said the utilities reserves have been used in the past to "insulate the populace from what was happening." To keep rates from rising, the city brought its reserves down to a point where they now have to be built back up, Schwartz said.

Schmid, however, pointed to the significant rate increases local residents will experience in July and wondered whether the city should really be focusing on rebuilding its reserves.

"We have all these things going on and we have a series of rate increases for three years that are quite striking, after what we've been through," Schmid said.

Council members took solace, however, in the fact that the city's rates would remain well below PG&E's, even with the proposed rate hikes.

Keniston said the city's rates are now about 46 percent below those of PG&E, which had recently raised its rates.

Wolbach said that it's been a significant point of pride for Palo Alto that its electric portfolio is not only carbon neutral, but also comes at a lower rate than PG&E. The July rate change will do nothing to change that, Keniston said.

Other projections, however, are far less certain. The cost of natural gas, for instance, is nearly impossible to predict because the commodity price changes month to month, Keniston said.

There's also the biggest wildcard of all.

"The big uncertainty is: How long will the drought last?" Keniston said.

Comments

12 people like this
Posted by Resident
a resident of Crescent Park
on Mar 2, 2016 at 8:27 am

Blaming the drought is bogus.

A hydro-electricity contract should be long-term. No? (The City is crowing about a 25 year solar deal) A well-negotiated agreement of that kind would have the electricity seller in breach if it failed to deliver the electricity. And PA would be entitled to have the electricity seller cover costs to get the electricity elsewhere in the event of breach of contract.


13 people like this
Posted by Jonathan Brown
a resident of Ventura
on Mar 2, 2016 at 10:40 am

Let's come up with a way of funding these utilities that does not dis-incentivize conservation. Otherwise the City is penalizing people for doing what they were urged (or mandated) to do.
>>> "consumption dips and the city's revenues fall below expenditures," and rates rise as an "inevitable" result.


6 people like this
Posted by Allen Edwards
a resident of Old Palo Alto
on Mar 2, 2016 at 12:17 pm

My understanding is that Palo Alto is a owner or member of the hydroelectric generating facility. Because of less water, there is less electricity being generated. I don't think there is any third party seller to get rate relief from. Even if there was, do you want to bankrupt what has been a very good deal for the city over the years?

@Jonathan How does a higher utility rate discourage conservation? It is still the case that the more you conserve, the lower your bill.


10 people like this
Posted by Tim Buck Ii
a resident of Downtown North
on Mar 2, 2016 at 12:44 pm

"A well-negotiated agreement of that kind would have the electricity seller in breach if it failed to deliver the electricity."

No sane hydro supplier would enter into such an obligation. We get cut rate power from the Western Power Authority subject to availability. If it ain't there we find power elsewhere.


7 people like this
Posted by BP Observer
a resident of Barron Park
on Mar 2, 2016 at 1:33 pm

"Even gas utility isn't insulated from the drought's impacts. A warm winter means less heating, and as people use less water, they heat less water, which means gas consumption dips and the city's revenues fall below expenditures. That's part of the reason why gas rates are projected to go up by 7 percent in July and by 5 percent in each of the following three years."

What??? That's some twisted logic, even for Palo Alto. I don't heat the water I use on my yard, which is where most of the cutback is. And why are we raising rates in the next three years for what might or might not happen then. Did no one notice that the world is awash in natural gas and the price has dropped like a rock? Who negotiated that contract?
More likely, the greenies are just trying to push us out of natural gas into their idyllic, carbon-neutral electric world.


7 people like this
Posted by jerry99
a resident of Barron Park
on Mar 2, 2016 at 4:29 pm

Natural Gas prices have dropped 89% since 2005 and inflation is 1.2%. How does the city rationalize a ~9% increase in natural gas, water, sewer and electricity. Cut some of the employees if you have to have 7-10% annual increases. There is clearly no cost control in your utilities programs.

NATURAL GAS- 1990-2016
Natural gas decreased 0.046 USD/MMBtu or 2.37% to 1.90 on Wednesday March 2 from 1.94 in the previous trading session. Natural gas lost 1.032 USD/MMBtu or 35.22 percent during the last 12 months from 2.93 USD/MMBtu in March of 2015. Historically, Natural gas reached an all time high of 15.39 in December of 2005 and a record low of 1.02 in January of 1992.


5 people like this
Posted by Tim Buck II
a resident of Downtown North
on Mar 2, 2016 at 5:20 pm

It takes the same number of employees to run 1000 cu ft of gas through the pipes as to run 1 cu ft. Or 1000 gal of water as 1 gal, or 1000 kwh through the wires as 1 kwh. Those employees insist on being paid (cheeky lot, wot?), and the payroll money has to come from selling what went through the pipe or wires. Welcome to the wonderful world of utilities economics, folks.

So go for the economies of scale built into the system. Fire up the furnace, cook big meals, take long showers, leave all the lights on, and the per-unit costs go down.


Like this comment
Posted by Guy_Fawkes
a resident of Charleston Gardens
on Mar 3, 2016 at 4:31 pm

Guy_Fawkes is a registered user.

Maybe its time to get out of some of the utility businesses - I would much rather see the see exit the gas utility business and enter the broadband business. Gas seems to be a dying resource with impacts on the climate. What if the city sold it to PG&E now while it still had some value?


Sorry, but further commenting on this topic has been closed.

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