Concerned about the steady drip of rate increases, Palo Alto's Finance Committee pushed back on Tuesday against a new proposal by the Utilities Department to increase rates by 4 percent in July and by 7 percent in each of the following two years.
The committee, which was scheduled to adopt the Water Utility Financial Plan and the 4 percent rate hike, instead directed staff to take a fresh look at its expenditures and come up with ways to keep increases down. This could mean revising the department's infrastructure priorities or scaling back plans to adopt smart meters over the next three years.
Some of the cost increases are due to factors largely beyond the city's control, including the wholesale cost of buying water from the city's supplier, San Francisco Public Utilities Commission. The SFPUC is also still in the midst of a multiyear, $4.8-billion effort to upgrade the Hetch Hetchy system, a project that is also contributing to higher water bills.
While the city has no purview over the regional project, committee members urged staff to rethink some of the local infrastructure priorities. These include maintenance of an emergency reservoir and replacement of aged water mains. Councilman Greg Tanaka observed that construction costs are now extremely high and wondered whether it would make sense to defer some projects until the economy cools off and the projects can be done at a "fraction of the costs."
"It's not like the wheels are falling off the wagon now," Tanaka said.
Ed Shikada, general manager of the Utilities Department, countered that replacement infrastructure over time is a "prudent risk management strategy."
"You don't plan to make a major replacement of capital infrastructure within a small period of time," Shikada said.
Councilman Greg Scharff questioned the need for smart meters, which the city hopes to start installing by 2021 and which are projected to cost about $4 million. Given the high costs, Scharff wondered whether residents are better off with or without the smart meters.
The committee did not vote on the proposed plan, but instead directed Utilities Department staff to return with alternatives for having lower rates in future years.
"I think the rate increases are too high," Scharff said. "I can't support them."
If the city adopts the 4 percent rate increase this year, the change would add about $2.84 to the median residential water bill, which currently stands at $84.27.
Staff plans return to the committee within the next month to continue the discussion, before going to the full City Council for approval.