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Drought, maintenance costs raise Palo Alto's utilities rates

Water rates set to jump by 8.9%, while gas and electric rates face smaller increases

Palo Alto Utilities customers will see an 8.9% increase in their water rates, the largest utilities rate hike approved by the City Council on June 13, 2022. Embarcadero Media file photo by Veronica Weber.

Palo Alto residents will see their utilities rates go up this summer due to a combination of rising water prices, dry hydroelectric conditions and a pandemic-driven drop in gas consumption, according to Palo Alto Utilities staff.

The increases will drive the average monthly residential bill to just over $300, though city administrators note that it will remain about 9% lower than surrounding jurisdictions, most of which get their gas and electricity through PG&E. According to city data, only the city of Santa Clara, which runs its own utilities, will have lower rates than Palo Alto.

The biggest hike will be in water rates, which are slated to rise by 8.9%. Palo Alto is one of 26 jurisdictions that buy water from the San Francisco Public Utilities Commission, which last month approved a 15.9% increase to its wholesale rates. The city also is seeing a 4% increase in distribution costs, according to senior resource planner Lisa Bilir.

The council on Monday voted 5-1, with council member Greg Tanaka dissenting and council member Greer Stone absent, to approve the water rate increase. Tanaka noted that the city's residential water rates are about 14% higher than those in surrounding jurisdictions and said he cannot support the rate hike.

In addition, the council voted 6-0 to support a 5% increase to electric rates and a 3% increase in wastewater rates. Council members also voted 5-1, with Tanaka dissenting, to support a 4% increase to gas rates. In both cases, usage has dipped as a result of the pandemic, according to utilities staff.

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When it comes to water rates, the increase is driven in large part by infrastructure improvements that San Francisco Public Utilities Commission is undertaking, Catherine Elvert, communications manager for Palo Alto Utilities, said in an interview. Palo Alto gets all of its water from the SFPUC while some other nearby cities get water from other sources with different costs than SFPUC, which is one reason why there are differences in water rates between water retailers.

The investment, Elvert said, is necessary to maintain the Hetch Hetchy system, which the SFPUC uses to draw water from the Tuolumne River.

"Any system that ages will eventually deteriorate, and we know that labor and construction material costs are not going down," Elvert said. "By being proactive in investment in the earlier years, you'll likely be saving money in the long-term by taking advantage of lower labor and construction and material costs versus inflation in the future. Also, you're avoiding the potential costs you have to pay to repair any ruptures or breaks in the system."

The drought also has contributed to the higher rate. With customers cutting back on water, the water utility loses some of its revenue it gets from ratepayers. But because much of the system's costs are fixed, it needs to recoup the money by raising rates.

"If we cut our water consumption, we on average would experience a slightly smaller water bill but a higher cost per gallon. But our total bill would probably be slightly less — not a lot less — from the savings we're doing on water," Mayor Pat Burt said during the Monday discussion. "That's just part of the unfortunate circumstance of how costs are structured and passed on to us and in a drought period that's what happens."

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A similar factor is in play with electricity and gas. Eric Keniston, rates manager at Palo Alto Utilities, said the city has seen declining sales over the course of the pandemic, though usage has started to pick up in recent months. Through fiscal year 2022, sales are projected to decline by 10%, he said.

At the same time, the costs of maintaining utilities are rising.

"We're seeing increase operations, maintenance and CIP-related costs for all of our utilities," Keniston told the council.

He also noted that the cost of gas supply had reached its highest level in about 15 years.

Staff emphasized that the gas bill for Palo Alto customers remains well below PG&E's rates. In the winter, the median monthly bill amounted to $91.40, while PG&E's was $116.08, a difference of 21.4%. In the summer, when usage is much lower, Palo Alto's median bill is $36.48, while PG&E's is $37.13.

While Burt called the increase to the gas rates "cautiously prudent," Tanaka voted against the increase and argued that Palo Alto's rates should be even lower because the city owns its own utilities and other jurisdictions rely on PG&E.

"I would expect the rates to be lower than PG&E across the board, in some cases significantly lower," Tanaka said. "But I can't see it here."

On the electric side, the city's finances have been hampered by both lower usage and the drought. The utility plans to draw nearly $15 million from its hydroelectric stabilization reserve, virtually exhausting the reserve, Keniston said. The city, which typically generates about 35% of its electricity from hydroelectric sources, has had very low hydroelectric output over the course of the drought.

"We have a variety of reserve funds and it feels like we have to tap into every single one of them this year," council member Alison Cormack said during the discussion of the electric rates, alluding to the drought's impact on hydroelectric projects.

Cormack and Burt also noted that the city will have to invest more in the electric utility to meet the city's climate change goal of cutting greenhouse-gas emissions by 80% by 2030, with 1990 as the baseline. The city's projections show 6% increases in each of the next four years, which includes money for upgrading the electric grid to support electrification and the city's effort to switch from gas appliances and vehicles to electric ones.

Electric rates remain well below PG&E, according to staff. While Palo Alto's median residential bill was $69.22 in the winter and $52.18 in the summer, PG&E's was $127.93 and $110.17 for the two periods, respectively. Burt lauded the city's effort to keep its costs comparatively low, particularly given its reliance on 100% carbon-neutral electricity.

"For us to have done that at half of PG&E costs is amazing, particularly when you're looking at the fact that we're sharing the same transmission costs," Burt said. "We're amazingly strong in those ways, and it looks like we'll be able to continue our electrification program and increase our electricity supply and, if anything, we may widen the gap there."

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Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

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Drought, maintenance costs raise Palo Alto's utilities rates

Water rates set to jump by 8.9%, while gas and electric rates face smaller increases

by / Palo Alto Weekly

Uploaded: Wed, Jun 15, 2022, 9:41 am

Palo Alto residents will see their utilities rates go up this summer due to a combination of rising water prices, dry hydroelectric conditions and a pandemic-driven drop in gas consumption, according to Palo Alto Utilities staff.

The increases will drive the average monthly residential bill to just over $300, though city administrators note that it will remain about 9% lower than surrounding jurisdictions, most of which get their gas and electricity through PG&E. According to city data, only the city of Santa Clara, which runs its own utilities, will have lower rates than Palo Alto.

The biggest hike will be in water rates, which are slated to rise by 8.9%. Palo Alto is one of 26 jurisdictions that buy water from the San Francisco Public Utilities Commission, which last month approved a 15.9% increase to its wholesale rates. The city also is seeing a 4% increase in distribution costs, according to senior resource planner Lisa Bilir.

The council on Monday voted 5-1, with council member Greg Tanaka dissenting and council member Greer Stone absent, to approve the water rate increase. Tanaka noted that the city's residential water rates are about 14% higher than those in surrounding jurisdictions and said he cannot support the rate hike.

In addition, the council voted 6-0 to support a 5% increase to electric rates and a 3% increase in wastewater rates. Council members also voted 5-1, with Tanaka dissenting, to support a 4% increase to gas rates. In both cases, usage has dipped as a result of the pandemic, according to utilities staff.

When it comes to water rates, the increase is driven in large part by infrastructure improvements that San Francisco Public Utilities Commission is undertaking, Catherine Elvert, communications manager for Palo Alto Utilities, said in an interview. Palo Alto gets all of its water from the SFPUC while some other nearby cities get water from other sources with different costs than SFPUC, which is one reason why there are differences in water rates between water retailers.

The investment, Elvert said, is necessary to maintain the Hetch Hetchy system, which the SFPUC uses to draw water from the Tuolumne River.

"Any system that ages will eventually deteriorate, and we know that labor and construction material costs are not going down," Elvert said. "By being proactive in investment in the earlier years, you'll likely be saving money in the long-term by taking advantage of lower labor and construction and material costs versus inflation in the future. Also, you're avoiding the potential costs you have to pay to repair any ruptures or breaks in the system."

The drought also has contributed to the higher rate. With customers cutting back on water, the water utility loses some of its revenue it gets from ratepayers. But because much of the system's costs are fixed, it needs to recoup the money by raising rates.

"If we cut our water consumption, we on average would experience a slightly smaller water bill but a higher cost per gallon. But our total bill would probably be slightly less — not a lot less — from the savings we're doing on water," Mayor Pat Burt said during the Monday discussion. "That's just part of the unfortunate circumstance of how costs are structured and passed on to us and in a drought period that's what happens."

A similar factor is in play with electricity and gas. Eric Keniston, rates manager at Palo Alto Utilities, said the city has seen declining sales over the course of the pandemic, though usage has started to pick up in recent months. Through fiscal year 2022, sales are projected to decline by 10%, he said.

At the same time, the costs of maintaining utilities are rising.

"We're seeing increase operations, maintenance and CIP-related costs for all of our utilities," Keniston told the council.

He also noted that the cost of gas supply had reached its highest level in about 15 years.

Staff emphasized that the gas bill for Palo Alto customers remains well below PG&E's rates. In the winter, the median monthly bill amounted to $91.40, while PG&E's was $116.08, a difference of 21.4%. In the summer, when usage is much lower, Palo Alto's median bill is $36.48, while PG&E's is $37.13.

While Burt called the increase to the gas rates "cautiously prudent," Tanaka voted against the increase and argued that Palo Alto's rates should be even lower because the city owns its own utilities and other jurisdictions rely on PG&E.

"I would expect the rates to be lower than PG&E across the board, in some cases significantly lower," Tanaka said. "But I can't see it here."

On the electric side, the city's finances have been hampered by both lower usage and the drought. The utility plans to draw nearly $15 million from its hydroelectric stabilization reserve, virtually exhausting the reserve, Keniston said. The city, which typically generates about 35% of its electricity from hydroelectric sources, has had very low hydroelectric output over the course of the drought.

"We have a variety of reserve funds and it feels like we have to tap into every single one of them this year," council member Alison Cormack said during the discussion of the electric rates, alluding to the drought's impact on hydroelectric projects.

Cormack and Burt also noted that the city will have to invest more in the electric utility to meet the city's climate change goal of cutting greenhouse-gas emissions by 80% by 2030, with 1990 as the baseline. The city's projections show 6% increases in each of the next four years, which includes money for upgrading the electric grid to support electrification and the city's effort to switch from gas appliances and vehicles to electric ones.

Electric rates remain well below PG&E, according to staff. While Palo Alto's median residential bill was $69.22 in the winter and $52.18 in the summer, PG&E's was $127.93 and $110.17 for the two periods, respectively. Burt lauded the city's effort to keep its costs comparatively low, particularly given its reliance on 100% carbon-neutral electricity.

"For us to have done that at half of PG&E costs is amazing, particularly when you're looking at the fact that we're sharing the same transmission costs," Burt said. "We're amazingly strong in those ways, and it looks like we'll be able to continue our electrification program and increase our electricity supply and, if anything, we may widen the gap there."

Comments

Bystander
Registered user
Another Palo Alto neighborhood
on Jun 15, 2022 at 10:27 am
Bystander, Another Palo Alto neighborhood
Registered user
on Jun 15, 2022 at 10:27 am

Here we go again! We use less and get charged more as a consequence!

Unbelievable. Actually no, in Palo Alto it is perfectly believable.


Online Name
Registered user
Embarcadero Oaks/Leland
on Jun 15, 2022 at 10:50 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Jun 15, 2022 at 10:50 am

"The drought also has contributed to the higher rate. With customers cutting back on water, the water utility loses some of its revenue it gets from ratepayers. But because much of the system's costs are fixed, it needs to recoup the money by raising rates."

Same old, same old "reasoning" -- Conserve, conserve, Oops. Sorry. You conserved too much forcing us to keep raising your rates.

And remember to approve our proposed Utility Transfer tax legitimizing our longstanding practice of "overcharging CPAU customers $20,000,000 annually transferring money from your pocket to the General Fund so we can continue to appeal the court-ordered settlement in the Miriam Green lawsuit against this practice.


Len Ely
Registered user
Old Palo Alto
on Jun 15, 2022 at 11:18 am
Len Ely, Old Palo Alto
Registered user
on Jun 15, 2022 at 11:18 am

Is the City going to increase what they pay me for my excess solar also?


Consider Your Options.
Registered user
Another Palo Alto neighborhood
on Jun 15, 2022 at 11:56 am
Consider Your Options. , Another Palo Alto neighborhood
Registered user
on Jun 15, 2022 at 11:56 am

Is anyone here looking at the global picture? I don't know how the next generation will be able to forgive those who did not conserve. Our kids and grandkids see the choices we make, and they will remember that we prioritized convenience and soft savings over reducing GHG emissions to avert climate change and conserving fresh water. The associated societal disruptions are just now beginning to accumulate significantly.

It is time for our generation, ALL of us to take responsibility for our choices, to conserve for our kids. I'm a senior and gladly pay more for gas and water in a moment of crisis. I am driving less, using less fresh water, and the inconveniences are very limited. It is so worth it to pass forward a planet that our beloved children and grandchildren can live on.

I'm sorry this costs money, but it does. Adults accept the uncomfortable facts and take care of their families by making choices that serve us all. I don't want my legacy to be one of self-serving indulgence that sacrifices my children's and grandchildren's future.


sabra chartrand
Registered user
Midtown
on Jun 15, 2022 at 4:15 pm
sabra chartrand, Midtown
Registered user
on Jun 15, 2022 at 4:15 pm

Re Consider Your Options: The article states that water rates are increasing in part because people are conserving. Which is ironic. In addition, it's a bit presumptuous to say people only worry about their bills out of "convenience and soft savings." I pay a lot of different costs for myself & 2 children. I pay attention to prices. It all adds up. I'm sure I'm not alone. It's great that you (and others) can "gladly pay more." But that doesn't mean we shouldn't question increases, or that everyone can easily or happily handle them.


Resident 1-Adobe Meadows
Registered user
Adobe-Meadow
on Jun 15, 2022 at 5:59 pm
Resident 1-Adobe Meadows, Adobe-Meadow
Registered user
on Jun 15, 2022 at 5:59 pm

How ironic - we have a story line going on about the city pushing excess payments on utilities into the general fund and a desire to formalize that situation via a vote. That strategy is on squeky legal grounds.

Now we have a story on the utility fees we pay are going to go up. Two issues on the table which are in conflict with each other.

I think we need a formal report on the status of the utility system as to it's current functionality and any repairs needed to respond to the current growth in the city.

I believe that the over payments we have been making are meeting the needs of what would be a business tax. Time to analyze the business tax - what is it suppose to be paying for. Then analyze what overpayments have been made in the past to cover those charges.

This is like income sources that are being apprehended on the one side and not addressed correctly on the other side. We need a business tax with clear definition as to what it is suppose to be addressing. And further clarification on the utility system and it's real cost at this time.


Online Name
Registered user
Embarcadero Oaks/Leland
on Jun 15, 2022 at 9:06 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Jun 15, 2022 at 9:06 pm

"Now we have a story on the utility fees we pay are going to go up. Two issues on the table which are in conflict with each other."

Not if you can grab with both hands -- which this sure sounds like.

I've heard the "utility transfers" justified as akin toP G&E's rate of return whicxh gets paid out to shareholders as dividends. Ok. But not being the City or city staff or a city consultant, I fail to see how that helps CPAU customers since we don't get dividends or rate cuts; we only get "overcharges" that get siphoned from us into the General Fund.

Now if he city cut our rates and/or paid US dividends, it might be worth discussing. But instead they raise our rates AND want the "transfers" to continue forever.


Palo Alto native
Registered user
Old Palo Alto
on Jun 21, 2022 at 8:29 am
Palo Alto native, Old Palo Alto
Registered user
on Jun 21, 2022 at 8:29 am

Thank you Miriam Green. The main reasons for having the City run it’s own utility is to have LOW utility rates, that means the citizens should NOT allow the City to siphon off 20,000,000 to pay for excessive spending that the CC deems “in the city interest”. There are many areas that the City overspends. Personally I am not in favor of spending taxpayer monies to fund BMR housing. The City does not have millions of dollars to fund some citizens’ desires. CC and leaders start budgeting with the revenue you have, not the 20 mill from our excess utility payments that Miriam Green shed light on!


Anonymous
Registered user
Duveneck/St. Francis
on Jun 21, 2022 at 4:56 pm
Anonymous, Duveneck/St. Francis
Registered user
on Jun 21, 2022 at 4:56 pm

I recall reading about state of Hawaii having a lot of solar installed in recent years - great.
Utility objected (!) and wanted to raise fees, rates, obstacles.
- Why!?
They didn’t want to reduce their bureaucracy and/or lay off ANY workers (fewer needed after so much solar installed, increased energy independence)
And solar makes sense in Hawaii!
Wow, ya can’t win (the resident and business in Hawaii)….
Only government/utility bureaucracy wins.


Online Name
Registered user
Embarcadero Oaks/Leland
on Jun 21, 2022 at 7:08 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Jun 21, 2022 at 7:08 pm

Just say no to the Utility Transfer Tax and tell them to pay us interest retroactively on the settlement they owe us which they've delayed paying us for years. Extra credit if they refund the cost of the outside law firm the city's paying to appeal paying us.

Also, note that if you want to object to a rate increase the city has set such a high bar that it's impossible for a few people to make a dent since 12,500 people have to object in EXACTLY the right format.


Annette
Registered user
College Terrace
on Jun 22, 2022 at 8:32 am
Annette, College Terrace
Registered user
on Jun 22, 2022 at 8:32 am

Past City Councils really, badly teed us up for some very lean years, service-wise. They avoided enacting a business tax, they hired at least two if not three city managers who promote(d) the interests of businesses at the expense of residents, they approved a level of commercial development that produced housing demand that Palo Alto cannot possibly meet, they did not require the commercial development to mitigate its housing impact, and they endorsed the illegal utility transfer tax and relied on it for essential services. We are going to have to bite the bullet at some point and the longer we put that off, the worse the bite will be. Putting the utility tax on the ballot and increasing rates is an attempt to make rate payers cover the cost of the lawsuit and avoid what should be a reduction (via the reimbursement). And the business tax, if on the ballot as a general tax, provides no guarantee for the funding of essential public safety services or housing. Absent that guarantee, approving the business tax is akin to approving poor management. At the very least there needs to be an examination of other sources of revenue. Or a strong campaign for a specific, binding business tax.


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