The proposed gas-rate adjustment from the Utilities Advisory Commission reflects the City Council's decision last month to get away from the city's traditional "laddering" policy, which locks in gas prices for long periods of time, to adjusting the gas rate every month based on market prices. The new strategy is set to take effect in July.
With market prices falling in recent months, the switch means short-term savings for local customers. But it also means uncertainty and potential volatility down the line. At its April 23 meeting, Councilmen Larry Klein and Pat Burt warned that the policy may look less attractive in the future, when the gas market heats up.
"This is going to work really well right until the prices go up, and then it doesn't work as well," Burt said at the April 23 meeting.
Burt advocated a strategy that balances price stability with the free market. He was the only dissenter in the council's decision to switch from the laddering strategy to market rates.
Klein said he welcomed the change but stressed the need to prepare ratepayers for possible gas-rate increases in the years ahead. The city, he said, needs to send the message that "we're going to follow the market, and that means we're going to follow the market up as well as down."
The proposed rate adjustment was endorsed on Wednesday afternoon by the city's Utilities Advisory Commission, with Asher Waldfogel the only dissenter (Steve Eglash and Marilyn Keller were absent). The adjustment would decrease the average monthly residential gas bill by an amount somewhere in the neighborhood of $15, though the exact impact is unknown because of the fluctuations in the gas market.
According to a report from Utilities resource planners Ipek Connolly and Eric Keniston, staff had projected a $12.32 decrease in the average residential monthly bill based on market prices in November 2011, when staff was putting together the utilities budget. By March 2012, gas market prices have fallen further, bringing the average reduction in a residential bill to $18.03, or about one third of the bill.
The rate adjustment would bring local gas bills much closer to those in neighboring cities, most of which are served by PG&E. According to the Utilities Department report, the median monthly gas bill in Palo Alto is currently $30.22 in the summer and $80.16 in the winter. In Menlo Park, Redwood City, Mountain View and Santa Clara (all of which get their gas from PG&E), the median summer and winter bills are $17.25 and $51.76, respectively.
If the City Council were to approve the Utilities Department's proposed rate adjustments, Palo Alto's median residential bills would drop to $23.52 in the summer and $50.80 in the winter.
The new rates also aim to address recent findings from the Utility Department's cost-of-service study, which aims to align the rates for each customer class with the cost of providing service for that class. While residential customers would benefit from the realignment, the city's largest commercial customers would actually see their gas rates increase dramatically. The average monthly gas bill for the largest commercial customers would rise from $31,606 to $46,646 under the rate adjustment.
Overall, however, gas rates are projected to drop by about 10 percent.
The gas-rate adjustment is a rare bit of good news for local ratepayers, who will soon see their trash, water and wastewater rates go up (electric rates are expected to stay the same). The average residential customer will see an $8.52 increase in his or her water bill and a new $4.06 fee in the trash bill. The fee is intended to cover the cost of street sweeping, annual cleanup days and household-hazardous-waste services.
According to City Manager James Keene's proposed budget for fiscal year 2013 (which begins on July 1), the average household residential utility bill is set to rise by about $8.94, or 3.8 percent.