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Still stung by a sharp winter spike in utility bills, Palo Alto officials on Monday, April 17, adopted new strategies that they hope will keep rates steadier going forward.
Over a series of votes, the City Council approved on Monday five-year financial plans for its water, wastewater, gas and electric utilities. In doing so, members agreed to lower the amount to be transferred from the gas utility to the general fund, which pays for basic city services, and to re-examine a hedging strategy for the gas utility that would lock in the commodity price at a fixed rate.
Even with these measures, the average residential bill will rise by about $11.70, or 3%, starting in July, when the new fiscal year begins. This will include an 8% increase in the gas utility bill, a 9% increase in the wastewater bill, a 6% increase in the water bill and a projected 5% decrease in the electricity bill. In proposing these increases, Palo Alto Utilities is looking to replenish utility reserves that were depleted during the pandemic, when council members agreed to keep rates steady.
Utilities Director Dean Batchelor said reserves in the gas, electric and wastewater utilities have dipped to such a level that it is impossible for the city to slowly phase in the latest round of rate increases. Doing so, he said, would bring reserves even further below the city’s recommended levels.
Council member Pat Burt on Monday expressed some misgivings about the strategy of avoiding rate increases during the pandemic.
“We should have probably passed along modest increases at least last year and maybe a bit the year before so that we didn’t deplete our reserves to this extent,” Burt said. “But hindsight … is a valuable tool.”
The council voted 6-1, with Council member Greg Tanaka dissenting, to approve five-year plans for the city’s gas and electric utilities. While Tanaka argued that the proposed strategies don’t go far enough to lower utility bills, other council members broadly supported the staff strategies for preventing sharp spikes in the future.
One idea is to bring back the hedging strategy for the gas utility, which calls for locking in gas prices at a fixed rate for three to five years. Palo Alto employed this strategy about a decade before ditching it in 2012, when prices decreased and the city found itself paying more than PG&E.
But the January fluctuation in gas prices now has some in the city craving long-term stability. Utilities staff noted that the city had to pay five times more to buy gas last January than it did in January 2022, and while the city absorbed some of these costs by depleting its utility reserves, many customers still faced bills that in some cases tripled.
Lisa Bilir, senior resource planner, said the prices last winter were “unprecedented” and “the highest on record.” While the gas prices were $4 per therm in January, this month they were at 66 cents per therm, a drop that should result in lower May bills.
In approving the utility plans, all council members expressed their desire to prevent another huge rate spike. Mayor Lydia Kou said that when rate increases are required, it is important for the utility to communicate the hike early so that customers would have time to plan for the higher bills.
“How can we reassure our customers that next winter something like this is not going to happen again?” Kou asked. “Receiving letters and phone calls from many of our customers, what they’re asking for is some notification when this kind of thing is going to happen so that they can appropriate the amount of funds they have.
“Oftentimes, they’re taking from one bucket to another in order to make sure they have enough funds to pay for this.”
That said, utilities staff acknowledged in the gas plan that commodity increases could be hard to prevent or predict given the large number of variables involved. These include advancements in gas-extraction technology, pipeline capacity, the impact of weather on storage levels and changes in demand.
“On the demand side, a continued shift from coal to natural gas for electricity generation, an expansion of liquified natural gas export capabilities, or an increase in manufacturing in the U.S. might drive up natural gas prices, but other factors, such as generally more mild winters or an increased drive towards electrification, might drive gas demand lower,” the gas plan states.
The electric plan is also laden with uncertainty. On the one hand, the city saw electric sales drop during the pandemic, and some of the commercial activity from the pre-COVID-19 era may not return. On the other hand, the city is banking on electrification to accelerate in the coming years, with more people adopting electric vehicles and installing electric furnaces and water heaters.
“If load growth exceeds expectations, it could improve this forecast and reduce the size of future rate increases,” the plan states. “On the other hand, if costs for electrification-related grid modernization and electrification programs exceed forecasts, which is quite possible given the high uncertainties involved in current cost projections, it could offset the benefits of increased load.”
Whatever happens, electrification will be costly. Starting next year, Palo Alto will embark on a long grid-modernization effort that will require a sequence of six $50-million bonds getting issued every 18 months, according to the electric plan.
The council generally supported the utility plans, which had previously been approved by the Utilities Advisory Commission and the council’s Finance Committee. Council members also agreed to limit this year’s transfer from the gas utility fund to the general fund to 15.5%, below the established threshold of 18%. Most council members agreed that this is a sensible gesture during a difficult time for utility customers.
Burt said it’s important to communicate to the public that “we have really understood the hardship of this huge spike in gas prices and that we’re demonstrating to them that we’re managing costs as well as we can through this transition period.” Council member Julie Lythcott-Haims agreed and cited a public perception that the council is not making appropriate use of the city’s budgetary dollars.
“I do want the public to feel confident that we are trying to balance the restoration and replenishment needs and the real dollar impact on their pocketbook,” Lythcott-Haims said.
The only council member who supported sticking with the 18% transfer rate was Vice Mayor Greer Stone. He noted that this would translate to an additional $1.2 million for the general fund, which would be used to restore services that were cut during the pandemic. He also suggested that the difference between the two proposals, a mere 60 cents per month on an average residential bill, is fairly insignificant.
“You can’t even buy two 99-cent tacos at Jack in the Box for that,” Stone said.
Tanaka took the opposite stance and suggested that even a 15.5% transfer is too much. The city, he argued, should keep transfers and utility expenses low enough to enable the reduction of rates to a pre-pandemic level.
“Commodity costs we don’t have too much control over, but we do have control over how much we transfer and we do have control over how much our staff costs is,” Tanaka said. “And I think those are relevant and important. I think we should put those on the bill, so everyone can see what percentage of their bill actually comes from staff costs as well as the transfer.”
Normally, price hedging is used to *partially* protect against large price moves. Buying protection against something very unlikely like a 50% increase in gas prices should be very cheap and it’s shocking to me that PA Utilities didn’t have that in place for gas prices. I hope they will consult with hedging experts rather than trying (and perhaps failing) to roll their own strategy.
1) Funny how when they discussed the rebates last night, none of them mentioned the settlement we’re owed from the Miriam Green lawsuit for “overcharging” us to siphon money into the General Fund. Instead, they all blamed “reserves” and other factors.
How about a real update on when we’re getting our settlements?
2) Re hedging, seems everyone forgot the bad old days of Enron where once Enron was found guilty of gaming the system and overcharging people, Palo Alto STILL had to pay a $12.000.000 fee for cancelling the contract early. So we got hit with the double whammy of the high rates and the early cancellation fee.
3) With all the talk about the rush to forced electric conversion, no one mentioned that liberal Berkeley just overturned the conversion because a) it would destroy most restaurants since most cook with gas and 2) they felt lots more research was needed because there’s still no proof the grid is ready for the huge demand from forced conversion.
4) Read the real estate ads and notice how many are touting their generators. Remind me again how generators are powered since they obviously don’t use electricity.
5) They said last night that 60% of our utility bills go to funding staffing costs. Obviously that will keep rising with the huge salaries.
6) Where was the review of the fees, taxes, surcharges etc, that add at least 33% to every bill, making it tough to bring down your bill which is still high even when you’re gone and there’s no one home to using utilities?
7) Re loans so “poor” residents can pay their bills, don’t loans have to be repaid with interest? Tired of hearing staff pat themselves on the back for their “help” when they’re about to stick us with $20,000+ in expenses to convert. If we can’t pay our monthly bills, how are people supposed to afford the $20K?
This is what happens when you elect people who think they’re financiers, instead of public servants. The former are invested in moving the dollars around. The latter are invested in seeing that the best interests of the voters are served.
Gas consumption is facing a nosedive as Palo Alto careens toward Carbon Neutrality. Here’s another reason they can point to as to why gas is evil. Because it costs so much. They will remind us every winter just how evil gas can be.
As for 1.2 mil to “restore” services after covid ended …. what does that entail that’s not already in the budget? Are you saying money was stolen from the library budget when it was shut down? Or other public facilities that are already funded by taxpayers? I’m confused. These kind of meetings are fait accompli, where the audience is merely sitting in their chairs absorbing nonsensical dialog. Everything they’re doing is without public input. I would give it a 1 because there is a blinking light in the corner of the screen, but otherwise it’s nothing worth watching. In fact it’s gotten painful for me to see these farces played out, and we’re supposed to clap and cheer.
Lots of issues here.
We are not getting value for money when we continually lose power due to storms (this winter was incredibly so), balloons, wildlife and road accidents. Do we get discounts for the time we are without power?
How is the undergrounding of the lines? Which neighborhood is getting them this year? Why is the utilities so silent on this?
How can we depend on a utility that is failing us so much?
@Bystandar asks good questions.
What IS happening with undergrounding? That’s never even mentioned even though we continue to experience frequent outages from balloons, birds, trees as well as historic storms like we’ve just experienced and which will get worse.
Also, what’s happening with upgradiung the grid to deal with all the increased demand from the forced conversions?
Is anyone who’s preaching SUSTAINABILITY Uber Alles aware that only 8% — EIGHT PERCENT — of the environment problems come from residential users?
One big expense I left out of my above post is the cost of an EV for $30K-$60K.
That’s on top of the estimated $12K in annual utility bills. $$20K+ to convert our homes. That’s a bare minimum of %62,000.00 BEFORE the next round of rate hikes!
The utility reserve is depleted because past councils have been quietly raiding it to the tune of $20 million a year to support all those pet projects that have nothing to do with utilities. And do we really need so many additional green hires to mail out glossy flyers reminding us to recycle?
The Utility Transfer to the general fund was supposed to be the excess profit. However, the second the utility is no longer profitable, they raise your utility bills drastically rather than stop the transfer to the general fund for non utility related expenses. This coming year sounds lime it will be $15.5 million
As a senior on a fixed income, I’m sick of excuses. The City seems to indulge in boatloads of pet luxury projects while those of us who’ve been here forever choose each month whether to reduce our medication to half or a third, or reduce our food again, or both. We’ve already fired our household and yard help, and put off painting and repairs.
Just look at our water bills. We’ve been paying drought prices for years, but are they rolling it back? Nooo – they’re adding 6% that they can siphon off for – what? We don’t even know.
How about we place a moratorium on non-essential expenses and roll that back to residents who are being gouged daily, and demand that ALL City Council meetings are open to the public. These closed sessions encourage shady decision-making. Let’s have some actual accountability here. For once.
Totally agree with Barbara G. PLEASE write letters to the editors for both papers of about the real-life consequences of these constant rate hikes. Tell them that this is the new way to reduce our blood pressure because we can’t afford our blood pressure meds!
I’m so Tired of our “leaders” indulging in what Barbara she calls “luxury” projects” and I call “resume-enhancers” so they can position themselves as “ Sustainability thought leaders.”
News flash: Even Berkeley is eliminating forced electrical conversion!
Re water bills, for months they city kept charging us the “drought surcharge” after California declared the drought officially over hoping no one would notice and only stopped after lots of complaints.
Their nickle-and-diming us is shameless and their arrogance in claiming only the city suffers from inflation is nauseating, Let’s send all the city employees making more than $3ooK with lifetime pensions sympathy cards.
Oh, yes. Now that postage is up to $0.67 per letter, so looking forward to the city wasting more $$$$ mail from CPAU about water usage and conservation DURING historic storms so they can then raise our rates because we conserved too much and about the wonders of solar when they can’t even issue solar permits in a timely fashion.
As a friend says, “PA is a great place but only if you’re not paying attention.”
PG&E are talking about charging according to income!!! This is not appropriate and should not be something that PA Utilities should consider. Any method of getting extra dollars out of any of us, regardless of income, is wrong.
We have a very inefficient utility service and many of the charges are inappropriate particularlay in a time of drought and particularly when we have had so many power outages of late.
It is time for transparency, efficiency and financial integrity from our utilities.
WE have a major problem here – older cities with failing systems they cannot fix have legislators who are trying to implode new rules on all cities in this state – many of which do not share the problems of these ancient cities – San Francisco – Mr. Weiner, and Berkley – Ms Skinner. And the Bay Area Housing Group that is imposing impossible goals on cities which will gut the cities. Densification will increase the very problems that exist now that they cannot fix. They are not solving a problem – just moving from one chair to another chair so they can continue to keep theor jobs.
Can we please have a law that states that you must fix your own cities problems before you write legislation affecting every city in the state that does not share your poroblems or lack of good management.
Gas ines and sewer lines in these ancient cities is already failing and will continue until they fix those lines. That is a very expensive venture for those cities but must be done. They do not know how to manage a city so just move the discussion to some impossible goal and say “democracy”, “Climate Change”, and “Equality” – I will make your city as ugly as mine.
The courts have now addressed the inclination of the inhabitants of these cities that want to impose their solutions on everyone. Not going to happen and they do not have the right to do that.