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ABOUT THE 2011 RATE INCREASE IN GENERAL
What were last year's (2011) water and sewer rate changes?
View the insert for the October 2011 utilities' bills that includes the new residential water rate chart and other useful information by clicking here.
To view the complete new residential rate schedule, click here.
Why are the water rate increases needed?
The water rate schedule adjustments primarily reflect the rapidly rising cost of purchasing water for the City of Palo Alto’s Water Utility. Our water supply costs increased by about 38 percent on July 1, 2011 and are expected to double by 2016, largely as a result of the $4.6 billion Water System Improvement Program currently being implemented by the City’s primary water supplier, the San Francisco Public Utilities Commission (SFPUC). The SFPUC Program includes seismic upgrades, repair and replacement of the regional system’s deteriorating pipelines, tunnels, dams, reservoirs, pump stations and other facilities. Palo Alto City Council supports this program, the cost of which is shared by all of the SFPUC’s water customers.
Safe and reliable water delivery is also a local priority. The Water Utility has planned capital improvement projects to our local City water supply infrastructure, including necessary seismic retrofitting of Palo Alto’s water storage tanks and other emergency supply projects. These capital costs are also reflected in the new rates.
The changes to the water rates are designed to produce an overall revenue increase allowing Palo Alto to pay its share of the cost of the SFPUC Hetch-Hetchy water system and the City’s infrastructure projects. In addition to the overall revenue increase, the rates are being adjusted to reflect the true cost of providing water service to each of the City’s various customer classes (e.g., residential and commercial). A 2010 review of the rates by an independent consultant revealed that actual costs of providing the service were not being covered by some classes.
Will there be further increases in water rates in the future? YES. Water rates are reviewed annually and any required changes are adopted by the City Council in a Public Hearing. Based on the expected cost increases facing the water utility described above, it is likely that there will be a need for further rate increases in future years until our water revenues match the increasing future water supply costs.
Are there also going to be rate increases for gas and electricity this fiscal year? NO. While rising costs and the economy are affecting these utilities as well, the good news for the electric and gas utilities is that market prices for the resource supplies that we procure to serve our customers have turned very favorable over the last couple of years. We are holding the line on gas and electric rate increases for this fiscal year. Note that we have not increased the City’s electric and gas utility rates since July 2009.
ABOUT THE PROP 218 NOTIFICATION PROCESS
Why was a notice sent about the proposed water and wastewater (sewer) rate changes? The City is required by law to notify the customers of the proposed water and wastewater rate changes. Proposition 218 amended the California Constitution and set a procedural requirement that public agencies must follow to enact or increase a property-related fee (Article XIII D). The City must provide written notice by mail to all customers who will be subject to any proposed water or sewer fee increases.
Why do some people get multiple notices? Since property can be owned by someone different from the person who pays the monthly utilities bills, the City sends letters to the property owner and the utility customer, so some persons may receive more than one letter. In some cases tenants or landlords may receive the notices even though they are not the ones paying the bill.
DETAILS ON THE 2011 RATE CHANGES
Can you explain "Tiers" vs. "Fixed Charges" in the proposed water rate schedule changes? The volume of water used by a customer is divided into levels or "tiers," each of which is defined by a certain quantity of water. For residents, there are two tiers in the rate schedule. Depending on how much water they use, residents may pay for all or just some of their water at the lowest cost first tier rate. All customers, regardless of how much water they use, also pay a fixed flat monthly service charge.
Rate increases impact both the monthly service charges and for water used at the Tier II level. For residents, the rate for Tier I is actually lowered from the previous rates, however the amount of water falling into the Tier I usage level is decreased from 7 ccf to 6 ccf.
(One ccf = 100 cubic feet = 748 gallons.)
The changes to the monthly service charge for most residential customers represents an increase of $5.00 per month on their water bill.
The rate schedule changes will increase the current fiscal year's revenues by 12.5% or $3.4 million. An additional drawdown of $2.8 million from the Water Rate Stabilization Reserve is also required to cover all the water utility costs. Due to the delayed implementation of the new rates (October instead of July), the average residential rate increase is 29.6% for the nine months starting October 1. The average increase applicable to commercial water rates is 8% percent after October 1.
How does all that percentage info translate into dollars? To offer some examples...the impact on an average residential water bill for 10 to 11 ccf usage per month will be about $11 to $13.50 month for the nine months starting in October. A low user (6 ccf) would see about a $3 monthly increase during this period and an example high user (35 ccf) might see an increase of about $54. Keep in mind that the new rates include increased fixed monthly charges to provide basic water service, plus changed volumetric charges based on how much water is used.
(One ccf = 100 cubic feet = 748 gallons)
What are the causes and amounts of the sewer (wastewater) rate changes? An independent review of what each customer class was paying for sewer services showed that the actual costs of providing sewer service was not being covered by some groups of customers. The sewer rate changes aligned rates, so that each customer class is paying its fair share of costs. Sewer rates were not raised to bring in additional revenues since, system-wide, no additional revenues were required. Under the new rates, the average residential sewer service charge increased by $3.26 per month. Commercial customers’ bills vary depending on which commercial rate schedule they are on and their individual sewer usage levels.
Why does everyone need to pay the fixed monthly water service charge increase? Under California law, the utility’s rates must fairly reflect the actual cost to service its customers. A large portion of water utility costs do not vary by the amount of water our customers use each month—these costs include meter installation, meter reading, billing, customer service and a portion of the distribution system and administrative costs. Based on a study done by an independent third party, the fixed charges needed to cover these costs are higher than current service charge levels, so those fixed charges needed to be increased. Customers who continue to practice efficient water use, will always pay lower bills than what they would have paid without their conservation efforts. In fact, because the underlying costs for the water supply are increasing, decisions to implement water conservation measures will be even more economically compelling. Did the City look into alternatives to the proposed water rate increase? Yes. Staff looked into alternative sources of funds and, in fact, the water rate increase assumes the City will also be using existing funds from the Water Rate Stabilization Reserves (which are cash reserves used to stabilize rate increases, similar to a savings account for your personal expenses) of $2.6 million in fiscal year 2011 and $2.8 million in fiscal year 2012 to offset the increase in our costs and to stabilize the annual increase in water rates. If the City Council decided not to use these reserves, the necessary rate increase would be higher. The long-term reality we must face is that the costs of water and the system to deliver it are increasing. The money to cover these increased costs ultimately must come from customers that are using the services.
UTILITIES DEPARTMENT COST CONTROL
How is the Utilities Department controlling cost increases?
We are always looking for ways to improve operating efficiency and reduce operating costs. For example, a recent bond refinancing will result in interest savings of over $250,000 annually. However, a large part of our costs are determined by outside factors beyond our control. For the Electric and Gas Utilities, these factors include market prices for wholesale power and availability of water in the region, since a large portion of our electric generation assets are hydroelectric facilities. For the Water Utility, these factors include supply costs for the SFPUC Hetch Hetchy water system and our infrastructure upgrades for safe and reliable delivery. For the Wastewater Utility, the biggest cost component is for sewage treatment and these costs are mainly determined by the cost of electricity, chemicals and investments in infrastructure. What is the share of utility salaries & benefits and other costs in total water utility expenses? Salaries and benefits constituted 16% of water utility budgeted expenses in FY 2011. The chart below gives a breakdown of our water utility operating expenses. 
How has the usage in the City of Palo Alto changed over time? How does it compare against other cities? Residential water use per capita in Palo Alto is one of the highest in the Peninsula. The chart below shows that Palo Alto ranks as the fourth highest water user on a residential per capita basis among the 26 water member agencies of Bay Area Water Supply and Conservation Agency (BAWSCA), an organization representing cities, water districts and two private utilities that purchase water wholesale from the San Francisco regional water system. In a positive development, the City’s per capita water use decreased from 5.5 ccf per month in fiscal year 2000 to 4.4 ccf per month in fiscal year 2009. 
Who uses how much of Palo Alto's water?
 What is the typical residential water use in California?
 Statewide, about 40% of water use from residents in single family homes is for watering lawns and landscapes. How do I read my water meter? Please visit California Urban Water Conservation Council (CUWCC) website for information Okay, I’m convinced there is a long-term need to be more efficient. What can I do to reduce my water use and water bills? Whether you have been conserving for years or are just thinking of getting started, there are dozens of actions you can take that will allow you to enjoy a comfortable lifestyle while saving water and money. Here are a few of the biggest ways to save: - Replace turf lawn with water-efficient plants, “Bay Friendly” shrubs and ground covers.
- Consider replacing grass lawns with water efficient landscaping such as native or drought tolerant plants.
- Fix leaks when you find them. Faucet and toilet leaks can waste hundred of gallons a day. Fix them promptly to save on water consumption—and your utilities bill.
- Get a free water wise house call. A trained water surveyor will come to your home or apartment and recommend ways to improve home water efficiency. Water surveyors will also check your irrigation system and suggest a watering schedule and adjust your timer.
For lots more information on program and rebates, as well as many more water-saving tips, visit CPAU’s web site at www.cityofpaloalto.org/resiwater [1] Menlo Park is mainly served by California Water Service Company (Bear Gulch). A smaller section of the city is served by the City of Menlo Park. For the comparison in the chart, Bear Gulch water rates are used. Wastewater service in Menlo Park is provided by West Bay Sanitary District. | 
