Utilities Advisory Commission - March 5, 2025

Commission recommends 20% wastewater and 10% water increases

The Utilities Advisory Commission unanimously recommended separate fiscal 2026 plans that would raise wastewater collection rates by 20% and overall water rates by 10%. Each recommendation passed 7-0, but the commission did not set the rates; City Council must approve the proposed changes, which would take effect July 1, 2025.

The proposed wastewater increase would add approximately $11 per month for a residential customer. Staff attributed the increase to treatment-plant rebuilding, operating costs, vehicle replacement, recurring pipeline condition assessments and reserve restoration. Staff said the increase would be 9% without reserve replenishment.

Staff's wastewater proposal would replenish reserves over four years. A 16% alternative would extend that period to 10 years but could require another loan of up to $2.5 million from the Fiber-Optics Utility. The wastewater fund borrowed $3 million from that utility in fiscal 2024 and must repay it in fiscal 2026. Future infrastructure needs cited by staff included a headworks upgrade estimated at $100 million to $150 million and a parallel outfall pipeline estimated at $10 million to $15 million.

For the water utility, staff reduced a previously discussed 14% overall increase to 10% by deferring $4.6 million in capital work planned for 2026 and $2.5 million planned for 2028. The resulting $7.1 million would move beyond the five-year planning period. The plan also includes a fiscal 2025 transfer of up to $3 million from the Rate Stabilization Reserve to the Operations Reserve, while staff projected approximately $4 million in reserve use during fiscal 2026.

Commissioners supported the 10% water proposal while expressing concern that continued capital deferrals and reserve use could contribute to higher future rates. Their motion encouraged Council to consider savings identified by a budget subcommittee and use any savings to reduce reserve spending. Options discussed included passing credit-card processing fees through to customers, estimated to save the utility approximately $1.2 million annually, and mitigating about $1 million budgeted for vehicle replacement.

The water recommendation will proceed to the Finance Committee and City Council. Staff anticipated issuing a Proposition 218 notice in early May and planned Council consideration for June 16. Staff also said final wholesale-rate information from SFPUC could require further capital reductions to preserve the proposed 10% overall increase.

Commission asks Council for more drought and demand analysis

In two separate 7-0 votes, the commission agreed to forward an amended One Water advocacy letter and a second request asking City Council to obtain more analysis from SFPUC and the Bay Area Water Supply & Conservation Agency. Staff said it expected the One Water Plan to go to Council for information rather than adoption.

Commissioners questioned whether the $500,000 One Water study sufficiently validated a scenario involving a 50% SFPUC supply cutback and the severity of its design drought. They also raised concerns that demand forecasts could overstate future needs and lead to unnecessary investments in alternative water supplies.

The first letter was amended to cite 25,000 years of stochastic modeling and 1,100 years of historic and paleo modeling. It also states that the design drought could have a return period of 8,000 years or more. The letter seeks underlying metrics, regional coordination and caution before Palo Alto commits to major local infrastructure investments.

Chis Tucher initially proposed seeking additional information through a particular BAWSCA and SFPUC advocacy route. Greg Scharff questioned whether a second letter would help the city's BAWSCA representative or dilute the One Water letter. Commissioners reached a compromise that asks Council to obtain answers while leaving it flexibility over how to pursue them.

The revised request seeks sensitivity analyses of less severe drought scenarios and alternative demand projections, including their effects on supply deficits and costs. It also requests an examination of storage conditions using current demand and three droughts from the long-term vulnerability assessment if the Bay-Delta Plan were implemented.

Staff says grid modernization remains a $300 million project

Utilities staff told the commission that the city's grid-modernization project remains at $300 million, although a Council-approved resolution totaled $350 million. Staff said the additional $50 million was a buffer for possible cost increases and issuance costs, and that the current project budget aligns with the city's five-year capital plans.

Commissioners later requested clearer goals, plans and analysis of technology impacts in a future Grid Mod presentation. A further presentation was reported as anticipated in July 2025.

Primary sources

Watch the meeting on YouTube · Read the official meeting packet