We’re coming up on our annual review of utility rate increases, and I wanted to call out what’s being proposed and why it’s being proposed.  For FY 2014-15, the proposed rate increases are

• Water – 5%
• Wastewater – 9%
• Solid Waste and Recycling – 6%

Staff projects that for the typical household, which previously paid $121.10/month on average for all three bills combined, will now pay $128.88/month, or a $7.78 more per month, an overall 6.4% increase.  This is obviously larger than usual, so it bears some discussion.  The causes are obvious in some cases, not so much in others.

All three of these fees are part of what we call “enterprise funds”, and they have no effect on the General Fund or other city services.  We create “enterprise funds” whenever a service needs to operate like an isolated, standalone business.  So for solid waste, we have what’s effectively its own budget, and we run the services as a non-profit, and whatever it costs, that’s what we charge.  Ditto water and wastewater.  We don’t supplement the enterprise funds with tax money or other revenue, and we don’t take any utility revenue out to do other stuff.

Water

The overwhelming cost to the city to provide water services is the actual purchase of the water, which we get from the Santa Clara Valley Water District or SCVWD (45%), the San Francisco Public Utilities Commission or SFPUC (45%), and ground water from wells (10%), which I believe we also have to buy from SCVWD.  Roughly 58% of the cost to the city to provide you with water is the cost to purchase it, the rest is the cost of the maintenance of the pipes and pumps that make water available.  The cause for the increase in water rates is simply increases in purchasing the water.  Check out this information about current and projected water rate increases from SCVWD and SFPUC over the next ten years:

Yes, you’re seeing that right – SPFUC has boosted its cost to buy water by 20% just this year. Since SFPUC represents 45% of our water, and water purchases are 58% of our water bill, that SFPUC alone represents 5.2% of the water increase. It doesn’t actually work out like that (since the increase is only 5%), but that’s mostly the case.  [Update – I talked with staff, and it does actually work like that.  The increased water purchase costs from SFPUC and SCVWD would actually require closer to an 8% water rate increase this year.  But we achieved cost savings in other areas, and we’re drawing on the rate stabilization fund to take a 20-year smoothing approach, which reduces this year’s increase to 5%].  Scarier is the list of projected water rate increases from the SCVWD – basically 10% per year.

These increases aren’t being driven by the drought or by changes in uses (well, not primarily).  They’re being driven by decisions we made a decade ago to invest billions in strengthening the water infrastructure for earthquake security (mostly).  Voters approved a $4.6 billion bond issue for the SFPUC alone, and there was a similar issue for the SCVWD.  Those bonds need to be repaid, and they get repaid through rate increases.  I believe you see the rates dropping off in 2020 and after because those bonds are coming to term and we’re finishing paying them off.  But I’m not sure about that.

We do alter our purchases between the two providers, moving back and forth depending on rates.  But we have long-term contracts with minimum purchase requirements, so our ability to do so is somewhat limited.

Wastewater

This one is a bit thornier, but it’s being drive by our need to replace our 50-year-old Water Pollution Control Plant.  We’ve begun the work to plan and engineer the replacement, which is a $300+ million public works project, the largest in Sunnyvale’s history.  But we have to pay for all of that, and again, we pay for it through rate increase.  Some of this is to pay for new hires that we need in order to redesign and replace the plant.

Solid Waste

And this one is even thornier, since there’s no worst offender.  We’ve had to change some rates, specifically on-call bin collection (when a larger site calls for an extra pickup).  We did a rate analysis and determined that we were over-charging for that, so we fixed that.  We contract our services out to Specialty Solid Waste, which is 45% of the cost of the bill.  They recently found an accounting error involving equipment lifespan, and that increased rates.  We’re going to be shifting other rates around this year as well, to better reflect how much it actually costs to pick up the various bin sizes.  So expect to see some changes to your bills based on that.  But in general, this is being driven by increased costs, and by the increased efforts that our Zero Waste initiative will require.

[Update – I got further information on this last week because I wasn’t satisfied with the lack of detail in my answer here.  A portion of the increase involves a contractual incentive payment to Specialty involving extending the useful life of their trucks and other assets.  A larger portion involves the previously-mentioned accounting error in the operator’s favor that showed up as part of our annual audit.  A larger portion involves repayment of a loan to the General Fund made to help close the Sunnyvale Landfill years ago (it came due).  A larger portion reflects the decline in recycling revenue caused by China’s economic growth moderating (they’re paying less for recycling materials).  A portion involves the Zero Waste initiatives.]

We will be holding a public hearing on the utility rate increases on June 10th to discuss the proposed rates, so that’s your opportunity to chime in.

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