On Tuesday, we had a study session on the upcoming utility rate increases, to go over how rates are determined and what factors come into play. It was pretty clear from the fact that we had a study session that there wasn’t going to be good news, and I was right to think so. You can view the original powerpoint presentation here – it’s very interesting.
Keep in mind that all of this is tentative, and there are some factors that are still to be determined. State law mandates a certain process for changing utility rates, and that process includes an extensive review period, giving ratepayers an opportunity to protest rate increases. So we have to announce the tentative rates long in advance, and we can adopt the tentative rates or lower rates once the protest period ends. This forces us to plan for the worst and lower any increases as appropriate if facts change to our advantage.
Currently, staff is anticipating the following Sunnyvale utility rate increases for FY 2015/16:
- Water – +20%, or a $9.90/month increase for the typical household
- Wastewater – +8%, or $2.94/month for the typical household
- Solid waste: +5%, or $2.06/month for a 35 gallon bin, $0.29 for a 65 gallon bin, and $17.73 for a 3 CY dumpster
The elephant in the room is the water rate increase, and it’s not surprising to those who have been following California’s water situation. I was told by a member of the public after the study session that San Jose is also proposing a 20% increase in water rates.
Anyway, to details, starting with water. When you get your water bill, 58% of the expense goes to purchasing your water, 20% goes to the operations of the water system (manpower and energy, primarily), 18% goes to projects (maintenance, capital replacement, pipe breaks, whatever), and 4% goes to debt service (paying off bond debt).
Sunnyvale currently gets 49% of its water from the Santa Clara Valley Water District (SCVWD), 49% of its water from the San Francisco Public Utilities Commission (SFPUC, or “Hetch Hetchy”), and 2% from ground water wells in Sunnyvale. The ground water percentage used to be 10%, but we’ve dramatically reduced our use of ground water at the urging of the SCVWD, because of concerns about the lack of ground water.
For the upcoming year, SCVWD is currently proposing a 31.5% increase in its water price. The SFPUC is currently proposing a 30.7% increase in its water price. This is all subject to change. For instance, SCVWD won’t formally set its rate until May, and its Board is already talking about dropping its increase down to closer to 20%. We won’t plan for that when we announce our intended rate changes, because we have to start our protest period before that decision is made. But we’ll take it into account when we set the final rate. Like I said earlier, I don’t think we can set a higher rate than announced, but we can set a lower one. Every 6% that SCVWD drops its rate translates to a 1% decrease in Sunnyvale bills, and every 3.5% that SFPUC drops its rate translates to another 1%. So if SCVWD does only increase its water rates by 20%, we may be able to knock a couple of percentage points off Sunnyvale’s water increase as well.
So that explains 60% of the proposed rate increase. There isn’t much the City can do when the two water districts increase our cost to buy water by 30% or more. The other 40% of the proposed increase comes from infrastructure projects. We’ll be spending $72m over the next 20 years for water line replacement. The Wolfe Road recycled water pipeline project will cost the city $2.1m (out of a $17-20m project budget), which will reduce our use of potable water in the city. We need to refurbish the Wolfe/Evelyn water plant at $2.25m. And so on.
To mitigate this increase, we are drawing heavily on our rate stabilization reserve. We keep a reserve to help smooth out rate changes, and this year, we’re reducing the reserve by half to mitigate the water rate increase.
Next up is wastewater (sewer). Your typical wastewater bill pays 62% towards projects (capital improvements or replacement), 27% for the operating costs of the wastewater system, 8% for debt service, 2% for “transfers” (I didn’t catch that one), and 1% towards equipment (which is somehow different from projects). This one is, obviously, being heavily driven by the $300+m project to replace the Water Pollution Control Plant.
Finally comes solid waste. Your typical garbage bill pays 43% towards collection – the fleet and people that drive around picking up your bins, 27% towards SMaRT Station and landfill costs, and 12% towards operations. The increases here are largely being driven by pursuit of the Zero Waste goal. Our short term goals are to reach 70% diversion by this year and 75% diversion by 2025. “Diversion” means “putting waste to some use other than sending it to a landfill” – recycling, composting, conversion to energy, reuse as construction materials, etc. We have state goals for zero waste that we’re required to reach, and our own, more aggressive goals to try and reach zero waste even more quickly. But all of those efforts require new equipments, new techniques, and new labor.
So that’s the scoop. We’ll know more in May when things come forward in a more formal fashion.
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