REPORT TO COUNCIL
SUBJECT
Title
PUBLIC HEARING: Action on a Resolution Amending Rate Schedules for Electric Services for All Classes of Customers to Increase Electric Rates and Charges in Each Rate Schedule by 5.0% and Make Other Modifications, Effective January 1, 2025
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
The City of Santa Clara’s Electric Utility, Silicon Valley Power (SVP), is proposing a 5% increase to its rate schedules for all classes of customers, effective January 1, 2025. This proposed increase is needed to fund the increasing cost of (1) renewable energy and (2) equipment, materials, and labor, for both new projects and required maintenance of electric utility infrastructures.
The rate increase is also needed so that SVP can maintain its financial health and bond ratings (AA- Stable assigned by Fitch and Standard and Poor’s) by having a balanced budget and adequate reserves to weather future market fluctuations and volatility and other contingencies.
DISCUSSION
The proposed 5% rate increase is needed to cover the cost of generating and delivering power to all SVP customers and to help ensure the long-term stability of the system. When the updated FY 2024/25 Budget was approved, staff estimated a 5% rate increase effective January 1, 2025. In summary, there are three key reasons for the proposed rate increase:
1. Increasing cost of renewable energy.
2. Increasing equipment, material, labor, and construction costs for new projects and required maintenance of current electric utility infrastructures.
3. Increasing reserves to maintain financial stability and bond ratings and keep reserves in line with growth projections and deal with market fluctuations and volatility and other contingencies.
Cost of Renewable Energy
Renewable energy costs continue to increase due to the higher construction and material costs and increased competition for limited projects in California among utilities, community choice aggregators, and private corporations.
• The City Council recently authorized renegotiation of a Renewable Power Purchase Agreement with over 50% increased costs over the original agreement.
• SVP is renegotiating several related powers purchased agreements, the Rooney Ranch, Sand Hill A and Sand Hill B. These projects have similar cost escalations as above.
• City Council recently approved a 75 MW long-term fixed price power purchase agreement with Aquamarine Westside, LLC of $47.50/MWh. This power purchase agreement replaced a short-term contract of $13/MWh that recently expired, resulting in a 265% increase.
• SVP will contract for prospective solar plus battery storage and stand-alone battery storage. These projects may increase costs up to 40% higher than solar alone. Projects like these are critical to integrate renewables and ensure that SVP’s resources match its load profile. As newer technology, such as battery storage, is integrated into the electrical system, higher expenses are expected to assist SVP to meet its renewable portfolio standards (RPS) requirements.
Materials, Maintenance, and Construction Costs
Over the last 3 to 5 years, the electric industry has seen significant cost increases that affect both maintenance and new construction. These costs have affected almost every facet of maintenance and construction projects. SVP has experienced cost increases ranging from 20% to 200% between 2023 and 2024 for important materials and equipment, including:
• Increased pricing for transformers has averaged between 27% to 33%.
• Costs for padmount transformers have increased between 42% to 200%.
• Prices for overhead distribution transformers have increased between 52% to 74%.
• Cost of wood poles have increased 20%.
Reserves
The proposed rate increase maintains existing reserves at or above the minimum target of approved ranges. Below is a summary of the anticipated reserve levels:
• The Rate Stabilization Reserve is anticipated to be at the minimum target of 10% of sales revenue by June 30, 2025.
• The Operation and Maintenance Reserve is anticipated to be within the middle target range of 90 - 180 days of operating expenses by June 30, 2025.
• The infrastructure reserve is anticipated to be within its approved range for SVP by June 30, 2025. The range is based on analysis of critical infrastructure, the likelihood of replacement, and the estimated replacement costs.
In summary, the rate increase is projected to generate an additional $17 million in the current year's operating budget ($37 million annually when including forecasted load growth). These funds will help cover fluctuations within current-year expenses, bring reserves at or above minimum targets within the approved ranges, and provide funding for contingencies or unanticipated project needs as SVP continues to increase preventative maintenance on aging infrastructures, especially power plants, substations, and transmission and distribution infrastructures.
Rate Increase Amounts
In compliance with Article XIIIC of the California Constitution (Proposition 26), the proposed rate increase will not result in the City’s electric rates exceeding the City’s reasonable cost to provide electric service to its customers.
Staff proposes that rates and charges for all classes of customers be increased on a uniform percentage basis because the underlying cost increases triggering this rate increase proposal have been incurred on behalf of all classes of existing customers. This approach is proposed for both policy and legal reasons. Under Proposition 26, a service rate is not a tax if it is imposed for a specific government service provided directly to a ratepayer and is not imposed on those not receiving the service.
The average monthly impact of the 5% rate increases by customer class and for the top 5 customers is provided as Attachment 2.
Residential Increase
For an average residential electric customer (averaging 410-kilowatt hours usage per month in FY 2023/24), with the proposed 5% increase, the customer’s electric bill will increase by approximately $3.37 per month (from $67.64 to $71.01) or approximately $40 a year. Residential bills for higher or lower usage levels will be proportionately larger or smaller.
For residential customers who have difficulty absorbing these increases, SVP provides a rate assistance program for income-qualified customers.
Rate Comparisons
With the proposed increase, SVP will continue to have the lowest average system rates in California for utilities with more than 10,000 customers, based on U.S. Energy Information Administration’s Annual Electric Power Industry Report (Form EIA-861 for 2023 data). SVP’s rates will remain significantly below PG&E’s current average bundled rates (effective 10/01/2024).
|
Rate Type |
% Below Current PG&E Rates |
|
Residential |
59% |
|
Small Commercial |
39% |
|
Large Commercial |
50% |
|
Small Industrial |
44% |
|
Large Industrial |
37% |
|
Very Large Industrial |
44% |
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to section 15273 of Title 14 of the California Code of Regulations in that the proposed action is a modification of rates which is needed in order to meet operating expenses and maintain adequate cash reserves, and other reasons set forth in this staff report.
FISCAL IMPACT
The proposed 5% rate increase is anticipated to generate approximately $17 million in additional revenue for the six-month period in Fiscal Year 2024/2025 and $37 million in additional revenue in Fiscal Year 2025/2026 when including forecasted load growth. These revenue amounts were included as assumptions in the FY 2024/25 Adopted Operating Budget. Budgetary adjustments to revenue will be brought forward to Council throughout the year if needed.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> <<mailto:clerk@santaclaraca.gov>> or at the public information desk at any City of Santa Clara public library.
In addition, SVP staff have reached out to Key Accounts (large customers), commercial customers, school districts, and numerous individual customers as well as included information in the City’s newsletter, SVP news subscriptions using GovDelivery, and posting in the Santa Clara Weekly. Staff have also disseminated information via social media: Nextdoor, X (formally Twitter), and Facebook.
RECOMMENDATION
Recommendation
Adopt a Resolution amending the City of Santa Clara Rate Schedules for Electric Utility Services to increase electric rates and charges in each rate schedule by 5.0% and make other modifications, effective January 1, 2025.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Resolution with attached Rate Schedules for Electric Services for All Classes of Customers, Effective January 1, 2025
2. Monthly Bill Comparison Table - All Rate Schedules