A funding reserve the city built up during wet years, when costs were lower, means the city doesn't expect the drought to affect customer rates this year, but a third dry year could change that.
"If we have continuous three years in a row of very critically dry weather, it will be a problem at some point," said Jane Ratchye, city Utilities Department assistant director for resource management.
While most Californians will see the effects of the deficit as lower groundwater, river and reservoir levels, Palo Alto will feel the hurt in its electrical budget, she said.
Hydroelectric power in a normal year accounts for about 50 percent of the city's power supply, and by contract Palo Alto pays the same amount of money for that power no matter how much power it gets, Ratchye said. But in 2014, the city expects that the proportion of power it gets from hydroelectric sources, such as the Calaveras and Shasta dams, will fall by about 10 percent. Purchasing power from other markets to make up for the drop would take a 4 percent bite out of the city's electricity budget.
In addition to hydroelectric power, 20 percent of the city's power came from landfill gas and wind in 2013; it purchased the remaining 30 percent from the open market. The drought means that in 2014, 40 percent will come from hydroelectric sources, with the balance coming from renewable sources and the open market, Ratchye said. Palo Alto would purchase the additional power from an existing stable of eight to 10 suppliers, she said.
The city won't know until March if its drinking-water supply, which comes from the Hetch Hetchy Reservoir, will be affected, Ratchye said. But if the drought affects the Sierra snowpack or continues for an extended period, water supply could be impacted. The city has underground emergency-water supplies, she said.
"It's very early in the water year. Supplies in storage are looking OK, and water use has gone down," she said.
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