[Updated] When the Pasadena City Council gavels into session on Monday, a public hearing will continue on electric rate adjustments.
Although Councilmembers will not vote on the increase on Monday, when that time comes members will be weighing more than a percentage increase.
They will be confronting the financial math of running a municipal electric utility in an era of rising infrastructure costs, flat energy usage and statewide industry pressures.
The proposed calls for a 7% system-wide increase applied in three phases — March, October 2026 and March 2027. Because each increase compounds on the previous one, the total cumulative revenue increase would be about 22.5% over two years.
Officials say the phased approach allows the City to close the revenue gap while avoiding sudden bill shocks. The plan also calls for using discretionary reserves in the Light and Power Fund to cushion the transition period.
“Pasadena Water and Power last conducted a comprehensive electric rate study in 2014. In the 12 years since, the utility, and the California electric industry broadly, have been impacted by forces that have made the cost of delivering electricity fundamentally more expensive,” said PWP General Manager David Reyes. “Operational costs, labor, materials, and technology, have escalated in line with broader market trends. PWP is proposing rate adjustments to ensure reliable, affordable, and sustainable power for every customer, now and for generations to come.”
Reyes said after an extensive community engagement process, PWP is proposing essential rate adjustments and ordinance modernization.
“Council is not being asked to take action on any increases tonight but will hear from staff and the public and continue the matter for two weeks. The public is encouraged to continue to participate in the process during the public hearing and to check out the bill estimator, since bill impacts will vary by usage. More information at PWPweb.com/RateAdjustment.”
For many residential customers, the impact will vary depending on usage. Lower-usage households could see smaller increases — or even temporary decreases in certain months — depending on adjustments to power cost components. Higher-usage customers are expected to see more pronounced increases, reflecting the utility’s cost-of-service findings that larger loads place greater demands on the system.
The proposed increase comes from the Municipal Services Committee. The committee was initially uncomfortable with how the proposed residential rates increase was allocated. The discussion was paused after committee chair Justin Jones requested legal guidance on Proposition 26 before moving forward.
Prop. 26 requires that government-imposed charges (fees, levies) must not exceed the reasonable costs of the service or regulation provided, and the amount must bear a “fair or reasonable” relationship to the payor’s burdens or benefits; if a charge exceeds these limits or isn’t for a direct service/benefit, it’s reclassified as a tax, requiring a supermajority vote, two-thirds Legislature, or local voter approval, to enact, preventing hidden tax increases.
If residential customers are over-allocated costs to subsidize other customer classes or policy goals, the rate could be challenged as an illegal tax under Prop. 26.
“Our responsibility is to ensure costs are allocated appropriately while keeping Pasadena Water and Power financially sound and reliable,” Jones told Pasadena Now. “The revised plan reflects that careful review and a better balance for our community.”
Pasadena Water and Power officials say the City faces a confirmed $67.9 million revenue shortfall over the next two fiscal years if current rates remain unchanged.
The gap, identified through a comprehensive electric rate study initiated in 2024, reflects years of escalating costs that have outpaced revenues.
The last full electric rate study was completed in 2014. While Pasadena adjusted rates in 2019, officials note that the utility has not kept pace with broader cost increases affecting electric systems across California.
A January report by the state Legislative Analyst’s Office found residential electricity rates statewide rose nearly 47% from 2019 to 2023 — far faster than inflation.
Pasadena’s municipal utility, which serves about 68,000 electric accounts, faces many of the same pressures as larger investor-owned utilities, but without shareholders or profit margins embedded in rates. As a not-for-profit public utility, Pasadena Water and Power sets rates strictly to recover the cost of providing service.
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Those costs have climbed steadily.
Utility officials point to several major drivers: aging infrastructure that requires modernization, substation upgrades, deployment of advanced metering technology, electric vehicle infrastructure and the growing expense of purchasing and transmitting power. Materials alone have surged in price in recent years, with some critical components — such as transformers and cable — seeing sharp increases since 2019.
Unlike many household expenses, most electric utility costs are fixed. According to the City’s cost-of-service analysis, roughly 77% of system costs do not vary with how much electricity customers use. Power purchase contracts, system maintenance and capital investments must be paid regardless of monthly consumption levels.
At the same time, electricity usage per customer has remained relatively flat statewide. That means fixed costs are spread across a stable or even shrinking base of kilowatt-hour sales, placing upward pressure on rates.
City officials say the current rate structure under-recovers costs for several customer classes, including residential users, who account for the majority of accounts and a significant share of peak demand. Under a strict cost-of-service approach, residential rates would require a much larger one-time adjustment to achieve full cost recovery. Instead, City leaders are considering a phased strategy intended to moderate impacts on customers.
The City also maintains assistance programs for income-qualified customers, including monthly bill credits that offset fixed charges and additional benefits for seniors and medically vulnerable residents.
City leaders argue the increase is not optional if Pasadena is to maintain reliable service. Electric rates fund everything from daily operations and emergency repairs to long-term capital improvements needed to prevent outages and accommodate electrification goals.
In addition to operational needs, the City must maintain adequate financial reserves and meet debt obligations tied to infrastructure investments. Creditworthiness affects borrowing costs, which in turn influence future rate stability.
Officials stress that the proposed adjustments are designed to keep Pasadena’s rates competitive regionally while ensuring the utility remains financially stable and legally compliant with state rate-setting requirements.
As the Council prepares to continue a public hearing, the central question is not whether costs have risen — officials say the data make that clear — but how the City should balance affordability with the responsibility to keep the lights on.
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