Palo Alto residents will see their water bills rise yet again in July, despite successful efforts in recent years to conserve water.

The City Council Finance Committee voted last week to approve a recommendation from Utilities Department staff to raise water rates by 7 percent in July, a change that would add about $5.19 to the average residential monthly bill. Like in years past, the recommendation is driven by two factors: the increasing cost of buying water from the city's supplier, the San Francisco Public Utilities Commission, and various capital projects related to the water system.

The rate increase is less dramatic than what staff had previously projected. Last year, the Utilities Department estimated that it would have to raise rates by 15 percent in the fiscal year 2014, which begins on July 1, to accommodate rising wholesale and capital costs. Each of these costs increased by less than expected.

But the latest rate adjustment is far from the end of the story for local ratepayers, who saw their rates go up by 15 percent last year and by 20 percent the year before. More 7 percent increases are on the horizon for each of the next three years, according to a staff report. This year, the 7 percent increase will add about $2.4 million in revenues.

The rate hikes will soon hit Palo Alto's roughly 20,000 customers despite the city's largely successful conservation efforts. The new report points out that Palo Alto's water demand has been in decline since 1976, due in part to two drought periods that led to aggressive water-conservation programs. Though water consumption has increased a bit since the drought periods, water use "generally declined since 2000 despite the growth in population and employment.

"Significant long-term reduction in water demand was achieved as a result of continuous improvements in building plumbing cods, various City ordinances, and resulting investments in water efficient equipment," the report states.

But because a large portion of the water bill consists of fixed costs, rates continue to go up despite the conservation efforts. In recent years, the trend has been particularly visible because of major capital improvement projects, including the major effort by the SFPUC to retrofit the aged Hetch Hetchy system from which San Francisco, Palo Alto and 27 other agencies draw water. At the same time, Palo Alto is undertaking its own capital improvements, including construction of an underground reservoir at El Camino Park and various water main-replacement projects.

The rate adjustment would add to what are already some of the highest water bills in the region. As of February, the median residential monthly bill in Palo Alto was $62.16, compared to $61.87 in Menlo Park, $51.53 in Redwood City and $39.69 in Mountain View.

According to Utilities staff, keeping rates steady this year would require a hike of 16 percent next year. The Finance Committee agreed on March 19 that a sequence of smaller increases is the better approach. The Utilities Advisory Commission reached the same conclusion on March 6, when it voted 6-0 to approve the staff proposal.

The Finance Committee voiced no major reservations about the staff proposal, though Councilman Greg Schmid lamented the fact that the city's residential customers will feel the rate impact more than commercial ones. That's because residents use less water and the fixed-cost component in their bill thus comprises a greater share of the bill. Schmid called this "frustrating."

"It's frustrating to see a chart like this and to know that a lot of people are trying to take great care in utilization and conservation and finding out that their rates are going up faster," Schmid said.