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HomeMy WebLinkAbout2025-05-07 Utilities Advisory Commission Summary MinutesUtilities Advisory Commission Minutes Approved on: Page 1 of 19 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF MAY 7, 2025, REGULAR MEETING CALL TO ORDER Chair Scharff called the meeting of the Utilities Advisory Commission (UAC) to order at 6:02 PM. Present: Chair Scharff, Vice Chair Mauter, Commissioners Croft, Gupta (Remote), Metz, Phillips (6:04 PM), and Tucher Absent: None AGENDA REVIEW AND REVISIONS None ORAL COMMUNICATIONS Peter Drekmeier, Policy Director for the Tuolumne River Trust, stated he sent an email to the UAC on Friday that included a complaint he had sent to the State Water Board regarding the SFPUC’s unreasonable use pattern of hoarding and spilling water. The SFPUC’s regularly scheduled meeting was canceled on Earth Day due to lack of a quorum. The SFPUC and BAWSCA declined to participate in the League of Women Voters of Palo Alto’s water forum. Mr. Drekmeier hoped to have SFPUC and BAWSCA come to Palo Alto for a study session or workshop, and was interested in hearing the responses to the questions the UAC encouraged the City to ask. APPROVAL OF THE MINUTES ITEM 1: ACTION: Approval of the Minutes of the Utilities Advisory Commission Meeting Held on April 2, 2025 Commissioner Gupta moved to amend the minutes with his written draft. Commissioner Gupta noted Item 2 was blank and the action on Page 37 needed to be clarified. Vice Chair Mauter wanted time to review Commissioner Gupta’s proposed amendments. Commissioner Tucher wanted the finalized Work Plan document attached to the minutes, and Vice Chair Mauter agreed. Chair Scharff suggested that the Commission not vote on the minutes tonight. Chair Scharff asked staff to make any necessary edits to the minutes after watching the video, and staff can follow up with Commissioner Gupta if needed. Utilities Advisory Commission Minutes Approved on: Page 2 of 19 Commissioner Metz expected to see the Work Plan in the meeting minutes. Commissioner Metz wanted to keep Commissioner Gupta’s proposed amendments in addition to the detailed Work Plan to keep a history of the Commission’s work. Kiely Nose, Assistant City Manager, mentioned that staff had not yet reviewed Commissioner Gupta’s amendments. Staff will take the Commission’s feedback and update the minutes. Staff was in the process of finishing the revised Work Plan and will bring it to Council for review and adoption. Commissioner Tucher asked when the UAC can see the revised Work Plan. Ms. Nose replied that the Commission could ask staff to bring the revised Work Plan back to the UAC for review as an agenda item or staff can transmit the revised Work Plan to Council as a consent item and staff will send the Commission a copy once Council’s agenda goes out. ACTION: April 2, 2025 revised minutes will come back to the UAC in June. UTILITIES DIRECTOR REPORT Kiely Nose, Assistant City Manager, reported that Council will have a study session on Monday about the Finance Committee’s budget discussions. The budget process will continue through adoption on June 16. Staff will keep the UAC apprised. The Council adopted their 2025 Priorities and Objectives on Monday night’s consent calendar. Two consent items were related to Utilities, one for trenching and work associated with undergrounding in the foothills for fire mitigation and grid modernization, the other item was for printing and mailing services for our utility bills. Last week, the NCPA and NWPPA co-hosted their annual Federal Policy Conference. Vice Mayor Veenker and COO Alan Kurotori were in attendance. Ms. Nose announced Terry Crowley was the new Assistant Director over Electric Engineering and Operations. Mr. Crowley had 27 years’ experience leading public utilities, including as the Utility Director for the City of Healdsburg’s Electric, Water, and Wastewater Department for the last 14 years; and previously held positions with the City of Redding and PG&E. Ms. Nose confirmed that Council Member Stone submitted a letter to SFPUC. To Ms. Nose’s knowledge, there had not been a response but staff will keep the Commission apprised on any outgrowth. Staff finished reviewing the T’s and C’s for the $16.5 million federal grant and was signing the agreement. CPAU was recently elected to the CMUA Board of Governors. CMUA is an important organization that advocates for the interests of 84 publicly owned utilities who provide water service to 75 percent of Californians and electric service capacity to 25 percent of the state. Upcoming events can be found at paloalto.gov/workshops, including Save Money on an EV, affordable housing fair, and an e-bike and e-scooter expo. For decades, Palo Alto had been working on a secondary electric transmission corridor to improve reliability, capacity, and redundancy. The CAISO Board of Governors will consider approval of a new 115 kV transmission line from NASA Ames in Mountain View to Palo Alto. This project has to go through design but was expected to cost between $40 and $80 million and will be funded through the Utilities Advisory Commission Minutes Approved on: Page 3 of 19 Transmission Access Charge assessed to electric utilities throughout the state. PG&E will build this new line, which is expected to be in service in 2034. Staff has been doing community outreach about utility rates. At the Facility Managers Meeting, Utility Program Services staff presented the Westin Hotel with a rebate check for energy and water savings. Ms. Nose provided the following update on UAC action items from the last meeting: Universal access was referred to the Human Relations Commission. An item on data center competitiveness will be scheduled. Stanford was informed of the City’s interest in a transmission corridor. Topics on the legislative session and microplastics were scheduled. A discussion on emergency preparedness will be included with the Wildfire Mitigation Plan update. Commissioner Tucher asked what was meant by the slide saying a new transmission line was proposed, how funding may impact the City’s P&L and future rate base, and if the City will not go forward with a Stanford partnership. Alan Kurotori, Utilities Chief Operating Officer, explained that staff had been working with Stanford to get a second connection; however, in 2019, staff pivoted to work on a CAISO connection. Staff has been working through the CAISO process, which included transition planning and submitting load projections to the California Energy Commission (CEC). This project was published as part of CAISO’s work plan and has been calendared for CAISO’s consideration for approval. Ms. Nose stated a second CAISO transmission line will alleviate one of the City’s core resiliency concerns but the City could build many connections. Having discussions with Stanford was part of the UAC’s work plan. Mr. Kurotori said the cost was not 100 percent attributable to Palo Alto because CAISO’s low-voltage transmission projects were funded by Transmission Access Charges (TAC), so the cost will be allocated throughout the state in CAISO’s service territory. This transmission project was estimated to cost CAISO between $42 and $84 million. TAC was based on the amount of energy Palo Alto uses from CAISO. Commissioner Croft received a notice today in the mail about a public hearing on water and wastewater rates and was curious why only those rates. Mr. Kurotori responded that water and wastewater rates fell under Proposition 218, which required Utilities to send a notice to customers. If 50 percent plus 1 customers protest at the meeting, the rate does not pass. The electric utility was not part of Proposition 218. Commissioner Gupta found the table of action items very helpful. NEW BUSINESS ITEM 2: ACTION: Approval of Chair and Vice Chair to Serve a Short Term of May 7, 2025 through April 1, 2026 ACTION: Vice Chair Mauter moved to approve Chair Scharff continue for a second term as Chair of the UAC. Commissioner Phillips seconded the motion. The motion carried 7-0 with Chair Scharff, Vice Chair Mauter, and Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. ACTION: Chair Scharff moved to approve Vice Chair Mauter continue for a second term as Vice Chair of the UAC. Utilities Advisory Commission Minutes Approved on: Page 4 of 19 Commissioner Phillips seconded the motion. The motion carried 6-0 with Chair Scharff and Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. Vice Chair Mauter abstained. ACTION: Commissioner Croft moved for the Chair’s and Vice Chair’s one-year term to end April 30, 2026. Chair Scharff seconded the motion. The motion carried 7-0 with Chair Scharff, Vice Chair Mauter, and Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. Commissioner Tucher inquired who will communicate the results of Council’s decision on their interviews for the two UAC openings. Chair Scharff answered that the incumbents were reappointed. Public Comment: Ms. S. Peterson reminded Commission members to use their microphones because otherwise it was difficult to hear what was being said, which was critical for public access. ITEM 3: ACTION: Utilities Advisory Commission Finance Subcommittee Recommends the Commission Recommend City Council Approve the FY 2026 Fiber Rates and Packages Commissioner Croft said the subcommittee did not have time to discuss the budget because it was received the day before. For marketing purposes, Commissioner Croft felt it was necessary to have a map showing providers’ penetration versus availability. The market was competitive with AT&T and Xfinity providing service at 1Gbps plus. Commissioner Croft reported the subcommittee discussed converting customers from AT&T Fiber might be difficult, and it was thought there was a greater chance to convert Xfinity customers but it required people to cut the cord with cable TV. This pilot was viewed as an opportunity to learn how Palo Alto compared to customers’ current internet service, identify the decision factors for customers to convert, and what marketing was successful. Commissioner Croft stressed the need to collect data in an organized way to enable decision making. The subcommittee had seen in their meeting some key metrics including rates, take rates, and cost to install but the full UAC had not seen the business model. The three subcommittee members supported staff’s recommended maximum rates for the pilot as presented in the slides; however, the subcommittee did discuss more discrete rates. Commissioner Croft stated the debt and investment were significant with $90 million of debt assumed to finance the buildout and it will take 9 or 10 years to turn net income positive. Two subcommittee members wanted an opportunity to review the pilot results prior to making a decision on whether to recommend continuing to Phase 1. Chair Scharff invited staff to make their presentation and for Commissioner Croft to make a motion reflecting the subcommittee’s majority opinion. Dave Yuan, Utilities Strategic Business Manager, delivered a slide presentation. Mr. Yuan reminded the Commission that tonight’s discussion was on the proposed fiber rates and offerings, not a discussion on whether the City should enter a competitive ISP market. Staff was working on delivering the following three projects approved by Council: (1) Rebuild the existing fiber backbone that was about 30 years old in order to provide additional capacity for current and future needs. Over $30 million had built up in Utilities Advisory Commission Minutes Approved on: Page 5 of 19 reserves from dark fiber licensing. (2) Council approved up to $20 million from the fiber reserves for Phase 1 of fiber to the premise (FTTP). The pilot is a subset of Phase 1 and will consist of about 1000 residents. An additional 5000 residents were expected in the Phase 1 build out. After the pilot is completed and as they expand into Phase 1, staff will return to the UAC and Council with data points, financials, and metrics to measure the success and financial sustainability of this new business. (3) FTTP was being aligned with grid modernization to increase efficiency, reduce construction costs, and minimize disruption in neighborhoods. As electric poles were replaced and transformers were added, messenger lines were being hung on the new poles. A coverage map was shown of the pilot area with red dots representing where Xfinity was providing 2Gbps internet service and blue dots representing where AT&T was offering fiber service. Xfinity offered 2Gbps service in about 50 percent of the pilot area. AT&T offered fiber service to 90 percent of the pilot area. In response to Commissioner Croft inquiring if it was known who had what service in the pilot area, Mr. Yuan answered no. Commissioner Tucher asked how fiber compared in delivery to 2Gbps down. Mr. Yuan explained that Xfinity did not have symmetrical speed. Fiber allowed symmetrical speed (equal up and down speed) up to 5 or 10Gbps with the right equipment. Xfinity had service up to 2Gbps download speed but upload was maybe 300Mbps. Commissioner Croft inquired if Xfinity offered 1.2Gbps in the entire pilot area. Mr. Yuan answered yes; he heard it was too costly for Xfinity to upgrade that area, so Xfinity would leave it at that level of speed. Mr. Yuan showed a slide with the promotional and standard rates for Xfinity and AT&T. For 1Gbps, there were promotional rates as low as $55/month and gift cards; the standard monthly rate for AT&T was $80 and for Xfinity was $114. For financial reasons, the City will not compete with incumbents on the lowest promotional prices. The City will differentiate itself with speed, reliability, transparent pricing with no hidden fees, responsiveness, and exceptional customer service. A slide was shown of estimated capital expenses for the pilot of approximately $4.5 million including a 10 percent contingency. Fiber overhead construction cost $584,080 for 37,000 feet whereas underground cost $383,859 for 2400 feet. One of Council’s motions when they approved the phased buildout was to pass as many homes as possible during Phase 1. Therefore, the focus will be mostly on the aerial areas and aligning it with grid modernization to be more cost effective. The hut has been built but the padmount by the Colorado Power Station needed to be built before receiving the hut. Staff hoped to get the planning permit and building permit approvals by the end of this month, which are needed before starting construction on the padmount. The cost per passing including capital expenses was about $5500 per home, excluding one-time costs it was around $2200. The goal was to get costs down to the industry standard of $1500. Staff was learning from this pilot and thought they could get lower prices in the next phase. Commissioner Tucher asked if labor in the total cost column shown on the slide reflected a 12-month period or another time frame. Mr. Yuan replied that the labor for VIP had been done already. The fiber overhead and underground construction will probably begin in the summer when the hut is built out. The labor cost shown on the slide represented the entire buildout phase for the pilot, which was a three-month timeline. A slide was shown of the $1,577,940 operating expense assumptions for the pilot. Four FTEs were authorized but a lot of in-house staff was being used for this project. Two full-time managers were Utilities Advisory Commission Minutes Approved on: Page 6 of 19 budgeted. An outside plant manager was hired. A fiber systems operations manager will be hired in the future. Darren Numoto and his team as well as Utility staff were doing a lot of the work for the pilot area. Staff was currently able to manage the workload but there might be a need for more internal resources to expand into Phase 1. The operation expense was $200 for every installation. Mr. Yuan heard it cost about $500 in sales and marketing to acquire a customer. Equipment cost about $400 per subscriber. In reply to Vice Chair Mauter seeking clarification if the operating expenses were on top of the capital expenses presented on the previous slide, Mr. Yuan answered yes. Nothing is bond financed right now because $20 million from the fiber reserve was authorized for capital and operating expenses. The fiber reserve is the same as the fiber fund. Previously, the fiber fund was dedicated to the dark fiber business but now the City was adding the high-speed broadband internet business. A slide was presented on the proposed Palo Alto Fiber rates and offerings. Staff tried to mimic the top price of what the competition was providing. Staff proposed up-to rates to have pricing flexibility. The up-to prices were competitive with what competitors were listing. Installation will be free. Service at 500Mbps and 1Gbps will include free routers. Higher speeds will charge for routers to recover some of the cost of the more expensive 10Gbps routers. Residential service plans: 500Mbps rate assistance up to $30, 500Mbps up to $75, 1Gbps up to $95, 2Gbps up to $175, and 5Gbps up to $265. Commercial service plans: 500Mbps up to $125, 1Gbps up to $185, 2Gbps up to $195, and 5Gbps up to $295. Equipment: Calix GigaSpire up to $5/month, Calix Blast Mesh Extender up to $5/month, and Calix Gig WAN Port up to $600 one-time purchase. Chair Scharff inquired why it costs less to provide 1Gbps versus 2Gbps or 5Gbps. Mr. Yuan explained that higher-speed modems and routers cost more money. Ms. Nose pointed out that fiber did not have strict regulations, as opposed to other utility rates requiring a COSA. The proposed rates were reflective of market sensitivity analysis and price competitiveness while doing their best to recover the cost to deliver the service but the rates did not have a direct correlation to cost. Chair Scharff commented that it will cost money for a pilot customer to get rid of their other service and switch to Palo Alto Fiber; however, Palo Alto may go away at the end of the pilot and the customer has to switch back to their previous provider. Chair Scharff thought Palo Alto could be more competitive by offering 2Gbps for $100. Mr. Yuan stated that lower rates were calculated and it would take a lot longer to break even operationally, and charging much lower rates meant that Phase 1 would not be able to expand to as many customers given the approved up to $20 million budget. Since most people choose the 1Gbps service, Chair Scharff wanted staff to think about offering 2Gbps for $100 to encourage customers to choose 2Gbps because you do not lose much money, it will differentiate the City from competitors, and he thought it was better than Xfinity and AT&T offering gift cards and introductory rates. Mr. Numoto stated the proposed rates were starting prices but once they get to market, staff had to evaluate and have a marketing strategy to see what the market will allow. Staff was asking for a range of options, products, and services because they needed to make sure they were able to recover costs at some point. Besides the technical aspects, Mr. Numoto remarked that the selling points were focused on delivering the same level of service that customers were accustomed to with Utilities, customer support, provide service to the entire community in Palo Alto, and we are local so if a customer had a problem in their home we can schedule staff more readily than the competitors. The current providers were delivering services only to the easy-to-build places. Mr. Yuan said the 2Gbps Utilities Advisory Commission Minutes Approved on: Page 7 of 19 device was more than 50 percent more expensive than 1Gbps home equipment; the cost difference was about $150 more for the 2Gbps device. Mr. Yuan stated that the fiber offerings will be presented to the Council for their approval. For the pilot, offerings will include 1Gbps and 5Gbps, other services will not be offered until Phase 1. Our equipment can provide Calix Smart Home and Calix Smart Biz, so those services may be offered in the future. There will be no data allowance caps, and the contract term will be month to month. Commissioner Metz suggested eliminating the 500Mbps rate since most people will want 1Gbps or 2Gbps. Commissioner Metz recommended including parental controls and intrusion protection as part of the basic offering without an extra charge. Commissioner Metz inquired what the plan was for penetrating multifamily. Mr. Yuan replied that multifamily was very difficult because some have exclusive agreements with the incumbents. To go in multifamily is usually costly because you have to rewire the entire building, so staff would have to do a cost benefit analysis, make sure they get a right of entry, and work with the property owner. As new MDUs are built, staff is trying to ask them to add a third conduit so Palo Alto can be a third provider option for new residents. Commissioner Croft expressed concern about how to convince someone to switch, especially when they already have fast service. Commissioner Croft thought that offering faster speeds at a lower price or maybe combining additional features could create an incentive to switch. Commissioner Croft wanted to see creativity on building compelling offerings that get people to switch providers. Mr. Yuan stated the goal of this rate proposal was to give staff flexibility to bundle things together such as parental control or offer one or two months of free service. Chair Scharff was concerned about taking a utility approach to a competitive business. Offering fiber service to everybody was a utility approach, not a business approach. Chair Scharff suggested that staff focus on marketing and give people a strong reason to switch in order to make the pilot successful and to build a sustainable business. Mr. Yuan presented operational financial scenarios at different price levels. The scenarios did not include price elasticity of demand. FY 2026 will have about 932 passings, 27 percent take rate, and 250 subscribers. The first goals were operational feasibility and technical feasibility, meaning the fiber service was working at the correct speed and our delivery was meeting customers’ expectations. Then, staff will try to increase the take rate and provide lower prices if feasible. Three scenarios were presented: lower end, mid-level, and higher end. Under lower end pricing, we break even in FY 2029 assuming a 33 percent take rate. Under higher end pricing, we break even in FY 2028 assuming a 33 percent take rate. Mr. Yuan sought the UAC’s feedback on pricing and whether the goal was to get the highest penetration or financial sustainability. Low prices will get higher take rates but it will take longer to break even. Commissioner Phillips wanted clarification if breaking even meant operationally but did not include paying back any of the capital investment. Mr. Yuan answered breaking even referred to operational costs only. Commissioner Croft inquired what was the assumed timeline to spend the $4.5 million for the pilot, and when were the pilot and Phase 1 occurring. Mr. Yuan replied the pilot will be in FY 2026 with 932 passings. Assuming Phase 1 is built right after the pilot, there will be an additional 5000 passings. For the pilot, about $5 million in CapEx will be spent on construction in addition to about $2 million for operating expenses. Mr. Yuan projected another $10 million to be spent on CapEx for phase 1 if we Utilities Advisory Commission Minutes Approved on: Page 8 of 19 choose to continue. Ms. Nose mentioned the initial $20 million budget included the first 1000 passings in the pilot and the additional 5000 passings in Phase 1. Commissioner Tucher asked how many homes were in the Phase 1 map. Mr. Yuan answered 6000 homes. Since staff was seeking the UAC’s guidance on pricing, Commissioner Tucher thought it was important to know what the low, medium, and high prices were and to have clarity on the pricing strategy. Commissioner Tucher thought the pricing strategy should be to win customers in Phase 1, even if it cost money. Commissioner Tucher thought that charging $95 for 1Gbps was substantially above the incumbents and would not attract enough customers for us to learn anything from the pilot. Commissioner Tucher said the objective in a pilot or Phase 1 was never to have a breakeven P&L or improve financial viability. Commissioner Tucher suggested making it easy in the pilot to add on value- add options such as parental controls and security to get feedback from customers on whether those options were worth it. Commissioner Tucher wanted to keep the 500Mbps offering to provide a low- price option for people who currently cannot afford broadband. Vice Chair Mauter echoed Commissioner Tucher’s comment about providing a range of pricing options and serving customers who otherwise cannot afford other providers. Chair Scharff pointed out the pilot was in one of the richest sections of Palo Alto. Vice Chair Mauter asked how the pilot location was chosen if it was well served by AT&T and Xfinity, and $20 million of City funds will be spent to be the third service provider to this area. Mr. Yuan explained the area was chosen because fiber was following grid modernization, and this area was being converted from 4 kV to 12 kV. Vice Chair Mauter stated the population in the pilot area may not be price sensitive and therefore not representative of the rest of Palo Alto. Commissioner Phillips asked his fellow commissioners to think through the two points of view. Commissioner Phillips did not agree with serving the underserved in this pilot. Fiber did not have the Utility’s obligation to serve but was that view consistent with what the Council and other people believed, was the City viewing fiber as getting into a business in competition with two established competitors, was the City trying to serve a social goal, or both. Chair Scharff stated he would like to serve the social goal but believed you first need to have a business. CPAU customers do not have a choice to go to PG&E. Fiber has three choices. The more you subsidize the less profit you will make, so you have to raise the prices on other people, which is hard to do in a competitive business. If we get no uptake in the pilot and decide to do subsidies for a social goal, then we do not have a business. Commissioner Phillips pointed out that a utility has a guaranteed monopoly and can charge more to subsidize serving others. A utility’s obligation is to serve all people, even those who are more difficult to reach. Fiber will not have a monopoly. If you are running a business, you probably will not have a long- term goal to satisfy low-cost customers and make sure everybody in Palo Alto can have fiber at reasonable prices. Vice Chair Mauter inquired what fraction of the city was not served by AT&T, Xfinity, or another high- speed internet provider. Mr. Yuan did not know but AT&T was about 50 percent of the market when the study was done last year or a couple years ago, so it was probably at a higher percentage now. Only AT&T offered fiber internet; other providers were fixed wireless or hybrid fiber coaxial. Mr. Yuan mentioned a benefit they noted when building the business case was that being a third provider will Utilities Advisory Commission Minutes Approved on: Page 9 of 19 bring more competition and another option for customers, which will hopefully drive down their prices, so data will be collected on that during the pilot. Chair Scharff did not think we should worry about the long term right now. Chair Scharff thought the focus should be on getting a big uptake in the pilot and try to prove there is a business case that we can compete; if not, he assumed staff will come back to the UAC and say the pilot failed, and the UAC can instruct staff do something different or not move forward. Mr. Yuan’s concern with Chair Scharff’s remarks was that the pilot is a very small sample set. Staff can take what they learned from the pilot and use it for Phase 1, such as bringing down construction costs, bringing more efficient services, or activating people faster. Mr. Yuan wanted to at least expand to Phase 1, maybe not the complete Phase 1 but staff will learn more as they pass more homes. Staff will bring data to the UAC as they do the pilot. Vice Chair Mauter pointed out that staff was not diversifying the customers they were learning from by continuing this effort because the pilot and Phase 1 had a very similar set of customers. A different part of the city might have a different set of uptakes. Mr. Yuan stated there was opportunity to look at different areas and not follow grid modernization. Staff will entertain it if they think there is a better market. Commissioner Gupta emphasized the purpose of the pilot and Phase 1 was to learn and get ourselves installed but, given its limited sample size, the purpose was not to obtain a huge take rate. The target take rate for the pilot was 20 percent. Learnings from the pilot will be used to expand to Phase 1 where the focus can be more on marketing and take rate. Commissioner Gupta viewed the entire Phase 1 as a pilot or an MVP (minimum viable product). Phase 1 will provide a big enough sample size to see how we are doing against the competition as well as learn about marketing, installation, and customer service. Then, the City can decide whether there is a business case or an equity case to expand further. Commissioner Gupta thought it was good that the pilot was in an area with a lot of competition from Xfinity and AT&T to see how we do and how the competition responds with their pricing. Commissioner Gupta was interested in seeing how much money Palo Alto residents save not just from our lower pricing but from driving down the pricing of the competition. Commissioner Gupta agreed with staff’s proposed maximum pricing. Mayor Lauing, Council Liaison, thought that staff should recheck with Council before too many multimillion dollar checks were written. Mayor Lauing noted the competition has gotten better since the fiber discussions from three years ago. Mayor Lauing has had Xfinity for a long time and he used to have them out every two weeks but now did not because Xfinity has improved their downtime. Xfinity has improved their system enough that they do not need as much customer service. Mayor Lauing hoped staff was modeling that the competition will respond with price matches or lower pricing. Mayor Lauing urged staff to update the Council on the current variables. Mr. Yuan presented a high-level slide on marketing. Marketing strategies for community awareness include a press release and updated website with FTTP goals, timeline, service area, and FAQs. Palo Alto Fiber will be promoted on the search engine, event presentations, email, direct mailer, door hanger, digital advertising, and door to door. Staff is still formulating the marketing plan and may meet with the Fiber Subcommittee to hear their ideas. Ms. Nose did not want marketing feedback from the UAC tonight as this agenda item was for approval of the maximum rates. Utilities Advisory Commission Minutes Approved on: Page 10 of 19 Mr. Yuan listed the following key metrics that staff was looking for with the pilot: Technical feasibility, reliability, speed, uptime, demonstration of operational success, making sure we deliver the service as promised, positive net promoter score/customer feedback, and a take rate of 20 percent. Staff did not plan to spend much on marketing in the pilot because marketing was very expensive. For someone to do marketing, they want a minimum of one-year commitment and costs many thousands of dollars. For the pilot, community or City employees and events will be used to spread the word and do some direct marketing to customers. Measures of success for Phase 1 included reducing construction costs, managing operational costs, take rate of at least 33 percent to break even by the third or fourth year, financial sustainability, as well as finding strategic partnerships to help with installation, customer support, or the call center. A previous study projected a take rate of 35 or 40 percent but the minimum needed to break even was 30 to 35 percent. Staff will issue a PO soon to order materials. The hut has been built but the padmount needed to get built. Work is being done at Equinix to build out the servers. A contract was signed with an OSS/BSS to be the portal for customers to sign up and for staff’s internal control to monitor the equipment and help with billing. Agreements and policies are in process for the broadband consumer label, right of entry, terms and conditions, internet privacy, and network management. Public Comment: 1. Hamilton Hitchings pays $100/month for 1Gbps of AT&T Fiber after receiving a $5 discount for autopay. Mr. Hitchings was happy with AT&T Fiber’s reliable service, which he found more reliable than Comcast. Palo Alto Fiber’s maximum prices were similar to AT&T and seemed reasonable, although AT&T’s discounts made it cheaper. AT&T Wireless customers who sign up for AT&T Fiber get a 20 percent discount. Mr. Hitchings believed the results of the pilot were only valid if you charge competitive rates, not by offering unrealistically low prices that cannot cover your costs and pay back your upfront investment. Mr. Hitchings opined the add-ons were pricey for parental filters and security at up to $10/month each, so the City might want to consider bundling them or pricing them competitively. AT&T Fiber included free ActiveArmor internet security. To evaluate the financial viability of municipal fiber, Mr. Hitchings thought it was important to measure AT&T Fiber’s total coverage for Palo Alto. According to bestneighborhoods.com, AT&T Fiber covered 71 percent of households in the city. The majority of municipal residential fiber services lose money, which added significant risk to the City’s strained finances. Mr. Hitchings biggest area of concern was borrowing $90 million upfront for a citywide rollout and not being able to pay it off, which costs about double to pay back. Using General Funds would result in cutting City services. Once the fiber pilot is completed, if the City believes there is a viable case for a citywide rollout, it is critical to perform a detailed financial analysis and put in place a risk mitigation plan. 2. Herb Borock did not want the Commission to vote for a recommendation. The Commission should have monthly cash flow spreadsheets showing the assumptions used to judge how the project was doing. You can see on the spreadsheet whether there will be great savings by combining the electric and fiber production as was claimed. Mr. Borock recalled hearing about 1½ years ago that there would be $11 million in savings, which seemed to Mr. Borock as a $1 million savings for FTTP and $10 million savings for the electric fund. An ISP should have a dedication to customer privacy that includes prohibiting data mining for the purposes of targeting advertising and tracking customer behavior. Utilities were not involved in competitive markets but fiber is competitive. An ISP connects to a customer premise’s equipment and provides equipment and service, which are incident to property ownership. Mr. Borock thought Utilities Advisory Commission Minutes Approved on: Page 11 of 19 the City had to obtain customers’ approval on any price increases. The City’s current involvement with the internet is the City’s webpages. If you ask potential customers what they think of the City’s website and if they want that same provider to be the ISP, he was interested to see what the answer is. Commissioner Croft remembered seeing signs in Atherton about Atherton Fiber, which was rolled out by a private company. Commissioner Croft wondered if the City could have taken a collaborative approach to roll out Palo Alto Fiber, and maybe it would not require the same level of approvals and timeframe. Mr. Yuan replied that staff had gone back to the Council multiple times looking for a partnership. RFPs were issued to find a partner but the numbers did not work out. Potential partners would provide the service and share the revenues but expected the City to pay for the infrastructure. Staff brought the partnership option to Council but the Council wanted local control and thought the City could do a better job, instead of relying on a partner and being dependent on their service and quality. Ms. Nose remarked that fee schedules were approved by Council per the Municipal Code. Therefore, staff would still come to the UAC and Council with a fee schedule of maximums even if there was a fiber partner, unless the approval process of fees and rates was changed in the Municipal Code. ACTION: Commissioner Croft moved to recommend that the City Council approve the maximum FY 2026 fiber rates and packages presented on the slide. Commissioner Gupta seconded the motion. The motion carried 6-1 with Chair Scharff, Vice Chair Mauter, and Commissioners Croft, Gupta, Metz, and Phillips voting yes. Commissioner Tucher voted no. In regard to his no vote, Commissioner Tucher thought there was lack of clarity on the timeframe and location of the pilot versus Phase 1, as well as not having numbers for high, medium, and low pricing. Strategically, Commissioner Tucher did not agree with charging $95. As an advisory commission, Commissioner Tucher did not consider it useful advice to recommend high numbers to Council because it did not provide much guidance. Commissioner Tucher was unable to vote yes for a price recommendation without knowing the pricing strategy. Was the intent of pricing to get a lot of customers, to get a high margin and profit, or to serve the underserved? Commissioner Croft wanted to see the data after the pilot was done, and thought it was helpful to understand if there was a dividing line between ending the pilot and beginning Phase 1. Mr. Yuan answered yes because at this point they have not issued any construction. They have the design for the electric side but not any construction yet. Phase 1 for grid modernization will begin in Q3 of this year. Mr. Yuan asked for three or six months after completion of the pilot for staff to review data and come back to the UAC with the pilot results. Chair Scharff inquired if staff will wait three or six months before starting Phase 1. Mr. Yuan answered no. Chair Scharff wanted the UAC to have the opportunity to make a recommendation to the Council on whether to stop the process if it did not work or if the UAC thought something needed to be done differently for Phase 1. Mr. Yuan said that staff could stage it however they choose; they could pause it. Mohammad Fattah, Utilities Manager of Electric and Fiber Engineering, said that once the pilot was done, staff had Q4 to evaluate whether to move forward to Phase 1. Ms. Nose believed it will take longer than three months to compile the information. Utilities Advisory Commission Minutes Approved on: Page 12 of 19 Ms. Nose said the Commission could consider recommending phasing of construction with a full pause on further buildout of Phase 1 until whatever the recommendation was for timing of data on the pilot. Ms. Nose asked Mr. Fattah to clarify that when he said that staff would use Q4 to evaluate the pilot, if he meant staff would evaluate whether or not to proceed or an evaluation of how best to strategically implement Phase 1. Mr. Fattah was not sure if it was enough time to market, sell, penetrate, and pass. Mr. Fattah was targeting the end of the year, which was Q4, to be done with this. The marketing effort will start in parallel as they start the buildout of fiber. Mr. Fattah stated that the grid modernization pilot had been completed and was moving into Phase 1. Commissioner Gupta pointed out that this question did not come before the Budget Subcommittee nor was this question properly agendized for this UAC meeting. If someone wanted to bring it forward on the agenda, then staff would have time to address the timing and develop a proposal; otherwise, further discussion and decision would not be compliant under the Brown Act. The rate proposal was discussed at the Budget Subcommittee and was on the UAC’s agenda tonight, not discussion on anything else. Commissioner Croft mentioned that the marketing strategy was a subject of discussion in multiple subcommittee meetings. Chair Scharff thought it was agendized because staff presented a slide with a list of marketing strategies. The agenda item said packages, which Chair Scharff understood it to mean the package that staff presented to the UAC, so the Commission can discuss anything within the package, including marketing, rates, timing, and how it is rolled out. Chair Scharff said the UAC was trying to understand from staff what their plan is. Commissioner Croft felt reluctant to make the motion without knowing what the plan is. Commissioner Croft felt it was helpful to know what the timeline was for the pilot, meaning when do we build it, when do we market it, how much time do we give ourselves to try marketing techniques, and then can the UAC look at the data. Commissioner Croft wanted staff to talk about when they will start building the pilot area, when can they start marketing, how long do we want to give ourselves to try and convert people before we have a sense for how the pilot is going, and if staff planned to build Phase 1 areas during the pilot. Ms. Nose replied that staff was not prepared to respond to Commissioner Croft tonight or to have that discussion. Staff brought these rates forward now to be proactive and have the ability to add early customers. Staff planned to provide a fiber update to the UAC between now and December. The UAC and Council will be going on summer break. Staff did not have a go-live date for fiber because they were in the permitting process for the hut padmount. Chair Scharff suggested ending the item. ITEM 4: ACTION: Utilities Advisory Commission Finance Subcommittee Recommends the Commission Receive the FY 2026 Utilities Department Budget and the Commission Recommend City Council Adoption Commissioner Croft stated the subcommittee recommends that the UAC review the budget. The budget was provided to the subcommittee the day before and they did not have much time in the meeting to discuss it. Chair Scharff asked staff if this item should be tabled to the next UAC meeting after the Budget Subcommittee has had a chance to review it or proceed with discussion tonight. Ms. Nose, Interim Director of Utilities, replied that the Budget Subcommittee reviewed the Utilities budget today. Utilities Advisory Commission Minutes Approved on: Page 13 of 19 The next UAC meeting occurs in June, by which time all the Finance Committee meetings will be done, so Ms. Nose suggested the UAC address this item tonight. Commissioner Gupta, Budget Subcommittee Member, offered to provide his insight based on his review and the questions he had asked staff. Vice Chair Mauter invited Commissioner Gupta to provide a brief summary of his review. Commissioner Gupta noted net expenses were up, which was to be expected as has been seen by utilities across the country. Palo Alto was seeing rising commodity costs and pass-throughs from renewable power contracts and for wholesale Hetch Hetchy water but gas was expected to be roughly flat. The large CIP increases did not seem to include future bond-financed projects such as the wastewater headworks or grid modernization. Future CapEx for the post-pilot Phase 1 of the fiber-to- the-premises project will likely come from bond financing or another proposal. Chair Scharff invited staff to deliver their presentation. Anna Vuong, Utilities Senior Business Analyst, addressed the Commission. Staff requested that the UAC recommend that the Council approve the proposed FY 2026 Utilities operating and capital budget. The FY 2026 Utilities budget had a continued focus on upgrades for grid modernization, FTTP deployment, and rate stabilization. The major proposed changes in the Utilities Department include: Complete construction of the electric grid modernization pilot serving 1000 residents, begin Phase 1 to support electrification for an additional 5000 residents, continue to align construction of Palo Alto Fiber internet service with electric grid modernization, evaluate and refine delivery strategies and product offerings in fiber pilot, develop a natural gas transition strategy, as well as replace aging gas, sewer, and water mains to enhance safety and reliability. A chart was shown of FY 2026 Utilities expense allocation by category, comparing the FY 2025 adopted budget with the FY 2026 proposed budget. FY 2026 cost increases of $17.5 million for the Capital Improvement Program included $15 million for the Hanover Substation upgrade and a $2.5 million increase for grid modernization. Commodity purchases of $9.5 million were attributed to electric (local capacity, resource adequacy increases, scheduled increase from Western, and transmission charges), $1.8 million for water, and a $600,000 increase for wastewater collection. In General Expenses, an additional $3 million funded from restricted reserves was programmed to expand existing customer efficiency programs for multifamily EV chargers, commercial HVAC electrification, and heat pump water heaters. $1.6 million was programmed to support FTTP in marketing strategies, operational and customer support, business software, and on-site installation services. Dave Yuan, Utilities Strategic Business Manager, explained the main drivers of administrative/general operating expense increases were for centralized City support, i.e., administrative services, legal, HR, facilities, purchasing, and payroll. As the Utilities Department gets larger with more FTEs, more support is required. As the Department gets more projects and applications, more IT support is needed, so costs have been increasing for security, infrastructure replacement, and applications (AMI, FTTP, GIS, OMS, and SAP). Other cost drivers include electrification of new fleet vehicles, higher salaries because of new FTEs added, filling of vacancies and market adjustments, benefits, proactive funding of pension (Council initiative), general liability and insurance premiums, as well as rent for substations, reservoirs, MSC, and City Hall. Utilities Advisory Commission Minutes Approved on: Page 14 of 19 Ms. Vuong showed a slide listing the following cost containment measures taken: A credit card convenience fee was implemented on bill payments over $5000. Larger CIP projects were scheduled for every other year to achieve efficient project management and lower construction costs. Long lead-time equipment was preordered to secure pricing (about 1000 transformers at a cost of $4.5 million and 10 to 20 switches). Cost containment measures to be implemented in FY 2026: No requests for new FTEs. Issue competitive IFBs and RFPs for construction contracts for grid modernization and FTTP projects. Reduce billing costs by encouraging customers to convert to paperless billing and pass-through credit card fees. Update standard connection fees to reflect current costs (last updated in 2019). A slide was shown of the Electric Fund 2026-2030 CIP proposed budget summary. FY 2026 proposed revenues were $40.4 million and proposed expenses were $93.2 million. Staff realized there was an administrative error with the revenues missing bond financing on the chart for FY 2027 and FY 2028 but it will be corrected in the next version for the adopted budget. Projected expenses for the five-year outlook were $313.8 million. In FY 2026-2030, $194.8 million will be spent on grid modernization, $5.4 million for the Colorado Power Station to upgrade Transformer 3 and peripherals, and $4.5 for substation breaker replacement. Mohammad Fattah, Utilities Manager of Electric and Fiber Engineering, reported the grid modernization pilot project was completed, which included replacing 103 transformers, 70 poles, 23,000 feet of overhead secondary cable, and installing 46,000 feet of steel messenger for FTTP. The grid modernization pilot project connected 903 homes (meaning ready for electrification), was all overhead construction, and trialed newer products and technology as well as stronger and longer-lasting fiberglass cross-arms. Distribution transformers were preordered in anticipation of continuing the grid modernization project. There are 500 transformers and 600 poles remaining to go in Phase 1, which will convert 4 kV to 12 kV. The 4 kV Hopkins Substation will eventually be retired. Commissioner Tucher inquired how much was spent to date on grid modernization and if the total was expected to be $300 million. Ms. Vuong answered $10 million was spent for the pilot portion of the grid modernization project. Ms. Nose stated staff’s best estimate for grid modernization was $300 million given the information they have but there was volatility in labor and supplies. Ms. Vuong mentioned that about $52 million was budgeted in FY 2026 for grid modernization. Mr. Yuan pointed out that the $10 million spent was for overhead areas, which was the least expensive phase, but costs will start escalating when they go into the underground areas. Vice Chair Mauter reminded commissioners and staff that the UAC saw five-year budget projections for each of the utilities when this year’s budget was set. Ms. Nose presented a slide on the Fiber Fund 2026-2030 CIP proposed budget summary for dark fiber and FTTP. In FY 2026, the capital expense of $17.5 million included the Phase 1 buildout, and then expenses will normalize to a routine level. The Gas Fund 2026-2030 CIP proposed budget summary showed that proposed expenses spike to $23.3 million in FY 2026. The $16.5 million grant awarded from the federal government was split between FY 2026 and 2027, which staff acknowledged an error on the slide because it did not recognize the second half of the grant in FY 2027. Staff notified the Finance Committee that the FY 2027 proposed revenues of $0.5 million will increase by about $8 million, and it will be corrected before budget adoption. Utilities Advisory Commission Minutes Approved on: Page 15 of 19 Ms. Nose presented the Wastewater Collection Fund 2026-2030 CIP proposed budget summary. FY 2026 proposed expenses were $3.7 million but FY 2028 and FY 2030 are higher because of delayed CIP. For FY 2030, staff acknowledged that $27 million in proposed expenses was too large, so staff will shift some of it to beyond FY 2030. The Water Fund 2026-2030 CIP proposed budget summary included typical capital projects associated with scheduled water main replacements. Park and Dahl Reservoir seismic upgrades and rehabilitations will occur within FY 2026- 2030. The FY 2025 staffing report showed budgeted FTEs and a total of 38 FTE vacancies in Utilities. ACTION: Vice Chair Mauter moved that the UAC recommend the City Council adopt the proposed operating and capital budgets for the Utilities Department for FY 2026 with the corrections mentioned by staff. Motion seconded by Commissioner Phillips. Commissioner Phillips asked what was the Finance Committee’s response and if they recommended any changes. Ms. Nose replied that the Finance Committee tentatively recommended approval. The Finance Committee has until May 20 to make a formal recommendation, so a tentative approval typically meant a formal recommendation in two weeks. Public Comment: None. Motion carried 7-0 with Chair Scharff, Vice Chair Mauter, and Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. ITEM 5: ACTION: 2025 Annual Water Supply and Demand Assessment Karla Dailey, Assistant Director of Utilities, Resource Management Division addressed the Commission. It is an administrative regulatory requirement that all urban water agencies need to file their supply and demand balance with the State every year. This is a non-drought year. Staff asked that the UAC recommend approval by Council, as per the process out in the Urban Water Management Plan. ACTION: Chair Scharff moved to recommend the UAC recommend City Council adopt the 2025 Annual Water Shortage Assessment Report. Commissioner Phillips seconded the motion. Public Comment: None. Motion carried 7-0 with Chair Scharff, Vice Chair Mauter, and Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. ITEM 6: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend the City Council Approve 10-Year Energy Efficiency Goals for 2026-2035 Utilities Advisory Commission Minutes Approved on: Page 16 of 19 Tim Scott, Resource Planner, stated that AB 2021 required publicly owned electric utilities to adopt annual electric efficiency (EE) savings goals over a 10-year period. New 10-year EE targets were established every four years. EE savings goals were used for CPAU’s supply resource planning and EE program budget planning. CPAU was achieving EE goals until 2020 but COVID impacted participation rates. Other limiting factors included stricter State codes and the increased focus on electrification. Vice Chair Mauter asked how EE savings were calculated. If EE was measured as a decrease in electric load, that was in direct contrast with the electrification priorities of the Utility. Mr. Scott explained that EE savings were calculated when completing an EE project such as an LED lighting upgrade. The impact of the new equipment was measured in comparison to the previous electric usage. Some efficiency savings were associated with electrification projects to install more efficient equipment but those electrification savings were not captured in the presented chart, which only reflected traditional energy efficiency measures. Mr. Scott said additional conversations were needed to reconcile setting efficiency goals with the City’s electrification goal in the 80 x 30 sustainability goal. Christine Tam, Senior Resource Planner with Resource Management, stated the heat pump water heater program counted gas savings in the DSM report and quarterly report to the UAC when a gas water heater is converted to a heat pump water heater but it is not counted as EE savings. Ms. Dailey mentioned this topic was in transition because Utilities across the state were focusing on electrification and strict building codes were coming into effect but the State still had a traditional focus on EE. Commissioner Phillips asked who sees the EE goals, what happens after EE goal approval, and what happens when we do not meet our EE goals. Mr. Scott replied these goals will be shared with the CEC, and he believed the CEC used it for energy efficiency modeling and planning. There was no penalty for not achieving your goal. The Utility was required to adopt goals to provide an estimate of EE achievements for the current year and the next 10 years. Commissioner Croft asked if the UAC will have another discussion about the strategies to achieve EE goals or if staff wanted the UAC’s comments now. Mr. Scott stated the purpose of this agenda item was to recommend adoption of these targets. If there was time, the UAC could put their suggestions forward or a separate follow-up time could be scheduled to discuss additional approaches or strategies. In reply to Commissioner Croft asking if Chair Scharff wanted her to provide her comments now, Chair Scharff said to let staff continue their presentation and then see where we are on time. Mr. Scott stated that targets were set based on the achievable Energy Efficiency Potential Study that was completed in partnership with a number of other POUs in California. The EE potential has decreased due to increasingly strict State codes and standards. Nonresidential lighting had been over 60 percent of Palo Alto’s EE savings in recent years, so the change in nonresidential lighting codes will have a large impact on EE savings moving forward. Customers who make efficiency upgrades result in market saturation, which then reduces the sample of available projects. The Conservation Voltage Reduction (CVR) program was estimated to start in 2028 and ramp up savings through 2032. The rollout of AMI meters will enable voltage measurements at different points in the system and optimize the voltage to stay within the acceptable threshold; it will not have an impact on customer behavior but there is a potential savings to be captured. Proposed EE targets were equivalent to 2000 to 4500 MWh annually. Total EE savings from the 2026- 2035 targets represent 2.8 percent of the forecasted electric load. Utilities Advisory Commission Minutes Approved on: Page 17 of 19 A chart was shown of actual and projected EE program costs, which included administrative costs, incentives, marketing, etc. The CVR program was expected to have low administrative costs and no associated incentives. Staff will bring the proposed EE goals to City Council for adoption in early June. Adopted EE goals will then be shared with the California Energy Commission (CEC). Public Comment: None. Mr. Scott confirmed Commissioner Phillips’s understanding that EE goals did not take into account the reduction of peak versus off-peak. Vice Chair Mauter expressed her frustration that EE goals did not seem aligned with the reality of operating a grid in today’s environment. Commissioner Metz wanted staff to describe the technical basis for the 2.8% energy efficiency goal. Commissioner Metz noted the slide mentioned the Energy Efficiency Potential Study but he did not see a link to the study. Commissioner Metz wondered if buildings had been audited for energy efficiency. Mr. Scott said the Potential Study looked at cost-effective measures in our area based on our rates, estimated penetration of appliance saturation, assumed appliance usage, typical building envelopes and assumed equipment, our existing portfolio of efficiency programs, and the rebates we provide. Mr. Scott did not believe it applied to EV charging but it did apply to heating, cooling, water heating, building envelope improvements, and lighting. Some customers have an audit of their building performed through some of our programs; however, audits are not performed of each building citywide. Commissioner Gupta read in the report about the mandated public benefits charge of 2.85% of electric retail revenue, which Commissioner Gupta understood that it would not include a lot of potential savings. Mr. Scott thought the rationale was that savings coming from our programs are deemed as cost effective and therefore are funded through the public benefits. Ms. Tam stated that naturally occurring efficiency savings were not counted. For example, if someone’s lightbulb burns out and they replace it with a more efficient lightbulb meeting the current lighting standards, the savings from the new lightbulb will not be counted because it was naturally occurring. Any efficiency standards adopted by the federal government or by California cannot be counted as EE savings. In Commissioner Metz’ experience of having worked in the energy side of many commercial buildings in Palo Alto and the Bay Area, he noted many were cheaply built and had weak envelopes. Commissioner Metz said there were a lot of buildings in Palo Alto where the owner could improve the building envelope or greatly reduce energy consumption, which was why he had asked about the technical assessment of buildings in the city. Mr. Scott stated there was accommodation in the modeling for the behavior of customers, not assuming every building could be more efficient, but was partially based on the participation rates in our programs and of people going through with upgrades. Commissioner Metz believed that was a reasonable way to project the forecast expectations but goals should be more ambitious. Mr. Scott explained these were not meant to be aspirational goals, rather they were a reflection of what was thought to be realistic and achievable based on our portfolio of programs. Utilities Advisory Commission Minutes Approved on: Page 18 of 19 Commissioner Gupta asked staff to provide further explanation about AMI and the Conservation Voltage Reduction program mentioned on Pages 8 and 9 of the staff report. Mr. Scott pointed out the increase in the savings trend from 2028 to 2032 on Slide 4. AMI metering will enable voltage measurements at different points along the feeder, particularly measuring voltage at the furthest point away from the substation will allow us to stay within the acceptable threshold and adjust the voltage coming out from the substation to avoid unnecessary distribution of energy. The cost estimates were preliminary but staff will do a more detailed evaluation of costs once the infrastructure was in place to start moving forward with the CVR program. Vice Chair Mauter noted Slide 6 identified the tremendous potential in nonresidential and she wanted to make sure our outreach programs were targeted to the sector where there was the greatest potential for savings. Vice Chair Mauter inquired about the alignment of program costs to make sure we were not spending a lot of money for very little return. Mr. Scott stated residential spending aligned closely with the percentage of savings. Commissioner Tucher would have liked the presentation to include a list of the programs, how much impact those programs have had thus far, and how much impact they will have in the goal timeframe, therefore he cannot vote yes to recommend the EE goals to Council. Mr. Scott remarked that the data Commissioner Tucher was asking for was available in the SB 1037 report published each year and he believed it was provided to the UAC as an informational item. ACTION: Commissioner Phillips moved that the UAC recommend the City Council approve the adoption of the proposed annual and cumulative Electric Efficiency goals for the period 2026 to 2035 as shown in the summary table on the slide. Chair Scharff seconded the motion. The motion carried 5-2 with Chair Scharff, Vice Chair Mauter, and Commissioners Croft, Gupta, and Phillips voting yes. Commissioner Metz and Tucher voted no. Commissioner Metz voted no because he did not see any connection between the technical potential and the action. Commissioner Croft wanted to know when she could make her comments about programming. Chair Scharff recommended addressing it as a future topic. Ms. Dailey believed the Demand Side Management (DSM) report was attached to the quarterly report provided to the UAC. The DSM report had a lot of information about programs, so it might be useful and interesting for Commissioners to read. Commissioner Tucher requested staff to improve all future slide presentations to tell a more complete story instead of having commissioners refer to a document provided months ago in their packet. Commissioner Croft read the annual reports submitted by other POUs on their energy efficiency achievements for the year. In comparing Pasadena to Palo Alto, Pasadena is a similar-sized utility but the savings were much greater than Palo Alto, half the savings were in commercial and half in residential. Pasadena had programs to haul away old appliances and they send customers their usage to encourage change in behavior. Commissioner Croft recommended benchmarking Palo Alto against similar POUs Utilities Advisory Commission Minutes Approved on: Page 19 of 19 and to see what programs others are doing that could work in Palo Alto. Ms. Dailey thought it was a good suggestion; however, Pasadena had a lot more air conditioning than Palo Alto. Mr. Scott asked if Commissioner Croft was looking at the SB 1037 annual reports. Commissioner Croft did not know what they were called but can follow up with Mr. Scott because she had the reports on her computer. FUTURE TOPICS FOR UPCOMING MEETING: JUNE 4, 2025 Kiely Nose, Interim Director of Utilities, stated the next UAC meeting in June had a full agenda. The Wildfire Mitigation Plan needed to be adopted annually and will include a discussion about preparedness. Staff was working on a connection fee update that will be brought forward to the UAC. Staff will work with the Chair and Vice Chair to determine the timing of agenda topics on an energy storage service agreement, Tier 2 water allocation during a drought, and electric TOU rates. COMMISSIONER COMMENTS and REPORTS from MEETINGS/EVENTS Commissioner Tucher asked for a report on today’s Finance Committee discussion on gas. Ms. Nose stated the Finance Committee performed an initial review and made tentative motions but all items go to the full City Council for a discussion in a Study Session on Monday night. The Finance Committee will resume discussion of those items on May 20 for a formal recommendation. Staff will keep the UAC apprised. The Finance Committee recommended that staff increase the FY 2026 gas rates in alignment with the current FY 2025 rate schedule, provide a climate credit to G-2 customers, and return the 2025 COSA back to the UAC likely sometime after the summer for further analysis and discussion about rate design. The values and policy questions the UAC asked and discussed were used to help guide the Finance Committee. The Finance Committee decided to use the previous COSA for one year with the intention of moving the 2025 COSA implementation to 2027’s rates. Vice Chair Mauter wondered how it was allowable to perform a cost of service study and not follow it. Ms. Nose highly recommended that the commissioners watch the Finance Committee meeting. ADJOURNMENT Chair Scharff moved to adjourn. Commissioner Phillips seconded the motion. Meeting adjourned at 9:04 PM.