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HomeMy WebLinkAboutRESO 102326056922 1 Resolution No. 10232 Resolution of the Council of the City of Palo Alto Approving the Fiscal Year 2026 Gas Utility Financial Forecast, Reserve Management Practices, Reserve Transfer, and General Fund Transfer, and Amending Rate Schedules G-1 (Residential Gas Service), G-2 (Residential Master- Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service), and G-10 (Compressed Natural Gas Service) R E C I T A L S A.Each year the City of Palo Alto (“City”) regularly assesses the financial position of its utilities with the goal of ensuring adequate revenue to fund operations, including reserves. This includes making long-term projections of market conditions, the physical condition of the system, and other factors that could affect utility costs, and setting rates adequate to recover these costs. It does this with the goal of providing safe, reliable, and sustainable utility services at competitive rates. The City adopts Financial Forecasts or Plans to summarize these projections. B.The City uses reserves to protect against contingencies and to manage other aspects of its operations, and regularly assesses the adequacy of these reserves and the management practices governing their operation. The status of utility reserves and their management practices are included in Reserves Management Practices and Financial Forecast (Exhibit 3 and Exhibit 1) attached to and made part of this resolution and the staff report presented to the City Council. C.Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and charges. D.On June 16, 2025, the City Council heard and approved the proposed rate increase at a noticed public hearing. The Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. The Council hereby approves the Reserves Management Practices (Exhibit 3 1) and FY 2026 Financial Forecast presented to the Finance Committee on April 15, 2025 2 and continued to May 7, 2025 3 and updated by the June 16, 2025 Council report, (Exhibit 14), which is attached to this resolution and made a part of the staff report presented to the City Council. 1 Exhibit 3 https://www.paloalto.gov/files/assets/public/v/3/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2025/june-16/rates-attachments/attachment-c-exhibit-3-fy26-gas-reserve-management- practices.pdf 2 Meeting Agenda Item 2: https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16042 3Meeting Agenda Item 2.a.: https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16085 4 Exhibit 1 https://www.paloalto.gov/files/assets/public/v/2/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2025/june-16/rates-attachments/attachment-c-exhibit-1-fy26-gas-utility-financial-forecast-and- cip-detail.pdf Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F 6056922 2 SECTION 2. The Council hereby approves a transfer of up to $1.5 million from the Gas Utility Operations Reserve to the Distribution Rates Stabilization Reserve by the end of FY 2025. SECTION 3. The Council hereby approves the transfer of up to 18% of gas utility gross revenues received during FY 2024 to the general fund in FY 2026. SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule G-1 (Residential Gas Service) is hereby amended to read as shown in Exhibit 2 5. Utility Rate Schedule G-1, as amended, shall become effective July 1, 2025. SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule G-2 (Residential Master-Metered and Commercial Gas Service) is hereby amended to read as shown in Exhibit 2. Utility Rate Schedule G-2, as amended, shall become effective July 1, 2025. SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule G-3 (Large Commercial Gas Service) is hereby amended to read as shown in Exhibit 2. Utility Rate Schedule G-3, as amended, shall become effective July 1, 2025. SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule G-10 (Compressed Natural Gas Service Service) is hereby amended to read as shown in Exhibit 2. Utility Rate Schedule G-10, as amended, shall become effective July 1, 2025. SECTION 8. The City Council finds that the revenues derived from the gas rates approved by this resolution do not exceed the funds required to provide gas service and the revenues derived from the gas rates approved by this resolution shall not be used for any purpose other than providing gas service, and the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. SECTION 9. The Council finds that the fees and charges adopted by this resolution are charges imposed for a specific government service or product provided directly to the payor that are not provided to those not charged, and do not exceed the reasonable costs to the City of providing the service or product. // // // // 5 Exhibit 2 https://www.paloalto.gov/files/assets/public/v/1/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2025/june-16/rates-attachments/attachment-c-exhibit-2-fy26-gas-rate-schedules.pdf Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F 6056922 3 SECTION 10. The Council finds that the adoption of this resolution approving the FY 2026 Gas Utility Financial Forecast Reserves Management Practices, and transfers, does not meet the California Environmental Quality Act’s (CEQA) definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment, and therefore, no environmental assessment is required. The Council finds that changing gas rates to meet operating expenses, purchase supplies and materials, meet financial reserve needs and obtain funds for capital improvements necessary to maintain service is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: JUNE 16, 2025 AYES: BURT, LAUING, LU, RECKDAHL, VEENKER NOES: LYTHCOTT-HAIMS ABSENT: STONE ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Utilities Director of Administrative Services Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F Exhibit 1 The Gas Utility Financial Forecast and CIP Details have been updated since the April 15, 2025 version reviewed by the Finance Committee;1 the specific changes are summarized in Staff Report 2411-3776. This exhibit contains the following tables: •Table 1: Updated June 16, 2025 Council Version of the Gas Utility Financial Forecast. Key Updated Numbers Shown in Red. •Table 2: April 15, 2025 Finance Committee Version of the Gas Utility Financial Forecast for Quick Reference. •Table 3: Gas Utility CIP Detail. Same as the April 15, 2025 Finance Committee Version, no changes were made. 1 Finance Committee Meeting Agenda April 15, 2025, Item 2: https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16042 Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F Exhibit 1 Table 1: Updated June 16, 2025 Council Version of the Gas Utility Financial Forecast. Key Updated Numbers Shown in Red. Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F Exhibit 1 Table 2: April 15, 2025 Finance Committee Version of the Gas Utility Financial Forecast for Quick Reference. Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F Exhibit 1 Table 3: Gas Utility Capital Improvement Program (CIP) Financial Details Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F RESIDENTIAL GAS SERVICE UTILITY RATE SCHEDULE G-1 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-1-1 Effective 7-1-2025Sheet No G-1-1 dated 117-1-2024 Sheet No G-1-1Effective 11-1-2024 A. APPLICABILITY: This schedule applies to the following Customers receiving Gas Service from City of Palo Alto Utilities: 1. Separately-metered single-family residential Customers; 2.Separately-metered multi-family residential Customers in multi-family residential facilities. B.TERRITORY: This schedule applies everanywhere the City of Palo Alto provides Gas Service. C. UNBUNDLED RATES:Per Service Monthly Service Charge: ..............................................................................................$ 16.9318.40 Tier 1 Rates: Per Therm Supply Charges: 1. Commodity (Monthly Market- Based) ........................................ $0.10-$4.00 2.Cap and Trade Compliance Charge ............................................ $0.00-$0.25 3. Transportation Charge ................................................................. $0.00-$0.30 4. Carbon Offset Charge .................................................................. $0.00-$0.10 Distribution Charge:....................................................................................... $ 0.82290.8944 Tier 2 Rates: (All usage over 100% of Tier 1) Supply Charges: 1.Commodity (Monthly Market- Based) ........................................ $0.10-$4.00 2.Cap and Trade Compliance Charge ............................................. $0.00-$0.25 3. Transportation Charge ................................................................. $0.00-$0.30 4. Carbon Offset Charge .................................................................. $0.00-$0.10 Distribution Charge:............................................................................................. $ 2.10432.2873 Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F RESIDENTIAL GAS SERVICE UTILITY RATE SCHEDULE G-1 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-1-2 Effective 7-1-2025Sheet No G-1-2 dated 117-1-2024 Sheet No G-1-2Effective 11-1-2024 D.SPECIAL NOTES: 1. Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C. The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, adjusted to account for delivery losses to the Customer’s Meter. The Commodity Charge also includes adjustments to account for Council- approved programs implemented to reduce the cost of Gas, including a municipal purchase discount 1 and $0.055 per therm for mitigating the impact of short-term natural gas market price spikes 2. The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will changes in response to changing market conditions, retail sales volumes and the quantity of allowances required, . The Cap and Trade Compliance Chargeand is a pass-through charge and itis calculated based on the Cap- and-Trade Pprogram’s quarterly auction allowance closing prices. The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases produced when Gas is burned. The Carbon Offset Charge will changes in response to changing market conditions, changing sales volumes and the quantity of offsets purchased within the Council-approved per therm cap. The Transportation Charge is based on the current PG&E G-WSL 3 (Gas Transportation Service to Wholesale/Retail Customers) rate for Palo Alto, accounting for delivery losses to the Customer’s Meter. 1 Adopted via Resolution 9451, on September 15, 2014. 2 Adopted via Resolution 10187 on August 19, 2024. 3 https://www.pge.com/tariffs/assets/pdf/tariffbook/GAS_SCHEDS_G-WSL.pdf Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F RESIDENTIAL GAS SERVICE UTILITY RATE SCHEDULE G-1 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-1-3 Effective 7-1-2025Sheet No G-1-3 dated 117-1-2024 Sheet No G-1-3Effective 11-1-2024 The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. Current and historic per therm rates for the Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the City Utilities website.4 2. Seasonal Rate Changes: The Summer period is effective April 1 to October 31 and the Winter period is effective from November 1 to March 31. When the billing period includes use in both the Summer and the Winter periods, the usage will be prorated based on the number of days in each seasonal period, and the charges based on the applicable rates for each period. For further discussion of bill calculation and proration, refer to Rule and Regulation 11. 3. Calculation of Usage Tiers Tier 1 natural gas usage shall beis calculated and billed based upon a level of 0.667 therms per day during the Summer period and 2.0 therms per day during the Winter period, rounded to the nearest whole therm, based on meter reading days of service. As an example, for a 30 day bill, the Tier 1 level would be 20 therms during the Summer period and 60 therms during the Winter period months. For further discussion of bill calculation and proration, refer to Rule and Regulation 11. {End} 4 Monthly gas and commodity and volumetric rates are available here, or by visiting https://www.cityofpaloalto.org/files/assets/public/utilities/rates-schedules-for-utilities/residential-utility-rates/monthly-gas- volumetric-and-service-charges-residential.pdf Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE UTILITY RATE SCHEDULE G-2 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-2-1 Effective 711-1-20254 dated 117-1-2024 Sheet No G-2-1 A. APPLICABILITY: This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto Utilities: 1.Commercial Customers who use less than 250,000 therms per year at one site; 2.Master-metered residential Customers in multi-family residential facilities. B.TERRITORY: This schedule applies everanywhere the City of Palo Alto provides Gas Service. C. UNBUNDLED RATES:Per Service Monthly Service Charge: ..........................................................................................$ 156.90170.55 Per Therm Supply Charges: 1. Commodity (Monthly Market Based) ......................................................... $0.10-$4.00 2. Cap and Trade Compliance Charges ........................................................... $0.00-$0.25 3. Transportation Charge .................................................................................. $0.00-$0.30 4. Carbon Offset Charge ................................................................................... $0.00-$0.10 Distribution Charge: .................................................................................................. $ 1.08091.1749 D. SPECIAL NOTES: 1. Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C. The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, adjusted to account for delivery losses to the Customer’s Meter. The Commodity Charge also includes adjustments to account for Council- approved programs implemented to reduce the cost of Gas, including a municipal Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE UTILITY RATE SCHEDULE G-2 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-2-2 Effective 711-1-20254 dated 117-1-2024 Sheet No G-2-2 purchase discount 1 and $0.055 per therm for mitigating the impact of short-term natural gas market price spikes 2. The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will changes in response to changing market conditions, retail sales volumes and the quantity of allowances required,. and is calculated based on the Cap-and-Trade Program’s quarterly auction allowance closing prices. The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases produced when Gas is burned. The Carbon Offset Charge will changes in response to changing market conditions, changing sales volumes and the quantity of offsets purchased within the Council-approved per therm cap. The Transportation Charge is based on the current PG&E G-WSL 3 (Gas Transportation Service to Wholesale/Retail Customers) rate for Palo Alto, accounting for delivery losses to the Customer’s Meter. The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. Current and historic per therm rates for the Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the City Utilities website.4 {End} 1 Adopted via Resolution 9451, on September 15, 2014. 2 Adopted via Resolution 10187 on August 19, 2024. 3 https://www.pge.com/tariffs/assets/pdf/tariffbook/GAS_SCHEDS_G-WSL.pdf 4 Monthly gas and commodity and volumetric rates are available here, or by visiting https://www.cityofpaloalto.org/files/assets/public/utilities/business/business-rates/monthly-gas-volumetric-and-service- charges-commercial.pdf Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F LARGE COMMERCIAL GAS SERVICE UTILITY RATE SCHEDULE G-3 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-3-1 Effective 711-1-20254 dated 711-1-2024 Sheet No G-3-1 A. APPLICABILITY: This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto Utilities: 1. Commercial Customers who use at least 250,000 therms per year at one site; 2. Customers at City-owned generation facilities including the City’s Natural Gas fueling station at the Municipal Services Center. B.TERRITORY: This schedule applies everyanywhere the City of Palo Alto provides Gas Service. C. UNBUNDLED RATES:Per Service Monthly Service Charge:$ 717.89780.34 Per Therm Supply Charges: 1.Commodity (Monthly Market Based) .................................................... $0.10-$4.00 2.Cap and Trade Compliance Charges ..................................................... $0.00-$0.25 3. Transportation Charge .......................................................................... $0.00-$0.30 4. Carbon Offset Charge ........................................................................... $0.00-$0.10 Distribution Charge: .................................................................................................$ 1.16331.0702 D. SPECIAL NOTES: 1. Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C. The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, adjusted to account for delivery losses to the Customer’s Meter. The Commodity Charge also includes adjustments to account for Council- approved programs implemented to reduce the cost of Gas, including a municipal Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F LARGE COMMERCIAL GAS SERVICE UTILITY RATE SCHEDULE G-3 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-3-2 Effective 711-1-20254 dated 711-1-2024 Sheet No G-3-2 purchase discount 1 and $0.055 per therm for mitigating the impact of short-term natural gas market price spikes 2. The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will changes in response to changing market conditions, retail sales volumes and the quantity of allowances required,. and is calculated based on the Cap-and-Trade Program’s quarterly auction allowance closing prices. The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases produced when Gas is burned. The Carbon Offset Charge will changes in response to changing market conditions, changing sales volumes and the quantity of offsets purchased within the Council-approved per therm cap. The Transportation Charge is based on the current PG&E G-WSL 3 (Gas Transportation Service to Wholesale/Retail Customers) rate for Palo Alto, accounting for delivery losses to the Customer’s Meter. The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. Current and historic per therm rates for the Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the City Utilities website.4 2.Request for Service A qualifying Customer may request service under this schedule for more than one account or meter if the accounts are located on one site. A site consists of one or more contiguous parcels of land with no intervening public right-of- ways (e.g. streets). 3.Changing Rate Schedules Customers may request a rate schedule change at any time to any applicable City of Palo Alto full-service rate schedule. {End} 1 Adopted via Resolution 9451, on September 15, 2014. 2 Adopted via Resolution 10187 on August 19, 2024. 3 https://www.pge.com/tariffs/assets/pdf/tariffbook/GAS_SCHEDS_G-WSL.pdf 4 Monthly gas and commodity and volumetric rates are available here, or by visiting https://www.cityofpaloalto.org/files/assets/public/utilities/business/business-rates/monthly-gas-volumetric-and-service- charges-commercial.pdf Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F COMPRESSED NATURAL GAS SERVICE UTILITY RATE SCHEDULE G-10 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-10-1 Effective 711-1-20254 dated 117-1-2024 Sheet No. G-10-1 A. APPLICABILITY: This schedule applies to the sale of Gas to the City-owned compressed natural gas (CNG) fueling station at the Municipal Service Center in Palo Alto. B.TERRITORY: Applies to the City’s CNG fueling station located at the Municipal Service Center in City of Palo Alto. C. UNBUNDLED RATES:Per Service Monthly Service Charge: ..........................................................................................$ 106.11115.34 Per Therm Supply Charges: Commodity (Monthly Market Based) ................................................................ $0.10-$4.00 Cap and Trade Compliance Charges .................................................................. $0.00-$0.25 Transportation Charge ....................................................................................... $0.00-$0.30 Carbon Offset Charge ........................................................................................ $0.00-$0.10 Distribution Charge ...................................................................................................$ 0.01900.0175 D. SPECIAL CONDITIONS 1. Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C. The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, adjusted to account for delivery losses to the Customer’s Meter. The Commodity Charge also includes adjustments to account for Council-approved programs implemented to reduce the cost of Gas, including a municipal purchase discount1 and $0.055 per therm for mitigating the impact of short-term natural gas market price spikes 2. 1 Adopted via Resolution 9451, on September 15, 2014. 2 Adopted via Resolution 10187 on August 19, 2024. Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F COMPRESSED NATURAL GAS SERVICE UTILITY RATE SCHEDULE G-10 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No G-10-2 Effective 711-1-20254 dated 117-1-2024 Sheet No. G-10-2 The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will changes in response to changing market conditions, retail sales volumes and the quantity of allowances required,. and is calculated based on the Cap-and-Trade Program’s quarterly auction allowance closing prices. The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases produced when Gas is burned. The Carbon Offset Charge will changes in response to changing market conditions, changing sales volumes and the quantity of offsets purchased within the Council-approved per therm cap. The Transportation Charge is based on the current PG&E G-WSL 3 (Gas Transportation Service to Wholesale/Retail Customers) rate for Palo Alto, accounting for delivery losses to the Customer’s Meter. The Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. Current and historic per therm rates for the Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the City Utilities website.4 {End} 3 https://www.pge.com/tariffs/assets/pdf/tariffbook/GAS_SCHEDS_G-WSL.pdf 4 Monthly gas and commodity and volumetric rates are available here, or by visiting https://www.cityofpaloalto.org/files/assets/public/utilities/business/business-rates/monthly-gas-volumetric-and-service- charges-commercial.pdf Exhibit 2Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F Exhibit 3 GAS UTILITY RESERVES MANAGEMENT PRACTICES The following reserves management practices shall be used when developing the Gas Utility Financial Plan: Section 1. Definitions a)“Financial Planning Period” – The Financial Planning Period is the range of future fiscal years covered by the Financial Plan. For example, if the Financial Plan delivered in conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY 2015 to FY 2019 would be the Financial Planning Period. b)“Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers to the Utility’s Unrestricted Net Assets. c)“Net Assets” - The Government Accounting Standards Board defines a Utility’s Net Assets as the difference between its assets and liabilities. d)“Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital assets (net of related debt) or restricted for debt service or other restricted purposes. Section 2. Supply Fund Reserves The Gas Utility’s Supply Fund Balance is reserved for the following purposes: a)For existing contracts, as described in Section 4 (Reserve for Commitments) b)For operating and capital budgets re-appropriated from previous years, as described in Section 5 (Reserve for Re-appropriations) Section 3. Distribution Fund Reserves a)For existing contracts, as described in Section 4 (Reserve for Commitments) b)For operating and capital budgets re-appropriated from previous years, as described in Section 5 (Reserve for Re-appropriations) c)For cash flow management and contingencies related to the Gas Utility’s Capital Improvement Program (CIP), as described in Section 6 (CIP Reserve) d)For rate stabilization, as described in Section 7 (Rate Stabilization Reserve) e)For operating contingencies, as described in Section 8 (Operations Reserve) f)For tracking unspent or unallocated revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the gas utility under the State’s Cap and Trade Program, as described in Section 11 (Cap and Trade Program Reserve) g)Any funds not included in the other reserves will be considered Unassigned Reserves and shall be returned to ratepayers or assigned a specific purpose as described in Section 9 (Unassigned Reserves) Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F Section 4. Reserve for Commitments At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for Commitments will be set to an amount equal to the total remaining spending authority for all contracts in force for the Wastewater Collection Utility at that time. Section 5. Reserve for Reappropriations At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for Reappropriations will be set to an amount equal to the amount of all remaining capital and non-capital budgets, if any, that will be re-appropriated to the following fiscal year for each fund in accordance with Palo Alto Municipal Code Section 2.28.090. Section 6. CIP Reserve The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for capital contingencies. Staff will manage the CIP Reserve according to the following practices: a)The following guideline levels are set forth for the CIP Reserve 1. These guideline levels are calculated for each fiscal year of the Financial Planning Period and approved by Council resolution. a) Minimum Level 12 months of budgeted CIP expense Maximum Level 24 months of budgeted CIP expense b)Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and the Reserve for Commitments when funds are added to or removed from the Reserve for Commitments as a result of a change in contractual commitments related to CIP projects. Any other additions to or withdrawals from the CIP reserve require Council action. c)Minimum Level: i)Funds held in the Reserve for Commitments may be counted as part of the CIP Reserve for the purpose of determining compliance with the CIP Reserve minimum guideline level. ii)If, at the end of any fiscal year, the minimum guideline is not met, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered by the end of the following fiscal year, and shall, at a minimum, result in the reserve reaching its minimum level by the end of the next fiscal year. For example, if the CIP Reserve is below its minimum level at the end of FY 2017, staff must present a plan by June 30, 1 The guideline levels were corrected to match the Council-approved language updated from the FY 2021 Financial Plan. 2 Each month is calculated based upon 1/12 of the annual budget. 3 For example, in the Financial Plan for FY 2021, the 48 month period to use to derive the annual average is FY 2021 through FY 2024. In the FY 2022 Financial Plan, the 48 month period to use to derive the annual average would be FY 2022 through FY 2025 etc. Minimum Level 20% of the maximum CIP Reserve guideline level Maximum Level Average annual (12 month)2 CIP budget, for 48 months of budgeted CIP expenses 3 Exhibit 3 Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F 2018 to return the reserve to its minimum level by June 30, 2019. In addition, staff may present, and the Council may adopt, an alternative plan that takes longer than one year to replenish the reserve, or that does so in a shorter period of time. d)Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds may be added to this reserve. If there are funds in this reserve in excess of the maximum level staff must propose to transfer these funds to another reserve or return them to ratepayers in the next Financial Plan. Staff may also seek Council approval to hold funds in this reserve in excess of the maximum level, if they are held for a specific future purpose related to the CIP. Section 7. Rate Stabilization Reserve The Rate Stabilization Reserve is used to manage the trajectory of future Funds may be added to the Rate Stabilization Reserve by action of the City Council and held to manage the trajectory of future year rate increases. Withdrawal of funds from the Rate Stabilization Reserve requires Council action. If there are funds in the Rate Stabilization Reserve at the end of any fiscal year, any subsequent Gas Utility Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the Financial Planning Period. Section 8. Operations Reserve The Operations Reserve is used to manage normal variations in costs and as a reserve for contingencies. Any portion of the Gas Utility’s Fund Balance not included in the reserves described in Section 4-Section 7 above will be included in the Operations Reserve unless this reserve has reached its maximum level as set forth in Section 8 d) below. Staff will manage the Operations Reserve according to the following practices: a)The following guideline levels are set forth for the Operations Reserve. These guideline levels are calculated for each fiscal year of the Financial Planning Period based on the levels of Operations and Maintenance (O&M) and commodity expense forecasted for that year in the Financial Plan. Minimum Level 60 days of O&M and commodity expense Target Level 90 days of O&M and commodity expense Maximum Level 120 days of O&M and commodity expense b)Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations Reserve are lower than the minimum level set forth above, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered within six months of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its minimum level by the end of the following fiscal year. For example, if the Operations Reserve is below its minimum level at the end of FY 2014, staff must present a plan by December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In addition, staff may present, and the Council may adopt, an alternative plan that takes longer than one year to replenish the reserve. Exhibit 3 Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F c)Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower than the target level, any Financial Plan created for the Gas Utility shall be designed to return the Operations Reserve to its target level by the end of the forecast period. d)Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no funds may be added to this reserve. Any further increase in the Gas Utility’s Fund Balance shall be automatically included in the Unassigned Reserve described in Section 9, below. Section 9. Unassigned Reserve If the Operations Reserve reaches its maximum level, any further additions to the Gas Utility’s Fund Balance will be held in the Unassigned Reserve. If there are any funds in the Unassigned Reserve at the end of any fiscal year, the next Financial Plan presented to the City Council must include a plan to assign them to a specific purpose or return them to the Gas Utility ratepayers by the end of the first fiscal year of the next Financial Planning Period. For example, if there were funds in the Unassigned Reserves at the end of FY 2015, and the next Financial Planning Period is FY 2016 through FY 2020, the Financial Plan shall include a plan to return or assign any funds in the Unassigned Reserve by the end of FY 2016. Staff may present an alternative plan that retains these funds or returns them over a longer period of time. Section 10. Intra-Utility Transfers Between Supply and Distribution Funds The Gas Utility records costs in two separate funds: the Gas Supply Fund and the Gas Distribution Fund. At the end of each fiscal year staff is authorized to transfer funds between the Gas Supply Fund and Gas Distribution Fund if consistent with the purposes of the two reserves involved in the transfer and in order to balance gas utility reserves to avoid negative balances. For example, Gas Distribution revenues are needed to pay for certain supply- related costs such as administration of the Gas Supply Fund. Such transfers shall be included in the ordinance closing the budget for the fiscal year. Section 11. Cap and Trade Program Reserve This reserve tracks unspent or unallocated revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the gas utility, under the State’s Cap and Trade Program. Funds in this Reserve are managed in accordance with the City’s Policy on the Use of Freely Allocated Allowances under the State’s Cap and Trade Program (the Policy), adopted by Council Resolution 9487 in January 2015. At the end of each fiscal year, the Cap and Trade Program Reserve will be adjusted by the net of revenues and expenses associated with the Cap and Trade program. Exhibit 3 Docusign Envelope ID: CFB5B606-F826-4F0F-9E3A-D153AA15D61F Certificate Of Completion Envelope Id: CFB5B606-F826-4F0F-9E3A-D153AA15D61F Status: Completed Subject: RESO 10232 - Gas Utility Rates Source Envelope: Document Pages: 20 Signatures: 6 Envelope Originator: Certificate Pages: 5 Initials: 0 Christine Prior AutoNav: Enabled EnvelopeId Stamping: Enabled Time Zone: (UTC-08:00) Pacific Time (US & Canada) 250 Hamilton Ave Palo Alto , CA 94301 Christine.Prior@PaloAlto.gov IP Address: 165.225.242.87 Record Tracking Status: Original 7/14/2025 4:34:34 PM Holder: Christine Prior Christine.Prior@PaloAlto.gov Location: DocuSign Security Appliance Status: Connected Pool: StateLocal Storage Appliance Status: Connected Pool: City of Palo Alto Location: Docusign Signer Events Signature Timestamp Amy Bartell Amy.Bartell@PaloAlto.gov Assistant City Attorney City of Palo Alto Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 199.33.32.254 Sent: 7/14/2025 4:41:08 PM Viewed: 7/15/2025 7:59:03 AM Signed: 7/15/2025 8:00:17 AM Electronic Record and Signature Disclosure: Accepted: 7/16/2015 5:52:40 AM ID: d8ecb53d-ef81-4016-8886-1560c48de42a Lauren Lai Lauren.Lai@PaloAlto.gov Director Administrative Services/CFO COPA Security Level: Email, Account Authentication (None) Signature Adoption: Drawn on Device Using IP Address: 199.33.32.254 Sent: 7/15/2025 8:00:19 AM Viewed: 7/15/2025 5:04:43 PM Signed: 7/15/2025 5:04:48 PM Electronic Record and Signature Disclosure: Not Offered via Docusign Alan Kurotori Alan.Kurotori@PaloAlto.gov Director of Utilities City of Palo Alto Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 199.33.32.254 Sent: 7/15/2025 5:04:49 PM Viewed: 7/16/2025 11:37:15 AM Signed: 7/16/2025 11:38:14 AM Electronic Record and Signature Disclosure: Not Offered via Docusign Ed Shikada Ed.Shikada@PaloAlto.gov Ed Shikada City of Palo Alto Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 199.33.32.254 Sent: 7/16/2025 11:38:16 AM Viewed: 7/17/2025 11:56:29 AM Signed: 7/17/2025 11:56:35 AM Electronic Record and Signature Disclosure: Not Offered via Docusign Signer Events Signature Timestamp Ed Lauing Ed.Lauing@PaloAlto.gov Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 207.237.149.35 Sent: 7/17/2025 11:56:38 AM Viewed: 7/17/2025 8:40:28 PM Signed: 7/17/2025 8:41:20 PM Electronic Record and Signature Disclosure: Not Offered via Docusign Mahealani Ah Yun Mahealani.AhYun@PaloAlto.gov Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 165.225.242.120 Sent: 7/17/2025 8:41:22 PM Viewed: 7/21/2025 8:08:24 AM Signed: 7/21/2025 8:08:37 AM Electronic Record and Signature Disclosure: Not Offered via Docusign In Person Signer Events Signature Timestamp Editor Delivery Events Status Timestamp Agent Delivery Events Status Timestamp Intermediary Delivery Events Status Timestamp Certified Delivery Events Status Timestamp Carbon Copy Events Status Timestamp Witness Events Signature Timestamp Notary Events Signature Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 7/14/2025 4:41:08 PM Certified Delivered Security Checked 7/21/2025 8:08:24 AM Signing Complete Security Checked 7/21/2025 8:08:37 AM Completed Security Checked 7/21/2025 8:08:37 AM Payment Events Status Timestamps Electronic Record and Signature Disclosure CONSUMER DISCLOSURE From time to time, City of Palo Alto (we, us or Company) may be required by law to provide to you certain written notices or disclosures. 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