HomeMy WebLinkAboutStaff Report 2404-2842CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, June 17, 2024
Council Chambers & Hybrid
4:00 PM
Agenda Item
29.PUBLIC HEARING & PROPOSITION 218 HEARING: Finance Committee Recommends
Adoption of Six Resolutions: 1) Approving the Fiscal Year 2025 Wastewater Collection
Utility Financial Plan, Including Approval of a Short-Term Loan From the Fiber Optics
Fund Reserve to the Wastewater Collection Fund Operations Reserve for Fiscal Year
2024, and Amending Wastewater Collection Rate Schedules S-1, S-2, S-6 and S-7; 2)
Approving the Fiscal Year 2025 Water Utility Financial Plan, and Amending Water Rate
Schedules W-1, W-2, W-3, W-4, and W-7; 3) Approving the Fiscal Year 2025 Gas Utility
Financial Plan, and Amending Gas Rate Schedules G-1, G-2, G-3 and G-10; 4) Approving
the Fiscal Year 2025 Electric Utility Financial Plan and Accepting the 2024 City of Palo
Alto Electric Cost of Service and Rate Study, and Amending Electric Rate Schedules E-1,
E-2, E-4, E-4 TOU, E-7, E-7 TOU, E-14, E-EEC-1, E-NSE-1, E-2-G, E-4-G and E-7-G; 5)
Amending Utility Rate Schedules EDF-1 and EDF-2 to Increase Dark Fiber Rates 2.6
Percent; 6) Amending Utility Rate Schedule D-1 Increasing the Storm Water
Management Fee by 2.6 Percent per Month per Equivalent Residential Unit for FY 2025;
CEQA Status: Not a project under CEQA Guidelines Sections 15378(b)(4) and (5) and
Exempt Under Section 15273(a) Presentation
City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Utilities
Meeting Date: June 17, 2024
Staff Report: 2404-2842
TITLE
PUBLIC HEARING & PROPOSITION 218 HEARING: Finance Committee Recommends Adoption
of Six Resolutions: 1) Approving the Fiscal Year 2025 Wastewater Collection Utility Financial
Plan, Including Approval of a Short-Term Loan From the Fiber Optics Fund Reserve to the
Wastewater Collection Fund Operations Reserve for Fiscal Year 2024, and Amending
Wastewater Collection Rate Schedules S-1, S-2, S-6 and S-7; 2) Approving the Fiscal Year 2025
Water Utility Financial Plan, and Amending Water Rate Schedules W-1, W-2, W-3, W-4, and
W-7; 3) Approving the Fiscal Year 2025 Gas Utility Financial Plan, and Amending Gas Rate
Schedules G-1, G-2, G-3 and G-10; 4) Approving the Fiscal Year 2025 Electric Utility Financial
Plan and Accepting the 2024 City of Palo Alto Electric Cost of Service and Rate Study, and
Amending Electric Rate Schedules E-1, E-2, E-4, E-4 TOU, E-7, E-7 TOU, E-14, E-EEC-1, E-NSE-
1, E-2-G, E-4-G and E-7-G; 5) Amending Utility Rate Schedules EDF-1 and EDF-2 to Increase
Dark Fiber Rates 2.6 Percent; 6) Amending Utility Rate Schedule D-1 Increasing the Storm
Water Management Fee by 2.6 Percent per Month per Equivalent Residential Unit for FY
2025; CEQA Status: Not a project under CEQA Guidelines Sections 15378(b)(4) and (5) and
Exempt Under Section 15273(a)
RECOMMENDATION
Note: Resolutions are included in the packet as Attachments A – F, Attachment G reflects the
Table of URLs for the Exhibits to Attachments A – F.
The Finance Committee, the Utilities Advisory Commission and staff recommend that the City
Council adopt the following;
1. For the Wastewater Collection Utility, a Resolution (Attachment A):
a. Approving the Wastewater Collection Utility Financial Plan for Fiscal Year (FY)
2025, including approval of a short-term loan from the Fiber Optics Fund Reserve
to the Wastewater Collection Fund Operations Reserve not to exceed $3,000,000
for FY 2024; Amend the Fiscal Year 2024 Budget Appropriation Ordinance: In the
Wastewater Collection Fund:
i. Increase the Transfer In from the Fiber Optics Fund by $3.0 million
ii. Increase the Ending Fund Balance by $3.0 million; and
b. Amending the following Wastewater Collection Utility Rate Schedules to reflect
increases effective July 1, 2024 (FY 2025):
i. S-1 (Residential Wastewater Collection and Disposal),
ii. S-2 (Commercial Wastewater Collection and Disposal),
iii. S-6 (Restaurant Wastewater Collection and Disposal), and
iv. S-7 (Commercial Wastewater Collection and Disposal – Industrial
Discharger);
2. For the Water Utility, a Resolution (Attachment B):
a. Approving the FY 2025 Water Utility Financial Plan; and
b. Amending the following Water Rate Schedules to reflect increases effective July
1, 2024 (FY 2025):
i. W-1 (General Residential Water service),
ii. W-2 (Water Service from Fire Hydrants),
iii. W- 3 (Fire Service Connections),
iv. W-4 (Residential Master-Metered and General Non- Residential Water
Service), and
v. W-7 (Non-Residential Irrigation Water Service);
3. For the Gas Utility, a Resolution (Attachment C):
a. Approving the Gas Utility Financial Plan FY 2025, which includes amending the
Gas Utility Reserve Management Practices; and
b. Amending Gas Utility Rate Schedules FY 2025 to reflect increases effective July 1,
2024 (FY 2025):
i. G-1 Residential Gas Service,
ii. G-2 Residential Master-Metered and Commercial Gas Service,
iii. G-3 Large Commercial Gas Service, and G-10 Compressed Natural Gas
Service); and
c. Transferring up to 14.5% of gas utility gross revenues received during FY 2023 to
the General Fund in FY 2025.
4. For the Electric Utility, a Resolution (Attachment D):
a. Accepting the 2024 City of Palo Alto Electric Cost of Service and Rate Study;
b. Approving the Electric Utility Financial Plan FY 2025, which includes the following
actions:
i. Amending the Electric Utility Reserves Management Practices, to direct
staff to transfer to the CIP reserve, at the end of each fiscal year, any
budgeted capital investment that remains unspent, uncommitted, and
which is not proposed for reappropriation to the following fiscal year and
to clarify how the Cap and Trade Program Reserve is adjusted each year.
ii. Approving the following transfers at the end of FY 2024:
1. Up to $20 million from the Electric Special Projects Reserve to the
Supply Operations Reserve;
2. Up to $17 million from the Supply Operations Reserve to the
Hydroelectric Stabilization Reserve;
3. Up to $58 million from the Supply Operations Reserve to the
Distribution Operations Reserve; and
iii. Approving the following transfers in FY 2025:
1. Up to $26 million from the Distribution Operations Reserve to the
Supply Operations Reserve;
2. Up to $30 million from the Supply Operations Reserve to the
Electric Special Projects Reserve; and
3. Up to $5 million from the Distribution Operations Reserve to the
CIP Reserve;
c. Amending the following Electric Utility Rate Schedules effective July 1, 2024 (FY
2025):
i. E-1 (Residential Electric Service), E-2 (Small Non-Residential Electric
Service), E-4 (Medium Non-Residential Electric Service), E-4 TOU
(Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-
Residential Electric Service), E-7 TOU (Large Non-Residential Time of Use
Electric Service) and E-14 (Street Lights), each by varying percentages
depending on rate schedule and consumption with an overall revenue
increase of 0.5% effective July 1, 2024;
ii. Decreasing the Net Surplus Electricity Compensation (E-NSE-1) rate to
reflect 2023 avoided cost, effective July 1, 2024; and
iii. Decreasing the Export Electricity Compensation (E-EEC-1) rate to reflect
current projections of FY 2025 avoided cost, effective July 1, 2024;
iv. Updating the Residential Master-Metered and Small Non-Residential
Green Power Electric Service (E-2-G), the Medium Non-Residential Green
Power Electric Service (E-4-G), and the Large Non-Residential Green
Power Electric Service (E 7 G) rate schedules to reflect modified
distribution and commodity components, effective July 1, 2024.
5. A Resolution (Attachment E) Amend the Fiscal Year 2024 Budget Appropriation
Ordinance: In the Fiber Optics Fund:
i. Increase the Transfer Out to the Wastewater Collection Fund by 3.0 million
ii. Decrease the Ending Fund Balance by $3.0 million; and amending Fiber
Optic Utility Rate Schedules EDF-1 and EDF-2 to increase Dark Fiber Rates
2.6 percent effective July 1, 2024, consistent with the applicable
Consumer Price Index;
6. A Resolution (Attachment F) amending Storm Water Management Fee Rate Schedule D-
1 to increase the Storm Water Management Fee by 2.6 percent effective July 1, 2024,
consistent with the applicable Consumer Price Index.
EXECUTIVE SUMMARY
The rate changes described in this report will allow Palo Alto to invest in utility infrastructure,
gradually increase reserves to guideline levels, and to support community goals. As utility
infrastructure ages, investment is needed to maintain the reliability of the water, wastewater,
electric and gas utilities. These rate increases will support the maintenance and replacement of
infrastructure including rebuilding Palo Alto’s wastewater treatment plant (Regional Water
Quality Control Plant). Investment in modernizing the electric grid will allow the City to achieve
the Council’s Sustainability and Climate Action goals as well as to increase reliability of utility
service to residents and businesses in Palo Alto. During the pandemic, the City of Palo Alto held
rate increases to a minimum in order to limit the financial impacts to Palo Alto residents and
businesses. However, holding down rates with rising commodity prices and drought means that
utility reserves are now low; the reserves need to be replenished to provide fiscal responsibility
for when unexpected events occur and more stable rate management overall.
From January 2024 through April 2024, the Utilities Advisory Commission (UAC) and Finance
Committee reviewed preliminary and proposed rate changes recommended by staff for Fiscal
Year 2025. This report summarizes the meetings, and incorporates UAC and Finance Committee
recommendations into the staff recommendations for Council adoption. This comprehensive
utility rates report includes separate sections for each of the Utilities: wastewater collection,
water, gas, electric, dark fiber, and storm drainage and surface water. Estimates for retail revenue
impacts are included in the FY 2025 budget assumptions. This report outlines the recommended
actions and transmits the draft resolutions requested for City Council approval and adoption.
Approval of this item would result in implementation of the finalized rates for FY 2025, beginning
July 1, 2024.
The expected average residential utility bill changes are below, with the expected overall average
utility bill for residential service to increase 9% in FY 2025.
•15% increase for Wastewater Collection,
•9.5% increase for Water,
•12.5% increase for Gas,
•9% for Electric,
•2.6% increase for Dark Fiber rate schedules EDF-1 and EDF-2 and
•2.6% increase for the Storm Water Management Fee.
In addition to the financial plans, the City engaged the services of a consultant to prepare a cost
of service analysis (COSA) for the City’s electric rates to ensure that electric rates continue to
represent the Utility’s cost to serve customers. The COSA, completed in April 2024, showed the
need for different changes by customer class ranging from a 6% decrease for small non-
residential customers (E-2) to a 2% increase for the residential class as a whole. However,
recommended changes to the tier structure and the addition of a fixed charge result in a range
of changes for residential customers depending on usage, with the median residential electric
customer seeing a 9% increase. With the proposed rate increases, Palo Alto residential electric
bills are projected to be approximately 50% lower than neighboring communities served by
PG&E.
BACKGROUND
Wastewater Collection
Utilities staff presented to the Finance Committee on April 23, 2024 and to the UAC on March 6,
2024 a recommendation that Council approve the Wastewater Collection Utility Financial Plan FY
2025, including approval of a short-term loan from the Fiber Optics Fund Reserve to the
Wastewater Collection Fund Operations Reserve not to exceed $3,000,000 for FY 2024 if short-
term cashflow becomes negative. In addition, staff recommended increasing wastewater
collection rates 15% by amending rate schedules S-1 (Residential Wastewater Collection and
Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater
Collection and Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial
Discharger). See Staff Report 2402-26031 for more information.
The Finance Committee and UAC unanimously recommended approval of this proposal.
Water
Utilities staff presented to the Finance Committee on April 23, 2024 and the UAC on March 6,
2024 a recommendation that Council approve the Water Utility Financial Plan FY 2025. In Staff
Report 2402-2604,2 staff originally recommended a 13% water distribution rate increase and
reflected a 6.5% water commodity rate increase based on preliminary estimates from the SFPUC.
However, on April 12, 2024, SFPUC provided its rate notice to Palo Alto with an 8.8% water
commodity rate increase. To mitigate the overall bill impact to customers, the Finance
Committee voted unanimously on April 23rd to lower the distribution rate increase to maintain
an overall expected bill impact of 9.5% through the use of additional rate stabilization reserve
funds in FY 2025, bringing the Operations and CIP Reserves below the minimum guideline ranges
during the forecast period. Staff updated the Resolution (Attachment B) and all Exhibits to
Attachment B to reflect the Finance Committee’s direction: a 10% water distribution rate
increase in combination with the 8.8% water commodity rate increase resulting in an overall 9.5%
rate increase.
Staff recommends increasing water distribution rates 10% by amending rate schedules W-1
(General Residential Water service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service
Connections), W-4 (Residential Master- Metered and General Non-Residential Water Service),
and W-7 (Non-Residential Irrigation Water Service). The SFPUC is increasing its wholesale water
rates by 8.8% due to the drought and related water-purchase cutbacks, resulting in an overall
water rate increase for City customers of about 9.5%.
1 Staff Report 2402-2603 (April 23, 2024 Finance Committee);
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2 Staff Report 2402-2604 (April 23, 2024 Finance Committee);
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On April 29, Staff mailed a Prop 218 notice3 to all utility customers, outlining proposed
adjustments to the water and wastewater rates. Due to the timing of the Finance Committee
meeting on April 23, 2024, which occurred after the deadline for finalizing the Prop 218 notice,
the notice specified a 13% increase in distribution rates for water, alongside an 8.8% increase in
water commodity rates. Consistent with the Finance Committee’s direction, staff lowered the
proposed water distribution rate increase from 13% to 10% in the FY 2025 Water Utility Financial
Plan and related Water Rate Schedules. Consequently, the staff proposal for the water
distribution rates recommended for Council approval in this report is lower than indicated in the
Prop 218 notice.
Gas
Utilities staff presented to the Finance Committee on April 23, 2024 and UAC on March 6, 2024
a recommendation that Council Adopt a Resolution approving the FY 2025 Gas Utility Financial
Plan, which includes amending the Gas Utility Reserve Management Practices. At that time,
staff’s preliminary recommendation was to increase gas rates overall by 9% (a 15% distribution
rate increase). The Finance Committee unanimously recommended approval of this proposal
(see Staff Report 2402-26054 for more information).
However, based upon a discussion of the City’s budget on May 8, 2024, the Finance Committee
referred several items to the Council for discussion, including changing the Gas General Fund
Transfer from 11.9% to 14.5% of FY 2023 gross revenue transferred in FY 2025, and 18% of FY
2024 gross revenue transferred in FY 2026. Staff updated its recommendation consistent with
the Finance Committee’s May 8, 2024 referral to the Council. Attachment C and associated
exhibits reflect this updated recommendation.
Staff recommends increasing gas rates overall by 12.5% (this equates to a 20.9% distribution rate
increase and assumes gas supply-related costs remain unchanged) by amending rate schedules
G-1 (Residential Gas Service), G-2 (Residential Master- Metered and Commercial Gas Service), G-
3 (Large Commercial Gas Service), G-10 (Compressed Natural Gas Service).
Electric
Utilities staff presented to the UAC on March 6, 2024 and the Finance Committee on April 23,
2024 a recommendation that Council Adopt a Resolution (Attachment D):
1. Accepting the 2024 City of Palo Alto Electric Cost of Service and Rate Study
2. Approving the FY 2025 Electric Financial Plan, which includes the following actions:
a. Amending the Electric Utility Reserves Management Practices, to direct staff to
transfer to the CIP reserve, at the end of each fiscal year, any budgeted capital
investment that remains unspent, uncommitted, and which is not proposed for
3 Prop 218 Notice; https://www.cityofpaloalto.org/files/assets/public/v/1/utilities/rates-schedules-for-
utilities/prop-218-notice-FY 2025-final.pdf
4 Staff Report 2402-2605 (April 23, 2024 Finance Committee);
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reappropriation to the following fiscal year and to clarify how the Cap and Trade
Program Reserve is adjusted each year.
b. Approving the following transfers at the end of FY 2024:
i. Up to $20 million from the Electric Special Projects Reserve to the Supply
Operations Reserve;
ii. Up to $17 million from the Supply Operations Reserve to the Hydroelectric
Stabilization Reserve;
iii. Up to $58 million from the Supply Operations Reserve to the Distribution
Operations Reserve; and
c. Approving the following transfers in FY 2025:
i. Up to $26 million from the Distribution Operations Reserve to the Supply
Operations Reserve;
ii. Up to $30 million from the Supply Operations Reserve to the Electric
Special Projects Reserve; and
iii. Up to $5 million from the Distribution Operations Reserve to the CIP
Reserve;
3. Amending the following rate schedules effective July 1, 2024 (FY 2025):
a. Changing retail electric rates E-1 (Residential Electric Service), E-2 (Small Non-
Residential Electric Service), E-4 (Medium Non-Residential Electric Service), E-4
TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-
Residential Electric Service), and E-7 TOU (Large Non-Residential Time of Use
Electric Service)5 by varying percentages depending on rate schedule and
consumption with an overall revenue increase of 0.5% effective July 1, 2024;
b. Decreasing the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect 2023
avoided cost, effective July 1, 2024; and
c. Decreasing the Export Electricity Compensation (E-EEC-1) rate to reflect current
projections of FY 2025 avoided cost, effective July 1, 2024;
d. Updating the Residential Master-Metered and Small Non-Residential Green
Power Electric Service (E-2-G), the Medium Non-Residential Green Power Electric
Service (E-4-G), and the Large Non-Residential Green Power Electric Service (E 7
G) rate schedules to reflect modified distribution and commodity components,
effective July 1, 2024.
See Staff Report 2401-24976 for more information.
The Finance Committee unanimously recommended approval of this proposal.
5 UAC and Finance Committee did not review E-14 (Street Lights) rate as the cost of service analysis on this rate
schedule was not yet complete at the time of those meetings
6 Staff Report 2401-2497;
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Dark Fiber
Since 2007, the EDF-1 and EDF-2 rates for Dark Fiber customers have increased annually by the
annual December change in the Consumer Price Index for All Urban Consumers (CPI-U) in the San
Francisco area, as stated in their dark fiber license agreements. Based on prior Utilities Advisory
Commission and City Council direction, these rate changes are routinely included as part of the
Budget adoption process rather than in a separate staff report, however this report ensures the
CPI increase is published in the City’s adopted rate schedules. This year’s change in CPI-U was 2.6
percent, as reported by the Bureau of Labor Statistics.
Storm Drain
On April 23, 2024, Public Works staff presented the Finance Committee with a recommendation
that the City Council adopt a Resolution (Attachment F) amending Utility Rate Schedule D-1
(Storm and Surface Water Drainage) to implement a 2.6 percent rate increase consistent with
the applicable Consumer Price Index, increasing the monthly charge per Equivalent Residential
Unit by $0.44, from $16.76 to $17.20. See Staff Report 2402-26147 for more information.
The Finance Committee unanimously recommended approval of this proposal.
ANALYSIS
In January 2024 and February 2024, respectively, the UAC and Finance Committee received
preliminary projections of rate increase needs for FY 2025. Based on their feedback and updated
financial information, staff brought to the UAC on March 6, 2024 and the Finance Committee on
April 23, 2024, recommendations for utility financial plans, transfer requests, and rate changes.
The Finance Committee voted to unanimously approve each of staff’s recommendations with the
exception of the Water Utility rate proposal, where the Committee recommended a lower rate
increase. Specifically, the Finance Committee recommended to increase the use of reserve funds
in FY 2025 to limit the overall system average water rate increase to 9.5% while reducing reserve
funds available in FY 2026 and future years.
In the May 8, 2024 budget meeting, the Finance Committee referred several items to the Council
for discussion including changing the Gas General Fund Transfer from 11.9% to 14.5% of FY 2023
gross revenue transferred in FY 2025, and 18% of FY 2024 gross revenue transferred in FY 2026.
An 11.9% Gas General Fund Transfer for FY 2025 is $8.960 million and a 14.5% Gas General Fund
Transfer for FY 2025 is $10.917 million. A 14.5% General Fund Transfer will result in a 12.5%
increase to overall gas rates in FY 2025 assuming gas supply-related costs remain unchanged, and
staff will decrease the size of Gas Main Replacement 25 by $0.735 million to limit the rate impacts
to customers. This report and all attachments reflect the Finance Committee’s May 8, 2024
referral. On May 13, 2024 the Council discussed this item at a Study Session and Council members
7 Staff Report 2402-2614;
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discussed the transfer but did not reach consensus on the amount.
This report outlines the actions recommended, transmits the resolutions from these reviews, and
requests City Council approval and adoption, as summarized below:
Proposed Rate Changes and Financial Plans
Wastewater Collection Proposal
The FY 2025 Wastewater Collection Utility Financial Plan includes projections of the utility’s costs
and revenues through FY 2029. The Financial Plan anticipates costs will rise over the forecast
horizon due to increasing treatment costs related to capital improvements and operational costs
at the Regional Water Quality Control Plant (RWQCP), as well as increasing collection system
operational and Capital Improvement Program (CIP) costs.
In 2023, the Council approved the first in a series of wastewater collection rate increases which
incorporated expected costs for the City to accelerate its rate of sewer main replacements from
1 mile to 2.5 miles per year by FY 2026 (implemented as a major sewer replacement project of 5
miles every other year). The accelerated rate of main replacement was calculated to replace all
aging sewer mains within 8 years beyond their 100-year life expectancy. Additionally, in FY 2023
the Wastewater Utility accelerated by a year the most expensive sewer main replacement that
the utility has ever completed (Staff Report 2301-08081, May 8, 2023 approving contract for
Sanitary Sewer Replacement Project 31, WC-19001 for $8.36 million). However, in FY 2023, costs
were higher than forecasted and revenues were lower than forecasted and the Operations
Reserve ended the year with a negative balance of $0.7 million.
In an effort to increase the currently low reserve levels, staff recommends a 15% rate increase in
FY 2025, which is equivalent to $7.29 per month per residential customer. This proposal would
include proceeding with a reduced-size main replacement in FY 2026 of 1.25 miles instead of 5
miles due to the low reserve and revenue levels. This would allow the highest priority mains to
be replaced while allowing the reserves to gradually replenish before the next major project. The
5-mile sewer main replacement every other year would resume with construction scheduled in
FY 2028. With this schedule of main replacement, the last remaining sewer main would be 110
years old at the time it is replaced.
Given the low reserves, and the projected levels of revenue and expenses, there is a risk that the
short-term need for cash will exceed available cash in FY 2024 and/or FY 2025. Both the staff
recommendation and the alternative assume a potential short- term loan from the Fiber Optics
Fund Reserve to the Wastewater Collection Fund Operations Reserve not to exceed $3,000,000
for FY 2024.
During the April 23, 2024 Finance Committee meeting, Committee members had questions about
how certain the Valley Water grant funding is and staff responded that there will be a staff report
to Council soon and that the funding will be available to Palo Alto, but the total amount is
uncertain.8 A Finance Committee member asked whether the loan from the Fiber optic utility is
a loan or a line of credit and staff responded that it could be structured either way. After
deliberating the proposal, the Finance Committee voted unanimously in favor of the 15% rate
increase proposal put forth by staff and in favor of the one-time loan from the Fiber Optics Fund
Reserve to the Wastewater Collection Fund Operations Reserve not to exceed $3,000,000 for FY
2024.
Water Proposal
Overall costs in the Water Utility are projected to rise on average by about 6% per year from
Fiscal Year (FY) 2024 to 2029. Operations cost projections rise on average by about 4% annually
from FY 2024 to 2029, excluding one-time transfers and debt service. Debt service is expected to
decline by 4.5% during this time because one bond is to be retired in 2026. SFPUC’s FY 2024
wholesale water rate is $5.21 per CCF. On May 14, 2024, SFPUC held a public hearing and adopted
the FY 2025 Wholesale Water Rate of $5.67 per CCF.
Overall, this Water Financial Plan uses reserve funding (from the Operations Reserve, Rate
Stabilization Reserve and CIP Reserve) together with rate increases to manage the decreased
sales revenue and increasing costs from FY 2024 through FY 2029. While these rate increases can
be perceived as decreasing the benefit of conservation, bills for customers who conserve will be
lower in the future than they would have been without conservation.
By approving the attached resolution, the Council would approve the proposed FY 2025 Water
Utility Financial Plan, which includes an increase in distribution rates of 10% for rate W-1 (General
Residential Water service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service
Connections), W-4 (Residential Master-Metered and General Non-Residential Water Service),
and W-7 (Non-Residential Irrigation Water Service). The FY 2025 Water Utility Financial Plan also
increases the Commodity rate for each CCF of water sold to the SFPUC Wholesale Water Rate of
$5.67. By approving the attached resolution (Attachment B), Council would also authorize the
extension of Palo Alto’s pass-through provision for the SFPUC wholesale rate increase for an
additional five years, effective July 1, 2024.
During the April 23, 2024 Finance Committee meeting, Committee members asked about Palo
Alto’s residential rates being higher relative to neighboring agencies and non-residential rates
being closer to the average of neighboring utilities. Staff explained that the process used to set
the water rates is a detailed cost of service study using a standard method and outside expert
consultant. One Committee member suggested comparing Palo Alto’s water rates to neighboring
utilities who also use 100% SFPUC for their potable water supply. After deliberating the proposal,
the three members of the Finance Committee voted unanimously in favor of the staff proposal
8 Staff Report 2404-2877, June 3, 2024 requests approval from Council for a cost-sharing agreement with Valley
water for Guiding Principle 5 Program funding for future projects at the Palo Alto Regional Water Quality Control
Plant:
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as modified to reflect SFPUC’s April rate increase notice and by increasing the use of water
reserves to limit the overall system average water rate increase to 9.5% in FY 2025 while reducing
reserve funds available in FY 2026 and future years.
Gas Proposal
The FY 2025 Gas Utility Financial Plan includes projections of the utility’s costs and revenues for
FY 2025 through FY 2029. Staff recommends increasing the distribution component of the gas
rates by 20.9% in FY 2025 to bring revenue up to a level closer to recovering the costs of
operations and prevent further depletion of reserves. This distribution rate increase is projected
to increase overall customer bills by about 12.5% in FY 2025, assuming gas supply-related costs
remain unchanged. In FY 2021 and FY 2022, the Gas Utility maintained minimal rate increases,
leading to revenues struggling to match the rising expenses, resulting in a significant depletion of
reserves.
Although revenues exceeded costs in FY 2023, some costs associated with FY 2023 were paid in
FY 2024. Specifically, carbon offset purchases from FY 2023 were made in FY 2024, and the
transfer of prior years’ Cap and Trade auction sales revenue from the Operations Reserve to the
Cap and Trade reserve, which is a cost item, also occurred in FY 2024. Additionally, FY 2024 costs
reflect the Council’s adopted revised natural gas purchasing strategy for the 2023 – 2024 winter
months to include commodity price insurance against very high market prices. A longer-term
strategy for mitigating against potential future gas price spikes will be presented to Council for
consideration prior to next winter.
Consequently, the Operations Reserve is projected to drop below the risk assessment level by
the end of FY 2024. Overall distribution costs are expected to increase by 4% from FY 2024 to FY
2025 and by 5% on average annually from FY 2025 through FY 2029. This distribution cost
increase is due to projected increases in operations costs as well as capital costs related to the
safety and maintenance of gas pipelines in Palo Alto, as well as preparation for electrification-
related costs. In addition, increased costs from prior years reduced reserve levels and rates need
to be increased to bring reserves gradually back to within guideline ranges.
As part of the annual budget process, Council also determines the amount of the General Fund
transfer for the Gas Utility in FY 2025. Each year, in accord with the voter-approved changes
codified in PAMC 2.28.185, the City Council may transfer from the gas utility to the General Fund
an amount up to 18% of the gross revenues of the gas utility, though Council may choose to
transfer a lesser amount. The Finance Committee and staff recommends transferring 14.5% of FY
2023 gas utility gross revenue to the general fund for FY 2025, and 18% of gas utility gross
revenue in FY 2026 and subsequent years. Alternatively, in alignment with PAMC 2.28.185, Staff
also provided two other alternatives for FY 2025: transfer 11.9%, or $8.96 million, or transfer up
to 18%, or $13.55 million.
The proposed FY 2025 Gas Utility Financial Plan includes an increase in distribution rates effective
July 1, 2024 and will result in a 12.5 percent increase to the total system average gas rate,
assuming supply rates remain unchanged. This will be done by 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). Additional 5 to 6
percent increases per year to the total system average gas rate are projected over the next four
years. See Attachment C and its exhibits for more information.
Electric Proposal
The FY 2025 Electric Utility Financial Plan includes projections of the utility’s costs and revenues
through FY 2029. Rate changes are recommended that vary significantly by customer class but
that in aggregate result in little change (around a 0.5%increase) to total electric utility revenue in
FY 2025. To ensure that electric rates continue to represent the Utility’s cost to serve customers,
the City engaged the services of a consultant to prepare a cost of service analysis (COSA), which
was completed in March 2024 (Attachment D, Exhibit 1.1) The COSA showed the need for
different changes by customer class ranging from a 6% decrease for small non-residential
customers (E-2) to a 2% increase for the residential class as a whole. However, recommended
changes to the tier structure and the addition of a fixed charge result in a range of changes for
residential customers depending on usage, with the median residential customer seeing a 9%
increase.
Table 1: Revenue Allocation by Customer Class in FY2025
9
Palo Alto residential electric bills are approximately 50% lower than neighboring communities
served by PG&E.
As of the drafting of this report, precipitation for the 2023/2024 water year was still below
average. However, reservoir conditions are good as a result of last year’s rains, so staff is
forecasting hydroelectric generation for FY 2025 and FY 2026 that is slightly higher than the
baseline level assumed in its long-term projections. High one-time energy supply cost savings and
surplus energy sales for FY 2024 are projected related to higher late summer 2023 hydroelectric
generation resulting from the 2022/2023 winter rains. Other short term revenues include higher
than average sales revenue for resource adequacy and renewable energy credits (RECs) in FY
2024 through FY 2026 due to favorable market conditions. Some of these revenues are being
9 This differs slightly from the 0.5% increase stated above, due to a difference in how revenues are forecast in
the long-range cost of service model and staff’s annual financial modeling. The net revenue requirement under
both models is the same: $164.5 million.
Projected Revenues
under Current Rates
Net Revenue
Requirement
Projected Surplus/
(Deficiency) in Revenue
Based on Current Rates
Revenue Increase/
(Decrease)
Needed
Residential E-1 27,309,759$ 27,852,514$ (542,755)$ 2.0%
Small Commercial E-2 11,784,676$ 11,067,556$ 717,121$ -6.1%
Medium Commercial E-4 67,707,023$ 65,186,601$ 2,520,422$ -3.7%
Large Commercial E-7 59,295,683$ 58,473,708$ 821,975$ -1.4%
Street and Traffic Lighting 2,224,184$ 2,006,759$ 217,425$ -9.8%
TOTAL 168,321,326$ 164,587,138$ 3,734,187$ -2.2%
used to replenish the hydroelectric stabilization reserve, reducing the chance that the City would
need to activate the hydroelectric rate adjuster in the next few years, even if there is less snow
and rain.
These one-time revenues are offset by significant capital investment costs associated with grid
modernization ($50 million in FY 2024 and FY 2025), a rebuild of the Hanover substation ($15
million in FY 2024), and a new dark fiber backbone for the electric utility that will require some
contribution from the electric utility ($13 million in FY 2026). Current plans anticipate offsetting
these capital investments by issuing municipal bonds. However, reserves will need to absorb
some of the costs in FY 2024 until the first bonds can be issued in FY 2025. This is leading to large
reserve transfers in FY 2024 and FY 2025 to manage this short-term cash flow issue.
Total costs for the Electric Utility are projected to increase steadily through the forecast period.
The largest contributors to these cost increases are increasing transmission costs, reduced sales
revenue from surplus RECs and resource adequacy rights, and increasing debt service associated
with grid modernization. The financial plan projects the need for 5% per year rate increases
through the forecast period. However, the electricity consumption projections in this report are
conservative and increased load from electrification and any new large customer loads could
reduce these projections. On the other hand, if the costs for grid modernization or other capital
investment end up being higher than forecasted, as often occurs, those costs could offset the
benefit of new customer loads.
Dark Fiber
Since 2007, the EDF-1 and EDF-2 rates for Dark Fiber customers have increased annually by the
annual December change in the Consumer Price Index for All Urban Consumers (CPI-U) in the San
Francisco area, as stated in their dark fiber license agreements. Based on prior Utilities Advisory
Commission and City Council direction, these rate changes are routinely included as part of the
Budget adoption process rather than in a separate staff report. This year’s change in CPI-U was
2.6 percent, as reported by the Bureau of Labor Statistics. The City has five customers remaining
on the EDF-1 rate schedule. All other dark fiber customers are on the EDF-3 rate schedule.
Storm Water and Surface Water Drainage
On April 11, 2017, a majority of Palo Alto property owners approved a ballot measure approving
a monthly Storm Water Management Fee. This fee funds thirteen storm drainage capital
improvement projects listed in the ballot measure, enhanced maintenance of the storm drainage
system, and a variety of stormwater quality protection programs. The approved ballot measure
allows for an annual adjustment based on the Consumer Price Index (CPI) or six percent,
whichever is less. The Storm Water and Surface Drainage Rate will increase 2.6 percent,
increasing the monthly charge per Equivalent Residential Unit by $0.44, $16.76 to $17.20 for
Fiscal Year 2025, effective July 1, 2024, to reflect the annual CPI change. See Staff Report 2402-
261410 for more information.
10 Staff Report 2402-2614;
Timeline
Water and Wastewater Collection Rates
After the June 17th Public Hearing is opened and testimony from members of the public
accepted, City Council may choose to:
1. Close the hearing and take action; or
2. Close the hearing and defer action until the close of the Budget Adoption Hearing on June
17th; or
3. Continue the hearing until the end of the Budget Adoption Hearing (should the Budget
Adoption Hearing be continued to another Council meeting), and then reconvene the
hearing, take any additional water and wastewater collection rate testimony, close the
hearing, and take action.
The latter option has been used in prior years when the Budget Adoption process has spanned
multiple City Council meetings. It is customary in such circumstances to continue to accept
written protests up until the hearing is closed. Unless written protests are filed by a majority of
affected water and wastewater customers, Council may vote on the proposed rate actions. If
approved, the water and wastewater rates will become effective July 1, 2024. The City Council
will also consider changes to the Financial Plans for the wastewater collection and water utilities,
and should they take action to approve these plans, they will also become effective July 1, 2024.
Electric, Gas, Dark Fiber and Storm Water rates, as well as Utility Financial Plans
The electric, gas, dark fiber and storm drainage rates will be considered at the June 17, 2024
public hearing. Should the City Council take action to approve any or all of these rates, they will
become effective July 1, 2024. The City Council will also consider changes to Financial Plans
and/or Reserve Management Policies for the electric and gas utilities, and should they take action
to approve any or all of these Plans and/or Policies, they will also become effective July 1, 2024.
FISCAL/RESOURCE IMPACT
The resource impact of the recommendations summarized in this report is the continued
financial solvency of the various utilities through the revenue increases described below.
Following are the estimated FY 2025 revenue impacts of the recommendations in this report
relative to projected revenue for FY 2025 without changing utility rates:
•Staff anticipates normal year revenues for the Wastewater Collection Utility will increase
by approximately $3.3 million in FY 2025 as a result of a 15% rate increase;
•Estimated revenue for the Water Utility in FY 2025 is projected to increase approximately
9.5% or $4.6 million as a result of the proposed rate increases;
•Normal year sales revenues for the Gas Utility in FY 2025 are projected to increase by
roughly 12.5% to overall rates, with a projected distribution revenue increase of $7 million
as a result of the proposed rate increases, not including fluctuations in commodity
revenue/cost. The change in General Fund revenues from FY 2024 to FY 2025 would
https://cityofpaloalto.primegov.com/api/compilemeetingattachmenthistory/historyattachment/?historyId=c05ba
13f-1c8a-4376-87b7-7d127a501824
depend on the General Fund transfer alternative chosen by Council. Under the 14.5%
transfer in FY 2025 alternative, which was supported by the Finance Committee during
their discussion of the City annual budget in May 2024, the General Fund transfer would
increase from $7.707 million in FY 2024 to $10.917 million in FY 2025, an increase of about
$3.210 million.
•FY 2025 revenues for the Electric Utility are projected to remain very close to FY 2024
levels if Council adopts this report’s recommendations. The City is a non-residential utility
customer and can expect a decrease in estimated City utility expenses of about $160,000,
approximately $85,000 of that being in the General Fund. Streetlight expenses (which are
paid from the General Fund) are projected to decrease by about $180,000.
Resource impacts to City departments and funds of the recommended rate adjustments are
programmed in the FY 2025 Proposed Operating Budget. If the final rates adopted by Council in
June differ from those proposed in this report, further adjustments may be brought forward as
part of the annual budget process.
Utility
Systemwide Residential
Average
Rate Increase
FY 2025 Estimated
Overall
Revenue Impact
Electric 9%$0.8 million
Gas 12.5%$7.0 million
Water 9.5%$4.6 million
Wastewater Collection 15%$3.3 million
Stormwater Management 2.6%$0.2 million
Staff estimates the Fiber Optics rate increase will increase revenue $14,768 from the five
remaining customers on the EDF-1 rate schedule.
Policy Implications
Policy implications related to the proposed wastewater collection, water, gas, electric, dark fiber
and storm water management fee rate actions are detailed fully in the attached Resolutions and
associated exhibits.
STAKEHOLDER ENGAGEMENT
The UAC reviewed preliminary financial forecasts for the Electric, Gas, Water and Wastewater
Collection utilities at its January 3, 2024 meeting (Staff Report 2309-208011), and the Finance
Committee reviewed those utilities’ preliminary forecasts at its February 21, 2024 meeting (Staff
Report 2312-246812).
11 Staff Report 2309-2080 (UAC January 3, 2024);
https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=73e00809-8d00-449b-9e3e-b3dc0b0a44dd
12 Staff Report 2312-2468 (UAC February 21, 2024);
https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=bfccaf4e-7ad7-49ab-9da2-5d728220f433
The UAC reviewed staff’s final recommendations for the Wastewater Collection, Water, Gas,
and Electric utilities at its March 6, 2024 UAC meeting13, which were all passed unanimously.
The Finance Committee reviewed staff’s proposals for the following utilities at its April 23, 2024
Finance Committee meeting14, which were all passed unanimously (3-0):
1. Wastewater Collection (Staff Report 2402-260315)
2. Water (Staff Report 2402-260416)
3. Gas (Staff Report 2402-260517)
4. Electric (Staff Report 2401-249718)
5. Stormwater Management (Staff Report 2402-261419)
The Finance Committee voted on additional changes for the Gas Utility General Fund Transfer
on May 8, 2024 and the Council discussed those changes on May 13, 2024 during a budget
study session. This report discusses those changes above and the attached resolutions reflect
the Committee’s direction. The FY 2025 Budget is being developed concurrent with these rates
and, depending on the final rates, adjustments to the budget may be necessary.
Note that there were no specific stakeholder engagement meetings on Dark Fiber rates
because there are only a few impacted customers and the rate is increasing by CPI consistent
with past practice.
ENVIRONMENTAL REVIEW
Adoption of the attached Financial Plans and budgeted transfers does not meet the California
Environmental Quality Act’s definition of a project, pursuant to Public Resources Code Section
21065 and CEQA Guidelines Section 15378(b)(4) and (5), because it is a governmental fiscal and
administrative activity which will not cause a direct or indirect physical change in the
environment. Adoption of the proposed wastewater collection, water, gas, electric, storm water
management fee, and dark fiber 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
13 March 6, 2024 UAC meeting; https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=13458
14 April 23, 2024 Finance Committee meeting;
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=15049
15 Staff Report 2402-2603; https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=90274720-d4f9-
47c2-964a-5c722c99d7d8
16 Staff Report 2402-2604; https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=29e7b9c3-
6b38-4c11-8032-8f921445fdac
17 Staff Report 2402-2605; https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=d5e65956-71ef-
419d-b758-2a841ff14bef
18 Staff Report 2401-2497; https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=83d9b5c9-f71e-
4d48-8322-665a9b4754a9
19 Staff Report 2402-2614; https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=c05ba13f-1c8a-
4376-87b7-7d127a501824
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.
ATTACHMENTS
Attachment A: Resolution for the Wastewater Collection Utility FY 2025
Attachment B: Resolution for the Water Utility FY 2025
Attachment C: Resolution for the Gas Utility FY 2025
Attachment D: Resolution for the Electric Utility FY 2025
Attachment E: Resolution for the Fiber Optic Utility FY 2025
Attachment F: Resolution for the Storm Water Management Fee Rates FY 2025
Attachment G: Table of URLs for Exhibits to Attachments A - F
APPROVED BY:
Dean Batchelor, Director of Utilities
Attachment A
* NOT YET APPROVED *
1
027052824
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the
FY 2025 Wastewater Collection Utility Financial Plan, Including
Approval of a Short-Term Loan from the Fiber Optics Fund Reserve to
the Wastewater Collection Fund Operations Reserve for FY 2024, and
Adjusting Wastewater Rates by Amending Rate Schedules S-1
(Residential Wastewater Collection and Disposal), S-2 (Commercial
Wastewater Collection and Disposal), S-6 (Restaurant Wastewater
Collection and Disposal) and S-7 (Commercial Wastewater Collection
and Disposal – Industrial Discharger)
R E C I T A L S
A. Each year the City of Palo Alto (“City”) assesses the financial position of its utilities
with the goal of ensuring adequate revenue to fund operations. 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. The City does this
with the goal of providing safe, reliable, and sustainable utility services at competitive rates. The
City adopts Financial 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 attached to and made a
part of the Financial Plans.
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 17, 2024, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
E. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the June 17, 2024 public hearing was mailed to all City of Palo Alto
Utilities wastewater customers by April 29, 2024.
F. The City Clerk has tabulated the total number of written protests presented by
the close of the public hearing, and determined that it was less than fifty percent (50%) of the
total number of customers and property owners subject to the proposed wastewater rate
amendments, therefore a majority protest does not exist against the proposal.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
Attachment A
* NOT YET APPROVED *
2
027052824
SECTION 1. The Council hereby approves the FY 2025 Wastewater Collection
Utility Financial Plan (Exhibit 1).
SECTION 2. The Council hereby approves a short term loan transfer from the Fiber
Optics Fund Reserve to the Wastewater Collection Fund Operations Reserve of up to
$3,000,000 for FY 2024, as described in the FY 2025 Wastewater Collection Utility Financial Plan
(Exhibit 1).
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-1 (Residential Wastewater Collection and Disposal) is hereby amended to read as
attached and incorporated. Utility Rate Schedule S-1, as amended, shall become effective July
1, 2024 (Exhibit 2).
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-2 (Commercial Wastewater Collection and Disposal) is hereby amended to read as
attached and incorporated. Utility Rate Schedule S-2, as amended, shall become effective July
1, 2024 (Exhibit 2).
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-6 (Restaurant Wastewater Collection and Disposal) is hereby amended to read as
attached and incorporated. Utility Rate Schedule S-6, as amended, shall become effective July
1, 2024 (Exhibit 2).
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger) is
hereby amended to read as attached and incorporated. Utility Rate Schedule S-7, as amended,
shall become effective July 1, 2024 (Exhibit 2).
SECTION 7. The Council finds that the revenue derived from the wastewater rates
approved by this resolution do not exceed the funds required to provide wastewater service,
and the revenue derived from the adoption of this resolution shall be used only for the
purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 8. 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.
//
//
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Attachment A
* NOT YET APPROVED *
3
027052824
SECTION 9. The Council finds that the adoption of this resolution approving the FY 2025
Wastewater Collection Utility Financial Plan does not meet the California Environmental Quality
Act’s 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 review is
required. The Council finds that the adoption of this resolution changing Wastewater collection
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:
AYES:
NOES:
ABSENT:
ABSTENTIONS
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
*NOT YET APPROVED* Attachment B
027052824 1
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the
FY 2025 Water Utility Financial Plan and Reserve Transfers, and
Increasing Water Rates by Amending Rate Schedules W-1
(General Residential Water Service), W-2 (Water Service from
Fire Hydrants), W-3 (Fire Service Connections), W-4 (Residential
Master-Metered and General Non- Residential Water Service),
and W-7 (Non-Residential Irrigation Water Service)
R E C I T A L S
A. Each year the City of Palo Alto (“City”) assesses the financial position of its
utilities with the goal of ensuring adequate revenue to fund operations. 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. The
City does this with the goal of providing safe, reliable, and sustainable utility services at
competitive rates. The City adopts Financial 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 attached to and
made part of the Financial Plans.
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 17, 2024, the City Council held a full and fair public hearing
regarding the proposed rate increase and considered all protests against the proposals.
E. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the June 17, 2024 public hearing was mailed to all City of Palo Alto
Utilities water customers by April 29, 2024.
F. The City Clerk has tabulated the total number of written protests presented
by the close of the public hearing, and determined that it was less than fifty percent (50%)
of the total number of customers and property owners subject to the proposed water
rate amendments, therefore a majority protest does not exist against the proposal.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
*NOT YET APPROVED* Attachment B
027052824 2
SECTION 1. The Council hereby approves the FY 2025 Water Utility Financial Plan
(Exhibit 1).
SECTION 2. The Council hereby approves a transfer from the Capital Improvement
Program Reserve to the Operations Reserve of up to $3,461,000 in FY 2024 as described in the
FY 2025 Water Utility Financial Plan (Exhibit 1).
SECTION 3. The Council hereby approves a transfer from the Rate Stabilization
Reserve to the Operations Reserve of up to 2,069,000 in FY 2024 as described in the FY 2025
Water Utility Financial Plan (Exhibit 1).
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-1 (General Residential Water Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule W-1, as amended, shall become effective
July 1, 2024 (Exhibit 2).
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read
as attached and incorporated. Utility Rate Schedule W-2, as amended, shall become
effective July 1, 2024 (Exhibit 2).
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule W-3 (Fire Service Connections) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-3, as amended, shall become effective July 1, 2024
(Exhibit 2).
SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-4 (Residential Master-Metered and General Non-Residential Water
Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule W-
4, as amended, shall become effective July 1, 2024 (Exhibit 2).
SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-7 (Non-Residential Irrigation Water Service) is hereby amended to read
as attached and incorporated. Utility Rate Schedule W-7, as amended, shall become
effective July 1, 2024 (Exhibit 2).
SECTION 9. The City Council finds as follows:
a. Revenues derived from the water rates approved by this resolution do not exceed
the funds required to provide water service.
b. Revenues derived from the water rates approved by this resolution shall not be used
for any purpose other than providing water service, and the purposes set forth in
*NOT YET APPROVED* Attachment B
027052824 3
Article VII, Section 2, of the Charter of the City of Palo Alto.
c. The amount of the water rates imposed upon any parcel or person as an incident of
property ownership shall not exceed the proportional cost of the water service
attributable to the parcel.
SECTION 10. 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.
//
//
//
//
//
//
//
//
//
//
//
//
//
//
//
//
//
*NOT YET APPROVED* Attachment B
027052824 4
SECTION 11. The Council finds that the adoption of this resolution approving the FY
2025 Water Financial Plan and Reserve 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 review is required. The Council finds that
the adoption of this resolution changing water 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:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
Attachment C
* NOT YET APPROVED *
6056816 1
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the Fiscal
Year 2025 Gas Utility Financial Plan and General Fund Transfer, and
Increasing Gas Rates by 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 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 attached to and made
part of the Financial Plans.
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 17, 2024, 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 fiscal year (“FY”) 2025 Gas Utility
Financial Plan (Exhibit 1), including the amendments to the Gas Utility Reserves Management
Practices (Exhibit 2);
SECTION 2. The Council hereby approves the transfer of up to 14.5% of gas utility
gross revenues received during FY 2023 to the general fund in FY 2025;
SECTION 3. 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 attached and
incorporated. Utility Rate Schedule G-1, as amended, shall become effective July 1, 2024
(Exhibit 3);
Attachment C
* NOT YET APPROVED *
6056816 2
SECTION 4. 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 attached and incorporated. Utility Rate Schedule G-2, as amended, shall
become effective July 1, 2024 (Exhibit 3);
SECTION 5. 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 attached and
incorporated. Utility Rate Schedule G-3, as amended, shall become effective July 1, 2024
(Exhibit 3);
SECTION 6. 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
attached and incorporated. Utility Rate Schedule G-10, as amended, shall become effective
July 1, 2024 (Exhibit 3);
SECTION 7. The City Council finds as follows:
a. Revenues derived from the gas rates approved by this resolution do not exceed the
funds required to provide gas service.
b. 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 8. 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.
//
//
//
//
Attachment C
* NOT YET APPROVED *
6056816 3
SECTION 9. The Council finds that approving the FY 2025 Gas Utility Financial Plan
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:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
NOT YET APPROVED
Attachment D
6056815
Utility Electric Rate Schedules
FY25 Electric Financial Plan
1
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the Fiscal
Year 2025 Electric Utility Financial Plan and Accepting the 2024 City of Palo
Alto Electric Cost of Service and Rate Study, and Amending Utility Rate
Schedules E-1 (Residential Electric Service), E-2 (Residential Master-Metered
and Small Non-Residential Electric Service), E-2-G (Residential Master-
Metered and Small Non-Residential Green Power Electric Service), E-4
(Medium Non-Residential Electric Service), E-4-G (Medium Non-Residential
Green Power Electric Service), E-4 TOU (Medium Non-Residential Time of
Use Electric Service), E-7 (Large Non-Residential Electric Service), E-7-G
(Large Non- Residential Green Power Electric Service), E-7 TOU (Large Non-
Residential Time of Use Electric Service), E-14 (Street Lights), E-NSE (Net Surplus
Electricity Compensation Rate), and E-EEC (Export Electricity Compensation)
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. 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 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 attached to and made
part of the Financial Plans.
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 17, 2024, 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:
Attachment D
6056815
Utility Electric Rate Schedules
FY25 Electric Financial Plan
SECTION 1. The Council hereby approves the FY 2025 Electric Utility Financial Plan
(Exhibit 2), including the amended Electric Utility Reserves Management Practices in
Appendix B of the Financial Plan and accepts the 2024 City of Palo Alto Electric Cost of
Service and Rate Study (Exhibits 1.1 and 1.2).
SECTION 2. The Council hereby approves the following transfers to be made by the
end of FY 2024, as described in the FY 2025 Electric Utility Financial Plan (Exhibit 2):
a. A transfer of up to $20 million from the Electric Special Projects Reserve to the
Supply Operations Reserve; and
b. A transfer of up to $17 million from the Supply Operations Reserve to the
Hydroelectric Stabilization Reserve; and
c. A transfer of up to $58 million from the Supply Operations Reserve to the
Distribution Operations Reserve
SECTION 3. The Council hereby approves the following transfers to be made by the
end of FY 2025, as described in the FY 2025 Electric Utility Financial Plan (Exhibit 2):
a. A transfer of up to $26 million from the Distribution Operations Reserve to the
Supply Operations Reserve; and
b. A transfer of up to $30 million from the Supply Operations Reserve to the Electric
Special Projects Reserve; and
c. A transfer of up to $5 million from the Distribution Operations Reserve to the CIP
Reserve
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-1 (Residential Electric Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule E-1, as amended, shall become effective July 1, 2024 (Exhibit
3).
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-2 (Residential Master-Metered and Small Non-Residential Electric Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule E-2, as amended, shall
become effective July 1, 2024 (Exhibit 3).
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-2-G (Residential Master-Metered and Small Non-Residential Green Power Electric
Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-2-G,
as amended, shall become effective July 1, 2024 (Exhibit 3).
Attachment D
6056815
Utility Electric Rate Schedules
FY25 Electric Financial Plan
SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-4 (Medium Non-Residential Electric Service) is hereby amended to read as attached
and incorporated. Utility Rate Schedule E-4, as amended, shall become effective July 1, 2024
(Exhibit 3).
SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-4-G (Medium Non-Residential Green Power Electric Service) is hereby amended to
read as attached and incorporated. Utility Rate Schedule E-4-G, as amended, shall become
effective July 1, 2024 (Exhibit 3).
SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-4 TOU (Medium Non-Residential Time of Use Electric Service) is hereby amended to
read as attached and incorporated. Utility Rate Schedule E-4 TOU, as amended, shall become
effective July 1, 2024 (Exhibit 3).
SECTION 10. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7 (Large Non-Residential Electric Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-7, as amended, shall become effective July
1, 2024 (Exhibit 3).
SECTION 11. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-7-G (Large Non-Residential Green Power Electric Service) is hereby amended to read
as attached and incorporated. Utility Rate Schedule E-7-G, as amended, shall become effective
July 1, 2024 (Exhibit 3).
SECTION 12. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-7 TOU (Large Non-Residential Time of Use Electric Service) is hereby amended to
read as attached and incorporated. Utility Rate Schedule E-7 TOU, as amended, shall become
effective July 1, 2024 (Exhibit 3).
SECTION 13. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-14 (Street Lights) is hereby amended to read as attached and incorporated. Utility
Rate Schedule E-7 TOU, as amended, shall become effective July 1, 2024 (Exhibit 3).
SECTION 14. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-NSE (Net Surplus Electricity Compensation Rate) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-NSE-1, as amended, shall become effective
July 1, 2024 (Exhibit 3).
SECTION 15. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-EEC-1 (Export Electricity Compensation) is hereby amended to read as attached and
Attachment D
6056815
Utility Electric Rate Schedules
FY25 Electric Financial Plan
incorporated. Utility Rate Schedule E-EEC-1, as amended, shall become effective July 1, 2024
(Exhibit 3).
SECTION 16. The Council makes the following findings:
a. The revenue derived from the adoption of this resolution shall be used only for the
purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
b. 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.
//
//
//
//
//
//
//
//
//
//
//
Attachment D
6056815
Utility Electric Rate Schedules
FY25 Electric Financial Plan
SECTION 17. The Council finds that approving the Financial Plan and Reserve 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 electric 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 CEQA Guidelines 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:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
Mayor
APPROVED AS TO FORM:
APPROVED:
Assistant City Attorney
City Manager
Director of Utilities
Director of Administrative Services
* NOT YET APPROVED *
Attachment E
6056841 1
Resolution No. _________
Resolution of the Council of the City of Palo Alto Adopting a Dark
Fiber Rate Increase and Amending Rate Schedules EDF-1 (Dark Fiber
Licensing Services), and EDF-2 (Dark Fiber Connection Fees)
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule EDF-1 (Dark Fiber Licensing Services) is hereby amended to read as attached and
incorporated. Utility Rate Schedule EDF-1, as amended, shall become effective July 1, 2024.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule EDF-2 (Dark Fiber Connection Fees) is hereby amended to read as attached and
incorporated. Utility Rate Schedule EDF-2, as amended, shall become effective July 1, 2024.
SECTION 3. The Council finds that the revenue derived from the adoption of this
resolution shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of
the City of Palo Alto.
//
//
//
//
//
//
* NOT YET APPROVED *
Attachment E
6056841 2
SECTION 4. The Council finds that the adoption of this resolution increasing Dark
Fiber utility rates by the Consumer Price Index 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:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
*NOT YET APPROVED*
1
6056842
Resolution No. ______
Resolution of the Council of the City of Palo Alto Amending Utility Rate Schedule D-1
(Storm and Surface Water Drainage) to Increase Storm Water Management Fee Rates by
2.6% Per Month Per Equivalent Residential Unit for Fiscal Year 2025
R E C I T A L S
A. In April 2017, a majority of property owners approved a ballot measure adopting a
monthly Storm Water Management Fee to fund storm drain capital improvements projects,
enhanced maintenance of the storm drain system, storm water quality protection programs,
and related activities.
B. The ballot measure allowed for annual increases to the fee based on lesser of the
local rate of inflation (based on changes to the Consumer Price Index for the San Francisco-
Oakland-San Jose region as published by the Bureau of Labor Statistics) or 6%.
C. According to the Bureau of Labor Statistics, the Consumer Price Index for the San
Francisco-Oakland-San Jose region increased by 2.6% between December 2022 and December
2023.
The Council of the City of Palo Alto does hereby RESOLVES as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule D-1 (Storm and Surface Water Drainage) is hereby amended to read in accordance
with sheet D-1-1, attached hereto and incorporated herein. The foregoing Utility Rate Schedule,
as amended, shall become effective July 1, 2024.
SECTION 2. The Council finds that this rate increase is being imposed to offset the
effects of inflation on labor and material costs pursuant to the annual inflationary fee escalator
provision of the Storm Water Management Fee ballot measure, which was approved by a
majority of Palo Alto property owners on April 11, 2017.
SECTION 3. The Council finds that the revenue derived from the authorized adoption
enumerated herein shall be used only for the purpose set forth in Article VII, Section 2, of the
Charter of the City of Palo Alto.
//
//
//
Attachment F
*NOT YET APPROVED*
2
6056842
SECTION 4. The Council finds that the adoption of this resolution changing the
Storm Water Management Fee 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.
15378(b)(4). 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:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ _____________________________
Assistant City Attorney City Manager
_____________________________
Director of Public Works
_____________________________
Director of Administrative Services
Attachment G “Table of URLs for the Exhibits to Attachments A – F”
1
Attachment Exhibit Title URL
A 1 Wastewater
Collection Utility
Financial Plan FY
2025
https://www.cityofpaloalto.org/files/assets/public/v/2/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/wastewater-
financial-plan-fy25.pdf
A 2 Wastewater
Collection Utility Rate
Schedules FY 2025
https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/wastewater-
rate-schedules-fy25.pdf
B 1 Water Utility
Financial Plan FY
2025
https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/water-financial-
plan-fy25.pdf
B 2 Water Utility Rate
Schedules FY 2025
https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/water-rate-
schedules-fy25.pdf
C 1 Gas Utility Financial
Plan FY 2025
https://www.cityofpaloalto.org/files/assets/public/v/2/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/gas-financial-
plan-fy25.pdf
C 2 Amended Gas Utility
Reserve
Management
Practices
https://www.cityofpaloalto.org/files/assets/public/v/2/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/gas-reserve-
management-practices-fy25.pdf
C 3 Gas Utility Rate
Schedules FY 2025
https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/gas-rate-
schedules-fy25.pdf
D 1.1 2024 City of Palo Alto
Electric Cost of
Service and Rate
Study
https://www.cityofpaloalto.org/files/assets/public/v/3/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/electric-cosa.pdf
D 1.2 COSA Technical
Appendix
https://www.cityofpaloalto.org/files/assets/public/v/2/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/techincal-
appendix.pdf
D 2 Electric Utility
Financial Plan FY
2025
https://www.cityofpaloalto.org/files/assets/public/v/2/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/electric-utility-
financial-plan-fy25.pdf
D 3 Electric Utility Rates
Schedules FY 2025
https://www.cityofpaloalto.org/files/assets/public/v/2/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/electric-rates-
schedule.pdf
Attachment G “Table of URLs for the Exhibits to Attachments A – F”
2
Attachment Exhibit Title URL
D 4 Amended Electric
Utility Reserves
Management
Practices
https://www.cityofpaloalto.org/files/assets/public/v/3/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/amended-
electric-utility-reserves-management-practices.pdf
E 1 Fiber Optic Utility
Rate Schedules FY
2025
https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/fiber-rate-
schedules-fy25.pdf
F 1 Storm and Surface
Drainage Rate
Schedule FY 2025
https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/attachments/2024-rates/storm-and-
surface-drainage-rate-schedule.pdf
June 17, 2024 www.cityofpaloalto.org
UTILITY
FINANCIAL PLANS
AND PROPOSED RATE
CHANGES FOR FY 2025
Presenters: Lisa Bilir and Micah Babbitt,
Senior Resource Planners
2
Residential System Average Rate Projections
1)FY 2025 projection incorporates results of cost-of-service analysis
2)Based on general fund transfer of 14.5% of gross revenue in FY25; gas rate changes shown with commodity rates held constant;
actual gas commodity rates vary monthly
3)Stormwater fees increase by CPI index annually per approved 2017 ballot measure (2.6% in FY 2025)
4)Based on an FY 2023 monthly residential bill of $369
Attachment B
FY 2024
(effective July
1, 2023)
FY 2025
(Projected)FY 2026 FY 2027 FY 2028 FY 2029
-$5.80 $7.00 $4.60 $4.80 $5.10 $5.30
-5%9%5%5%5%5%
$5.20 $8.80 $3.90 $5.00 $5.30 $4.60
8%12.5%5%6%6%5%
$4.00 $7.30 $5.00 $5.50 $5.30 $5.00
9%15%9%9%8%7%
$5.20 $9.80 $10.60 $11.60 $12.30 $13.10
5%9.5%9%9%9%9%
$0.00 $0.00 $1.50 $1.50 $1.60 $1.60
0%0%3%3%3%3%
$0.80 $0.40 $0.40 $0.50 $0.50 $0.50
5%2.6%3%3%3%3%
$9.40 $34.50 $27.10 $29.90 $31.10 $31.40
3%9%7%7%7%6%Monthly Bill Change (4)
Electric Utility (1)
Gas Utility (2)
Wastewater
Water Utility
Refuse
Stormwater (3)
3
Wastewater Collection Proposal
•Staff Recommendation: 15% rate increase in FY 25, $7.29 per residential
customer per month
•Reduced-size sewer replacement (1.25 miles in FY 2026)
•$2M Pump station retrofit in FY 28
•Both staff recommendation and alternative will:
•Resume 2.5 miles per year of sewer main replacement in FY 28
•Recommend Council approval of a short-term loan from the Fiber Optics
Fund Reserve to the Wastewater Collection Fund Operations Reserve not to
exceed $3 million for FY 24
•Staff re-evaluating the utility’s cash and reserve requirements as the transition
to 5-mile sewer replacements continues and may propose modifications in next
year’s Financial Plan
11%7%0%
3%3%9%15%9%9%
8%7%
$0
$5
$10
$15
$20
$25
$30
$35
$40
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Actual Projected
Co
s
t
/Re
v
e
n
u
e
$ (M
i
l
l
i
o
n
s
)
Fiscal Year
Collection Capital & Debt *
Collection Operations
Treatment Capital & Debt
Treatment Operations
Revenue
4
Wastewater Collection Cost and Revenue Projections
* Includes changes due to commitments/reappropriations and funds transferred to the CIP Reserve
Note: assumes reduced size sewer replacement in FY 2025 and 2026 and $3 million short-term loan
from the Fiber Optics Fund in FY 2024 that is repaid in FY 2026.
5
Wastewater Collection Monthly Bill ($) as of Nov 2023
Palo Alto is currently 26% below comparison city average
Attachment B
Residential
Non-Residential
6
Water Rate Proposal
•Proposal FY 2025: 9.5% total water rate increase (10% distribution rate increase)
•FY 2023 year-end Operations Reserve near minimum guideline due to drought
Projected Water Distribution Rate Changes
Projected Total Water Rate Changes
•Commodity rate projected to increase to $5.67/CCF or 8.8% (per SFPUC April 12, 2024 rate notice)
•Proposal revised based upon Finance Committee Recommendation from 4/23/24
7
Water Cost and Revenue Projections
* Includes changes due to commitments/reappropriations and funds transferred to the CIP Reserve
3%1%0%0%5%5%9.5%9%9%9%9%
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
FY
20
1
9
FY
20
2
0
FY
20
2
1
FY
20
2
2
FY
20
2
3
FY
20
2
4
FY
20
2
5
FY
20
2
6
FY
20
2
7
FY
20
2
8
FY
20
2
9
Actuals Projected
M
i
l
l
i
o
n
s
Capital*
Operations
Water Supply
Debt Service
Revenue
Rate Changes
8
FY 2025 Rate Proposal
•12.5% overall gas rate increase (20.9% distribution rate increase)
•5% to 6% overall rate increase annually from FY 2026 to FY 2029
•Gas General Fund Transfer of 14.5% of FY 2023 gross revenue or
$10.917 million in FY 2025 ($2 million in addition to the 11.9%
transfer alternative)
Gas Rate Proposal
4%5%2%
3%
3%
8%12.5%5%6%6%5%
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
20
1
9
20
2
0
20
2
1
20
2
2
20
2
3
20
2
4
20
2
5
20
2
6
20
2
7
20
2
8
20
2
9
Actual Projection
$ Mi
l
l
i
o
n
s
Fiscal Year
Capital
Gas Supply
Operations
Transfers
Debt Service
Note:Gas Revenue Rate % Changes (excludes supply -related rate changes)
Revenue
9
Gas Cost and Revenue Projections
Transfer 14.5%
*Revenue excludes Cap-and-Trade auction
sales revenue, which goes directly to the
Cap-and-Trade reserve
**FY23 Commitments and Reappropriations
reserves balances for Operations and Capital
Investment are anticipated to be utilized in
FY24 and FY25
10
FY 2025 Proposal
•Cost of Service Analysis completed March 2024 – requires rate changes varying by customer
class and consumption pattern to match the cost to serve
•9% ($7.00/month) increase for the median residential customer
•0.5% increase in revenue – lower than last year’s 5% forecasted revenue increase
•This is manageable due to large one-time electric supply revenues in FY 2024 – FY 2026
•Will mitigate the bill impacts of incorporating COSA changes
Future Years
•5% rate increase per year projected for FY 2026-FY 2029
•Issue debt for Grid Modernization by end of FY25
•Reflects continuing transmission cost increases, other rising supply costs, grid modernization
Electric Rate Proposal
11
Electric Cost and Revenue Projections
Co
s
t
/
R
e
v
e
n
u
e
12
Recommendation
The Finance Committee recommends that the City Council adopt resolutions by approving:
Wastewater
•The FY 2025 Wastewater Collection Financial Plan (Attachment A, Exhibit 1), including approval of a short-term loan from the Fiber Optics Fund Reserve to the Wastewater Collection Fund Operations Reserve not to exceed $3,000,000 for FY 2024; and
•Amending the Wastewater Collection Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment A, Exhibit 2)
Water
•The FY 2025 Water Utility Financial Plan (Attachment B, Exhibit 1); and
•Amending the Water Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment B, Exhibit 2)
Gas
•The FY 2025 Gas Utility Financial Plan (Attachment C, Exhibit 1), including amending the Gas Utility Reserve Management Practices (Attachment C, Exhibit 2); and
•Amending the Gas Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment C, Exhibit 3)
Electric
•Accepting the 2024 City of Palo Alto Electric Cost of Service and Rate Study (Attachment D, Exhibit 1.1); and
•The FY 2025 Electric Utility Financial Plan (Attachment D, Exhibit 2), including amending the Electric Utility Reserve Management Practices (Attachment D, Exhibit 4); and
•The reserve transfers in FY 2024 and FY 2025; and
•Amending the Electric Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment D, Exhibit 3)
Dark Fiber
•Amending the Fiber Optic Utility Rate Schedules Effective July 1, 2024 (FY 2025), (Attachment E, Exhibit 1), consistent with the applicable Consumer Price Index
Stormwater
•Amending the Stormwater Management Fee Rate Schedule Effective July 1, 2024 (FY 2025), (Attachment F, Exhibit 1), consistent with the applicable Consumer Price Index
Refuse
•There are no rate changes