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HomeMy WebLinkAbout2025-10-01 Utilities Advisory Commission Summary MinutesUtilities Advisory Commission Minutes Approved on: November 5, 2025 Page 1 of 17 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF OCTOBER 1, 2025 REGULAR MEETING CALL TO ORDER Chair Scharff called the meeting of the Utilities Advisory Commission (UAC) to order at 6:05 p.m. Present: Chair Scharff, Vice Chair Mauter, and Commissioners Phillips and Tucher Absent: Commissioners Croft, Gupta, and Metz AGENDA REVIEW AND REVISIONS Alan Kurotori, Utilities Director, made the Commission aware that Agenda Item 4 was modified from a discussion to an action item. ORAL COMMUNICATIONS 1. Sven Thesen was a chemical engineer with experience in air quality and electric car policy. In the last 3 years, it was discovered that natural gas stoves produce benzene and nitrous oxides, which are known carcinogens and can lead to asthma. With closed windows and the fan off, levels reach 12 times the World Health Organization’s recommended standards. Mr. Thesen’s daughter suffered from exercise-induced asthma and his father died of lung cancer. Mr. Thesen asked the UAC to agendize an item about what the Utility can do about providing a product known to cause cancer and asthma. 2. Avroh Shah was as Junior at Palo Alto High School, led the Advocacy Committee of the Palo Alto Student Climate Coalition, and was on the Executive Committee of the Sierra Club Student Coalition. Mr. Shah urged the Utility to act responsibly and use utility bill inserts or explore other ways to educate residents about the health risks and consequences of using natural gas, and alternative solutions. 3. Hamilton Hitchings said the Public Safety Building (PSB) was a top candidate for a City microgrid. The PSB had 72 hours of backup power through a generator and fuel supply. A solar array on top of the adjacent garage fed into the PSB. When the PSB was built, the planned battery storage for the solar array was eliminated for budget reasons. Battery storage would extend the PSB’s backup power, making it more resilient. Solar power generated during the day could reduce late afternoon peak loads on the City’s Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 2 of 17 grid. LFP portable battery technology was mainstream affordable, safer than older lithium ion options, and a practical investment. Palo Alto’s Emergency Services Volunteer organization, composed of 700 residents, recommended AT&T Fiber because its passive fiber network will stay on at least 72 hours after a power outage if residents powered their fiber modem, which Mr. Hitchings experienced twice during 8-hour outages. Volunteers use the internet to report critical incidents to cloud-based servers. Mr. Hitchings asked how long the City’s fiber hut will remain powered during an outage and if the City’s planned fiber service will remain up as long as residents powered their modems. A reliable UPS battery to power a home fiber modem and router for 24 hours costs about $500 and around $200 for a solar panel to recharge it. For the many Palo Alto residents who conduct important business from home, uninterrupted service was vital for business continuity and a deciding factor in which fiber service they choose. APPROVAL OF THE MINUTES Minutes for last month’s meeting were not available but will be incorporated in the next UAC meeting. UTILITIES DIRECTOR REPORT Alan Kurotori, Utilities Director, delivered the Director's Report and an update of Council’s actions. On September 8, the Council extended the 2-year term of the Palo Alto Residential GoGreen Energy Financing Program to 5 years, and passed a City Ordinance to restate procedures for expedited permit processing for electric vehicle (EV) charging stations. On September 15, the Council adopted voluntary residential electric time-of-use (TOU) rates, directed staff to follow the reasonable-cost analysis required by Proposition 26 for the gas cost- of-service analysis and collaborate with the UAC to develop revised gas rate schedules effective January 2026, and approved a third phase agreement for 50 megawatts of the Trolley battery energy storage project over a 20-year term, which was Palo Alto’s first battery project. On September 29, the Council voted to pull the UAC Work Plan. The City Manager directed staff to continue working on the action items as if the work plan was approved. Staff anticipated going back to Council in early 2026 for adoption of the UAC Work Plan. The fees that developers pay for connection to utility services were last updated pre-pandemic; staff went to the Finance Committee with updated fees and will go to the Council for approval on October 20. Mayor Lauing was in Palo Alto’s Sister City, Heidelberg, Germany, making a presentation to an international roundtable of mayors on how Cities act as drivers for innovation and growth, and speak about the public-private partnership with Tesla to upgrade a substation to meet Tesla’s AI data center needs. Mr. Kurotori provided a legislative update. The West-Wide Pathways Initiative will allow entities working with the CAISO to schedule a day ahead so more solar in California can go to markets in the western United States as well as opening access to wind and other resources in New Mexico and Arizona, which should increase affordability. Cap-and-Trade was set to expire in early 2030 but was rebranded as Cap-and-Invest and extended to 2045, so those funds will continue going to Palo Alto’s electric and natural gas utilities. Investor-owned utilities will not Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 3 of 17 receive Cap-and-Invest monies; those funds will go to electric utilities in those service territories. Unfortunately, Assembly Bill 1273 for the extension of large hydroelectric from 2030 to 2045 was vetoed. Palo Alto had a commitment to carbon-free resources and worked with WAPA, which was a federal hydropower. Assembly Bill 1273 was added to an existing bill on how the CPUC approved rates. Palo Alto will look at having a standalone bill for hydroelectric extension in the next legislative session. If not, Palo Alto needed to procure to meet renewable portfolio requirements, which affected affordability because of competition with other Utilities trying to meet their renewable portfolio standard requirements. The City received a natural gas infrastructure grant of $16.5 million; the first reimbursement for the end of the last fiscal year was processing for $455,000. The permit was approved for the centralized building (fiber hut) to store telecommunications equipment to provide fiber internet service, which will be located within the secured perimeters of our Colorado Substation. Our contractor, MP Nexlevel, will begin preconstruction activities on the week of October 6. Staff will provide updates as the fiber hut construction progresses. Vice Mayor Veenker and Chair Scharff attended the recent NCPA Annual Conference, which was the largest public electric conference in California with over 270 attendees including public power entities and industries. The NCPA Annual Conference focused on impacts affecting public power utilities, including the rise of AI data centers, energy markets, and wildfires. The UAC Work Plan included data centers. Staff planned to agendize an item on data centers in December. Randy Howard had been the NCPA General Manager for 11 years and planned to retire in May of 2026. Vice Mayor Veenker was on the Executive Committee to NCPA, so she will be actively engaged on the selection of the new NCPA General Manager. Commissioner Tucher read in the newspaper headlines last week that the Trolley storage and solar deal fell apart at the last minute. Commissioner Tucher was stunned by the proposed residential and commercial utility connection fees going up 40 to 80 percent and some increased from no fee to hundreds or thousands of dollars depending on the width of the pipe. Commissioner Tucher inquired if there had been much discussion on the connection fees at the Finance Committee. The utility connection fees did not come before the UAC, so Commissioner Tucher wondered if the UAC did not look at it because it was considered operational. Commissioner Tucher wanted it brought to the attention of the UAC in the weeks ahead of an item like this coming before Council or Finance, especially given the magnitude of the size increase of the fees. Mr. Kurotori confirmed the Trolley standalone battery storage project was moving forward. The quarterly report mentioned other Power Purchase Agreements (PPAs) for solar in combination with battery storage did not move forward. The Finance Committee had a detailed discussion on utility connection fees. It was common in the industry to have standardized connection costs. Previously, customers were provided with an individual estimate for standard installation. Palo Alto established utility connection fees to reduce the administrative burden of providing estimates but the fees were last updated pre-pandemic. To recover costs when new customers connect to the system, the utility connection fees incorporated updated costs for labor, contracting, equipment, and much higher disposal costs. The natural gas service Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 4 of 17 residential disconnect fee went to the Finance Committee. Monies in the S/CAP program could pay for the disconnection of gas service if a resident electrified their home. For consistency, staff followed past practice of whether an item or update goes to the UAC or Finance. The municipal fee schedule update was a larger process with the City, so staff could not separate utility-related fees but could provide it as information if the UAC was interested. Chair Scharff thought the UAC should weigh in on choices about fees, especially if it goes to the Finance Committee. If the fee amount will not be debated because it is full cost recovery, Chair Scharff wondered why it goes to Finance. This item was not agendized, so Chair Scharff clarified that the Commission was only talking about whether it should come to the UAC. Mr. Kurotori confirmed the basis for the connection fees was straight cost recovery for the Utility for services rendered. Fee increases go to the Finance Committee. If the UAC desired, staff could bring fee updates as part of the UAC’s next work plan. Connection fees will be updated by the construction cost index on an annual basis until they were trued up on the municipal fee schedule, which will take several years. The Committee asked why Council pulled the UAC work plan from the consent calendar, if the consent items were pulled by the same Council Members or was it separate votes, if there was any commentary from Council Members, and if the UAC Work Plan was agendized for the Council in January. Mr. Kurotori did not have specific information but thought a series of work plans went to the Council at the same time. The UAC Work Plan may go back to Council for approval in January but staff can inform the UAC if Council’s schedule opened up sooner. If Council had comments on the UAC Work Plan, staff would bring it back to the UAC. Kiely Nose, Assistant City Manager, explained that Council Members do not comment or give reasons for pulling items. It takes 3 Council Members to vote to pull an item from the consent calendar to agendize it as an action item at a later date when schedules allow. Consent items were bundled, so Council voted once to pull consent items. Ms. Nose anticipated the soonest that Council will hear the UAC Work Plan was in January based on Council’s full tentative agendas through December, unless something opened up sooner. NEW BUSINESS ITEM 1: Information Report: Utilities Quarterly Report for FY 2025-Q3/Q4 Alan Kurotori, Utilities Director, wanted to make sure the Utilities Quarterly Report contained useful information and data for the UAC. Mr. Kurotori invited ideas on streamlining the Quarterly Report or critical information on the Utility that the UAC wanted to see. Karla Dailey, Assistant Director of Utilities, Resource Management Division, delivered a presentation. By the end of FY 2025, there had been an increase in load mostly driven by data Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 5 of 17 center load growth. For the electric utility, revenue from REC and RA sales was higher than expected. As a result, our electric net supply cost was below budget. Higher RA purchase costs were projected to result in higher electric net supply costs in FY 2026. Commissioner Tucher asked what Resource Adequacy (RA) was, why we buy or sell RA, and what the difference was between local RA and system RA. Commissioner Tucher wondered how higher revenue from REC and RA sales affected electric net supply costs. When Council discussed the agreement for Trolley battery storage in Southern California, Commissioner Tucher recalled Council Members questioned what was being done to build local grid-scale battery storage. Ms. Dailey replied net supply costs for 2025 were lower than budget mostly due to higher revenue received from renewable energy credit (REC) and RA sales. Cost projections for FY 2026 were higher, driven by higher RA purchase costs and Western Restoration Fund costs. Chair Scharff asked staff to explain the reason for the changes. The Utility made money by selling RA but the need to purchase RA was one of the drivers for the net supply cost increasing from $77 million in FY 2025 to $99 million in FY 2026. Jim Stack, Senior Resource Planner, explained the reason for purchasing and selling RA was to meet local and system-wide RA requirements. RA was an energy market product or construct designed to ensure grid reliability throughout the year. The grid operator, CAISO (California Independent System Operator), identified capacity requirements for Utilities. Utilities have to procure enough capacity to satisfy forecasted peak demand plus a certain percentage for a reserve margin. Palo Alto’s portfolio had more system capacity than we needed but did not have enough local capacity. Therefore, some of our resources were sold as system RA capacity and we purchase some local RA capacity. Local RA capacity was located in certain constrained areas where the load was high relative to the amount of generation. For example, the CAISO incentivized building more generation the Bay Area and LA basin, so there were requirements to ensure enough capacity was built in those areas and the capacity was priced a little higher. Every few years, staff looked at the possibility to build battery storage within Palo Alto, assessed the costs, and reported to the State whether we should set a requirement to purchase storage capacity locally or remotely. There was not a lot of space for a large-scale storage facility within the city limits and it was more expensive than purchasing capacity in Southern California. Southern California had a lot of solar, so there was much more disparity between prices in the middle of the day and the evening. Ms. Dailey continued the presentation. Information regarding reliability for the electric and gas utilities was added to the quarterly report. CPAU’s electric system was about 5 times more reliable than PG&E’s local system. Chair Scharff assumed CPAU was always more reliable than PG&E; if not, then he wanted to know. Chair Scharff was interested in how CPAU’s reliability compared to Santa Clara and Alameda as a metric of how well our utility was doing. Santa Clara and Palo Alto were smaller Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 6 of 17 and had the same climate. If CPAU had more outages than Santa Clara because of our foothills, it was a reasonable explanation. Mr. Kurotori explained it helpful to benchmark against PG&E’s local system in Mountain View and Los Altos because it was a neighboring entity with a service territory in proximity to Palo Alto with similar terrain, climate, storms, suburban areas and foothills. Staff could provide data and metrics from Santa Clara and Alameda as well. PG&E was the alternative if Palo Alto did not have a utility, so Commissioner Phillips wanted to see how Palo Alto compared to PG&E and Santa Clara. Ms. Dailey continued the presentation. Most gas outages were due to repairs of broken or damaged mains. Damage was most often caused by excavation from third parties. Vice Chair Mauter asked if the report could include an update on the cross-bore program. If the program was finding cross bores, it may warrant reverting to an accelerated schedule. If the risk profile changed, the UAC should be made aware. Ms. Dailey said they were in the process of hiring hourly employees to help with the cross-bore work. Commissioner Phillips wanted to see total sales revenues and sales volumes because Figures 4 and 5 only displayed the percentage differences. Commissioner Phillips asked for future reports to include the cost of Palo Alto’s portion of wastewater because Figure 17 on Packet Page 25 showed a total of $496 million for wastewater capital work. Ms. Dailey will provide the totals for sales revenues and sales volumes. Mr. Kurotori stated Palo Alto was responsible for its share of the $496 million total construction cost related to the wastewater treatment plant based on the flow percentage, which he thought the report mentioned was 37 percent. Commissioner Tucher questioned the purpose of the quarterly reports. The report mentioned financial health but did not talk about costs and expenses per utility, and whether labor costs were increasing or decreasing. Commissioner Tucher thought the quarterly report should include sales revenues, sales volumes, peak electrical load for the year or quarter, cost analysis on the wastewater plant, and Palo Alto’s cost position in the wastewater project. Commissioner Tucher opined the quarterly report contained false or confusing statements, such as Palo Alto’s electric supply portfolio was 100 percent carbon neutral. The report mentioned 66 poles were installed but did not provide a sense of the status of grid modernization, which Commissioner Tucher believed should be in the quarterly report for transparency because it was the largest, most important CapEx project. The report talked about reserves with no explanation for being below our target reserve in electric this year. The report contained a short explanation as to why the electric reserve will be above the goal at the end of 2026 but numbers were not Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 7 of 17 provided. Commissioner Tucher mentioned he forwarded other comments to staff and offered to further discuss this topic offline with staff. Commissioner Tucher suggested abandoning the quarterly report, and he asked his fellow commissioners if the quarterly report should continue and if it was a good use of staff’s time. Mr. Kurotori stated Palo Alto was very proud of being 100 percent carbon neutral, which had been one of the Council’s actions for years. The Utility and the City purchased attributes on behalf of residents and businesses, called Bucket 3 in the industry, so Palo Alto was 100 percent carbon neutral over the total timeframe (not on a per hour basis). Chair Scharff found the quarterly report useful as-is. The quarterly report was in the packet and agendized, so it was available to the public. Vice Chair Mauter valued these reports and was open to the UAC suggesting changes to make the quarterly reports more valuable. Transparency to our citizenry was important and the quarterly report was our only tool for visibility into what staff was working on and what investments were being made after a budget was approved. The content that Commissioner Phillips wanted to see in a quarterly report were updates on key projects, news about what impacted the Utility since the last report, establish key metrics and track them over time, and the financial condition. The staff presentation can highlight what the UAC should be aware of, such as veering away from what was anticipated. Commissioner Phillips preferred the report as-is instead of eliminating it because he found it contained a lot of useful information. Commissioner Phillips wondered if the UAC should have a separate agendized item to discuss changes to the quarterly report or Commissioner Phillips and Commissioner Tucher could discuss it with Mr. Kurotori. Ms. Dailey recalled that this year and last year were the only years during her employment with this Utility that the UAC had a discussion on the quarterly report. Previously, it was an information-only report. Public Comment: None. ACTION: No action required. ITEM 2: Discussion of Preliminary Analysis of the Infrastructure Impacts Associated with Gas Decommissioning Jonathan Abendschein, Assistant Director of Public Works, Sustainability and Climate Action, delivered a slide presentation. One important reason for sharing the preliminary analysis today was because the Sustainability Committee was having a broader discussion about how to fund the Sustainability and Climate Action Plan. Mr. Abendschein provided an overview of the study progress. The system model was completed in April of 2025. Estimated population of gas equipment was based on data from the assessor, gas sales, and other information the Utility Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 8 of 17 had. Some inconsistencies were noticed in the underlying data. The numbers were likely to change after data cleaning but the preliminary and final results were anticipated to be similar. Monte Carlo simulations were done of main abandonment under various electrification scenarios. Cost categorization and estimates of cost impacts under electrification scenarios were partially complete. Evaluation of impacts on customer groups had not started. Identifying mitigations was in the brainstorming stage. The four electrification scenarios modeled were 20, 40, 60, and 80 percent reductions in gas sales, which considered residential and small/medium commercial at 25, 50, 75, and 100 percent water and space heating electrification, respectively, and 0 percent reduction for large commercial and industrial. Electrification had been encouraged for at least 5 years, so Chair Scharff wanted to know what the numbers were from 5 years ago. Palo Alto had the heat pump water heater program and offered subsidies. Most people changed 1 appliance but had not fully electrified. If 85 percent of the estimated equipment population was gas water heating and 82 percent was gas space heating, people will have to spend a lot of money to electrify. Chair Scharff wondered if staff’s thinking had evolved on how to achieve electrification. Mr. Abendschein said the simulation model could be run on gas usage from 5 years ago. We were starting to get a sense of the technologies that could be used to electrify 5 years ago. It takes a while to raise awareness with builders, contractors, and homeowners of existing technology and how to install it. Significant acceleration was seen in the last few years. About 6 percent of homes in Palo Alto had at least 1 electric appliance and about 3 percent were fully electrified; it was less than 1 percent 5 years ago. There were 1 or 2 heat pump water heaters per month 5 years ago. It was an S-curve with very slow adoption for a while and acceleration will ramp up significantly if we figure out how to drive high levels of electrification. Regional regulations will drive electrification, so Mr. Abendschein did not think it was warranted to make assumptions on adoption over the last 5 years being the same going forward. The Climate Action and Sustainability Committee had conversations about different business models, services, forms of financing, and the emergency program. The addition of full-service assistance helped accelerate the heat pump water heater program. The permit process was streamlined. Staff was looking at expanding some tools into the multifamily and nonresidential sectors, aiming to develop scalable solutions over the next 2 years to drive electrification, actively developing new tools, and shifting strategies to reach the community’s goals. Regarding the estimated equipment population, Commissioner Phillips calculated the approximate cost to switch the number of units in the data set from gas to electric at $20,000 apiece was $260 million. Mr. Abendschein agreed it was a large scale of investment but it had to be compared to the scale of replacing all the equipment like for like, for example, comparing the cost of a heat pump to the avoided cost of not replacing an air conditioner and furnace, especially if ducts have to be rehabilitated. The S/CAP funding study will consider that. The best available regional data and costs will be used to inform the next round of strategies. The 6 percent of homes with at least 1 electric appliance was based on people who came through our programs. Besides Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 9 of 17 folks who had gas, people who had electric resistance heating could benefit from heat pumps as well. Commissioner Tucher asked if the data set was Palo Alto. Mr. Abendschein confirmed the data set was Palo Alto. Mr. Abendschein displayed the preliminary results for cost categories and cost drivers within the Utility. Over 60 percent of costs for the Utility decrease with declining sales and customer disconnections. Vice Chair Mauter suggested benchmarking to underlying volatility in gas rates. Hedging was considered previously to even out the volatility. The order of magnitude in underlying volatility in bulk gas purchases relative to the increase will help the UAC put it in context. Mr. Abendschein pointed out that doing an annual average washed out the volatility of seasonal variations. Variations were seen year to year based on the gas markets. A range of circumstances can be provided in the final analysis. The General Fund transfer was 18 percent but was listed as 15 percent on the slide. Commissioner Phillips said the General Fund transfer was dependent on sales and cost because the transfer was based on a portion of revenue, and revenue was driven by cost and sales. Mr. Abendschein stated an 18 percent General Fund transfer will not appear on Cost Categories and Cost Drivers. It was a complex modeling dynamic but the final report can better integrate the General Fund transfer. The percentages changed when you looked at the General Fund transfer as a percentage of all costs as opposed to the percentage of non-transfer costs. Commissioner Tucher asked what was represented by the colors on the chart of Cost Categories and Cost Drivers. Overhead seemed fixed. As gas users abandon service, Commissioner Tucher understood the remaining gas users will be responsible for the roughly 40 percent of costs that were fixed. Commissioner Tucher suggested adding a separate slide to explain the concept. Mr. Abendschein explained that blue represented costs that decreased based on declining sales, orange represented costs based on the number of customers, and gray represented costs that decreased as gas mains were abandoned. Because 40 percent of costs were fixed, the implication was that a 25 percent reduction in gas use meant about a 10 percent increase in gas rates. If sales decreased by about 75 percent, costs will decrease by about 85 percent. The 85 percent of mains eligible for abandonment shown on the slide was meant as a bookend scenario if all residents and small and medium businesses disconnected. Bookend and random scenarios will be incorporated into the final study. Based on simulations assuming random electrification, you need 60 percent reduction before you can abandon 10 percent of the mains, which was a conservative number because it needed to be put in the gas model to see if flow was maintained and the simulations did not consider whether there might be individual mains without any connections. There needed to be a provision or understanding for how to manage gas rates through almost the entire course of electrification as the community transitions. The Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 10 of 17 S/CAP funding study will look at different strategies and information will be presented to the UAC when it becomes available. Vice Chair Mauter cautioned that when using the word “abandonment” to clarify it meant that customers have voluntarily disconnected from their gas line, not that the Utility was abandoning customers. Mr. Abendschein clarified that main abandonment referred to mains that people have chosen to disconnect from. This was not a plan to withdraw gas. This was a study to understand the potential effects on the gas system from electrification that the community was pursuing. If strong progress was made with electrification, there were many potential impacts that need to be mitigated. The current focus was on promoting voluntary electrification. Chair Scharff asked what the anticipated timing was to get to 20 or 40 percent. Chair Scharff wondered if electrification worked properly for large homes, for example, a home that is 5000 square feet, because people have told him it did not. Mr. Abendschein replied that the timing depended on whether we make it simple for people to pursue electrification. A number of concepts will be tried through 2026 and 2027. Air District regulations coming into effect over the next several years may help move the Bay Area toward higher levels of electrification penetration. Mr. Abendschein thought that very large homes will have more complicated systems but homes that are 3000 or 4000 square feet can be fully electrified using common technologies. Commissioner Phillips inquired if any industrial customers used natural gas as a feedstock; if so, it will be very hard to get them to withdraw from the system. Commissioner Phillips thought the simulation assumed geographic independence of people disconnecting from gas but he suspected that people in more affluent geographies were more likely to disconnect because they can afford to do so, and disconnections could be looked at empirically to see if that was the case. Commissioner Phillips did not believe an 80 percent reduction could occur without driving enormous rate increases. CPAU was next to probably the smallest gas utility in California and will keep getting smaller. CPAU’s gas rates have been slightly lower or on par with PG&E, although there was CPAU’s big winter gas spike relative to PG&E. As electrification continued, CPAU’s rates may go substantially higher than PG&E. Commissioner Phillips wanted Palo Alto to explore the option of combining with PG&E, maybe through a sale of the gas utility, because customers would benefit from potentially lower rates and PG&E would benefit from having more customers and revenue. Putting together a larger system may potentially be better than having multiple independent small systems each trying to manage its own decline. Mr. Abendschein did not know if any industrial customers were using natural gas as a feedstock. With the penetration of life sciences companies in Palo Alto, it was possible that natural gas was being used as a feedstock. Reductions were not assumed in the medical and industrial sectors because the gas uses in those areas were unknown. There may be clusters of homes in the more affluent areas of town where people can afford to disconnect but that Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 11 of 17 assumption was not included in this study. Mr. Abendschein was not sure they could predict where people will electrify. Mr. Abendschein pointed out that when you offload the risk of stranded assets onto another entity, they usually find a way to make you pay for it. The PG&E option and every other option will be considered. Palo Alto wanted to set an example. Utilities face similar challenges statewide and are going through planning processes. Planners believe there is a way to gracefully shrink the gas system. Vice Chair Mauter commented that turning over Palo Alto’s gas system to PG&E would save about 7 percent of overhead costs and the General Fund transfer. Alan Kurotori, Utilities Director, said the City was not contemplating a sale of the gas utility. The gas transition study was an evaluation of what it will look like as people electrify. The City’s commitment and interest was to continue with the gas utility. Commissioner Tucher questioned how the decision was made to include this topic on tonight’s agenda after discussing it a month ago. Commissioner Tucher did not see this item on the Finance or Council agenda for the rest of the year. Commissioner Tucher repeated the questions that arose at the last meeting. Commissioner Tucher understood this was a gas study and there was a separate electric study but he wondered how the gas transition will coordinate with grid modernization. The grid had to be ready to support people when they get off gas. Last month, the core gas network was not defined nor could it be drawn on a map. In Commissioner Tucher’s research, he found many towns and cities that were trying to decommission or transition off gas, and we could learn from what other Utilities were doing and best practices. Vice Chair Mauter said that staff mentioned during the planning meeting that the preliminary results were distinct from the content discussed last month. Staff wanted the UAC to have the opportunity to see what will be shared with S/CAP. Mr. Abendschein noted that the UAC’s involvement and feedback on studies had produced better results. Mr. Abendschein felt he always got something valuable when he came to the UAC mid-study. Mr. Abendschein confirmed that last month’s UAC comments were being incorporated into the study plan. Commissioner Phillips appreciated this update, was surprised that over 80 percent of the estimated equipment population was gas, and it was great information to see we have to get up to 60 to 80 percent reduction before having a significant ability to close mains. Vice Chair Mauter suggested including benchmarks in the study on how fugitive emissions were likely to change as gas usage declined on a relative basis and thus what was the climate benefit of the transition. If it was possible to include fugitive emissions, Vice Chair Mauter advised staff to mention it when going to S/CAP. Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 12 of 17 Mr. Abendschein said fugitive emissions were estimated but were relatively small compared to primary combustion emissions. There had been past discussions with other UACs about upstream emissions beyond Palo Alto’s gas system. Chair Scharff expressed his appreciation for Mr. Abendschein presenting this item to the UAC. Public Comment: None. ACTION: No action required. ITEM 3: Discussion of Implementation Plan for Voluntary Residential Electric Service Time-of- Use Rates Catherine Elvert, Communications Manager for the Utilities Department, delivered a presentation. Ms. Elvert sought the UAC’s feedback on the planned phase enrollment, draft communication plan, and draft customer communication materials. The TOU rate structure reflected the cost of supplying electricity at different times, with electricity prices lower during off-peak hours and higher during peak hours. The benefits of TOU rates were lower costs for Utilities and customers, reduced peak demand, alleviated stress on the electric grid, reduced grid greenhouse gas emissions, and improved overall system reliability. Research was done to find out what other utilities did when offering voluntary TOU rates to make sure we follow best practices. In January of 2026, a phased test enrollment will begin with about 10 customers per month through March of 2026. Those customers will receive direct communication to participate and may include Commissioners, City Council Members, and City staff. The goals of this test were to verify the accuracy of consumption data and seek customer feedback. If the data proved accurate and there was positive customer feedback, enrollment will open to up to 50 customers per month. Around July of 2026, enrollment will open to all interested customers. Around 100 to 500 total customer enrollments is estimated for the first year once we begin offering TOU for all customers, based on the uptake that other public utilities have+ seen when offering voluntary TOU rates. Ms. Elvert had detailed information on how those estimates were calculated, if the UAC was interested. To increase opt-in participation, messaging will clearly communicate the TOU program rules, how customers can realize cost savings by adjusting their energy use, provide customers with tools and information to help them make informed choices, and educate all customers about the environmental benefits of consuming electricity during the 9 a.m. to 3 p.m. super off-peak solar production periods rather than the 4 p.m. to 9 p.m. peak period even if they are not on the TOU rate. Attachment A of the staff report contains a detailed description of the customer communication plan. Outreach efforts will include traditional methods, digital, and media engagement. Utilities will engage in targeted outreach to customers who may benefit the most from being on the TOU rate, such as higher energy users, all-electric homes, and electric vehicle drivers. Customer satisfaction will be monitored through feedback surveys. A timeline for various outreach efforts is provided in Attachment A of the staff report. A compilation of Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 13 of 17 frequently asked questions (FAQs) on the City’s website will be a resource to help customers understand the new TOU rate, benefits of shifting energy use away from peak hours, and will help alleviate demands on customer service staff. A list of initial FAQs is provided in the staff report. Recommendations from industry partners such as the American Public Power Association and examples of other utilities’ FAQs helped guide the proposed draft FAQs. The FAQs will evolve as the TOU program is implemented. Lessons learned from other utility case studies indicate that tailored messaging boosts enrollment. Messaging should be direct, simple, and focused on personal, financial, and environmental impacts, and include how much customers can save in dollars and carbon reductions by shifting their time of energy use. Ms. Elvert showed a slide of the rate schedules and time periods in summer and winter to help communicate potential savings. Customers can perform their own rate analysis by looking at billing information through MyCPAU but Customer Service Representatives are available to provide personalized rate analysis using a rate calculator tool. The hope is to eventually make the rate calculator tool available in the MyCPAU portal. Examples of messaging from other utilities were shown; one focused on cost savings; another used graphics and charts to show what time of day was super off-peak, off- peak, peak, and when it was ideal to run appliances, charge EVs, and pre-cool your home; and another showed rate schedules at varying times. The packet includes three sample draft utility bill inserts designed to convey to customers the benefits of opting in to the TOU rate; one was educational, one was behavioral change, and another was focused on cost savings. Staff can test the success of response to messaging approaches and outreach channels. Vice Chair Mauter had a challenging time understanding it was a laundry machine in the appliance pictures on the sample draft utility bill insert. Vice Chair Mauter opined the Southern California Edison example with diagrams instead of pictures was simpler and visually impactful. The third sample draft utility bill insert highlighted the opportunity of lower energy costs but the message did not resonate strongly with her because it was not benchmarked to current rates. In the third box, instead of “can shift major electricity use to 9-3,” what mattered was shifting use out of 4-9, so Vice Chair Mauter suggested inverting the message. Vice Chair Mauter pointed out that the sun shines from 4 until 9 p.m. sometimes but there is tremendous congestion on the grid, so following the sun was not good marketing guidance. Commissioner Tucher wanted the implementation to be faster than 10 customers per month and wished the price differential was bigger. NEM-1 solar customers will never qualify for TOU because of the billing system, so Commissioner Tucher wanted the billing system to eventually be put on the agenda because the faster we can qualify all solar households, the better. Commissioner Tucher thought consumer behavior will trip over the 1-hour wedge on the time chart for 3-4 p.m. because it goes from super off-peak, 3-4 p.m. was normal, and then it was peak. Commissioner Tucher advised staff to avoid small print in utility bill inserts. Commissioner Tucher opined that marketing messaging had more impact when you bulleted specific actions, such as “set your dishwasher to start at 10” or “do not do your laundry or charge your EV between 4 and 9 p.m.” Commissioner Tucher noted none of CPAU’s or other utilities’ marketing examples explained why customers should shift their usage. Commissioner Tucher wondered if Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 14 of 17 people knew the reason that power was cheap at 2 p.m. is because solar is abundant. Commissioner Tucher inquired if the utility was starting to use AMI analytics to build usage patterns to model how and when customers were using power, and then see how those curves change when people switch to TOU. NEM-1 will be less compelled by TOU when solar households pay nothing for power during the summer but the TOU differential in November and December will be attractive. Chair Scharff believed the communication and marketing plan will be successful. Instead of saying do not use any electricity, Chair Scharff thought it was good for customers to know if some things were more impactful, for example, running a dishwasher versus charging your EV. Chair Scharff wondered if customers would save money by buying a battery and charging it off peak. Chair Scharff assumed the law required TOU rates be based on the cost to serve. Alan Kurotori, Utilities Director, said a separate study was done to determine rates and operational windows. Rates can be 2 or 3 tiers (low/high or low/medium/high). Ms. Elvert wanted to focus the marketing messaging on solar production hours being the most beneficial for customers to use energy during the super off-peak period, and emphasize we are encouraging customers to shift their electricity use for environmental reasons. Commissioner Phillips agreed it was useful to communicate to people who were not on TOU rates, perhaps have a flyer saying to charge your EV or batteries during the day. Commissioner Phillips knew other cities had tried it and seen behavior shift, so it will be interesting to compare the behavior shift in Palo Alto; however, it will be a long time before we learn much with only 10 people per month and people on solar not being eligible. A $37 difference per year on a typical bill was a small monthly impact. Commissioner Phillips asked if people will be asked to sign up for a minimum of 6 months or 1 year. Ms. Elvert answered that people will sign up for 6 months and then will have the opportunity to opt out and switch to the E-1 rate. Mr. Kurotori mentioned one of the goals of the AMI rollout was the ability to mine data on customer usage. Staff was learning from other agencies such as Sacramento Municipal Utility District on how they mine their data and how customer usage changed over time. Other agencies had a lag time between AMI rollout and TOU rates. Customers can call CPAU customer service for an analysis to see if they will save money by switching to TOU rates. Other utilities found that NEM-1 solar customers do not move to TOU. NEM-1 customers feed back into the grid at a lower kilowatt hour rate because solar production is primarily during the day, so TOU did not make economic sense for them. If customers save, the Utility saves. Public Comment: None. ACTION: No action required. Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 15 of 17 ITEM 4: Reaffirmation of the Carbon Neutral Plan and the Renewable Energy Credit Exchange Program; CEQA Status: Not a project Jim Stack, Senior Resource Planner, delivered a slide presentation. The Council adopted a Carbon Neutral Plan in 2013 using an annual accounting standard, meaning we considered ourselves carbon neutral if our annual supplies of carbon neutral generation were the same or greater than our annual load. At that time, emissions did not vary drastically over the course of the day or year, so the duck curve was not prominent. As more solar was interconnected on the grid, the duck curve became more pronounced. In the middle of the day, especially in the spring and fall, the electricity on the grid is clean and has very low emissions intensity. In the evening when the sun goes down, gas generation has to come online and the grid becomes much dirtier. In 2020, Council updated the Carbon Neutral Plan to hourly accounting, a stricter and more rigorous accounting standard where every hour of the year we look at our load and carbon-neutral generation, and any surplus or deficit position we have in each hour is weighted by the average emissions intensity of grid power during that hour. In 2020, Council also adopted the Renewable Energy Credit (REC) Exchange Program to sell some of our surplus in- state renewables (Bucket 1 RECs) and exchange them on a one-for-one basis for out-of-state renewables. There was no climate impact associated with REC exchanges. There was a large price differential between in-state and out-of-state renewables because of the State’s RPS requirements and preferential treatment to in-state renewables. For 2020 and 2021, staff was directed to allocate 2/3 of REC revenue to offset supply costs and 1/3 of revenue allocated to local decarbonization efforts. In 2022, Council reauthorized the REC Exchange Program and directed allocation of all REC net revenue toward local decarbonization efforts, and directed staff to come back in 2025 to review the results and obtain Council reauthorization of the REC Exchange Program. In 2020 and 2021, the REC Exchange Program drew in roughly $2 million per year in net revenue with Bucket 1 REC prices around $15 to $20 per REC and Bucket 3 prices around $5, providing an arbitrage opportunity. In 2023 and particularly in 2024, the REC Program net revenue was about $18.5 million over those 2 years, because Bucket 1 REC prices increased to about $75 to $80 per REC, and Bucket 3 prices did not change. In 2025, revenue was about $3.5 million and Bucket 1 REC prices were roughly in the $18 range. From 2020 to 2025, the program’s total net revenue was about $28.5 million, about $3.5 million was allocated toward offsetting supply costs and the remainder was set aside for funding electrification efforts for local decarbonization purposes through the S/CAP. To date, the funding for S/CAP initiatives such as electrification has come primarily from Public Benefits Funds, Low Carbon Fuel Standard Credit sales, and gas Cap-and-Trade allowance sales. A portion of the revenue from sales of carbon allowances received from the State was put into the Cap-and-Trade reserve and earmarked for decarbonization programs. In 2023 and 2024, the REC Exchange Program net revenue greatly exceeded the revenue from carbon allowance sales, which was usually about $5 million per year, so staff will return at a future UAC meeting with a recommendation for handling this unanticipated situation. For the next 5 years, the REC Exchange Program is projected to bring in about $2 million per year in net revenue with most of Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 16 of 17 it coming in 2026-2028 based on the REC forecast and current supply portfolio. Afterward, the opportunity to bring additional revenue will start dropping rapidly due to the RPS requirement level increasing yearly until it reaches 60 percent in 2030, so the amount of excess in-state renewables will diminish over time. Load is also increasing and some older power purchase agreements are set to expire, which reduces the volume of RECs that can be exchanged. Signing additional PPAs for in-state renewables, which staff was working on, will increase the amount of RECs available to exchange. For the Power Content Label mailed in the fall every year, the State considers out-of-state renewables equivalent to grid power, calling it “unspecified power” and assigning an emissions intensity equivalent to a dirty gas generation plant. Selling in-state resources and replacing them with out-of-state RECs makes our portfolio look like it has more market power and the carbon intensity associated with the portfolio goes up. For 2025, Palo Alto’s portfolio without REC Exchanges has a carbon intensity of 45 pounds of CO2 per megawatt hour but with REC Exchanges has a carbon intensity of 159 pounds of CO2 per megawatt hour, which is still roughly half as dirty as the statewide average for all Utilities in California. Commissioner Phillips was in support of continuing the REC Exchange Program. Commissioner Phillips was not worried about the Power Content Label because it was not indicative of Palo Alto’s true carbon intensity. Commissioner Phillips asked if staff thought Bucket 1 and Bucket 3 prices would stay at the same differential. Mr. Stack anticipated Bucket 1 prices to maintain their value and Bucket 3 prices to increase minimally. Commissioner Tucher thanked staff for the very informative presentation. Palo Alto made the argument that we do these things to be a leader and model this for others. Chair Scharff inquired if there had been any negative pushback about the Power Content Label, if people thought we were not modeling it and not achieving what we say we achieve. Chair Scharff wondered if the extra money we made from it had a meaningful impact. Mr. Stack was not aware of any pushback being received on Palo Alto’s Power Content Label changing. Catherine Elvert, Utilities Communications Manager, confirmed that staff had not received any negative feedback on the Power Content Label. This year’s Power Content Label will be sent to residents in their utility bill inserts in December. Public Comment: None. ACTION: Commissioner Phillips moved staff’s recommended motion for the UAC to recommend that the City Council: Utilities Advisory Commission Minutes Approved on: November 5, 2025 Page 17 of 17 1) Reaffirm the Carbon Neutral Plan, including the use of RPS-eligible, unbundled RECs (Bucket 3 RECs) to neutralize any residual emissions resulting from the use of an hourly emissions accounting methodology; 2) Reaffirm the continuation of the REC Exchange Program, whereby the City exchanges bundled RECs from its long-term renewable resources (Bucket 1 RECs) for Bucket 3 RECs, to the maximum extent possible, while maintaining compliance with the State’s RPS regulations, in order to allocate additional revenues toward local decarbonization efforts; and 3) Direct staff to return to the UAC and City Council in 2028 to provide another review of the program’s impacts. Vice Chair Mauter seconded the motion. Motion passed 4-0. COMMISSIONER COMMENTS and REPORTS from MEETINGS/EVENTS Commissioner Tucher called attention to an article in the local newspaper entitled “Data Centers Drive Surging Electricity Demand.” Commissioner Tucher personally thought data centers were misunderstood or lacked analysis. Data centers were a major portion of the load forecast starting this year. Commissioner Tucher heard staff talk about the growth of data centers but there had never been a discussion about who were the customers that were building data centers and why were they building them in Palo Alto. Power was cheaper in Palo Alto relative to PG&E. Commissioner Tucher wanted staff to understand the local market opportunity and trend for data centers. To obtain a deeper understanding, Commissioner Tucher wanted a detailed discussion agendized on data centers. Commissioner Tucher suggested staff could talk to local industry experts on data centers. Commissioner Phillips wanted to know the Utility’s stance on data centers, whether we should say we want to build more data centers because they will lower residential rates or we do not want data centers, keeping in mind that other aspects from the City point of view need to be considered. Alan Kurotori, Utilities Director, intended to agendize data centers in December. ADJOURNMENT Chair Scharff moved to adjourn. Meeting adjourned at 8:33 p.m.