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HomeMy WebLinkAbout2025-11-18 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 11 Regular Meeting November 18, 2025 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 5:30 p.m. Present In-Person: Burt (Chair), Lythcott-Haims, Reckdahl Absent: None Public Comment 1. John Melnychuk with Quiet Zones for Palo Alto appreciated the Council’s decision to install quiet zones. Mr. Melnychuk hoped the Finance Committee would secure funding promptly and move the process forward. To assist with the effort, Mr. Melnychuk spoke with Senator Josh Becker’s office and Santa Clara County Supervisor Margaret Abe- Koga’s office about funding. 2. Melinda M. expressed uncertainty about how funding for the quiet zones would proceed following the Council’s vote. Melinda M. noted concerns that progress could stall within the Finance Committee. Melinda M. emphasized that funding was essential to move the project from initiation to completion. Agenda Items 1. Recommendation City Council Adopt a Resolution Approving the 2026 Natural Gas Cost of Service Analysis Report, Amending Rate Schedules G-1 (Residential Gas Service), G-2 (Residential Master-Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service) and repealing G-10 (Compressed Natural Gas Service) as Recommended by the Utilities Advisory Commission. Utilities Department Director Alan Kurotori announced this was Assistant Director of Resources Karla Dailey’s last Finance Committee meeting. Director Kurotori encouraged Councilmember Burt to allow Utilities Advisory Commission and Subcommittee Member Gupta time to speak this evening. Director Kurotori thanked the UAC Subcommittee Members for their time and effort working on this COSA. Lisa Bilir, Senior Resource Planner, presented the 2026 Natural Gas Cost-of-Service Analysis Report and proposed updated gas rate schedules. The revised rates were intended to ensure equity among customer classes and maintain compliance with cost-of-service principles and SUMMARY MINUTES Page 2 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 previously approved City Council design guidelines. Extensive stakeholder engagement was undertaken with the UAC, the Finance Committee and the City Council, including detailed review sessions held with the UAC Subcommittee. Ms. Bilir, Senior Resource Planner, outlined 4 refinements included in the 2026 study that differed from the current rates that were primarily based on a 2020 COSA. The first refinement updated the monthly service charge by calculating a weighted average meter cost, resulting in a more accurate allocation of costs of labor and materials for each customer’s meter. The prior method relied on a representative meter that did not reflect the service demands of different meter sizes as fully as the 2026 COSA method. A chart was shown of the current rates and recommended changes for each customer class. The second refinement recommended 3 separate service charges based on meter capacity and usage characteristics within the G-2 commercial and multifamily class. The consultant analyzed usage information and found the higher meter capacities had higher average usage, required larger service lines and imposed a greater demand on the system. The small-capacity meters in the G-2 customer class were similar to residential customers. The third refinement updated the average-and-excess method to align rates with the distribution system design, assigning more costs to residential customers because of their high peak usage. The average represented the amount of investment needed to serve customers using at the average level throughout the year. The excess represented the additional investment needed to serve customers that used peak levels, referred to as demand. The fourth refinement redesigned residential tier rates using a base-and-excess method, resulting in a $0.15/therm increase in Tier 1 and a $0.23/therm increase in Tier 2. Ms. Bilir, Senior Resource Planner, noted an administrative recommendation to remove the cap for Cap-and-Trade and transportation charges, which were pass-through costs outside the City’s control. This change had no impact on rates. The median residential customer would see an approximate 8 percent bill increase over a 12-month period, with varied impacts across commercial and multifamily groups. Ms. Bilir, Senior Resource Planner, reviewed the Council’s design principles and how the study addressed each one. The study verified that rates were based on reasonable cost-to-serve using an industry-accepted allocation method, evaluated all rate schedules and proposed eliminating the G-10 schedule by serving the City’s compressed natural gas station via an interdepartmental transfer. Low-income customers using approximately 30 therms per month would experience bill impacts below $5 and mitigating all low-income bill impacts would cost the City about $30,000 per year. Ms. Bilir, Senior Resource Planner, summarized the available non-rate revenue sources, including included $0.4 million in interest income from FY 2025 and $15 million in the Cap-and-Trade Reserve, noting the restricted allowable uses for those funds. Staff recommended approval of the 2026 Natural Gas Cost of Service Analysis Report, adoption of amended rate schedules and repeal of the G-10 rate schedule. Utsav Gupta, Member, Utilities Advisory Commission, thanked Staff and the consultant for engagement on behalf of the UAC subcommittee for time spent on this issue. Mr. Gupta described how the staff report provides a clearer look at the drivers behind the cost increases. The UAC subcommittee and UAC voted supporting this gas COSA onward. SUMMARY MINUTES Page 3 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 Item 1 Public Comment 1. Hamilton H. observed that Staff should show the fiscal year's total rate increase after this year's previous 5 percent increase and expressed appreciation for the step in the right direction with the new 2026 gas COSA. Councilmember Reckdahl wanted to know what would happen if the pass-through limit was hit. Ms. Bilir stated it would be brought to Council with a request to increase the limit. Kiely Nose, Assistant City Manager, responded that happened when there was a spike in natural gas cost and the gas utility had to absorb over $1 million. Karla Daily, Assistant Director, Utilities Department, clarified the limit on the commodity pass-through is still in place and Staff is not recommending to remove it. Council approved a hedging program setting aside some money to deal with a price spike. There are four charges that get passed through. Councilmember Reckdahl recalled the cap is being removed on cap-and-trade compliance pass-through and transportation and asked about the fourth one. Assistant Director Daily replied the fourth one is the carbon-neutral gas offset pass-through. It has a very explicit Council-approved limit on how much money can be spent per ton on offsets. It does not make sense to not have a cap there. It is a discretionary program Council has decided to implement and there are Council- approved parameters around it. If offset costs become high, Council will be consulted on whether to continue the program or change the parameters. Councilmember Reckdahl asked why there is a cap on commodity price. Assistant Director Daily answered having a program in place around that made sense to have the cap. If the market price exceeds the cap, the reserve will be dipped into. Councilmember Reckdahl inquired what drove the tiers on slide 10. Assistant City Manager Nose replied several different measures of the average were reviewed to come up with the baseline levels and it is an average measure being used and is consistent with how it was previously done. Councilmember Reckdahl wanted to know what cap and trade money will be used for on slide 14. Director Kurotori responded cap and trade natural gas can be used for fuel switching. That is used for programs such as heat pump water heater programs and programs that will go to the S/CAP committee. MOTION: Councilmember Reckdahl moved, seconded by Councilmember Lythcott-Haims, to recommend the City Council adopt a resolution (Attachment A) that: 1. Approves the 2026 Natural Gas Cost of Service Analysis Report (Attachment B); and SUMMARY MINUTES Page 4 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 2. Amends Rate Schedules (Attachment C) effective for gas usage beginning February 1, 2026 (FY 2026): a. G-1 (Residential Gas Service) b. G-2 (Residential Master-Metered and Commercial Gas Service) c. G-3 (Large Commercial Gas Service) 3. Repeals Rate Schedule G-10 (Compressed Natural Gas Service) MOTION PASSED: 3-0 2. General Fund Major Tax Revenues Review and Retiree Benefit Funding Policy Update. CEQA Status – Not a Project. Lauren Lai, Chief Financial Officer, Director of Administrative Services Department, summarized adaptation of fiscal conditions for the coming fiscal years followed by a slide presentation including financial planning cycles and conversations, an overview and Staff recommendation, general fund major tax revenues, sales tax – declining revenues to the City, retiree benefit funding policy and PARS pension trust, retiree benefit funding policy – goals and principles, pension oversight and approach, PARS pension trust – contributions and accrued savings, pension model assumptions and projections (all plans), pension projection – required employer contribution (all plans), pension projection – unfunded accrued liability (all plans), benefits of transmitting funds from PARS to CalPERS, general fund – fiscal strategy, recommendations, and financial planning cycles and conversations. Councilmember Reckdahl requested more detail on ADP and ADC. Chief Financial Officer Lai explained ADC is going to be paying towards the annual actuarially determined contribution. That is an annual expense paying towards the monthly mortgage. There is also the outstanding liability, the principal outstanding on the mortgage. In the pension world, that is the unfunded liability. That is paying the ADP. Councilmember Reckdahl asked how CalPERS works and how to get unfunded liabilities. Chief Financial Officer Lai stated it is a defined contribution plan. There are vested liabilities for the employment contracts that have a certain cost for vested benefits. That is the total liability. It is about $2 billion. There is an asset to the credit of the City that is about $1.5 billion. The difference between the liability of $2 billion and the assets of $1.5 billion is the unfunded liability. Every year, CalPERS does actuarial studies to assess the vested obligation of each employer and the asset credited to each employer. That difference is the unfunded liability. The funded status is presented to Council every year. ADP is being paid toward the half a billion. ADC is paying toward the annual payment that has to be paid as a part of the budget. If CalPERS investments were exactly what they thought it would be, there would not be ADP. Assistant SUMMARY MINUTES Page 5 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 City Manager Nose added it is also their assumptions. The assumed rate of return in the market can change. If it lowers, the liabilities go up. It is not simply market forces. It can be age, cost of medical, or salary growth. CalPERS reviews a number of variables that go into calculating that every four years to update the major assumptions. Chief Financial Officer Lai stated there is a demographic cycle that runs every two years and an LM cycle which is more about investment strategy. They do annual cycles on actuarials, demographics every two years, and asset liability management and strategy every four years. TrueComp maps local costs. Actuaries are run every three to four years in alignment with ALM. Chair Burt inquired what CalPERS has changed in their projected return over the last 15 years and how it has affected cities that participate in CalPERS. Chief Financial Officer Lai replied it is commonly known as the discount rate. Discount rates by the CalPERS agency was as high as 8.5 percent back in history and currently is 6.8 percent. It has declined over the years as it continues to calibrate with anticipated more conservative projections of long-term returns. CalPERS does studies looking long-term horizons but that discount grade has gone down from 8.5 to 6.8 percent. Over the years that has caused a lot of volatility in liability and pension costs. A policy has been adopted locally to mitigate that, increase the funded status, and create some more stability. The policy rate is 5.3 percent on the normal cost and they contribute into PARS. Councilmember Lythcott-Haims asked if the excess has been moved from PARS to CalPERS in the past. Chief Financial Officer Lai explained they are getting ready to send some to CalPERS to meet the obligations of pension liability. The PARS fund is actively invested with an assertive portfolio strategy. CalPERS has a different investment strategy that is higher risk. Councilmember Lythcott-Haims requested referring to PARS as Section 115. Councilmember Lythcott-Haims wanted explanation why the employer cost line flattens out in 2038, 2039. Chief Financial Officer Lai stated the payment obligation flattens out because the UAL gets paid. This is the employer payment. It is made up of normal costs and unfunded actuarial liability. If the outstanding principle of liability is paid off, all that will have to be paid over time is normal costs. Councilmember Lythcott-Haims understood it to say that getting out of the unfunded would get them to 100 percent of the cost of the unfunded pension liability either in 2035 or 2036 with the 115 Trust or by 2037 without the trust. Chief Financial Officer Lai confirmed that information. A slide was provided showing the funded status chart. Chair Burt asked if slide 11 indicates their contribution will be lower than projected as result of the transfer. Chief Financial Officer Lai confirmed that information stating slide 10 shows the impact of the transfers. The yellow column needs to be aligned with last year's long range. The fifth column that says change in REC is the reduction in employer costs. As transfers are made, the first employer cost is $69.6 million, next year $68.7 million, $65.4 million. The change is in the next column from the previous year. As the budget is developed, the improvement will be seen. Councilmember Reckdahl wanted explanation of the green and pink text on slide 12. Chief Financial Officer Lai explained the green is based on the CalPERS actuarial valuation updated SUMMARY MINUTES Page 6 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 based on the most recent earnings release. June 30, 2025, CalPERS investment portfolio for the 12-month earned 11.6 percent. As that is incorporated into the information, that is the green line. It is what will play out if nothing is done. They have the Section 115 savings. If the assumptions in this model are made and the funds are transferred, the dotted line is what will play out. The pink line models the projected outcome of transmitting ADC and ADP and incorporating assumptions about investment returns, payroll growth, and inflation. Chair Burt assumed the green line shows in addition to having Section 115 Trust, CalPERS is working to reduce the unfunded liability. Chief Financial Officer Lai confirmed that information. Different policies have been implemented around how to improve the unfunded liability through risk mitigations on the discount rate, investment strategies, and the amortizations of gains and losses. CalPERS Board has been proactive in trying to bring down the liability for all employers but not correct it so much that it crowds the ability to provide services locally. Councilmember Reckdahl observed $6 million is being transmitted from PARS to CalPERS to cover the ADC. Chief Financial Officer Lai clarified that $6 million is all funds. The general fund portion is about 60 to 65 percent, about $3.6 million. It reduces the amount being put in PARS that year in the net effect. That is modeled in slide 10 and through the line chart. The measurements on slide 10 are the ADCs for five years. The 10 and 10 is a contingency modeling in case the one time is unsuccessful. The recommendation is at $6 million for five years and the ADPs. The ADC is the budget balancing for five years in addition to the cuts. The ADP is paying down liability which affects pension costs slower because it has to be amortized. The two last columns measure what will happen to the funded status if this is implemented and contributions continue. Councilmember Reckdahl stated the long-term projection is ramping up and revenues is growing so the five years of $6 million is to hold off until the revenues catch up with the spending. Chief Financial Officer Lai confirmed this. When this was brought in September, in the short-term five years, there were upticks in employer costs because of expensive loss bases amortizing out. This will enable addressing the sales tax loss coupled with the short-term spike. Councilmember Reckdahl observed on packet page 82, the last quarter of property tax was small. Chief Financial Officer Lai explained property taxes do not come in on a linear basis. Councilmember Reckdahl asked how business tax is received. Chief Financial Officer Lai is paid quarterly. Councilmember Reckdahl assumed online sales goes into a pool broken down by the county. Chief Financial Officer Lai confirmed this explaining it goes to the county out to the city jurisdictions based on distribution of brick and mortar sales as a weighted average of the whole county. They are 6 percent of the county's brick and mortar sales. Councilmember Reckdahl asked why the Section 115 Trust was chosen. Chief Financial Officer Lai replied putting it in a 115 Trust maintains local control and allows for a different investment strategy. Asset allocation in PARS is about 50 to 70 percent in equity and 20 to 30 percent on fixed income. Councilmember Reckdahl wanted to know what ALM is. Chief Financial Officer Lai replied it is asset liability management. It is the four-year cycle where CalPERS goes through and analyzes its investment strategy, how it manages its portfolio, the composition, the risk- taking, and the estimated discount rate for the next four years. Their staff completed it and SUMMARY MINUTES Page 7 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 made their initial reading and recommendation to their board on September 15. When money is given to CalPERS, they make all the decisions. Councilmember Lythcott-Haims observed the policy says anything above the REC should be given to CalPERS and they get to decide whether it goes toward cost or liability. It has not been paid yet but should have. Chief Financial Officer Lai explained on slide 9, after June 30 actual balance of $84 million, $10 or $15 million could have been transferred. It typically does not go before Finance Committee until September. It could have happened October of 24 if they were playing catch up. Councilmember Lythcott-Haims wanted to understand why the Section 115 Trust was chosen as a way to approach solutions to the budget shortfall versus reducing the BSR. Chief Financial Officer Lai replied the long range plan that would be put before the Committee in two weeks will have the use of BSR. The BSR combines uncertainty reserve to simplify. Chair Burt said they reached the point to start doing transfers. It was predetermined at this point of asset accumulation to do these transfers. Chief Financial Officer Lai added it was predetermined in the policy that if there are service impacts and revenue losses, Council and Staff would reconcile that. This does not stand alone and independent of local service impacts or the reality of our budget and financial position. The plan is being implemented as they go. Contributions are still planned. ADP payments are still planned. Policy says money should be transferred from Section 115 to CalPERS. The ADC is saying there is a budget deficit. The second largest tax revenue has a decline that needs to be addressed. The policy allows that and proposes a five-year strategy. It is consistent with policy. Councilmember Lythcott-Haims inquired how conservative or aggressive the revenue estimates are. Chief Financial Officer Lai shared the general fund sales tax revenue is driven by working with Avenue. They have to proactively plan for contingencies. On the property tax side, they work closely with the county. They meet with local city jurisdictions quarterly. In addition, they consult with HDL who generate in-depth property real estate information. They meet four times a year to review reports. Another aspect of ADC is if the financial position improves, the $6 million payment does not have to be made every year. Every year, authorization from Council is obtained. Assistant City Manager Nose added PARS 1-year earning was 11 percent, 3- year earning was 13.6, and a 5-year earning was 6.7. The local control is the reason for the trust fund. Item 2 Public Comment – none Councilmember Reckdahl asked who has to pay the money if all retirees live to 110. Chief Financial Officer Lai answered the City does and explained how the demographic cycle protects the CalPERS Agency and the City as employer. MOTION: Councilmember Lythcott-Haims moved, seconded by Councilmember Reckdahl, to recommend the City Council SUMMARY MINUTES Page 8 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 • Continue contributions to PARS Pension Trust • Transmit $10M from PARS to CalPERS for ADP, include in FY26 Mid-Year • Transmit $20M from PARS to CalPERS for ADP, include in FY27-36 LRFF • Balance General Fund FY27 budget with on-going appropriation (cuts) of $6-$8M, transmit $6 from PARS to CalPERS for ADC, include in FY27-36 LRFF • Continue monitoring major revenues, advance State level discussions and plan for contingent one-time sales tax reduction; with any update at FY26 Mid-Year and potential proposal for PARS to CalPERS payment of ADC to reduce pension costs. MOTION PASSED: 3-0 3. Discussion and Update on the Fiscal Year 2027 Preliminary Utilities Financial Forecast and Rate Projections Ms. Bilir and Adriana Artola, Senior Resource Planner provided a slide presentation including preliminary residential median bill projections with an overview of rate increases, recently implemented cost containment, preliminary electric rate projection, preliminary electric rate increase by categories, preliminary electric rate cost and revenue projections, preliminary electric operating reserve projection, preliminary electric CIP reserve projections, preliminary electric bill comparisons, preliminary electric median residential rates comparisons, preliminary gas rate projections, preliminary FY 2027 gas revenue increase by categories, preliminary gas cost and revenue projections, preliminary gas operations reserve projections, preliminary gas CIP reserve projections, preliminary gas bill comparisons, preliminary water rate projections, preliminary water rate proposal, preliminary water cost and revenue projections, preliminary water operations reserve projections, preliminary water CIP reserve projections, water bill comparisons ($/month), preliminary wastewater collection rate projections, preliminary FY 2027 wastewater rate increase categories, preliminary wastewater cost and revenue projections, preliminary wastewater operations reserve projections, preliminary wastewater CIP reserve projections, and wastewater bill comparisons ($/month) October 2025. Chair Burt asked if the AMI operational savings is net after amortizing the capital investment or looking at the capital investment and the AMI separately. Dave Yuan, Utilities Strategic Business Manager, responded the electric portion of the AMI project, $10 million, came from the electric special project reserves. It is an ongoing savings for the electric fund. The water and gas side is not netted out against the capital investment. It is about $5 million each for the two utilities. Councilmember Reckdahl queried if that investment was rate money. Mr. Yuan responded the money was borrowed from the electric special project reserves and planned to pay it back over three to five years at the completion of the project. The first payment will be $1 million starting in 2027. Councilmember Reckdahl asked for explanation of the special reserves. Mr. Yuan SUMMARY MINUTES Page 9 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 replied it was established in early 2000s to regulate electric. It has been set aside for special projects that would benefit electric rate payers. Chair Burt inquired about the dotted blue line of the risk assessed maximum historical commodity revenue variance. Ms. Artola replied the line reflects what the reserve balance could look like if revenues were to underperform to a degree as worse as seen in the past 10 years. Ms. Bilir added it is a different metric looking at the reserve targets and minimum and maximum guidelines following the Government Financial Officers Association guideline range approved in the reserve management policies. A separate metric is also looked at for each utility in the instance where the revenue drops by the largest amount that it has in 10 years. Chair Burt observed having Commissioner Gupta present for a major UAC recommendation was a good practice and should be done on a more systematic basis. Director Kurotori stated one UAC discussion was how they become more engaged and communicate directly as a group to the Finance Committee and full City Council. The UAC is constantly looking at meeting the objectives and needs per the Council policies and the reserve policies. The projections are similar from last year. There is active engagement in looking at the increases in totality over the last five years. Chair Burt asked about the future potential cost containment slide. Ms. Bilir replied these were things being actively worked on to achieve in the future. Councilmember Reckdahl wanted a description of future potential cost containment on slide five. Ms. Bilir explained the grid modernization looks at how much should be financed through revenue versus through debt and what the timing must be. Director Kurotori stated about 40 percent of power is received from large hydro from Western Area Power Administrations. With the new laws coming up, they are projecting the Extended Day Ahead Market. Lena Perkins, Senior Resource Planner, added Staff has been working toward this more than 10 years. They were finally able to pressure the federal western agency to negotiate a good deal for customers as they did a transmission change agreement once in 20-year opportunity with PG&E. They were able to allow the City to receive federal hydropower using the Federal Transmission System which is $1 per megawatt hour versus $33. That is why it is variable between $2 and $5 million. That came into effect on May 8, 2025. Director Kurotori said the difference is the CAISO charge. If that is able to be transmitted through the federal power lines, the low voltage tack is avoided. Councilmember Reckdahl asked about the Day Ahead Market. Director Kurotori explained with the governor signing the Extended Day Ahead Market opens more opportunity for the state to sell more excess solar to the other states and get power from other areas. Ms. Perkins stated Staff has been working with Western to optimize the hydro dispatch to time. There are expanded opportunities with the new Day Ahead Market coming. The benefit of the market is when the dispatchable resources are optimized, those clean resources are put in the highest priced hours and more money is made with the same resource. The Day Ahead Market clears on an hourly, 15-minute, and 5-minute basis. Most energy is transacted in the hourly market. That takes into account the type of energy and the transmission constraints. SUMMARY MINUTES Page 10 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 Councilmember Reckdahl asked if the 35 percent change in rates in 2023 on slide 10 was a typo. Ms. Bilir answered there was a year that there were poor hydro conditions. The hydro rate adjuster was put into place. When that was taken out, there was an increase in the base rate of a similar amount. Councilmember Reckdahl inquired what minus 6 percent to 9 percent meant in 2025. Ms. Bilir stated that was a cost of service year. It was an attempt to show the range of bill impacts to different categories of customers based on that cost of service study. Councilmember Reckdahl questioned differences in Santa Clara on slide 15. Director Kurotori is different because of their large data centers and commercial industrial areas. They are very active in NCPA, Geothermal, and wind. They have different investments in different portfolios and are able to pass some of those savings to their customers. Their peak loas is about 1200 to 1300 compared to the City's peak load of 170. Councilmember Reckdahl asked if there are any strategies Director Kurotori would like to implement from them. Director Kurotori said there opportunities in Palo Alto. Palo Alto provides a lot of employee based services and the ability to expand and provide power to the customers that need it. Councilmember Reckdahl asked about the difference in Foster City and Palo Alto on slide 28. Ms. Artola assumed the age of the system had something to do with it. Their wastewater rates are significantly higher so on a combined bill basis, it is comparable. Councilmember Reckdahl queried if it is common to loan money back and forth between different funds. Ms. Bilir said it is not common. The same process that has been done in the past was followed. It is a formally written up loan agreement with an interest rate. It was because of certain factors that came up in this particular instance. Councilmember Reckdahl asked if it is possible to borrow or lend money in the general fund. Chief Financial Officer Lai replied it is not a common practice in municipalities. Chair Burt wanted to know if Staff has projected what they think will be the demand of data centers and how it will affect the supply and rates. Ms. Perkins confirmed they have. The rates include some data center growth. There are scenarios in the IRP projections for high, medium, and low and how large of a potential customer Tesla could be with the public private partnership arrangement. Fairly robust growth was seen over the last 12 months. This projection is 8 percent higher than last year's projection for electric load. The City gate load is currently fairly flat for a few months. There are a lot of question marks about how much data center load will come to Palo Alto. Chair Burt asked if the cost of the new supply would be below the average of the current supply. Ms. Perkins said it is not only a supply question but how expensive the customers are to serve. With grid modernization, there will be an overall higher load factor from the residential and commercial side for electricity. From the supply side, they expect new supplies to be more expensive than current supplies. Director Kurotori added a higher load factor means the customers take the power at a steady rate so the system does not have to be built out for a peak year load. Data centers have a constant steady load. The IRP is a longer term projection. They do the high, medium, and low scenarios to ensure they are looking SUMMARY MINUTES Page 11 of 11 Finance Committee Meeting Summary Minutes: 11/18/2025 at the new resources they need. There is a gap in the future as the renewable portfolio standards are increasing over time. As more agencies look for renewable contracts, there is more competition and in terms of the tax incentives going away. Chair Burt asked about what is driving up the pricing. Director Kurotori stated they would be working with Northern California Power Agency to do another RFP to look at new resources. Chair Burt queried what the drop in gas sales last year is attributed to and if the exceptionally warm night temperatures were a factor. Ms. Bilir confirmed gas usage is driven by weather. When Staff did a weather forecast, they weather adjusted the forecast taking different types of variables into consideration. It will be evaluated each year. Director Kurotori stated it was also a mild summer with not a lot of AC load. It was a good hydro year so they were able to keep more storage in the reservoir. Item 3 Public Comment – None NO ACTION TAKEN 4. Status Update on Calendar Year (CY) 2025 Finance Committee Referrals. CEQA Status -- Not a Project. Lauren Lai, Chief Financial Officer/Director of Administrative Services Department, indicated the packet contained a brief update on the different referrals. Most are closed with a few open. The report indicated when they would come back to the Committee. Item 4 Public Comment – None NO ACTION TAKEN Future Meetings and Agendas Adjournment: The meeting was adjourned at 8:15 p.m.