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Home My WebLink AboutStaff Report 2502-41372.Discussion of Preliminary Analysis of the Infrastructure Impacts Associated with Gas Decommissioning Discussion: 7:10 PM – 7:25 PM Item No. 2. Page 1 of 5 Utilities Advisory Commission Staff Report From: Alan Kurotori, Utilities Director Lead Department: Utilities Meeting Date: October 1, 2025 Report #: 2502-4137 TITLE Discussion of Preliminary Analysis of the Infrastructure Impacts Associated with Gas Decommissioning RECOMMENDATION This is a discussion item and no action is requested. Staff is briefing the Utilities Advisory Commission (UAC) on preliminary results from the Gas Transition Study to hear questions from the UAC that could inform future work on the analysis and to provide information that could inform 2026 UAC work planning efforts. EXECUTIVE SUMMARY Achieving the community’s greenhouse gas emissions reductions goals requires extensive reductions in building emissions. Regardless of how quickly the community reaches these goals, impacts on the gas utility’s financial structure and physical operations are expected. Staff is studying those impacts. The study will simulate different patterns of electrification throughout Palo Alto, identify opportunities for gas main and service abandonment and operational efficiencies, and estimate abandonment costs, changes in operational costs, and customer class cost allocations. It will prioritize gas system safety and identify parts of the gas system that may need to be retained for operational reasons even after substantial parts of the system have electrified. Staff is sharing preliminary results from the first part of the Gas Transition Study with the UAC so it can adjust course as needed as staff works to complete the study. BACKGROUND Item No. 2. Page 2 of 5 Staff reviewed the methodology for this analysis with the Climate Action and Sustainability Committee (CASC) at its June 13, 2025 meeting1 and with the UAC at its September 3, 2025 meeting. The study involves multiple steps: Scenario Gas Sales Reduction Residential Space and Water Heating Electrification Small and Medium Non- Residential Space and Water Heating Electrification Medical and Industrial Electrification* 1 20%25%25%0% 2 40%50%50%0% 3 60%75%75%0% 4 80%100%100%0% * In practice, some electrification will occur in this sector, but staff does not have good visibility on the potential for electrification in this space due to the prevalence of unique / process loads ANALYSIS 1 Climate Action and Sustainability Committee, June 13, 2025, Discussion of Gas Utility Transition Study Scoping, https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=8207&meetingTemplateType=2&compil edMeetingDocumentId=14791 Item No. 2. Page 3 of 5 family homes had at least one major gas appliance. About 85% of single-family water heating and 81% of single-family space heating is estimated to be gas-driven. About 61% of water heating and 50% of space heating equipment in multi-family buildings is estimated to use gas. This aligns with preliminary expectations in the process of community electrification, but these numbers will likely change as results are reviewed in more detail and any data errors or omissions are identified and fixed. Item No. 2. Page 4 of 5 FISCAL/RESOURCE IMPACT 2 (presented at the April 4, 2025 CASC meeting) showed that there are some scenarios in which community benefits from electrification would exceed community costs, including lost gas revenue. Staff and its consultants will complete more detailed estimates of the cost and revenue impacts to the gas utility at various levels of electrification as part of the Gas Transition Study. Staff plans to estimate the cost impacts of various levels of electrification and the impact on various customer classes in the coming months and will return to the UAC and CASC in early 2026 with the results and a list of potential mitigations for any impacts as part of the Gas Transition Study. STAKEHOLDER ENGAGEMENT 3 and January 20214 meetings, and since then the need to more carefully assess the costs of transitioning the gas utility has been raised in several meetings of the UAC, S/CAP climate stakeholders, the Council subcommittees focused on climate contexts, and at City Council. 2 Climate Action and Sustainability Committee, April 4, 2025, Discussion of Preliminary Sustainability and Climate A ction Plan (S/CAP) Funding Study Results, https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?i d=7672&meetingTemplateType=2&compiledMeetingDocumentId=13682 3 Staff Report ID#11639, November 4, 2020, Discussion of Electrification Cost and Staffing Impacts on the City of Pa 4 Staff Report ID#11751, January 6, 2021, Discussion of Projected Electrification Impacts on Gas Utility System Average Rates, https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas- minutes/utilities-advisory-commission/archived-agenda-and-minutes/agendas-and-minutes-2021/01-06-2021- special/01-06-21-uac-item-1.pdf Item No. 2. Page 5 of 5 ENVIRONMENTAL REVIEW The CASC’s discussion of this topic does not meet the California Environmental Quality Act’s definition of a project, pursuant to Public Resources Code Section 21065, and no environmental review is required. Attachment A: Assumptions, Methodology, and Preliminary Key Results from Gas Transition Study Currently in Progress Attachment B: Presentation : Alan Kurotori, Director of Utilities Staff: Jonathan Abendschein, Assistant Director, Climate Action Attachment A 9 2 3 5 Assumptions, Methodology, and Preliminary Key Results from Gas Transition Study Currently in Progress This attachment gives a high-level overview of various inputs, estimates, assumptions, methodological detail, and some key preliminary results for the Gas Transition Study. Estimated Quantities of Gas Equipment in Single-Family Homes Based on Gas Use Staff’s consultant, Energeia, used anonymized gas usage information from all homes and businesses in Palo Alto to estimate what gas equipment was in the homes. Seasonal usage patterns were used to estimate water heating and space heating gas use. Other data used included home sizes and whether the County Assessor’s data for the parcel noted a pool. Multi-family building equipment was estimated by looking at the combined gas use for the entire building, including the house accounts, to determine whether space and water heating equipment was centrally located or in units and whether that equipment was gas or electric. Equipment in commercial buildings was not estimated, but basic estimates of how much gas was used for space heating vs. water heating were created. Based on that information the following very preliminary estimates for populations of gas equipment were generated. Note that the total number of single-family and multi-family units identified are a bit lower than would be expected based on other sources, indicating the need to review the underlying inputs for missing data. Note that multi- family gas equipment accounts are expected to be significantly lower than the number of multi-family units in Palo Alto, since many apartment units do not have dedicated gas meters, having electric or central gas space heating and central gas water heating. Equipment # units % gas % electric Single family Water heating 85%15% Space heating 13,077 82%18% Multi-family Water heating 61%39% Space heating 3,963 50%50% Gas Utility Costs and How Electrification Would Affect them The table below lists the different costs the gas utility incurs, what percentage of the utility’s costs each category represented in FY 2024, and what factors would lead to each category of costs declining. Attachment A 9 2 3 5 Cost Category Varies Based On % of Gas Utility Cost (FY24)Decreases when Commodity, Transportation, and Environmental Sales 41%Sales decline General Fund Transfers Sales 15%Sales decline Demand Side Management Sales 1%Sales decline Customer Service # Customers 4%Customers disconnect Operations and Maintenance (incl. Engineering) Miles of main, main age 16%Lengths of main are abandoned, especially older materials or steel Capital Investment (incl. Engineering) Miles of Main needing Replacement 13%Lengths of main needing replacement are abandoned Administrative Overhead:Mostly staffing 7%Enough lengths of main abandoned that the gas utility needs fewer staff Supply Management Does not vary 2%Gas is no longer used in Palo Alto Debt Service Debt service schedule 1%Debt is paid off Rent Square footage of gas receiving stations 1%Gas is no longer used in Palo Alto Estimated Gas Main Abandonment Opportunity for Different Electrification Levels The City’s consultant ran the following simulations, which loosely aligned with the scenarios discussed with the Climate Action and Sustainability Committee and Utilities Advisory Commission: Scenario Gas Sales Reduction Residential Space and Water Heating Electrification Small and Medium Non- Residential Space and Water Heating Electrification Medical and Industrial Electrification* 1 20%25%25%0% 2 40%50%50%0% 3 60%75%75%0% 4 80%100%100%0% * In practice, some electrification will occur in this sector, but staff does not have good visibility on the potential for electrification in this space due to the prevalence of unique / process loads The consultant found the following after simulating several iterations of random electrification among the sectors noted above. The chart below shows the number and Attachment A 9 2 3 5 percentage of gas mains with the number of connections shown on the x axis. So, for example, under the 60% scenario about 300 mains (about 10%) had no connections and could be removed, while over 500 mains (about 20%) had only one connection. And the number of mains with no connections increased from almost none under the 20% scenario to about 40 in the 40% scenario, over 300 in the 60% scenario, and the vast majority of mains in the 80% scenario. October 1, 2025 www.cityofpaloalto.org Gas Transition Study Preliminary Results Utilities Advisory Commission Background •City, State, and Regional policies drive building electrification •If successful, gas use will decline significantly •The City must plan for financial, physical, and safety impacts •This will enable a safe, smooth, equitable transition Council 2025 Priority Objective #32:Share preliminary analysis of strategies for a physical and financial transition of the gas utility to relevant policymakers and stakeholders 2023-2025 S/CAP Work Plan Work Item 5D: Develop financial and operating plan for declining gas utility sales 2 Study Goals •Understand physical impacts of electrification on gas infrastructure •Estimate operational and financial impacts •Estimate cost of gas main and service abandonment •Develop strategies to: •facilitate abandonment •mitigate physical and financial impacts 3 Study Outputs 4 Other Outputs •Cost impacts to other utilities •General Fund transfer and UUT impacts For the Gas Utility •Cost of gas main/service abandonment •Operational cost impact •System average rate changes by class •How much funding would be needed from some other source to keep gas rates in line with current forecasts •Cap and Trade cost and revenue impacts Overview of Study Progress 5 Study Component Status 1 Build System Model Completed Apr 2025 2 Equipment estimation First draft completed, being reviewed and refined 3 Simulate main abandonment under various electrification scenarios First draft completed, being reviewed and refined 4 Cost categorization and estimates of cost impacts by electrification scenario Partially complete 5 Evaluate impacts on customer groups Not started 6 Identify mitigations At brainstorming stage Electrification Scenarios to Model 6 Scenario Reduction in Gas Sales Water and Space Heating Electrification Residential Small / Med Commercial Large Comm / Industrial 1 20%25%25%0% 2 40%50%50%0% 3 60%75%75%0% 4 80%100%100%0% •Medical and Industrial electrification excluded •Gas disconnection likelihood evaluated for buildings with water and space heating already electrified Preliminary Result:Estimated Equipment Population 7 Equipment # units in data set % gas %electric Single family Water heating 13,077 85%15% Space heating 82%18% Multi-family Water heating 3,963 61%39% Space heating 50%50% TITLE 40 FONT BOLDSubtitle 32 font Preliminary Result: Cost Categories and Cost Drivers Outer Circle = Cost Categories Inner Circle = Cost Drivers Key Insight: Over 60% of costs decrease with declining sales and customer disconnections Preliminary Result:Mains Eligible for Abandonment 9 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 20% Reductions 40% Reductions 60% Reductions 80% Reductions Next Steps 10 •By end of 2025, complete modeling: •Refine data and methodology for estimating equipment population •Refine simulations of electrification scenarios and their outputs •Test simulated electrification scenarios in system model to identify any system operational issues •Estimate utility costs and revenues for each scenario •Estimate impacts to specific gas customer groups •Brainstorm strategies to manage issues identified by the modeling •Early 2026: Final report development