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HomeMy WebLinkAboutStaff Report 2510-53542.Approval of the Minutes of the Utilities Advisory Commission Meeting Held on October 1, 2025 Item No. 2. Page 1 of 1 Utilities Advisory Commission Staff Report From: Alan Kurotori, Director Utilities Lead Department: Utilities Meeting Date: November 5, 2025 Report #: 2510-5354 TITLE Approval of the Minutes of the Utilities Advisory Commission Meeting Held on October 1, 2025 RECOMMENDATION Staff recommends that the Utilities Advisory Commission review and approve October 1, 2025 minutes. Commissioner ______ moved to approve the draft minutes of the October 1, 2025 meeting as submitted/amended. Commissioner _____ seconded the motion ATTACHMENTS Attachment A: October 1, 2025 Draft Minutes AUTHOR/TITLE: Alan Kurotori, Utilities Director Staff: Rachael Romero, Administrative Associate II Utilities Advisory Commission Minutes Approved on: 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: 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 UTILITIES DIRECTOR REPORT Utilities Advisory Commission Minutes Approved on: 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. Utilities Advisory Commission Minutes Approved on: 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. NEW BUSINESS ITEM 1: Information Report: Utilities Quarterly Report for FY 2025-Q3/Q4 Utilities Advisory Commission Minutes Approved on: 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. Utilities Advisory Commission Minutes Approved on: 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. Utilities Advisory Commission Minutes Approved on: 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. ACTION: No action required. ITEM 2: Discussion of Preliminary Analysis of the Infrastructure Impacts Associated with Gas Utilities Advisory Commission Minutes Approved on: 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. Utilities Advisory Commission Minutes Approved on: Page 9 of 17 folks who had gas, people who had electric resistance heating could benefit from heat pumps as well. Utilities Advisory Commission Minutes Approved on: 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. Utilities Advisory Commission Minutes Approved on: 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. Utilities Advisory Commission Minutes Approved on: 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. ACTION: No action required. ITEM 3: Discussion of Implementation Plan for Voluntary Residential Electric Service Time-of- Use Rates Utilities Advisory Commission Minutes Approved on: 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. Utilities Advisory Commission Minutes Approved on: 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. ACTION: No action required. Utilities Advisory Commission Minutes Approved on: 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: 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. ACTION: Commissioner Phillips moved staff’s recommended motion for the UAC to recommend that the City Council: Utilities Advisory Commission Minutes Approved on: 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.