Loading...
HomeMy WebLinkAboutStaff Report 2504-45933.Recommendation to Approve the Draft 2026 Utilities Legislative Policy Guidelines Update and to Receive the Update on 2025 State and Federal Legislative and Regulatory Activity. CEQA Status: Not a Project. (ACTION 6:50 PM – 7:00 PM) Staff: Lena Perkins Presentation Item No. 3. Page 1 of 9 7 1 8 0 Utilities Advisory Commission Staff Report From: Alan Kurotori, Utilities Director Lead Department: Utilities Meeting Date: November 5, 2025 Report #: 2504-4593 TITLE Recommendation to Approve the Draft 2026 Utilities Legislative Policy Guidelines Update and to Receive the Update on 2025 State and Federal Legislative and Regulatory Activity. CEQA Status: Not a Project. RECOMMENDATION Staff recommend the Utilities Advisory Commission (UAC): Recommend the Policy and Services Committee and the City Council approve the Draft 2026 Utilities Legislative Policy Guidelines Update, and Accept this staff report providing an update on state and federal activities in 2025. EXECUTIVE SUMMARY Due to its unique regulatory environment, the Utilities Department has its own set of legislative guidelines that are brought before the UAC and Council periodically for review. The Draft 2026 Utilities Legislative Policy Guidelines Update presented in this staff report remain unchanged from the most recent guidelines approved in 2023. The year 2025 was challenging for utilities regulatory and legislative matters. The California legislature tackled several major issues with tens of millions of dollars at stake for the City of Palo Alto Utilities (CPAU). Overall, the state legislative activities were positive for CPAU and should help control electricity costs, lower statewide electric carbon emissions, and increase electric supply reliability. The two major state legislative actions driving these positive impacts include establishing an independent governance board for the new regional electricity market and reauthorization of the Cap-and-Trade program. On the other hand, a new federal administration made large changes to promote fossil fuels, accelerate phaseout of energy tax credits that support renewable energy and environmental programs, cut the federal power marketing administration workforce, and levy larger tariffs. Utilities costs are expected to increase due to the increased tariffs, but the full impact of the federal legislative and policy changes is still emerging. Item No. 3. Page 2 of 9 7 1 8 0 BACKGROUND Due to the highly regulated nature of utilities, Utilities Legislative Guidelines have been used to enable effective staff advocacy in line with the City Advocacy Process Manual.1 The broad and technical scope from dozens of bills introduced annually requires frequent communication with utility associations and often direct staff advocacy to advance and protect CPAU and customer’s interests. The Utilities Legislative Guidelines were created to provide guidance to these activities. These guidelines have been reviewed annually by the UAC and approved by the City Council since at least 2009.2 The recommended Draft 2026 Utilities Legislative Policy Guidelines Update are unchanged from the most recent version approved on April 3, 2023.3 The 2023 guidelines were almost entirely unchanged going back to the version approved in 2020,4 as they were intended to be perennial guidelines. State and federal-level utilities legislation in 2025 was tumultuos. In California, rising electricity rates and the devastating Los Angeles wildfires led to energy affordability and wildfire mitigation taking center stage. Key legislation included the establishment of an independent governance structure for a day-ahead regional electricity market (AB 825 Petrie-Norris) and the reauthorization of the Cap & Trade program, now Cap & Invest (AB 1207 (Irwin)/SB 840 (Limón)). On the federal side, the new federal administration took significant steps to limit renewable energy investment, promote fossil fuels, and roll back environmental protections. Central to that effort was the One Big Beautiful Bill Act (H.R. 1), which accelerated the phase out of most renewable energy and electric vehicle federal tax credits. ANALYSIS Utilities Legislative Policy Guidelines The Utilities Legislative Guidelines have enabled effective and nimble advocacy on utility legislation and regulations. Intended to be perennial and subject to UAC and Council review, the most recent guidelines were approved by the City Council on April 3, 2023. The guidelines were not updated in 2024 and 2025 due to their fundamentally perennial nature. The 2026 guidelines presented in Attachment A include only grammatical changes. As in the past, CPAU staff will use these guidelines when advocating with policymakers, lobbyists, and utilities associations. Given the highly technical and fast-paced nature of utility legislation and 1 https://www.paloalto.gov/files/assets/public/v/1/intergovernmental-affairs/advocacy-manual-updated-jan- 2020.pdf 2 https://www.paloalto.gov/files/assets/public/v/1/agendas-minutes-reports/agendas-minutes/utilities-advisory- commission/archived-agenda-and-minutes/agendas-and-minutes-2009/11-04-2009-meeting/item-4_-util- legislative-policy-guidelines-2010.pdf 3 City Council, April 3, 2023, SR 2301-0895: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82266 4 City Council, January 1, 2023, SR 10772: Item No. 3. Page 3 of 9 7 1 8 0 regulatory updates, the guidelines will continue to allow the Utilities Director to approve formal advocacy actions such as submitting written letters or meeting with lawmakers. State Legislation in 2025 Major California Legislation AB 825 (Petrie-Norris) Establishment of an independent governance board for a regional day- ahead electricity market. CPAU lobbied for AB 825 through direct advocacy from staff and elected officials in line with Item 10 of the current Utilities Legislative and Policy Guidelines. AB 1207 (Irwin)/SB 840 (Limón) Cap-and-Trade reauthorization Item No. 3. Page 4 of 9 7 1 8 0 many of CPAU’s local decarbonization programs. Another important item in the bill is the directive to CARB to transition away from free allowances for gas corporations and instead give them to electric utilities. Since CPAU is not defined as a gas corporation (e.g. investor-owned utility), it will continue to receive free allowances for its gas utility. CPAU may receive additional free allowances to its electric utility. These new auction proceeds must be returned to customers as a rebate. These two provisions safeguard CPAU’s existing Cap-and-Trade revenue, which is worth approximately $7 million per year through 2030. Lastly, AB 1207 changes the name of the program to Cap-and-Invest. CPAU will be tracking how the California Air Resources Control Board will be updating the implementation and changes to Cap-and-Invest Revenues which will continue to 2045. CPAU advocated for AB 1207 both directly and through NCPA and CMUA in accordance with Items 1 – 4 and 10 in the 2023 Utilities Legislative Guidelines. While CPAU did not directly advocate for SB 840, we favored its passage in line with Item 10 in the Utilities Legislative Policy Guidelines. AB 130 (Committee on Budget) effected many changes to housing policy but most importantly for the City, it suspended changes to building codes, including green building codes, until 2031. The City was able to adopt reach codes for the 2025 California Building Standards Code update before the suspension took effect; one of only a handful of cities to do so. o This was monitored in accordance with Items 1, 3, and 10 of the Utilities Legislative Policy Guidelines. AB 1410 (Garcia) requires utilities to develop appropriate and feasible procedures to maximize automatic enrollment of customers in alerts for electric service outages and updates by March 2026. o This was monitored in accordance with Items 1 and 10 of the Utilities Legislative Policy Guidelines. Item No. 3. Page 5 of 9 7 1 8 0 SB 31 (McNerney) changes acceptable usage rules for recycled water in certain facilities, such as buildings with food preparation areas, to allow additional uses of recycled water. o This was monitored in accordance with Items 4 and 11 of the Utilities Legislative Policy Guidelines. SB 72 (Caballero) was sponsored by CMUA and revises The California Water Plan to expand consulted stakeholders, periodically assess expected future water usage, and create a plan to secure additional water supplies to address expected water shortfalls due to climate change. o This was monitored in accordance with Items 4 and 9 of the Utilities Legislative Policy Guidelines. SB 254 (Becker) is the legislature’s energy affordability bill. Spanning 101 pages, SB 254 seeks to reduce transmission construction cost by limiting investor-owned utility (IOU) returns, reduce wildfire mitigation costs through numerous actions, and creates other provisions aimed at reducing electricity rates. Specific to POUs like CPAU, wildfire mitigation plans will only need to be submitted every four years rather than annually, alleviating a significant administrative burden without compromising wildfire safety. o This was supported in accordance with Items 1, 3, and 9 of the Utilities Legislative Policy Guidelines. Notable bills that failed in this year’s session include: AB 1273 (Patterson) would have continued the current treatment of Palo Alto's legacy hydropower beyond 2030 to 2045, allowing more than 40% of generation to be from large hydropower in a particularly wet year. However, AB 1273 had two parts, with the primary purpose prohibiting the California Public Utilities Commission (CPUC) from placing significant electric rate increases for investor-owned utilities on its consent calendar. Governor Newsom objected to this part, as he feared it would delay important CPUC rate proceedings. In his veto letter, the Governor signaled support for clarifying language about hydroelectricity for publicly owned utilities but decided to veto the legislation due to the potential impact to the CPUC. CPAU and our partners at NCPA remain optimistic that a hydroelectricity provision may be included in an appropriate piece of legislation in the future. o Staff lobbied for this in accordance with Items 1, 6, and 10 of the Utilities Legislative Policy Guidelines. AB 222 (Bauer-Kahan) would have required the CEC to assess electrical load trends for data centers and for the CPUC to assess the extent to which new data center loads result in cost shifts to other electric utility customers. o This was monitored in accordance with Item 3 of the Utilities Legislative Policy Guidelines. Item No. 3. Page 6 of 9 7 1 8 0 AB 353 (Boerner) would have required internet service providers to offer internet service at $15/month to low-income customers. o This was monitored in accordance with Items 1, 3, and 6 of the Utilities Legislative Policy Guidelines. AB 1218 (Soria) would have increased penalties for stealing copper and possessing known stolen copper. o This was monitored in accordance with Item 9 of the Utilities Legislative Policy Guidelines. SB 332 (Wahab) would have, among other items related to investor-owned utilities, required POUs to post online information related to the number of service terminations because of nonpayment. o This was monitored in accordance with Items 1 and 12 of the Utilities Legislative Policy Guidelines. SB 445 (Wiener) originally would have required binding arbitration between transportation projects and utilities if utility infrastructure would be impacted by the transportation project. Later amendments narrowed the scope to non-binding solutions for utility infrastructure impacted by the California High Speed Rail Project. The author has stated his intent to revive this bill in 2026. o This was monitored in accordance with Items 1, 6, and 9 of the Utilities Legislative Policy Guidelines. SB 454 (McNerney) would have established a per- and polyfluoroalkyl substances (PFAS) mitigation program and upon appropriation by the legislature, would create a state fund to aid in reducing or eliminating PFAS in drinking water, recycled water, wastewater, and stormwater. o This was monitored in accordance with Item 2 of the Utilities Legislative Policy Guidelines. SB 541 (Becker) would have directed the CEC to analyze the cost effectiveness of load shifting programs and strategies and to biennially estimate the load shifting potential of each electric utility. o This was monitored in accordance with Items 1 and 4 of the Utilities Legislative Policy Guidelines. SB 618 (Reyes) would have required POUs to include in their wildfire mitigation plans appropriate and feasible procedures to compensate customers impacted by deenergizing power lines. o This was monitored in accordance with Items 1, 3, and 6 of the Utilities Legislative Policy Guidelines. Item No. 3. Page 7 of 9 7 1 8 0 AB 93 (Papan) would have required data centers, when applying for an initial business license, to provide water suppliers with an estimate of water usage and provide annual water reports. o This was monitored in accordance with Item 6 of the Utilities Legislative Policy Guidelines. SB 292 (Cervantes) would have required POUs to post online an annual reliability report that identifies the frequency and duration of interruptions in service. o This was monitored in accordance with Items 1 and 12 of the Utilities Legislative Policy Guidelines. State Regulatory Action in 2025 There were not many major regulatory actions taken at the state level in 2025 other than amendments to the Low Carbon Fuel Standard (LCFS). CARB approved amendments in November 2024 to accelerate a decrease in transportation fuel carbon intensity, which reduces the credits generated by low emission fuels like electricity and increases the deficits generated by high emission fuels like gasoline. As a supplier of electricity, CPAU receives several million dollars annually in LCFS credit revenues and uses them to fund electric vehicle-related programs. The LCFS amendments will decrease the number of credits CPAU receives but the tighter supply of credits should increase credit prices, thus the amendments are expected to be revenue neutral for CPAU. Despite some administrative setbacks, the final amended regulation went into effect on July 1, 2025. Federal Action in 2025 The federal administration has brought significant changes to the energy and climate mitigation landscape. The White House issued several executive orders aimed at “unleashing America’s energy dominance” and increasing federal efficiency. These orders did the following: Imposed tariffs on a wide range of countries and products including solar cells, batteries, steel, aluminum, and numerous electrical grid components. These tariffs have increased both energy prices and operational equipment prices. Staff reductions at federal agencies including the Bureau of Reclamation (BOR) and the Western Area Power Administration (WAPA). These two agencies manage the federal hydroelectric power projects in California that provide approximately 40% of CPAU’s electricity supply. The resulting 20% reduction in workforce heightens the risk to the financial and operational efficiency of these projects and increases concerns for health and public safety. Employee attrition continues to this day. Streamlined permitting and approval of fossil fuel projects on federal land while slowing approval or rejecting renewable energy projects on federal land. While this does not have a direct impact on CPAU, it’s expected to increase wholesale electricity prices by restricting electricity generation in a time of growing demand. Item No. 3. Page 8 of 9 7 1 8 0 Reduced or eliminated federal appliance efficiency standards for both energy and water. Another major federal action was the passage of the federal budget bill, dubbed the One Big Beautiful Bill Act (H.R.1). The main energy and climate focus of the bill was the sunsetting of renewable energy, electric vehicle, and energy efficiency federal tax credits. Specific impacts included: Elimination of the $7,500 electric vehicle tax credit after September 30, 2025. Elimination of residential energy efficiency tax credits after December 31, 2025. Elimination of solar and wind energy tax credits after December 31, 2027, unless the projects begin construction by July 4, 2026. o Projects receiving material assistance from Russia, China, North Korea, and Iran, dubbed foreign entities of concern, are not eligible for tax credits. This is significant because many solar and battery projects are sourced from China. The impact of these recissions are significant. Some renewable energy projects have been suspended or canceled while those continuing construction are offering energy contracts at higher prices. Electric vehicle sales increased in the run-up to the September 30, 2025 tax credit deadline but sales are expected to fall past that date. CPAU is experiencing these effects as is the entire utility sector. California’s environmental and energy policy has been directly targeted by the federal administration’s actions. Perhaps most importantly, Congress, at the direction of the White House, rescinded California’s Environmental Protection Agency (EPA) waiver that enabled the Advanced Clean Cars II regulation to go into effect. Rescinding the waiver effectively cancels California’s 2035 ban on non-zero emission vehicles, though the legality of this revocation is being challenged by the state. These federal moves introduced market uncertainty into the zero-emission vehicle market, especially for heavy duty vehicles, and is shrinking the pool of available vehicles needed for compliance with regulations like Advanced Clean Fleets. Additionally, one executive order9 mentioned California’s Cap & Trade program as an example of environmental overreach that needs to be curbed by the federal government. These actions directly impact CPAU revenues and decarbonization programs. As a result, staff are continually monitoring federal actions and seeking ways to mitigate their impacts. FISCAL/RESOURCE IMPACT There is no fiscal or resource impact associated with adopting legislative guidelines for the Utilities Department. STAKEHOLDER ENGAGEMENT 9 Executive Order mentioning Cap and Trade https://www.whitehouse.gov/presidential- actions/2025/04/protecting-american-energy-from-state-overreach/ Item No. 3. Page 9 of 9 7 1 8 0 The guidelines were informed through a stakeholder review process involving internal departments and external associations. ENVIRONMENTAL REVIEW ATTACHMENTS AUTHOR/TITLE: UTILITIES LEGISLATIVE POLICY GUIDELINES: 2026 UPDATE City of Palo Alto Utilities Department (CPAU) staff will use the below guidelines as well as the City’s guidelines to help determine any advocacy position or action on Utilities- related issues. Formal advocacy, such as submitting written letters or comments and meeting with policymakers and/or staff, requires the approval of the Utilities Director or their designee. November 5, 2025: Utilities Advisory Commission PaloAlto.gov 2025 Legislative Policy Update & Draft 2026 Utilities Legislative Policy Guidelines Lena Perkins, PhD, Senior Resource Planner Riley Yaylian, Resource Planner 2 2025 Legislative Policy Update: Busy year, mixed impacts State AB 1207 & SB 840: reauthorized Cap & Invest,* -Continues support to electrify everything AB 825: created independent governance board for the new Extended Day Ahead Market -Larger, more diverse market will lower electricity costs &lower CO2 emissions AB 1273: preserved CPAU’s hydropower value, vetoed due to unrelated new CPUC oversights. Will revisit in 2026. Federal Some possible streamlining for wildfire mitigation and electricity transmission projects Tariffs increase generation & transmission costs One Big Beautiful Bill Act ends renewable energy tax credits, increasing costs for new renewable projects Federal staff cuts reduce operational efficiency, delay projects for hydropower & transmission *Formerly “Cap & Trade” Draft 2026 Utilities Legislative Policy Guidelines 3 What: •Utilities specific guidelines due to highly regulated & technical work as outlined in City Advocacy Process Manual. •Modern guidelines started in 2020, intended to be evergreen. •13 policy guidelines: emphasizing local control, affordability, & locally- designed decarbonization. Why: •To share Draft 2026 Utilities Legislative Policy Guidelines & request Utilities Advisory Commission recommendation. What next: •After UAC, Draft 2026 Guidelines will go to Policy & Services Committee with the City Legislative Policy Guidelines, then to Council. Recommendation 4 Staff recommends that the UAC: •Recommend the Policy and Services Committee to recommend the City Council to approve the Draft 2026 Utilities Legislative Policy Guidelines Update, and •Accept this staff report providing an update on state and federal activities in 2025.