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HomeMy WebLinkAboutStaff Report 2512-56383.Fiscal Year 2026 Mid-Year Electric Grid Modernization Update (DISCUSSION 7:35 PM – 8:35 PM) Staff: Terry Crowley Presentation Item No. 3. Page 1 of 7 Utilities Advisory Commission Staff Report From: Alan Kurotori, Director Utilities Lead Department: Utilities Meeting Date: January 7, 2026 Report #: 2512-5638 TITLE Fiscal Year 2026 Mid-Year Electric Grid Modernization Update RECOMMENDATION This staff report and presentation are for discussion purposes only; no commission action is requested at this time. EXECUTIVE SUMMARY Palo Alto’s Electric Grid Modernization Project (Grid-Mod) was developed to improve the City’s electric grid in anticipation of building and transportation electrification and to improve system reliability. Palo Alto’s electric grid can be characterized as an efficient but aged system that has, in large part, reached the end of its useful life. Some in-service equipment was originally installed in the mid 1950’s and has served the City well over those 70+ years. However, due to both the age of the electric system and increased electrical loads from electrification, the City’s grid must be reconstructed and modernized to serve these higher loads while maintaining system reliability. To prepare for Palo Alto’s increased electric demands, it will be more cost effective to modernize through the incorporation of newer technologies, implementation of current and emerging utility best practices, and prepare for higher adoption rates of self-generation and energy storage at the time of replacing legacy system components. However, the age and size of Palo Alto’s system requires a large financial commitment two to three times historical funding levels, over many years to fully support electrification within the residential sector. The initial estimate for Grid-Mod was approximately $300 million over a five-year period. Current staff estimates, with 12kV distribution upgrades (local transformers and secondary) paced to match customer participation, reach $342 million (present value) between FY2026 and FY2034. If all 12kV distribution upgrades are completed before FY2034 staff estimated costs for Grid- Mod through FY2034 are $443million (present value). Item No. 3. Page 2 of 7 PROJECT DESCRIPTION With the intent to increase system capacity to meet forecasted electrification loads and improve overall system reliability, Grid-Mod will touch the City’s sub-transmission, electrical substations, and distribution systems. Each of these system components make up the City’s electrical “Grid” and each are necessary to distribute power from the City’s interconnection with PG&E’s transmission system to City customers. To achieve the project goal of supplying building and transportation electrification loads from a clean, reliable, and affordable energy source, each of these system components require reconstruction to increase system capacity and reliability. Specific near-term areas of focus and rough cost estimates (excluding inflation) include: Reconductor roughly 3 miles of overhead sub-transmission; $4.6 million Conversion of legacy 4kV distribution systems to 12kV, roughly 2,900 customers; $32.4 million Reconstruction of four Substations, at East Meadow, Hopkins, Adobe Creek and Colorado; $96.0 million Reconstruction of 115kV and 60kV components of Colorado Substation; $40.7 million Upgrading of existing 12kV distribution systems; $243.6 million Strengthening 12kV feeder ties to improve reliability and capacity; $25.2 million It’s important to note that this work is in addition to ongoing capital improvements such as replacement of aging wood poles, replacement of damaged, aged or failed equipment, and upgrades necessary for new or redeveloped parcels. The routine and ongoing capital replacement work will require continued funding to maintain system reliability. In 2020, the City set a goal to reduce GHG emissions 80 percent below 1990 levels by 2030 (80x30 goal). A 2020 analysis1 indicated that to meet the 80x30 goal, the City would need, among other things, to electrify all single-family homes by replacing natural gas equipment with efficient electric appliances and providing for electric vehicle charging. The 2020 analysis estimated peak demands from single-family dwellings at 8.5kW without consideration of home EV charging. When including a single, level-2 EV charger, customer peak demands could rise to 19.5kW. Compared to historical average peak demands of 1 to 2kW, residential electrification represents a significant new demand on CPAU’s distribution system. Due to the higher expected demands, Palo Alto’s electric system requires extensive upgrades to increase capacity while replacing aging equipment to improve system reliability. To support electrification of Palo Alto’s residential sector and rebuild the electric distribution system, the City Council adopted the F2025–2029 Capital Budget including an electric capital improvement budget of roughly $300 million for Grid-Mod projects. In FY2025 CPAU began 1 City of Palo Alto (2020), Preliminary Analysis of the Utility Costs & Staffing Impact to Electrify All Single-Family Residences in Palo Alto Item No. 3. Page 3 of 7 work within the initial Grid-Mod pilot area. Completed in mid-2025, this pilot area upgraded the distribution system for roughly 900 homes at cost of roughly $10 million. At the same time, CPAU engineering staff began the planning process to replace and upgrade Colorado substation’s 60kV breakers, 115kV/60kV bank, eliminate legacy 4kV distribution systems, and other work related to aged facilities. ANALYSIS Item No. 3. Page 4 of 7 flexibility from engineering and construction but is customer focused and provides the opportunity to delay costly system upgrades until electric customers are ready to replace gas appliances or install EV chargers. Additionally, the “when and where” approach allows engineering staff to improve reliability by advancing the replacement of overload transformers under the Grid-Mod Project. Item No. 3. Page 5 of 7 Upgrading Sub-Transmission Systems to Improve Reliability Table:1 – General timelines for key Grid-Mod Projects in support of electrification alongside estimated project costs adjusted for inflation. Item No. 3. Page 6 of 7 To fully implement a “When and Where” approach to the 12kV distribution system, staff is recommending planning for a longer reconstruction timeline. This approach allows CPAU electric engineering staff to focus on accelerating critical system rebuilds, such as the 4kV system, sub-transmission, and the Colorado substation which have a greater impact on overall system reliability. Additionally, employing the “When and Where” approach to the 12kV distribution rebuild could allow increased revenues from electrification to fund upgrades, softening future rate increases. Table:2 - General timelines for key Grid-Mod Projects with 12kV upgrades spread out over a longer period but tied directly to residential customers speed to install efficient electric appliances. Estimated project costs adjusted for inflation. FISCAL/RESOURCE IMPACT Project Description FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 FY2034 Sub-Transmission Reconductor 4kV Substation Conversions Colorado Substation Upgrades Adobe Creek Substation Upgrades Colorado 12kV Substation Upgrades 4kV Distribution Conversions Grid-Mod 12kV Distribution Upgrades Grid-Mod Estimate Costs w/ inflation ($ Millions)$15.65 $34.75 $62.56 $27.39 $15.77 $59.89 $54.04 $58.80 $62.11 Item No. 3. Page 7 of 7 planning horizon, estimated costs through FY2034 are just under $425 million. Through early planning and design phases, CPAU engineering staff will continue to refine and update project scopes and related cost estimates. Staff will endeavor to reduce project timelines and costs, while maintaining the overarching project goals. STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ALTERNATIVE ACTIONS AUTHOR/TITLE: January 7, 2026 PaloAlto.gov Grid-Modernization Update Fiscal Year 2026 Mid-Year Presenters: Terry Crowley TITLE 40 FONT BOLD Subtitle 32 font Grid Modernization Background •The Grid Modernization (Grid Mod) project replaces existing electric utility facilities to improve system reliability while preparing to meet the demands of electrification. •Historically residential dwellings average demands between 1 to 2 kilowatts (kW), under electrification these peak demands could increase to range between 8.5 to 19.5kW •In FY2025 Grid Mod completed a pilot area increased capacity for roughly 900 homes. •Cost to complete the pilot was $10 million or roughly $11,000 per dwelling. •Future work includes reconstructing legacy 4-kilovolt systems, upgrading sub- transmission capacity, strengthen feeder ties between substations, and modernizing the Colorado Substation PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font The projects below are focused Grid-Modernization efforts with present-dollar rough cost estimates: •Reconductor roughly 3 miles of overhead 60kV sub-transmission; $4.6 million •Convert 4kV distribution systems to 12kV, roughly 2,900 customers; $32.4 million •Reconstruction of four Substations: East Meadow, Hopkins, Adobe Creek and Colorado; $96.0 million •Reconstruction of 115kV and 60kV components of Colorado Substation; $40.7 million •Upgrade existing 12kV distribution systems; $243.6 million •Strengthening 12kV feeder ties to improve reliability and capacity; $25.2 million Projects and project budgets are subject to the FY2027 budget adoption Ongoing capital improvement work (pole replacements, replacement of failed equipment, etc.) will continue to need additional funding. Key Grid Modernization Projects PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font The 60kV sub-transmission system provides a networked system across the city to increase system reliability. •Planning to reconductor roughly 3 miles of overhead 60 kV sub-transmission; $4.6 million •Work will mitigate conductor overloads under certain system outages •Not originally identified within the Grid-Mod Project •Expecting to complete work by end of FY2028 Sub-Transmission System PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font The City operates an aging 4kV system serving roughly 2,900 customers. •Convert 4kV distribution systems to 12kV: $32.4 million •Current system is an island, without redundancy from adjacent substations or circuits •System includes two 4kV substations constructed in the 1950s and 1960s •Conversion/reconstruction will allow ability to serve future electrification energy needs •Distribution work is planned to be complete by end of FY2028, substations by FY2034 Convert 4kV Systems PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font Reconstruct of four 60/12kV substations to increase capacity and improve reliability. •Reconstruction of four Substations, at East Meadow, Hopkins, Adobe Creek and Colorado: $96.0 million •Both Hopkins and East Meadow are 4kV substations operating on 60 to 70-year-old equipment. Once complete these stations provide redundancy and added reliability to Adobe Creek and Colorado Substations •Adobe Creek and Colorado Substation were constructed in the 1970s and show signs of age and limited capacity •Due to long material delivery times, work is planned to be complete between FY2031 and FY2034 Substation Reconstruction PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font Reconstruct and replace major equipment in Colorado Substation. •Reconstruction of 115kV and 60kV components of Colorado Substation: $40.7 million •Combined projects will upgrade substation property, replace a 115/60kV bank, and reconstruct the 60kV bus •Equipment targeted for replacement was originally installed in the 1970s •Implementation of current utility designs is expected to improve reliability twofold •Due to long material delivery times, work is planned to be complete between FY2028 and FY2031. Colorado 115 and 60kV Improvements PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font Reconstruct 12kV Distribution System for electrification and improved system reliability. •Upgrade existing 12kV distribution systems: $243.6 million and strengthening 12kV feeder ties: $25.2 million •Strengthen circuit ties between substations increasing reliability and allowing clearances for maintenance and reconstruction •Upgrading 12kV distribution components (transformers, wires) for future electrification loads •Primary focus of work is to strengthen feeder ties first, then replace transformers as customers electrify •Work is expected to be ongoing and last beyond FY2034 12kV Distribution Improvements PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font •Focusing on meeting electrification demands “when and where” it appears. Will require flexibility and responsiveness from engineering and operations •Use AMI data to identify overload transformers and implement Grid-Mod upgrades while addressing the overload situations •Reduce residential EV charging demands through plug-sharing devices. This limits overall build and customer costs •Customers with energy demands larger than the expected system average will fund their system upgrades that exceed the standard grid-mod build 12kV Distribution Improvements (cont.) PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font Pacing reconstruction of the 12kV system to match customer adoption defers $117 million in debt financing within the next five years. Forecasted Costs & Timeline PaloAlto.gov Sub-Transmission Reconductor 4kV Substation Conversions Colorado Substation Upgrades Adobe Creek Substation Upgrades Colorado 12kV Substation Upgrades 4kV Distribution Conversions Grid-Mod 12kV Distribution Upgrades $15.65 $34.75 $62.56 $27.39 $15.77 $59.89 $54.04 $58.80 $62.11 Considerations 11 •Implement of staff’s recommended strategic approach to the 12kV distribution system. •Whether customers with larger demands should pay for upgrades beyond an assumed 19.5kW peak (staff’s recommendation). •Other Commission concerns.