HomeMy WebLinkAboutStaff Report 2511-5444A.Information Report: Utilities Quarterly Report for FY26-Q1
Staff Report: 2511-5444 – Page 1 of 52
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: January 7, 2026
Staff Report: 2511-5444
TITLE
Information Report: Utilities Quarterly Report for FY26-Q1
RECOMMENDATION
This is an informational report, and no action is requested.
EXECUTIVE SUMMARY
This report has been prepared to keep the Utilities Advisory Commission (UAC) apprised of the major issues that are facing
the water, gas, electric, wastewater collection and fiber utilities including legislative/regulatory issues, utility-related
capital improvement programs, operations, reliability impact measures and a utility financial summary. Items of special
interest in this report are summarized below:
Vacancies and Staffing – Appendix B
• The Utilities Department has 44 vacant positions out of 269 authorized positions or a 16% vacancy rate at the end
of September 2025 compared to 40 vacancies or 15% in June 2025.
• Due to recent turnover, Electric Operations continues to have the highest number of vacancies at 22 full-time
employees (FTEs) or a 27% vacancy rate. Some of the hard to fill positions are lineperson cable splicer (4 FTEs),
electric metering technician (2 FTEs), and utility compliance technician (2 FTEs). All the hard to fill positions are
under recruitment.
Electric Utility:
• Supply cost for FY 2026 is currently projected to be $88.5M, consistent with budget estimates though higher
demand is leading to lower surplus energy revenues. (Section 1.1.1)
• Utilities staff is working with the Northern California Power Agency to identify new renewable energy and storage
projects. (Section 1.1.3)
• An update regarding the electric grid modernization work is provided. (Section 1.2)
• Electric sales volumes in Q1 were 7.6% higher than forecasted, driven by new data center load and increased
summer cooling. (Section 1.4.1)
Gas Utility:
• Gas prices have been relatively low and stable. (Section 2.1)
• One gas main replacement project is in progress, and one is in the design stage. (Section 2.2)
• Gas sales are highly weather-dependent and were up slightly in the first quarter of FY 2026. (Section 2.5.1)
Staff Report: 2511-5444 – Page 2 of 52
Water Utility:
• As of November 1, precipitation at the Hetch Hetchy weather station was about 161% of median for Water Year
2026. (Section 3.1)
• Water sales for Q1 were about 5% lower than forecasted, which is attributed to relatively mild summer months.
(Section 3.4.1)
Wastewater Utility:
• Actual wastewater sales revenues through Q1 are tracking with the budget. (Section 4.3.1)
Fiber Utility:
• For Fiber-to-the-Premises (FTTP), the City’s contractor MP Nexlevel is expected to complete the fiber hut
foundation by the middle of January 2026. Aerial fiber construction and installation of fiber distribution cabinets
are scheduled for December 2025 – January 2026. Work will be required in backyards to string the fiber optic
cables between utility poles. (Section 5.1)
• As commercial dark fiber revenues begin to decline due to company consolidation and merger and acquisition,
the Utilities Department is developing a marketing strategy to attract new businesses and strengthen our
partnership with existing key accounts and resellers. (Section 5.4.1)
Staff Report: 2511-5444 – Page 3 of 52
OVERVIEW
Utilities Quarterly Report
FY 2026-Q1
Staff Report: 2511-5444 – Page 4 of 52
1 ELECTRIC UTILITY ....................................................................................................................................................................... 6
1.1 ELECTRICITY SUPPLY AND TRANSMISSION ........................................................................................................................................... 6
1.1.1 Forecasted Supply Costs................................................................................................................................................... 6
1.1.2 Hydroelectric Conditions .................................................................................................................................................. 7
1.1.3 Renewable Energy Procurement ...................................................................................................................................... 7
1.2 CAPITAL IMPROVEMENT PLAN STATUS ............................................................................................................................................... 7
1.3 RELIABILITY .................................................................................................................................................................................. 8
1.4 FINANCIAL HEALTH ...................................................................................................................................................................... 10
1.4.1 Sales Forecasts vs. Actuals ............................................................................................................................................. 10
1.4.2 Financial Position ........................................................................................................................................................... 11
2 GAS UTILITY ............................................................................................................................................................................ 12
2.1 GAS SUPPLY AND TRANSMISSION .................................................................................................................................................... 12
2.1.1 Actual and Forecasted Supply Costs .............................................................................................................................. 13
2.2 CAPITAL IMPROVEMENT PLAN STATUS ............................................................................................................................................. 13
2.3 RELIABILITY ................................................................................................................................................................................ 14
2.4 FINANCIAL HEALTH ...................................................................................................................................................................... 14
2.4.1 Sales Forecasts vs. Actuals ............................................................................................................................................. 14
2.4.2 Financial Position ........................................................................................................................................................... 15
3 WATER UTILITY ....................................................................................................................................................................... 17
3.1 WATER SUPPLY AND TRANSMISSION ............................................................................................................................................... 17
3.2 CAPITAL IMPROVEMENT PLAN STATUS ............................................................................................................................................. 19
3.3 RELIABILITY ................................................................................................................................................................................ 21
3.4 FINANCIAL HEALTH ...................................................................................................................................................................... 21
3.4.1 Sales Forecasts vs. Actuals ............................................................................................................................................. 22
3.4.2 Financial Position ........................................................................................................................................................... 22
4 WASTEWATER UTILITY ............................................................................................................................................................ 24
4.1 WASTEWATER TREATMENT UPDATES AND CAPITAL PLANNING STATUS .................................................................................................. 24
4.1.1 Treatment Cost Trends .................................................................................................................................................. 24
4.1.2 Regional Water Quality Control Plant Capital Planning Status ..................................................................................... 25
4.2 COLLECTION SYSTEM CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................................ 26
4.3 FINANCIAL HEALTH ...................................................................................................................................................................... 27
4.3.1 Sales Forecasts vs. Actuals ............................................................................................................................................. 27
4.3.2 Financial Position ........................................................................................................................................................... 28
5 FIBER UTILITY .......................................................................................................................................................................... 29
5.1 FIBER UTILITY STRATEGIC PLANNING ............................................................................................................................................... 29
5.2 CAPITAL IMPROVEMENT PLAN STATUS ............................................................................................................................................. 29
5.3 RELIABILITY ................................................................................................................................................................................ 29
5.4 FINANCIAL HEALTH ...................................................................................................................................................................... 29
5.4.1 Fiber Sales ...................................................................................................................................................................... 30
5.4.2 Financial Position ........................................................................................................................................................... 30
6 COMMUNICATIONS ................................................................................................................................................................ 31
7 LEGISLATIVE, REGULATORY AND INDUSTRY ACTIVITY ............................................................................................................. 33
7.1 STATE LEGISLATIVE ACTIVITY .......................................................................................................................................................... 33
7.2 STATE REGULATORY ACTIVITY ........................................................................................................................................................ 34
7.3 FEDERAL ACTIVITY ....................................................................................................................................................................... 34
Staff Report: 2511-5444 – Page 5 of 52
8 APPENDIX A: ENERGY RISK MANAGEMENT PROGRAM ........................................................................................................... 36
8.1 OVERVIEW OF HEDGING PROGRAMS ............................................................................................................................................... 36
8.2 OVERVIEW OF ENERGY RISK MANAGEMENT PROGRAM ...................................................................................................................... 36
8.3 FORWARD DEALS ........................................................................................................................................................................ 36
8.4 ELECTRIC MARKET EXPOSURE ........................................................................................................................................................ 37
9 APPENDIX B: STAFFING AND VACANCIES ................................................................................................................................ 38
10 APPENDIX C: ELECTRIC UTILITY ANNUAL INFRASTRUCTURE MAINTENANCE AND REPLACEMENT REPORT ......................... 39
11 APPENDIX D: PALOALTOGREEN GAS PROGRAM ................................................................................................................. 51
Figures
FIGURE 1: FY 2026 Q1 NET SUPPLY COST FORECAST VS. ACTUALS ......................................................................................................................... 6
FIGURE 2: HYDRO GENERATION: FY 2026-2028 ACTUALS & PROJECTIONS (GWH) ................................................................................................... 7
FIGURE 3: ELECTRIC OUTAGE RELIABILITY, FY 2019 THROUGH Q1 OF FY 2026 ......................................................................................................... 9
FIGURE 4: ELECTRIC SALES VOLUME (KWH), FY 2026 Q1 .................................................................................................................................. 10
FIGURE 5: ELECTRIC SALES REVENUE ($), FY 2026 Q1 ........................................................................................................................................ 11
FIGURE 6: PALO ALTO GAS COMMODITY RATES ................................................................................................................................................. 12
FIGURE 7: GAS SUPPLY COSTS ($), ACTUAL VS BUDGET, FY2026 Q1 .................................................................................................................... 13
FIGURE 8: GAS SERVICE INTERRUPTIONS, FY 2025 TO FY 2026 ............................................................................................................................ 14
FIGURE 9: GAS SALES VOLUME (THERMS), FY 2026 Q1 ..................................................................................................................................... 15
FIGURE 10: GAS SALES REVENUE ($), FY 2026 Q1 ............................................................................................................................................ 15
FIGURE 11: REGIONAL WATER SYSTEM STORAGE ............................................................................................................................................... 17
FIGURE 12: SFPUC WATER DELIVERIES ............................................................................................................................................................ 18
FIGURE 13: WATER SERVICE INTERRUPTIONS, FY 2025 TO FY 2026 ..................................................................................................................... 21
FIGURE 14: WATER SALES VOLUME (CCF), FY 2026 Q1 .................................................................................................................................... 22
FIGURE 15: WATER SALES REVENUE ($), FY 2026 Q1 ........................................................................................................................................ 22
FIGURE 16: PALO ALTO’S SHARE OF ESTIMATED WASTEWATER TREATMENT EXPENSES (PROJECTION AND PLANNED CIP) ................................................ 25
FIGURE 17: CURRENT RWQCP CAPITAL WORK IN-PROGRESS (BASED NOVEMBER 4, 2025 REPORT TO FINANCE COMMITTEE) ........................................ 26
FIGURE 18: WASTEWATER SALES REVENUE ($), FY 2025 .................................................................................................................................... 28
FIGURE 19: ELECTRIC RESOURCE ADEQUACY DEALS ............................................................................................................................................ 36
FIGURE 20: ELECTRIC ENERGY DEALS ................................................................................................................................................................ 37
FIGURE 21: ELECTRIC LOAD RESOURCE BALANCE, FY 2026 – 2028 ...................................................................................................................... 37
FIGURE 22: UTILITIES VACANCIES AND RECRUITMENTS BY DIVISION, AS OF YEAR-END FY 2024 .................................................................................. 38
FIGURE 23: OFFSET PORTFOLIO COMPOSITION ................................................................................................................................................... 52
FIGURE 24: OFFSET PROJECT DESCRIPTIONS ...................................................................................................................................................... 53
Staff Report: 2511-5444 – Page 6 of 52
1 Electric Utility
The City’s electric utility serves all residential and non-residential electric demands in Palo Alto at a lower cost than PG&E
in surrounding communities. Its electric supply portfolio is 100% carbon neutral. The City maintains and operates an
electric distribution system but does not operate any transmission lines or any generating capacity on its own. Instead,
the City belongs to Northern California Power Agency (NCPA) which operates its Calaveras hydroelectric generating plant
and provides power scheduling services for its other generating resources. This carbon free power is supplied through
power purchase agreements with various generation operators.
1.1 Electricity Supply and Transmission
Below is an update on electricity supply and transmission services.
1.1.1 Forecasted Supply Costs
The electric net supply cost for FY 2026 is currently projected to be $88.5 M, which represents a 2.6% decrease from the
Adopted Budget level of $91.7 M. For FY 2027, electric net supply cost is projected to be $99.8 M. During Q1 of FY 2026,
net supply cost was about $1.3 M lower than the adopted budget. Although the actual net supply cost was consistent with
projections, we do want to note that FY 2026 has seen higher-than-anticipated load, which led to a decline in surplus
energy revenue ($1.1 M) relative to budget projections.
Figure 1: FY 2026 Q1 Net Supply Cost Forecast vs. Actuals
Staff Report: 2511-5444 – Page 7 of 52
1.1.2 Hydroelectric Conditions
The City receives power from two hydroelectric projects, the Calaveras project and the Western Base Resource contract
for federal hydropower from the Central Valley Project.1 The watershed for Western hydropower is primarily in the
northern end of California, while the watershed for the Calaveras project is in the Central Sierras.
Following the average water year of 2024-2025, reservoir levels across the state began this water year at slightly above
average levels. As of November 10th, precipitation in northern California is about 12% above average for this time of year,
while central California is 10% below average. Given how early it is in the new water year and that reservoir levels are
close to average levels, hydro generation levels are currently projected to be roughly average for FY 2026 and FY2027,
with total output of about 100% of the long-term average level for FY 2026 through FY 2028.
Figure 2: Hydro Generation: FY 2026-2028 Actuals & Projections (GWh)
1.1.3 Renewable Energy Procurement
Utilities staff is currently working with NCPA to issue a new request for proposals (RFP) for new renewable energy and
storage projects, with proposals expected to be received by the end of the calendar year. Staff will update the UAC in the
coming months as this effort proceeds.
1.2 Capital Improvement Plan Status
The following capital projects are currently in progress or have been recently completed:
EL-17001 (East Meadow Circles 4/12kV Conversion)
• This project is scheduled to be completed in several phases. Phase 1 is completed. Phase 2 engineering design is
completed. Phase 2 construction is expected to be completed December 2026.
EL-10006 (Rebuild Underground 24)
• This project is in the design phase, which is scheduled to be completed in June 2026. Construction is expected to
be completed by Summer 2027.
EL-16000 (Rebuild Underground 26)
• The engineering design for this project is currently in progress. The project will be completed in multiple phases
and will take additional years to complete. All engineering design phases are expected to be completed by
February 2026. Construction is expected to be completed by December 2026.
EL-19004 (Wood Pole Replacement)
• CPAU staff and contract consultants are continuously working on pole replacement designs for construction.
25 poles were replaced to date in FY 2026. The replacement of poles will continue to be prioritized in the Grid
Modernization areas.
EL-16003 (Substation Physical Security).
1 The Calaveras project is a hydropower project located in Calaveras County that is maintained and operated by the Northern California Power Agency
on behalf of the City and other project participants. The City is also one of several public entities with contracts with the Western Area Power
Administration for “Base Resource” electricity, which is the hydroelectric power available from the federal government’s Central Valley Project
(operated by the Bureau of Reclamation) after accounting for power used for Central Valley Project operations and power delivered to certain
“preference” customers.
FY 2026 FY 2027 FY 2028
Calaveras Generation (GWh)94 115 94
Western Generation (GWh)295 269 263
Total Hydro Generation (GWh)389 384 358
% of Long-term Average Total 103% 102% 95%
Staff Report: 2511-5444 – Page 8 of 52
• This project is scheduled to be completed in two phases. Substation Security lighting and camera contract was
awarded in June 2022. The installation for the first phase was completed for 7 of the 9 substations in
December 2024. The bid package for the 2nd phase and final two substations is being prepared for solicitation.
Staff is also waiting on consulting services for the new perimeter wall design for Colorado and Park
substations. Construction to be completed by December 2026.
EL-17002 (Substation 60kV Breaker Replacement)
• This project funds the purchase and replacement of both 60kV and 12kV substation circuit breakers that are
reaching the end of their useful life expectancy. Council approved the purchase request for the sixteen 12kV
circuit breakers and eight 60kV breakers. The installation of the 12kV breakers is complete. The project to
purchase the eight 60KV breakers was approved by City Council on May 20, 2024. The engineering design and
installation of the 60kV breakers will begin in FY 2026 and be completed in conjunction with other planned work
at the Colorado Substation.
EL-21001 (Foothills Rebuild)
• This project will rebuild the approximately 9 miles of overhead line in Foothills Park, as necessary to lower the risk
of wildfires due to overhead electric lines. Staff has completed 39,200 feet of substructure work and de-energized
an equivalent amount of overhead electric lines. Substructure for Phase 1 was completed in Spring 2022 and the
substructure for Phase 2 was completed in June 2023. Phase 3 construction is 100% complete with substructures
and cable installed and energized. Phase 4 construction has completed 13,500 feet of the planned 22,000 feet.
Phase 4 undergrounding will be paused due to the winter weather and resumed Spring 2026. Phase 5 substructure
installation along Arastradero road is 100% completed with all substructure and cable installed and energized.
Phase 4 undergrounding is planned for completion this summer and overhead lines (currently de-energized) will
be removed on all phases as weather permits. All work is expected to be complete before the end of fiscal year
2026
EL-02011 (Electric Utility Geographic Information System (GIS))
• The project scope includes on-going maintenance/technical support of the existing GIS system and
implementation of the new GIS platform, ESRI.
EL-24000 (Grid Modernization)
• The Pilot project was completed April 2025. Sixty-six poles have been replaced in the Grid Modernization Pilot
area. Additionally, 908 homes in the Pilot area are ready for electrification. The overhead design and material
procurement is in progress for the remainder of Phase 1. This includes an additional ~3,500 homes within
boundaries of Embarcadero Road, West Bayshore Road, Loma Verde Ave, Middlefield Road, Oregon Expressway,
and El Camino Real. The scope remains the same as the Pilot area, which is to upgrade and install new
transformers, overhead wires, poles and attachment equipment. The target date for Engineering design is
February 2026 and construction to follow (12-18 months). Additionally, as Engineering staff review customer
service upgrade requests and maintenance projects throughout the City, opportunities for infrastructure upgrades
are being executed.
1.3 Reliability
CPAU tracks electric power outages through industry recognized indices; System Average Interruption Duration Index
(SAIDI), System Average Interruption Frequency Index (SAIFI), and Customer Average Interruption Duration Index (CAIDI).
The chart below summarizes outage indices for Palo Alto. With this quarterly update, staff is presenting both outage
indices with and without the impacts of “major event days” (MED). For Palo Alto a MED is defined as a 24-hour period
that impacts more than 10% of Palo Alto’s electric customers. By including and excluding MED, staff can review both the
impact of major events versus outages associated with more typical day-to-day operations.
Staff Report: 2511-5444 – Page 9 of 52
Figure 3: Electric Outage Reliability, FY 2019 through Q1 of FY 2026
Major Event Days Included Major Event Days Excluded
114.7 0.935 122.7 44.4 0.330 134.6
63.9 0.486 131.4 26.2 0.248 105.6
70.6 0.720 98.1 14.7 0.053 279.9
7.2 0.159 45.4 1.2 0.009 132.8
148.9 1.378 108.0 26.1 0.164 159.6
153.1 0.786 194.7 72.3 0.362 199.7
95.4 0.779 122.5 44.5 0.283 157.4
18.5 0.138 134.0 6.0 0.014 429.3
During the first quarter of FY2026 the City experienced one large outage that met the MED criteria. On September 8 at
approximately 7:12pm, a tree branch struck an overhead powerline causing an outage to 3,739 customers. Additional tree
trimming has been performed in this area and CPAU electric staff have installed additional protectional devices (line fuses)
to limit the customer impact of any future outages.
CPAU reliability indices compared favorably to PG&E’s local performance, with Palo Alto’s electric system roughly five
times more reliable than PG&E’s. When compared nationally, Palo Alto’s reliability numbers for FY2025 are near the
nation’s top quartile for best performing systems. Other local Publicly Owned Utilities’ 2024 reliability indices are also
shown on the chart below. With more outages and longer restoration times, Santa Clara’s outage numbers are higher
(worse) than Palo Alto’s. When excluding major event days, the City of Alameda’s average customer outage indices show
more frequent power outages with longer durations than CPAU customers. However, for Alameda customers affected by
outages, their restoration times were shorter than customers served by Palo Alto. See chart below for regional and
national reliability indices. Continued investment in preventative maintenance and asset replacement will help to maintain
and improve overall system reliability.
Staff Report: 2511-5444 – Page 10 of 52
Separating unplanned power outages by their primary cause
helps focus where reliability work may have a greater impact.
The pie chart to the right presents the number of sustained
unplanned outages by their primary cause. For CPAU, unplanned
outages are often stem from equipment failures (failure,
damage, or worn out). The next two largest causes of power
outages are trees outages and outages where the cause could
not be determined (unknown). Equipment failures continue to
be the leading cause of outages indicating a need for ongoing
planned equipment replacements through funding of the City’s
Capital Improvement Program.
1.4 Financial Health
Below is a summary of the financial position for the electric utility.
1.4.1 Sales Forecasts vs. Actuals
Actual electric sales volumes in FY 2026-Q1 were 7.6% higher than forecast (219.4 GWh), driven by continued consumption
from the top 10 business consumers. September revenues and volumes were elevated due to a three-month billing catch
up of a large business customer, whose billing was paused during their gas meter repair. CPAU kept the customer apprised
of the meter repair and billing situation throughout the period. During the three month period, the customer had
consumed 9,042 MWh, resulting in a retroactive bill of $1.88 million. However, overall actual sales revenues exceeded the
FY 2026 Financial Plan by 3.0%.
Figure 4: Electric Sales Volume (kWh), FY 2026 Q1
Bird, 1
Cause Unknown, 13
Construction, 2
Contact with
Foreign Object, 1
Electrical Failure,
14
Equipment
Damage, 10
Equipment Worn
Out, 5
Overloaded, 1
Squirrel, 4
Tree, 12
Vehicle Accident, 4
Fiscal Year 2025 Sustained Outages by Cause
Staff Report: 2511-5444 – Page 11 of 52
Figure 5: Electric Sales Revenue ($), FY 2026 Q1
1.4.2 Financial Position
At the end of FY 2025, the Electric Utility’s combined Operations Reserves for Distribution and Supply totaled $46.6 million,
slightly above the target level of $42.2 million.
Staff expects that debt will be issued later in FY 2026 to offset a portion of the grid modernization costs already spent and
planned in FY 2026 – FY 2028. Net electric supply purchase costs are anticipated to be 3% higher than forecasted in FY
2027. Revenues from selling surplus system Resource Adequacy and Renewable Energy Certificates provide additional
supply revenues. The demand forecast for FY 2027 is 8% higher than forecasted. Transmission costs continue to rise, and
capital spending and distribution system maintenance spending is rising due to grid modernization and other substation
upgrades to increase capacity and enhance reliability, which will benefit all electric ratepayers.
The FY 2027 preliminary electric rate trajectory presented at the November 5, 2025 UAC meeting2 remains unchanged
from the FY 2026 Financial Forecast 3 presented to Council on June 16, 2025, which projected a 6% rate increase in FY
2027. Staff projects the Electric Utility’s combined Operations Reserves for Distribution and Supply will total $49.7 million
at end of FY 2026, which is close to the target level of $49.3 million.
2 Staff Report 2503-4364: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=18457643-b8bd-4c15-b8db-822059719251
3 Attachment D, Exhibit 1 to Staff Report 2411-3776, June 16, 2025:
https://www.paloalto.gov/files/assets/public/v/2/agendas-minutes-reports/agendas-minutes/city-council-agendas-minutes/2025/june-16/rates-
attachments/finalized-attachment-d-exhibit-1-fy26-electric-utility-financial-forecast-and-cip-detail.pdf
Staff Report: 2511-5444 – Page 12 of 52
2 Gas Utility
The City’s gas utility serves all residential and non-residential gas demand in Palo Alto. The City maintains and operates a
system of medium-pressure gas lines for delivering gas but does not operate any transmission lines. Costs for the gas
utility are split approximately two thirds for the operation, maintenance, and capital improvement and one third for the
cost of the gas commodity, PG&E gas transmission, compliance with the State’s Cap and Trade Program and the City’s
Carbon Neutral Gas Program.
2.1 Gas Supply and Transmission
After experiencing a notable price spike during winter 2022-2023, natural gas prices have seen a significant decline,
returning to more typical ranges. This shift can be attributed to several factors, including milder temperatures and above
average gas storage levels nationwide. The combination of these factors has kept natural gas prices low, and we do not
expect a significant price spike to occur in the near future. The chart below shows Palo Alto’s gas commodity rates from
September 2021 through September 2025.
Figure 6: Palo Alto Gas Commodity Rates
Staff Report: 2511-5444 – Page 13 of 52
2.1.1 Actual and Forecasted Supply Costs
Actual supply costs in FY 2026-Q1 were approximately 17% lower than budgeted in the Financial Plan. This variance was
primarily driven by historically low natural gas prices, which remained well below initial forecasts. PG&E benchmark prices
at Citygate and Malin were projected at $3.93 and $3.21 per MMBtu for the quarter, while actual average costs came in
lower at $3.05 per MMBtu. For FY 2026-Q1, the budget total was $2,502,658, the actual total was $2,078,114, and the
variance was ($424,544), which was 17% lower than budgeted in the Financial Plan.
Figure 7: Gas Supply Costs ($), Actual vs Budget, FY2026 Q1
2.2 Capital Improvement Plan Status
The following capital projects are currently in progress:
GS-15000 – GMR 25 (Gas Main Replacement 25)
• The GMR 25 project will replace approximately 26,000 linear feet of gas mains on Ross Road from Colorado Avenue
to East Meadow Drive and surrounding streets, as well as North and Southampton Drive and surrounding streets,
and Walter Hays Drive and surrounding streets. Construction on the project is anticipated to begin in early 2026
and finish in mid-2027. A $16.5 million reimbursable grant from the Pipeline and Hazardous Material Safety
Administration was awarded for this project.
GS-25001 – Gas Line Repair at Arastradero Creek
• During the 2023 winter storms, portions of Arastradero Creek eroded away and exposed a gas pipeline crossing
Arastradero Creek. This project completed the data gathering phase and will begin the design and permitting phase
of the work. A permanent solution was presented to the permitting agencies (Water Board, CDFW, USACE) in
August 2025 for input. Construction on this project is anticipated in mid-2026 through mid-2027. All work will take
place in the Pearson Arastradero Preserve.
GS-16000 – GMR 26 (Gas Main Replacement 26)
• The GMR 26 project will replace approximately 26,000 linear feet of gas mains in the Midtown, Palo Verde,
Fairmeadow, and Evergreen Park neighborhoods. The project is currently in design with construction anticipated
in mid-2027.
Operational Fund – Historic Crossbore Inspection Project
• The Cross Bore Phase IV Project includes a total of 963 sewer laterals located throughout the City. The project
inspections are on-going and are being performed by the City’s Operational crew. The laterals that cannot be
completed by city crews, will be inspected by a contractor at a later date. A total of 271 laterals have been inspected
by city crews, with 153 being cleared of a cross bore and 118 more complex situations requiring reinspection with
Staff Report: 2511-5444 – Page 14 of 52
more specialty equipment, which may be completed by a contractor or staff with additional training. A lateral
launch camera may be required for the reinspection, which Operations staff recently acquired. Training to start
using the equipment is scheduled mid-December of 2025. 692 sewer laterals remain to be inspected by city crews
and will continue in 2026 when new hourly employees are anticipated to be hired.
2.3 Reliability
The City of Palo Alto tracks all gas service interruptions. A summary chart of these interruptions can be found below. Gas
service interruptions are usually due to repairs of broken or damaged gas services and mains. This kind of damage is often
caused by excavation by outside parties digging in the City. In Q1 FY25, staff recorded higher numbers in gas service
interruption tracking due to the division allocating more resources to resolve existing gas leaks. These leaks are small and
are monitored; however, expected changes in gas legislation will require them to be resolved more quickly. The gas
division has been proactively working to meet upcoming compliance goals before the new rules go into effect.
Figure 8: Gas Service Interruptions, FY 2025 to FY 2026
FY 2025
Number of Breaks 13 7 6 6 4
Total Minutes 1860 1205 1050 930 300
135 48 23 40 17
2.4 Financial Health
Below is a summary of the financial position for the gas utility.
2.4.1 Sales Forecasts vs. Actuals
Actual gas sales volumes in Q1 2026 were approximately 6.7% above forecast, with revenues 1.4% above budget.
Volumes were slightly higher than expected due to milder summer temperatures, while gas market prices were below
estimates.
153
118
692
963 sewer laterals for Inspection
Total Sewer Laterals Completed
Total Sewer Laterals Incomplete
Total Addresses remaining to be
Inspected
Staff Report: 2511-5444 – Page 15 of 52
Figure 9: Gas Sales Volume (Therms), FY 2026 Q1
Figure 10: Gas Sales Revenue ($), FY 2026 Q1
2.4.2 Financial Position
At the end of FY 2025, the Gas Utility’s Operations Reserve was $9.7 million, slightly above the minimum guideline level
of $8.6 million (this balance includes $8.57 million held in the CIP Reappropriations Reserve to be reimbursed through a
grant, and $5.4 million temporarily recorded in the Operations Commitments Reserve, due to an administrative oversight
which should have been placed in Operations Reserve).
Gas sales revenue in FY 2025 was about $4.7 million below forecast due to lower usage. Although supply purchases were
$3.2 million below forecast and distribution expenses were $0.6 million lower, these savings did not fully offset the
revenue shortfall. CIP expenses exceeded projections by $6.8 million, funded largely through the CIP Reappropriation and
Commitments Reserve. An additional $700,000 will be needed in FY 2027 for gas line repairs at Arastradero Creek, partially
offset by approximately $395,000 in grant funding shared across Water, Wastewater, and Gas Utilities.
Staff Report: 2511-5444 – Page 16 of 52
As a result, Staff proposed a 14.5% distribution rate increase, or a 9% overall increase for FY 2027, assuming supply charges
remain unchanged, presented at the November 5, 2025 UAC meeting,4 which is higher than the 6% overall increase
projected in the FY 2026 Financial Forecast5 presented to Council on June 16, 2025. Staff projects the Gas Utility’s
Operations Reserve will total $12.2 million at end of FY 2026, which is above the minimum guideline level of $10.4 million.
4 Staff Report 2503-4364: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=18457643-b8bd-4c15-b8db-822059719251
5 Attachment D, Exhibit 1 to Staff Report 2411-3776, June 16, 2025:
https://www.paloalto.gov/files/assets/public/v/2/agendas-minutes-reports/agendas-minutes/city-council-agendas-minutes/2025/june-16/rates-
attachments/finalized-attachment-d-exhibit-1-fy26-electric-utility-financial-forecast-and-cip-detail.pdf
Staff Report: 2511-5444 – Page 17 of 52
3 Water Utility
The Water Utility serves water to virtually all Palo Alto residential and non-residential customers. All potable water in the
City is from the San Francisco Public Utilities Commission (SFPUC) Hetch Hetchy Water System. This system delivers high
quality water from the Sierra Nevada and uses no pumping to deliver water to the City. Palo Alto uses a small amount of
recycled water for irrigation of the Municipal Golf Course and a few other sites near the Regional Water Quality Control
Plant. The City also maintains a system of reservoirs, wells, and emergency interties that enable Palo Alto to serve water
during an interruption of the Hetch Hetchy system. Costs for the Water Utility are split approximately half for the
operation, maintenance and periodic replacement of Palo Alto’s water system and half for the costs of the water
purchased.
3.1 Water Supply and Transmission
As of November 1, 2025, cumulative Hetch Hetchy Weather Station precipitation for Water Year (WY) 2026 was 161% of
median, and the Regional Water System total storage operated by the San Francisco Public Utilities Commission (SFPUC)
was at 89% of maximum storage and the Water Bank was 98% full. In the figure below, the solid black line shows storage
in the Regional Water System for the past 12 months (color bands show contributions to total system storage) and the
dashed black line shows total system storage for the previous 12 months. Regional Water System Storage is 1,282
Thousand Acre Feet (TAF) as of November 1, 2025.
Figure 11: Regional Water System Storage
Staff Report: 2511-5444 – Page 18 of 52
The figure below shows water usage for the South Bay/East Bay (including Palo Alto) compared to several benchmarks,
including 2015, 2024 and a five-year average. For the South Bay/East Bay region as well as systemwide, demand for 2025
has been similar to the average of the last five years and generally lower than the same months in 2024.
Figure 12: SFPUC Water Deliveries
California Senate Bill 555, adopted in 2015, requires all California water suppliers to submit annual validated water loss
audits to the Department of Water Resources. These audits are prepared and validated in accordance with the American
Water Works Association M36 Manual for Water Audits and Loss Control Programs. The audits help identify the scale and
sources of water loss and guide operational and capital investments that improve the efficiency of water production and
delivery.
Each year the City tests its water supply meters and more than one hundred customer meters for accuracy. Meters with
low or no flow are identified and replaced to maintain accurate accounting and billing. Staff issued a notice of award to
ME Simpson to conduct an acoustical leak detection survey of the water distribution system, with field work expected to
begin in Spring 2026.
Water loss audits are prepared on a calendar year basis. The audit for calendar year 2024 will be submitted to the
Department of Water Resources by January 1, 2026. Water loss results of previous audits are listed below. Water losses
are calculated as the difference between water supplied and consumption. Apparent losses include all types of
inaccuracies associated with customer metering and may include water theft and data handling errors, and real losses
include all pipe leaks from the public distribution mains, service lines, and tank storage.
• CY2022
o Apparent Losses: 16.1 gal/connection/day
o Real Losses: 6.7 gal/connection/day
Staff Report: 2511-5444 – Page 19 of 52
• CY2023
o Apparent Losses: 16.7 gal/connection/day
o Real Losses: 4.0 gal/connection/day
3.2 Capital Improvement Plan Status
The following capital projects are currently in progress:
WS-09000 – Water Tank Seismic Upgrade and Rehabilitation
• The seismic water system improvement project will be completing an engineering assessment and seismic analysis
of two 60-year-old, one-million-gallon, welded steel tanks located near the San Andreas Fault. These are the last
two water storage tanks in the distribution network yet to be seismically retrofitted. The tanks also require
rehabilitation and new coatings. The engineering assessment will be completed by June 2026. Staff will solicit
services for engineering design, and the anticipated project construction start date for rehabilitation is January
2030.
WS-16001 – WMR 30 (Water Main Replacement 30)
• The WMR 30 project is currently in the design phase and will replace approximately 2,000 linear feet of water main
on Stanford Avenue and Channing Avenue. The anticipated project construction start date is in January 2027.
WS-19001 – WMR 31 (Water Main Replacement 31)
• The WMR 31 project is currently in a preliminary scoping phase. The project will replace approximately 4,000
linear feet of water main. This pipe replacement project is being coordinated with the Wastewater Replacement
Program. A combined water and wastewater replacement project is anticipated to start in January 2028.
WS-11003 – Water Distribution System Improvements
• Arastradero Creek Relocation: During the 2023 winter storms, a section of Arastradero Creek eroded away and
exposed a gas pipeline crossing. The gas line is in close proximity to a large diameter water pumping line. This
project will relocate the water pumping line to a location out of the creek bed and eliminate the undermined creek
crossing. The project is currently in design and permitting phase of the work. A preliminary design for the relocated
water line has been completed. Work to relocate the pipeline is anticipated for July 2028.
• Water System Leak Detection: Leaks are repaired when they reach the surface, but small leaks can remain hidden.
This project will use acoustical leak detection to identify and map small, unreported leaks in the distribution
system. The data will guide future repairs and pipe replacement priorities. Leak detection will begin in March 2026
and finish by year end, with full system surveys repeated in 2027 and 2028 under a 3-year contract. This approach
follows state guidance.
• Water HDPE and Water Standard Updates: The Plastic Pipe Institute released a new technical paper for
engineering and design of in-line anchor blocks for new HDPE pipe. This project will prepare new engineering
calculations and standard details. HDPE is the primary pipe material for all water pipes in Palo Alto. These
engineered details will be used in all water main replacement projects within the City.
WS-11004 – Water System Supply Improvements
• Water System Master Plan: The previous full system water system master plan was completed in 1999, and a
Master Plan of the water distribution piping network was completed in 2015. A new Water System Master Plan
will evaluate the City’s existing water distribution system, demands, and maintenance needs. The plan will develop
Staff Report: 2511-5444 – Page 20 of 52
a recommended and prioritized list of capital improvement projects. Professional engineering services to prepare
the plan will be solicited by Spring of 2026.
• Well Improvements: Palo Alto owns eight wells. The pump at the El Camino Park Well failed and was removed,
rebuilt, and returned to service. About one hundred eighty feet of column pipe was replaced with new 10-inch
steel pipe, and the pump received a new power cable, new coatings, and a new intake strainer. The well casing
was inspected and cleaned before reinstallation. Engineering and operations staff are planning a well site
assessment for potential emergency backup power needs, with an informal review expected in Winter 2025 to
identify generator locations, new power cables, and other well site improvements.
• Wildfire Hardening Improvements: Wildfires can contaminate potable water and damage water system
infrastructure. The Office of Emergency Services, with input from water engineering staff, updated vegetation
removal plans and wildfire hardening buffers around water facilities in Fire Hazard Severity Zones. Professional
services will be solicited in 2026 to evaluate vulnerable facilities in these zones and recommend improvements.
• Appurtenances and Large Meter Replacements: Small water meters are routinely replaced and monitored for
low and no flow errors. Meters three inches and larger serve critical customers and require more complex testing
and replacement. Several large meters have been identified for replacement through the AMI program, which will
improve accuracy and data quality for annual water audits and loss reduction efforts. A solicitation for
construction services is planned for Spring 2026 and will include on call work to replace aging sampling stations
and air release valves.
• Water Storage Improvements: The City of Palo Alto owns and maintains seven water storage reservoirs, two of
which need improvement or replacement. A new PAX water tank mixer has been purchased to replace the mixer
for the Montebello Tank site after the water tank mixer failed. The Boronda Tank roof has multiple indentations
where water collects and ponds on the roof. Construction services will be solicited in 2026 to mitigate the roof
ponding in accordance with State Water Resources Control Board requirements.
• Water Supply Connections: Palo Alto receives water through five connections to the San Francisco Public Utility
Commission Regional Water System. Three of the connections tie into the 36-inch Palo Alto Pipeline along El
Camino Real. The supply connection at California Avenue and El Camino Real was reconstructed in 2024, providing
improved control of water supply pressure. Engineering and operations plan to adjust valving from the new station
to serve a second pressure zone and strengthen system resiliency. This project will also add communication and
control devices and pipe supports. Operations have improved water quality monitoring with new on demand
chlorine analyzers installed at the supply connections.
• Automatic Flushing Systems: Most storage in the distribution network is reserved for emergency supply. About
six and a half million gallons are stored west of El Camino Real in tanks built in the 1950s and 1960s, including a
series of five tanks and pump stations from Arastradero Road to Montebello Road. Water in these tanks and in
the main City reservoirs is routinely cycled into the system to maintain freshness, and staff flush low-demand
areas to manage water age. Operations and engineering have identified potential sites for automatic flushing
systems that can be coordinated with tank down flush cycles and seasonal water quality needs. A pilot is planned
for 2026.
WS-13002 – Water General Equipment/Tools
• This project will purchase multiple new tools and equipment to support operation and engineering needs. The
following equipment and tools will be purchased this fiscal year.
o A new tapping machine to replace an old tapping machine with a failed motor
o New water pressure transient monitoring systems
o New clamp-on flow monitoring device
Staff Report: 2511-5444 – Page 21 of 52
WS-80013 – Water System Customer Connections
• This project is a permanent, ongoing project. The project includes improvements required to provide service to
new customers and customers requesting expanded service. Work includes new main extensions, valves, domestic
services, meters on upgraded services, backflow devices, fire services, and fire hydrants.
WS-80014 – Water Service and Hydrant Replacement
• This project is a permanent, ongoing project. The project replaces system control valves, deteriorated services,
and replacing fire hydrants.
WS-80015 – Water Meters
• New meters have been purchased for the AMI program, which is currently 90% complete. In 2026, staff will
purchase all of the new large meters of 3” and larger, for the Appurtenance and Large Meter Replacement project
work described above in the WS-11004 section.
3.3 Reliability
The City of Palo Alto tracks all water service interruptions. A summary chart of these interruptions can be found below.
Water service interruptions are usually due to repairs of broken or damaged water services and mains.
Figure 13: Water Service Interruptions, FY 2025 to FY 2026
Water
Number of Breaks 8 7 7 8 6
Combined Minutes 510 1250 795 960 1200
Water distribution network hydraulic capacity design includes sizing pipelines, pump stations, pressure-regulating valves,
tanks and reservoirs to meet water demand and system flow needs. Fire-flow demand plus maximum day demand is an
important limiting demand condition for pipe sizing and system operation. In 2025, the Fire Department and Water
Transmission Operational team completed multiple large, multi-hydrant fire flow tests throughout the two largest
pressure zones. The results indicated stronger than expected water system performance, and it improved coordination
between the Fire Department and water utility.
The City of Palo Alto’s water system has seven emergency interties with neighboring water agencies. There are two
interties with Stanford University, one intertie with the City of East Palo Alto, two interties with the City of Mountain View,
and two interties with Purissima Hills Water District. The City of Palo Alto and the City of East Palo Alto maintain an
emergency intertie on the University Avenue bridge over the San Francisquito Creek. The City of East Palo Alto completed
the first phase of the reconstruction of the emergency intertie. The project improved reliability and flows of the emergency
intertie. The General Manager of Purissima Hills Water District requested an additional emergency intertie located near
the intersection of Page Mill and Old Page Mill Road. City of Palo Alto and Purissima Hills Water District engineering teams
are analyzing benefits.
3.4 Financial Health
Below is a summary of the financial position for the water utility.
Staff Report: 2511-5444 – Page 22 of 52
3.4.1 Sales Forecasts vs. Actuals
Actual water sales volumes in FY 2026 Q1 were 0.8% lower than forecasted, and actual water sales revenues were about
0.9% higher than budgeted, which aligns with the anticipated recovery in water usage following periods of drought.
Figure 14: Water Sales Volume (CCF), FY 2026 Q1
Figure 15: Water Sales Revenue ($), FY 2026 Q1
3.4.2 Financial Position
At FY 2025 year-end, the Water Operations Reserve balance was $16.35 million, which is within the guideline range.
Additionally, the Rate Stabilization Reserve had $4 million remaining at the end of FY 2025. In June 2025, Council approved
the FY 2026 Water Utility Financial Plan,6 which approved a 10% rate increase in FY 2026 to pay for rising costs and offset
decreased sales revenues. For FY 2027, the preliminary rate projections in the Water Utility Financial Forecast are
unchanged from the FY 2026 Financial Forecast of a 16% distribution rate increase, which is equivalent to a 10% overall
6 Staff Report 2411-3776: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=35104f06-6925-4fe3-89c7-b0e53e6eec42
Staff Report: 2511-5444 – Page 23 of 52
system average increase, presented at the November 5, 2025 UAC meeting.7 The rate increase is primarily driven by capital
costs. To fund capital contributions and to maintain the CIP Reserve balance within the reserve policy guidelines, the FY
2027 preliminary forecast proposes drawing down on the Operations Reserve by a total of $6.4 million in FY 2026. This
proposed drawdown would result in a projected year-end Operations Reserve balance of $9.9 million at FY 2026 year-end,
which is within the guideline range. The FY 2027 preliminary five-year forecast also proposes annual distribution rate
increases of up to 16% to fund annual capital contributions and to slowly restore the CIP Reserve. The FY 2027 preliminary
financial forecast reflects both the Operations Reserve and CIP Reserve remaining within the guideline ranges during the
5-year planning period.
7 Staff Report 2503-4364: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=18457643-b8bd-4c15-b8db-822059719251
Staff Report: 2511-5444 – Page 24 of 52
4 Wastewater Utility
The Wastewater Utility includes the system of sewer pipes that collect and transport wastewater to the Regional Water
Quality Control Plant (RWQCP) operated by the City of Palo Alto under a partnership agreement with several surrounding
communities, as well as Palo Alto’s share of the cost of operating the RWQCP. The RWQCP provides treatment and disposal
of wastewater for Palo Alto. Costs for the Wastewater Utility are split approximately half for the operation, maintenance
and periodic replacement of Palo Alto’s sewer collection system and half for the costs of wastewater treatment at the
RWQCP.
4.1 Wastewater Treatment Updates and Capital Planning Status
The RWQCP, operated by Palo Alto's Public Works Department, provides wastewater treatment to Palo Alto, Mountain
View, Stanford, Los Altos, East Palo Alto, and Los Altos Hills. The Palo Alto Wastewater Collection Utility contributes
approximately 36% of the costs in FY 2025). Capital costs, driven by necessary upgrades to aging equipment and changing
environmental regulations, are a major factor in cost increases. With plant equipment over 50 years old, significant
rehabilitation and replacement are required to maintain safe, compliant wastewater treatment operations.
4.1.1 Treatment Cost Trends
RWQCP staff project a 5.5% average annual increase in treatment costs paid by Palo Alto’s Wastewater Utility from FY
2025 to FY 2035. The main drivers are capital projects, materials, and debt service (including loan repayments). Treatment
capital expenses, including debt service, are expected to rise by about 30% per year on average to fund equipment
replacement and major upgrades. Larger increases in capital expenses are anticipated starting in FY 2030 due to new debt
for major projects. The figure below outlines Palo Alto’s share of estimated treatment costs, with upcoming capital
projects and planned debt service payments shown in the "Planned Debt Service" bar.
Figure 16: Palo Alto’s Share of Estimated Wastewater Treatment Expenses (Projection and Planned CIP)
The figure above shows annual CIP reinvestment including Existing Debt Service, pay-as-you-go CIP expenses, and
treatment operations costs. While operations costs make up the bulk of treatment expenses, they are growing more slowly
than planned debt service. The largest increase in planned debt service in FY 2030 is primarily due to the debt service
repayments beginning on the Secondary Treatment Upgrades, which is a $193 million capital project to remove nutrients
from the wastewater (denitrification) in order to meet upcoming regulatory requirements. Nutrient removal is important
to reduce algae blooms that kill fish and other aquatic life. The Secondary Treatment Upgrades project will also replace
critical, aging mechanical and electrical equipment.
Not included in Figure 17 is the remaining unencumbered and authorized amount for the future pay-as-you-go capital.
This amount is estimated to be $3.5 million in FY 2025. The wastewater collection utility needs to hold this amount in
reserves until it is needed by the treatment plant.
In June 2024, the Council approved a Cost-Sharing Agreement with the Santa Clara Valley Water District for the Guiding
Principle 5 grant program, which funds future RWQCP 8 projects. The program supports communities like Palo Alto, where
taxpayers pay State Water Project property taxes but rely on non-Valley Water supplies for most of their water. Staff
estimates a total of $11.2 million in grant funding for Palo Alto’s share of approved RWQCP projects, directly benefiting
local customers. Four upcoming projects are eligible for this funding:
•Outfall Line Construction
•Headworks Facility Replacement
•12kV Electrical Power Distribution Loop Improvements
•Joint Intercepting Sewer Rehabilitation
4.1.2 Regional Water Quality Control Plant Capital Planning Status
The RWQCP continues to undergo significant capital improvements to address aging infrastructure, respond to evolving
regulations, and meet future capacity needs. These efforts are guided by the Long-Range Facilities Plan (LRFP), which was
8 Staff Report 2404-2877, June 3, 2024 https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82864&dbid=0&repo=PaloAlto
Staff Report: 2511-5444 – Page 25 of 52
Staff Report: 2511-5444 – Page 26 of 52
originally adopted in 2012 and is now undergoing a comprehensive update, anticipated for completion in 2027. The
RWQCP’s current capital work in-progress includes an estimated $464.2 million in projects. The following table
summarizes these ongoing projects and provides their status and costs. Palo Alto’s share of these costs is captured in
Figure 17 in the “Planned Debt Service” category.
Figure 17: Current RWQCP Capital Work In-Progress (based November 4, 2025 report to Finance Committee 9)
Design/Re-evaluation for
Future Levee Height
$17.8
Construction $193
Construction $59.9
Design $162
Construction $2.8
Design $18.7
Varies ~$10.0
Subtotal $464.2
One of the largest projects is the Headworks Facility Replacement, which will upgrade the raw sewage pumping systems
along with bar screens and grit removal equipment to improve reliability and protect downstream processes. As part of a
broader campus-wide approach to meet future space needs, the RWQCP is evaluating the purchase of neighboring
properties and, following Council approval of a 20-year lease agreement in May 2025, has initiated design and construction
of tenant improvements at a leased facility located at 2470 Embarcadero Way to provide necessary laboratory and office
space.
The RWQCP plans to fund these capital projects through a combination of mechanisms including pay-as-you-go, State
Revolving Fund loans, and revenue bonds. Several sources of funding will be used for the Local AWPS: Valley Water will
provide $16 million, Palo Alto was awarded a $12.9 million grant from the United States Bureau of Reclamation’s
WaterSMART program, which allocates Title XVI Program funding under the Water Infrastructure Improvements for the
Nation (WIIN) Act, and the remaining project costs will be funded through a State Revolving Fund loan along with
contributions from the City of Mountain View. The Horizontal Levee Pilot Project is expected to receive funding from the
Environmental Protection Agency, Department of Water Resources, Association of Bay Area Governments and the Coastal
Conservancy.
4.2 Collection System Capital Improvement Plan Status
The following capital projects are currently in progress:
WC-15002 – Wastewater System Improvements - Sewer Master Plan Study
• The Master Plan Study will evaluate the City’s existing wastewater collection system, flows, and flow patterns to
determine the adequacy of the system’s hydraulic capacity to meet current and anticipated future wastewater flow
demands and develop a recommended prioritized Sewer Main rehabilitation plan. The project kicked off in
December 2023. The project is in the process of wrapping up and is anticipated to be completed in February 2026.
9 Staff Report 2508-5132 https://cityofpaloalto.primegov.com/api/compilemeetingattachmenthistory/historyattachment/?historyId=a7fd172e-
9a80-4b22-ab2f-cd933b950105
Staff Report: 2511-5444 – Page 27 of 52
WC-15002– Wastewater System Improvements and WC-13002 – Lodge/Foothills Lift Station Pump #1 and Pump #2
Repair
• The Lodge/Foothills Lift Station (LFHLS) experienced pump failure of Pump #1 and partial failure of Pump #2. Pump
#1 was removed, repaired, and reinstalled. Pump #2 was removed and transported to vendor to repair. Pump #2
is scheduled for reinstallation in December 2025.
WC-15002– Wastewater System Improvements – Arastradero Creek Wastewater Relocation
• During the 2023 winter storms, a section of Arastradero Creek eroded away and exposed a gas pipeline crossing.
The gas line is in close proximity to a sanitary sewer main. This project will relocate the sanitary sewer main to a
location out of the creek bed and eliminate the undermined creek crossing. The project is currently in design and
permitting phase of the work. A preliminary design for the relocated sanitary sewer main has been completed.
Work to relocate the pipeline is anticipated for July 2028).
WC-20000 - SSR 32 (Sanitary Sewer Replacement 32)
• The SSR 32 project is currently in the design phase and will replace approximately 26,000 lineal feet of sewer mains,
laterals, and manholes. Currently, the project is in the process of being rescoped based on the recently received
Sewer Master Plan which identifies prioritized improvements based on rehabilitation and capacity issues. Design
will restart in FY27 for construction in FY28.
WC-26001 – CCTV Sanitary Sewer Mainline Inspection
• The City is in the process of developing an Invitation for Bid (IFB) for a three-year program to CCTV Sanitary Sewer
Mains. The project will CCTV approximately 225,000 lineal feet of Sanitary Sewer Main over a three-year duration
at an annual rate of approximately 75,000 lineal feet per year. Results of the project will be used to identify
defective Sanitary Sewer Mains which will be incorporated into future SSRs to rehabilitate and replace Sanitary
Sewer Mains. The project has an anticipated IFB bid date late 2025 for an anticipated start date in Summer 2026.
WC-99013 – Sanitary Sewer Lateral Rehabilitation and Replacement
• The City is in the process of developing an IFB for a three-year program to rehabilitate or replace Sanitary Sewer
Lower Laterals (Lower Laterals). City staff has identified approximately 210 Lower Laterals that will be rehabilitated
or replaced over a three-year period at an annual rate of approximately 70 per year. In addition to addressing
defective Lower Laterals, the project will reduce inflow and infiltration into the sanitary sewer system. Due to
financial issues, the project was put on hold until October 2025, and now has an anticipated IFB bid date in late
2025.
4.3 Financial Health
Below is a summary of the financial position for the wastewater utility.
4.3.1 Sales Forecasts vs. Actuals
Wastewater sales revenues in Q1 FY 2026 were 1.4% below budgeted, which is consistent with the FY 2026 Financial Plan.
Figure 18: Wastewater Sales Revenue ($), FY 2026 Q1
4.3.2 Financial Position
At the end of FY 2025, the Wastewater Collection Utility’s Operations Reserve was $1.7 million, which is below the risk
assessment level of $2.8 million.
In FY 2025, the Utility received $2.7 million in Valley Water grant revenue to offset Wastewater Treatment costs, directly
benefiting Palo Alto customers. The cash balance at the end of FY 2025 was approximately $0.9 million, which is lower
than Staff’s projections. There is a possibility that the Utility may be unable to fully repay the Fiber Utility loan 10 due in FY
2026. The loan may need to be extended to maintain a positive cash balance, with no impact on Fiber Utility activities.
New CIP needs have emerged, including $2 million in FY 2028 for Arastradero Creek exposed pipe repairs and pipe
relocation. These costs will be partially offset by shared grant funding across the water and gas utilities.
The FY 2027 preliminary wastewater rate trajectory presented at the November 5, 2025 UAC meeting 11 remains
unchanged from the FY 2026 Financial Forecast12 presented to Council on June 16, 2025, which assumed a 16% rate
increase in FY 2027. Staff projects the Wastewater Collect Utility’s Operations Reserve will total $3.9 million at end of FY
2026, which is above the risk assessment level of $3.2 million.
10 Resolution 10173: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=62043&dbid=0&repo=PaloAlto
11 Staff Report 2503-4364: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=18457643-b8bd-4c15-b8db-822059719251
12 Attachment D, Exhibit 1 to Staff Report 2411-3776, June 16, 2025:
https://www.paloalto.gov/files/assets/public/v/2/agendas-minutes-reports/agendas-minutes/city-council-agendas-minutes/2025/june-16/rates-
attachments/finalized-attachment-d-exhibit-1-fy26-electric-utility-financial-forecast-and-cip-detail.pdf
Staff Report: 2511-5444 – Page 28 of 52
-2.1%
Staff Report: 2511-5444 – Page 29 of 52
5 Fiber Utility
The City offers a "Dark" fiber service, providing a fiber connection from Palo Alto businesses to the downtown Internet
Exchange. At the exchange, businesses select an internet service provider (ISP) for bandwidth and connection speed.
5.1 Fiber Utility Strategic Planning
Below are highlights and status updates of the Fiber-to-the-Premises (FTTP) Project:
• The City’s contractor MP Nexlevel is pouring concrete for the fiber hut foundation which is expected to be
completed by the middle of January 2026.
• The fiber hut and backup generator is expected to be delivered in January 2026.
• Aerial fiber construction and installation of fiber distribution cabinets are scheduled for December 2025 – January
2026. Work will be required in backyards to string the fiber optic cables between utility poles. Residents will be
notified in advance by construction notices and door hangers requesting access to backyards.
5.2 Capital Improvement Plan Status
The following capital projects are currently in progress:
• FO-16000 – Fiber Optic System Rebuild
o The new fiber backbone will be built in segments in alignment with the phased FTTP. CPAU does not have
resources to construct an entire new fiber backbone along with FTTP. In the meantime, CPAU is installing
new aerial ducts or substructure (conduit and boxes) and fiber backbone cables to increase capacity in
areas that are at or near capacity to meet new customer dark fiber connection requests.
• FO-24000 – Fiber-to-the-Premises
o The pilot area consists of approximately 900 homes which are bounded by Embarcadero Road, Louis
Road, Colorado Avenue, Greer Road and West Bayshore Road. Staff anticipates launch of service in the
first quarter of 2026. Outreach campaign development is underway. Taking advantage of a connection
opportunity, staff has already been able to establish pilot services at the educator housing development
on Grant Avenue.
5.3 Reliability
There were no unplanned fiber outages or events to report in Q1 of FY 2026.
5.4 Financial Health
Below is a summary of the financial position for the fiber utility.
Staff Report: 2511-5444 – Page 30 of 52
5.4.1 Fiber Sales
Actual dark fiber licensing sales in Q1 FY 2026 were $0.7M and ($0.1M) or (12%) below the quarterly revenue forecast of
$0.8M. Fiber expenses were $1.0M and $0.2M or 4% below forecast of $1.2M due to vacancy savings. Three of the four
positions added in FY 2024 to support FTTP are on hold, pending results of the FTTP Palo Alto Fiber pilot. Existing staff
and contractors are collectively performing the work that staff in those roles would perform at this time. For the dark
fiber business, staff is working on a marketing program to promote the City’s dark fiber licensing program to key accounts,
resellers, and property owners.
5.4.2 Financial Position
At the end of FY 2025, the Fiber Fund had a total reserve of $34 million which consists of $17.4 million of rate stabilization,
$13.1 million of commitments and reappropriations, and $3 million loan to Wastewater Collection utility.
Staff Report: 2511-5444 – Page 31 of 52
6 Communications
This section summarizes communications highlights, updates on major campaigns and noteworthy events. Copies of ads
bill inserts, and brochures are available online at www.paloalto.gov/UTLbillinsert
Annual Consumer Confidence Report: Every year, CPAU produces a consumer confidence report on water quality
conditions for the previous calendar year. The 2024 water quality report is available online at paloalto.gov/waterresources
in English, Spanish and Traditional Chinese. Community members may contact us at
UtilitiesCommunications@paloalto.gov or (650) 329-2479 to request a printed copy.
Municipal Services Center Open House: In July, the City hosted an Open House at the Municipal Service Center (MSC) to
showcase some of the “behind the scenes” work that we do for the community. Hundreds of community members came
out for the opportunity to talk with staff and learn about City services and programs.
Northern California Power Agency (NCPA) Legislative Tour: In early August, CPAU hosted a tour coordinated by the
Northern California Power Agency (NCPA) for a group of about 30 federal and state legislative staff. This was an
opportunity for Palo Alto to share how we operate and serve the community as a publicly owned electric utility,
highlighting key legislative issues that impact our city. The group visited a NCPA hydroelectric facility in Murphy’s which
provides around 40% of Palo Alto’s electricity, followed by customer data and technology sites in Santa Clara and Palo
Alto. In Palo Alto, attendees visited Rivian’s headquarters and the Palo Alto Hanover substation, hearing from Utilities and
Tesla staff about the public-private partnership between the city and Tesla to upgrade the substation. Vice Mayor Veenker,
as NCPA Commissioner, and Mayor Lauing delivered welcoming addresses to the group.
Public Safety Power Shutoffs Outreach: CPAU's wildfire mitigation plan outlines safety protocols, emergency
preparedness, response, and public outreach activities for the Foothills, which is identified as the high fire threat area in
Palo Alto. Staff have communicated directly with customers in the Foothills about the potential for a Public Safety Power
Shutoff (PSPS) if there is a risk of wildfire ignition due to contact with electrical equipment.
Praise from PAUSD for Recent Electrification Projects: CPAU received special thanks from the Palo Alto Unified School
District for assistance with electrification projects at 9 school campuses, including heating and cooling systems, installation
of EV charging infrastructure, and solar photovoltaics. Specifically, the project manager wrote to “…express my sincere
appreciation for your team's exceptional contributions and dedicated service on the recent school power projects. Your
team's commitment and hard work were crucial in ensuring these projects were completed on time. Your field team was
instrumental in resolving the remaining challenges with great professionalism, leadership, innovation, and dedication.
They truly set a high standard for customer service. Your team's efforts played a vital role in the success of my team.”
Advanced Metering Infrastructure Base Station: The City added a new AMI base station on the rooftop of City Hall to
provide better network coverage in densely populated areas such as downtown. This will also increase redundancy for
existing AMI meters in case any of the other base stations go offline. With the new base station, the project team
anticipates a conversion rate of 95% by the end of 2025. The remaining 5% of meters will be completed in 2026 due to
age, condition, location and/or size of the meter. A brief video of the new base station at City Hall can be found at
https://www.youtube.com/shorts/9htSbxafXmY
Program and Event Support: CPAU communications staff provide ongoing annual, monthly, and daily support for outreach
to residential and non-residential customers about issues pertaining to sustainability, energy and water efficiency, solar,
electric vehicles and eBikes, beneficial electrification, capital improvement projects, operations and maintenance,
Staff Report: 2511-5444 – Page 32 of 52
customer service, and technological innovations for utility customers. This quarter included outreach on a multitude of
events and workshops on these topics, as well as promotion via website, utility bill inserts, email newsletters, social media,
print and digital advertisements, community outreach events, media relations and public correspondence.
Staff Report: 2511-5444 – Page 33 of 52
7 Legislative, Regulatory and Industry Activity
7.1 State Legislative Activity
CPAU finished the 2025 legislative session with a mostly favorable outcome. Negotiations continued up to the final
deadline for major electricity affordability and climate legislation, but the legislation ultimately passed in line with CPAU’s
advocacy. AB 1207 reauthorized Cap & Trade, now called Cap & Invest, to 2045 and directed the California Air Resources
Board (CARB) to preserve publicly owned utility (POU) allowance allocations through 2030, which are used to fund CPAU’s
local decarbonization programs. In the final week of session, AB 825, rather than SB 540, became the legislative vehicle
for establishing an independent governance board for the regional wholesale day-ahead electricity market known as the
Extended Day Ahead Market (EDAM). Establishment of this independent governance board encourages non-California
entities to join EDAM, thereby maximizing its size and benefits. With the formation of EDAM, CPAU is expected to receive
annual financial benefits of at least $1 million from more efficient electricity markets. SB 254 was the legislature’s energy
affordability bill that sought to lower electricity rates by publicly funding transmission infrastructure, improving wildfire
mitigation efficiency, and streamlining permitting. Importantly for CPAU, SB 254 also reduces the administrative burden
of wildfire mitigation plans (WMP) by allowing them to be submitted less frequently without compromising wildfire safety.
Lastly, AB 1273 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. Language enabling more
public comment at CPUC rate hearings was also included in AB 1273 and was ultimately the reason it was vetoed by
Governor Newsom. CPAU and our partners at NCPA remain optimistic that a hydroelectricity provision may be included
in an appropriate piece of legislation in the future.
Chaptered Bills
• AB 825 (Petrie-Norris) | Establishment of an independent governance board for a regional day-ahead
electricity market. This bill creates an independent governing board for a day-ahead wholesale electricity
market, which would decrease ratepayer costs, lower emissions, and improve grid reliability.
• AB 1207 (Irwin)/ SB 840 (Limón) | Cap & Trade reauthorization. AB 1207 extends the Cap & Trade program
to 2045, renames the program to Cap & Invest, preserves electric utility free allowance allocations through
2030, and directs CARB to move free allowances away from gas corporation (not including CPAU) and
distribute them to electric utilities. SB 840 stipulates how funds in the Greenhouse Gas Reduction Fund (GGRF)
are appropriated to certain funding categories, namely by moving to fix annual sum rather than percentage
allocations.
• AB 1410 (Garcia) | Utilities: service outages and updates: alerts. 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.
• SB 72 (Caballero) | The California Water Plan: long-term supply targets. This bill 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.
• SB 254 (Becker) | Electricity: wildfire mitigation: rate assistance: Policy-Oriented and Wildfire Electric
Reimbursement (POWER) Program. This is the Senate’s utility affordability bill that largely addresses IOU
activities but also streamlines POU wildfire mitigation plans (WMP) and creates a reimbursement program for
certain utility expenditures.
Vetoed Bills
• AB 93 (Papan) | Water resources: data centers. 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.
Staff Report: 2511-5444 – Page 34 of 52
• AB 222 (Bauer-Kahan) | Data centers: power usage effectiveness: cost shifts. 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.
• AB 353 (Boerner) | Communications: broadband internet service providers: affordable home internet service.
Would have required internet service providers to offer internet service at $15/month to low-income customers.
• AB 1273 (Patterson) | Public utilities: rate setting proceedings: local publicly owned electric utilities: California
Renewables Portfolio Standard Program. This bill contains language that would extend publicly-owned utility’s
ability to avoid over procuring renewable energy in years where at least 40% of their electricity sales come from
large hydroelectric generation. CPAU strenuously advocated for inclusion of this language and will benefit greatly
from its passage.
• SB 332 (Wahab) | Investor-Owned Utilities Accountability Act. 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.
• SB 541 (Becker) | Electricity: load shifting. 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.
7.2 State Regulatory Activity
Regulatory action picked up steam as the end of the legislative session gave new direction to California agencies. AB 1207
reauthorized the Cap and Invest program to 2030 and instructed the California Air Resources Board (CARB) to transition
free allowances from natural gas corporations and give them to electrical distribution utilities by the end of 2030. CPAU
does not fall under the definition of natural gas corporation and CARB has stated it is not their intent for entities like CPAU
to lose their natural gas allowances. Despite this, CPAU staff are advocating to preserve our natural gas allowance
allocation through 2030 as these revenues are key to funding our local decarbonization programs like the heat pump
water heater program. CARB has an accelerated roadmap for the Cap and Invest rulemaking, with formal draft language
released by the end of 2025, the final regulatory language adopted by the CARB board in April 2026, and the changes
taking effect in 2027. SB 254 made several significant changes in the name of utility affordability, including improved
coordination of transmission planning and public financing of transmission projects. Specific to publicly-owned utilities
like CPAU, SB 254 eliminated the requirement to annually submit wildfire mitigation plans (WMPs) to the Wildfire Safety
Advisory Board (WSAB), instead allowing submissions to occur every 4 years at a minimum. This change would reduce
administrative burden without diminishing wildfire mitigation efforts; a new reporting structure is expected from the
WSAB by the end of 2025.
7.3 Federal Activity
In recent months, federal administration actions have challenged California and clean energy efforts on a number of fronts.
Multiple executive orders made sweeping declarations to challenge carbon reduction regulations like Cap-and-Trade and
LCFS, bolster the use of fossil fuels, stymie renewable development, and eliminate federal staff and programs. Staff
reductions at the Bureau of Reclamation (BOR) and the Western Area Power Administration (WAPA) may reduce
operational efficiency and safety over time. Tariffs, and their fluctuating nature, have increased equipment prices, and
their overall instability will likely increase costs for grid-scale projects or cause developers to pull out entirely. Elimination
of renewable energy tax credits are further increasing utility costs and are forecasted to reduce additions of electricity
generation, while cuts to EV and energy efficiency tax credits are likely to negatively impact engagement with a number
of CPAU’s utility programs.
Staff Report: 2511-5444 – Page 35 of 52
Appendices
Staff Report: 2511-5444 – Page 36 of 52
8 Appendix A: Energy Risk Management Program
This appendix provides a quarterly update on the City’s Energy Risk Management Program.
8.1 Overview of Hedging Programs
The City’s Utilities Department maintains a hedging program for its Electric and Gas Utilities. In the Gas Utility, the program
protects against short-term (intra-month) price spikes caused by weather or major incidents on the Western gas system.
However, the City does not hedge its gas supply more than one month in advance, choosing instead to protect the Gas
Utility’s financial position by passing gas supply costs through to customers via a charge that varies monthly based on gas
market prices. As a result, the Gas Utility’s only market exposure is the amount by which gas demand deviates from
forecasts within the month. This exposure is relatively small and can be managed using Gas Utility Operating Reserves. A
risk assessment is performed each year as part of the Gas Utility financial planning process to ensure adequate reserves
to cover all risks. The most recent Gas Utility Financial Plan was adopted June 21, 2021 (Staff Report #1224013).
The City has entered into long-term contracts for its Electric Utility to ensure that the City has carbon free electricity
supplies equal to 100% of Palo Alto’s annual electric demand. However, the output from these generating sources does
not match Palo Alto’s electric load. In the summer, the City has a surplus of carbon free energy and it has a deficit in the
winter. This exposes the City to market risk, and staff maintains a hedging program to protect against this risk. In addition,
hydroelectric generators make up approximately half the City’s energy supply. During dry years, these resources do not
generate as much energy, creating an additional market exposure that must be hedged. Unlike the gas hedging program,
which is operated by City staff, the electric hedging program is operated by the Northern California Power Agency (NCPA),
a joint powers agency the City formed in partnership with several other California publicly owned electric utilities, with
oversight by City staff.
8.2 Overview of Energy Risk Management Program
The hedging programs described above are conducted in accordance with the City’s Energy Risk Management Program,
which includes a set of Program Policies adopted by the City Council, Guidelines adopted by the City’s Utilities Risk
Oversight Coordinating Committee (UROCC), and Procedures approved by the Utilities Director. In addition, for the electric
hedging program, NCPA maintains its own Risk Management Program. The City is able to provide policy level oversight of
this program through its seat on the NCPA Risk Oversight Committee, which is held by the City’s Risk Manager.
Per the Energy Risk Management Policies, the City Council must receive quarterly reports on the City’s forward contract
purchases, market exposure, credit exposure, counterparty credit ratings, transaction compliance, and other relevant
data.
8.3 Forward Deals
Palo Alto executed the following Electric and Gas transaction in Q1 of FY 2026.
Figure 19: Electric Resource Adequacy Deals
(MW-mo)
Price ($/kW-mo)
13 Staff Report #12240 https://www.cityofpaloalto.org/files/assets/public/v/3/agendas-minutes-reports/reports/city-manager-reports-cmrs/year-
archive/2021/06-21-21-id-12240.pdf
Staff Report: 2511-5444 – Page 37 of 52
Figure 20: Electric Energy Deals
(MWh)
Price ($/MWh)
8.4 Electric Market Exposure
The chart below shows the City’s electric supply market exposure and committed purchases and sales to cover exposed
positions. Additional purchases and sales will be executed for FY 2026 and FY 2027 in the coming months.
Figure 21: Electric Load Resource Balance, FY 2026 – 2028
Staff Report: 2511-5444 – Page 38 of 52
9 Appendix B: Staffing and Vacancies
The Utilities Department has 44 vacant positions out of 269 authorized positions, or a 16% vacancy rate. CPAU attracts
qualified candidates for many recruitments. However, there are often challenges related to salary, benefits, or commute
at the offer stage. CPAU maintains a competitive stance by negotiating counter offers depending on qualifications and
experience. When appropriate, CPAU underfills a difficult-to-fill position and provides the necessary training for higher
level work. Positions are posted on the City website, Government Jobs, City and employee LinkedIn accounts, and utility
industry websites (i.e. NCPA, CMUA, APPA).
Figure 22: Utilities Vacancies and Recruitments by Division
As of September 30, 2025
Division
Authorized
FTEs
Vacant
FTEs
Active
Recruitments
Vacancy
%
Administration 15 3 2 20%
Customer Service 24 2 2 8%
FTTP & S/CAP 6 3 0 50%
Resource Management 26 1 1 4%
Electric Engineering 25 5 5 20%
Electric Operations 81 22 20 27%
WGW Engineering 23 4 4 17%
WGW Operations 69 4 4 6%
Total 269 44 38 16%
Staff Report: 2511-5444 – Page 39 of 52
10 Appendix C: Electric Utility Annual Infrastructure Maintenance and
Replacement Report
Gas Utility Asset Management Overview
Executive Summary
• The City provides safe and reliable gas service to residents and
businesses.
• The City meets or exceeds minimum federal safety standards for the
transportation of natural gas by pipeline (examples: Accelerated leak survey
program and Cathodic Protection (CP) maintenance requirements).
• The Gas Main Replacement program continues to replace Polyvinyl
Chloride (PVC) gas mains, corroded steel pipeline material, and services that
have exceeded operational life expectancy.
• The City has replaced approximately 46,500 LF of gas main pipeline and
approximately 1,100 gas services in the last five (5) years.
• The City annually inspects and maintains gas distribution assets.
• Approximately 95% of all gas meters have been transitioned to
Advanced Metering Infrastructure (AMI) and Meter Data Management (MDM).
Infrastructure Planning
Key infrastructure replacement efforts in the next five years include:
• Replace PVC and corroded steel pipelines with polyethylene pipes for gas mains and services through the awarded
$16.5M Natural Gas Distribution Infrastructure Safety Modernization (NGDISM) federal grant
• Upgrade the VA hospital meter set
• Upgrade security system cameras at the four (4) natural gas receiving stations.
• Maintain and inspect gas assets for regulatory compliance
• Replace inoperable or leaking large-diameter emergency valves
• Transition to an ESRI-based Geographical Information System (GIS)
• Upgrade utility fleet, equipment, and tools
FTE 10.3, 36.8%
New Construction
FTE 9.5, 34.1%
System Inspections
(Regulatory)
FTE 3.7, 13.1%
Unplanned
Maintenance
FTE 4.1, 14.7%
Planned Maintenance
FTE 0.4, 1.3%
System
Monitoring
Figure 1: FTE (Full-time equivalent) Breakdown by
Maintenance Category
Asset Management Goals
-Minimize gas service interruption during
planned repairs, tie-ins, and installation by
following gas handling procedures.
-Invest in CIP replacements to reduce
maintenance costs and extend gas system
life.
-Increase routine maintenance on aging
pipelines to maximize asset life to keep costs
down
-Improve system reliability by proactively
identifying and addressing high-risk assets
before failure occurs.
Staff Report: 2511-5444 – Page 40 of 52
• Staff assigned to New Construction:
• Install new gas mains, services, valves, and meters that require extensive maintenance. Support Capital Improvement
Projects (CIP) with tie-ins, service transfers, and abandonments and install bollards for meter protection.
• Staff assigned to System Monitoring:
Monitor and manage the system continuously to ensure it operates safely and maintains adequate pressure
throughout the city. Staff is on-call 24/7 and respond to emergency alerts sent by SCADA software.
• Staff assigned to System Inspections:
Emergency Valve Exercise: Regularly exercise valves to meet regulatory requirements and ensure proper operation.
City Gate Stations: Annual inspection of the four (4) gas receiving stations.
Cathodic Protection: Take monthly pipe-to-soil reads to monitor cathodic protection levels on steel pipelines.
Mobile and Walk Leak Survey: Perform annual mobile leak surveys of the gas distribution mains and biennial walking
leak surveys of gas services to detect underground gas leaks and check for atmospheric corrosion on aboveground
pipelines. Monitor for abnormal operating conditions.
Patrolling: Perform quarterly inspections of gas pipeline bridge spans, railroad, and creek crossings.
• Staff assigned to Planned Maintenance:
• Repair and replace gas distribution system pipelines, leaks, and valves. Installation of bollards for meter protection.
Support on Gas Main Replacement projects.
• Staff assigned to Unplanned Maintenance:
• Respond to emergencies. Repair and replace infrastructure requiring immediate attention.
Gas System Overview
Table 1: Condition of Gas System Assets
Gate Station)
4 Annual
maintenance
undergoes
maintenance
each quarter.
Visual inspection and regulator alternating is performed
annually
Paint is inspected quarterly and replaced as needed
Equipment and parts are maintained quarterly and are in good
condition.
Station enclosure and safety headers are adequate and in good
condition.
Station regulators are re-rebuilt once every three years.
Pressure
Monitoring
Stations
Six (6)
system
testing
points and
4 Gate
Stations
calibration
and
maintenance
regularly by Operations.
The pressure monitoring systems in all 4 City gate gas stations
were updated in 2016 when the stations were rebuilt.
Two (2) of the six (6) pressure monitoring points at the outer
ends of the City are over 20 years old. They should be
upgraded from twisted pair to fiber optic, and additional
pressure monitoring stations should be added.
Cathodic
Protection
577 test
stations maintenance year to meet and exceed the yearly maintenance regulation.
Staff Report: 2511-5444 – Page 41 of 52
Rectifier and
Galvanic
40
Rectifiers
& 10
Galvanic
systems
maintenance Elecsys for power interruptions or low readings.
Anode-based systems are suggested for an upgrade to
rectifiers due to poor performance during the ongoing
drought.
Meter
Regulators
Gas Meter
Audit
Project entire system
regulators are visually inspected and maintained every two
years.
The City plans to establish a program to replace large orifice
regulators with properly sized regulators.
Gas Meters
years and smaller meters every 17-20 years.
Maintenance of curb meters and residential meters is in good
standing.
Maintenance for large commercial gas meters will continue.
Approximately 95% of all gas meters have been transitioned to
Advanced Metering Infrastructure (AMI) and Meter Data
Management (MDM).
Risers
Survey
Maintenance
performed
every two years.
biennial leak survey.
As part of the biennial leak survey responsibilities, they are
visually inspected. Maintenance & atmospheric corrosion
protection are performed on an as-needed basis.
EFV (Excess
Flow Valve)
~8,480 No routine maintenance is required for the EFVs in the system.
The city performs an EFV trip-test when replacing gas meters.
Gas Valves
Emergency
Valves
~3,430
regular
valves
emergency
valve
maintenance
performed once
every 5 years
good standing. Maintenance activities include exercising
valves, greasing valves, cleaning the valve boxes, and ensuring
the valve nut is accessible.
Gas Main and
Services
~210 miles
of main
~17,200
services
Walking Leak
Survey
prone seismically susceptible PVC and corrosion-prone steel
pipelines, continues as planned.
The single Gas Service Replacement project replaced most ABS
and tenite gas services in the City. The only remaining ABS and
tenite services are on streets with active street-cutting
Staff Report: 2511-5444 – Page 42 of 52
moratoriums. City crews will replace these remaining services
as their moratoriums expire.
The calibrated hydraulic gas system model will prioritize future
pipeline replacement projects.
SCADA
Software
NA Quarterly
updates for the
system and
everyday
troubleshooting
for the 4 City
gate stations
also handles all the functions needed for the gas system.
Quarterly patches and updates ensure the system is in proper
working order. Several gas operations staff are trained to
monitor the SCADA system but must be trained to perform
repairs handled by the City's SCADA technician or third-party
contractors.
Staff Report: 2511-5444 – Page 43 of 52
Table 2: Status of Gas System Operation and Maintenance Programs
or Maintenance
Program Green = good
Yellow = room for
improvement
Inspection and
Exercise
Emergency valves are exercised annually. At the time of
inspection, v
greased. These valves are brass-tagged for identification in the
event they are needed in an emergency
emergency valves throughout the system.
Non-Emergency
Valve Inspection
and Exercise
Non-emergency valves are exercised once every five years. At
the time of inspection, valves are
exercised, and greased. The city is on-track with the
maintenance schedule of non-emergency valve inspections.
System Monitoring
Operations staff monitor the gas system and are qualified to
operate the system. On-call staff respond to emergency alerts
regularly.
Maintenance
The four City gate stations' regulators are annually maintained,
and the above ground piping and fences are visually inspected
quarterly. Every station has dual runs with two regulators per
run for redundancy and alternat each year. Each station has an
aboveground station emergency valve that can be controlled
annually.
Gas Supply
Monitoring
maintenance and repair from
flow meters and gas quality monitoring equipment for each
station allows the city to double-check PG&E's gas volumes and
quality. Currently the City does not have its own meters at each
station.
Pressure
Monitoring City of Palo Alto, one at each of the 4 City gate stations and six
at the outer edges of the system. They are
maintained by City staff. Additional pressure transducers for
pressure monitoring would improve response and awareness
in emergencies.
Staff Report: 2511-5444 – Page 44 of 52
Gas Meter
Maintenance
(Includes VA
Hospital)
ultrasonic meter types. These meters are replaced on a 10-year
cycle, with some being replaced sooner due to non-
compatibility with AMI. Additional tasks include verification of
all information and performing maintenance
maintenance.
Gas Curb Meter
Maintenance
Gas curb meter assemblies are visually inspected once every
three years. Curb meter assemblies are in belowground utility
boxes. The curb meters and utility boxes are inspected for
corrosion, leaks and damage.
Residential and
Commercial Gas
Meter
Maintenance
Gas meters are inspected every two years during the City’s leak
survey of gas mains and services. If maintenance is required,
maintenance includes repainting as needed and identification
of abnormal operating conditions.
Along Bridges
The city performs quarterly inspections on gas main crossings
at bridges, waterways, and railways. It includes a leak survey
and visual inspection of
condition, wrap condition, and emergency contacts.
Unplanned
Maintenance
There are no backlogs of leaks or assets in need of repair. The
city maintains an emergency on-call program to respond to and
control gas leaks or other system emergencies after hours. To
emergencies, re
currently experiencing extended lead times for material.
Cathodic
Protection
Maintenance and
Monitoring
troubleshooting is required. Rectifiers and galvanic anodes are
replaced as needed and require more frequent replacement
during droughts.
Cathodic protection test points are inspected annually or bi-
replaced by the City’s IT Department. The new database will
be managed through the City’s ESRI software.
An apprenticeship program for the cathodic protection crew is
suggested to ensure a sufficient supply of trained staff.
Staff Report: 2511-5444 – Page 45 of 52
Gas Utility Maintenance and Inspection Data
0 0 1
105
4 0 0 0 0 0 0 0 9
110 110 110 109
4
0 0 0 0 0 0 00
20
40
60
80
100
120
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Emergency Valve Operation
Valves Maintained
Monthly Goal
Remaining Valves
44 9
62 67
18 17 8 34 27 54 33 26 45
529
485 476
414
347 329 312 304
270 243
189
156
0
100
200
300
400
500
600
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Non-Emergency Valve Operation
Valves Exercised
Monthly Goal
Remaining Valves
Staff Report: 2511-5444 – Page 46 of 52
244
150
261 289
325
315 303
150 220
146
220
146
431
49
431
49
431
49
431
49
431
49
431
49
2880
2636
2486
2225
1936
1611
1296
993
843 623
477
257
0
500
1000
1500
2000
2500
3000
0
100
200
300
400
500
600
700
800
900
1000
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Ba
c
k
l
o
g
f
o
r
P
i
p
e
-to
-So
i
l
R
e
a
d
s
Pi
p
e
-to
-So
i
l
R
e
a
d
s
Pipe-to-
Soil Reads
Goal
Backlog
20
21 20 21 20 21 20
21 20 21 20 21
21
41
0
41
0
41
0
41
0
41
0
41
00
5
10
15
20
25
30
35
40
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Rectifier Tests
Pipe-to-Soil
Reads
Monthly Goal
Bimonthly
Tests
Requirement
Staff Report: 2511-5444 – Page 47 of 52
1 1 1 1
4
3
2
1
0
1
0
1
2
3
4
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
4 City Gate Maintenance
Station Maintained Remaining Stations 1 Station Per Quarter Goal
30 30 30 30 3030303030
0
5
10
15
20
25
30
35
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2024 Pipeline Patrol Maintenance
Maintained Pipe
Mains along Bridges
and Crossings
Quarterly
Maintenance Goal
Quartely
Maintenance
Requirement
Staff Report: 2511-5444 – Page 48 of 52
1
3
2 2
4
7
2
5
2
1
8
3
0
1
2
3
4
5
6
7
8
9
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Emergency Leaks (Grade 1) Repaired
Emergency
Leaks
Repaired
Emergency
leaks found
2
0 0 1 0 0
4
1
0
2
1 000001
4
0 0 1 2
0 0
1 1 1
0
1
5
1
0
1 1
0 0 0
1
2
3
4
5
6
0
1
2
3
4
5
6
7
8
9
10
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Gr
a
d
e
2
L
e
a
k
s
Grade 2 Leaks
Grade 2 Leaks Repaired Investigated, No Leaks Found
Added Leaks Found in 2024 Grade 2 Leaks
Staff Report: 2511-5444 – Page 49 of 52
0
4
9 11
2 5 5 3
7
3 3 100
6 9
0 0 0 0 0 0 0 0000
19
7
1 1 0 0 1 2 1
90 86 77 85 90 86 82 79 72 70 69 69
0
20
40
60
80
100
120
140
0
10
20
30
40
50
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Al
l
G
r
a
d
e
3
L
e
a
k
s
Grade 3 Leaks
Grade 3 Leaks Repaired Resurveyed, No Leak Found G3 Leaks Found Grade 3 Leaks
103 40 90 24 40 58 49 48 1 109 25 28
75
900
797
757
667 643 603
545 496 448 447
338
313
0
100
200
300
400
500
600
700
800
900
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Gas Meter Testing Program
Tested Meters
Monthly Goal
Backlog
Staff Report: 2511-5444 – Page 50 of 52
66 36 22 29 39 37 46 29 12 30 19 12 40
480
414
378 356
327
288
251
205
176 164
134 115
0
50
100
150
200
250
300
350
400
450
500
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Gas Meter Replacement Program
Replaced Meters
Monthly Goal
Backlog
7 74
3 1518
102
14
369
0
0
0
1
1
1
1
0
50
100
150
200
250
300
350
400
450
Sprague 240 Curb Westinghouse 200 Romet Rotary AC-175
Re
p
l
a
c
e
M
e
t
e
r
s
Meter Model
Family Tree Gas Meter Replacement Program
Remaining
Completed
Staff Report: 2511-5444 – Page 51 of 52
11 Appendix D: PaloAltoGreen Gas Program
In December 2020, Council adopted Resolution #9930 14 maintaining the Carbon Neutral Natural Gas Plan to achieve
carbon neutrality for the gas supply portfolio using high-quality carbon offsets with a cost cap of $19 per ton CO2e.
Offsets are purchased to neutralize emissions equal to those caused by natural gas usage in Palo Alto. Staff procured
115,000 tons of offsets during Spring 2025 to cover FY25 usage. The figure below shows the composition of offset
purchases.
Figure 23: Offset Portfolio Composition
The following table provides a description of the projects.
14 Resolution #9930 https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/resolutions-1909-to-present/2020/reso-9930.pdf
Staff Report: 2511-5444 – Page 52 of 52
Figure 24: Offset Project Descriptions
Approved By:
Alan Kurotori, Director of Utilities
Staff: Tim Denterlein, Resource Planner
Project Name Project Type Description
Grotegut Dairy Livestock