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HomeMy WebLinkAbout2025-11-05 Utilities Advisory Commission Summary MinutesUtilities Advisory Commission Minutes Approved on: 12/3/2025 Page 1 of 21 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF NOVEMBER 5, 2025 REGULAR MEETING CALL TO ORDER Vice Chair Mauter called the meeting of the Utilities Advisory Commission (UAC) to order. Present: Vice Chair Mauter; Commissioners Croft, Gupta, Metz, Phillips, and Tucher Absent: Chair Scharff Vice Chair Mauter may have to leave the meeting and suggested that Commissioner Phillips chair the meeting in her absence. Staff stated a vote was needed. Vice Chair Mauter and Commissioners Croft, Gupta, Metz, Phillips, and Tucher voted yes. AGENDA REVIEW AND REVISIONS Utilities Director Alan Kurotori said there were no agenda changes. The 12-month rolling calendar would be discussed tonight and every other month under Future Topics for Upcoming Meetings. Commissioner Tucher questioned why the 12-month rolling calendar was not discussed every month. Commissioner Tucher thought that commissioners ought to be notified about a commissioner’s absence before the meeting, especially when the Chair would not be present, but the reason for the absence did not need to be disclosed. Mr. Kurotori will address Commissioner Tucher’s question about the 12-month rolling calendar during the discussion of Future Topics for Upcoming Meetings. Vice Chair Mauter was not sure that commissioners sent out attendance publicly in advance of the meeting. Vice Chair Mauter was concerned about publicly highlighting personal issues that sometimes arise at the last minute. Mr. Kurotori added that City Council Members did not notify their fellow Council Members when they would not be present at the meeting. ORAL COMMUNICATIONS None APPROVAL OF THE MINUTES Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 2 of 21 1. Approval of the Minutes of the Utilities Advisory Commission Meeting Held on September 3, 2025 Vice Chair Mauter invited comments on the UAC draft meeting minutes of September 3, 2025. On Packet Page 16 (Page 11 of the minutes), Commissioner Phillips wanted the following sentence clarified: Commissioner Phillips met with Mayor Lauing and Vice Mayor Veenker to discuss the lack of feedback to the UAC on its decisions, motions, and discussions. Commissioner Phillips requested it be modified to read: On August 26, Commissioner Phillips represented the UAC at a meeting of Board and Commission Chairs and Vice Chairs, Mayor Lauing, and Vice Mayor Veenker. Among the issues discussed was the lack of feedback to the UAC on its decisions, motions, and discussions. This afternoon, Commissioner Tucher emailed Kaylee Burton a list of minor typos found in the UAC draft meeting minutes of September 3, 2025, such as Redwood versus Redwood City. A discussion on the advisory function of UAC to Council was suggested as a future topic and staff said it would perhaps be agendized for December; however, Commissioner Tucher noted it had not been done. Commissioner Tucher wondered how answers could be included in the record when a Commissioner asked a question that remained unanswered in the minutes because a response was not provided during the meeting, for example, was gas used as a feedstock by some of our commercial customers. Commissioner Croft asked what the process was for commissioners to submit their requests for modifications to the minutes. Utilities Director Alan Kurotori opined the best way to make changes to the minutes was for each commissioner to bring their proposed modifications forward in the open meeting so those could be incorporated into the public record. Staff was open to hearing questions from the commissioners seeking clarification. Assistant City Manager Kiely Nose added that commissioners could request that staff make modifications, if staff had enough turnaround time, and ask staff to bring copies for the UAC. Commissioner Croft moved to approve the UAC draft meeting minutes of September 3, 2025, as amended by Commissioner Phillips. Commissioner Gupta seconded the motion. The motion carried 6-0 with Vice Chair Mauter and Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. Chair Scharff absent. 2. Approval of the Minutes of the Utilities Advisory Commission Meeting Held on October 1, 2025 There were no proposed changes to the UAC draft meeting minutes of October 1, 2025. Commissioner Phillips moved to approve the UAC draft meeting minutes of October 1, 2025, as submitted. Commissioner Metz seconded the motion. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 3 of 21 The motion carried 4-0 with Vice Chair Mauter and Commissioners Croft, Phillips, and Tucher voting yes. Commissioners Gupta and Metz abstained. Chair Scharff absent. UTILITIES DIRECTOR REPORT Utilities Director Alan Kurotori reported the following recent City Council actions. A resolution extended the City’s participation in the Northern California Power Agency’s Support Services Program for another 10 years through 2037. The Council approved the contract for Gas Main Replacement Project 25. The Utility connection fees were amended (last updated in 2019) to ensure adequate cost recovery and simplify the billing process for standard installation. On Monday, the Council heard the Wildfire Mitigation Audit from the City Auditor, which contained very few findings on Utilities but did highlight the undergrounding of overhead lines in the high-threat zone area. Utilities staff would be bringing forth an item for consent on Monday for the Council to consider a financial assistance program for low income residents and federal government employees impacted by the shutdown. Customers in the Rate Assistance Program would be automatically enrolled to avoid late fees and automatic turnoffs. Federal employees who were not being paid during the shutdown could contact Utilities to enroll in this proposed financial assistance program. The California Wildfire Safety Advisory Board reviewed our 2025 Wildfire Mitigation Plan and Palo Alto was applauded for its process of undergrounding lines and installing 2 new wildfire AI sensors in partnership with Stanford and other surrounding communities. The California Wildfire Safety Advisory Board wanted to hear feedback on how the AI sensor program was working. Staff was working on the Electric Integrated Resource Plan that Utilities submit to the California Energy Commission every 5 years, which would include the goal of meeting State requirements for the 60 percent renewable portfolio standard that would increase at the end of 2027. CPAU was participating with the California Municipal Utilities Association on a statewide customer satisfaction survey of residential electric and water service customers. Staff would be bringing back the survey results to the Commission. In October, CPAU offered new rebates to cover the permit cost for heat pump water heaters and HVAC systems as well as a new heat pump water heater referral program. Customers would earn $50 for every successful referral of a neighbor to the heat pump water heater program and the neighbor would receive $100 after completion of installation. Mr. Kurotori introduced the new Utilities Assistant Director of Water, Gas, and Wastewater who would be overseeing engineering and operations. Commissioner Metz had a friend whose gas water heater broke. The friend reached out to Commissioner Metz to tell him what a great job was done overnight on a Sunday to install a new 110-volt heat pump water heater. Commissioner Tucher inquired if the utility connection fees that Mr. Kurotori mentioned were amended were the same fees that were discussed at last month’s UAC meeting. Commissioner Tucher wondered if it was possible for the UAC to provide feedback on the customer satisfaction survey questions in advance and if CPAU performed its own satisfaction surveys. Mr. Kurotori’s intent was to report to the UAC that the updated connection fees went to the City Council. Mr. Kurotori explained that the statewide survey contained standardized questions and Utilities could request an oversampling, which Palo Alto did. Staff would be bringing back the survey results for the Commission to see how CPAU rated against peer Utilities across the state. The City would continue to Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 4 of 21 perform surveys for various departments that included areas of focus such as sustainability, climate action, or other activities. Commissioner Gupta queried if there was an update on residential fiber deployment. Mr. Kurotori did not have a fiber update but will add it to the 12-month rolling calendar. Mr. Kurotori invited commissioners’ questions to make sure they were addressed in the fiber update. NEW BUSINESS ITEM 3: ACTION: Recommendation to Approve the Draft 2026 Utilities Legislative Policy Guidelines Update and to Receive the Update on 2025 State and Federal Legislative and Regulatory Activity. CEQA Status: Not a Project. Public Comment: None. Dr. Lena Perkins, Senior Resource Planner, delivered a slide presentation. The State reauthorized AB 1207 and SB 840 for Cap & Invest through 2045 (formerly Cap & Trade) and Utilities maintained most of their percentage of funds from those auctions. AB 825 created an independent governance board for the new Extended Day-Ahead Market, which would result in lower electricity costs and CO2 emissions by allowing a larger, more diverse market. CPAU and NCPA General Manager Randy Howard were involved with AB 825. A 2-part bill that would have preserved CPAU’s current hydropower standing within the RPS was vetoed due to unrelated CPUC language because the Governor did not want any delay of CPUC hearings. CPAU was not regulated by the CPUC. The Governor was in support of CPAU’s intent on its part of the bill, so CPAU would be revisiting this with perhaps a separate bill in 2026. Possible streamlining for wildfire mitigation and electricity transmission projects was a positive federal action. Tariffs were expected to increase generation and transmission costs. The One Big Beautiful Bill Act ended renewable energy tax credits, which was expected to increase costs for new renewable projects. Federal staff cuts would reduce operational efficiency as well as delay projects for hydropower and transmission. The Draft 2026 Utilities Legislative Policy Guidelines were included in the packet and emphasized local control, affordability, and locally designed decarbonization: Utilities-specific guidelines were necessary due to highly regulated and technical work as outlined in the City Advocacy Process Manual. The guidelines were intended to be evergreen. The guidelines would be going to the Policy & Services Committee with the City Legislative Policy Guidelines, and then to the Council. Commissioner Phillips asked why staff was seeking an update of the guidelines, if this would be the first update since 2018, and when was the last time the Council saw the guidelines. Dr. Perkins replied that the guidelines had been modified between 2018 and 2023. The last time the Council saw the guidelines was in 2023. A staff review was required annually by Resolution 9668. Council approval was required for changes to the guidelines. Referring to Packet Page 40 regarding the California Air Resources Board (CARB), Commissioner Gupta inquired if CPAU was now required to pass along new auction proceeds as a rebate to customers. Commissioner Gupta understood that AB 130 suspended all changes to building codes until 2031. This Federal Administration’s actions included energy dominance but Commissioner Gupta wanted to highlight the rising energy abundance movement on the left. The Western Area Power Administration (WAPA) provided approximately 40 percent of CPAU’s electricity supply. Commissioner Gupta asked if WAPA’s Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 5 of 21 staffing shortages presented a risk to CPAU’s operations and if there was anything the City could do to improve the situation. Commissioner Gupta said that the requirement to replace large ICE (internal combustion engine) vehicles with substantially more expensive EVs was one of the contributors to utility rate increases. Packet Page 44 mentioned the rescission of the waiver that cancelled California’s 2035 ban on non-zero emission vehicles, although the legality of this was being challenged by the State. Commissioner Gupta asked if this would impact the City’s flexibility in purchasing options for vehicle replacements. Dr. Perkins said CARB had leeway in how they interpreted the legislation into rulemaking and would do so in the next months. According to a strict reading of the legislation, publicly owned utilities (POUs) such as CPAU were not gas corporations. CARB could but was not required to take all natural gas allowances from gas POUs. CPAU’s electric utility received allowances from natural gas investor-owned utilities; CPAU had to monetize that revenue and pass it back to customers as of this legislative change in October. Ms. Perkins believed AB 130 suspended all changes to building codes until 2031. Palo Alto had 2 codes approved before the passage of AB 130; Palo Alto was among a handful of cities in California that were able to rush their code changes. CPAU was a direct customer of the WAPA and DOE. The WAPA under the DOE was responsible for marketing and transmitting power from dams to Palo Alto. The U.S. Bureau of Reclamation under the Department of Interior had their hand on the lever of the turbines making the power. The Bureau of Reclamation was under a hiring freeze and has had more staff reductions than the WAPA. Hydropower was a flexible resource, so Dr. Perkins had been working with the Bureau of Reclamation for about 8 years to optimize when they generated power to maximize value. If the Bureau of Reclamation was below minimum staffing, CPAU had a substantial risk of making less money when power was generated. The old dams and machines needed a lot of maintenance. WAPA also maintained federally owned transmission. The federal government did not have the same wildfire liability as other transmission. Regarding electric vehicles, Dr. Perkins explained that CPAU was subject to Advanced Clean Fleets (ACF) as a POU but private fleets were not; however, we were working to get individual waivers for specific reliability means. Utilities Director Alan Kurotori said Palo Alto leveraged its membership in the Northern California Power Agency. The City of Palo Alto advocated to D.C. and had met with folks on both sides of the aisle, the Department of Interior, the Department of Energy, and WAPA. Mr. Kurotori mentioned that the City had policies on electrifying its fleet. The City was actively engaged in determining what the State requirement meant for CPAU. The Utility worked with the City’s Fleet Department and Public Works Department on the vehicles it needed. A lot of the Utility’s replacements were light-duty vehicles. Commissioner Croft inquired what the cost was of having attorneys handle these legislative issues, if the cost was anticipated to be higher this year and going forward, and whether the cost for these activities was allocated within the City’s budget for operations or Utilities. Dr. Perkins said the Utility’s legislative and regulatory advocacy costs were roughly $500,000/year and were in the Utility’s budget. CPAU coordinated efforts with the City’s separately funded program wherever there were opportunities. Because of the significant financial impacts of legislative and regulatory changes, a substantial amount of staff time was devoted to these activities. The City interacted directly with lobbyists, lawmakers, legislative staff, and regulatory staff as well as leveraged its memberships with California Municipal Utilities Association (CMUA) and Northern California Power Agency (NCPA) for lobbying. Mr. Kurotori sat on the CMUA Board of Directors. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 6 of 21 Assistant City Manager Kiely Nose added that there was a Citywide retainer contract for legislative lobbying at the local, state, and federal levels at a flat monthly rate, not an hourly charge. Last year was very busy and staff was highly engaged with the contractor. Utilities also leveraged its paid membership with NCPA to have more lobbying power. Over the past year, other projects have been deprioritized in order to dedicate more of Dr. Perkins and Riley Yaylian’s staff time and efforts to managing and tracking these timely issues. Commissioner Tucher requested a 2025 example of how CPAU’s advocacy correlated to the guidelines, and how the guidelines allowed staff to act or react more quickly. Commissioner Tucher wanted to know how CPAU felt about each failed regulatory or legislative effort and which were the most consequential. Although Palo Alto was not governed by the CPUC, Slice of Day RA seemed to be the most significant regulatory change within the California Utility sector this past year and Commissioner Tucher wondered what CPAU’s response was. Commissioner Tucher did not know if CPAU’s ability to verify RA on all its power purchase agreements on an hourly basis for the worst hour of the worst month gave CPAU an advantage compared to neighboring Utilities that had to be told by the CPUC to time slice. Dr. Perkins thought the 2009 guidelines looked more like a work plan versus having broader guidelines that aligned with the City. In some ways, a legal read of that meant that if the guidelines were too detailed, you needed to seek clarification if you could weigh in on something if it was not written down. With the State becoming highly regulated, staff could not get fast enough turnaround on checking if it was okay to weigh in. Dr. Perkins was going to Folsom tomorrow to meet with the federal hydropower leadership to discuss how they were prioritizing their limited staff time for maintenance and operations, as well as optimizing the project and their market folks because the project was being put into the expanded day- ahead market with contractual implications in the tens of millions of dollars per year for Palo Alto. CARB had the discretion to take away and reallocate all the revenues from CPAU’s natural gas GHG allowances and distribute them to electric distribution utilities, so those revenues would no longer be available to run local decarbonization programs. Given the work plan and effort that goes into the local decarbonization programs and legal review, staff was given 9 workdays for its only opportunity to weigh in on that regulatory matter and provide a letter for the Mayor to sign; the Mayor would have 5 workdays to review the letter. ACTION: Commissioner Phillips moved staff’s recommended motion that the UAC: • Recommend the Policy and Services Committee recommend the City Council approve the Draft 2026 Utilities Legislative Policy Guidelines Update; and • Accept this staff report providing an update on state and federal activities in 2025. Commissioner Metz seconded the motion. Commissioner Gupta proposed an amendment to the Draft 2026 Utilities Legislative Policy Guidelines Update to allow staff to advocate for flexibility in rate design if the opportunity arose in the legislative landscape. Propositions 26 and 218 limited the City’s efforts to reduce its greenhouse gas emissions, decarbonize, and advance rate designs that would be beneficial for those goals. The City had an 80 x 30 goal. Commissioner Gupta felt that Guideline 8 suggested a continued support of Propositions 26 and 218. Commissioner Gupta proposed the following wording for Guideline 8: Advocate for fair cost allocation and support the principle of beneficiary pays, while maintaining flexibility to support rate designs and policies that advance beneficial electrification and decarbonization in the public interest. Commissioner Gupta’s friendly amendment was seconded by Commissioner Metz. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 7 of 21 If there was support from the UAC for Commissioner Gupta’s proposed amendment, Dr. Perkins recommended obtaining a legal opinion of the language of the amendment because Proposition 26 was part of the constitution. Assistant City Attorney Amy Bartell believed Commissioner Gupta’s addendum was fine. These were policy considerations and Proposition 26 would apply either way, so that would always be a consideration regardless if it was written in the guidelines. Commissioner Tucher asked what “beneficiary pays” meant, and if staff thought that Commissioner Gupta’s friendly amendment was a good idea. Dr. Perkins explained that “beneficiary pays” meant cost allocation by cost causation. In the transmission system, the lines were sized by demand but the charges were volumetric, so CPAU was on record for advocating for a demand-based transmission charge. Electrification and decarbonization had been a longstanding emphasis of the UAC and Council, so Dr. Perkins did not anticipate that would change in the next 5 years. Dr. Perkins thought that Commissioner Gupta’s amendment to highlight electrification and decarbonization was not overly prescriptive. Commissioner Croft noted Guidelines 10, 11, and 13 supported the reduction of greenhouse gas emissions as well as promoted electrification and grid modernization, so she wondered how Commissioner Gupta’s amendment was different. Vice Chair Mauter noted that RECs and other monetary instruments account for greenhouse gas emissions and were included in the concept of fair cost allocation. Commissioner Gupta explained that his amendment provided guidance to staff to pursue opportunities in the legislative landscape to modify parts of Propositions 26 and 218, which was not addressed in Guidelines 10, 11, and 13. Commissioner Gupta thought that CPAU would need more flexibility in rate design in order to achieve the City’s decarbonization and greenhouse gas reduction goals but was constrained by the reasonable cost allocation standard in Proposition 26 because the City’s electrification goals could not be a consideration in rate design. For example, G-2 meter costs have fallen under the new rate design but that goes against the City’s electrification goals. ACTION: Commissioner Gupta’s friendly amendment carried 4-2 with Commissioners Croft, Gupta, Metz, and Tucher voting yes. Vice Chair Mauter and Commissioner Phillips voted no. The amended motion carried 6-0 with Vice Chair Mauter and Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. Chair Scharff absent. ITEM 4: Staff Recommends the Utilities Advisory Commission Recommend that the City Council Adopt a Resolution Approving the 2026 Natural Gas Cost of Service Analysis Report, Amending Rate Schedules G- 1 (Residential Gas Service), G-2 (Residential Master-Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service) and Repealing G-10 (Compressed Natural Gas Service) Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 8 of 21 Utilities Director Alan Kurotori acknowledged the subcommittee (Chair Scharff and Commissioners Gupta and Phillips) for their support on this item. The staff presentation incorporated the guiding principles that had been through the Finance Committee and were approved by the City Council. Lisa Bilir, Senior Resource Planner, said the proposed rates were designed to ensure equity among the customer classes, maintain compliance with cost-of-service principles, and were consistent with the Council’s approved design principles. In April of 2025, staff brought the 2025 COSA to the UAC and Finance Committee. Some concerns were raised about the impact on residential customer rates. The Finance Committee and Council directed staff to return to the UAC to further review the 2025 COSA. In September, the Finance Committee recommended five design principles. Staff met with the UAC Subcommittee 4 times from August through October of 2025 to review the 2026 COSA and develop the recommendations in this report. Every line item was updated, every cost, all the load forecasts, and usage information. The following refinements were made: (1) Updated monthly service charge using the most current weighted meter cost. (2) Refined the Commercial and Master-Metered Multifamily customer class (G-2) into 3 meter capacity groups because larger meters had a higher cost to serve. (3) Updated the average and excess method to better align rates with how the distribution system was designed and built, in light of declining average gas use. (4) Applied the Base and Excess Method for residential tier rate calculations because this usage profile supported measuring excess demand using the highest peak month, and system infrastructure was designed to meet a single January peak. Monthly services charges were updated based on the actual cost for meter replacement and billing. The meter installation cost included purchasing the meter and related materials as well as the labor cost to install the meter, and those costs were tabulated for every customer. Ms. Bilir confirmed Commissioner Tucher’s understanding that the meter cost was only for installation but did not include reading, monitoring, or maintaining the meter. Since customers were incurring a monthly charge, Commissioner Croft asked if the meter cost was being amortized over a certain number of years and if all meters had the same useful life. Ms. Bilir explained that this study calculated the number of customers weighted by the meter cost and allocated the cost across customer classes; it was not directly charging those meter costs. It cost more to serve a customer that had a larger meter because it required a larger service line and more time. The current cost of replacement was used for it to be comparable across all customers. The monthly service charge was one of the primary drivers of the increase for residential customers. This meter weighting update resulted in a larger allocation to residential customers because the prior method relied on representative meter costs that did not fully reflect the total service demands of different meter sizes. To have fair and cost-based rates, it was necessary to update the rates using the best available information and to reflect the latest costs. The current rates were $18.40 for G-1 Residential, $170.55 for G-2, and $780.34 for G-3 Large Commercial. The recommended rates were $19.58 for G-1 Residential, $29.24 for G-2 Meter Capacity ≤220 standard cubic feet per hour (scfh), $94.56 for G-2 Meter Capacity >220 scfh and <4000 scfh, $419.08 for G-2 Meter Capacity ≥4000 scfh, and $1,712.36 for G-3 Large Commercial. For the G-2 Master-Metered Multifamily and Commercial Customer class, the service charges would depend on the meter capacity. Commissioner Tucher requested an explanation of the representative meter cost used in the previous study. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 9 of 21 Ms. Bilir replied the previous study selected a representative meter or middle customer for each customer class. The staff report contained a table that showed which meter was selected. The 2026 COSA used the best available information to tabulate the cost of every customer’s meter. Ms. Bilir continued the slide presentation. The consultant analyzed usage across different meter capacities and determined the 3 proposed meter capacity groups was the most appropriate way of splitting the G-2 customer class. Refinement 2 better reflected the customer-related fixed costs in the fixed monthly service charge. The monthly service charge was updated based on actual meter replacement costs including materials and labor. For example, the small capacity meters in the G-2 customer class were similar in size to residential customers. The average and excess calculation looked at how much capital investment would be needed for the system if all customers used at an average level year-round and how much more capital investment was needed if customers used the peak amount. For the average, the word “energy” was used. For the excess or peak, the word “demand” was used. In the previous study, the average and excess calculation focused on demand, which was appropriate if you had a system where gas use and the system were growing. In Palo Alto’s case, gas demand was declining. Capacity sizing was based on energy and demand. Refinement 3 updated the average and excess method to split distribution costs between energy and demand components, which better aligned with the system design but led to more costs being assigned to residential customers because of their high peak usage. Refinement 4 used the base and excess method to calculate Residential Tier 1 and Tier 2 rates. System infrastructure was designed to meet a January peak. A $0.15/therm increase was proposed for Tier 1 and $0.23/therm increase for Tier 2. The base portion of Distribution Demand (DD) would be recovered from each unit of gas while the excess portion of DD would be recovered from Tier 2. The 20 therm summer baseline was increased to 23 therms. Currently, the gas utility passed through a range of $0.00- $0.25/therm for Cap-and-Trade compliance charges and $0.00-$0.30/therm for transportation charges. The City was mandated to participate in the Cap-and-Trade program. The City had no alternatives for transporting gas to the distribution system. The administrative recommendation in the report was to remove the range for Cap-and-Trade and Transportation Charges because the ranges did not serve a purpose as these were nondiscretionary charges that the City had no control over. This administrative recommendation had no impact on rates. The City increased overall rates by 5 percent in July. The proposed rebalancing of rates in this report would result in an 8 percent impact on the median residential customer monthly bill. There was no expected revenue increase in the report. Ms. Bilir highlighted how the 2026 COSA complied with each design principle. Design Principle 1: Rates must be based on the reasonable cost to serve customers. This was the overriding principle for the COSA; all other rate design considerations were subsidiary to this basic premise. The 2026 COSA used actual costs and adopted budgets, applying industry-accepted allocation methods to assign fixed and variable costs based on each class’s use of the system. Design Principle 2: The COSA should involve a review of all existing rate schedules for applicability in the COSA. All existing rate schedules were reviewed for relevance and cost alignment. For the 2026 report, the consultant reviewed separation of multifamily from G-1 and separation of master-metered multifamily from G-2 and did not find a strong basis for splitting out multifamily at this time. The G-10 rate schedule served 1 customer, the City of Palo Alto Compressed Natural Gas refueling station at the Municipal Services Center run by Public Works for the refueling of City vehicles. The consultant determined it was more efficient to charge a cost-based rate via an interdepartmental transfer rather than having a separate G-10 rate schedule. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 10 of 21 Design Principle 3: The impact of any proposed changes on low-income customers should be evaluated in alignment with state law, including, without limitation, Public Utilities Code Sections 890 and 898. Approximately 400 customers participated in the low-income program and the average monthly usage was 30 therms. Most customers would see bill impacts of less than $5 per month. If the City wanted to mitigate the bill impacts of the 2026 report on low-income customers enrolled in the Low-Income Rate Assistance Program or the Low-Income Home Energy Assistance Program, the total cost would be approximately $30,000 per year. Design Principle 4: Determine the proper allocation of fixed and variable costs and how those could be implemented in various rate designs. All rate classes included a fixed monthly charge to recover customer- related costs such as metering, billing, and service connections. The 2026 report recommended scaled fixed charges in the G-2 customer class to reflect the meter diversity within that class. The G-1 class included a tiered variable rate structure that distributed capacity costs between Tier 1 and Tier 2 using the base and excess method to appropriately collect demand costs from customers impacting system capacity costs. The G-2 and G-3 classes recover capacity costs through uniform volumetric charges, reflecting consistent cost drivers. Design Principle 5: Review non-rate revenue sources that may be available for rate discounts or rebates. About $0.4 million in interest income was available in FY 2025. At the end of FY 2025, about $15 million was available in the Gas Utility’s Cap-and-Trade Reserve, which held revenues from the auction of freely allocated greenhouse gas emission allowances. Cap-and-Trade Reserve funds must be spent in accordance with CARB regulations and City Council policies in Resolution 9487 and 10077. The City’s policy permitted the funds to be used for investment in energy efficiency programs, purchases or investment in cost- effective renewable biogas resources, fuel switching from natural gas to electricity that reduced greenhouse gas emissions, investment in other carbon reduction activities for the natural gas utility, and rebates to natural gas retail ratepayers; however, the policy expressed a preference for greenhouse gas reduction activities over rebates. Vice Chair Mauter invited the UAC Subcommittee to express their comments on the staff presentation. Commissioner Gupta thought that the staff report and consultant’s report satisfied the desire for transparency. Commissioner Gupta opined this was a much better and clearer report compared to the previous report. The staff report provided a much clearer look at the drivers for the cost increases and provided an understanding of how certain changes affected the rates for each class. Commissioner Gupta believed a reasonable cost allocation was achieved. Commissioner Gupta highlighted that the updated mechanics resulted in more affordable rates for residential customers compared to updating the numbers but retaining the mechanics of the prior COSA, as mentioned at the top of Packet Page 52. The 2026 report did not propose using green funds to subsidize gas service, which Commissioner Gupta noted was another great result that came out of this COSA process. Within the context of Proposition 26, Council did not reinstate the longstanding design principle that we should consider rate designs that supported the City’s policy preference toward electrification and greenhouse gas reduction. Commissioner Gupta wanted the UAC to have a future conversation about what reducing the G-2 meter charges meant for the City’s decarbonization and electrification goals. Commissioner Gupta supported this gas COSA being forwarded onward. Commissioner Phillips felt that Commissioner Gupta’s comments reflected the subcommittee’s extensive discussions. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 11 of 21 Public Comment: Hamilton Hitchings noted the 2025 Gas COSA made discretionary accounting changes that significantly lowered cost for small businesses, raised cost for Tier 1 residents by ⅓, and financially discouraged electrification. The 2026 COSA better explained the proposed changes, distributed costs more fairly between rate classes, and supported a residential tiered structure that encouraged electrification as was done in previous years. Mr. Hitchings wanted to see this fiscal year’s total increase instead of only the incremental change since the 5 percent increase earlier this year. Small G-2 commercial customers would see their median bills drop by about 53 percent. The G-2 monthly fixed fee dropped from $170/month to $29/month based on updated data and new accounting methodology choices. Full electrification was one of Palo Alto’s top climate goals but this steep reduction strongly disincentivized electrification and could offset much of the progress made by the Utility’s other electrification programs. Mr. Hitchings believed that a fee higher than $29 would still be reasonable. Mr. Hitchings encouraged the Commission to ask staff if they had plans to propose a rebate for small businesses. This COSA review did not provide comparisons between prior and new costs and how much each of the changes increased each class of customers’ rates, for example, how much of the G-1 rate increase was a result of updated meter calculations. Transparency was needed to prevent legal liability. Mr. Hitchings emphasized that future COSAs should have an open and transparent process. On Packet Page 55, Table 5, the marginal cost for delivering gas was $1.22 for G-2, $1.18 for G-3, and $2.52 for G-1 Tier 2. Commissioner Metz assumed the cost to distribute a therm of gas would be the same, so he wondered why the marginal cost for G-1 Tier 2 residential was more than double the commercial amount. Vice Chair Mauter said the monthly service charge represented the base as well as energy and demand charges. Amber Gschwend, COSA consultant with GDS Associates, explained that the residential volumetric charge was higher than the G-2 and G-3 nonresidential classes because of the demand component. The study looked at usage profiles for each class. G-2 and G-3 had much flatter load shapes. The residential class had a much peakier load profile that was associated with a higher cost and therefore had to pay a higher volumetric rate to recover the capacity used on the system because their volume was less overall compared to G-2 and G-3. Figure 3-2 on Page 27 of the report compared load profiles. It was not normalized but the G-1 load shape was much higher during the winter months even though usage during the summer months was about the same as the other classes, reflecting much peakier usage. Commissioner Tucher questioned if this was a composite number that penalized residential customers because they were peaky. If residential gas customers peaked at different times of day, it would take away the delta or lessen the difference between residential and commercial. Commissioner Tucher opined that residential should not be penalized at the 75 percent load factor. Ms. Gschwend referred to the comparison of gas usage profiles in Figure 3-1 on Page 25. Presumably, those customers had different sized homes and different end uses for natural gas; however, the load shapes were similar. This study used available information and the best approximation for load shapes for the residential class but did not have individual meter data. Maybe AMI data could be pulled when the next study is done in 1 or 2 years. From what the consultant heard in conversations with the City’s engineers, the planning criteria for replacements in the system looked at individual customer demands. Therefore, the consultant felt it was appropriate when doing the cost allocation to focus on the individual customer load profile rather than load diversity. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 12 of 21 Commissioner Phillips had observed that residential electric power was much peakier than commercial because people tend to come home at the same time and turn on the lights and television. Commissioner Phillips would not be surprised if residential gas similarly peaked when people come home and turned up the thermostat and cooked dinner in a gas oven. Commissioner Metz believed that the math for calculating the rates must have put a very high weight on the peak as opposed to the volume because the load factors by months were not dramatically different on Table 3-5 on Page 95. Ms. Bilir explained that gas was different than electric. There was no time-of-day information to see when customers turn on the gas oven, etc. Therefore, the consultant looked at monthly level information and made inferences about when gas was being used during that month by looking at data sources and the best available information. The gas peak was primarily driven by weather. Commissioner Tucher would be voting no on the motion. Commissioner Tucher was most troubled with the new cost allocation cutting the G-2 small meter charge by over 80 percent, which disincentivized any small business from wanting a heat pump from his landlord. Commissioner Tucher wondered what explanation would be given to small business customers who would think they had been overcharged for the last 5 years when this line item goes from $170 down to $29. Commissioner Tucher questioned if it was possible for EES and staff to solve this problem by coming up with a more market-reasonable number of no less than $90 for the small G-2 meter charge. Commissioner Tucher inquired if the cost to buy and install a meter was known in 2020, and how did the cost of a meter lead to a model to allocate costs between G-1 and G-2 classes and within the G-2 class. Commissioner Phillips said the actual meter costs used in this study were not available for the 2020 COSA that used representative meter costs. Ms. Bilir did not work on the study that used representative meter costs. Ms. Gschwend explained that the representative meter selected the most common meter style capacity in that class and used it as a representative for the entire class. For example, CL250 was the representative house meter for the residential class, which was the most common meter style for G-1. Vice Chair Mauter added that we had moved away from a representative meter to now using actual meter costs and in doing so, the cost to residential customers was greater than commercial customers. Commissioner Gupta referred to the meter weighting on Table 2 of the staff report. It adjusted the overall allocation of the value ascribed to infrastructure, which included the meters. It directly allocated the equipment meter line in the rate base, which was about $12.3 million. Table 3-1 of the consultant’s report showed which asset used which allocator. Table 3-2 had the O&M allocators. The meter weighting method shown in Table 3-6 displayed the meter costs that adjust the weighting and the resulting allocator. Most of the physical plant to the ground (including services, mains, and regulators) was allocated with the average and excess method, not by meter weighting. The meter weighting touched about 8 percent of the $155 million plant value. The effect by changing the allocation flowed through to the totals for rate base and net plant. Table 2 of the staff report showed how this differed from the 2019 values. The explanation to G-2 small business customers who paid a monthly fee of $170/month that was dropping to $29/month was that we now had updated data on the total replacement cost for each meter in the system. Commissioner Gupta did a lot of research on this question and found that replacement meter Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 13 of 21 cost was a commonly adopted method for allocating these costs and a weighted measure was considered an improvement over prior methods such as using customer headcount. Commissioner Croft believed the staff report was clearer but still complicated. Commissioner Croft did not have any complaints about the methodology; it seemed more correct. Commissioner Croft did not have any problems with the report. Commissioner Tucher had no objections to the methodology but thought there was flexibility to come up with a different pricing conclusion than $29. Commissioner Tucher was concerned that the drastic price cut would put the City at legal risk. Vice Chair Mauter felt it was the City’s responsibility to conduct accurate COSAs on a regular basis when better data was available. The last COSA was conducted 5 years ago and updated twice. The current COSA allocated rates based on the best, most recent data available. Vice Chair Mauter did not think the City was putting itself at legal risk by reducing people’s rates. Vice Chair Mauter emphasized that the UAC’s role was to ensure that the COSA aligned with the design guidelines. If the UAC ascertained that the design guidelines were complied with, it was not appropriate for the Commission to question the technical standards by which staff executed on their work. The UAC’s role was one of policy, not technical oversight. Vice Chair Mauter stated the goal of this COSA was not to achieve reductions across specific rate classes but rather to accurately reflect the costs across those rate classes given improved information and combined with more modern methodologies for conducting COSAs. Commissioner Phillips disagreed with Vice Chair Mauter. Commissioner Phillips said he spent a lot of time on spreadsheets and worked hard to find a way to mitigate the 23 percent increase for G-1 residential customers. The subcommittee, staff, and consultant worked through 30 different alternatives. Commissioner Tucher did not think he was posing technical questions when he asked how to justify the significant price change for G-2 small business customers and what other approaches had been considered. Commissioner Tucher inquired how much the EES consulting firm was paid overall and what was the cost for sending the COSA back to the consultant for a revised report. Commissioner Tucher noted the staff report made many references to upgrades, changes, and refinements but it was not clear if the refinements were based on what was put forth in April or the 2020 COSA. Commissioner Tucher would have preferred if the report had specifically stated the refinement and what it was previously based on which COSA in order to understand what was being done differently. Commissioner Tucher wanted to know what the most important changes were with this new approach. Ms. Bilir answered about $120,000 in total had been spent on EES for the 2025 study and the 2026 study. The refinements were key changes compared to the current rates that were in place based on the 2020 COSA. The study brought forward in April was not the focus of the 2026 report. ACTION: Commissioner Phillips moved that the UAC recommend that the City Council adopt a resolution: 1. Approving the 2026 Natural Gas Cost of Service Analysis Report; and 2. Amending Rate Schedules effective for gas usage beginning February 1, 2026 (FY 2026): a. G-1 (Residential Gas Service) b. G-2 (Residential Master-Metered and Commercial Gas Service) c. G-3 (Large Commercial Gas Service) 3. Repealing Rate Schedule G-10 (Compressed Natural Gas Service) Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 14 of 21 Commissioner Croft seconded the motion. Commissioner Metz thought that forming a UAC subcommittee was a good idea and should be done more often. Vice Chair Mauter agreed with Commissioner Metz. The Commission had an appetite to dig into the COSA methodology at the subcommittee level. Vice Chair Mauter encouraged staff to build on the approach used for this gas COSA for future rate designs. Commissioner Tucher commented on the subcommittee approach not being public. Vice Chair Mauter pointed out that everything was voted on in public. A subcommittee provided the opportunity to have a discussion with staff and the consultant in a less time constrained manner and allowed the subcommittee members to obtain a deep understanding. The motion carried 5-1 with Vice Chair Mauter and Commissioners Croft, Gupta, Metz, and Phillips voting yes. Commissioner Tucher voted no. Chair Scharff absent. The UAC took a break until 8:30 p.m. ITEM 5: Discussion and Update on the Fiscal Year 2027 Preliminary Utilities Financial Forecast and Rate Projections Vice Chair Mauter emphasized these were preliminary rate changes for FY 2027. The rates will come back to the UAC in the next year, so there would be another opportunity for discussion. Vice Chair Mauter invited commissioners to ask substantive questions about the changes in this year’s methodological approaches. Utilities Director Alan Kurotori noted the rate projections were nearly identical to last year. The positive news on the electric side was that our reservoirs were full and a normal year was expected. Lisa Bilir, Senior Resource Planner, delivered a presentation. The electric, water, and wastewater collection rate trajectories were the same as the forecast presented to the City Council in June of 2025. A slide was shown of the preliminary residential median bill projections from 2026 through 2031 for all the utilities. The proposed preliminary overall impact on the residential median bill was projected to be 9 percent ($37.80 increase on the monthly average residential bill of $442.00 in 2026). There were charts for each utility that showed the percentage change, drivers, CIP reserve balance, and operations reserve balance. The drivers for the 6 percent electric rate increase for FY 2027 included the net supply cost forecast for FY 2027 being 3 percent higher than the FY 2026 financial forecast, the load forecast for FY 2027 was 8 percent higher than the FY 2026 financial forecast, issuance of debt for grid modernization in the second half of FY 2026, capital spending and distribution system maintenance spending rising due to grid modernization, replenishing reserves, long-term transmission access charges, and to meet increased State Renewable Portfolio Standard requirements. The projected electric overall rate trajectory was 5 percent Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 15 of 21 for FY 2026, 6 percent for FY 2027, 8 percent for FY 2028, 8 percent for FY 2029, 6 percent for FY 2030, and 6 percent for FY 2031. For the gas utility, a 14.5 percent distribution rate increase resulted in a 9 percent overall gas rate increase for FY 2027. The drivers for the rate increase included the FY 2025 distribution sales revenue being 3 percent ($1 million) below forecast, the FY 2027-2031 load forecast on average was about 4 percent below prior year’s forecast, increasing CIP costs, and replenishing the empty CIP reserve and low Operations Reserve. The projected gas overall rate trajectory was 9 percent for FY 2027, 7 percent for FY 2028, 6 percent for FY 2029, 6 percent for FY 2030, and 8 percent for FY 2031. The gas utility had a grant that would be used for main replacement. In 2027, there would be a revenue-funded main replacement project. Vice Chair Mauter noted this excluded supply-related rate changes, so she wanted clarification on the percentage basis on the bill for the distribution rate versus the amount that was passed through on the climate and gas commodity charge. Ms. Bilir replied the supply portion of the bill was assumed to remain the same, so the 14.5 percent distribution rate increase was equivalent to a 9 percent overall bill increase. The outlook for the supply budget forecast that would be passed through was lower than it was in June and had been incorporated into this proposal. Adriana Artola, Senior Resource Planner for the Water Utility, said the preliminary 10 percent overall water rate increase for FY 2027 was primarily driven by capital spending. The SFPUC rate notice was anticipated in May of 2026. The projected commodity rate increase was 1 percent in FY 2027, 1 percent in FY 2028, 5 percent in FY 2029, and 8 percent in FY 2030 but these were highly uncertain and subject to change. The projected total water rate trajectory was 10 percent for FY 2026, 10 percent for FY 2027, 10 percent for FY 2028, 10 percent for FY 2029, 10 percent for FY 2030, and 9 percent for FY 2031. The projected water distribution rate trajectory was 17 percent for FY 2026, 16 percent for FY 2027, 16 percent for FY 2028, 12 percent for FY 2029, 11 percent for FY 2030, and 12 percent for FY 2031. The Operations Reserve balance at FY 2025 year end was higher than expected due to capital spending being lower than budgeted. The Operations Reserve and CIP Reserve were projected to remain within the guideline ranges throughout the 5-year planning period. The 5-year CIP budget for FY 2027 was not finalized but it included some conservative assumptions and represented the upper limit of potential capital spending. Staff could revise the CIP projections when more information was available on large capital projects such as the seismic improvement of 2 tanks. Commissioner Phillips asked if these rates assumed that future water consumption would hold steady, increase, or decrease over this 5-year period. Commissioner Phillips presumed the large distribution rate increases represented investment and a shrinking denominator. Ms. Artola said the financial projection included the assumption of a long-term decline in water demand over the trajectory. Ms. Artola confirmed that the large distribution rate increases represented capital investment and a shrinking denominator. Ms. Bilir said the drivers for the preliminary 16 percent wastewater utility rate increase for FY 2027 (approximately $10.70/month increase for residential customers) included restoring the very low CIP Reserve and Operations Reserve to within guideline range. Cash was low at $0.9 million at the end of FY 2025. The Wastewater Utility may not be able to repay all of the $3 million loan plus interest to the Fiber Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 16 of 21 Fund during FY 2026 and needed to consider extending the loan or taking out another loan to keep a positive cash balance. The $2.7 million grant received from Valley Water in FY 2025 offset much of the cost increases from the wastewater treatment plant. The projected wastewater collection rate trajectory was 16 percent for FY 2027, 14 percent for FY 2028, 5 percent for FY 2029, 5 percent for FY 2030, and 5 percent for FY 2031. Ms. Bilir highlighted that CPAU’s rates were competitive with our neighbors across the utilities, and electric rates were half as much as PG&E. Public Comment: None. The Utility hired a lot of technical consultants, so Commissioner Gupta wondered if it was possible to have a table in this report that showed the who, what, why, when and cost of consultants hired by the Utility. Commissioner Gupta referred to Table 1 in the staff report and calculated a 46 percent cumulative impact on electric, 50 percent cumulative impact on gas, 75 percent cumulative impact on water, 84 percent cumulative impact on wastewater, and 12.6 percent cumulative impact on refuse and stormwater, resulting in a projected overall increase of 53.6 percent on the total bill, adding $237.00 per month to the median residential bill, which would be about $680/month. Commissioner Gupta understood that some of the rate increases were unavoidable but he worried that this might lead to an affordability crisis in Palo Alto given the extent and cumulative impact of rate increases far above the pace of inflation. Vice Chair Mauter clarified that the stormwater rate increase was inflation indexed, so it was important to subtract stormwater from the other rate increases. Commissioner Croft also did the math and echoed Commissioner Gupta’s comments. Commissioner Croft understood the Utility underspent and did not raise rates during COVID but that excuse cannot be used for rates being elevated perpetually into the future. The overall bill rate increases were way beyond inflation. Commissioner Croft thought the rates were unacceptably high in the long term and urged staff to find ways to change the trajectory of rate increases. To bring these numbers down and avoid an affordability crisis, Commissioner Croft suggested taking a new look with creative ideas to cut the cost of delivering our services; perhaps this was an opportunity for a subcommittee. Commissioner Croft asked if staff had any ideas or if CPAU had an initiative to dig into the driving factors. Commissioner Croft was interested in what other Cities were projecting for the next 5 years and what their approaches were, which should be available to see in public agenda packets. Commissioner Croft was concerned about the impacts that were not included in the forecast. Gas rate increases were addressed in the previous agenda item. Refuse might increase after their COSA. Commissioner Croft heard that electricity prices were expected to go up on the open market. Palo Alto was looking to fill out its portfolio of power purchase agreements and those prices may go up. Commissioner Croft wondered if every reserve account was necessary or if some reserve accounts could be collapsed to combine risks. Commissioner Croft believed the fiber utility business plan had a lot of challenges with the financial model. Commissioner Croft preferred to return the fiber reserve funds back to the community or used elsewhere instead of a fiber pilot, or if it was legal to use fiber funds to replenish other low reserve funds. Mr. Kurotori mentioned that one of staff’s ongoing functions was an internal review of reserve policies, including the adequacy of reserves and if reserves could be combined. Providing efficient, reliable, safe, affordable, and environmentally sound services was part of the mission and values as a Utility and as a Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 17 of 21 City. Staff was always open to hearing ideas for initiatives from the UAC and the public. Mr. Kurotori shared that it was a constant discussion within the Utilities Department and throughout the City on how to be more efficient and mindful of costs. Cost of living adjustments were different from what CPAU was seeing, for example, the construction cost index throughout the state had been increasing, supply costs had gone up, and tariff impacts. Staff had been working within the Utility and with the Finance Department to pre-purchase materials and getting the best value. CPAU was coordinating with other Utilities to see if resources could be pooled together to get better deals. Mayor Lauing thought it was worth the study time and he appreciated Commissioner Croft’s leadership on raising this issue. The Council received emails from customers about cost escalation. Reviewing reserve funds had come up several times, so Vice Chair Mauter wanted to make sure that when that review happened that the UAC would have a chance to see and comment on the policies associated with reserve fund maintenance and reserve fund range appropriateness. Assistant City Manager Kiely Nose clarified that the reserve study that Mr. Kurotori referenced was underway by Baker Tilly, the City’s independent auditor. That study was looking at other enterprise reserves as well. The study was expected to be completed in time for the FY 2027 rate setting. Commissioner Phillips wanted staff to agendize a comprehensive discussion on reserve policy. Commissioner Phillips wondered how the reserve levels were set and why there were so many reserves. Every time the rates were presented, they had to be a little higher because one reserve or another was low and needed to be filled, and money was transferred between reserves. Commissioner Phillips thought risks should be pooled and potentially lower reserve amounts, and he wanted to be a part of that process or for staff to inform the Commission. Commissioner Phillips inquired if our investment or expenditure could somehow be proportionally reduced to reflect declining gas and water demand; otherwise, continuing to invest the same amount while the water and gas usage and number of customers were going down would result in double-digit rate increases. Mr. Kurotori said maybe Baker Tilly could come to the UAC to talk about reserves. Part of Baker Tilly’s evaluation was benchmarking and looking at other Utilities. As part of the reserve discussion, Vice Chair Mauter noted it was important to differentiate between reserves for emergency activities and reserves to save for long-term projects. Saving for future capital assets versus debt financing was a policy decision the Utility made without it being fully discussed and debated openly; one pushed the cost of future capital assets on today’s ratepayers whereas the other reflected the cost of asset operation and ownership when the asset was being used. Vice Chair Mauter thought it would be useful to think about a balance of both approaches. The risk of debt financing large capital infrastructure projects was that you could get runaway debt very quickly and end up with much larger rate increases long term. Mr. Kurotori mentioned the Urban Water Management Plan was being updated for 2026, which would include looking at rate projections. More economic development was anticipated as more housing units were added in Palo Alto, so that needed to be planned out for the long term. Commissioner Metz suggested approach was a lean analysis of the Utility’s expenses. Commissioner Metz felt it was worthwhile to perform a detailed fundamental analysis of the activities that customers value, the activities the Utility needed to conduct to deliver that value and how to do those activities effectively Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 18 of 21 and most efficiently, and what activities did not add value and maybe no longer needed to be conducted. Commissioner Metz echoed the concern about large cumulative rate increases. Mr. Kurotori offered to have staff come back to the UAC to share some of the mandates received from the State, what they meant for our City and the community, and what that was doing to drive some of the demands down, for example, the State requirements on nonfunctional turf. On the page titled Recently Implemented Cost Containment, Commissioner Croft noted we would no longer pay credit card fees once that was implemented and it mentioned the Utility saved a certain amount by not monitoring the customers who opted out from having an AMI meter. Commissioner Croft pointed out that customers were supposed to be charged based on costs. If it cost CPAU more to serve customers who refuse AMI meters, those customers should be charged a fee for manual meter reading and any other related overhead. Paperless billing saved the Utility money, so customers should be charged extra for paper bills. Commissioner Croft understood the Utility’s billing system was not very agile but perhaps it was worth investing to have the ability to implement programs to recoup the cost of the Utility providing things that customers valued. For example, the bank charged $3/month to provide copies of checks with the monthly statement. Commissioner Tucher noted the report contained deltas and percentage changes or incremental dollar differences. Commissioner Tucher urged staff to specify the rate amounts the next time they present this. Commissioner Tucher calculated the projected average residential rate in 5 years to be $650. Commissioner Tucher echoed the comment about taking a more rigorous look at cost containment. In viewing old presentations and meeting videos, Commissioner Tucher noted the standard answer was to defer a couple of CapEx items in the near term out of the 5-year window or further neglect the reserves as opposed to taking a hard look at operating costs and determining whether certain CapEx needed to be done or if something could be cancelled instead of deferred. The answer may be that nothing could be cut but Commissioner Tucher felt it was irresponsible to discuss 9 percent annual price increases without first performing an analysis of operating costs, personnel costs, headcount, etc. Commissioner Tucher understood there would be 2 gas increases in FY 2026. The next time this comes to the UAC, Commissioner Tucher asked staff to clarify what the 5 percent gas increase was based on that was mentioned in the chart. Vice Chair Mauter asked if the UAC had a subcommittee for the FY 2027 rates; if not, what the process was for recommending the creation of a subcommittee. Commissioner Phillips answered the UAC subcommittee was formed for last year’s rates. Ms. Nose was aware that the UAC had a standing practice of establishing a subcommittee, so staff and the Chair could work together to establish the UAC FY 2027 Subcommittee. Mr. Kurotori stated the guidelines for creating a subcommittee included keeping it finite with a narrow scope, centralized, dedicated within certain parameters, and report back to the full UAC. The previous UAC Budget Subcommittee did not look at saving operating costs, so Commissioner Metz inquired if that would be a separate subcommittee or a special remit for the subcommittee to find ways to mitigate costs. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 19 of 21 Mr. Kurotori thought that talking about reserve policies and capital would overlap because those were both levers you could pull, so those might be combined in the subcommittee if that was the choice of the UAC. Staff could work with the Chair and Vice Chair on the creation of the subcommittee based on tonight’s comments from the Commission. Vice Chair Mauter advised staff to return next month with recommendations for a subcommittee with a specific charge. ACTION: No action required. FUTURE TOPICS FOR UPCOMING MEETINGS Commissioner Metz suggested 3 future topics: Federal impact, the Reliability and Resilience Strategic Plan, and the Gas Utility Strategic Plan. The RPS requirement would be increasing to 60 percent by 2030, which was challenging with the federal government’s actions on renewable energy; therefore, Commissioner Metz thought it was important to look at the federal impacts, how we would achieve the renewable targets, and address some of the cost issues. Commissioner Metz asked that the discussion rescheduled for next month on the Reliability and Resilience Strategic Plan address emergency preparedness to include reliability and resilience under normal operation as well as under abnormal circumstances. Commissioner Metz felt it was important to have an agenda topic on how to deal with a shrinking gas business that had been generating a lot of cash for the City and how this would be managed in a way that worked out for everybody. The long-term Gas Utility Strategic Plan should include goals, finances, greenhouse gas, what we were trying to achieve over a period of maybe 20 years and what our objectives were over that timeframe, what the external environmental might be like and what were some alternative actions we could take within that external environment to achieve the objectives we set, and which were the best actions. Vice Chair Mauter noted that S/CAP had a role with gas; and Mayor Lauing and the Council had a strong role in the financial implications of the money generated by the gas utility. Commissioner Phillips wanted the reserve strategy agendized, including how reserves were managed, what was the right number of reserves (combining reserves could reduce the need for reserves), and the use of debt financing versus cash reserves for anticipated future projects. Commissioner Metz found it unnerving to transfer funds from one reserve to another. Commissioner Croft wanted staff to provide an update on time-of-use rates once that pilot goes live. Commissioner Tucher repeated his previous request for an agenda item to discuss the UAC’s advisory role, how the Commission might want to improve it, and how the UAC communicated to Council. The gas COSA would be in front of Council in November and December. Commissioner Tucher wondered how the work of the UAC Gas COSA Subcommittee as well as tonight’s discussion and vote would be presented to the Council. Typically, staff presented the UAC’s advisory, which in Commissioner Tucher’s view ought to change because he thought the advisory function of the UAC did not work the way it should. Vice Chair Mauter offered to have an offline conversation with Commissioner Tucher about how a discussion on the UAC’s advisory role would be structured, what specific questions Commissioner Tucher had, who Commissioner Tucher would want to present the agenda topic, and how much leeway there was in the charter of the UAC to modify its advisory role. Vice Chair Mauter was not sure if it would be a Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 20 of 21 staff-led discussion and thought it would be a committee-led discussion if the UAC chose to have a subcommittee. Mr. Kurotori recalled that staff and Mayor Lauing had previously mentioned that the UAC had the option to decide as a body to have representation to Council. The UAC would choose who would represent the Commission and make sure the representative had their talking points. Commissioner Metz suggested having the subcommittee talk to the City Council on the specifics of the gas COSA. Vice Chair Mauter said the subcommittee could be asked whether they were willing to address the Council. Commissioner Gupta was happy to go. Commissioner Phillips thought the subcommittee should discuss offline if there should be a representative from the subcommittee or if Commissioners Gupta and Phillips should go together. Commissioner Phillips questioned if Commissioner Tucher had structured ideas on the UAC’s advisory role that were potentially actionable that the Commission could discuss. Commissioner Tucher had written down his structured ideas and had mentioned them previously. Ms. Nose said the Commission had to eventually make a decision on whether they wanted to write its own policy and procedure about how advocacy would be done and what that advisory would look like. The UAC did not need a policy and procedure on having a representative; it was simply something the UAC could talk about as a body during the discussion of an agenda item whether the Commission wanted a representative. It would be helpful for staff to have greater detail on what specifically Commissioner Tucher wanted to talk about in regard to advisory. Commissioner Tucher recommended that the UAC never close an agenda item without a discussion on whether the Commission needed an advisory function in writing or in person; if the consensus was to send a representative, then the Commission could discuss who it should be. In November, the Council would see the preliminary FY 2027 rates that the UAC heard today. For example, when that discussion was finished, before moving on to the next item the Chair would ask if this was something that would be on Council’s agenda and then ask whether the Commission felt it was important to have a representative present at the Council meeting or to let staff represent the UAC. Commissioner Gupta mentioned he had conversations with Commissioner Tucher and Chair Scharff and they had come to some conclusions on changes the Chair would make in addressing follow-up items. Sometimes a commissioner would seek follow-up during the discussion on an agenda item but there was no clear process for that follow-up. Perhaps the Utility could have a joint study session with the City Council on large issues. Commissioner Gupta said the Commission could consider ideas on what this agenda item could look like and encompass. Ms. Nose stated that staff could bring forward a study session as an agenda item for the Commission to have a discussion without a lot of preparation. Commissioners cannot talk about this individually and then bring something forward because the UAC was a Brown Act body. Vice Chair Mauter accepted staff’s recommendation to schedule a study session to have a broader discussion about procedural changes in the UAC. Commissioners could individually prepare for that study session. Vice Chair Mauter wondered if staff could collect input and then summarize the recommendations or suggestions that commissioners had made. Utilities Advisory Commission Minutes Approved on: 12/3/2025 Page 21 of 21 Ms. Nose agreed that staff could collect feedback from commissioners and transmit it to the Commission. Mayor Lauing underscored that the UAC was an advisory body. All items that come to the UAC were debated and voted on, and the results of the vote had meaning when they go to Council. It told the Council something when the vote was 3-3 versus 7-0. The UAC’s function was to advise the Council. Mayor Lauing wanted the Commission to be selective about providing testimony directly to City Council, it should not be on every item that comes to Council, and it should be focused and supplementary to what was presented in the packet. A PTC commissioner was assigned monthly to attend the Council meetings and be available for Council questions but sometimes chose not to attend if the PTC did not think it would add much value. Commissioner Phillips asked if Mayor Lauing thought it would be useful to have a UAC subcommittee member available when the gas COSA went to the Council. Mayor Lauing was surprised the gas COSA was not going to Finance first. Ms. Nose confirmed the gas COSA would go to Finance before going to the Council. For the water quality update on regional sampling of microplastics scheduled on March 4, 2026, if possible, Commissioner Gupta wanted the topic to include forever chemicals and provide a perspective if there was sampling of microplastics in Palo Alto’s wastewater. Vice Chair Mauter pointed out that water and wastewater were distinct utilities. Typically, the water quality report was covered in the water item. Water comes from Hetch Hetchy, so Vice Chair Mauter was not sure how the bay discharge of microplastics would affect Palo Alto’s water supply. Commissioner Gupta thought it was useful to look at the issue of microplastics and forever chemicals from a water supply and wastewater perspective. Commissioner Gupta was curious about Palo Alto’s wastewater and wondered if it could be agendized at some point. Mr. Kurotori explained that the scheduled agenda item was intended for potable water quality only. Staff wanted to make sure the UAC was meeting their goals and objectives associated with the work plan as established by the Commission. If there was an interest for a topic that was not associated with the UAC’s work plan, it could be added to the additional work plan. Commissioner Gupta inquired if wastewater was excised from water in the work plan. Commissioner Gupta recalled having a discussion on microplastics. Vice Chair Mauter requested that Commissioner Gupta take the wastewater conversation offline. COMMISSIONER COMMENTS AND REPORTS FROM MEETINGS/EVENTS Commissioner Gupta went on a field trip to Hetch Hetchy with SFPUC. Commissioner Gupta highly recommended that commissioners take that field trip with BAWSCA and SFPUC if they had the opportunity to do so in the future. Vice Chair Mauter remarked that many of the commissioners had been on the field trip to Hetch Hetchy and it was a lot of fun. ADJOURNMENT Vice Chair Mauter adjourned the meeting.