HomeMy WebLinkAbout2026-03-04 Utilities Advisory Commission Agenda PacketUTILITIES ADVISORY COMMISSION
Regular Meeting
Wednesday, March 04, 2026
Council Chambers & Hybrid
6:00 PM
Utilities Advisory Commission meetings will be held as “hybrid” meetings with the option to
attend by teleconference/video conference or in person. To maximize public safety while still
maintaining transparency and public access, members of the public can choose to participate
from home or attend in person. Information on how the public may observe and participate in
the meeting is located at the end of the agenda. Masks are strongly encouraged if attending in
person. The meeting will be broadcast on Cable TV Channel 26, live on
YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media
Center https://midpenmedia.org.
VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/96691297246)
Meeting ID: 966 9129 7246 Phone: 1(669)900-6833
PUBLIC COMMENTS
Public comments will be accepted both in person and via Zoom for up to three minutes or an
amount of time determined by the Chair. All requests to speak will be taken until 5 minutes
after the staff’s presentation. Written public comments can be submitted in advance to
UAC@PaloAlto.gov and will be provided to the Council and available for inspection on the City’s
website three days before the meeting. Please clearly indicate which agenda item you are
referencing in your subject line.
PowerPoints, videos, or other media to be presented during public comment are accepted only
by email to UAC@PaloAlto.gov at least 24 hours prior to the meeting. Once received, the Clerk
will have them shared at public comment for the specified item. To uphold strong cybersecurity
management practices, USB’s or other physical electronic storage devices are not accepted.
Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,
posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do not
create a facility, fire, or safety hazard; and (3) persons with such items remain seated when
displaying them and must not raise the items above shoulder level, obstruct the view or passage
of other attendees, or otherwise disturb the business of the meeting.
TIME ESTIMATES
Listed times are estimates only and are subject to change at any time, including while the
meeting is in progress. The Commission reserves the right to use more or less time on any item,
to change the order of items and/or to continue items to another meeting. Particular items may
be heard before or after the time estimated on the agenda. This may occur in order to best
manage the time at a meeting to adapt to the participation of the public, or for any other
reason intended to facilitate the meeting.
1 Regular Meeting March 04, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas
CALL TO ORDER (6:00PM - 6:05PM)
AGENDA CHANGES, ADDITIONS AND DELETIONS (6:05PM - 6:10PM)
The Chair or Board majority may modify the agenda order to improve meeting management.
PUBLIC COMMENT (6:10PM - 6:25 PM)
Members of the public may speak to any item NOT on the agenda.
APPROVAL OF MINUTES (6:25PM - 6:35PM)
1.Re-Approval of the Minutes of the Utilities Advisory Commission Meeting Held on
December 3, 2025 Supplemental Report Added
2.Approval of the Minutes of the Utilities Advisory Commission Meeting Held on February
4, 2026
UTILITIES DIRECTOR REPORT (6:25PM - 6:50PM)
NEW BUSINESS (Item 3: 6:50PM - 7:35PM, Item 4: 7:35PM - 8:20PM)
3.Staff Recommends the Utilities Advisory Commission Recommend that the City Council
Adopt a Resolution Approving the Fiscal Year 2027 Water Utility Financial Forecast and
Reserve Transfers, and Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service From Fire Hydrants), W-3 (Fire Service Connections), W-4
(Residential Master-Metered and General Non-Residential Water Service), and W-7 (Non-
Residential Irrigation Water Service). CEQA Status: Not a project.
4.Staff Recommends the Utilities Advisory Commission Recommend that the City Council
Adopt a Resolution Approving the Fiscal Year 2027 Wastewater Collection Utility
Financial Forecast, and Amending Rate Schedules S-1 (Residential Wastewater Collection
and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant
Wastewater Collection and Disposal), and S-7 (Commercial Wastewater Collection and
Disposal – Industrial Discharger); CEQA Status: Not a project under CEQA Guidelines
Section 15378(b)(5)
FUTURE TOPICS FOR UPCOMING MEETINGS
COMMISSIONER COMMENTS AND REPORTS FROM MEETINGS/EVENTS
2 Regular Meeting March 04, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas
ADJOURNMENT
OTHER INFORMATION
The materials below are provided for informational purposes, not for action or discussion during this meeting’s agenda. Written
public comments may be submitted in advance and will be provided to the Board and available for public inspection on the
City’s website three days before the meeting.
A.12 Month Rolling Calendar
B.Public Comments
C.Informational Report on Residential Electric and Water Utility Customer Satisfaction
Surveys
D.Informational Report: Water Quality Update - Regional Sampling of Microplastics
3 Regular Meeting March 04, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas
PUBLIC COMMENT INSTRUCTIONS
Members of the Public may provide public comments to teleconference meetings via email,
teleconference, or by phone.
1.Written public comments may be submitted by email to UAC@PaloAlto.gov.
2.Spoken public comments using a computer will be accepted through the teleconference
meeting. To address the Council, click on the link below to access a Zoom-based meeting.
Please read the following instructions carefully.
◦You may download the Zoom client or connect to the meeting in- browser. If using
your browser, make sure you are using a current, up-to-date browser: Chrome 30 ,
Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in
older browsers including Internet Explorer.
◦You may be asked to enter an email address and name. We request that you
identify yourself by name as this will be visible online and will be used to notify you
that it is your turn to speak.
◦When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will
activate and unmute speakers in turn. Speakers will be notified shortly before they
are called to speak.
◦When called, please limit your remarks to the time limit allotted. A timer will be
shown on the computer to help keep track of your comments.
3.Spoken public comments using a smart phone will be accepted through the
teleconference meeting. To address the Council, download the Zoom application onto
your phone from the Apple App Store or Google Play Store and enter the Meeting ID
below. Please follow the instructions B-E above.
4.Spoken public comments using a phone use the telephone number listed below. When
you wish to speak on an agenda item hit *9 on your phone so we know that you wish to
speak. You will be asked to provide your first and last name before addressing the Council.
You will be advised how long you have to speak. When called please limit your remarks to
the agenda item and time limit allotted.
CLICK HERE TO JOIN Meeting ID: 966 9129 7246 Phone:1-669-900-6833
Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public
programs, services and meetings in a manner that is readily accessible to all. Persons with
disabilities who require materials in an appropriate alternative format or who require auxiliary
aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at
(650) 329-2550 (voice) or by emailing ada@PaloAlto.gov. Requests for assistance or
accommodations must be submitted at least 24 hours in advance of the meeting, program, or
service.
4 Regular Meeting March 04, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas
Item No. 1 Page 1 of 1
9
3
3
3
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: March 4, 2026
Report #: 2602-5920
TITLE
Re-Approval of the Minutes of the Utilities Advisory Commission Meeting Held on December 3,
2025
RECOMMENDATION
Staff recommends that the Utilities Advisory Commission re-review and approve December 3,
2025 minutes.
Commissioner ______ moved to approve the draft minutes of the December 3, 2025 meeting
as submitted/amended.
Commissioner ______ seconded the motion.
ATTACHMENTS
Attachment A: December 3, 2025 Draft Minutes
AUTHOR/TITLE:
Alan Kurotori, Director of Utilities
Staff: Kaylee Burton, Utilities Administrative Assistant
Item #1
Packet Pg. 5
Utilities Advisory Commission Minutes Approved on: Page 1 of 12
UTILITIES ADVISORY COMMISSION MEETING
MINUTES OF DECEMBER 3, 2025 REGULAR MEETING
CALL TO ORDER
Vice Chair Mauter called the meeting of the Utilities Advisory Commission (UAC) to order at 6:04 p.m.
Present: Vice Chair Mauter, Commissioners Croft, Metz, Phillips, and Tucher
Absent: Chair Scharff, Commissioner Gupta
AGENDA REVIEW AND REVISIONS
Utilities Director Alan Kurotori highlighted the updates to the financial analysis on the informational
item and noted this will be Assistant Director Karla Dailey's last meeting.
ORAL COMMUNICATIONS
Dave Warner gave a summary of the recent Water Supply Amendment (WSA) activities. Commissioners
Gupta and Tucher had found significant problems with the WSA, including that BAWSCA cost estimates
were understated; however, Hayward approved the WSA amendment. Mr. Warner opined that
declining water demand was the future and was concerned about organizations projecting demands
that will not occur. Mr. Warner referenced the alternative water supply projects San Diego had
developed. Due to an inability to cover the costs of the projects because of a lack of demand, the San
Diego County Water Authority and City of San Diego had agreed to increase rates by 30 percent in 2
years. Mr. Warner believed a similar outcome would occur with BAWSCA with worse financial
consequences due to the SFPUC regional water system being a heavily debt-laden and fixed-cost system.
The WSA amendment subsidized other agencies that develop alternative water supplies, which
increases cost. Mr. Warner did not agree with the half-billion-dollar cost of the One Water study. Mr.
Warner hoped the Commission and staff would be more vigilant and skeptical of BAWSCA.
Avivit Katzir believed Urban Forest abused their power by clearing power lines in her property easement
in October and November of 2025. The solution was to underground the utilities. Ms. Katzir read
information from the City's website to understand the City's undergrounding plan. Ms. Katzir quoted
material from the website, which stated the City's process and plan to underground approximately 100
homes per year. One percent of the electric revenue was to be spent on undergrounding each year. Ms.
Katzir referenced the underground conversion plan map, which showed that no district was
undergrounded in the years 2011 to 2019 and 2022 to 2025. Ms. Katzir asked where the money
allocated to undergrounding went and if it had been repurposed. Ms. Katzir was told that, based on
another Council decision, Utilities was focused on upgrading the grid and did not do undergrounding.
Ms. Katzir wanted to know why the City was not moving forward with undergrounding utilities.
Item #1
Packet Pg. 6
Utilities Advisory Commission Minutes Approved on: Page 2 of 12
APPROVAL OF THE MINUTES
ITEM 1: ACTION: Approval of the Minutes of the Utilities Advisory Commission Meeting Held on
November 5, 2025
Vice Chair Mauter invited comments on the November 5, 2025, UAC draft meeting minutes.
ACTION: Commissioner Phillips moved, seconded by Commissioner Metz, to approve the draft minutes
of the November 5, 2025, meeting as submitted.
Motion approved 5-0.
Chair Scharff and Commissioner Gupta absent.
UTILITIES DIRECTOR REPORT
Utilities Director Alan Kurotori said that on December 1, Council approved the 2026 Gas Cost of Service
study and rate changes, which went to the Finance Committee on November 18. In November, Council
approved a resolution to defer utility late fee collection actions given the federal government shutdown.
There were program design guidelines to the successor of the multi-family electric vehicle charger
program and advanced HVAC pilot program. There will be an S/CAP community workshop on Saturday,
December 13 to discuss the GHG emission reduction goal. No more than 3 UAC Commissioners may
attend the workshop. Any commissioners absent from this meeting may attend. The City received the
gold-level designation from Charging Smart. Vice Mayor Veenker participated in COP30 and represented
the City of Palo Alto and Bay Area Air Quality Management District. The Fiber to the Premises
contractor, MP Nexlevel, began work on the first phase of construction in the pilot area. The work will
be done by early January. Mr. Kurotori expected the hydroelectric resources will produce more than the
longer-term average for the rest of 2026 and 2027. As of November 1, the regional system for the
SFPUC, the Hetch Hetchy system, was at about 160 percent of median.
Vice Chair Mauter asked if any Commissioners were planning to attend the workshop.
Commissioner Croft will attend the workshop from 9 a.m. to 11 a.m. Commissioner Metz will not be able
to attend the workshop.
Karla Dailey thanked the City for the career and lots of opportunities. Ms. Dailey acknowledged the
employees that worked for the organization and highlighted Resource Management, which Ms. Dailey
led for 4 years.
Commissioner Phillips thanked Ms. Dailey for the service.
Commissioner Croft wished Ms. Dailey the best.
Vice Chair Mauter appreciated Ms. Dailey's mentorship.
Mr. Kurotori expressed pleasure of having served with Ms. Dailey, who was well respected, and thanked
Ms. Dailey for the service to the community.
Item #1
Packet Pg. 7
Utilities Advisory Commission Minutes Approved on: Page 3 of 12
A slide provided a list of action and activity items the Commission wanted to discuss. The UAC discussion
on Policy and Procedure will occur at this meeting. Microplastics and forever chemicals will be
addressed in the workplan on source water quality; wastewater was not in the UAC workplan. The
preliminary results of the Gas Utility Transition study were presented to the UAC in September and
October of 2025 and were expected to return in early 2026. The time-of-use (TOU) rate implementation
update will be included with Electric Rates in 2026. Utilities will complete an internal reserves evaluation
and will bring recommendations in the first quarter of 2026. Work was ongoing regarding the
affordability and federal impacts on rates, which may be part of a potential discussion on the
subcommittee. The initial estimates will be included in the FY27 Rate proposals. Mr. Kurotori wanted to
follow up with Commissioner Metz' comment from the last meeting regarding the Reliability and
Resiliency Strategic Plan standard versus emergency operations.
Vice Chair Mauter clarified the items on the list in the Director's Report were not agendized, so there
could not be discussion. The purpose was to provide stronger feedback about topics brought up at past
meetings and follow up as to when, where, and how those topics will be discussed. Vice Chair Mauter
asked the list to be a standing component of the Utilities Director's Report. Commissioners were able to
ask about how to address different items and whether there was a need to accelerate or change the
process to address certain items.
Commissioner Croft said Commissioners were usually able to ask questions of the things in the Director's
Report. The time-of-use rate implementation updates will be in 2026, which was later hoped.
Commissioner Croft wanted more up-to-date information on a monthly basis of the time-of-use rate
implementation.
Mr. Kurotori explained that the slide showed the high-level overview of items. There was a small subset
of customers who will act as beta testers for the TOU rates.
Commissioner Tucher liked the list of items but wanted more precision with the timing. Commissioner
Tucher wondered if it were possible to put the slide showing the list of items on public record.
Commissioner Metz asked if the Commission could agendize items for future meetings to hold a brief
discussion of the timing and scope of each topic.
Vice Chair Mauter explained a discussion around each topic could be agendized on a bi-monthly basis. It
could be brought up when the Commission had the standing item of topics for future meetings.
NEW BUSINESS
ITEM 2: Recommendation that the City Council Accept the “Evaluation of Local Energy Resources to
Lower Costs and Improve Reliability and Resiliency” Report to Complete Reliability and Resiliency
Strategic Plan Strategies Four and Five, and that the City Council Direct Staff to Pursue Various Activities
Related to Flexible Energy Resource and Efficient Electrification to Improve Reliability and Resiliency;
CEQA Status - Not a Project
Assistant Director Jonathan Abendschein said the objective of the presentation was to recap the study
and results and discuss the staff recommendation, which was to accept the consultant report and
recommend that Council direct staff to focus primarily on barrier reduction with different technologies,
periodically update the cost-benefit analysis, look at certain projects as opportunities arise, and bring
forward a discussion on long-term resiliency in 2026. The study objective was to evaluate the value of
Item #1
Packet Pg. 8
Utilities Advisory Commission Minutes Approved on: Page 4 of 12
flexible energy technologies and efficient electrification in reducing electric supply costs, deferring
distribution system investment, and enhancing short-term reliability and long-term resiliency. A slide
showed the study timeline. The study evaluated the potential benefits and costs of various technologies.
All technologies had benefits, which made barrier reduction, promotion, and low-cost technical
assistance worthwhile. No technologies had benefits that outweighed the cost. Large-scale local
commercial solar and storage broke even and could be cost effective on a case-by-case basis. Time-of-
use rates were not evaluated but the potential impact was estimated.
A slide showed a chart of the residential results. The costs did not outweigh the benefits but residents
saw a benefit in long-term resiliency, which was not captured on the charts. Another slide showed a
chart of the commercial results, which reflected gaps in the technologies evaluated. Solar and storage
(BESS) broke even when counting the utility supply cost benefit and short-term reliability benefits.
The Policy Straw Proposal focused on outreach and barrier reduction rather than incentives. Feedback
on the proposal found that most comments agreed on the general focus of the policies.
Recommendations included: to explore low-cost technical assistance, regularly update the cost-benefit
analysis, and forecast technology cost decreases. There was agreement that no further analysis was
needed on deferring distribution investment using flexible energy technologies. There was a desire for
additional discussion on long-term resiliency. A slide showed technology cost projections. Even without
ITC, commercial batteries and solar were forecasted to become cost-effective in the next 5 to 10 years.
Residential solar and batteries would not become cost-effective until 2040 or later.
Slides showed the staff recommendation. On November 20, the CASC heard the same topic and voted
unanimously to approve the staff recommendation. The CASC chose to look at alternative 2b shown in
the staff report. Additional resources would be needed to take a proactive approach to demand
reduction, which would include finding a 0.5 hourly FTE in the FY27 budget.
Vice Chair Mauter invited Commissioners Croft and Metz to speak and offer comments because of their
role as S/CAP liaisons.
Commissioner Metz thought the group was diverse and there was excellent discussion about how to
address energy needs.
Commissioner Croft was disappointed when the topic came to the UAC before that there was no
incentivizing, only promoting. Commissioner Croft had made 2 suggestions. One was to update the
model annually versus every 2 years just for the electricity costs. Commissioner Croft was concerned
about electricity prices changing rapidly due to increasing demand. The second was to reword item D in
the packet to say "solar and/or battery opportunities." Commissioner Croft wanted to know if it was
possible to include those edits given the CASC had already voted. Commissioner Croft asked what the
resource requirement would be if the optional alternative 2b moved forward and what the approximate
financial impact would be.
Commissioner Phillips asked for clarification on what voting for the staff recommendation would
include.
Mr. Abendschein confirmed there was room to incorporate edits as the item will go to Council as an
action item. Mr. Abendschein clarified the staff recommendation would be the recommendation in the
staff report without the optional alternative 2b. If the Commission wanted to align with CASC and
Item #1
Packet Pg. 9
Utilities Advisory Commission Minutes Approved on: Page 5 of 12
incorporate the optional alternative, that would need to be included in a motion. The working group
noted the suggestions made by Commissioners Croft and Metz about long-term resiliency and expressed
support for a continued focus on permit and other forms of streamlining. The CASC had questions about
batteries at substations and were optimistic about the trends with commercial cost benefits. The CASC
believed residents valued long-term resiliency and expressed an interest in having more discussions
around resiliency in 2026. Mr. Abendschein cited the fiscal impact section of the staff report and said
the optional alternative 2b would require a half-time hourly position. Staff would have to return via the
budget process to determine the financial impact.
Public Comment: None.
Commissioner Croft was concerned about the readiness of the market for adopting the technologies the
City was promoting. Commissioner Croft asked if the City had a demand response program.
Commissioner Croft supported the other items listed but felt it was inaccurate to include demand
response programs and proposed removing that.
Vice Chair Mauter believed there was a program for a large industrial customer and asked if it was time-
of-use or demand response.
Commissioner Metz said there was a program called demand management, which was an energy
conservation program, not a demand response program.
Commissioner Phillips referenced packet page 47 and noted that years ago, the City implemented a
commercial customer demand response program, which had 6 commercial customers but was not
effective. Commissioner Phillips asked why that program failed. The consultant's report noted that part
of the challenges were the City was small and the overhead of running such a program was a fixed cost.
Commissioner Phillips questioned if there was a way to cooperate with other small agencies to run a
program jointly and save money. Commissioner Phillips did not support the optional alternative 2b due
to rate increases and budget deficits.
Vice Chair Mauter supported an annual rate analysis due to frequent rate changes, which could affect
the calculations behind the programs. Vice Chair Mauter wanted staff input on whether that would be
valuable.
Commissioner Tucher asked how the staff recommendation improved upon the things decided and
implemented in Strategy 3. Commissioner Tucher opined there were 2 large assumptions behind the
analysis that set it up for failure. One was there was no value assigned to the long-term resiliency that
may come from demand response or local resources. The second was not calculating the savings from
deferred or avoided spending on grid investment. Commissioner Tucher stated there were mentions of
a previous consulting study on deferred grid investment in the consultant's report but felt the summary
was not persuasive and asked if there was a link to the full study. Commissioner Tucher cited a study
which showed a difference of $1.0M of CapEx versus $1.3M of debt service and believed there were
ways to reconcile those differences. There was no discussion in the report around other utilities in the
state who deployed substation-level grid scale battery storage and whether those were a success. There
were several references in the report about reducing the strain on the grid. Commissioner Tucher asked
if that reduced some of the investment required to modernize and expand the grid. Commissioner
Tucher did not support the staff recommendation and opined the approach lacked vision and
commitment. Commissioner Tucher referenced the Palo Alto Climate Action Strategies and said that the
Item #1
Packet Pg. 10
Utilities Advisory Commission Minutes Approved on: Page 6 of 12
future of energy was in local energy resources, microgrids, battery storage, etc. Commissioner Tucher
wanted to consider a program that would target commercial prospects. Commissioner Tucher asked
what happened to the airport and Wastewater Treatment Plant projects.
Mr. Abendschein confirmed there were no active demand response programs. The earlier commercial
customer demand response program was a failure because of the amount of savings it generated
compared to the amount of time it took to run the program which, at a small scale, had a negative cost
benefit. Staff's intent was to promote and reduce barriers to adoption of technologies and demand
response was only one way to do so. Mr. Abendschein clarified that the intent of Strategies 4 and 5 was
to see whether there was a positive cost benefit, not to add to Strategy 3. The report took into account
short-term reliability and long-term resiliency from a qualitative perspective, with some points in section
7 to be brought back in 2026. The deferred grid investment study was conducted in the summer and had
no formal report. The $1.3M per year versus $1.0M in benefits was capital cost only and did not include
the cost of operating the program or operations and maintenance on equipment needed and did not
address feasibility. The report did not address substation transformer deferral. The study focused on
whether the City could avoid replacing transformers at the distribution level, which were needed to
accommodate the additional capacity required for vehicle and building electrification. Staff had a
$200,000 budget to conduct a comprehensive study on whether it were possible to avoid distribution
upgrades. However, staff decided to do a smaller study to save money. There were a limited number of
transformers eligible for deferral due to the age of the system. Mr. Abendschein said that reducing
strain on the electric grid from a supply standpoint was at an aggregate as opposed to reducing strain on
individual transformers.
Director Alan Kurotori said staff did active outreach to other agencies. SMUD had a virtual powerplant
program. The challenge was that rates were low. Some VPP programs, like those offered in PG&E's
service territory, will have higher per-kilowatt costs. There was a transmission corridor that came into
Palo Alto. CAISO will put in a second transmission line. Mr. Kurotori said affordability was important
when looking at battery storage and technologies. Mr. Kurotori opined it was important to remember
that technologies change over time and may become more effective. Palo Alto was moving forward on
S/CAP and was looking at affordable, scalable technologies.
Assistant Director Karla Dailey said that updating the energy prices annually was manageable, however
it would be more difficult to redo the TOU rates each year.
Vice Chair Mauter appreciated staff's desire to bring the technologies to Palo Alto while balancing
affordability and progress. Vice Chair Mauter questioned whether the optional alternative 2b would
yield the greatest benefit. Vice Chair Mauter believed that engagement with key large customers where
the breakeven costs were closer made the most sense and included City facilities. Vice Chair Mauter
opined there was no need for an additional FTE. Vice Chair Mauter suggested the key account manager
for City property be empowered to encourage facilities to adopt these technologies where financially
appropriate. Most municipal utility investments on the water and wastewater side had 30-to-50-year
investment cycles.
Commissioner Phillips agreed the focus should be on the City and large commercial customers.
Commissioner Phillips opined that solar and BESS for large commercial customers was close enough that
some would move ahead without subsidy from the City due to the resilience benefit.
Item #1
Packet Pg. 11
Utilities Advisory Commission Minutes Approved on: Page 7 of 12
Commissioner Metz believed the cost-benefit analysis approach to long-term resilience, as suggested on
page 6 of the presentation, was not the correct approach. Commissioner Metz opined CPAU should
invest in electrical emergency preparedness and resilience even if the cost benefit was not positive
because it was the right thing to do. Commissioner Metz thought that investments made by residents
had community value because the community required people to be able to stay home during an
emergency. Commissioner Metz felt it was important to explicitly consider the risk of major emergencies
when conducting analysis and planning for CPAU reliability and resilience. These technologies will not
have a positive cost benefit if the risks were not considered because the grid was already optimized to
operate without problems or risk of failure. Commissioner Metz suggested using a scenario-based
approach and coordinate with the Palo Alto Office of Emergency Services, which used a methodology
called Assets At Risk. Commissioner Metz wanted the results of such an analysis to be communicated to
Council and residents in a detailed and transparent manner. Commissioner Metz said the report was not
detailed enough to determine whether the calculations were correct. Commissioner Metz wanted the
City to build and maintain competencies in reliability and resiliency, including emergency preparedness.
Mr. Abendschein agreed there should be focused outreach on major facilities, which were called out by
evaluating projects on a case-by-case basis. There was a push to see whether solar or storage was of
value with City facilities when projects were developed, such as with the public safety building. Mr.
Abendschein said that break even for a large commercial customer was an 18-to-20 year payback. Mr.
Abendschein stated that some of Commissioner Metz' topics will be discussed in 2026. Mr. Abendschein
referenced section 7.6 on packet page 83, which detailed the City's current policies around incentives
for microgrids, etc.
Mr. Kurotori said there will be an update in January after staff has had time to complete an analysis of
the substations.
Commissioner Croft asked if there was an emergency plan and stated that any emergency plan did not
need to be carbon neutral due to its low likelihood and high criticality. Commissioner Croft wanted to
amend the staff recommendation to include an annual update for electricity prices in the model.
ACTION: Commissioner Croft moved, seconded by Commissioner Phillips, to approve the staff
recommendation plus the edits to item 2c:
• Update the cost benefit analysis annually for electricity prices and update the cost benefit
analysis for other flexible energy technology inputs within 2 years
The motion carried 3-2, with Commissioners Metz and Tucher voting no.
Chair Scharff and Commissioner Gupta absent.
ITEM 3: Approval of Utilities Advisory Commission Fiscal Year (FY) 2027 Budget Subcommittee to Serve a
Term from December 3, 2025 through June 3, 2026
Director Alan Kurotori gave guidance for the UAC subcommittee: it will operate as a temporary body
and be composed of fewer than quorum of the UAC; it will serve a single, limited purpose; and it will be
dissolved upon completion of the defined scope selected at this evening's meeting. Commissioner-
proposed topics included a review of CIP in the FY27 rates forecast, FY 2027 Utility reserves and cash on
hand, and a review of the FY27 Utility Rate Assistance Program options. The staff recommendation was
to review the FY27 financial plan and 5-year forecast regarding affordability for the electric utility.
Item #1
Packet Pg. 12
Utilities Advisory Commission Minutes Approved on: Page 8 of 12
Public Comment: None.
Vice Chair Mauter explained there needed to be a rotating membership so there was no de facto
standing committee. Commissioners Phillips, Croft, and Gupta served on the budget subcommittee over
the last year. Vice Chair Mauter clarified the scope of that subcommittee was primarily around the rate
and did not include a broader review of the utility reserves or rate assistance programs.
Commissioner Phillips confirmed the scope of the prior subcommittee was as Vice Chair Mauter
described and also looked at financing for Fiber to the Home.
Vice Chair Mauter determined, in conjunction with Utility staff, that the proposed scope was different
than past committees and was passable. The subcommittee will have no decision-making ability; the
responsibility will be to come back to the UAC and report on findings. There was a Utility-wide review
regarding the reserves policies. Vice Chair Mauter asked if that will come to the subcommittee first for
review before going to the UAC as a whole.
Commissioner Croft said the prior finance committee offered pre-engagement for staff before topics
were addressed to the full UAC and asked if that would be the case again.
Commissioner Metz asked for clarification on what the topics were.
Mr. Kurotori explained that staff would be able to have discussions with the subcommittee about
anything relating to the subcommittee's topic. Staff's recommendation was the official topic, which
included the 3 commissioner-proposed topics. There will be an evaluation of the reserves across the
entire Utilities with the intent to bring those results back to the UAC.
Vice Chair Mauter clarified that the staff recommendation was to not address the Utility reserves, which
was item 2, but rather items 1 and 3 in reference only to the electric utility.
Commissioner Tucher asked if the subcommittee could change course mid-year to address something
other than electric should an issue regarding a different utility come up.
Commissioner Croft was concerned about the large rate increases 5 years into the future and noted the
increases were not only due to electric. Commissioner Croft wanted to identify areas to lower costs,
which could be beyond the electric utility and went beyond the rate assistance program. Commissioner
Croft recommended broadening the topic to include affordability of all utilities.
Commissioner Metz agreed to broadening the topic and suggested removing all wording from the staff
recommendation after the word "forecast" and adding "for cost reduction opportunities." The entire
UAC will look at the budget. Commissioner Metz stated subcommittees were valuable to look at issues
more deeply than could be done in a meeting and opined a few commissioners doing a deep dive on the
budget would be valuable.
Mr. Kurotori wanted the scope of the subcommittee to stay narrow and was concerned the proposed
changes made the topic too broad.
Item #1
Packet Pg. 13
Utilities Advisory Commission Minutes Approved on: Page 9 of 12
Mayor Lauing reiterated the review of the FY27 Financial Plan and the 5-Year Forecast will happen for all
utilities and be brought to the UAC. Mayor Lauing clarified that the members on the subcommittee
could not talk to the other UAC members to ask for input on the topics outside of UAC meetings. Mayor
Lauing believed addressing budget issues across all utilities would have a large impact on staff workload.
Vice Chair Mauter suggested the subcommittee be a study of administrative opportunities for long-term
cost savings or cost cutting measures across all utilities. The scope of the past year's subcommittee was
not allowable going forward.
Commissioner Metz wanted to look at the top opportunities for cutting costs.
Commissioner Phillips thought the proposed changes would significantly alter the topic of the
subcommittee as recommended by staff. Commissioner Phillips believed a subcommittee should probe
the topics staff proposed and liked the staff recommendation. Commissioner Phillips wanted to see a
recommendation of a process for identifying options for reducing cost increases in the future.
Mayor Lauing asked if there needed to be 2 subcommittees.
Vice Chair Mauter confirmed there would need to be 2 subcommittees to address both topics and asked
what items would be included in the first subcommittee. Vice Chair Mauter clarified that everything
would come back to the UAC eventually and the subcommittee should address what the Commission
would most benefit from a deep evaluation of.
Commissioner Phillips suggested looking at the Financial Plan and 5-Year Forecast for the electric and
other utilities, particularly gas.
Mr. Kurotori opined there would be no value in addressing the fiber utility, as that was already done.
Staff had communicated challenges with wastewater and had already deferred projects. Mr. Kurotori
said that the electric and water utilities would be a narrow enough scope.
Commissioner Croft pulled up the rate schedule from the last meeting. Electric and water were the 2
whose rates were significantly above inflation, especially water. Commissioner Croft opined that
administrative could be a good place to look at cutting costs.
Commissioner Metz noted that labor costs had become a large part of the gas utility cost.
Mayor Lauing said Mr. Kurotori suggested adding the water utility to the motion.
Vice Chair Mauter clarified there would not be 2 subcommittees.
Commissioners Tucher and Phillips volunteered to serve on the subcommittee.
ACTION: Commissioner Metz moved, seconded by Commissioner Croft, to have Commissioner Phillips
and Commissioner Tucher serve on a budget subcommittee from December 3, 2025, through June 3,
2026, with a defined scope of reviewing the FY27 Financial Plan and 5-Year Forecast regarding
affordability for the electric and water utilities.
Motion carried 5-0.
Item #1
Packet Pg. 14
Utilities Advisory Commission Minutes Approved on: Page 10 of 12
Chair Schaff and Commissioner Gupta absent.
ITEM 4: Utilities Advisory Commission Discussion on Policy and Procedure
Assistant City Manager Kiely Nose showed a slide regarding the purpose of the UAC for reference. The
UAC wanted to discuss how the Commission could effectively communicate advice to Council. Another
slide showed a visual of the workflow. City Council and Council Committees were governing bodies. The
UAC was an advisory body to Council. The work of the UAC was shaped by regulatory and legislative
principles, the municipal code, Commission workplans, and Council priorities. The UAC could
communicate advice by making recommendations via staff reports, Commission letters, having
representation at Council meetings, or holding joint sessions.
The UAC asked when the Commission should send representation to Council. Staff suggested the
Commission ask what the standard practice for representation was. Staff recommended representation
for complex or high-impact items. Staff proposed the UAC consider how to identify which member
represented the UAC. The UAC asked when there should be a joint study session. Staff suggested the
UAC consider what topics would be of interest to explore in a joint session and what the desired
outcome would be from a joint session.
Vice Chair Mauter asked what role the Council Member appointed to the UAC played and if there were
other mechanisms by which Council could ask for UAC input more directly.
Ms. Nose said Council could make a referral at any time to the UAC or the UAC could recommend that
Council refer a topic to the UAC, like with Gas COSA, for example.
Mayor Lauing said the UAC had a Council liaison because it was an important Commission. If the UAC
wanted a representative to go to a Committee or Council, that would be deemed a request to Council.
Study sessions used a lot of resources. Council was not trying to limit or cut off communication from the
UAC.
Public Comment: None.
Commissioner Phillips noted that Council spent much more time on PTC items than UAC items and
therefore did not believe it was worthwhile to appoint a UAC member to attend every Council meeting.
Commissioner Phillips noted that any representative would represent the UAC's position on an item, not
a personal opinion.
Vice Chair Mauter asked if Mayor Lauing could advise on when someone from the UAC should come
before Council on a specific issue.
Commissioner Metz wondered if the Commission should generate a list of topics that would fit the
situations in which a representative would be needed in advance. Commissioner Metz noted it would
take the UAC time to reach a conclusion on representation, to schedule, and to coordinate with Council
or a Committee.
Mayor Lauing said the PTC was on-call. Mayor Lauing would not advise on when someone from the UAC
should come to Council. Any time a representative wanted audience with Council, it would go to the
Item #1
Packet Pg. 15
Utilities Advisory Commission Minutes Approved on: Page 11 of 12
liaison first, who would then discuss with the Mayor. Mayor Lauing explained it may be more
appropriate for the UAC to go more frequently to the Finance Committee than to Council.
Ms. Nose encouraged the Commission to think about representation in broader terms and not to
identify specific projects this evening.
Commissioner Tucher briefly discussed the 3 items in the Commissioner's Memo. Commissioner Tucher
highlighted the recommendation that the UAC should offer advisories on some of the items that were
discussed and voted on in addition to the staff report. Commissioner Tucher suggested a 3-part process.
First, in the Director's Report at the start of each meeting, all CPAU-related discussions that took place
at Council or the Finance Committee would get listed. Second, the items on the Finance Committee and
Council agendas for the next 3 to 4 weeks would be mentioned. Third, at the end of each new business
item, the Commission would decide and vote on whether the item merited an advisory, which could be
written or in person.
Commissioner Phillips supported the list as part of the Director's Report at the beginning of each
meeting.
Vice Chair Mauter asked if staff would call out the upcoming agenda items for the Finance Committee
and Council or refer Commissioners to the 12-month rolling calendar.
Commissioner Tucher clarified the Commissioner's Memo was a draft and did not want to discuss all 3
components.
Commissioner Phillips asked how a written advisory differed from a motion.
Ms. Nose was concerned written advisories could take a lot of time properly drafting the wording and
noted that any written advisories must speak on behalf of the full Commission. Motions were the most
effective way to communicate advisories.
Vice Chair Mauter had no objection to commissioners proposing to include representation at the
Finance Committee or Council when discussing a motion. However, Vice Chair Mauter did not want to
make that a standard procedure for every motion.
Commissioner Metz clarified that, as an agenda topic concluded, if anyone wanted representation at
Council, it could be raised as a suggestion and voted on as an amended motion.
Vice Chair Mauter confirmed that during the discussion of a motion, someone could raise the suggestion
to represent at Council, which would then be discussed and either formally made part of the motion or
taken as a separate vote of who and how. Vice Chair Mauter asked if UAC members could speak as
private citizens during public comment at Council meetings.
Commissioner Croft asked what would happen after the UAC agreed to have representation at Council
and how that would be arranged.
Mayor Lauing said if there was a controversial item and/or a split vote, the representative should explain
both sides of the story to Council. Mayor Lauing said the request for representation would start with the
Item #1
Packet Pg. 16
Utilities Advisory Commission Minutes Approved on: Page 12 of 12
liaison, then go to the Mayor. Mayor Lauing opined it would be better to speak at Council on behalf of
the UAC versus as a private citizen, although private citizen comments were allowed.
Ms. Nose gave the example of Commissioner Gupta representing the UAC at the Finance Committee
with the Gas COSA item.
ACTION: Discussion Item, no action required.
COMMISSIONER COMMENTS and REPORTS from MEETINGS/EVENTS
None.
ADJOURNMENT
Commissioner Metz moved to adjourn.
Commissioner Phillips seconded the motion.
The motion carried 5-0.
Meeting adjourned at 8:55 p.m.
Item #1
Packet Pg. 17
Item No. 2 Page 1 of 1
9
3
8
2
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: March 4, 2026
Report #: 2602-5968
TITLE
Approval of the Minutes of the Utilities Advisory Commission Meeting Held on February 4, 2026
RECOMMENDATION
Staff recommends that the Utilities Advisory Commission review and approve the February 4,
2026 minutes.
Commissioner ______ moved to approve the draft minutes of the February 4, 2026 meeting as
submitted/amended.
Commissioner ______ seconded the motion.
ATTACHMENTS
Attachment A: February 4, 2026 Draft Minutes
AUTHOR/TITLE:
Belle Farias, Administrative Associate III
Item #2
Packet Pg. 18
Utilities Advisory Commission Minutes Approved on: Page 1 of 18
UTILITIES ADVISORY COMMISSION MEETING
MINUTES OF FEBRUARY 4, 2026 REGULAR MEETING
CALL TO ORDER
Chair Scharff called the meeting of the Utilities Advisory Commission (UAC) to order at 6:03
p.m.
Present: Chair Scharff, Vice Chair Mauter, Commissioners Croft, Gupta, Metz, Phillips
(6:06 p.m.), and Tucher (6:49 p.m.)
Absent: None
AGENDA REVIEW AND REVISIONS
None
ORAL COMMUNICATIONS
None
APPROVAL OF THE MINUTES
ITEM 1:Approval of the Minutes of the Utilities Advisory Commission Meeting Held on January
7, 2026
Chair Scharff invited comments on the January 7, 2026, UAC draft meeting Minutes.
Commissioner Croft stated that she found the January 7, 2026, minutes somewhat difficult to
follow for readers who were not present at the meeting. Commissioner Croft recommended
several edits to improve context. It was suggested to revise references to “the money” to more
clearly reflect that there were 2 separate funding sources. Commissioner Croft recommended
replacing “the money” with “spending the full $20M” in one instance and with “not to spend
the full budget without an initial look at the pilot results” in another instance to better reflect
the prior discussion. Commissioner Croft also requested another sentence be revised to read
"Commissioner Croft opined that for the people putting in large systems, communication will
be needed about the fact that rates change over time and potential for high costs," and
explained that the comment referred to customers installing large solar panel systems who
might expect utility rates to remain constant over time.
Item #2
Packet Pg. 19
Utilities Advisory Commission Minutes Approved on: Page 2 of 18
ACTION: Commissioner Croft moved, seconded by Commissioner Gupta, to approve the draft
minutes of the January 7, 2026, meeting as amended.
Motion approved 6-0. Commissioner Tucher absent.
UTILITIES DIRECTOR REPORT
Director of Utilities Alan Kurotori reported on recent City Council actions. On January 5, the City
Council selected Vice Mayor Vicki Veenker as Mayor and Councilmember Greer Stone as Vice
Mayor. Mr. Kurotori reported that the Council held its annual goal-setting session on January
24, during which 4 primary priorities were identified: government efficiency, achieving near-
term housing milestones, Cubberley acquisition and renovation funding, and enhancing
business vibrancy. There were several utility-related actions undertaken in January, including
approval of the updated 2026 Water, Gas, & Wastewater Utility Standards; adoption of
applicable state and federal utility guidelines previously reviewed by the UAC; and approval of a
professional services contract with Baron Contracting for gas leak survey services. Recruitment
is underway for 2026 boards, commissions, and committees, with 10 seats currently open. The
application deadline is February 18, and additional information is available on the City website.
Interviews with the City Council are expected to occur in March. Commission appointments are
anticipated to occur after the appointment process, with the earliest opportunity for
Commission action likely in April. Mr. Kurotori reported on the Gas Main Replacement Project
(GMR 25), which will replace approximately 5 miles of gas mains and services in the
Duveneck/St. Francis, Leland Manor, Midtown, and Palo Verde neighborhoods. The project is
part of ongoing efforts to enhance safety and reliability of the gas system and is funded by a
$16.5M federal DOT grant. Construction is expected to begin later in the month and continue
through summer 2027.
Mr. Kurotori discussed that staff participated in legislative advocacy efforts at Capitol Day on
January 26, organized by the Northern California Power Agency and the California Municipal
Utilities Association. A group of staff met with several state legislators, including
Assemblymember Joe Patterson, sponsor of AB 34, which would extend provisions related to
large hydroelectric resources. Mr. Kurotori noted that the legislation would benefit Palo Alto
and other agencies by helping avoid excess renewable procurement requirements and
supporting affordable utility rates. There were also meetings with Assemblymember Berman
and staff from Senator Becker’s office, who are co-sponsors of the bill. The legislation is
advancing quickly, and staff is hopeful it will be signed by the Governor. Chair Scharff added
that the bill passed the Assembly on the same day as the staff’s visit.
Mr. Kurotori stated that staff consulted with the City Clerk’s Office regarding the format of UAC
minutes and that the current practice may be migrating from summary minutes to action
minutes, which typically include the agenda item, motion, vote, and outcome. Meeting
recordings are available online to capture full discussion. Mr. Kurotori noted that summary
minutes remain in use at present and acknowledged challenges associated with preparing
Item #2
Packet Pg. 20
Utilities Advisory Commission Minutes Approved on: Page 3 of 18
them. Commissioner Phillips questioned what was meant by "migrating," and Mr. Kurotori
responded that implementation would be guided by the Clerk’s Office. Commissioner Phillips
asked whether action minutes would capture staff commitments made during discussions that
were not formally voted on. Mr. Kurotori stated that such items might be included if part of an
approved action but that the level of detail would be confirmed with the Clerk’s Office. Chair
Scharff expressed concern that action minutes may not adequately capture discussion items
that do not require a vote, which could limit City Council’s ability to understand Commission
input. Councilmember Lauing indicated that action minutes can be customized to document
significant discussions even without formal votes. Chair Scharff emphasized that summary
minutes provide a useful overview of Commission deliberations and expressed concern that
relying solely on action minutes and recordings would make information less accessible.
Commissioner Croft similarly noted difficulty compiling past discussion topics from existing
materials and expressed concern that action minutes could further reduce accessibility.
Commissioner Phillips suggested that if action minutes are adopted, the Commission may need
to vote on more items to ensure its guidance is documented, and Chair Scharff agreed.
Commissioners discussed alternatives, including providing transcripts alongside action minutes.
Commissioner Mauter suggested that transcripts would allow readers to search and summarize
content as needed. Chair Scharff noted that automated transcription services may already be
available, and Commissioner Gupta added that AI tools could potentially assist with
summarizing recordings efficiently. Mr. Kurotori acknowledged the feedback and stated that
staff would follow up with the Clerk’s Office and IT to evaluate available options.
Item #2
Packet Pg. 21
Utilities Advisory Commission Minutes Approved on: Page 4 of 18
resolve underlying issues and that a comprehensive cross-departmental evaluation is needed to
identify effective solutions.
NEW BUSINESS
ITEM 2:Background and Discussion on Data Centers in Palo Alto (DISCUSSION 6:50 p.m. – 7:50
p.m.) Staff: Kathryn Fortenberry, Management Fellow
Item #2
Packet Pg. 22
Utilities Advisory Commission Minutes Approved on: Page 5 of 18
practices for integration, including clear interconnection expectations, development of
Conditional Use Permit requirements, and cost responsibility for grid expansion, while noting
that data centers may also provide grid benefits as large flexible loads. Ms. Fortenberry
concluded by requesting Commission input on whether attracting new data centers should be a
priority, exploration of Conditional Use Permit policies, and community considerations for
projects of varying scale.
Item #2
Packet Pg. 23
Utilities Advisory Commission Minutes Approved on: Page 6 of 18
increasing costs to existing customers or causing community disruption, with concerns noted
regarding noise and water use. Palo Alto’s advantages as a municipal utility with coordinated
water and electric oversight and available capacity were highlighted, along with regional
competition for such projects. Additional analysis was requested on grid feasibility, potential
sites, recruitment strategy, and protective measures such as strict cost responsibility, upfront
funding, minimum usage commitments, long-term agreements, and exit provisions.
Commissioner Gupta also noted uncertainty in long-term demand projections due to rapid
technological change, with the observation that future energy needs may differ from current
forecasts.
Item #2
Packet Pg. 24
Utilities Advisory Commission Minutes Approved on: Page 7 of 18
water and energy use, noting that many data centers seek to minimize potable water
consumption and often use recirculating systems that reduce discharge. Mr. Kurotori stated
that recycled water is preferred by data centers where available and that Palo Alto’s
wastewater treatment system can supply recycled water in certain locations. Commissioner
Croft expressed a preference for smaller data center projects rather than large facilities,
indicating that multiple smaller installations would be more compatible with existing customer
classes. Commissioner Croft stated that any such data centers should use non-potable water
and raised concerns about potential impacts including noise, chemical contamination, light
pollution, and broader industrialization, suggesting that appropriate regulations would be
important.
Item #2
Packet Pg. 25
Utilities Advisory Commission Minutes Approved on: Page 8 of 18
Chair Scharff agreed with concerns about public perception of data centers and suggested that
improved public communication would be beneficial. Chair Scharff expressed general support
for pursuing data center opportunities, particularly if they could help stabilize or reduce
residential electric rates and support electrification goals, and indicated support for 25
megawatt data centers, while noting that larger projects should provide substantial financial
contributions to the City. Chair Scharff noted that the presentation included significant
potential revenue figures and stated that additional funds could be beneficial given the City’s
budget deficit. Chair Scharff asked about potential effects on energy markets if Diablo Canyon
were extended and whether current prices already reflect that uncertainty. Dr. Perkins
responded that legislative studies on cost and reliability are underway and that any action could
take several years, noting that current procurement decisions would lock in prices regardless of
future changes and that major utilities are actively competing for supply. Chair Scharff also
asked about the City’s approach to attracting data centers and whether project timelines could
align with potential market changes. Mr. Kurotori responded that Palo Alto does receive
inquiries about building data centers, noting that there are development timelines with
property acquisition, financing, and construction. Mr. Kurotori added that the City expects large
customers to fund required infrastructure improvements upfront and is positioned to
accommodate potential projects due to planned transmission upgrades that will increase
reliability and capacity, while emphasizing that Palo Alto remains competitive relative to other
markets with constrained capacity.
Item #2
Packet Pg. 26
Utilities Advisory Commission Minutes Approved on: Page 9 of 18
Chair Mauter noted the value of reliable, high-quality electric service for local businesses and
requested that potential queue management policies be considered as part of future planning.
Item #2
Packet Pg. 27
Utilities Advisory Commission Minutes Approved on: Page 10 of 18
additional energy could be obtained at lower cost without thorough analysis. Mr. Kurotori
explained that detailed evaluations are highly site-specific and typically conducted once a
prospective customer and location are identified. Infrastructure requirements and timelines can
be estimated but broader analysis depends on customer needs and outreach. Mr. Kurotori
emphasized the importance of direct engagement to negotiate agreements that protect the
community based on prior experience serving large loads.
Item #2
Packet Pg. 28
Utilities Advisory Commission Minutes Approved on: Page 11 of 18
Chair Scharff stated that the UAC’s overall message was to mitigate risks while exploring data
center opportunities and asked about next steps, including whether staff would pursue
outreach, develop a plan, or bring recommendations to the City Council. Mr. Kurotori
responded that staff will continue evaluating expectations and community concerns, including
noise and aesthetics, and may coordinate with other departments on potential permitting
approaches to provide clarity for prospective projects. Mr. Kurotori noted that outreach occurs
through existing customer relationships and that interest may increase as awareness of
available capacity and new transmission improvements spreads, while acknowledging local
constraints such as limited land availability and high costs, and advantages including existing
infrastructure and connectivity resources.
ITEM 3: Discussion of the Residential Electric and Water Utility Customer Satisfaction Survey
Results (DISCUSSION 7:50 p.m. – 8:30 p.m.) Staff: Catherine Elvert, Utilities
Communications Manager
Item #2
Packet Pg. 29
Utilities Advisory Commission Minutes Approved on: Page 12 of 18
responsibility. Ms. Elvert explained that organizational characteristics refer to key structural,
operational, and cultural attributes that describe how a utility functions and manages risk.
Comparative results were presented showing CPAU's performance in 2025 relative to 2023,
statewide municipal utilities, IOUs, and national benchmarks, noting that CPAU scored
significantly higher on most measures across all comparison groups. Ms. Elvert also stated that
the survey results are statistically reliable, with margins of error of approximately plus or minus
4.8 percent at a 95 percent confidence level, and noted that additional demographic details and
comparative data are available in supplemental materials.
Item #2
Packet Pg. 30
Utilities Advisory Commission Minutes Approved on: Page 13 of 18
complex billing issues requiring multiple contacts. About 75 percent reported satisfaction with
recent service experiences, below municipal averages. Email is the preferred communication
method, though many still rely on bill inserts, which are now available to e-bill customers.
Customers identified leak detection alerts and no-cost conservation guidance as the most
useful efficiency tools and expressed familiarity with conservation programs, while low-income
customers showed a preference for upfront rebates for water-efficient fixtures.
Item #2
Packet Pg. 31
Utilities Advisory Commission Minutes Approved on: Page 14 of 18
that the City also conducts broader residential surveys and uses multiple sources to gauge
community perspectives, noting that while survey responses tend to reflect certain
demographics, the results are considered statistically significant and informative when
evaluated alongside other data.
Item #2
Packet Pg. 32
Utilities Advisory Commission Minutes Approved on: Page 15 of 18
account customers, noting that the business survey was conducted in 2024 and will be
repeated in 2026, with results expected to be presented to the Commission in early 2027.
Item #2
Packet Pg. 33
Utilities Advisory Commission Minutes Approved on: Page 16 of 18
centers will return to the Commission for further discussion and potential votes.
Councilmember Lauing explained that not all matters require action at the initial meeting and
that updates often serve to inform the Commission and guide future decision-making.
Item #2
Packet Pg. 34
Utilities Advisory Commission Minutes Approved on: Page 17 of 18
Commission’s discussions directly and can convey them to the full Council, and expressed
confidence that the Council is receiving the Commission’s input.
Item #2
Packet Pg. 35
Utilities Advisory Commission Minutes Approved on: Page 18 of 18
staff presentations and noted that the rate process includes preliminary projections and
subcommittee review, emphasizing that the timeline and procedure follow an established
annual process. Mr. Kurotori confirmed that the UAC does vote, particularly on rate matters,
and provides formal input as part of its primary responsibilities.
COMMISSIONER COMMENTS and REPORTS from MEETINGS/EVENTS
ADJOURNMENT
Item #2
Packet Pg. 36
Item No. 3. Page 1 of 26
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: March 4, 2026
Report #: 2512-5639
TITLE
Staff Recommends the Utilities Advisory Commission Recommend that the City Council Adopt a
Resolution Approving the Fiscal Year 2027 Water Utility Financial Forecast and Reserve
Transfers, and Amending Rate Schedules W-1 (General Residential Water Service), W-2 (Water
Service From Fire Hydrants), W-3 (Fire Service Connections), W-4 (Residential Master-Metered
and General Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water
Service). CEQA Status: Not a project.
RECOMMENDATION
Staff recommends the Utilities Advisory Commission recommend that the City Council adopt a
resolution (Attachment A):
1. Approving the Fiscal Year 2027 Water Utility Financial Forecast shown in this staff report
and attachments and approving a reserve transfer of up to $5,500,000 from the
Operations Reserve to the CIP Reserve in FY 2026;
2. Increasing Water Utility Rates for FY 2027 by Amending Rate Schedules (Attachment A
Exhibit 1) to reflect increases effective July 1, 2026 (FY 2027):
a. W-1 (General Residential Water service)
b. W-2 (Water Service from Fire Hydrants)
c. W-3 (Fire Service Connections)
d. W-4 (Residential Master-Metered and General Non-Residential Water Service),
and
e. W-7 (Non-Residential Irrigation Water Service)
EXECUTIVE SUMMARY
This staff report provides the UAC with a financial forecast for the Water Utility and provides an
overview of the utility’s operating costs, capital costs, and debt and includes recommended rate
adjustments required to maintain the utility’s financial health. This work is done annually as part
of the budget and rate-setting cycle.
The FY 2027 rate projection in the Water Utility Financial Forecast reflects a 12% distribution rate
Item #3
Packet Pg. 37
Item No. 3. Page 2 of 26
increase and a 8% commodity rate increase, which is equivalent to a 10% overall system average
increase. The projected 10% overall system increase is unchanged from the FY 2026 Financial
Forecast presented to the Council on June 16, 20251. It is also unchanged from the FY 2027
Preliminary Financial Forecast presented to the Utilities Advisory Commission on November 4,
20252 and to the Finance Committee on November 18, 20253. However, the underlying
distribution rate and commodity rate projections have been revised based on updated wholesale
rate projections from SFPUC as well as updates to the water fund’s operating and capital
forecasts.
Table 1: Current Year (FY 2026) and Projected Rate Trajectory (FY 2027 to FY 2031)
Fiscal Year 2026 2027 2028 2029 2030 2031
Overall System Average Rate Trajectory
FY 2027 Proposal 10%10%10%10%7%6%
FY 2027 Preliminary 10%10%10%10%10%9%
FY 2026 Forecast 10%10%10%10%10%
Distribution Rate Trajectory
FY 2027 Proposal 17%12%12%14%9%7%
FY 2027 Preliminary 17%16%16%12%11%12%
FY 2026 Forecast 17%16%15%12%11%
Commodity Rate Trajectory
FY 2027 Proposal 2%8%7%3%2%4%
FY 2027 Preliminary 2%1%1%5%8%3%
FY 2026 Forecast 2%1%1%5%8%
1 FY 2026 Financial Forecast for the Water Utility (approved June 16, 2025) is described in the Finance Committee
Staff Report 2412-3869: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=3be69129-8b1d-
49e6-93fe-c34a7be3a8e1
2 Staff Report 2503-4364: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=18457643-
b8bd-4c15-b8db-822059719251
3 Staff Report 2508-5119: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=222f6635-f36a-
42de-bdd2-d27f7ac3f713
Item #3
Packet Pg. 38
Item No. 3. Page 3 of 26
commodity rate trajectory through FY 2031, which staff updated based on SFPUC’s Proposed 10-
Year Financial Plan7 as of January 2026. SFPUC will hold a public meeting in May 2026 to set the
final FY 2027 price for wholesale water and will provide Palo Alto with a 30-day notice prior to
that meeting. See the Wholesale Water Purchases section for more details about SFPUC
wholesale rates.
During the FY 2026 water rate discussions, staff received feedback from the UAC8 and Finance
Committee9 to limit overall water system rate increases in Palo Alto to no more than 10%
annually. Staff applied this guidance to the FY 2027 Water Fund Financial Forecast, and adjusted
distribution rate increases in response to updated SFPUC wholesale rate projections.
Other significant updates to the financial forecast include changes to the Water Fund’s Capital
Improvement Program (CIP) and higher than projected reserve balances as of June 30, 2025,
which help to offset the impacts of the revised commodity rate trajectory. The 5-year CIP budget
for fiscal years 2027 through 2031 totals $71.7 million, $5.0 million lower than the prior year’s 5-
year budget, and some projects have been deferred to later years within the 5-year period.
Moreover, as of June 30, 2025, the Operations Reserve balance was $16.5 million, approximately
$10.2 million higher than projected levels, and the Rate Stabilization Reserve balance of $4.0
million was unutilized. The positive variance is primarily attributed to salary and benefits
expenses and capital expenses in FY 2025 that were lower than forecasted by $3.8 million and
$5.4 million, respectively. This positive fiscal year-end result contributes to higher reserve
balances over the five-year planning period compared to the FY 2026 Financial Forecast. These
updates also contribute to the City’s updated rate projections moderating in fiscal years 2030
and 2031 (see Table 1).
The 5-year projected distribution rate increases are primarily driven by capital spending. The
capital plan’s largest projects include water main replacement projects and seismic
improvements to two reservoirs. Additionally, rate increases continue to reflect inflationary
increases to operating costs, revenue impacts from the most recent drought, long-term decline
in demand, and low rate increases in earlier years. The projected rate increases also support
restoring the Water Fund’s Operations Reserve and CIP Reserve.
BACKGROUND
The City of Palo Alto Utilities (CPAU) provides electricity, water, wastewater, natural gas, and
7 January 12, 2026 SFPUC Special Meeting, Agenda Item 3(d): https://www.sfpuc.gov/sites/default/files/about-
us/commission/1.12.2026_SpcMtg_A.pdf
8 December 4, 2024 Utilities Advisory Commission, Staff Report
https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=d7cd6030-1d05-412e-a96b-cabd33557bc1,
Minutes https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=41244&dbid=0&repo=PaloAlto
9 December 3, 2024 Finance Committee, Staff Report
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=391369a7-e161-4391-ba22-
2d7d7195981e, Minutes https://recordsportal.paloalto.gov/WebLink/DocView.aspx?
id=39017&dbid=0&repo=PaloAlto
Item #3
Packet Pg. 39
Item No. 3. Page 4 of 26
fiber optic services to the Palo Alto community. The Public Works Department also provides
refuse collection and processing for recycling, compost and garbage, wastewater treatment and
stormwater management. The City’s primary goals are to manage these services in a way that
ensures continued safe, reliable, environmentally sustainable, and cost-effective operations. The
City strives to be transparent with utilities customers about the reason for rate changes, including
explaining the cost drivers, benefits to customers, what the City is doing to keep costs low for
ratepayers, and the services and programs provided by the City to help customers keep utility bill
costs low. Attachment A, Exhibit 4 outlines CPAU’s plan for communicating rate changes to
customers. Staff are presenting an overview of the financial forecast and rate change proposal
for each utility service to the Utilities Advisory Commission (UAC) and Finance Committee prior
to City Council review and approval in June 2026.
ANALYSIS
shows how costs have changed
during the last five years as well as how staff projects they will change over the next five years.
FY 2025 Costs and Revenues
Item #3
Packet Pg. 40
Item No. 3. Page 5 of 26
spending in FY 2025 was $6.2 million with $6.0 million in CIP reappropriations and commitments
at year-end, which totals $12.2 million. This is approximately $5.4 million or 31% lower than
projected, largely due to construction completion and return of contingency funds for two Water
Main Replacement (WMR) projects.
Table 2: FY 2025 Actual Results vs. Prior Year’s Forecast
Net Cost/
(Benefit) ($000)
Type of
change
Net Cost / (Benefit) of Variances
Projections
13. Staff projects operating costs other than debt service to increase by 3.4%
annually on average, which is largely driven by inflationary assumptions. Debt service costs
decline during the FY 2026 – FY 2031 time period because the 2011 Utility Revenue Refunding
Bond, Series A, is scheduled to be retired in 2026.
13 January 12, 2026 SFPUC Special Meeting, Agenda Item 3(d): https://www.sfpuc.gov/sites/default/files/about-
us/commission/1.12.2026_SpcMtg_A.pdf
Item #3
Packet Pg. 41
Item No. 3. Page 6 of 26
Figure 1 illustrates actual revenues and expenses through FY 2025, along with projections
through FY 2031.
Figure 1: Water Utility Expenses, Revenues, and Rate Changes:
15 demand and conservation projections. The
financial forecast assumes no population or account growth, annual rate increases of 10%
through FY 2030, and active and passive conservation savings. When applying these assumptions
to the model, this results in year-over-year declines of about 2% through FY 2030.
15 2025 Demand Study: https://bawsca.org/water/use/2025_Demand_Study
Item #3
Packet Pg. 42
Item No. 3. Page 7 of 26
Figure 2: Water Purchases Forecast
Revenues
Staff based the sales revenue projections on the load forecast and the projected rate changes
shown in Table 1. Precipitation can vary substantially, and this can significantly affect revenues.
In dry, non-drought years customers use more water, increasing revenues, and in wet years they
use less. It is difficult to predict customer usage recovery from drought together with impacts
from weather year to year. Staff will continue to monitor these patterns and adjust projections
accordingly in subsequent forecasts.
The Water Utility receives most of its revenues from sales of water. In FY 2025 the Water Utility
received approximately 7% of total revenue from a combination of other sources including
service connection fee and capacity fee revenue, interest income, and grants (interest subsidy on
Build America Bonds). Capacity fee revenue is expected to increase while other sources of
revenue are projected to remain stable during the forecast period.
The FY 2026 adopted capital budget estimated that about $9.4 million of capacity fees revenues
will be received in FY 2026 and FY 2027. This forecast conservatively projects that 80% of this
revenue will be received over a 5-year period starting in FY 2028 to account for potential projects
delays or cancelations. This estimated increase in revenues is based on large new housing
developments that are currently in the permitting process.
Item #3
Packet Pg. 43
Item No. 3. Page 8 of 26
Expenses
17, which was assumed in the City’s
FY 2026 Financial Forecast and the FY 2027 Preliminary Financial Forecast (see Table 1). The
primary driver for the revision to the FY 2027 projected wholesale rate increase is that FY 2026
purchases to-date are lower than projected due to the effects of the relatively cool weather
experienced this past summer, in addition to less Balancing Account funds available for rate
smoothing. Based on this update, the City’s FY 2027 Financial Forecast assumes a wholesale rate
increase of 7.6% for FY 2027. If the final adopted wholesale rate increase is higher or lower than
7.6%, the FY 27 Financial Forecast proposes passing through the rate increase without any further
17 San Francisco Public Utilities Commission Fiscal Year 2025-2026 Wholesale Water Rates, May 13, 2025,
Item #3
Packet Pg. 44
Item No. 3. Page 9 of 26
adjustment to the current proposed distribution rate of 12%. This would result in an overall
system rate increase range of 9.4% to 10.8%.
19, which included its updated long-term wholesale rate projections. For FY 2027 through
FY2031, the wholesale rate increases average 5% per year. These projections are included in the
Water Fund’s FY 27 Financial Forecast but are highly uncertain and subject to change. When
comparing the FY 27 Financial Forecast’s commodity rate trajectory to that of the FY 26 Financial
Forecast (see Table 1), commodity rate increases are higher than previously projected in the near
term and lower than previously projected in later years. In response to this, City staff revised
distribution rate increases to be lower in the near-term and higher in later years of the forecast
period.
Administration, a category that includes charges allocated to the Water Utility for
administrative services provided by the General Fund and for Utilities Department
administration, as well as debt service and other potential transfers.
Customer Service
Engineering work for maintenance activities (as opposed to capital activities)
Operations and Maintenance of the distribution system; and
Resource Management
20 This plan anticipates operations costs to
increase by 3.4% per year, on average, over the forecast period. In FY 2026, operation expenses
are projected to increase due to citywide enterprise system upgrades and anticipated hiring of
vacant positions from previous year. For salary and benefit assumptions, this Financial Forecast
applies an annual percentage increase of 4% to FY 2027 budgeted salaries and benefits, after
making adjustments based on anticipated budget updates and recent actuals. These percentage
estimates may change as the budget is refined and finalized this fiscal year. This forecast adjusts
adopted numbers if there is a pattern of under or over-spending by category.
19 January 12, 2026 SFPUC Special Meeting, Agenda Item 3(d): https://www.sfpuc.gov/sites/default/files/about-
us/commission/1.12.2026_SpcMtg_A.pdf
20 Revised Report #:2511-5473:
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=35eea4b3-f3ea-4ee3-9069-4d407e4f82a1
Item #3
Packet Pg. 45
Item No. 3. Page 10 of 26
Figure 3: Historical and Projected Operational Costs
Capital Improvement Program
The Water Utility’s CIP consists of the following types of projects.
Non-recurring construction projects (One Time Projects) of large system
assets, such as the tank rehabilitation projects. Currently there are no
alternative water supply projects included in the budget but if Council decides
to move forward with any such project in the future, it would fall within this
project type.
The Water Main Replacement Program, which represents the ongoing
replacement of aging water mains and main appurtenances.
Ongoing projects:
o Water distribution system improvements are projects improving
the reliability and operations of the water distribution system.
The projects include but are not limited to engineering studies,
hydraulic modeling, leak survey, hydrant maintenance, and
updates to engineering standards.
o Water supply improvements are projects maintaining and
improving the water supply within the City’s distribution network
and to individual pressure zones. The projects include but are not
limited to emergency diesel generators, power supply projects,
communications and controls, water quality engineering, site
security, and engineering studies.
o Water metering improvements are projects replacing water
meters, testing, and improving accuracy of the City’s water
Item #3
Packet Pg. 46
Item No. 3. Page 11 of 26
metering.
New Development Improvements (customer connections) are projects
funded or constructed by private developers and property owners. The
projects may include new services, hydrants, and other water system
improvements necessary to support new development and new water
demand.
Table 3 shows the FY 2026 current year projection and the five-year CIP spending plan,
although these figures are preliminary pending ongoing budget discussions.
Table 3. Projected CIP Spending, FY 2026 to FY 2031 ($,000)
*Excludes spending that will be funded by reappropriated or committed fund balances that have been
carried forward from the previous year.
The One Time Projects five-year plan totals $20.8 million, of which $0.1 million is expected
to be funded by reappropriation or committed fund balances in FY 2027. The largest one-
time projects are the water tank seismic upgrade and rehabilitation of two water
distribution storage reservoirs located in the Palo Alto Foothills. The tanks’ construction
work has been deferred to FY30 and FY31 to further evaluate a rehabilitation approach
to the tanks. One-time projects also include the Arastradero Creek Relocation project.
A one-time project will be created to develop a new Water System Master Plan, and the
plan will be maintained and updated on an on-going basis from the recurring water supply
and distribution projects. The current Water System Master Plan was completed in 2015,
and the plan included an analysis of the City’s piping distribution system and presented a
recommendation for the City’s water main replacement program. The new water system
master plan will evaluate the entire drinking water system, identify deficiencies, identify
needed improvements, and recommend an adequate CIP plan.
The water tank seismic and rehabilitation work will repair and maintenance failing tank
coatings and corroded steel members. The City contracted an engineering specialist and
investigated and analyzed the structural integrity and condition of the Park Tank
2026* 2027* 2028 2029 2030 2031
One Time Projects - 833 1,950 10,177 - 7,776
Water Main Replacement - - 5,450 525 11,057 583
Ongoing Projects 570 1,883 4,476 2,291 2,672 2,814
Customer Connections 942 1,185 1,265 1,294 1,257 1,325
CIP Salaries and Benefits 1,581 1,597 1,634 1,681 1,711 1,803
Allocated Charges 787 821 846 872 898 925
Unallocated CIP Salaries and Benefits 717 748 771 794 818 842
CIP Total Spending 4,598 7,069 16,392 17,633 18,412 16,068
CIP Transfers (In)/Out to other Enterprise Funds 717 492 265 344 188 166
Total Spending 5,314 7,561 16,657 17,978 18,601 16,234
Fiscal Year
Project Category
Item #3
Packet Pg. 47
Item No. 3. Page 12 of 26
Reservoir. The engineering specialist recommended a full roof replacement of the Park
Tank Reservoir. The City contracted with another firm to perform a condition assessment
of Dahl Tank and evaluate the seismic resiliency of both Park Tank and Dahl Tank and
results are expected by summer 2026. If full tank replacement is needed for either Dahl
or Park Tank, staff estimates the cost for design and construction of Dahl and Park
reservoirs is approximately $8-9 million each, which is currently assumed in the five-year
plan. Staff estimates the cost to replace tank roofs and seismically retrofit the tanks is
approximately $4 million per tank. Staff is evaluating the replacement or rehabilitation
needs of these two tanks.
Construction costs in the San Francisco Bay Area have increased substantially,
outpacing the consumer price index for all urban consumers. Material, fuel,
and labor costs have escalated due to inflation, leading to higher bids.
More stringent traffic control requirements have driven cost increases:
requirements for engineered traffic control plans, restricted working hours,
maintaining pedestrian right of ways, bike lanes during construction, and
special street plating requirements.
Street cut fees.
CPAU has switched to high-density polyethylene (HDPE) for its water mains
for leak reduction and seismic performance.
Item #3
Packet Pg. 48
Item No. 3. Page 13 of 26
seismically vulnerable pipe. A new prioritization for the water main replacement program
will be recommended in the Water System Master Plan. Master plans should be updated
every 5 years to ensure that water system changes and new developments are accurately
captured in watermain replacement programs.
Item #3
Packet Pg. 49
Item No. 3. Page 14 of 26
improvements for both systems. The Water Utility’s share of the issuance was roughly $7.8
million.
Table 4: Water Utility Debt Service ($000)
23; however, these funds were not
transferred at year-end because the Operations Reserve balance was already within the reserve
policy guideline range. As of the end of FY 2025, $4 million remains in the Rate Stabilization
Reserve. Staff proposes drawing on the Rate Stabilization Reserve by $1 million annually for fiscal
years 2027 through 2030. This is consistent with the Water Utility Reserve Management
23 City Council June 16, 2025, Attachment B – Resolution for the FY 2026 Water Utility
Item #3
Packet Pg. 50
Item No. 3. Page 15 of 26
Practices25, which state that if there are funds in the Rate Stabilization Reserve at the end of any
fiscal year, any subsequent Water Utility Financial Plan must result in the withdrawal of all funds
from this Reserve by the end of the next Financial Planning Period.
Figure 4: Operations Reserve Adequacy
25 Water Utility Reserve Management Practices; Section 5 (CIP Reserve), Section 7 (Operations Reserve):
Item #3
Packet Pg. 51
Item No. 3. Page 16 of 26
Figure 5: Projected CIP Reserve Balances FY 2026 to FY 2031
Item #3
Packet Pg. 52
Item No. 3. Page 17 of 26
Figure 7: Water Utility Reserves
Item #3
Packet Pg. 53
Item No. 3. Page 18 of 26
Table 5: Operations & Unassigned, Rate Stabilization and CIP Reserves Starting and Ending
Balances, Revenues, Transfers To/(From) Reserves and Capital Program Contribution
To/(From) Reserves Projected for FY 2026 to FY 2031 ($000)
* Planned CIP (item 13) is reflected as an expense in the CIP Reserve and does not include CIP funded
through Reappropriations or Commitments reserves. This will be funded with the $4.6 million Capital
Program Contribution (item 11).
Table 6 summarizes the risk assessment calculation for the Water Utility through FY 2031. The
risk assessment includes the revenue shortfall of 14% that could occur due to lower than
forecasted sales revenue.
FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Total non-commodity revenue $37,569 $41,571 $46,638 $49,976 $52,416
Max. revenue variance, previous ten years 14%14%14%14%14%
Risk of revenue loss $3,599 $3,982 $4,467 $4,787 $5,021
Total Risk Assessment value $3,599 $3,982 $4,467 $4,787 $5,021
FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Starting Balance
1 Operations/Unassigned 16,351 12,566 15,936 14,561 15,103 15,260
2 Rate Stabilization 4,000 4,000 3,000 2,000 1,000 0
3 CIP 3,500 8,609 8,609 8,609 9,859 13,159
Total Starting Reserve Balances 23,852 25,176 27,546 25,171 25,963 28,420
Revenues
4 Total Revenue 60,552 66,823 73,391 78,763 82,317 85,833
5 Transfers In 345 266 422 444 455 467
Total Revenues 60,897 67,089 73,813 79,208 82,772 86,300
Transfers
6 Operations/Unassigned (5,109) 1,000 1,000 (250) (2,300) (5,200)
7 Operating Commitments - - - - - -
8 Rate Stabilization - (1,000) (1,000) (1,000) (1,000) -
9 CIP 5,109 - - 1,250 3,300 5,200
Capital Program Contribution
10 Operations/Unassigned (4,598) (7,069) (16,392) (17,633) (18,412) (16,068)
11 CIP 4,598 7,069 16,392 17,633 18,412 16,068
Expenses
12 Total Expenses other than CIP (53,642) (56,165) (58,648) (59,746) (60,732) (62,621)
13 Planned CIP (4,598) (7,069) (16,392) (17,633) (18,412) (16,068)
14 Transfers Out (1,333) (1,485) (1,148) (1,036) (1,172) (1,123)
Total Expenses (59,573) (64,718) (76,188) (78,416) (80,316) (79,812)
Ending Balance
1+4+5+6+10+12+14 Operations/Unassigned 12,566 15,936 14,561 15,103 15,260 16,548
2+8 Rate Stabilization 4,000 3,000 2,000 1,000 0 0
3+9+11+13 CIP 8,609 8,609 8,609 9,859 13,159 18,359
Total Ending Reserve Balances 25,176 27,546 25,171 25,963 28,420 34,908
Total Reserve Changes
Total Reserve Changes 1,324 2,370 (2,375) 792 2,457 6,488
Operations Reserve Guideline Levels
15 Minimum Guideline Level 9,037 9,477 9,829 9,992 10,176 10,478
16 Maximum Guideline Level 18,074 18,953 19,659 19,983 20,352 20,957
Item #3
Packet Pg. 54
Item No. 3. Page 19 of 26
The City’s external auditor, Baker Tilly, is completing a review of the Utility Funds’ reserve
management policies and is expected to report its findings and recommendations to the Policy
and Services Committee in Spring 2026.
Proposed Rates
27 The
Water Utility’s rates are based on RFC’s 2019 update to the 2015 cost of service study, which
reviewed the City’s most recent cost of service methodologies and rate structures and declared
both fundamentally sound. Staff plans to update the cost of service study in 1 to 2 years, unless
any major changes occur to the utility’s operations or customer base that would necessitate an
earlier study. Before conducting any new cost of service study, staff will review current water
rates and the scope of the study with the Utilities Advisory Commission (UAC) and Council to
determine the City’s policy priorities.
27 RFC has developed 3 cost studies for the City: the March 2012 Palo Alto Water Cost of Service & Rate Study
https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports-
cmrs/year-archive/2012/id-2676-04-18-12-1.pdf a 2015 study reviewing the 2012 methodology and analyzing
drought rates entitled, Memorandum: Proposed Water Rates,
https://www.cityofpaloalto.org/civicax/filebank/documents/48398 and a 2019 Memorandum analyzing the 2015
methodology and rate structure, titled Proposed FY 2020 Water Rates
https://www.cityofpaloalto.org/civicax/filebank/documents/71892.
Item #3
Packet Pg. 55
Item No. 3. Page 20 of 26
Water rates are composed of two general types of costs: commodity and distribution. For July 1,
2026, staff proposes to pass through any increase in the SFPUC wholesale water rate and to
increase distribution rates by 12%.
Customers have a separate commodity rate for purchased water from SFPUC relative to the rest
of the distribution-related portion of the volumetric rates. California Government Code Section
53756 (established by AB-3030) became effective January 1, 2009. This section of the Code
authorizes public agencies providing water, sewer, and garbage services to adopt automatic pass-
through rate adjustments to account for increases in wholesale water charges or wastewater
treatment charges, as well as inflation. Pass-throughs must be adopted via the Proposition 218
process and can be effective for up to five years without additional Prop 218 authorization. In
2026, Palo Alto used the Prop 218 process and the Council adopted the pass-through process
effective July 1, 2025 through June 30, 2030 pursuant to Resolution 1023129. The separate
commodity charge passed-through SFPUC rate increases to customers. All customers pay this
separate commodity rate, currently $5.80 per CCF, for each unit of water in addition to the
volumetric rate that is applicable for their customer class. The rates shown below are in addition
to the pass-through commodity rate charged to Palo Alto’s customers based on SFPUC supply
charges. For further information and details about the proposed commodity rate, see Water
Purchase Cost section above.
Distribution rates cover all the costs to deliver water within the City, such as operations,
maintenance, metering, billing, and capital improvements. Through annual Council approvals,
the water utility provides steady funding to the CIP Reserve, which reflects actual fluctuations in
CIP expenditures (money spent on actual projects in a given year). Previously, CIP expenditures
were reflected in the Operations Reserve.
29 Resolution 10231: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?
id=62150&dbid=0&repo=PaloAlto&searchid=fde42d01-5c20-420e-9e6f-21523f5b7d14
Item #3
Packet Pg. 56
Item No. 3. Page 21 of 26
Table 7 shows the current and proposed consumption charges, which are distribution rates.
Table 7: Current and Proposed Water Distribution Charges
Current
(7/1/2025)
Proposed
(7/1/2026)
Change
($/CCF)Change (%)
4.92 5.51 0.59 12%
7.49 8.38 0.89 12%
Item #3
Packet Pg. 57
Item No. 3. Page 22 of 26
Table 8 and Table 9 show the current monthly service charges for rate schedules W-1, W-4 and
W-7. These monthly service charges are also considered distribution rates.
Table 8: Current and Proposed Monthly Service Charges for Residential W-1
Monthly Service Charge
($/month based on meter size)ChangeMeter
Size Current
(7/1/2025)
Proposed
(7/1/2026)$%
Table 9: Current and Proposed Monthly Service Charges for W-4 and W-7
Monthly Service Charge
($/month based on meter size)ChangeMeter
Size Current
(7/1/2025)
Proposed
(7/1/2026)$%
Item #3
Packet Pg. 58
Item No. 3. Page 23 of 26
Table 10 shows the current and proposed monthly service charges for rate schedule W-3.
Table 10: Current and Proposed Monthly Service Charges for Fire Services (W-3)
Monthly Service Charge
($/month based on meter size)ChangeMeter
Size Current
(7/1/2025)
Proposed
(7/1/2026)$%
Table 11: Impact of Proposed Water Rate Changes on Residential Bills
Change
Usage (CCF/mo.)
Bill under
Current Rates
(7/1/2025)
Bill under
Proposed Rates
(7/1/2026)$/mo.%
$65 $72 $7 10%
$97 $107 $10 10%
$125 $138 $13 10%
$195 $215 $20 10%
$348 $383 $35 10%
Item #3
Packet Pg. 59
Item No. 3. Page 24 of 26
Table 12 shows the impact of the proposed July 1, 2026 rate changes on the median
commercial bill.
Table 12: Impact of Proposed Water Rate Changes on Commercial Bills
Change Usage (CCF/mo.)Bill under
Current Rates
(7/1/2025)
Bill under Proposed
Rates (7/1/2026)$/mo.%
Commercial (W-4) (5/8” meters)
$153 $168 $15 10%
$710 $779 $69 10%
Irrigation (W-7) (1 ½” meters)
Table 13: Single-Family Residential Monthly Water Bill Comparison
Usage Residential monthly bill comparison ($/month)*
(CCF/month)As of January 2026
Redwood
Palo Alto
Average of
Surrounding
Communities
Menlo
Park
Mountain
View Hayward
City
Santa
Clara
Los
Altos
4 $64.79 $59.39 $61.65 $54.69 $55.91 $82.91 $39.56 $61.62
(Winter median)
7 $97.31 $84.65 $79.43 $82.56 $86.09 $110.45 $69.23 $80.17
(Annual median)
9 $125.19 $105.62 $102.57 $101.14 $106.21 $128.81 $89.01 $105.99
(Summer
median) 14 $194.89 $159.96 $160.44 $147.59 $168.01 $174.71 $138.46 $170.54
25 $348.23 $292.62 $297.15 $301.78 $303.97 $275.69 $247.25 $329.88
* Based on the FY 2013 BAWSCA survey, the percentage of SFPUC as the source of potable
water supply was 100% for Palo Alto, 95% for Menlo Park, 100% for Redwood City, 87% for
Item #3
Packet Pg. 60
Item No. 3. Page 25 of 26
Mountain View, 10% for Santa Clara and 100% for Hayward. Los Altos does not receive water
supply from SFPUC.
Next Steps
The City Council will consider adopting the Financial Forecast and rate adjustments as part of
the FY 2027 budget review and adoption process in June 2026. If Council approves the
proposed rate changes, the rates will become effective July 1, 2026.
FISCAL/RESOURCE IMPACT
Based on the rate increases as shown, the estimated revenue impacts in FY 2027 would be an
increase of $6.2 million in the Water Fund. Utility rate increases impact the General Fund
because the City is a utilities customer. The impact to the General Fund of these rate increases
is a $0.15 million expense increase.
POLICY IMPLICATIONS
The proposed water rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Forecast and were developed using a cost-
of-service study and methodology consistent with the California Constitution and industry-
accepted cost-of-service principles.
STAKEHOLDER ENGAGEMENT
On November 5, 2025, staff presented the preliminary rate proposals at the UAC meeting.
Commissioners raised affordability concerns. There was interest in exploring more innovative
operating cost reductions rather than relying on the traditional approach of deferring capital
investments. One Commissioner also requested examples of multi-year rate plans from peer
agencies for comparison.
On November 18, 2025, staff presented the same preliminary rate proposals to the Finance
Committee. Committee members focused on benchmarking rates against comparable utilities.
They also inquired about cost-containment strategies. Additional discussion centered on reserve
guidelines and the associated risk assessment. Members emphasized that the absence of rate
increases during the pandemic created a catch-up scenario that should be avoided in the future.
Additional feedback from the UAC and Finance Committee meetings in 2026 will be incorporated
in the financial forecast and included in the proposal presented to City Council in June 2026
during the budget adoption process.
Attachment A Exhibit 4 contains examples of CPAU’s communication and outreach methods
including the use of the utilities website, utility bill inserts, messaging on utility bills and MyCPAU
online account management platform, email newsletters, print and digital ads in local
publications, social media, community messaging platforms, and through direct mailings of the
Home Water Reports and online WaterSmart portal.
Item #3
Packet Pg. 61
Item No. 3. Page 26 of 26
ENVIRONMENTAL REVIEW
The UAC’s review and recommendation to Council on the FY 2027 Water Utility financial
forecast and rate adjustments does not meet the California Environmental Quality Act’s
definition of a project, pursuant to Public Resources Code Section 21065 and CEQA Guidelines
Section 15378(b)(4) and (5), because it is a governmental fiscal and administrative activity
which will not cause a direct or indirect physical change in the environment, thus no
environmental review is required.
ATTACHMENTS
Attachment A: Water Resolution FY27
Attachment A, Exhibit 1: Water Rate Schedules FY27
Attachment A, Exhibit 2: Water Utility Financial and CIP Details
Attachment A, Exhibit 3: Water Reserve Management Practices FY27
Attachment A, Exhibit 4: Water Utility Communications Plan and Samples
APPROVED BY:
Alan Kurotori, Director of Utilities
Staff: Adriana Artola, Senior Resource Planner
Item #3
Packet Pg. 62
*NOT YET APPROVED* Attachment A
027021726
1
Resolution No. _____
Resolution of the Council of the City of Palo Alto Approving the FY 2027 Water
Utility Financial Forecast, Reserve Management Practices, and Reserve
Transfers, and Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service
Connections), W-4 (Residential Master-Metered and General Non- Residential
Water Service), and W-7 (Non-Residential Irrigation Water Service)
R E C I T A L S
A. Each year the City of Palo Alto (“City”) assesses the financial position of its
utilities with the goal of ensuring adequate revenue to fund operations. This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. The
City does this with the goal of providing safe, reliable, and sustainable utility services at
competitive rates. The City adopts Financial Plans or Forecasts to summarize these
projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and
made part of the Financial Forecasts or Plans.
C. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council
of the City of Palo Alto may by resolution adopt rules and regulations governing utility
services, fees and charges.
D. On June 15, 2026, the City Council held a full and fair public hearing
regarding the proposed rate increase and considered all protests against the
proposals.
E. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the June 15, 2026 public hearing was mailed to all City of Palo
Alto Utilities water customers by May 1, 2026.
F. The City Clerk has tabulated the total number of written protests
presented by the close of the public hearing, and determined that it was less than fifty
percent (50%) of the total number of customers and property owners subject to the
proposed water rate amendments, therefore a majority protest does not exist against
the proposal.
The Council of the City of Palo Alto does hereby RESOLVE, as follows:
Item #3
Packet Pg. 63
*NOT YET APPROVED* Attachment A
027021726
2
SECTION 1. The Council hereby approves the Water Utility Reserves Management
Practices and the FY 2027 Financial Forecast presented to the
Finance Committee on March 17, 2026 and updated by the June 15, 2026 Council report,
which is attached to this resolution and made a part of the staff report presented to the City
Council.
SECTION 2. The Council hereby approves a transfer from the Operations Reserve to
the CIP Reserve of up to $5,500,000 in FY 2026 as described in the FY 2027 Water Utility
Financial Forecast.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-1 (General Residential Water Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule W-1, as amended, shall become effective
July 1, 2026.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code,
Utility Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read
as attached and incorporated. Utility Rate Schedule W-2, as amended, shall become
effective July 1, 2026.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule W-3 (Fire Service Connections) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-3, as amended, shall become effective July 1, 2026.
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-4 (Residential Master-Metered and General Non-Residential Water
Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule W-
4, as amended, shall become effective July 1, 2026.
SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-7 (Non-Residential Irrigation Water Service) is hereby amended to read
as attached and incorporated. Utility Rate Schedule W-7, as amended, shall become
effective July 1, 2026.
SECTION 8. The City Council finds as follows:
a. Revenues derived from the water rates approved by this resolution do not exceed
the funds required to provide water service.
b. Revenues derived from the water rates approved by this resolution shall not be used
for any purpose other than providing water service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
c. The amount of the water rates imposed upon any parcel or person as an incident of
Item #3
Packet Pg. 64
*NOT YET APPROVED* Attachment A
027021726
3
property ownership shall not exceed the proportional cost of the water service
attributable to the parcel.
SECTION 9. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
//
//
//
//
//
//
//
//
//
//
//
//
//
//
//
//
Item #3
Packet Pg. 65
*NOT YET APPROVED* Attachment A
027021726
4
SECTION 10. The Council finds that the adoption of this resolution approving the FY
2027 Water Financial Forecast and Reserve transfers does not meet the California
Environmental Quality Act’s (CEQA) definition of a project under Public Resources Code
Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental review is required. The Council finds that
the adoption of this resolution changing water rates to meet operating expenses, purchase
supplies and materials, meet financial reserve needs and obtain funds for capital
improvements necessary to maintain service is not subject to the California Environmental
Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title
14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and
all attachments presented to Council, the Council incorporates these documents herein
and finds that sufficient evidence has been presented setting forth with specificity the
basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
Item #3
Packet Pg. 66
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-1 Effective 7-1-20252026
dated 7-1-20242025 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to separately metered single-family residential dwellings receiving Water
Service from the City of Palo Alto Utilities.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
Per Meter
Monthly Service Charge: Per Month
For meters 5/8-inch to 1 inch .................................................................................... $ 27.6330.94
For 1 1/2 inch meter .................................................................................................. 89.2899.99
For 2-inch meter ........................................................................................................ 138.11154.68
For 3-inch meter ........................................................................................................ 292.75327.88
For 4-inch meter ........................................................................................................ 520.66583.13
For 6-inch meter ........................................................................................................1,065.971,193.88
For 8-inch meter ........................................................................................................1,961.282,196.63
For 10-inch meter ......................................................................................................3,100.743,472.82
For 12-inch meter .......................................................................................................4,077.454,566.74
Per Hundred
Cubic Feet
Volumetric Rates: (To be added to Service Charge, applicable to all pressure zones.) Per Month
Commodity Rate:
Water Delivery Charge from SFPUC ......................................................................... $ 5.806.24
Distribution Rate:
Tier 1 usage ........................................................................................................................$ 3.493.90
Tier 2 usage (All usage over 100% of Tier 1) .......................................................................8.149.11
Attachment A, Exhibit 1 Item #3
Packet Pg. 67
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-2 Effective 7-1-20252026
dated 7-1-20242025 Sheet No W-1-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate for Tier 1 and Tier
2 Water usage when the City Council has determined that a Water reduction level is in effect for the
City as described in Section D.4. The drought surcharges in the table below are measured in dollars
per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Tier 1 0.20 0.43 0.64
Tier 2 0.58 1.21 1.85
Temporary Service – Developers
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $ 6.00
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2025 through 2029, inclusive.
Customers will be provided notice of any adjustments via their billing statements or by any
other mailing by CPAU to the customer’s regular billing address.
Attachment A, Exhibit 1 Item #3
Packet Pg. 68
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-3 Effective 7-1-20252026
dated 7-1-20242025 Sheet No W-1-3
3. Calculation of Usage Tiers
Tier 1 Water usage shall be calculated and billed based upon a level of 0.2 ccf per day
rounded to the nearest whole ccf, based on Meter reading days of Service. As an
example, for a 30-day bill, the Tier 1 level would be 0 through 6 ccf. For further
discussion of bill calculation and proration, refer to Rule and Regulation 11.
4. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
Attachment A, Exhibit 1 Item #3
Packet Pg. 69
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-1 Effective 7-1-20252026
dated 7-1-20242025 Sheet No W-2-1
A. APPLICABILITY:
This schedule applies to all Water taken from fire hydrants for construction, maintenance, and
other uses in conformance with provisions of a Hydrant Meter Permit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
1. Monthly Service Charge.
METER SIZE
5/8 inch ........................................................................................................................... $ 50.00
3 inch ........................................................................................................................... 125.00
2. Volumetric Rate: (per hundred cubic feet)
Commodity Rate:
Water Delivery Charge from SFPUC ................................................................ $ 5.806.24
Distribution Rate: .................................................................................................................$ 4.925.51
4. Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in
Section D.6. The drought surcharges in the table below are measured in dollars per hundred
cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surchar e 0.26 0.53 0.77
Attachment A, Exhibit 1 Item #3
Packet Pg. 70
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-2 Effective 7-1-20252026
dated 7-1-20242025 Sheet No W-2-2
D. SPECIAL NOTES:
1. Monthly charges shall include the applicable monthly Service Charge in addition to usage billed at
the commodity rate.
2. The Commodity Charge is based on the water delivery rate per the San Francisco Public Utility
Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term Contract. The
Commodity Charge will be passed through automatically via periodic rate adjustments to account
for increases in wholesale water charges, as well as inflation. The pass-through period will be
effective for fiscal years 2025 through 2029, inclusive. Customers will be provided notice of any
adjustments via their billing statements or by any other mailing by CPAU to the customer’s regular
billing address.
3. Any person or company using a hydrant without first obtaining a valid Hydrant Meter Permit shall
pay a fee of $50.00 for each day of such use in addition to all other costs and fees provided in this
schedule. A hydrant permit may be denied or revoked for failure to pay such fee.
4. A Meter deposit of $750.00 may be charged any applicant for a Hydrant Meter Permit as a
prerequisite to the issuance of a permit and Meter(s). A charge of $50.00 per day will be added for
delinquent return of hydrant Meters. A fee will be charged for any Meter returned with missing or
damaged parts.
5. Any person or company using a fire hydrant improperly or without a permit, or who draws Water
from a hydrant without a Meter installed and properly recording usage shall, in addition to all other
applicable charges be subject to criminal prosecution pursuant to the Palo Alto Municipal Code.
6. During period of Water shortage or restrictions on local Water use, the City Council may, by
resolution, declare the need for citywide Water conservation at the 10/15%, 20% or 25% level.
While such a resolution is in effect, a drought surcharge will apply. The purpose of the drought
surcharge is to recover revenues lost as a result of reduced consumption.
{End}
Attachment A, Exhibit 1 Item #3
Packet Pg. 71
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-1 Effective 7-1-20252026
dated 7-1-2024 2025 Sheet No W-3-1
A. APPLICABILITY:
This schedule applies to all public fire hydrants and private fire Service connections.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
1. Monthly Service Charges
Public Fire Hydrant .................................................................................................... $ 5.00
Private Fire Service:
2-inch connection .......................................................................................................$ 5.686.36
4-inch connection .......................................................................................................35.2239.44
6-inch connection ....................................................................................................... 102.32114.59
8-inch connection .......................................................................................................218.07244.23
10-inch connection .....................................................................................................392.19439.25
12-inch connection .....................................................................................................633.50709.52
2. Commodity (To be added to Service Charge unless Water is used for fire extinguishing or
testing purposes.)
Per Hundred Cubic Feet
All water usage ..........................................................................................................$ 10.00
D. SPECIAL NOTES:
1. Service under this schedule may be discontinued if Water is used for any purpose other
than fire extinguishing or testing and repairing the fire extinguishing facilities. Using
hydrants and fire Services for other purposes is illegal and will be subject to the
commodity charge as noted above, fines, and criminal prosecution pursuant to the Palo
Alto Municipal Code.
2. For a combination Water and fire Service, the Water Service schedule shall apply.
Attachment A, Exhibit 1 Item #3
Packet Pg. 72
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-2 Effective 7-1-20252026
dated 7-1-2024 2025 Sheet No W-3-2
3. Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
4. Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
Water if records and documentation are supplied by the Customer.
{End}
Attachment A, Exhibit 1 Item #3
Packet Pg. 73
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-1 Effective 7-1-20265
dated 7-1-20254 Sheet No W-4-1
A. APPLICABILITY:
This schedule applies to Water Services to non-residential buildings, and multi-family residential
dwellings served through a Master-Meter.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 24.1627.05
For 3/4-inch meter .................................................................................... 32.3136.18
For 1-inch meter .................................................................................... 48.5954.42
For 1 ½-inch meter .................................................................................... 89.2899.99
For 2-inch meter .................................................................................... 138.11154.68
For 3-inch meter .................................................................................... 292.75327.88
For 4-inch meter .................................................................................... 520.66583.13
For 6-inch meter ....................................................................................1,065.971,193.88
For 8-inch meter ....................................................................................1,961.282,196.63
For 10-inch meter ....................................................................................3,100.743,472.82
For 12-inch meter ....................................................................................4,077.454,566.74
Per Hundred
Cubic Feet
Volumetric Rates: (to be added to Service Charge, applicable to all pressure zones) Per Month
Commodity Rate:
Water Delivery Charge from SFPUC ...................................................... $ 5.806.24
Distribution Rate: ........................................................................................... 4.925.51
Attachment A, Exhibit 1 Item #3
Packet Pg. 74
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-2 Effective 7-1-20265
dated 7-1-20254 Sheet No W-4-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in Section
D.3. The drought surcharges in the table below are measured in dollars per hundred cubic feet
(ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surchar e 0.26 0.53 0.77
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2025 through 2029, inclusive.
Customers will be provided notice of any adjustments via their billing statements or by any
other mailing by CPAU to the customer’s regular billing address.
3. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
Attachment A, Exhibit 1 Item #3
Packet Pg. 75
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-3 Effective 7-1-20265
dated 7-1-20254 Sheet No W-4-3
consumption.
{End}
Attachment A, Exhibit 1 Item #3
Packet Pg. 76
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-1 Effective 7-1-20252026
dated 7-1-20254 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential Water Service supplying dedicated irrigation Meters.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Services.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 24.1627.05
For 3/4-inch meter .................................................................................... 32.3136.18
For 1-inch meter .................................................................................... 48.5954.42
For 1 1/2 inch meter .................................................................................... 89.2899.99
For 2-inch meter .................................................................................... 138.11154.68
For 3-inch meter .................................................................................... 292.75327.88
For 4-inch meter .................................................................................... 520.66583.13
For 6-inch meter ....................................................................................1,065.971,193.88
For 8-inch meter ....................................................................................1,961.282,196.63
For 10-inch meter ....................................................................................3,100.743,472.82
For 12-inch meter ....................................................................................4,077.454.566.74
Per Hundred
Cubic Feet
Volumetric Rates: (to be added to Service Charge, applicable to all pressure zones) Per Month
Commodity Rate:
Water Delivery Charge from SFPUC ........................................................... $ 5.806.24
Distribution Rate: ..................................................................................................... 7.498.38
Attachment A, Exhibit 1 Item #3
Packet Pg. 77
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-2 Effective 7-1-20252026
dated 7-1-20254 Sheet No W-7-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in Section
D.3. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surchar e 0.53 1.25 2.02
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2025 through 2029, inclusive.
Customers will be provided notice of any adjustments via their billing statements or by any
other mailing by CPAU to the customer’s regular billing address.
3. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
Attachment A, Exhibit 1 Item #3
Packet Pg. 78
1 FISCAL YEAR FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
2 Projected
3 WATER SUPPLY
4 Purchases (CCF)4,757,199 4,785,384 4,709,184 4,210,399 4,419,628 4,543,561 4,427,313 4,510,198 4,433,345 4,343,393 4,266,317 4,235,350
5 Sales (CCF)4,670,827 4,770,922 4,458,594 3,866,832 4,146,876 4,275,199 4,171,209 4,203,938 4,132,304 4,048,459 3,976,617 3,947,753
6
7 BILL AND RATE CHANGES
8 Variable Charge (Supply)0%0%0%16%10%9%2%8%7%3%2%4%
9 Residential Variable Charge (Distribution)1%0%0%4%2%10%17%12%12%14%9%7%
10 System Average Rate 1%0%0%5%5%10%10%10%10%10%7%6%
11 Average Customer Bill (projected)10%10%10%10%7%6%
12
13 STARTING RESERVES
14 Reappropriations (Non-CIP)258,000 70,000 41,000 - - - - - - - - -
15 Commitments (Non-CIP)442,000 796,000 444,000 1,766,000 2,737,000 2,663,000 776,447 - - - - -
16 Restricted for Debt Service 3,260,000 3,260,000 2,906,000 2,906,000 2,813,000 2,678,000 2,552,181 2,552,181 2,552,181 2,552,181 2,552,181 2,552,181
17 Emergency Plant Replacement - - - - - - - - - - - -
18 Reappropriations & Commitments 15,090,505 11,036,000 10,147,000 12,168,000 16,066,000 12,245,000 6,026,222 4,452,820 - - - -
19 Capital Reserve 2,726,096 5,726,096 10,082,345 9,546,942 6,961,000 3,500,000 3,500,000 8,609,449 8,609,449 8,609,449 9,859,449 13,159,449
20 Rate Stabilization Reserve 4,069,437 9,069,437 9,069,437 9,069,437 6,069,000 4,000,000 4,000,437 4,000,437 3,000,437 2,000,437 1,000,437 437
21 Operations Reserve 12,839,358 13,664,023 14,081,995 13,829,986 7,957,000 7,076,000 16,351,229 12,565,736 15,936,169 14,561,308 15,103,097 15,259,675
22 Unassigned 7,384,714 5,171,932 6,263,962 162,355 - - - - - - - -
23 TOTAL STARTING RESERVES 46,070,109 48,793,488 53,035,739 49,448,720 42,603,000 32,162,000 33,206,517 32,180,623 30,098,236 27,723,375 28,515,164 30,971,742
24
25 REVENUES
26 Net Sales 47,136,524 47,434,047 44,058,867 42,570,047 48,085,282 54,456,483 57,398,178 63,650,463 69,063,693 74,409,802 77,937,940 81,923,898
27 Other Revenues and Transfers In 3,927,307 3,294,442 2,950,590 2,620,375 3,876,773 4,118,608 3,499,035 3,438,431 4,749,265 4,797,881 4,834,401 4,870,596
28 TOTAL REVENUES 51,063,831 50,728,489 47,009,457 45,190,422 51,962,056 58,575,091 60,897,213 67,088,894 73,812,958 79,207,682 82,772,341 86,794,493
29
30 EXPENSES
31 Water Purchases 21,773,295 21,935,250 21,248,651 21,744,025 24,651,258 27,856,127 27,610,334 29,983,842 31,506,321 31,869,610 32,092,636 33,202,220
32 Operating Expenses
33 Administration
34 Allocated Charges 3,751,618 3,848,781 4,181,415 4,176,701 5,236,342 4,456,214 4,991,285 5,165,275 5,320,233 5,479,840 5,644,236 5,813,563
35 Rent 1,904,070 2,225,372 2,270,000 2,365,000 2,483,250 2,243,500 2,310,800 2,410,164 2,482,469 2,556,943 2,633,652 2,712,661
36 Debt Service 3,220,638 3,222,843 3,219,993 3,222,938 3,220,173 3,219,316 3,219,331 2,563,683 2,565,598 2,563,503 2,566,323 2,563,493
37 Transfers and Other Adjustments 474,953 267,645 137,903 945,092 1,822,487 67,340 1,333,007 1,484,566 1,147,680 1,036,122 1,171,775 1,123,320
38 Subtotal, Administration 9,351,279 9,564,641 9,809,311 10,709,731 12,762,252 9,986,370 11,854,422 11,623,689 11,515,981 11,636,409 12,015,986 12,213,037
39 Resource Management 1,159,106 1,215,567 1,261,514 1,590,945 1,427,567 1,105,116 1,383,954 1,432,654 1,475,633 1,519,902 1,565,499 1,612,464
40 Operations and Mtc 7,010,251 7,400,625 7,195,632 7,531,468 9,121,406 8,616,998 10,077,228 10,279,613 10,838,002 11,163,142 11,498,036 11,842,977
41 Engineering (Operating)401,902 662,832 492,438 508,307 637,696 652,361 1,051,982 1,333,790 1,373,803 1,415,017 1,457,468 1,501,192
42 Customer Service 1,865,571 2,053,820 2,058,662 2,272,586 2,541,599 2,663,930 2,997,389 2,995,953 3,085,832 3,178,406 3,273,759 3,371,971
43 Allowance for Unspent Budget - -- -- - - - - - - -
43 Subtotal, Operating Expenses (Excluding Purchases)19,788,109 20,897,485 20,817,557 22,613,037 26,490,520 23,024,776 27,364,976 27,665,698 28,289,251 28,912,877 29,810,747 30,541,641
44 TOTAL OPERATING EXPENSES 41,561,404 42,832,735 42,066,208 44,357,062 51,141,778 50,880,904 54,975,310 57,649,540 59,795,571 60,782,487 61,903,384 63,743,861
45
46 Capital Contributions^6,737,917 4,356,249 10,015,866 12,432,100 4,766,278 6,245,118 9,707,396 7,068,921 16,392,247 18,883,407 21,712,380 21,268,203
47 TOTAL EXPENSES 48,299,320 47,188,984 52,082,074 56,789,162 55,908,056 57,126,022 64,682,706 64,718,461 76,187,818 79,665,894 83,615,763 85,012,065
48
Actual
Attachment A, Exhibit 2
Item #3
Packet Pg. 79
49 ENDING RESERVES
50 Reappropriations (Non-CIP)70,000 41,000 - - - - - - - - - -
51 Commitments (Non-CIP)796,000 444,000 1,766,000 2,737,000 2,663,000 776,447 - - - - - -
52 Restricted for Debt Service 3,260,000 2,906,000 2,906,000 2,813,000 2,678,000 2,552,181 2,552,181 2,552,181 2,552,181 2,552,181 2,552,181 2,552,181
53 Emergency Plant Replacement - - - - - - - - - - - -
54 Reappropriations & Commitments 11,036,000 10,147,000 12,168,000 16,066,000 12,245,000 6,026,222 4,452,820 4,000,000 3,000,000 3,000,000 3,000,000 3,000,000
55 Capital Reserve 5,726,096 10,082,345 9,546,942 6,961,000 3,500,000 3,500,000 8,609,449 8,609,449 8,609,449 9,859,449 13,159,449 18,359,449
56 Rate Stabilization Reserve 9,069,437 9,069,437 9,069,437 6,069,000 4,000,000 4,000,437 4,000,437 3,000,437 2,000,437 1,000,437 437 437
57 Operations Reserve 13,664,023 14,081,995 13,829,986 7,957,000 7,076,000 16,351,229 12,565,736 15,936,169 14,561,308 15,103,097 15,259,675 17,042,104
58 Unassigned 5,171,932 6,263,962 162,355 - - - - - - - - -
59 TOTAL ENDING RESERVES 48,793,488 53,035,739 49,448,720 42,603,000 32,162,000 33,206,517 32,180,623 34,098,236 30,723,375 31,515,164 33,971,742 40,954,171
60 ^ Capital Program Contribution represents CIP funding transferred from the Operations Reserve to the CIP Reserve beginning in FY 2021
61 OPERATIONS RESERVE
62 Min (60 days of non-capital expenses)6,832,012 7,040,997 6,914,993 7,291,572 8,406,868 8,363,984 9,037,037 9,476,637 9,829,409 9,991,642 10,175,899 10,478,443
63 Target (90 days of non-capital expenses)10,248,017 10,561,496 10,372,490 10,937,358 12,610,301 12,545,976 13,555,556 14,214,955 14,744,113 14,987,462 15,263,848 15,717,664
64 Max (120 days of non-capital expenses)13,664,023 14,081,995 13,829,986 14,583,144 16,813,735 16,727,968 18,074,075 18,953,273 19,658,818 19,983,283 20,351,797 20,956,886
65
66 Bond Covenants
67 Available Reserves (5x Maximum Annual Debt Service)*15.9 14.5 8.1 5.8 6.7 7.4
*Available Reserves consist of the Rate Stabilization Reserves of the Water, Gas, and Electric Funds and the Electric S ecial Pro ects Reserve Calaveras . Maximum Annual Debt Service is on outstandin debt of the Water, Gas
and Electric s stems.
Attachment A, Exhibit 2
Item #3
Packet Pg. 80
Attachment A, Exhibit 3
WATER UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Water Utility Financial Plan:
Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal years covered by the
Financial Plan. For example, for the Water Utility Financial Plan delivered in conjunction with the FY 2015 budget,
FY 2015 to FY 2021 is the Financial Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers to the Utility’s
Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net Assets as the difference
between its assets and liabilities.
d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital assets (net of related
debt) or restricted for debt service or other restricted purposes.
Section 2. Reserves
The Water Utility’s Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 3 (Reserve for Commitments)
b) For operating and capital budgets re-appropriated from previous years, as described in Section 4 (Reserve for Re-
appropriations)
c) For cash flow management and contingencies related to the Water Utility’s Capital Improvement Program (CIP),
as described in Section 5 (CIP Reserve)
d) For rate stabilization, as described in Section 6 (Rate Stabilization Reserve)
e) For operating contingencies, as described in Section 7 (Operations Reserve)
f) Any funds not included in the other reserves will be considered Unassigned Reserves and shall be returned to
ratepayers or assigned a specific purpose as described in Section 8 (Unassigned Reserves).
Section 3. Reserve for Commitments
At the end of each fiscal year the Reserve for Commitments will be set to an amount equal to the total remaining
spending authority for all contracts in force for the Water Utility at that time.
Section 4. Reserve for Re-appropriations
At the end of each fiscal year the Reserve for Re-appropriations will be set to an amount equal to the amount of all
remaining capital and non-capital budgets, if any, that will be re-appropriated to the following fiscal year in accordance
with Palo Alto Municipal Code Section 2.28.090.
Section 5. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for capital contingencies. Staff
will manage the CIP Reserve according to the following practices:
a) The following guideline levels are set forth for the CIP Reserve. These guideline levels are calculated for each fiscal
year of the Financial Planning Period and approved by Council resolution.
Item #3
Packet Pg. 81
Attachment A, Exhibit 3
Minimum Level 20% of the maximum CIP Reserve guideline level
Maximum Level Average annual (12 month)1 CIP budget, for 48
months of budgeted CIP expenses2
b) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and the Reserve for
Commitments when funds are added or removed from to that reserve as a result of a change in contractual
commitments related to CIP projects. Any other additions to or withdrawals from the CIP reserve require Council
action.
c) Minimum Level: If, at the end of any fiscal year, the minimum guideline is not met, staff shall present a plan to the
City Council to replenish the reserve. The plan shall be delivered by the end of the following fiscal year, and shall,
at a minimum, result in the reserve reaching its minimum level by the end of the next fiscal year. For example, if
the CIP Reserve is below its minimum level at the end of FY 2017, staff must present a plan by June 30, 2018 to
return the reserve to its minimum level by June 30, 2019. In addition, staff may present, and the Council may
adopt, an alternative plan that takes longer than one year to replenish the reserve, or that does so in a shorter
period of time.
d) Maximum Level: If there are funds in this reserve in excess of the maximum level staff must propose in the next
Financial Plan to transfer these funds to another reserve, return the funds to ratepayers, or designate a specific
use of the funds for CIP investments that will be made by the end of the next Financial Planning Period. Staff may
also seek City Council to approve holding funds in this reserve in excess of the maximum level if they are held for
a specific future purpose related to the CIP.
Section 6. Rate Stabilization Reserve
Funds may be added to the Rate Stabilization Reserve by action of the City Council and held to manage the
trajectory of future year rate increases. Withdrawal of funds from the Rate Stabilization Reserve requires Council
action. If there are funds in the Rate Stabilization Reserve at the end of any fiscal year, any subsequent Water
Utility Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the next Financial
Planning Period. The Council may approve exceptions to this requirement, when proposed by staff to provide
greater rate stabilization to customers.
Section 7. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for contingencies. Any portion
of the Water Utility’s Fund Balance not included in the reserves described in Section 3-Section 6 above will be included
in the Operations Reserve unless this reserve has reached its maximum level as set forth in Section 7(d) below. Staff
will manage the Operations Reserve according to the following practices:
a) The following guideline levels are set forth for the Operations Reserve. These guideline levels are calculated for
each fiscal year of the Financial Planning Period based on the levels of Operations and Maintenance (O&M) and
commodity expense forecasted for that year in the Financial Plan.
Minimum Level 60 days of O&M and commodity expense
Target Level 90 days of O&M and commodity expense
Maximum Level 120 days of O&M and commodity expense
b) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations Reserve are lower than the
minimum level set forth above, staff shall present a plan to the City Council to replenish the reserve. The plan shall
1 Each month is calculated based upon 1/12 of the annual budget.
2 For example, in the Financial Plan for FY 2021, the 48 month period to use to derive the annual average is FY
2021 through FY 2024. In the FY 2022 Financial Plan, the 48 month period to use to derive the annual average
would be FY 2022 through FY 2025 etc.
Item #3
Packet Pg. 82
Attachment A, Exhibit 3
be delivered within six months of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching
its minimum level by the end of the following fiscal year. For example, if the Operations Reserve is below its
minimum level at the end of FY 2014, staff must present a plan by December 31, 2014 to return the reserve to its
minimum level by June 30, 2015. In addition, staff may present, and the Council may adopt, an alternative plan
that takes longer than one year to replenish the reserve.
c) Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower than the target level, any
Financial Plan created for the Water Utility shall be designed to return the Operations Reserve to its target level
within four years.
d) Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no funds may be added to this
reserve. Any further increase in the Water Utility’s Fund Balance shall be automatically included in the Unassigned
Reserve described in Section 8, below.
Section 8. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the Water Utility’s Fund Balance will be
held in the Unassigned Reserve. If there are any funds in the Unassigned Reserve at the end of any fiscal year, the next
Financial Plan presented to the City Council must include a plan to assign them to a specific purpose or return them
to the Water Utility ratepayers by the end of the first fiscal year of the next Financial Planning Period. For example, if
there were funds in the Unassigned Reserves at the end of FY 2015, and the next Financial Planning Period is FY 2016
through FY 2021, the Financial Plan shall include a plan to return or assign any funds in the Unassigned Reserve by the
end of FY 2016. Staff may present an alternative plan that retains these funds or returns them over a longer period of
time.
Item #3
Packet Pg. 83
COMMUNICATIONS PLAN/SAMPLES
The Fiscal Year (FY) 2027 water utility communications strategy covers these primary areas:
recently implemented cost containment measures, cost drivers for rate increases, including
operations and capital improvement, commodity costs, reserve balances, utility bill comparisons,
and efficiency programs and services to help keep utility bill costs low. The City of Palo Alto
Utilities (CPAU) communication methods include use of the utilities website, utility bill inserts,
messaging on utility bills, MyCPAU online account management platform, email newsletters,
print and digital ads in local publications, social media, community messaging platforms, and
through direct mailings of the Home Water Reports and online WaterSmart portal.
As a not for profit public utility, CPAU must recover its costs primarily through revenue
generated by rates. Any increased supply costs are passed through rates to CPAU customers,
including for capital improvement. The cost to deliver water supply to Palo Alto and for CPAU to
distribute water to customers is high, as it includes maintaining and replacing water
infrastructure, customer service, billing, and administration.
CPAU’s communication about water utility rates will focus on the forecasted increase in costs
passed down from Palo Alto’s water supplier, the San Francisco Public Utilities Commission
(SFPUC), ongoing capital improvement and infrastructure upgrades, and what CPAU is doing to
keep costs down. Maintaining water pipes, mains, and service connections is necessary to
prevent leaks, which cost the utility and rate payers money, and prevents damage to
infrastructure which could exacerbate safety and reliability concerns in the long term.
CPAU promotes water use efficiency programs and easy water-saving behaviors to aid in our
water saving efforts and help customers keep utility costs low. Messaging reinforces that
although rates may increase, efficient usage can help customers avoid seeing a significant water
cost increase on the utility bill.
Staff maintain a dedicated webpage at cityofpaloalto.org/ratesoverview to provide an overview
on all utility rates, costs to the utility, updates to financial forecasts and proposed rate changes.
While print materials such as bill inserts and ads feature prominently, CPAU is exploring
additional ways to communicate directly to customers utilizing unique programs like the
relatively new WaterSmart portal and Home Water Reports, in addition to the near real-time
water usage data provided by new Advanced Metering Infrastructure (AMI) and the ability to
send customers alerts about high water usage. Staff continue to maintain an active presence in
social media and information sharing through citywide email newsletters. Staff attend
community outreach events and host educational workshops on these related topics.
Item #3
Packet Pg. 84
Item #3
Packet Pg. 85
Item No. 4 Page 1 of 20
8
8
2
7
9
3
8
2
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director of Utilities
Lead Department: Utilities
Meeting Date: March 4, 2026
Report #: 2512-5640
TITLE
Staff Recommends the Utilities Advisory Commission Recommend that the City Council Adopt a
Resolution Approving the Fiscal Year 2027 Wastewater Collection Utility Financial Forecast, and
Amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial
Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal), and
S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger); CEQA Status: Not
a project under CEQA Guidelines Section 15378(b)(5)
RECOMMENDATION
Staff recommends that the Utilities Advisory Commission recommend that the City Council adopt
a resolution (Attachment A):
1. Approving the Fiscal Year 2027 Wastewater Collection Utility Financial Forecast shown in
this staff report and attachments; and
2. Amending Rate Schedules (Attachment A, Exhibit 1) effective July 1, 2026 (FY 2027):
a. S-1 (Residential Wastewater Collection and Disposal)
b. S-2 (Commercial Wastewater Collection and Disposal)
c. S-6 (Restaurant Wastewater Collection and Disposal); and
d. S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger)
EXECUTIVE SUMMARY
This staff report provides the UAC with a financial forecast for the Wastewater Collection Utility
and provides an overview of the utility’s operating costs, capital costs, and debt and includes
recommended rate adjustments required to maintain the utility’s financial health.
The Wastewater Collection Utility financial forecast proposes a 16% rate increase for FY 2027.
With this rate increase, Palo Alto’s residential rate will be approximately 2% above the average
of neighboring cities, assuming neighboring utilities’ rates remain at current levels. The additional
revenue is necessary to fund increasing wastewater treatment charges, collection operations,
and collection capital improvement projects (CIP).
Item #4
Packet Pg. 86
Item No. 4 Page 2 of 20
8
8
2
7
9
3
8
2
Staff updated cost projections for the FY 2027 to FY 2031 five-year financial planning period using
the most recent cost data and updated escalation assumptions. Relative to the FY 2026 financial
forecast1, total expenses are expected to be about 11% higher over the five-year financial
planning period, driven primarily by increased wastewater treatment operating and capital costs
as well as collection system CIP costs, partially offset by higher projected capacity fee revenues
and lower collection operations costs. Consistent with last year’s forecast, this forecast assumes
deferral of the next sewer main replacement project to FY 2028. This approach limits CIP
spending to the highest priority projects, allowing the Wastewater Collection Operations Reserve
to recover within guideline levels and avoid the need for a higher rate increase.
Table 1: Current Year (FY 2026) and Projected Rate Trajectory (FY 2027 to FY 2031)
2, and the Finance
Committee on November 18, 20253, staff presented a rate trajectory of 16% in FY 2027, 14% in
FY 2028, and 5% annually from FY 2029 through FY 2031. The current forecast maintains the same
increases for FY 2027 and FY 2028 but assumes higher increases of 6% annually from FY 2029
through FY 2031. The key drivers of this change include:
Updated and higher wastewater treatment cost projections from the RWQCP, reflecting
increased labor costs, higher commodity and chemical prices, service contract expenses,
rent, and an updated calculation of Palo Alto’s share of operations costs.
Slightly lower projected operations and CIP expenditures.
BACKGROUND
1 FY 2026 Financial Forecast for the Wastewater Collection utility (approved June 16, 2025) is described in the
Finance Committee Staff Report 2412-3871:
https://cityofpaloalto.primegov.com/api/compilemeetingattachmenthistory/historyattachment
2 Staff Report 2503-4364: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=18457643-
b8bd-4c15-b8db-822059719251
3 Staff Report 2508-5119: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=222f6635-f36a-
42de-bdd2-d27f7ac3f713
Item #4
Packet Pg. 87
Item No. 4 Page 3 of 20
8
8
2
7
9
3
8
2
refuse collection and processing for recycling, compost and garbage, wastewater treatment and
stormwater management. The City’s primary goals are to manage these services in a way that
ensures continued safe, reliable, environmentally sustainable, and cost-effective operations.
ANALYSIS
FY 2025 Costs and Revenues
232 below summarizes key reasons for the variances from forecast.
Item #4
Packet Pg. 88
Item No. 4 Page 4 of 20
8
8
2
7
9
3
8
2
Table 23: FY 2025 Actuals vs. Prior Year’s Forecast ($000)
Higher retail sales, higher treatment grant funding, higher
connection and capacity fees revenues, lower interest income
(1,878)Revenue increase
Treatment expenses higher than expected 1,612 Cost increase
Lower collection system operations and maintenance salaries
and benefits
(1,468)Cost decrease
Lower collection system CIP (250)Cost decrease
At the end of FY 2025, the Wastewater Operations Reserve was about $0.7 million higher than
expected, while a portion of the remaining net revenues of about $1.2 million were allocated to
the CIP Reappropriations and Commitments Reserve. The utility’s overall cash balance remained
positive at $0.9 million at the end of FY 2025, supported by the Council-approved $3 million short-
term loan (Reso 10173)7 from the Fiber Utility to the Wastewater Collection Utility, planned to
be repaid in FY 2026.
Projections
Overview
Compared to the prior forecast, FY 2026 revenues are projected to be about $3.4 million, or 10%,
higher, driven by higher projected Valley Water grant funding for treatment expenses, and higher
revenues from the commercial sector. On the expense side, FY 2026 costs are projected to be
about $0.7 million, or 2% lower compared to the prior forecast. While treatment costs are
projected to be about $1.7 million, or 11% higher due to higher treatment operations expenses,
this increase is largely offset by a projected $1.9 million, or 17% lower in collection operations
expenses, primarily due to lower labor costs. For FY 2026, staff used the adopted budget as the
baseline rather than projecting from actuals with an escalation factor, which has slightly reduced
the projected labor costs. Budgeted CIP expenses are also projected to be slightly lower by about
$0.5 million, or 10%.
Over the FY 2027 to FY 2031 five-year financial planning period, total revenues are projected to
be about 7% higher than the prior forecast, primarily due to rate increases and higher connection
and capacity fees revenues. Total expenses are projected to be about 11% higher than the prior
forecast, primarily driven by higher treatment costs, which are projected to be about 24% higher
due to increased treatment operating and capital-related costs. In contrast, collection operations
costs are projected to be approximately 7% lower than the prior forecast, while CIP costs are
projected to be about 8% higher.
7 Reso 10173: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?
id=62043&dbid=0&repo=PaloAlto&searchid=0982fbde-4335-410a-84d3-3dd832466157
Item #4
Packet Pg. 89
Item No. 4 Page 5 of 20
8
8
2
7
9
3
8
2
Figure 1 illustrates actual revenues and expenses through FY 2025, along with projections
through FY 2031.
Figure 1: Wastewater Collection Utility Expenses, Revenues and Rate Changes
Note: FY25 Commitments and Reappropriations reserves balances for Operations and Capital Investment are anticipated to be
utilized in FY26 and FY27; Collection Capital represents CIP reserve contribution for FY27 and beyond
Revenues
9 estimated that about $9.4 million of capacity fee
revenues will be received in FY 2026 and FY 2027, this forecast conservatively projects 80% of
this revenue will be received evenly over a five-year period starting in FY 2028. This additional
9 FY 2026 Adopted Capital Budget, Wastewater Collection Fund, WC-80020, Sewer System, Customer Connection
(pg. 566): https://www.paloalto.gov/files/assets/public/v/1/administrative-services/city-budgets/fy-2026-city-
budget/adopted/fy-2026-adopted-capital-budget_final_online.pdf
7%0%3%3%
9%15%
20%16%
14%6%6%6%
7%0%3%3%
9%
15%
20%16%
14%5%5%
5%
0
10
20
30
40
50
60
70
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Actuals Projection
$
M
i
l
l
i
o
n
s
Fiscal Year
Collection Capital
Collection Operations
Treatment Capital & Debt
Treatment Operations
Revenue
Current Rate Projection %
Preliminary Rate Projection %
Item #4
Packet Pg. 90
Item No. 4 Page 6 of 20
8
8
2
7
9
3
8
2
projected revenue is crucial in supporting the overall financial position of the utility. A sewer
capacity fee study is planned for FY 2027 to evaluate existing connection and capacity fees
schedules, and staff will recalibrate revenue assumptions in future financial forecasts
correspondingly.
Expenses
Table 3: Wastewater Utility Costs ($000)
Actuals ProjectionFiscal Year 2025 2026 2027 2028 2029 2030 2031
Treatment 15,486 17,295 16,881 18,088 18,456 24,357 25,117
Treatment Operations 11,239 11,921 13,507 14,196 14,695 15,213 15,910
Treatment Capital * 4,247 5,374 3,374 3,893 3,760 9,145 9,207
Collection 10,902 13,604 22,231 27,099 28,266 24,820 26,012
Collection Operations 8,153 9,186 9,231 10,099 10,266 10,820 11,012
Collection Capital 2,749 4,418 13,000 17,000 18,000 14,000 15,000
TOTAL 26,388 30,899 39,112 45,188 46,721 49,177 51,129
* Includes unencumbered/authorized amount for pay-as-you-go capital; excludes Valley Water funding
Item #4
Packet Pg. 91
Item No. 4 Page 7 of 20
8
8
2
7
9
3
8
2
projected to increase by approximately $3.1 million to $6.7 million annually, representing an
average increase of roughly 30% above the previous forecast. These increases are primarily
driven by higher labor costs, including the addition of three new staff positions, lower projected
Valley Water grant funding, and higher commodity prices, chemical costs, service contract
expenses, training and professional development costs, and rent associated with the new
laboratory space. RWQCP also updated the projection to more accurately reflect Palo Alto’s share
of treatment operations costs. Additional key cost increases are described below.
The Treatment Plant is currently undergoing a long-range facility plan update,
which will guide capital improvements and prioritize projects over the next several decades to
Item #4
Packet Pg. 92
Item No. 4 Page 8 of 20
8
8
2
7
9
3
8
2
ensure continued operational reliability and regulatory compliance. Rehabilitation and
replacement of plant equipment that has been in use for over 40 years is necessary to ensure the
City can provide wastewater treatment operation safely and in compliance with regulatory
requirements for the discharge of treated wastewater 24 hours a day. The costs of the Treatment
Plant are shared among member agencies. The biggest increase in Treatment costs is the addition
of debt service (loan repayment) for the Secondary Treatment Upgrades in FY 2030, which is a
$193 million capital project funded through a low-interest State Revolving Fund loan. Palo Alto’s
share of this loan repayment is included in this financial forecast.
Joint Intercepting Sewer Rehabilitation
Outfall Line Construction
12kV Loop Electrical Improvements and
Headworks
Item #4
Packet Pg. 93
Item No. 4 Page 9 of 20
8
8
2
7
9
3
8
2
$2.76 million of grant funding from Valley Water to offset capital expenses. It is projected that
Palo Alto will receive about $3.91 million of Valley Water grant funding in FY 2026.
Figure 2: Wastewater Collection Utility Operations Costs
0
2
4
6
8
10
12
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Actuals Projection
$
M
i
l
l
i
o
n
Fiscal Year
Debt Service
Transfers
Customer Service
Allocated Charges
Collection Operations
and Engineering
Item #4
Packet Pg. 94
Item No. 4 Page 10 of 20
8
8
2
7
9
3
8
2
Collection operations and engineering included one-time labor and vehicle replacement costs in
FY 2024. Transfers include transfers to other City funds for services or share of costs. The
transfers in FY 2026 and every other subsequent year are anticipated for leasing space in the
laydown yard from the Electric Utility for materials related to the Sanitary Sewer Replacement
projects. Vehicle replacement cost increases for replacing aging fleet vehicles are forecasted to
be about $0.35 million annually starting in FY 2028. There may be a need to electrify vehicles in
the future, however, these costs are unknown and are not included in the forecast.
The Sanitary Sewer Replacement/Rehabilitation (SSR) Program funds the replacement of
deteriorating sewer mains to increase capacity or improve pipe condition in various parts of
the sewer system.
Non-recurring construction projects (One Time Projects) of large system assets, such as the
pump station replacement projects.
Ongoing projects include sewer and manhole rehabilitation, equipment and tool
replacement, and wastewater collection system improvements focused on improving the
reliability and operations of the wastewater distribution system. These projects include, but
are not limited to, engineering studies and hydraulic modeling.
New Development Improvements (customer connections) are new services projects funded
or constructed by private developers and property owners.
Table 4: Projected CIP Spending ($000)
2026* 2027* 2028 2029 2030 2031
Sewer Rehab/Augmentation (665) 2,225 11,250 2,470 12,490 2,750
One-Time Projects 333 1,050 1,530 4,740 620 650
Ongoing Projects 407 1,090 1,160 1,200 1,390 1,450
Customer Connections 120 460 480 490 510 540
CIP Salaries and Benefits 4,041 4,185 4,306 4,401 4,506 4,608
Transfers (In)/Out 181 217 173 133 210 220
Total CIP Expenses 4,418 9,227 18,900 13,435 19,726 10,218
CIP Reserve Contribution - 13,000 17,000 18,000 14,000 15,000
Project Category
Fiscal Year
*Includes spending that will be funded by reappropriated or committeed fund balanaces that
have been carried forward from the previous year
Item #4
Packet Pg. 95
Item No. 4 Page 11 of 20
8
8
2
7
9
3
8
2
main replaced each year on average beginning in FY 2028, replacement of the remaining mains
would take approximately 60 years and the last main would be approximately 111 years old
before replacement. This rate of main replacement is based on Staff’s experience, other nearby
communities’ experience, and the National Clay Pipe Institute Engineering Manual, which
suggests that clay pipe can last around 100 years in Palo Alto’s underground conditions. Staff re-
evaluates and prioritizes future projects based on a structural rating system, feedback from
Wastewater Operations and available budget. In addition, in November 2025 the City updated
the Sewer Master Plan. Results from this plan will assist in identifying and prioritizing future SSR
projects. The Sewer Master Plan is on a five-year update schedule with the next update beginning
in FY 2030. The estimated cost of the plan is $0.2 million annually in FY 2030 and FY 2031.
Item #4
Packet Pg. 96
Item No. 4 Page 12 of 20
8
8
2
7
9
3
8
2
The CIP budget assumes inflation of 5.4%, which is derived from a linear trend of historical CIP
cost increases. Allocated overhead and unallocated salaries and benefits are added to the capital
budget and are assumed to escalate at the same rate annually.
Reserves
Item #4
Packet Pg. 97
Item No. 4 Page 13 of 20
8
8
2
7
9
3
8
2
Figure 3: Operations Reserve Adequacy
Note: Operations Reserve shown with a minimum balance of $0.
Table 5 summarizes the risk assessment calculation for the Wastewater Utility through FY 2031.
The risk assessment includes the revenue shortfall that could occur due to:
1. Lower than forecasted sales revenue; and
2. A 10% increase in treatment costs for the budget year; and
3. A 10% increase in planned system improvement CIP expenditures for the budget year. CIP
Contingency for FY 2027 and after is not needed due to resuming the use of the CIP
reserve.
Sales Revenue 31,751 36,876 42,065 44,713 47,396 50,239
Budget-to-Actual Risk @ 4% 1,268 1,473 1,681 1,787 1,894 2,008
Treatment Budget 17,295 16,881 18,088 18,456 24,357 25,117
Treatment Cost Contingency @ 10% 1,730 1,688 1,809 1,846 2,436 2,512
CIP Budget * 4,116 - - - - -
CIP Cost Contingency @ 10% * 412 - - - - -
3,410 3,161 3,490 3,632 4,330 4,519
7,258 6,502 6,286 7,212 8,402 10,533
*CIP budget is excluded from FY 2027 onward
The CIP Reserve has a zero balance due to insufficient wastewater collection revenues to
maintain the annual Capital Program Contribution to the CIP Reserve. However, starting in FY
2027, staff anticipates the wastewater utility can resume contribution to the CIP reserve. The
FY27 Wastewater Collection Utility and CIP Financial Details (Attachment A, Exhibit 2) shows
Item #4
Packet Pg. 98
Item No. 4 Page 14 of 20
8
8
2
7
9
3
8
2
the amount of the rate-funded CIP Reserve contributions under “Expenses” for FY 2027
through FY 2031.
Figure 4: Projected CIP Reserve Balances
Item #4
Packet Pg. 99
Item No. 4 Page 15 of 20
8
8
2
7
9
3
8
2
Figure 5: Wastewater Collection Utility Year-End Reserve Levels
Note: Operations Reserve shown with a minimum balance of $0.
0
2
4
6
8
10
12
14
16
18
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Actuals Projection
$
M
i
l
l
i
o
n
s
Fiscal Year
Rate Stabilization
CIP Reappropriations &
Commitments
CIP Reserve
Operations Reserve
Item #4
Packet Pg. 100
Item No. 4 Page 16 of 20
8
8
2
7
9
3
8
2
Table 6: Operations, Rate Stabilization and CIP Reserves Starting and Ending Balances,
Revenues, Transfers To/(From) Reserves, Expenses, Capital Program Contribution To/(From)
Reserves, Total Reserve Changes, and Operations Reserve Guideline Levels ($000)
The current rates were effective July 1, 2025, when the City increased sewer rates by 20%. To
continue to move toward full cost recovery, CPAU proposes to increase overall rates by 16% in
FY 2027, and projects rate increases by 14% in FY 2028, and 6% annually in FY 2029 through FY
2031.
CPAU has three sewer rate schedules applicable to current customers: one for residential
customers (S-1), one for non-residential customers (other than restaurants) (S-2), and one for
restaurants (S-6). Table 7 below summarizes the current and proposed rates for all customer
classes.
Raftelis Financial Consultants, Inc. completed a cost of service (COS) study for the Wastewater
Collection Utility in 2021. Staff calculated the revenue increases needed for the Wastewater
Item #4
Packet Pg. 101
Item No. 4 Page 17 of 20
8
8
2
7
9
3
8
2
Collection Utility based on projected revenue and expenses to determine the proposed rates
across customer classes.
Table 7: Current and Proposed Sewer Rates
Current Proposed
Monthly Service Charges ($/Month)
Water Quantity Rates ($/CCF)
Bill Impacts
Table 8: Bill Impact of Proposed Sewer Rate Changes ($/Month)
Rate Schedule Current Proposed
$ 67
175
710
Item #4
Packet Pg. 102
Item No. 4 Page 18 of 20
8
8
2
7
9
3
8
2
Bill Comparisons/Competitiveness
Table 9 shows the monthly sewer bills for residential customers compared to what they would
be in surrounding communities. The average monthly sewer bill for a Palo Alto single family
residential customer is $67 at current rates, which is about 12% lower than the neighboring
community average. These communities are the same six that Palo Alto compares itself to in the
annual budget across Water, Wastewater, Gas, and Electric industries. In the following tables,
“Menlo Park” refers to the West Bay Sanitary District.
The cities of Mountain View and Los Altos are RWQCP partners. Sewage from Menlo Park and
Redwood City is treated by Silicon Valley Clean Water where some plant upgrades have been
completed and others are yet to be implemented. Santa Clara customers are served by the San
Jose-Santa Clara Regional Wastewater Facility, which is still working on necessary facility
upgrades. In contrast, plant upgrades at the Hayward Water Pollution Control Facility have not
yet begun. Each of the plants are at different stages of rebuilding.
Neighboring CommunitiesPalo Alto
(rates effective
7/1/2025)
Neighboring
Community
Average
Menlo
Park
Redwood
City
Santa
Clara
Mountain
View
Los
Altos Hayward
67 76 120 105 58 58 68 48
Table 10 compares the sewer bills for two classes of non-residential customers to what they
would be under surrounding communities’ rate schedules. The average monthly commercial
sewer bill, assuming 14 CCF of water usage, is about $175 at current rates, which is about 28%
higher than the neighboring community average, while the average monthly restaurant sewer
bill, assuming 38 CCF of monthly water usage, is about 4% higher. Note that other communities
often have specific rates for industrial customers that discharge high intensity wastewater, such
as food processors or chemical or electronics manufacturers, but Palo Alto does not currently
have any customers that require these special rates.
Neighboring CommunitiesPalo Alto
(rates effective
7/1/2025)
Neighboring
Community
Average
Menlo
Park
Redwood
City
Santa
Clara
Mountain
View
Los
Altos Hayward
General
Commercial 175 137 162 169 96 174 118 100
Restaurant 710 681 928 1,140 679 574 322 443
As of January 2026, Menlo Park (West Bay Sanitary District) is projecting an average of 4.5%
rate increase annually from FY 2027 through FY 2030, Redwood City is projecting a 7% rate
Item #4
Packet Pg. 103
Item No. 4 Page 19 of 20
8
8
2
7
9
3
8
2
increase for FY 2027, Los Altos is projecting 15% rate increase annually in FY 2027 and FY 2028,
while Hayward is projecting 12% rate increases annually from FY 2027 through FY 2030.
Next Steps
If
Council approves the proposed rate changes, the rates will become effective July 1, 2026.
FISCAL/RESOURCE IMPACT
POLICY IMPLICATIONS
STAKEHOLDER ENGAGEMENT
11, staff presented the preliminary rate proposals at the UAC meeting. Some
Commissioners raised affordability concerns and expressed interest in exploring innovative
operating cost reductions rather than relying on the traditional approach of deferring capital
investments. One Commissioner also requested examples of multi-year rate plans from peer
agencies for comparison.
12, staff presented the same preliminary rate proposals to the Finance
Committee. Committee members focused on benchmarking rates against comparable utilities.
They also inquired about cost-containment strategies. Regarding the $3 million loan from the
Fiber utility to the Wastewater utility, one Councilmember asked whether inter-utility borrowing
is a common practice and staff explained that it is not common; few cities have so many utilities
available to fund such loans. Additional discussion centered on reserve guidelines and the
11 Staff Report 2503-4364: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=18457643-
b8bd-4c15-b8db-822059719251
12 Staff Report 2508-5119: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=222f6635-
f36a-42de-bdd2-d27f7ac3f713
Item #4
Packet Pg. 104
Item No. 4 Page 20 of 20
8
8
2
7
9
3
8
2
associated risk assessment. Members emphasized that the absence of rate increases during the
pandemic created a catch-up scenario that should be avoided in the future.
ENVIRONMENTAL REVIEW
ATTACHMENTS:
APPROVED BY:
Item #4
Packet Pg. 105
Attachment A *NOT YET APPROVED*
1
6059726
1
0
4
0
6
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the
FY 2027 Wastewater Collection Utility Financial Forecast and Reserve Management Practices,
Amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2
(Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and
Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger), and
Repealing Rate Schedules S-3 (Industrial Waste Laboratory and Analysis Charges) and S-4
(Hauled Liquid Waste Charges)
R E C I T A L S
A. Each year the City of Palo Alto (“City”) assesses the financial position of its utilities
with the goal of ensuring adequate revenue to fund operations. This includes making long-term
projections of market conditions, the physical condition of the system, and other factors that
could affect utility costs, and setting rates adequate to recover these costs. The City does this
with the goal of providing safe, reliable, and sustainable utility services at competitive rates. The
City adopts Financial Forecasts or Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices and Financial Forecast
(Exhibit 4 and Exhibit 1) attached to this resolution and made a part of the staff report presented
to the City Council.
C. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
D. On June 15, 2026, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
E. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the June 15, 2026 public hearing was mailed to all City of Palo Alto
Utilities wastewater customers by May 1, 2026.
F. The City Clerk has tabulated the total number of written protests presented by
the close of the public hearing, and determined that it was less than fifty percent (50%) of the
total number of customers and property owners subject to the proposed wastewater rate
amendments, therefore a majority protest does not exist against the proposal.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby approves the Reserves Management Practices (Exhibit
Item #4
Packet Pg. 106
Attachment A *NOT YET APPROVED*
2
6059726
1
0
4
0
6
31) and FY 2027 Financial Forecast presented to the Finance Committee on March 17, 20262
and updated by the June 15, 2026 Council report, (Exhibit 23), which is attached to this
resolution and made a part of the staff report presented to the City Council.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule S-1 (Residential Wastewater Collection and Disposal) is hereby amended to
read as shown in Exhibit 14. Utility Rate Schedule S-1, as amended, shall become effective
July 1, 2026.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-2 (Commercial Wastewater Collection and Disposal) is hereby amended to read as
shown in Exhibit 1. Utility Rate Schedule S-2, as amended, shall become effective July 1, 2026.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-6 (Restaurant Wastewater Collection and Disposal) is hereby amended to read as
shown in Exhibit 1. Utility Rate Schedule S-6, as amended, shall become effective July 1, 2026.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger) is
hereby amended to read as shown in Exhibit 1. Utility Rate Schedule S-7, as amended, shall
become effective July 1, 2026.
SECTION 6. The Council finds that the revenue derived from the wastewater rates
approved by this resolution do not exceed the funds required to provide wastewater service,
and the revenue derived from the adoption of this resolution shall be used only for the
purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 7. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 8. The Council finds that the adoption of this resolution approving the FY
2027 Wastewater Collection Utility Financial Forecast and Reserve Management Practices does
not meet the California Environmental Quality Act’s definition of a project under Public
Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an
administrative governmental activity which will not cause a direct or indirect physical change in
the environment, and therefore, no environmental review is required. The Council finds that the
adoption of this resolution changing Wastewater collection rates to meet operating expenses,
purchase supplies and materials, meet financial reserve needs and obtain funds for capital
improvements necessary to maintain service is not subject to the California Environmental
1 Exhibit 3: “_____”
2 Meeting Agenda Item 2: “_____”
3 Exhibit 2: “_____”
4 Exhibit 1: “_____”
Item #4
Packet Pg. 107
Attachment A *NOT YET APPROVED*
3
6059726
1
0
4
0
6
Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of
the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all
attachments presented to Council, the Council incorporates these documents herein and finds
that sufficient evidence has been presented setting forth with specificity the basis for this claim
of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
Item #4
Packet Pg. 108
RESIDENTIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-1-1 Effective 07-01-20265
dated 07-01-20245 Sheet No S-1-1
A. APPLICABILITY:
This schedule applies to each Occupied Domestic Dwelling unit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wastewater Service.
C. RATES:
Per Month
Each Occupied Domestic Dwelling unit ................................................................................ $
67.1177.84
D. SPECIAL NOTES:
1.Any dwelling unit being individually served by a Water, Gas, or Electric Meter will be
considered continuously occupied.
2.For two or more Occupied Domestic Dwelling units served by one Water Meter, the
monthly Wastewater charge will be calculated by multiplying the current Wastewater rate
by the number of dwelling units.
3.Each developed separate lot shall have a separate Sservice lateral to a sanitary main or
manhole.
{End}
Attachment A, Exhibit 1 Item #4
Packet Pg. 109
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-2-1 Effective 07-01-20265
dated 07-01-20254 Sheet No S-2-1
A. APPLICABILITY:
This schedule applies to all commercial establishments other than those served under Utility Rate
Schedule S-1 (Residential Wastewater Collection and Disposal), Rate Schedule S-6 (Restaurant
Wastewater Collection and Disposal) or Rate Schedule S-7 (Commercial Establishments
Wastewater Disposal – Industrial Discharger).
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wastewater Service.
C. RATES:
Quantity Rate, per 100 cubic feet (See Section D.1) .......................................................... $ 12.5214.52
D. SPECIAL NOTES:
1. The monthly charge for the quantity rate set forth in Section C of this rate schedule will be
based upon the average Water usage for the months of January, February and March, and
applied in the following July. If a Water Meter is identified as exclusively serving
irrigation landscaping, such Meter will be exempted from Wastewater charge calculations.
Customers without an applicable usage history will be rebuttably presumed to have usage
of 4.8 ccf per month until such time as such usage may reasonably be established by the
City of Palo Alto Utilities Department.
2. The City of Palo Alto Utilities Department may require Wastewater Metering facilities, in
which case Service will be governed by terms of a special agreement between the City and
the Customer.
{End}
Attachment A, Exhibit 1 Item #4
Packet Pg. 110
RESTAURANT WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-6
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-6-1 Effective 07-01-20265
dated 07-01-20254 Sheet No S-6-1
A. APPLICABILITY:
This schedule applies to all restaurants.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wastewater Service.
C. RATES:
Quantity Rates, per 100 cubic feet of monthly metered Water usage ...................................$
18.6921.68
D. SPECIAL NOTES:
1. The City of Palo Alto Utilities Department may require Wastewater Metering facilities, in
which case Service will be governed by terms of a special agreement between the City and
the Customer.
{End}
Attachment A, Exhibit 1 Item #4
Packet Pg. 111
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
– INDUSTRIAL DISCHARGER
UTILITY RATE SCHEDULE S-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-7-1 Effective 07-01-20265
dated 07-01-20254 Sheet No S-7-1
A. APPLICABILITY:
This schedule applies to any establishment requiring sampling of industrial discharges in excess
of 25,000 gallons per day, or special discharge monitoring, as defined in Rule 23, Section C.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wastewater Service.
C. RATES:
1. Collection System Operation, Maintenance, and Infiltration Inflow:
$ 7.206.21 per 100 cubic feet of metered water use.
2. Advanced Waste Treatment Operations and Maintenance Charge:
$ 2.872.48 per 100 cubic feet of metered water use
3. $352.84304.18 per 1000 pounds (lbs) of COD (Chemical Oxygen Demand)
4. $ 850.74733.40 per 1000 lbs of SS (Suspended Solids)
5. $ 5,878.535,067.70 per 1000 lbs of NHRR3RR (Ammonia)
6. $ 25,791.3722,233.94 per 1000 lbs of toxics (chromium, copper, cyanide, lead, nickel, silver,
and zinc)
D. SPECIAL NOTES:
1. Water usage will be determined as defined in Rule 23, Section C. If a Water Meter is
identified as exclusively serving irrigation landscaping, such Meter will be exempted from
Wastewater charge calculations.
2. The City of Palo Alto Utilities Department may require Wastewater Metering facilities, in
which case Service will be governed by terms of a special agreement between the City of
Palo Alto and the Customer.
3. Charges for large discharges will be determined on the basis of sampling as outlined in
Utilities Rule 23, Section C. However, for purposes of arriving at an accurate flow
estimate, discharge Meters, if installed, can be utilized to measure outflow for billing
purposes. Annual charges will be determined and allocated monthly for billing purposes.
{End}
Attachment A, Exhibit 1 Item #4
Packet Pg. 112
Attachment A, Exhibit 2
Table 1: Wastewater Collection Utility Financial Forecast
Fiscal Year 2023 2024 2025 2026 2027 2028 2029 2030 2031
1 % Change in Retail Rate 3% 9% 15% 20% 16% 14% 6% 6% 6%
2 Retail Sales Revenue 20,694 22,337 26,517 31,711 36,834 42,022 44,668 47,350 50,192
3 Connection & Capacity Fees 219 492 458 257 660 2,069 2,079 2,099 2,129
4 Treatment Revenue - - 2,760 3,908 256 256 256 256 256
5 Other Revenues & Transfers In 387 1,315 655 486 507 522 538 554 570
6 Interest 168 89 23 97 100 103 106 109 113
7 REVENUES 21,468 24,233 30,413 36,459 38,356 44,971 47,646 50,367 53,259
8 Treatment 10,784 13,803 15,486 17,295 16,881 18,088 18,456 24,357 25,117
9 Allocated Charges (Operating) 2,158 2,175 2,106 2,457 2,539 2,626 2,717 2,810 2,907
10 Customer Service 414 463 570 563 600 622 645 669 695
11 Collection Operations 4,054 5,299 4,553 5,103 5,142 5,682 5,890 6,106 6,330
12 Engineering (Operating) 273 338 423 487 502 522 542 563 585
13 Debt Service 129 129 - - - - - - -
14 Rent 268 281 289 297 383 395 407 419 431
15 Other/ Transfers Out 526 209 213 280 65 252 65 252 65
16 Capital * 6,446 10,494 2,749 4,418 13,000 17,000 18,000 14,000 15,000
17 EXPENSES 25,052 33,191 26,388 30,899 39,112 45,188 46,721 49,177 51,129
18 INTO / (OUT OF) RESERVES (3,584) (8,959) 4,025 5,560 (756) (216) 925 1,190 2,131
19 Ending Operations Reserve (673) (1,012) 1,698 7,258 6,502 6,286 7,212 8,402 10,533
20 Ending Commitments & Reappropriations 9,582 682 1,941 25 - - - - -
21 Ending CIP Reserve - - - - 3,773 1,873 6,439 712 5,495
22 Ending Rate Stabilization Reserve - - - - - - - - -
23 Unassigned Reserves - - - - - - - - -
24 Operations Reserve Guidelines
25 Max (150 Days Treatment/O&M Exp) 7,646 9,328 9,715 10,883 10,731 11,584 11,803 14,456 14,847
26 Target (105 Days Treatment/O&M Exp) 5,353 6,529 6,800 7,618 7,512 8,109 8,262 10,119 10,393
27 Min (60 Days Treatment/O&M Exp) 3,059 3,731 3,886 4,353 4,292 4,634 4,721 5,782 5,939
28 Short Term Risk Assessment Value 2,515 3,285 2,835 3,410 3,161 3,490 3,632 4,330 4,519
* CIP Expenses for FY 2022-26. FY 2027-31 represents CIP funding from the Operations Reserve to the CIP Reserve.
Wastewater Collection Utility Financial Forecast
($'000)
Actual Projection
Item #4
Packet Pg. 113
Attachment A, Exhibit 2
Wastewater Collection Utility Capital Improvement Program (CIP) Details
Item #4
Packet Pg. 114
WASTEWATER COLLECTION UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Wastewater
Collection Utility Financial Plan:
Section 1. Definitions
a)“Financial Planning Period” – The Financial Planning Period is the range of future fiscal
years covered by the Financial Plan. For example, if the Financial Plan delivered in
conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY 2015
to FY 2019 would be the Financial Planning Period.
b)“Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers
to the Utility’s Unrestricted Net Assets.
c)“Net Assets” - The Government Accounting Standards Board defines a Utility’s Net Assets
as the difference between its assets and liabilities.
d)“Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital
assets (net of related debt) or restricted for debt service or other restricted purposes.
Section 2. Reserves
The Wastewater Collection Utility’s Fund Balance is reserved for the following purposes:
a)For existing contracts, as described in Section 3 (Reserve for Commitments)
b)For operating and capital budgets re-appropriated from previous years, as described in
Section 4 (Reserve for Re-appropriations)
c)For cash flow management and contingencies related to the Wastewater Collection
Utility’s Capital Improvement Program (CIP), as described in Section 5 (CIP Reserve)
d)For rate stabilization, as described in Section 6 (Rate Stabilization Reserve)
e)For operating contingencies, as described in Section 7 (Operations Reserve)
f)Any funds not included in the other reserves will be considered Unassigned Reserves and
shall be returned to ratepayers or assigned a specific purpose as described in Section 8
(Unassigned Reserves).
Section 3. Reserve for Commitments
At the end of each fiscal year the Reserve for Commitments will be set to an amount equal
to the total remaining spending authority for all contracts in force for the Wastewater
Collection Utility at that time.
Section 4. Reserve for Re-appropriations
At the end of each fiscal year the Reserve for Re-appropriations will be set to an amount
equal to the amount of all remaining capital and non-capital budgets, if any, that will be re-
appropriated to the following fiscal year in accordance with Palo Alto Municipal Code
Section 2.28.090.
Attachment A, Exhibit 3 Item #4
Packet Pg. 115
Section 5. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for
capital contingencies. Staff will manage the CIP Reserve according to the following
practices:
a)The following guideline levels are set forth for the CIP Reserve. These guideline levels are
calculated for each fiscal year of the Financial Planning Period and approved by Council
Resolution.
2
b)Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and
the Reserve for Commitments when funds are added or removed from to that reserve as
a result of a change in contractual commitments related to CIP projects. Any other
additions to or withdrawals from the CIP reserve require Council action.
c)Minimum Level:
i)If, at the end of any fiscal year, the minimum guideline is not met, staff shall present
a plan to the City Council to replenish the reserve. The plan shall be delivered by the
end of the following fiscal year, and shall, at a minimum, result in the reserve reaching
its minimum level by the end of the next fiscal year. For example, if the CIP Reserve is
below its minimum level at the end of FY 2017, staff must present a plan by June 30,
2018 to return the reserve to its minimum level by June 30, 2019. In addition, staff
may present, and the Council may adopt, an alternative plan that takes longer than
one year to replenish the reserve, or that does so in a shorter period of time.
d)Maximum Level: If there are funds in this reserve in excess of the maximum level staff
must propose in the next Financial Plan to transfer these funds to another reserve, return
the funds to ratepayers, or designate a specific use of the funds for CIP investments that
will be made by the end of the next Financial Planning Period. Staff may also seek City
Council to approve holding funds in this reserve in excess of the maximum level if they
are held for a specific future purpose related to the CIP.
Section 6. Rate Stabilization Reserve
Funds may be added to the Rate Stabilization Reserve by action of the City Council and held
to manage the trajectory of future year rate increases. Withdrawal of funds from the Rate
Stabilization Reserve requires Council action. If there are funds in the Rate Stabilization
Reserve at the end of any fiscal year, any subsequent Wastewater Collection Utility
Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the
Financial Planning Period.
1 Each month is calculated based upon 1/12 of the annual budget.
2 For example, in the Financial Plan for FY 2022, the 48 month period to use to derive the
annual average is FY 2022 through FY 2025. In the FY 2023 Financial Plan, the 48 month period
to use to derive the annual average would be FY 2023 through FY 2026 etc.
Attachment A, Exhibit 3 Item #4
Packet Pg. 116
Section 7. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. Any portion of the Wastewater Collection Utility’s Fund Balance not included
in the reserves described in Section 3-Section 6 above will be included in the Operations
Reserve unless this reserve has reached its maximum level as set forth in Section 7(d)
below. Staff will manage the Operations Reserve according to the following practices:
a)The following guideline levels are set forth for the Operations Reserve. These guideline
levels are calculated for each fiscal year of the Financial Planning Period based on the
levels of Operations and Maintenance (O&M) and commodity expense forecasted for that
year in the Financial Plan.
b)Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations
Reserve are lower than the minimum level set forth above, staff shall present a plan to
the City Council to replenish the reserve. The plan shall be delivered within six months of
the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its
minimum level by the end of the following fiscal year. For example, if the Operations
Reserve is below its minimum level at the end of FY 2014, staff must present a plan by
December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In
addition, staff may present, and the Council may adopt, an alternative plan that takes
longer than one year to replenish the reserve.
c)Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower
than the target level, any Financial Plan created for the Wastewater Collection Utility shall
be designed to return the Operations Reserve to its target level within four years.
d)Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no
funds may be added to this reserve. Any further increase in the Wastewater Collection
Utility’s Fund Balance shall be automatically included in the Unassigned Reserve
described in Section 8, below.
Section 8. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the
Wastewater Collection Utility’s Fund Balance will be held in the Unassigned Reserve. If there
are any funds in the Unassigned Reserve at the end of any fiscal year, the next Financial Plan
presented to the City Council must include a plan to assign them to a specific purpose or
return them to the Wastewater Collection Utility ratepayers by the end of the first fiscal year
of the next Financial Planning Period. For example, if there were funds in the Unassigned
Reserves at the end of FY 2015, and the next Financial Planning Period is FY 2016 through FY
2020, the Financial Plan shall include a plan to return or assign any funds in the Unassigned
Reserve by the end of FY 2016. Staff may present an alternative plan that retains these funds
or returns them over a longer period of time.
Attachment A, Exhibit 3 Item #4
Packet Pg. 117
Attachment A, Exhibit 4
1
0
4
1
1
WASTEWATER COLLECTION UTILITY COMMUNICATIONS PLAN/SAMPLES
A structured and transparent communication strategy will accompany the proposed wastewater
rate adjustment to inform ratepayers, community stakeholders, and decision-makers of the
factors driving the increase and the importance of maintaining the financial sustainability of the
wastewater utility. The communication effort will emphasize accountability, clarity, and
engagement with the community throughout the rate-setting process.
The proposed rate adjustment is primarily driven by higher-than-anticipated costs for
wastewater treatment processes, necessary upgrades to aging operational equipment, and
ongoing operations and maintenance expenditures that ensure regulatory compliance and
reliable service delivery. Messaging will highlight the important infrastructure upgrades that are
occurring at the Regional Water Quality Control Plant (RWQCP) as well as increased capital
improvement projects (CIP) to improve our wastewater collection utility services. These
infrastructure upgrades are necessary to replace aging wastewater collection mains and sanitary
sewer treatment equipment at the RWQCP. Operations reserves are also below minimum
guidelines due to higher capital improvement program costs and increasing treatment costs.
The communication plan will focus on articulating these cost drivers in a clear and accessible
manner, linking them directly to the continued provision of safe and efficient wastewater service.
Public outreach will be implemented through both required and supplementary communication
channels. Consistent with Proposition 218 requirements, notice of the proposed adjustment will
be mailed to all affected property owners and customers in advance of the public hearing.
Additional communication tools will include informational postings on the City’s website
(www.paloalto.gov/ratesoverview), blogs or news releases, social media updates, and inclusion
in customer newsletters and billing inserts to provide consistent and accessible information to
the community.
Staff will provide public presentations to discuss the financial plan, outline the wastewater
system’s infrastructure and equipment needs, and explain how the proposed rate adjustments
support long-term operational sustainability. Materials will include visual summaries, cost
breakdowns, and explanations of how revenues will be utilized to maintain treatment
performance, environmental protection, and regulatory compliance. All outreach will underscore
the City’s commitment to transparency, fiscal stewardship, and maintaining the community’s
essential wastewater infrastructure in a safe, reliable, and environmentally responsible manner.
Item #4
Packet Pg. 118
Attachment A, Exhibit 4
1
0
4
1
1
Item #4
Packet Pg. 119
Date: March 4, 2026
12-MONTH ROLLING CALENDAR
FORECAST
Utilities Advisory Commission City Council
CCM – City Council Meeting
FCM – Finance Committee Meeting PS – Policy and Services March 2026 March 4, 2026
• Potable Water Quality Update – Regional
Sampling of Microplastics Informational Report
• Wastewater Rates and Financial Forecast
• Water Rates and Financial Forecast
• Re-Approval of December 3, 2025 Minutes
• Informational Report on Residential Electric and
Water Utility Customer Satisfaction Surveys
• Wastewater Rates and Financial Forecast (FCM)
• Water Rates and Financial Forecast (FCM)
• Flynn Resources Contract Amendment
• Updates to Utilities Rules and Regulations
• Edison Electric Institute Master Power Purchase
and Sales Agreement
• Smart Energy Water Customer Portal Contract
Amendment
• Utilities Reserves Advisory Report (PS)
• Informational Report on CMUA Customer
Satisfaction Survey Results
• Larratt Brothers Plumbing for Emergency Water
Heater Replacements Contract Amendment
April 2026 April 1, 2026
• FY 2026 – Q2 Report, Informational
• Gas Rates and Financial Forecast
• Electric Rates and Financial Forecast
• Election of UAC Chair and Vice Chair
• Gas Rates and Financial Forecast (FCM)
• Electric Rates and Financial Forecast (FCM)
• General Service Contract for Duke’s Root Control
for Root Foaming Treatment Services
May 2026 May 6, 2026
• FY 2027 Utilities Operating and CIP Budget
• Status Update on the Gas Transition Study
• GoGreen Business Energy Financing Program
• Urban Water Management Plan
• Water Supply and Demand Assessment
• FY 2027 Utilities Operating and CIP Budget (FCM)
• Urban Water Management Plan
• Commercial Efficiency and Electrification Program
• Commercial Customer Characterization Tool
• Commercial Electrification Technical Assistance
• VertexOne Contract Amendment
June 2026 June 3, 2026
• FY 2026 - Q3 Report, Informational
• UAC Work Plan
• FY 2027 Utility Rates and 5-year Forecasts
• FY 2027 Utilities Operating and CIP Budget
July 2026 July 1, 2026
• FTTP Pilot Report Out
• Grid Mod Project Update
August 2026 August 5, 2026 • FTTP Pilot Report Out (FCM & CCM)
• GoGreen Business Energy Financing Program
• Grid Mod Bond Financing (FCM)
September 2026 September 2, 2026 • Substations’ Electric Equipment and Structures
Painting Contract
• Grid Mod Bond Financing
October 2026 October 7, 2026
• FY 2026 – Q4 Report, Discussion
November 2026 November 4, 2026
• FY 2028 Preliminary Rates
• Contract for Sanitary Sewer 3-year CCTV
December 2026 December 2, 2026 • FY 2028 Preliminary Rates (FCM)
January 2027 January 6, 2027
February 2027 February 3, 2027
Council Recap on Utilities Items – February 2026
Item #A
Packet Pg. 120
Approved By Council:
• Utilities Advisory Commission FY 2025-2026 Work Plan
• Calendar Year 2024 Annual Update for the Cap-and-Trade Program, Informational
• Water System Leak Detection Survey
• Purchase Order with ABB Inc. for Substation Breakers
Recurring Items Items to Be Scheduled
• Educational Update on any Type of New Technology or Terminology
• Projects with a Resiliency Component
• Quarterly Reports (Q1-3 Info Rpts)(Q4 Discussion Summary of the year)
o Financial Report
o Utilities Programs Update
▪ Informational EV Charger Installation Updates
▪ Informational Bucket 1 REC Sales Updates
▪ Informational Fiber Updates
• Rates and Financial Forecast
• Utilities Budget
• Utilities Quarterly Informational Report – Council
• Reserve Assessment
Item #A
Packet Pg. 121
Item No. C. Page 1 of 1
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: March 4, 2026
Report #: 2602-5911
TITLE
Informational Report on Residential Electric and Water Utility Customer Satisfaction Surveys
RECOMMENDATION
This item is for information only, and no action is requested.
BACKGROUND
Staff presented the results of the City of Palo Alto Utilities (CPAU) 2025 Residential Electric and
Water Utility Customer Satisfaction Surveys to the Utilities Advisory Commission on February 4,
2026. This informational report is being provided as follow-up to the discussion to share copies
of the full survey results from GreatBlue Research, Inc., the contractor that administered the
surveys and completed the analysis of results and recommended actionable items.
ATTACHMENTS
Attachment A: Staff Report 2512-5642 from February 4, 2026 Meeting
Attachment B: City of Palo Alto Utilities Residential Electric Customer Satisfaction Study 2025
Attachment C: City of Palo Alto Utilities Residential Water Customer Satisfaction Study 2025
AUTHOR/TITLE:
Alan Kurotori, Director of Utilities
Staff: Catherine Elvert, Utilities Communications Manager
Item #C
Packet Pg. 122
3.Discussion of the Residential Electric and Water Utility Customer Satisfaction Survey
Results (DISCUSSION 7:50PM – 8:30PM) Staff: Catherine Elvert, Utilities Communications
Manager
Item #C
Packet Pg. 123
Item No. 3. Page 1 of 4
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: February 4, 2026
Report #: 2512-5642
TITLE
Discussion of the Residential Electric and Water Utility Customer Satisfaction Survey Results
RECOMMENDATION
This item is for discussion, and no action is requested. Staff will present the results of the City of
Palo Alto Utilities (CPAU) 2025 Residential Electric and Water Utility Customer Satisfaction
Surveys.
EXECUTIVE SUMMARY
CPAU conducts annual utilities customer satisfaction surveys to gauge perspectives on critical
utilities issues. This report summarizes the latest results of the residential electric and water
utility customer surveys performed October 14 through November 25, 2025.
The surveys were conducted with the primary purpose of assessing customer awareness and
satisfaction related to the following areas: service reliability, utility rates and affordability,
customer service, communication, infrastructure management, customer programs,
sustainability practices, and overall engagement with CPAU's services. The outcome of this
research will enable CPAU to clearly understand customer expectations, act on near-term
opportunities for improvement, and create a strategic roadmap to increase customer
satisfaction. Proposed action items are included in the attached presentation.
PROJECT DESCRIPTION
The surveys were conducted in collaboration with California Municipal Utilities Association
(CMUA) members and administered by GreatBlue Research, Inc. CPAU participated with other
CMUA members in a statewide survey of municipal utility and investor-owned utility (IOU)
customers. Subsequently CPAU engaged with GreatBlue Research, Inc. to implement a follow-
up “oversample” survey of Palo Alto residents for expanded understanding of local utility
customer insights and benchmark comparisons to other municipal utilities and IOUs. This is the
second residential survey conducted for CPAU by GreatBlue Research, Inc. following an initial
survey of residential customers in 2023.
ANALYSIS
Item #C
Packet Pg. 124
Item No. 3. Page 2 of 4
Considering the demographics of customers who responded to the survey, CPAU may try to
enhance future survey methodologies to improve representation of the Palo Alto community.
Overall Performance Context
Water Service: CPAU's average positive rating across organizational characteristics was
80.0% (+1.1 percentage points compared to 2023), compared to 63.3% for the statewide
municipal utility customer aggregate. CPAU scored higher on every single characteristic,
with the largest gaps in “environmental responsibility” (+23.2 percentage points),
"promoting efficient use and conservation" (+22.4 percentage points) and “monitoring
water quality” (21.0 percentage points).
Electric Service: CPAU's average positive rating was 74.4% (+3.5 percentage points
compared to 2023), compared to 62.0% for statewide municipal utilities and 62.6% for
IOUs. CPAU led other statewide municipal utilities on all 11 characteristics, with the
highest scores in reliability (+19.5 percentage points), outage restoration (+18.3
percentage points), and commitment to renewables (+23.7 percentage points).
Key Strengths Highlighted in Deeper Analysis
Alignment of Performance and Priorities: In both surveys, CPAU shows strong
alignment between what customers rate as most important (e.g., water quality and
monitoring, reliable supply, value for cost) and where CPAU earns its highest scores.
This alignment is tighter than the municipal utility averages, contributing to high Net
Positive Scores (86.1% among water customers; 82.1% among electric customers). Net
Positive Score (NP+S) = (advocates + loyal + satisfied).
Value and Affordability Perception: Despite rate pressures felt industry-wide, CPAU
customers rate value and reasonableness higher than benchmarks. For example, 68.0%
rate water value "good/very good"; and 71.8% find electric rates reasonable, which is
7.4 percentage points higher than other electric municipal utilities in California.
Environmental and Conservation Leadership: High ratings for conservation promotion
and renewable commitment stand out as differentiators versus other municipal utilities.
Areas of Opportunity
Item #C
Packet Pg. 125
Item No. 3. Page 3 of 4
While CPAU remains a top performer, a few areas showed slight declines compared to 2023
that align with broader industry trends.
Customer Service Resolution: First contact resolution dipped modestly among both
water customers (-13.9 percentage points) and electric customers (-3.8 percentage
points). Billing inquiries and lack of prior resolution were common drivers of repeat
contacts. These are common pain points for many municipal utilities dealing with rate
complexity. Also, customers are increasingly expecting to find more information on their
utility’s website and turning to customer service when they cannot find this information.
Preparedness Perceptions: Lower confidence in drought, natural disaster, and
emergency preparedness. These are notably below municipal utility averages in some
cases and may reflect statewide anxiety around climate risks rather than CPAU-specific
issues.
Digital Tools and Communication: Satisfaction with self-service digital options lagged
behind municipal utility averages in the electric survey (-9.8 percentage points),
suggesting room to enhance online portals for account management, mobile
application, or other self-service activities.
Action Items
Strengthen customer service first-contact resolution through billing issue workflows,
identifying common failure points such as unclear bill language, difficulty navigating
online account tools, or delayed processing. Integrate proactive digital tools, such as
estimated bill explanations or usage trend visualizations, to help customers self-
diagnose matters before contacting support, reducing call volume and complexity.
Enhance education about utility rates and affordability through robust outreach
campaigns, utilizing a variety of different media, to better communicate the value of
publicly owned utilities.
Expand communication about infrastructure improvements, highlighting regular
updates on water and energy infrastructure projects to showcase reliability
improvements and conservation benefits. Clearly articulate how these investments align
with CPAU’s mission, customer priorities, and affordability.
Develop income-specific messaging pathways for electric appliance replacement
programs that reflect the motivations, financial constraints, and support needs of each
group. Offer simplified “guided installation pathways,” including contractor
recommendations and step-by-step support for high-income customers who prioritize
convenience and trusted installation partners. Enhance outreach during key
replacement moments, such as emergency replacements, with clearer, faster messaging
on available rebates and financing options.
Amplify outreach campaigns to inform water customers about efficient usage and
rebate opportunities. Align rebate tiers and cost-share structures with demonstrated
Item #C
Packet Pg. 126
Item No. 3. Page 4 of 4
willingness-to-pay segments, ensuring that lower-cost options remain accessible to
customers with limited budgets.
Expected Outcomes
CPAU plans to implement the identified action items and address key takeaway results to
improve customer satisfaction, trust, awareness, and engagement. Survey results indicate that
an improved understanding of rates and the value of what goes into those investments,
including program benefits, will lead to increased satisfaction and trust. Dedicated efforts to
raise awareness among different customer groups about programs and resources will lead to
higher participation in energy and water efficiency initiatives, as well as accelerate adoption of
electrification programs and conservation practices. Expanding educational outreach and
awareness around rates, infrastructure investments, and affordability initiatives will build
greater trust in CPAU among customers. Customer relationships will be strengthened,
solidifying CPAU’s reputation as a reliable utility provider focused on community needs.
This report serves as a foundational document for the Utilities Advisory Commission to consider
strategic actions based on customer feedback and insights gained from results of these
residential surveys conducted in 2025.
FISCAL/RESOURCE IMPACT
CPAU compensated GreatBlue Research, Inc. in the amount of $22,000 for the statewide
residential electric and water customer surveys and oversampling survey of Palo Alto residents.
STAKEHOLDER ENGAGEMENT
GreatBlue Research, Inc. utilized digital data collection to field responses from a statistically
significant, random sampling of residents. Staff provided public outreach to the Palo Alto
community to ensure the legitimacy of the surveys and encourage greater participation.
ENVIRONMENTAL REVIEW
This does not meet the definition of a project, pursuant to Section 21065 of the California
Environmental Quality Act, thus no environmental review is required.
AUTHOR/TITLE:
Alan Kurotori, Director of Utilities
Staff: Catherine Elvert, Utilities Communications Manager
Item #C
Packet Pg. 127
Item #C
Packet Pg. 128
Item #C
Packet Pg. 129
Item #C
Packet Pg. 130
Item #C
Packet Pg. 131
Item #C
Packet Pg. 132
Item #C
Packet Pg. 133
Item #C
Packet Pg. 134
Item #C
Packet Pg. 135
Item #C
Packet Pg. 136
Item #C
Packet Pg. 137
Item #C
Packet Pg. 138
Item #C
Packet Pg. 139
Item #C
Packet Pg. 140
Item #C
Packet Pg. 141
Item #C
Packet Pg. 142
Item #C
Packet Pg. 143
Item #C
Packet Pg. 144
Item #C
Packet Pg. 145
Item #C
Packet Pg. 146
Item #C
Packet Pg. 147
Item #C
Packet Pg. 148
Item #C
Packet Pg. 149
Item #C
Packet Pg. 150
Item #C
Packet Pg. 151
Item #C
Packet Pg. 152
Item #C
Packet Pg. 153
Item #C
Packet Pg. 154
Item #C
Packet Pg. 155
Item #C
Packet Pg. 156
Item #C
Packet Pg. 157
Item #C
Packet Pg. 158
Item #C
Packet Pg. 159
Item #C
Packet Pg. 160
Item #C
Packet Pg. 161
Item #C
Packet Pg. 162
Item #C
Packet Pg. 163
Item #C
Packet Pg. 164
Item #C
Packet Pg. 165
Item #C
Packet Pg. 166
Item #C
Packet Pg. 167
Item #C
Packet Pg. 168
Item #C
Packet Pg. 169
Item #C
Packet Pg. 170
Item #C
Packet Pg. 171
Item #C
Packet Pg. 172
Item #C
Packet Pg. 173
Item #C
Packet Pg. 174
Item #C
Packet Pg. 175
Item #C
Packet Pg. 176
Item #C
Packet Pg. 177
Item #C
Packet Pg. 178
Item No. D. Page 1 of 2
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: March 4, 2026
Report #: 2512-5602
TITLE
Informational Report: Water Quality Update - Regional Sampling of Microplastics
RECOMMENDATION
This is an informational report, to provide an update to the UAC on the regional sampling of
microplastics in regional wholesale untreated drinking water sources and no action is
requested.
BACKGROUND
On September 28th, 2018, Senate Bill No. 1422 (SB 1422) was signed into law. SB 1422 required
the State Water Resources Control Board (”SWRCB“), Division of Drinking Water, to adopt a
standard methodology for testing of microplastics for drinking water and to adopt
requirements for four (4) years of testing. In compliance with SB 1422, on August 9, 2022, the
SWRCB published a policy handbook for a standard method of testing and reporting of
microplastics in drinking water. Requirements for testing included a timeline for a water quality
monitoring program. The first phase of the monitoring program involved regional testing of
untreated drinking water sources from a select set of large community and wholesale water
systems. However, the sample collection method needed further development, and water
quality monitoring of drinking water sources did not commence in Fall of 2023, as originally
scheduled.
In January of 2026, Staff contacted the SWRCB to request a status of microplastic testing in
untreated drinking water. SWRCB staff stated that no date has been set to begin the first phase
of testing from untreated drinking water sources. Currently, there are no regional water quality
testing results of microplastics to report back to the Utility Advisory Commission.
The San Francisco Public Utilities Commission (”SFPUC”) has confirmed that testing for
microplastics has not commenced pending SWRCB guidance on preparing water samples.
SWRCB will begin a new project in 2026 to develop a standard operating procedure for
preparing water samples. CPAU will continue to follow the SWRCB and SFPUC progress on
Item #D
Packet Pg. 179
Item No. D. Page 2 of 2
microplastics, as 100% of the City’s water supply is provided by the Regional SFPUC water
system.
AUTHOR/TITLE:
Item #D
Packet Pg. 180
Item No. 1. Page 1 of 1
1
0
0
9
5
Utilities Advisory Commission
Supplemental Report
From: Alan Kurotori, Director of Utilities
Meeting Date: March 4, 2026
Item Number: 1
Report #:2602-6025
TITLE
SUPPLEMENTAL REPORT: Re-Approval of the Minutes of the Utilities Advisory Commission
Meeting Held on December 3, 2025
ANALYSIS
At the December 3, 2025 Utilities Advisory Commission (UAC) meeting, the minutes reflected the
appointment of Commissioners Phillips and Tucher to the FY 2027 Budget Subcommittee.
At the January 7, 2026 meeting, during review of the December minutes, the Commission
amended the minutes to include Commissioner Croft as a member of the subcommittee.
However, Commissioner Croft’s appointment occurred outside of the December 3, 2025 meeting
by action of the Chair. As such, modifying the December minutes to reflect an action that did not
occur during that meeting resulted in the minutes no longer accurately reflecting the record of
that meeting.
The proposed recommendation re-approves the original December 3, 2025 minutes to ensure
the official record reflects only actions taken at that meeting and supersedes the amendment
made in January. This action is only a procedural correction and does not affect Commissioner
Croft’s current appointment to the FY 2027 Budget Subcommittee.
ATTACHMENTS: None
APPROVED BY:
Alan Kurotori, Director of Utilities
Item #1
Packet Pg. 181