HomeMy WebLinkAboutStaff Report 2512-56393.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. Staff Presentation
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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 No. 3. Page 16 of 26
Figure 5: Projected CIP Reserve Balances FY 2026 to FY 2031
Item No. 3. Page 17 of 26
Figure 7: Water Utility Reserves
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 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 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 $5.80 per CCF, for each unit of water in addition to the
volumetric rate that is applicable for their customer class. The rates shown below are in addition
to the pass-through commodity rate charged to Palo Alto’s customers based on SFPUC supply
charges. For further information and details about the proposed commodity rate, see Water
Purchase Cost section above.
Distribution rates cover all the costs to deliver water within the City, such as operations,
maintenance, metering, billing, and capital improvements. Through annual Council approvals,
the water utility provides steady funding to the CIP Reserve, which reflects actual fluctuations in
CIP expenditures (money spent on actual projects in a given year). Previously, CIP expenditures
were reflected in the Operations Reserve.
29 Resolution 10231: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?
id=62150&dbid=0&repo=PaloAlto
Item No. 3. Page 21 of 26
Table 7 shows the current and proposed consumption charges, which are distribution rates.
Table 7: Current and Proposed Water Distribution Charges
Current
(7/1/2025)
Proposed
(7/1/2026)
Change
($/CCF)Change (%)
4.92 5.51 0.59 12%
7.49 8.38 0.89 12%
Item 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 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 $35 10%
Item No. 3. Page 24 of 26
Table 12 shows the impact of the proposed July 1, 2026 rate changes on the median
commercial bill.
Table 12: Impact of Proposed Water Rate Changes on Commercial Bills
Change Usage (CCF/mo.)Bill under
Current Rates
(7/1/2025)
Bill under Proposed
Rates (7/1/2026)$/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 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 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
*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:
*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
*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.
//
//
//
//
//
//
//
//
//
//
//
//
//
//
//
//
*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
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
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
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
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
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
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
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
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
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
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
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
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
Attachment A, Exhibit 2
1 FISCAL YEAR FY 2020
Actual
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Projected
FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
2
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
BILL AND RATE CHANGES
8 Variable Charge (Supply)0%0%0%16%10%9%2%8%7%3%2%4%
Residential Variable Charge (Distribution)1%0%0%10%17%12%12%14%9%7%
10 System Average Rate 5%5%
13 STARTING RESERVES
14 Reappropriations (Non-CIP)258,000 70,000
796,000
41,000
444,000
-
1,766,000
2,906,000
-
-
2,737,000
2,813,000
-
-
2,663,000
2,678,000
-
-
776,447
2,552,181
-
-----
442,000
3,260,000
-
-
2,552,181
-
-
2,552,181
-
3,260,000 2,906,000 2,552,181 2,552,181 2,552,181
--
15,090,505 11,036,000 10,147,000 12,168,000 16,066,000 12,245,000 6,026,222
3,500,000
4,000,437
16,351,229
-
4,452,820
8,609,449
4,000,437
12,565,736
-
---
13,159,449
437
8,609,449
3,000,437
15,936,169
-
8,609,449
2,000,437
14,561,308
-
9,859,449
1,000,437
15,103,097
-
20 Rate Stabilization Reserve
15,259,675
23 TOTAL STARTING RESERVES 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
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
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
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
Allocated Charges 3,751,618
9,351,279
1,159,106
7,010,251
401,902
1,865,571
-
3,848,781
9,564,641
1,215,567
7,400,625
662,832
2,053,820
-
4,181,415
9,809,311
1,261,514
7,195,632
492,438
2,058,662
-
4,176,701
2,365,000
3,222,938
945,092
10,709,731
1,590,945
7,531,468
508,307
5,236,342
2,483,250
3,220,173
1,822,487
12,762,252
1,427,567
9,121,406
637,696
4,456,214
9,986,370
1,105,116
8,616,998
652,361
2,663,930
-
4,991,285
2,310,800
3,219,331
1,333,007
11,854,422
1,383,954
10,077,228
1,051,982
2,997,389
-
5,165,275
2,410,164
2,563,683
1,484,566
11,623,689
1,432,654
10,279,613
1,333,790
2,995,953
-
5,320,233
2,482,469
2,565,598
1,147,680
11,515,981
1,475,633
10,838,002
1,373,803
3,085,832
-
5,479,840
2,556,943
2,563,503
1,036,122
11,636,409
1,519,902
11,163,142
1,415,017
3,178,406
-
5,644,236
2,633,652
2,566,323
1,171,775
12,015,986
1,565,499
11,498,036
1,457,468
3,273,759
-
5,813,563
2,712,661
2,563,493
1,123,320
12,213,037
1,612,464
11,842,977
1,501,192
3,371,971
-
Rent
Debt Service
Transfers and Other Adjustments
Subtotal, Administration
Resource Management
Operations and Mtc
Engineering (Operating)
Customer Service 2,272,586 2,541,599
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
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 55,908,056 57,126,022 64,682,706 64,718,461
Attachment A, Exhibit 2
49 ENDING RESERVES
50 Reappropriations (Non-CIP)70,000
796,000
41,000
444,000
-
1,766,000
2,906,000
-
-
2,737,000
2,813,000
-
-
2,663,000
2,678,000
-
-
776,447
2,552,181
-
------
3,260,000 2,906,000 2,552,181 2,552,181 2,552,181 2,552,181 2,552,181 2,552,181
11,036,000 10,147,000 12,168,000 16,066,000 12,245,000 6,026,222
3,500,000
4,000,437
16,351,229
-
4,452,820
8,609,449
4,000,437
12,565,736
-
4,000,000
8,609,449
3,000,437
15,936,169
-
3,000,000
8,609,449
2,000,437
14,561,308
-
3,000,000
9,859,449
1,000,437
15,103,097
-
3,000,000
13,159,449
437
3,000,000
18,359,449
43756 Rate Stabilization Reserve
15,259,675 17,042,104
58 Unassigned
59 TOTAL ENDING RESERVES 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
10,248,017
13,664,023
7,040,997
10,561,496
14,081,995
6,914,993
10,372,490
13,829,986
7,291,572
10,937,358
14,583,144
8,406,868
12,610,301
16,813,735
8,363,984
12,545,976
16,727,968
9,037,037
13,555,556
18,074,075
9,476,637
14,214,955
18,953,273
9,829,409
14,744,113
19,658,818
9,991,642
14,987,462
19,983,283
10,175,899 10,478,443
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 Special Projects Reserve (Calaveras). Maximum Annual Debt Service is on outstanding debt of the Water, Gas
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.
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.
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.
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.
March 4, 2026 www.paloalto.gov
Water Utility Financial Forecast and Proposed Rate Changes for FY 2027
Utilities Advisory Commission
1
2
Water Rate Projection FY 2027
Proposal: 10% rate increase in FY 2027, approximately $12.60/month increase for residential customers
Drivers
•San Francisco Public Utilities Commission (SFPUC) wholesale rate increase of 7.4%*
•Restoring reserve levels
•Capital Improvement Plan (CIP) projects
•Long-term decline in water sales
Compared with Preliminary Rates (November 2025)
•Overall rate projection is the same for FY 27 through FY 29 and lower for FY 30 and FY 31
•Distribution rate increases were adjusted in response to revised wholesale rate projections
•$10 million reduction to 5-year CIP budget reflecting timeline shifts
•Budget Reductions in operating expenses
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%
*The financial forecast assumes a wholesale rate increase of 7.6%. On January 14, 2026, the SFPUC provided a rate range for F Y
2027 between 5.9% to 9.1%. On February 19th, the SFPUC provided a wholesale rate estimate of 7.4%.
2
3
FY 2027 Proposed Budget Reductions
3
•FY 2027 Proposed Budget Changes (Water Only)
•Included in FY 2027 Financial Forecast
•Eliminate vacant Meter Reader positions: $260K
•Outsource utility bill printing and mailing: $30K
•Implement credit card processing fee: $200K
•Transfer from pension trust: $150K
•Sources of additional potential budget reductions:
•Council priority on organizational efficiencies
•Leverage internal resources between departments
•Citywide Hiring Review Committee evaluates recruitments
Water Bill Comparisons
2026 Monthly Bill Comparison of Agencies with 100% SFPUC (10 CCF) Supply
As of 2026, Palo Alto water bills
($139) are below average ($143)
among agencies with 100% SFPUC
supply.
Source: Agency websites and rate study proposals. Bills are based on either fiscal year 2026 or
calendar year 2026 rates.
4
5
FY 2027 Rate Increase Drivers
10% Rate Increase Drivers
•Increase reserve by $2.37M to $15.9M to comply with
the reserve target of $14.2M
•Assumed SFPUC wholesale rate increase of 7.6%
•Increased capital spending planned for FY 2027 – 2031
•Seismic improvements for two reservoirs
•Water main replacement projects
•Inflationary increases to operating costs, offset by new
cost reductions and retirement of the Series 2011
Revenue Bonds
•Revenue impacts from recent drought resulted in long-
term decline in water consumption. Low rate increases
in prior years
If sales were flat
relative to pre-
drought demand, the
rate increase for FY27
would be 8%.
5
Water Cost and Revenue Projections
10%9%
10%10%
10%
<- Preliminary Forecast Rate Projections
* Costs exclude transfers
from the Operations Reserve
to the Capital Reserve
6
7
Water Operations Reserve Projections
Risk Assessment:
Based on the maximum historical
non-commodity revenue variance for the
past 10 years
Reserve Target:
90 days of O&M and commodity expense
Reserve Maximum:
120 days of O&M and commodity expense
Reserve Minimum:
60 days of O&M and commodity expense
7
8
Water CIP Reserve Projections
Reserve Maximum:
Average annual CIP
budget for 48 months of
budgeted CIP expense
Reserve Minimum: 20%
of the maximum CIP
Reserve guideline level
8
CIP reserves are increasing in
FY2030 and FY2031 in anticipation
of ongoing large WMR projects
Water Reserve Projections
9
Cash On Hand and Credit Ratings
•A measure of cash, investments, and equivalents (cash/operating expenses*365)
•Allows for apples-to-apples comparison to peers
•A key financial metric used by rating agencies. The water fund's outstanding revenue bonds are
currently rated 'AAA' by S&P Global Ratings. Days Cash levels are important for maintaining a high
rating.
10
TITLE 40 FONT BOLD
Subtitle 32 font
Water Conservation Programs & Ways to Save
•Water Conservation Tools and Resources:
•WaterSmart customer web portal
•Automated leak alert emails based on hourly AMI data
•Waterfluence large landscape irrigation budget program
•Seasonal landscape workshops
•Landscape efficiency rebates in partnership with Valley Water:
•Landscape Conversion
•Graywater Laundry to Landscape
•Irrigation Upgrades
•Stormwater Rebates
Learn more at paloalto.gov/waystosave
11
12
Communication and Outreach
Key Messages
•Reasons for rate changes, including SFPUC rate increase and
cost for local water distribution maintenance and operation
•What the city is doing to keep costs down
•City services to help customers use water efficiently, leak
alerts, high water usage, and to keep utility bill costs low
Outreach
•Public Meetings: UAC,Finance, City Council
•Digital Communication: website, social media,
email newsletters, city blog, videos
•Direct Mail: utility bill inserts, Proposition 218 and
SFPUC rates notices
•Local Media Engagement: articles, interviews
Palo Alto's water comes from
the San Francisco
Regional Water System
Water quality is tested daily
12
Recommendation
Staff Recommends the Utilities Advisory Commission Recommend that the
City Council Adopt a Resolution:
•Approving a Fiscal Year 2026 Transfer of up to $5.5 million to the CIP
Reserve from the Operations Reserve;
•Approving the Fiscal Year 2027 Water Utility Financial Forecast; and
•Amending Rate Schedules (Attachment B) effective July 1, 2026:
•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)
•W-7 (Non-Residential Irrigation Water Service)
13