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HomeMy WebLinkAboutStaff Report 2602-5990CITY OF PALO ALTO Climate Action and Sustainability Committee Friday, March 06, 2026   Agenda Item     2.Grid Modernization Update; CEQA Status - Not a Project Late Packet Report Added, Staff Presentation Climate Action and Sustainability Committee Staff Report Report Type: ACTION ITEMS Lead Department: City Clerk Meeting Date: March 6, 2026 Report #:2602-5990 TITLE Grid Modernization Update; CEQA Status - Not a Project This item will be a late packet publication released on 2/26/26. 7 9 1 7 Climate Action and Sustainability Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Utilities Meeting Date: March 6, 2026 Report #:2507-5030 TITLE Grid Modernization Update; CEQA Status - Not a Project RECOMMENDATION This is a discussion item and no recommendation is requested. EXECUTIVE SUMMARY Palo Alto’s Electric Grid Modernization Project (Grid-Mod) was developed to prepare the City’s electric grid in anticipation of building and transportation electrification and to improve system reliability. Palo Alto’s electric grid can be characterized as an efficient but aged system that has, in large part, reached the end of its useful life. Some in-service equipment was originally installed in the mid 1950’s and has served the City well over those 70+ years. However, due to both the age of the electric system and electrification’s forecasted increased energy demands, the City’s grid must be reconstructed and modernized to serve these higher loads while maintaining system reliability. To prepare for Palo Alto’s increased electric demands, it will be cost effective, at the time of replacing legacy system components, to modernize by incorporating newer technologies, implementing current and emerging utility best practices, and preparing for higher adoption rates of self-generation and energy storage. However, the age and size of Palo Alto’s system requires a large financial commitment, two to three times historical funding levels, over many years to fully support electrification within the residential sector. The initial estimate for Grid- Mod was approximately $300 million over a five-year period. Current staff estimates, with distribution upgrades (local transformers and secondary) paced to match customer participation, reach $342 million (present value) between FY 2026 and FY 2034. If all 12kV distribution upgrades are completed before FY 2034 staff-estimated costs for Grid-Mod through FY 2034 are $443 million (present value). Staff will need to integrate these estimates into strategic discussions regarding matching the community’s pace for electrification, how costs could vary depending on faster or slower rates of residential electrification, and how much aging infrastructure replacement is needed regardless of that pace. Staff does expect installation costs will follow 7 9 1 7 expected inflation trends for construction costs. However, as adoption rates ramp up staff expect to rely more heavily on contracted services that come with a higher cost than internal staff resources. BACKGROUND 1 indicated that to meet the 80x30 goal, the City would need, among other things, to electrify all single-family homes by replacing natural gas equipment with efficient electric appliances and support electric vehicle charging. The 2020 study estimated peak demands from single-family dwellings at 8.5kW without consideration of home EV charging. When including a single, level-2 EV charger, customer peak demands could rise to 19.5kW. Compared to historical average peak demands of 1 to 2kW per home, residential electrification represents a significant new demand on CPAU’s distribution system. Due to the higher expected demands, Palo Alto’s electric system requires extensive upgrades to increase capacity while replacing aging equipment to improve system reliability. ANALYSIS 1 City of Palo Alto (2020), Preliminary Analysis of the Utility Costs & Staffing Impact to Electrify All Single-Family Residences in Palo Alto 7 9 1 7 Elimination of Legacy 4kV Systems While Increasing Capacity 7 9 1 7 staff expects the rate of these failures to increase until the equipment is replaced. Both the Hopkins (installed 1967) and East Meadow (installed 1955) substations are beyond their expected life and should be reconstructed to maintain system reliability. Additionally, the Hopkins and East Meadow substations are 4kV stations and cannot be quickly restored following a major equipment failure. Staff are beginning the design phase to replace both Hopkins and East Meadow substations to mitigate the risk of failed equipment while increasing system capacity to serve the higher demands of electrified homes. Due to four-to-five-year lead times of substation power transformers, these projects will begin the design phase in FY 2026 but will not complete construction until FY 2030 or after. Once completed, the reconstructed East Meadow and Hopkins substations allow offloading (transferring of customer loads to adjacent substations) the Colorado substation to facilitate needed equipment replacements within that substation. 7 9 1 7 Tentative Project Schedule Table:1 – General timelines for key Grid-Mod Projects in support of electrification alongside estimated project costs adjusted for inflation. 7 9 1 7 Table 2: Key Grid Mod Projects and Expected Spend Rates Table:2 - General timelines for key Grid-Mod Projects with 12kV upgrades spread out over a longer period but tied directly to residential customers speed to install efficient electric appliances. Estimated project costs adjusted for inflation. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT th, 2026. During the meeting the UAC generally showed support to align the pace of distribution system reconstructing with the pace of Palo Altans’ adoption of electrification. The Commissioners noted that the slower pace will help maintain lower electric rates which ultimately supports fuel- Project Description FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 FY2034 Sub-Transmission Reconductor 4kV Substation Conversions Colorado Substation Upgrades Adobe Creek Substation Upgrades Colorado 12kV Substation Upgrades 4kV Distribution Conversions Grid-Mod 12kV Distribution Upgrades Grid-Mod Estimate Costs w/ inflation ($ Millions)$15.65 $36.54 $37.11 $24.71 $39.81 $59.89 $85.73 $58.80 $32.17 7 9 1 7 switching. UAC Commissioners noted that this approach will require closely tracking and matching the speed of residential building permits related to electrification. Commissioners further noted that it will be important to support the implementation of S/CAP initiatives and any resulting programs that ramp up fuel switching. ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: March 6, 2026 PaloAlto.gov Grid-Modernization Update Fiscal Year 2026 Mid-Year Presenters: Terry Crowley TITLE 40 FONT BOLD Subtitle 32 font Grid Modernization Background •The Grid Modernization (Grid Mod) project replaces existing electric utility facilities to improve system reliability while preparing to meet the demands of electrification. •Historically residential dwellings peak between 1 to 2 kilowatts (kW), under electrification these peak demands could increase to range between 8.5 to 19.5kW •In FY2025 Grid Mod completed a pilot area increased capacity for roughly 900 homes. •Cost to complete the pilot are was $10 million or roughly $11,000 per dwelling. •Future work includes reconstructing legacy 4,000volt (4kV) systems, upgrading sub- transmission capacity, strengthen feeder ties between substations, and modernizing the Colorado Substation PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font The projects below are focused Grid-Modernization efforts along side present dollar rough cost estimates. •Reconductor roughly 3 miles of overhead 60kV sub-transmission; $4.6 million •Convert 4kV distribution systems to 12kV, roughly 2,900 customers; $32 million •Reconstruction of four 12kV Substations: East Meadow, Hopkins, Adobe Creek and Colorado; $96 million •Reconstruction of 115kV and 60kV components of Colorado Substation; $41 million •Upgrade existing 12kV distribution systems; $244 million •Strengthening 12kV feeder ties to improve reliability and capacity; $25 million Proposed projects and project budgets are subject to the FY2027 budget adoption. Ongoing capital improvement work (pole replacements, replacement of failed equipment, etc.) will continue to need additional funding. Key Grid Modernization Projects PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font The 60kV sub-transmission system provides a networked system across the city to increase system reliability. •Planning to reconductor roughly 3 miles of overhead 60 kV sub-transmission; $4.6 million •Work will mitigate conductor overloads under certain outages •Expecting to complete work by end of FY2029 Sub-Transmission System PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font The City operates an aging 4kV system serving roughly 2,900 customers. •Convert 4kV distribution systems to 12kV; $32 million •Current system is an island, without redundancy from adjacent substations or circuits •System includes two 4kV substations constructed in the 1950’s and 1960’s •Conversion/reconstruction will allow ability to serve future electrification energy needs while improving reliability •Distribution work is planned to be complete by end of FY2028, 4kV substations by FY2032 Convert 4kV Systems PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font Reconstruct of four 60/12kV substations to increase capacity and improve reliability. •Reconstruction of four Substations, at East Meadow, Hopkins, Adobe Creek, and Colorado; $96 million •Both Hopkins and East Meadow are 4kV substations operating on 60 to 70-year-old equipment. Once complete these stations provide redundancy for Adobe Creek and Colorado Substations •Adobe Creek and Colorado Substation were constructed in the 1970’s and show signs of age and limited capacity •Due to long material delivery times, work is planned to be complete between FY2031 and FY2034 Substation Reconstruction PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font Reconstruct and replace major equipment in Colorado Substation. •Reconstruction of 115kV and 60kV components of Colorado Substation; $41 million •Combined projects will upgrade substation property, replace a 115/60kV bank, and reconstruct the 60kV bus •Equipment targeted for replacement was originally installed in the 1970’s •Implementation of current utility best practices is expected to improve reliability by at least twofold •Due to long material delivery times, work is planned to be complete between FY2028 and FY2031. Colorado 115 and 60kV Improvements PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font Reconstruct 12kV Distribution System for electrification and improved system reliability. •Upgrade existing 12kV distribution systems; $244 million and strengthening 12kV feeder ties; $25 million •Strengthen circuit ties between substations increasing reliability and allowing clearances for maintenance and reconstruction •Upgrading 12kV distribution components (transformers, wires) for future electrification loads •Primary focus of work is to strengthen feeder ties first, then replace transformers as customers electrify •Work is expected to be ongoing and last beyond FY2034 12kV Distribution Improvements PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font •Focusing on meeting electrification demands “when and where” it appears requires flexibility and responsiveness from engineering and operations. •AMI data can identify overload transformers and implement Grid-Mod upgrades while addressing overload situations. •Reducing residential EV charging demands through plug- sharing devices. This limits overall build and customer costs. •Customers with energy demands larger than an expected system average required to fund system upgrades beyond the standard grid-mod build 12kV Distribution Improvements (cont.) PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font Pacing reconstruction of the 12kV system to match customer adoption defers roughly $118 million in debt financing within the next five-years. Forecasted Costs & Timeline PaloAlto.gov Sub-Transmission Reconductor 4kV Substation Conversions Colorado Substation Upgrades Adobe Creek Substation Upgrades Colorado 12kV Substation Upgrades 4kV Distribution Conversions Grid-Mod 12kV Distribution Upgrades $16 $37 $37 $25 $40 $60 $86 $59 $32 TITLE 40 FONT BOLD Subtitle 32 font •Positive comments about charging for capacity beyond an expected normal and various ideas and suggestions: Provide lower charges for efficient electrification (like on a 100A panel) Have a fixed or capacity charge based on peak demand Allow/plan for customer owned batteries to lessen a capacity or fixed charge If charging for capacity, be careful about determining the baseline capacity allowance before higher fees are charged •Communicate how to charge EVs at slower rates to reduce peak demands •Positive comments about the flexible approach to adding capacity •The peak demands cited for electrified homes seemed high – use AMI data to determine actual loads Working Group Feedback PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font •Question of how much managed charging could impact the cost of capacity upgrades Are there additional ways to save money on Grid-Mod beyond flexible approach to adding capacity? •Would there be savings to focus first on mixed-use areas where commercial property owners share cost? •Talk to Planning about where growth will be occurring •Look at the value of batteries integrated, now or future accommodations, at substations Working Group Feedback (cont.) PaloAlto.gov Considerations 13 •Staff’s recommended approach to upgrade the 12kV distribution system (transformers & secondary) at a pace matching residential adoption of electrification. •Should staff develop an expected demand for average residential dwellings to be funded by Grid-Mod, above which the property owner would be responsible for any additional costs. •Other Committee concerns.