HomeMy WebLinkAboutStaff Report 2512-5607CITY OF PALO ALTO
Finance Committee
Regular Meeting
Tuesday, April 21, 2026
Agenda Item
1.Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year
2027 Gas Utility Financial Forecast, Reserve Transfer, General Fund Transfer, and
Amending Rate Schedules G-1 (Residential Gas Service), G-2 (Residential Master-Metered
and Commercial Gas Service), and G-3 (Large Commercial Gas Service) ; CEQA Status: Not
a project under CEQA Guidelines Section 15378(b)(5)
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Finance Committee
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Utilities
Meeting Date: April 21, 2026
Report #: 2512-5607
TITLE
Recommendation to the City Council to Adopt a Resolution Approving the Fiscal Year 2027 Gas
Utility Financial Forecast, Reserve Transfer, General Fund Transfer, and Amending Rate Schedules
G-1 (Residential Gas Service), G-2 (Residential Master-Metered and Commercial Gas Service), and
G-3 (Large Commercial Gas Service) ; CEQA Status: Not a project under CEQA Guidelines Section
15378(b)(5)
RECOMMENDATION
Staff requests that the Finance Committee recommend that the City Council adopt a resolution
(Attachment A):
1. Approving the Fiscal Year 2027 Gas Utility Financial Forecast shown in this staff report and
attachments, which includes amending the Gas Utility Reserve Management Practices;
and
2. Approving the transfer of up to $1.5 million from the Gas Utility Operations Reserve to
the Distribution Rate Stabilization Reserve at the end of FY 2026; and
3. Transferring up to 18% of gas utility gross revenues received during FY 2025 (up to $10.7
million) to the General Fund in FY 2027; and
4. Amending Rate Schedules (Attachment A, Exhibit 1) effective July 1, 2026 (FY2027):
a. G-1 (Residential Gas Service)
b. G-2 (Residential Master-Metered and Commercial Gas Service)
c. G-3 (Large Commercial Gas Service)
On March 31, 2026, the Utilities Advisory Commission (UAC) met and discussed this item and
made the following recommendations to the City Council:
1. Approving the Fiscal Year 2027 Gas Utility Financial Forecast shown in this staff report and
attachments, which includes amending the Gas Utility Reserve Management Practices;
and
2. Approving the transfer of up to $1.5 million from the Gas Utility Operations Reserve to
the Distribution Rate Stabilization Reserve at the end of FY 2026; and
3. Maintain a rate increase of no more than 7% through a combination of reducing the
General Fund Transfer and potentially using other levers such as reserve levels; and
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4. Amending Rate Schedules (Attachment A, Exhibit 1) effective July 1, 2026 (FY2027) by 7%:
a. G-1 (Residential Gas Service)
b. G-2 (Residential Master-Metered and Commercial Gas Service)
c. G-3 (Large Commercial Gas Service)
The Stakeholder Engagement section below contains more information about the UAC’s
discussion and describes the amount that the General Fund Transfer would need to be reduced
in FY 2027 to meet the 7% overall rate increase together with the increases in future rates that
would be necessary. Staff does not recommend tapping reserves further as the operations
reserve is projected to be below adopted reserve guidelines and the risk assessment level at the
end of FY 2027 and the CIP reserve balance is currently $0 and that is projected to remain at $0
at the end of FY 2027. Further reductions in reserves at this time could pose risks to the Gas
Utility’s financial stability and may affect its ability to maintain adequate funding for the
continued provision of safe and reliable service.
EXECUTIVE SUMMARY
This staff report provides the Finance Committee with a financial forecast for the Gas Utility and
provides an overview of the utility’s operations costs, capital costs, and debt and includes
recommended rate adjustments required to maintain the utility’s financial health.
The Gas Utility financial forecast indicates a need for a 9% overall rate increase for FY 2027, which
includes a 14.5% increase to distribution rates, assuming no change in supply costs, effective July
1, 2026. Additionally, this forecast projects overall rate increases of 7% in FY 2028, and 6%
annually from FY 2029 through FY 2031.
Staff updated cost projections for the FY 2027 to FY 2031 five-year financial planning period using
the most recent load forecast, cost data, and escalation assumptions. Relative to the FY 2026
financial forecast 1, the updated forecast projects total gas usage to be about on average 4% lower
in the FY 2027 to FY 2031 period, resulting in decreased retail sales revenue. Total expenses are
expected to be about 8% lower than projected over the same period, driven primarily by lower
supply purchase due to lower sales, and lower general fund transfers from lower revenues.
Lower-than-projected gas usage is driving the need for a 9% overall rate increase in FY 2027. In
FY 2025 gas usage was 8% below the forecast; staff expects usage to continue to drop by
approximately 1.1% annually from FY 2027 through 2031. Lower sales have prevented reserves
from recovering to adequate levels. Operating and Capital Improvement Project (CIP) expenses
in the financial planning period will also rise, to pay for critical gas main replacements.
1 FY 2026 Financial Forecast for the Gas utility (approved June 16, 2025) is described in the Finance
Committee Staff Report 2412-3868:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=64777&dbid=0&repo=PaloAlto
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Table 1 compares the overall rate trajectories reflected in the FY 2026 financial forecast, the FY
2027 preliminary rates report, and the current financial forecast proposal for the Gas Utility.
Table 1: Current Year (FY2026) and Projected Overall Rate Trajectory (FY 2027 to FY 2031)
During the preliminary rate discussion with the UAC on November 5, 2025 2, and the Finance
Committee on November 18, 2025 3, staff presented a rate trajectory of 9% in FY 2027, 7% in FY
2028, and 6% annually from FY 2029 through FY 2031. The current forecast maintains the same
rate changes but reduces the rate increase from 8% to 6% in FY 2031.
BACKGROUND
The City of Palo Alto Utilities (CPAU) provides electricity, water, wastewater, natural gas, and
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 is committed to transparency with utilities customers about the reason for rate changes,
including explaining the cost drivers, benefits to customers, what the City is doing to manage
costs for ratepayers, and the services and programs provided by the City to help customers keep
utility bill costs affordable. Staff prepare the financial forecast annually as part of the rate-setting
cycle. Attachment A, Exhibit 3 contains a set of Reserves Management Practices describing the
reserves. Attachment A, Exhibit 4 outlines CPAU’s plan for communicating rate changes to
customers. Next steps include presenting an overview of the financial forecast and rate change
proposal for each utility service to the Finance Committee in April and to the City Council in June
2026.
ANALYSIS
FY 2025 Costs and Revenues
Actual revenues in FY 2025 were approximately $5.6 million (8%) below projections in the FY
2026 financial forecast, mainly due to reduced revenues from lower gas commodity prices and
2 Staff Report 2503-4364:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84164&dbid=0&repo=PaloAlto
3 Staff Report 2508-5119:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83887&dbid=0&repo=PaloAlto
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decreased gas consumption. On the expense side, supply costs were about $3.2 million (14%)
lower than projected, for the same reasons. Operations expenses were about $2.6 million (7%)
lower than projected, due to lower than projected operations and maintenance costs. Lastly, CIP
expenses were about $0.3 million (8%) lower than expected due to lower Distribution System
Improvements and Gas Meters and Regulators costs. Total net costs in FY 2025 were about $0.5
million lower than projected in the FY 2026 financial forecast. Table 2 summarizes the variances
from forecast.
Table 2: FY 2025 Actuals vs. Prior Year’s Forecast ($000)
Sales revenues lower than forecast,
Low Residential Tier 2 Consumption
5,554 Revenue Decrease
Supply purchases lower than forecast (3,237) Cost Decrease
Lower operations costs (2,561) Cost Decrease
CIP costs lower than forecasted (304) Cost Decrease
Projections
Overview
Compared to the prior forecast, FY 2026 revenues are projected to be about $4.9 million (6%)
lower, primarily due to lower projected sales revenues and connection fees revenues, offset by
higher other revenues, including about $1.3 million in revenues from uncashed Green settlement
refund checks. On the expense side, supply purchases are expected to be about $4 million (15%)
lower compared with last year’s forecast, driven by lower projected consumption and lower
projected market-based commodity and carbon offset costs. Distribution operations costs in FY
2026 are projected to be lower by about 1.3 million (4%), compared with last year’s forecast,
mainly due to lower projected operations and maintenance costs, including the deferral of the
Crossbore project from FY 2026 to FY 2027. Additionally, CIP costs in FY 2026 are expected to be
about $3.7 million (23%) higher, primarily due to higher projected CIP costs.
Looking ahead to the five-year forecast period from FY 2027 to FY 2031, supply-related costs are
expected to increase at an average annual rate of 2%, with commodity costs projected to
decrease by about 4% annually, while Carbon Offset and Cap-and-Invest compliance costs are
expected to increase annually by about 4% and 12% respectively, due to higher projected Carbon
Offset and Cap-and-Invest prices. Operations expense are forecasted to rise annually by an
average of 4% for the same period, while CIP costs are expected to increase annually by an
average of 10% from FY 2025 to FY 2031.
Figure 1 illustrates the actual revenues and expenses through FY 2025, along with projections
through FY 2031. The rate change percentages show the revenue percentage changes, excluding
supply-related rate changes.
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Figure 1: Gas Utility Expenses, Revenues, Rate Changes Excluding Supply-Related Changes
*FY25 Commitments and Reappropriations reserves balances for Operations and Capital Investment are
anticipated to be utilized in FY 2026 and FY 2027.
Note: Excludes Cap-and-Invest auction sales revenue and Cap-and-Invest-related expenses, which directly impacts
the Cap-and-Invest reserve.
Load Forecast
Gas usage in Palo Alto declined from FY 2020 to FY 2022, mainly due to the impacts of the COVID-
19 pandemic. However, FY 2023 saw an increase in gas usage, likely driven by a modest recovery
from COVID-19 effects and colder than average winter temperatures. However, like previous
declines in gas usage due to economic factors, it is unlikely that consumption will return to pre-
pandemic levels. Instead, a long-term decline in gas usage is expected. Further changes, such as
the voluntary replacement of gas appliances with electric appliances and building electrification
are also expected to lower long-term usage. Staff will conduct strategic planning and financial
analysis separately from this financial forecast to develop a financial and infrastructure strategy
for the Gas Utility as the community electrifies. Any insights from that analyses will be integrated
into future financial forecasts.
Staff worked with a consultant to assist in the development of an updated gas load forecast,
which included statistically adjusted end-use (SAE) modeling, weather-normalized modeling,
economic factors, and high electrification assumption. The FY 2025 actual gas supply purchases
totaled 25,436,120 therms, representing a decrease of about 8% compared to projections in the
FY 2026 financial forecast. The lower-than-anticipated gas supply purchases in FY 2025 were
primarily due to lower residential consumption, particularly during the winter season, along with
improvements in energy efficiency and electrification-driven fuel-switching away from gas. The
result, shown in Figure 2, projects gas supply load for FY 2027 at 25,239,664 therms, about 3%
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lower than prior year’s forecast. This downward projection was driven by weather-normalized
lower consumption in FY 2025. Over time, declining gas consumption is expected to increase
pressure on rates, as rising and fixed costs for gas operations and distribution will need to be
allocated across fewer units sold.
Figure 12: Gas Supply Load Forecast
Revenues
This financial forecast bases sales revenue projections on the load forecast. Except where stated
otherwise, these load forecasts are based on normal weather. Variations in weather have a
substantial impact on revenues. Changes in customer behavior, gas appliance efficiency
improvements, and electrification also impact gas usage. Staff regularly monitor emerging trends
and make updates to forecasts as needed.
Expenses
The Gas Utility’s costs fall into two main categories: gas supply costs and distribution-related
costs. Gas supply costs are the cost of the gas itself, transmission of the gas to Palo Alto, and
environmental expenses. These supply-related costs vary with the market or are set by other
entities and are passed through to customers. Distribution-related costs cover the operation and
capital improvement of the distribution system, and overall business operations, and are
collected through a distribution rate adjusted annually. Table 3 shows total Gas Utility costs. The
operations and capital costs are considered distribution costs.
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Table 3: Gas Utility Costs ($000)
Fiscal Year
Commodity 8,918 10,270 11,383 10,717 10,373 10,263 9,631
Transportation 6,610 6,800 6,915 7,019 7,174 7,347 7,635
Carbon Offset 961 1,147 1,198 1,244 1,291 1,340 1,411
Cap-and-Invest 2,669 3,867 4,032 4,613 5,241 5,920 6,361
Operations 33,375 35,361 36,635 36,834 38,786 40,316 42,178
Capital 8,176 19,499 22,829 11,914 17,776 11,411 15,266
Supply Costs
Overall, supply expenses are projected to increase by an average of about 2% annually from FY
2027 through FY 2031. Gas commodity costs, which are the most variable component, account
for the largest share of overall costs. Although market forecasts currently indicate that gas prices
will remain relatively steady over the next several years, those forecasts are highly uncertain. The
financial forecast assumes that gas prices decrease by an average of about 4% annually during
the forecast period.
Transportation and environmental compliance costs are expected to rise gradually over the
forecast period. PG&E's local transportation rates, which have experienced steady increases in
recent years, are expected to rise by an average of 3% per year throughout the forecast period 4.
Because the Gas Utility is regulated under California’s greenhouse gas (GHG) regulations, the Gas
Utility incurs Cap-and-Invest compliance costs. The Cap-and-Invest program has been formally
renamed from Cap and Trade by the State. Staff will mention the program as Cap-and-Invest for
the remainder of this staff report. The regulation requires Palo Alto to purchase allowances based
on actual gas load. Staff estimates that Cap-and-Invest allowance costs will increase on average
by 12% annually over the forecast period.5
The Gas Utility also generates revenue from the sale of free allocated allowances. In FY 2024 and
in accordance with Council-approved Cap-and-Invest revenue uses (Council Resolution 100776)
and Council’s goal of reducing GHGs 80% by 2030, Palo Alto began allocating Cap-and-Invest
reserves to support programs such as the Full-Service Heat Pump Water Heater Program. In
4 The transportation rates for calendar years 2023-2026 reflect the rates in the adopted PG&E 2023 Gas
Transmission & Storage (GT&S) Cost Allocation and Rate Design (CARD) (D.24-03-002), afterward a 3% escalation
rate is applied.
5 Based on allowance broker quotes.
6 Council Resolution 10077:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=61567&dbid=0&repo=PaloAlto
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Calendar Year 2024, Palo Alto received about $3.35 million in revenue from freely allocated
allowances from the State. About $0.72 million was spent on the heat pump water heater direct
installation and incentive program, while the remaining $2.63 million was transferred to the Gas
Cap-and-Invest reserve at the end of FY 2025 to fund future gas GHG emissions reduction
programs. The Gas Cap-and-Invest reserve has about $15.05 million at the end of FY 2025. The
types of S/CAP related expenditures for Gas Cap-and-Invest revenues are for residential and non-
residential building electrification pilot programs.
The City also has a Carbon Neutral Natural Gas plan7, which involves purchasing carbon offsets
equivalent to the emissions generated by the community's natural gas use. These high-quality
offsets fund projects that reduce GHG emissions, such as forest conservation or methane capture
from dairy farms. While purchasing carbon offsets is an important initial step in reducing carbon
emissions, the long-term goal is to decrease the community's natural gas usage by maximizing
efficiency and transitioning to high-efficiency electric appliances where feasible. Carbon offset
purchases totaled about $1.1 million in FY 2025, and carbon offset costs are projected to rise by
4% annually through the forecast period.
In response to the dramatically high natural gas prices that occurred during winter 2022-23 and
to mitigate the impact of short-term price spikes, staff implemented a gas hedging program
effective beginning winter 2023-24. The program includes a gas price mitigation adder in the
customer’s gas commodity charge while maintaining the practice of purchasing gas at market
prices. Funds collected from the gas price mitigation adder accrue in the Gas Distribution Rate
Stabilization Reserve and can be used to offset the impact of a potential gas market price spike
above the maximum gas commodity charge to customers. Through this program, about $1 million
has been funded and allocated in the Gas Distribution Rate Stabilization Reserve at the end of FY
2025. The program is designed to fund the reserve over a three-year period through the adder,
which is expected to result in approximately $4.5 million over three years to hedge against future
short-term gas price spikes.
Operations
Operations costs are projected to increase by about 4% annually on average from FY 2027
through FY 2031, primarily driven by increases in the general fund transfer and general cost
escalation. The operations costs in this forecast include $0.7 million for the cross-bore program
previously budgeted in FY 2026; this program has been deferred to FY 2027. This safety program
ensures that gas pipelines have not crossed through sewer laterals, which is infrequent but
possible during trenchless installation. This "cross-bore" configuration poses a risk of gas leaks as
due to accidental cut by a plumber using a cutting tool to clear a sewer line. While a majority of
sewer laterals have been inspected, staff has come across several services which are unable to
be scoped, due to either infiltration by roots or broken/collapsed pipe segments. Since the
7 Staff Report 7441: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=80132&dbid=0&repo=PaloAlto
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program’s inception, a total of 23 gas crossbores and 32 other utility crossbores have been found
and repaired. Figure 3 shows the actual and projected distribution operations costs.
Figure 3: Gas Distribution Utility Operations Costs
Capital Improvement Program
Staff anticipate annual capital expenditures will vary during the forecast period due to plans for
larger main replacement projects every other year, instead of smaller projects every year. This
main replacement schedule allows the Gas Utility to meet its main replacement needs while
addressing challenges in the current construction market, and optimizing current staffing
resources. Overall CIP costs are expected to increase by around 10% on average annually from
FY 2025 through FY 2031; this is due to higher projected CIP project and personnel costs.
On May 9, 2024, the Gas Utility received a recommendation letter from the U.S. Department of
Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) for the FY
2023 Natural Gas Distribution Infrastructure Safety and Modernization (NGDISM) Grant. Staff
expects this grant to provide approximately $16.5 million for capital-related work for
replacement of 4.8 miles of Polyvinylchloride (PVC) and steel pipe and purchase of methane
reducing equipment. As a condition of the grant, CPAU must maintain funding of the already-
planned Gas capital work over the next five-year period. This grant will replace and provide the
full funding for GMR 25 and construction will take place in FY 2026 and FY 2027. The original GMR
25 budget of $9.8 million, initially scheduled for FY 2025, has been reallocated and split between
GMR 26 and GMR 27, with construction now planned for FY 2027 and FY 2029, respectively. CPAU
Projection
Administration
Operations
10
will continue to look for other grant opportunities to help fund the replacement of PVC and steel
distribution mains in the gas system.
This financial forecast also includes transfers of about $6 million each year in FY 2030 and FY 2031
from the Operations Reserve to the CIP Reserve to gradually increase the currently depleted CIP
Reserve to within the guideline range by end of FY 2030. The adopted CIP reserve guideline
ranges from a minimum of $3.1 million to a maximum of $15.5 million.
As residential and commercial buildings in Palo Alto are electrified, the City may be able to retire
some PVC and steel mains in neighborhoods where these materials exist. Staff is developing an
efficient phasing plan for electrification and the scaling back of the gas infrastructure, while
assessing both operations and financial implications.
The prior financial forecast included CIP budgets of $3 million annually in gas decommissioning
costs from FY 2028 through FY 2030. This project has been removed from the current year’s
forecast pending additional modeling analysis.
Table 4 shows the CIP cost categories and projected spending.
Table 4: Projected CIP Spending ($000)
*Includes unspent funds from previous years carried forward or reappropriated
**A portion of project salaries and benefits has been allocated to the Gas Main Replacement budget in the table
above for FY 2027-31, with a larger share assigned in FY 2027 to meet grant reimbursement requirements
Debt Service
The Gas Utility currently makes debt service payments on one bond issuance. Table 5 shows
debt service for this bond and debt service coverage ratio for the financial forecast period. Debt
service on this bond will be completed by the end of FY 2026.
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Table 5: Debt Service Coverage Ratio ($000)
Revenues 79,185
Expenses (Excluding CIP and Debt Service) (44,956)
Net Revenues 34,229
Coverage Ratio 4,270%
Reserves
The Operations reserve level was below the minimum at the end of FY 2024 and FY 2025. This is
due to about a total of $4.7 million in FY 2024 and $8.6 million in FY 2025 (shown in hashed red
bar in the figure below) being held in the CIP Reappropriations Reserve. The full $16.5 million is
expected to be fully reimbursed through grant funding to match actual expenses as stated in the
CIP section above, therefore, the actual Operations Reserve is expected to remain healthy.
While the Operations Reserve is projected to remain above the minimum guideline at the end of
FY 2026, higher-than-expected expenses are forecasted which may reduce the balance below the
risk-assessment threshold at the end of FY 2027. The reserve is then projected to recover above
the minimum guideline level by FY 2028 and return to target levels by FY 2031. Figure 4 shows
the actual and projected year-end balance.
Figure 4: Operations Reserve Projection
Table 6 summarizes the risk assessment calculation for the Gas Utility through FY 2031. The risk
assessment is intended to be covered by the Operations Reserve and includes the revenue
shortfall that could occur due to:
1. Maximum non-commodity revenue percentage variance from the previous ten years; and
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2. An increase of 10% of planned system improvement CIP expenditures for the budget year.
CIP Contingency for FY 2030 and after is not needed due to resuming the use of the CIP
reserve.
Table 6: Gas Distribution Risk Assessment ($000)
Total Distribution Revenue 39,847 45,114 49,670 53,641 57,877 62,454
Risk of Revenue Loss @14% 5,591 6,330 6,970 7,527 8,121 8,763
CIP Budget 19,499 22,829 11,914 17,776 - -
CIP Contingency @10%* 1,950 2,283 1,191 1,778 - -
*CIP budget is excluded from FY 2030 onward
Reserve Transfers
Staff estimates that the gas price mitigation adder in the gas commodity charge will collect about
$1.36 million in FY 2026 for the gas hedging program 8. Although these funds are initially collected
in the Operations Reserve, they should be transferred to the Gas Distribution Rate Stabilization
Reserve to be available to mitigate the impact of potential gas market price spikes exceeding the
maximum gas commodity charge to customers. Staff proposes transferring up to $1.5 million
from the Gas Utility Operations Reserve to the Gas Distribution Rate Stabilization Reserve at the
end of FY 2026. The projected transfer is listed in row 12 in Table 7 below and the amount is
included in part of the Operations transfer out in row 11. The exact transfer amount will be
determined at year end based on calculations aligned with the gas hedging program.
Reserve Balances
Figure 5 shows the CIP Reserve balances. The CIP Reserve is fully depleted (zero balance);
however, planned transfers in FY 2030 and FY 2031 will replenish the CIP Reserve and reach the
minimum guideline level by FY 2030. Per the Reserves Management Practices (Attachment A,
Exhibit 3), Section 6, any rate plan that does not return CIP reserves above minimum levels within
one year requires Council approval.
8 Staff Report 2401-2510:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82970&dbid=0&repo=PaloAlto; the utility collected
about $1.05 million for this program in FY 2025, which was transferred from the Operations Reserve to the Gas
Distribution Rate Stabilization reserve at the end of FY 2025.
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Figure 5: Gas CIP Reserve Levels
Figure 6 shows year-end reserve balance levels for each reserve. Table 7 shows reserve starting
and ending balances, revenues, transfers expenses, capital program contribution and
operations reserve guideline levels.
Figure 6: Gas Utility Year-End Reserves Levels
Note: Excludes Cap-and-Invest Reserve
Projection
Distribution Rate
Stabilization
Reappropriations
Operations Reserve
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Table 7: Operations, CIP, Cap-and-Invest, and Debt Service Reserve Starting and Ending
Balances, Revenues, Transfers To/(From) Reserves, Capital Program Contribution To/(From)
Reserves, Total Reserve Changes, and Reserve Guideline Levels ($000)
*Operations Reserve represents the Gas Supply Fund Rate Stabilization Reserve and the Gas Distribution Fund
Operations Reserve combined.
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Proposed Rates
Table 11 shows the current and proposed monthly service charges, and Table 12 shows the
current and proposed distribution volumetric charges for all rate schedules. As previously
noted, supply-related charges are pass-through charges that are updated periodically. The latest
charges are shown in the City’s Rates website 9. The proposed rates reflect the proposed rate
increases compared to the current rates, which are based on the Natural Gas Cost of Service
and Rate Study and were adopted by City Council at the December 1, 2025 meeting 10.
Table 11: Current and Proposed Monthly Service Charges
Rate Schedule (as of 2/1/2026)
Proposed Rates
(effective 7/1/2026)
Change
($)
Change
(%)
(Residential)
(Small Commercial)
G-2 (≤ 220 scfh)
G-2 (> 220 and < 4,000 scfh)
G-2 (≥ 4,000 scfh)
(Large Commercial)
Table 12: Current and Proposed Gas Distribution Charges
Rate Schedule (as of 2/1/2026)
Proposed Rates
(effective 7/1/2026)
Change
($) (%)
(Residential)
Tier 1 Rates $ 1.0456 $ 1.1972 $ 0.1516 14.5%
Tier 2 Rates 2.5203 2.8857 0.3654 14.5%
(Residential Master-Metered and Small Commercial)
Uniform Rate $ 1.2204 $ 1.3973 $ 0.1769 14.5%
(Large Commercial)
Uniform Rate $ 1.1874 $ 1.3595 $ 0.1721 14.5%
Bill Impacts
Table 13 shows the impact of the proposed July 1, 2026 rate changes on the median monthly
residential bill for representative average winter and summer bills, excluding supply-related
cost changes. The annual gas bill for the median residential customer is projected to be 9%
9 City’s Rates Website https://www.cityofpaloalto.org/files/assets/public/v/25/utilities/rates-schedules-for-
utilities/residential-utility-rates/monthly-gas-volumetric-and-service-charges-residential-3.pdf
10 Staff Report 2506-4908:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84117&dbid=0&repo=PaloAlto
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higher in FY 2027 than FY 2026. The actual impact may be different because customer gas
usage varies and commodity price changes monthly.
Table 13: Bill Impact of Proposed G-1 Gas Rate Changes ($/Month)
(Therms/month)
Bill Amount
(Current Rates1)
Bill Amount
(Proposed Rates2)
Change
Summer
Winter
Annual Median
1. Calculated based on FY25 actual supply rates with current distribution rates; assumes current
distribution rates were effective for the full year. If the current rate calculation instead applies
Council-approved rates for July 2025 – January 2026, followed by cost-based adjustments
from February 2026 – June 2026, the residential bill is projected to increase by about 14%
from FY26 to FY27.
2. Calculated based on FY25 actual supply rates with proposed distribution rates; assumes no
change to supply-related rates.
Table 14 shows the impact of the proposed rate changes, effective July 1, 2026, on
representative commercial customer bills, excluding supply-related cost changes. The G-2 usage
levels listed below represent the median usage for the three G-2 rate class groupings. For the
G-3 rate class, the usage reflects a sample large commercial customer with an annual
consumption of approximately 250,000 therms.
Table 14: Bill Impact of Proposed G-2 and G-3 Gas Rate Changes ($/Month)
(Therms/month)
Bill Amount
(Current Rates1)
Bill Amount
(Proposed Rates2) $/mo %
(Residential Master-Metered and Small Commercial)
35 $ 102 $ 112 $ 10 10%
280 668 728 60 9%
2,648 5,850 6,351 502 9%
(Large Commercial)
20,834 $ 43,576 $ 47,133 $ 3,557 8%
1. Calculated based on FY25 actual supply rates with current distribution rates
2. Calculated assuming no change to supply-related rates
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Bill Comparisons/Competitiveness
Table 15 presents the median residential bills for Palo Alto and Pacific Gas and Electric Company
(PG&E) customers. The bill calculations for PG&E customers are based on PG&E Climate Zone X,
an area which includes Palo Alto’s surrounding communities. The calculated monthly gas bill for
the median Palo Alto residential customer is about 11% lower than that of a PG&E customer
with equivalent consumption. This difference is primarily attributable to the City’s fixed monthly
service charge; PG&E does not apply a similar charge.
Table 15: Residential Monthly Equivalent Natural Gas Bill Comparison, at Current Rates
($/Month)
Season (Therms) Palo Alto PG&E % Difference
Summer 17 $ 51 $ 39 30%
Winter 51 117 157 (26%)
Annual Average 31 78 88 (11%)
Note: Calculated based on FY25 actual supply rates with current distribution rates
Table 16 presents the median monthly commercial bills for Palo Alto and PG&E customers. Palo
Alto bills have been higher than PG&E’s bills over the years, mainly due to higher service
charges.
Table 16: Commercial Monthly Equivalent Natural Gas Bill Comparison, at Current Rates
($/Month)
Sector (Therms) Palo Alto PG&E % Difference
Commercial 280* $ 668 $ 583 15%
Large Commercial 20,834** 43,576 29,637 47%
Note: Calculated based on FY25 actual supply rates with current distribution rates
*Based on median usage for Palo Alto G-2 rate class with meter capacity of >220 and <4,000 Scfh
**Based on annual usage of about 250,000 therms
Cap-and-Invest Reserve Transfer
Because the Cap and Trade program has been renamed the Cap-and-Invest program, this staff
report requests the renaming of the Cap and Trade Reserve to the Cap-and-Invest Reserve. In
accordance with Section 11 of the Gas Reserve Management Practices and Council-approved
Cap-and-Invest revenue uses (Council Resolution 10077 11), staff is authorized to transfer
revenues from allocated allowance auction proceeds to the Cap-and-Invest Reserve at the end
of each fiscal year. Additionally, staff may utilize funds from the Cap-and-Invest Reserve to
11 Council Resolution 10077:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=61567&dbid=0&repo=PaloAlto
18
support greenhouse gas (GHG) reduction programs by transferring funds from the Cap-and-
Invest Reserve to the Operations Reserve.
General Fund Transfer
The Gas Utility's transfer to the City’s General Fund is a component of the City’s gas rates. This
transfer was first authorized by voters in 1950 and reaffirmed in November 2022 with the
passage of Measure L, which authorizes a transfer amount up to 18% of the gross revenues of
the Gas Utility. This financial forecast proposes a transfer of $10.7 million in FY 2027, 18% of FY
2025 gross revenues. This transfer of 18% is in alignment with the assumptions in the FY 2026
Adopted Budget process.
Next Steps
Staff will incorporate the Finance Committee’s recommendations into the draft financial forecast
and attachments and bring those to the City Council in June 2026. Then the City Council will
consider the proposed financial forecasts and amended rate schedules concurrent with the FY 2027
budget, expected in June, at which time Council will review the proposed rate changes. If Council
approves, the rates will become effective July 1, 2026.
FISCAL/RESOURCE IMPACT
The resource impact of the recommendations summarized in this report is the continued
financial solvency of the Gas Utility.
Based on the proposed rates increase as shown, the estimated revenue impacts in FY 2027 would
be an increase of $5.5 million in the Gas Fund, not including fluctuations in commodity
revenue/cost. Additionally, because the Gas Utility Equity Transfer is based on gross operating
revenues, General Fund revenues would increase from $9.7 million in FY 2026 to $10.7 million in
FY 2027, an increase of $1.0 million. General Fund utility users tax revenue, in addition to General
Fund Revenues, would increase by $0.2 million from estimated $3.0 million in FY 2026 to $3.2 in
FY 2027. If the proposed 9% rate increase, including the 18% general fund transfer assumption,
is approved, the estimated General Fund revenue impact would total $13.9 million in FY2027.
The 18% general fund transfer assumption was also assumed in the FY 2027-36 Long Range
Financial Forecast 12.
POLICY IMPLICATIONS
The proposed Gas Utility rate adjustments are consistent with Council-adopted Reserve
Management Practices (Attachment A, Exhibit 3) and were developed using a cost-of-service
study and methodology consistent with the California constitution and industry-accepted cost of
service principles. If reserves fall below the minimum guidelines, Council approval is required for
12 FY 2027-36 Long Range Financial Forecast: https://www.paloalto.gov/files/assets/public/v/1/administrative-
services/city-budgets/fy-2027-city-budget/lrff-cmr-2512-5601-1.20.2026.pdf
19
a rate plan that requires more than one year to return reserves to within guideline levels. This
staff report serves as the required plan.
STAKEHOLDER ENGAGEMENT
On November 5, 202513, staff presented the preliminary rate proposals at the UAC meeting.
Some Commissioners raised affordability concerns and expressed interest in exploring innovative
operating cost reductions rather than relying on the traditional approach of deferring capital
investments.
On November 18, 2025 14, 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.
On March 31, 202615, staff presented the rate proposal to the UAC. Commissioners voted 4-3 to
recommend an overall rate increase of 7% for FY 2027, instead of the staff proposed overall rate
increase of 9%, and identify potential options to address the resulting gap, including reducing the
General Fund Transfer and further lowering reserves. Commissioners raised concerns about the
gas utility's long-term financial sustainability, highlighting the challenge of planning for end-of-
life of the gas system while managing rising operating and capital costs. Commissioners also
questioned whether CIP spending could be adjusted (spending levels required by the $16.5mil
DOT grant), and one requested a more detailed load forecast as part of next year's report. Lastly,
Commissioners debated the General Fund Transfer assumption, with some recommending a
reduction from 18% and the use of reserves as levers to moderate the rate increase.
With a 7% instead of 9% overall rate increase, while maintaining the same reserve target at the
end of FY 2031, the General Fund Transfer for FY 2027 would need to drop from 18% of gross
revenues received during FY 2025 ($10.7 million) to 15.5% ($9.3 million), a reduction of $1.4
million and additional rate increases would be needed in future years. The following table shows
the rate impacts expected in the future without changing assumptions in additional years:
13 Staff Report 2503-4364:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84164&dbid=0&repo=PaloAlto
14 Staff Report 2508-5119:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83887&dbid=0&repo=PaloAlto
15 Staff Report 2512-5641:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87025&dbid=0&repo=PaloAlto
20
Table 17: Proposal and 15.5% General Fund Transfer Projected Overall Rate Trajectory
Additional feedback from the April 21 Finance Committee meeting will be incorporated in the
financial forecast and included in the proposal presented to City Council in June 2026 concurrent
with the budget adoption process. Additionally, during the April 21 Finance Committee meeting,
staff will discuss additional options (“levers”) to reach the lower rate increase recommended by
the UAC and any associated short-term and long-term implications.
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, and community messaging platforms.
ENVIRONMENTAL REVIEW
The Finance Committee’s review and recommendation to the City Council on the FY 2027 Gas
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, thus no
environmental review is required.
ATTACHMENTS:
Attachment A: FY27 Gas Resolution
Attachment A, Exhibit 1: FY27 Gas Rate Schedules
Attachment A, Exhibit 2: FY27 Gas Utility Financial Details
Attachment A, Exhibit 3: FY27 Gas Reserve Management Practices
Attachment A, Exhibit 4: FY27 Gas Communications Plan
Attachment B: FY27 Gas Presentation (FC)
APPROVED BY:
Alan Kurotori, Director of Utilities
Staff: Eric Wong, Resource Planner
Attachment A *NOT YET APPROVED*
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the Fiscal
Year 2027 Gas Utility Financial Forecast and Reserve Transfers,
General Fund Transfer, and Amending Rate Schedules G-1
(Residential Gas Service), G-2 (Residential Master-Metered and
Commercial Gas Service), and G-3 (Large Commercial Gas Service)
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations, including reserves.
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. It does this with the goal of providing safe, reliable, and sustainable utility services
at competitive rates. The City adopts Financial Forecasts or Plans to summarize these
projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices 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 heard and approved the proposed
rate increase at a noticed public hearing.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby approves the Amended Reserves Management
Practices (Exhibit 3 1) and FY 2027 Gas Utility Financial Forecast presented to the Finance
Committee on March 17, 2026 2 and updated by the June 15, 2026 Council report, (Exhibit 23),
which is attached to this resolution and made a part of the staff report presented to the City
Council.
SECTION 2. The Council hereby approves the transfer of up to $1.5 million
from the Gas Utility Operations Reserve to the Distribution Rate Stabilization Reserve at
1 Exhibit 3 <<link>>
2 Meeting Agenda Item #: XX <<link>>
3 Exhibit 2 <<link>>
Attachment A *NOT YET APPROVED*
the end of FY 2026.
SECTION 3. The Council hereby approves the transfer of up to 18% of gas utility
gross revenues received during FY 2025 to the general fund in FY 2027.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule G-1 (Residential Gas Service) is hereby amended to read as shown in Exhibit 14.
Utility Rate Schedule G-1, 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 G-2 (Residential Master-Metered and Commercial Gas Service) is hereby
amended to read as shown in Exhibit 1. Utility Rate Schedule G-2, 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 G-3 (Large Commercial Gas Service) is hereby amended to read as shown in
Exhibit 1. Utility Rate Schedule G-3, as amended, shall become effective July 1, 2026.
SECTION 7. The City Council finds that revenues derived from the gas rates approved
by this resolution do not exceed the funds required to provide gas service and shall not be used
for any purpose other than providing gas service, and the purposes set forth in Article VII,
Section 2, of the Charter of the City of Palo Alto.
SECTION 8. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 9. The Council finds that approving the FY 2027 Gas Utility Financial
Forecast 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 assessment is required.
The Council finds that changing gas 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.
/ /
4 Exhibit 1 <<link>>
Attachment A *NOT YET APPROVED*
/ /
/ /
/ /
Attachment A *NOT YET APPROVED*
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
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-1 Effective 027-01-2026
dated 072-01-20265 Sheet No G-1-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from City of Palo Alto
Utilities:
1.Separately-metered single-family residential Customers;
2.Separately-metered multi-family residential Customers in multi-family residential
facilities.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES:Per Service
Monthly Service Charge: .............................................................................................$ 22.42 19.58
Tier 1 Rates: Per Therm
Supply Charges:
1.Commodity (Monthly Market-Based) ......................................... $0.10-$4.00
2.Cap and Trade Compliance Charge ............................................ Pass-through
3. Transportation Charge ................................................................. Pass-through
4.Carbon Offset Charge .................................................................. $0.00-$0.10
Distribution Charge:.......................................................................................$ 1.1971
1.0456
Tier 2 Rates: (All usage over 100% of Tier 1)
Supply Charges:
1.Commodity (Monthly Market-Based) ......................................... $0.10-$4.00
2.Cap and Trade Compliance Charge ............................................. Pass-through
3. Transportation Charge ................................................................. Pass-through
4.Carbon Offset Charge .................................................................. $0.00-$0.10
Distribution Charge:.............................................................................................$ 2.8857
2.5203
Attachment A, Exhibit 1
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-2 Effective 027-01-2026
dated 072-01-20265 Sheet No G-1-2
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, adjusted to account for delivery losses to the Customer’s
Meter. The Commodity Charge also includes adjustments to account for Council-
approved programs implemented to reduce the cost of Gas, including a municipal
purchase discount1 and $0.055 per Therm for mitigating the impact of short-term natural
gas market price spikes2.
The Cap and Trade Compliance Charge is a pass-through charge that reflects the City’s
cost of regulatory compliance with the state’s Cap and Trade Program, including the cost
of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s
compliance obligations. The Cap and Trade Compliance Charge changes in response to
changing market conditions, retail sales volumes and the quantity of allowances required,
and is calculated based on the Cap-and-Trade Program’s quarterly auction allowance
closing prices.
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse
gases produced when Gas is burned. The Carbon Offset Charge changes in response to
changing market conditions, sales volumes and the quantity of offsets purchased within
the Council-approved per Therm cap.
The Transportation Charge is a pass-through charge based on the current PG&E G-WSL3
(Gas Transportation Service to Wholesale/Retail Customers) rate for Palo Alto,
accounting for delivery losses to the Customer’s Meter.
1 Adopted via Resolution 9451, on September 15, 2014.
2 Adopted via Resolution 10187 on August 19, 2024.
3 https://www.pge.com/tariffs/assets/pdf/tariffbook/GAS_SCHEDS_G-WSL.pdf
Attachment A, Exhibit 1
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-1-3 Effective 027-01-2026
dated 072-01-20265 Sheet No G-1-3
The Commodity and Carbon Offset Charges will fall within the minimum/maximum
ranges set forth in Section C. Current and historic per Therm rates for the Commodity,
Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the
City Utilities website.4
2. Seasonal Rate Changes:
The Summer period is effective April 1 to October 31 and the Winter period is effective
from November 1 to March 31. When the Billing Period includes use in both the Summer
and the Winter periods, the usage will be prorated based on the number of days in each
seasonal period, and the charges based on the applicable rates for each period. For further
discussion of bill calculation and proration, refer to Rule and Regulation 11.
3. Calculation of Usage Tiers
Tier 1 Natural Gas usage is calculated and billed based upon a level of 23 Therms per 30
day Billing Period during the Summer period, and 60 Therms per 30 day Billing Period
during the Winter period, based on Meter reading days of Service, and rounded to the
nearest whole Therm. As an example, Tier 1 Natural Gas is calculated at 0.767 Therms per
day during the Summer period (.767 Therms per day x 30 days = 23 Therms) and 2.0
Therms per day during the Winter period (2 Therms per day x 30 days = 60 Therms). For
further discussion of bill calculation and proration, refer to Rule and Regulation 11.
{End}
4 Monthly gas and commodity and volumetric rates are available here, or by visiting
https://www.paloalto.gov/files/assets/public/utilities/rates-schedules-for-utilities/residential-utility-rates/monthly-gas-
volumetric-and-service-charges-residential.pdf
Attachment A, Exhibit 1
RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-1 Effective 072-01-2026
dated 027-01-20265 Sheet No G-2-1
A. APPLICABILITY:
This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto
Utilities:
1. Commercial Customers who use less than 250,000 Therms per year at one site;
2. Master-Metered residential Customers in multi-family residential facilities.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES: Per Service
Monthly Service Charge:
For Meters with maximum capacity:
1. Up to 220 Standard Cubic Feet per Hour (scfh) .............................................$ 33.47 29.24
2. Above 220 scfh and less than 4,000 scfh ....................................................$ 108.27 94.56
3. 4,000 scfh and above ..................................................................................$ 479.84 419.08
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) ......................................................... $0.10-$4.00
2. Cap and Trade Compliance Charges ........................................................... Pass-through
3. Transportation Charge .................................................................................. Pass-through
4. Carbon Offset Charge ................................................................................... $0.00-$0.10
Distribution Charge: ..................................................................................................$ 1.3973
1.2204
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.
The meter’s maximum capacity used to determine the applicable Monthly Service Charge
for G-2 Gas Service is the installed Meter’s City of Palo Alto-approved maximum
capacity in standard cubic feet per hour (scfh), measured at 7 inches of water column or
equivalent to 0.25 pounds per square inch.
Attachment A, Exhibit 1
RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-2-2 Effective 072-01-2026
dated 027-01-20265 Sheet No G-2-2
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, adjusted to account for delivery losses to the Customer’s
Meter. The Commodity Charge also includes adjustments to account for Council-
approved programs implemented to reduce the cost of Gas, including a municipal
purchase discount1 and $0.055 per Therm for mitigating the impact of short-term natural
gas market price spikes2.
The Cap and Trade Compliance Charge is a pass-through charge that reflects the City’s
cost of regulatory compliance with the state’s Cap and Trade Program, including the cost
of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance
obligations. The Cap and Trade Compliance Charge changes in response to changing
market conditions, retail sales volumes and the quantity of allowances required, and is
calculated based on the Cap-and-Trade Program’s quarterly auction allowance closing
prices.
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases
produced when Gas is burned. The Carbon Offset Charge changes in response to changing
market conditions, sales volumes and the quantity of offsets purchased within the Council-
approved per Therm cap.
The Transportation Charge is a pass-through charge based on the current PG&E G-WSL3
(Gas Transportation Service to Wholesale/Retail Customers) rate for Palo Alto,
accounting for delivery losses to the Customer’s Meter.
The Commodity and Carbon Offset Charges will fall within the minimum/maximum
ranges set forth in Section C. Current and historic per Therm rates for the Commodity,
Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the
City Utilities website.4
{End}
1 Adopted via Resolution 9451, on September 15, 2014.
2 Adopted via Resolution 10187 on August 19, 2024.
3 https://www.pge.com/tariffs/assets/pdf/tariffbook/GAS_SCHEDS_G-WSL.pdf
4 Monthly gas and commodity and volumetric rates are available here, or by visiting
https://www.paloalto.gov/files/assets/public/utilities/business/business-rates/monthly-gas-volumetric-and-service-charges-
commercial.pdf
Attachment A, Exhibit 1
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-3-1 Effective 072-01-2026
dated 027-01-20265 Sheet No G-3-1
A. APPLICABILITY:
This schedule applies to Customers receiving Gas Service from the City of Palo Alto Utilities, who
use at least 250,000 Therms per year at one site.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Gas Service.
C. UNBUNDLED RATES: Per Service
Monthly Service Charge: $ 1,960.65 1,712.36
Per Therm
Supply Charges:
1. Commodity (Monthly Market Based) .................................................... $0.10-$4.00
2. Cap and Trade Compliance Charges .................................................... Pass-through
3. Transportation Charge .......................................................................... Pass-through
4. Carbon Offset Charge ........................................................................... $0.00-$0.10
Distribution Charge: ................................................................................................$ 1.3595 1.1874
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.
The Commodity Charge is based on the monthly natural gas Bidweek Price Index for
delivery at PG&E Citygate, adjusted to account for delivery losses to the Customer’s
Meter. The Commodity Charge also includes adjustments to account for Council-
approved programs implemented to reduce the cost of Gas, including a municipal
purchase discount1 and $0.055 per Therm for mitigating the impact of short-term natural
gas market price spikes2.
1 Adopted via Resolution 9451, on September 15, 2014.
2 Adopted via Resolution 10187 on August 19, 2024.
Attachment A, Exhibit 1
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No G-3-2 Effective 072-01-2026
dated 027-01-20265 Sheet No G-3-2
The Cap and Trade Compliance Charge is a pass-through charge that reflects the City’s
cost of regulatory compliance with the state’s Cap and Trade Program, including the cost
of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance
obligations. The Cap and Trade Compliance Charge changes in response to changing
market conditions, retail sales volumes and the quantity of allowances required, and is
calculated based on the Cap-and-Trade Program’s quarterly auction allowance closing
prices.
The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases
produced when Gas is burned. The Carbon Offset Charge changes in response to changing
market conditions, sales volumes and the quantity of offsets purchased within the Council-
approved per Therm cap.
The Transportation Charge is a pass-through charge based on the current PG&E G-WSL3
(Gas Transportation Service to Wholesale/Retail Customers) rate for Palo Alto,
accounting for delivery losses to the Customer’s Meter.
The Commodity and Carbon Offset Charges will fall within the minimum/maximum
ranges set forth in Section C. Current and historic per Therm rates for the Commodity,
Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the
City Utilities website.4
2. Request for Service
A qualifying Customer may request Service under this schedule for more than one Account
or Meter if the Accounts are located on one site. A site consists of one or more contiguous
parcels of land with no intervening public right-of- ways (e.g. streets).
3. Changing Rate Schedules
Customers may request a rate schedule change at any time to any applicable City of Palo
Alto full-service rate schedule.
{End}
3 https://www.pge.com/tariffs/assets/pdf/tariffbook/GAS_SCHEDS_G-WSL.pdf
4 Monthly gas and commodity and volumetric rates are available here, or by visiting
https://www.paloalto.gov/files/assets/public/utilities/business/business-rates/monthly-gas-volumetric-and-service-charges-
commercial.pdf
Attachment A, Exhibit 1
Attachment A, Exhibit 2
6
7
5
6
Attachment A, Exhibit 2
6
7
5
6
Gas Utility Capital Improvement Program (CIP) Financial Details
Attachment A, Exhibit 3
6
7
5
7
GAS UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Gas Utility
Financial Plan:
Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal
years covered by the Financial Plan. For example, if the Financial Plan delivered in
conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY 2015
to FY 2019 would be the Financial Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers
to the Utility’s Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net Assets
as the difference between its assets and liabilities.
d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital
assets (net of related debt) or restricted for debt service or other restricted purposes.
Section 2. Supply Fund Reserves
The Gas Utility’s Supply Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 4 (Reserve for Commitments)
b) For operating and capital budgets re-appropriated from previous years, as described in
Section 5 (Reserve for Re-appropriations)
Section 3. Distribution Fund Reserves
a) For existing contracts, as described in Section 4 (Reserve for Commitments)
b) For operating and capital budgets re-appropriated from previous years, as described in
Section 5 (Reserve for Re-appropriations)
c) For cash flow management and contingencies related to the Gas Utility’s Capital
Improvement Program (CIP), as described in Section 6 (CIP Reserve)
d) For rate stabilization, as described in Section 7 (Rate Stabilization Reserve)
e) For operating contingencies, as described in Section 8 (Operations Reserve)
f) For tracking unspent or unallocated revenues from the sale of carbon allowances freely
allocated by the California Air Resources Board to the gas utility under the State’s Cap-
and- Trade Invest Program, as described in Section 11 (Cap- and- Trade Invest Program
Reserve)
g) 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 9
(Unassigned Reserves)
Attachment A, Exhibit 3
6
7
5
7
Section 4. Reserve for Commitments
1. These guideline levels are
calculated for each fiscal year of the Financial Planning Period and approved by Council
resolution.
1 The guideline levels were corrected to match the Council-approved language updated from the
FY 2021 Financial Plan.
2 Each month is calculated based upon 1/12 of the annual budget.
3 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.
Minimum Level 20% of the maximum CIP Reserve guideline level l
Maximum Level Average annual (12 month)2 CIP budget, for 48 months of
budgeted CIP expenses3
Attachment A, Exhibit 3
6
7
5
7
d) Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds may
be added to this reserve. If there are funds in this reserve in excess of the maximum level
staff must propose to transfer these funds to another reserve or return them to
ratepayers in the next Financial Plan. Staff may also seek Council approval to hold funds
in this reserve in excess of the maximum level, if they are held for a specific future purpose
related to the CIP.
Section 3. Rate Stabilization Reserve
The Rate Stabilization Reserve is used to manage the trajectory of future 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 Gas Utility Financial Plan must result in the withdrawal of
all funds from this Reserve by the end of the Financial Planning Period.
Section 4. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. Any portion of the Gas Utility’s Fund Balance not included in the reserves
described in Section 4-Section 7 above will be included in the Operations Reserve unless this
reserve has reached its maximum level as set forth in Section 8 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 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 Gas Utility shall be designed to
return the Operations Reserve to its target level by the end of the forecast period.
Attachment A, Exhibit 3
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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 Gas Utility’s Fund Balance
shall be automatically included in the Unassigned Reserve described in Section 9, below.
Section 5. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the Gas 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 Gas Utility
ratepayers by the end of the first fiscal year of the next Financial Planning Period. For
example, if there were funds in the Unassigned Reserves at the end of FY 2015, and the next
Financial Planning Period is FY 2016 through FY 2020, the Financial Plan shall include a plan
to return or assign any funds in the Unassigned Reserve by the end of FY 2016. Staff may
present an alternative plan that retains these funds or returns them over a longer period of
time.
Section 6. Intra-Utility Transfers Between Supply and Distribution Funds
The Gas Utility records costs in two separate funds: the Gas Supply Fund and the Gas
Distribution Fund. At the end of each fiscal year staff is authorized to transfer funds between
the Gas Supply Fund and Gas Distribution Fund if consistent with the purposes of the two
reserves involved in the transfer and in order to balance gas utility reserves to avoid negative
balances. For example, Gas Distribution revenues are needed to pay for certain supply-
related costs such as administration of the Gas Supply Fund. Such transfers shall be included
in the ordinance closing the budget for the fiscal year.
Section 7. Cap- and- Trade Invest Program Reserve
This reserve tracks unspent or unallocated revenues from the sale of carbon allowances freely
allocated by the California Air Resources Board to the gas utility, under the State’s Cap- and-
Trade Invest Program. Funds in this Reserve are managed in accordance with the City’s Policy
on the Use of Freely Allocated Allowances under the State’s Cap- and- Trade Invest Program
(the Policy), adopted by Council Resolution 9487 in January 2015, and amended by Council
Resolution 10077 in October 2022. At the end of each fiscal year, the Cap- and- Trade Invest
Program Reserve will be adjusted by the net of revenues and expenses associated with the
Cap- and- Trade Invest program.
Attachment A, Exhibit 4
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COMMUNICATIONS PLAN AND OUTREACH EXAMPLES – GAS UTILITY
The proposed gas utility rate adjustments are part of the City of Palo Alto Utilities (CPAU) ongoing
effort to maintain the financial health and reliability of the Gas Utility while managing the impacts of
declining gas consumption and increasing operating and capital expenses.
Reasons for the Proposed Rate Increase
During the pandemic, the city kept overall Gas Utility rate increases to 2% to 3% annually and utilized
reserve funding to cover costs. In the winter of 2022-23, surging gas prices depleted the Gas Utility
reserves, which were used to cover the difference between actual gas costs and the revenue generated
by charging customers the Council-approved maximum gas commodity charge. Reserves need to be
replenished over time to ensure funds are available for safety and reliability needs, while managing
ongoing cost inflation.
The Gas Utility financial results have been affected by lower-than-expected sales revenues driven by
reduced gas usage and lower commodity prices. Although supply purchases have also been below
expectations, these savings were insufficient to offset revenue shortfalls. Additionally, capital
improvement program (CIP) expenses exceeded projections, largely due to emergency repair work and
rising labor costs.
Looking ahead, staff project a continued decline in gas consumption due to electrification trends and
long-term efficiency improvements, which will place upward pressure on rates as fixed operational and
capital costs are spread across fewer therms sold. To maintain reliable operations, meet reserve
targets, and fund essential infrastructure projects, staff are recommending a 9% overall rate increase in
FY 2027. This includes a 14.5% increase in distribution rates and assumes stable supply-related charges.
Communication Plan and Messaging Strategy
Staff will implement a comprehensive communication plan to ensure that gas customers and
community stakeholders understand the reasons for the proposed rate adjustment and CPAU’s efforts
to minimize bill impacts. Key communication objectives are to:
Increase transparency by clearly explaining how lower gas sales, infrastructure reinvestment,
and reserve requirements contribute to the need for the rate adjustment.
Emphasize stability and fairness by highlighting the stepwise approach to rate adjustments and
the alignment of rates with actual cost-of-service principles, consistent with City Council
direction and Proposition 26.
Demonstrate fiscal stewardship by sharing that staff have pursued federal and state funding
support (including Department of Transportation, FEMA, and CalOES grants) to offset
emergency costs and provide additional main replacement.
Promote understanding of long-term trends by contextualizing the rate increase within the
broader transition to community electrification and declining gas demand.
Attachment A, Exhibit 4
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Communication methods throughout the year, and specifically for rate changes, include direct
customer outreach through utility bill inserts, targeted community newsletters and/or blogs, website
updates at www.paloalto.gov/RatesOverview, social media, print and digital advertising, and
participation in community outreach events. Public communication materials about rate changes will
feature FAQs, charts or other visuals including infographics showing the breakdown of utility costs that
correlate with the need for rate increases, and explanations of how customer classes are affected.
Messaging will emphasize rate adjustments are necessary to sustain safe, reliable, and financially
sound gas operations consistent with voter-approved guidelines and the city’s long-term energy
strategy. In addition, CPAU continues to explore cost-containment measures for each utility fund.
Stakeholder Engagement
Public meetings before the UAC, Finance Committee, and City Council to present rate proposals
and solicit community feedback.
Communication with community partners—including key accounts, business, residential
customer groups and associations, and low-income assistance advocates—to ensure rate
impacts and mitigation options are well understood.
Customer service training for Utilities staff to ensure consistent messaging in addressing
customer inquiries.
Attachment A, Exhibit 4
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April 21, 2026 PaloAlto.gov
FY 2027 Gas Utility Financial Forecast and Proposed Rate Changes
Finance Committee
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Gas Utility At-a-Glance
•210.5 miles of distribution mains
•195 miles of service lines; 18,000
service lines
•53 Staff
•$62 million Operating Budget (FY 2026)
•$24 million Capital Budget (FY 2026)
•$86 million Total Budget (FY 2026)
•23.7 million therms sales
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Purpose of Rate Adjustments
•Preserve fair cost recovery for the services provided
•Maintain Long-Term Financial Stability
•Sustained financial support for ongoing utility operations
•Develop funding for planned replacement of aging infrastructure
•Supporting adequate reserve levels
•Support infrastructure replacement and repair
•Gas Main Replacement Projects (GMR #25 and #26): ~$31.8 M (GMR #25 100%
grant funded for $16.5 M)
•Design and Construction of ~52,500 feet of aging PVC and steel gas mains and
services
•Arastradero Creek Repairs: total ~$2.7 M (FY25-27)
•Design and permitting for the relocation of damaged 8-inch gas main crossing
the creek during the 2023 atmospheric storm event
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The Value of Utility Services and How Funds are Used
•Advanced Meter Infrastructure (AMI)
•21,492 gas meter installations completed
•Gas Main Replacement (GMR) Project #24B
•Replaced approximately 18,500 linear feet of aging gas mains and services with polyethylene pipe
•Leak Detection and Mitigation
•Ground leaks dropped significantly to 66 (29% decrease) and meter leaks also saw a downward
trend with 382 found (23% decrease)
•Excavation and Damage control
•Improvement in infrastructure safety with only 15 damages recorded in 2025 (40% decrease in
third-party strikes from the year before)
•Sub-standard Material Replacement
•Total sub-standard gas-services were reduced to 668 remaining units (7% overall reduction)
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About one-third of the rate is “supply-
related”: Gas Commodity, Transportation,
Cap-and-Invest, and Carbon Offsets. These
rates vary monthly according to market-driven
costs that are passed directly to customers.
The remaining portion of the rate is set based
on the City’s costs for maintaining and
replacing gas infrastructure, customer service,
billing, administration, etc. and general fund
transfer. These rates are being discussed here
tonight.
Gas Cost Structure and Rate Design
Average of FY 2024-25
Total: $60 Million
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Gas Cost and Revenue Projections
Note
•Rate % changes exclude supply-related cost
changes
•The grant-funded $16.5M CIP project is
projected to be under construction in FY26-27
•Excludes Cap-and-Invest auction sales
revenues and expenses
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Gas Bill Comparisons ($/Month)
Residential
Commercial and Multi-Family Master-Metered Note:
•Calculated based on FY25 actual supply rates, and
assumes no change to supply-related rates
•FY26: Assumes current distribution rates for the
full year
•PG&E bills are calculated using Climate Zone X and
include a climate credit for residential
•G-2 bills are calculated based on the median
usages for each meter capacity group
The residential annual median difference
(11%) compared with PG&E reflects higher
weight to the winter months because of
higher usage during those months.
Palo Alto residential bills are higher than
PG&E in the summer because PG&E does
not have a monthly meter charge.
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FY 2027 Rate Increase Drivers
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Note: The % changes were calculated based on current FY 2027 revenues
apportioned into cost categories based on the average actual costs in FY24 and FY25.
Rate Increase Drivers
•Operations: personnel costs
•Lower Sales Revenue: due to lower
projected gas usage
•CIP: gas main replacement cost
increases (for non-grant-funded
project)
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Gas Supply Load Forecast
•FY25: actual gas usage
approximately 8% below
forecast
•FY27-31: projected gas usage
approximately 4% lower than
the previous forecast;
declining at a rate of 1.1%
per year
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Gas Operations Reserve Projections
Note: About $4.73 in FY24 and $8.57 M in FY25 (shown in hashed red bar) held in the
CIP Reappropriations Reserve to be reimbursed through grant
Risk Assessment (Blue Line): Based on the
maximum historical non-commodity revenue
variance for the past 10 years and 10% of CIP
budget (up to FY29)
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
Historical Operations Reserve Impacts
FY 20-22: Pandemic Related Usage decline
FY 23: Gas spike, Usage high with colder than
average winter
FY 24: FY 23 costs paid in FY 24 (e.g., price
spike impacts)
FY 25: Usage 8% below projected
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Gas CIP Reserve Projections
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Reserve Minimum: 20% of the
maximum CIP Reserve guideline
level
Reserve Maximum: Average
annual CIP budget for 48
months of budgeted CIP
expense
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Gas Reserve Projections
Note: Excludes Cap and Trade Reserve
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Communication and Outreach
Key Messages
•Reasons for rate increases and benefits to customers:
•Safety, reliability, infrastructure upgrades, system
maintenance
•Competitive rates to other utilities and neighboring cities
•What the City is doing to keep costs down
•Programs to help customers keep utility bill costs low
Outreach Strategies
•Public Meetings: UAC, Finance, City Council
•Print and Digital Communication: utility bill inserts,
website, email newsletters, City blog, videos
•Local Media Engagement: articles, interviews
Utility bill insert about gas safety
Installing new piping for the Gas Main
Replacement Project #24B
Recently Implemented Cost Containment
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•Expanded use of bank draft to reduce credit card fees
•Scheduled larger CIP projects every other year achieving efficient project management and lower construction costs
(estimated $50K per CIP project)
•Implemented mobile workforce applications, reducing administrative data entry time, freeing up staff for other work
Water, Gas, and Wastewater
•Established cross-functional field
crew to install water, gas, and
sewer services simultaneously at
new construction sites, reducing
hours spent in the field by
minimum 20%
Electric Utility
•Selling surplus Resource
Adequacy and Renewable Energy
Credits ($20+ million/year)
•Negotiated improvements to
Western hydroelectric contract
($2 million/year)
•Negotiated layoff of transmission
asset generating $550k/year
Water Utility
•Agreement with Valley Water
yielded $16 million in funding for
reverse osmosis facility to
improve recycled water quality
and $250K to $1M/year
•BAWSCA water bond refunding in
2023 achieved lower debt service
payments ($185K/year 2023-
2034)
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Future Potential Cost Containment
•Implement new customer information system with reduced support costs
•Increase water and energy end use technical training for Customer Service
Representatives, reducing transferred phone calls and staff time
Water, Gas, and Wastewater
•Cluster gas main replacements
to reduce mobilization costs for
construction contractors ($5K-
$10K for each project group)
Electric Utility
•Prepay of renewable power purchase
agreements to monetize municipal tax-
exempt debt
•Optimize debt issuance timing and
amount for Grid Modernization to
minimize debt service costs to electric
customers
•Additional value from Western federally-
owned transmission ($500K/year)
•Challenge transmission rates via Northern
California Power Agency ($500K/year)
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FY 2027 Proposed Budget Deductions
Reduction in operating expenses due to Utilities Department-wide budget refinements
and improved efficiencies (Gas only):
•Eliminate vacant Meter Reader positions: $225K
•Outsource utility bill printing and mailing: $35K
•Implement credit card processing fee: $315K
•Transfer from pension trust: $300K
Sources of additional potential budget reductions:
•Council priority on organizational efficiencies
•Leverage internal resources between departments
•Citywide Hiring Review Committee evaluates recruitments
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Summary of Gas Rate Proposal
FY 2027 Financial Forecast Projection
•9% overall rate increase in FY 2027 (14.5% increase in distribution rates), approximately $7.30/month
increase for the median residential customer
Drivers of 5-Year Rate Trajectory
•Decreasing retail sales
•Rising Capital Improvement Project (CIP) costs and maintain reserve levels
Compared with Preliminary Rates (November 2025)
•Updated and projecting lower retail sales and supply costs
•Higher CIP costs; lower operations costs
*excludes supply-related rate changes, does not illustrate customer class cost-of-service adjustments (February 2026)
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Residential Median Bill Projections (Bill $ and % change from prior year)
1 FY 2026 includes results of cost-of-service analysis; changes shown with commodity rates held constant; actual gas commodity rates vary monthly
2 Storm water management fees increase by CPI index annually per approved 2017 ballot measure (2.4% in FY 2026 and 3% in FY 2027)
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Recommendation
Staff Recommends the Finance Committee Recommend that the City Council Adopt a
Resolution:
1.Approving the Fiscal Year 2027 Gas Utility Financial Forecast, including Amending
the Gas Utility Reserve Management Practices; and
2.Approving the transfer of up to $1.5 million from the Gas Utility Operations Reserve
to the Distribution Rate Stabilization Reserve at the end of FY 2026; and
3.Transferring up to 18% of gas utility gross revenues received during FY 2025 (up to
$10.7 million) to the General Fund in FY 2027; and
4.Amending Rate Schedules, effective July 1, 2026 (FY 2027):
a.G-1 (Residential Gas Service)
b.G-2 (Residential Master-Metered and Commercial Gas Service)
c.G-3 (Large Commercial Gas Service)