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Home My WebLink AboutStaff Report 2602-5894CITY OF PALO ALTO CITY COUNCIL Special Meeting Monday, June 15, 2026 Council Chambers & Hybrid 5:30 PM Agenda Item 2.PUBLIC HEARING & PROPOSITION 218 HEARING: Finance Committee Recommends Adoption of Seven Resolutions: 1) Approving the Fiscal Year 2027 Water Utility Financial Forecast, Reserve Management Practices and Reserve Transfer, and Amending Water Rate Schedules W-1, W-2, W-3, W-4, and W-7; 2) Approving the Fiscal Year 2027 Wastewater Collection Utility Financial Forecast and Reserve Management Practices, and Amending Wastewater Collection Rate Schedules S-1, S-2, S-6 and S-7; 3) Amending Refuse Utility Rate Schedules R-1 and R-C; 4) Approving the Fiscal Year 2027 Electric Utility Financial Forecast and Reserve Transfer, Amending the Electric Reserve Management Practices and Electric Rate Schedules E-1, E-1 TOU, E-2, E-2-G, E-4, E-4-G, E- 4 TOU, E-7, E-7-G, E-7 TOU, E-14, E-16, E-EEC-1, and E-NSE-1, and Directing the Use of Up To $225,000 in Renewable Energy Certificate Exchange Net Revenues in Fiscal Year 2027 to Reduce Electric Customers’ Photovoltaic Generation and Energy Storage System Installation Costs; 5) Approving the Fiscal Year 2027 Gas Utility Financial Forecast, Reserve Transfer, and General Fund Transfer, and Amending the Reserve Management Practices and Gas Rate Schedules G-1, G-2, and G-3; 6) Amending Utility Rate Schedules EDF-1, and EDF-2; 7) Amending Storm Water Utility Rate Schedule D-1; CEQA Status: Not a project under CEQA Guidelines Sections 15378(b)(4) and (5) and Exempt Under Section 15273(a) Staff Presentation City Council From: City Manager Report Type: ACTION ITEMS Lead Department: Utilities Meeting Date: June 15, 2026 Report #:2602-5894 TITLE PUBLIC HEARING & PROPOSITION 218 HEARING: Finance Committee Recommends Adoption of Seven Resolutions: 1) Approving the Fiscal Year 2027 Water Utility Financial Forecast, Reserve Management Practices and Reserve Transfer, and Amending Water Rate Schedules W-1, W-2, W-3, W-4, and W-7; 2) Approving the Fiscal Year 2027 Wastewater Collection Utility Financial Forecast and Reserve Management Practices, and Amending Wastewater Collection Rate Schedules S-1, S-2, S-6 and S-7; 3) Amending Refuse Utility Rate Schedules R- 1 and R-C; 4) Approving the Fiscal Year 2027 Electric Utility Financial Forecast and Reserve Transfer, Amending the Electric Reserve Management Practices and Electric Rate Schedules E-1, E-1 TOU, E-2, E-2-G, E-4, E-4-G, E-4 TOU, E-7, E-7-G, E-7 TOU, E-14, E-16, E-EEC-1, and E- NSE-1, and Directing the Use of Up To $225,000 in Renewable Energy Certificate Exchange Net Revenues in Fiscal Year 2027 to Reduce Electric Customers’ Photovoltaic Generation and Energy Storage System Installation Costs; 5) Approving the Fiscal Year 2027 Gas Utility Financial Forecast, Reserve Transfer, and General Fund Transfer, and Amending the Reserve Management Practices and Gas Rate Schedules G-1, G-2, and G-3; 6) Amending Utility Rate Schedules EDF-1, and EDF-2; 7) Amending Storm Water Utility Rate Schedule D-1; CEQA Status: Not a project under CEQA Guidelines Sections 15378(b)(4) and (5) and Exempt Under Section 15273(a) RECOMMENDATION Note: Resolutions are included in the packet as Attachments A – G, Attachment H reflects the Table of URLs for the Exhibits to Attachments A – G. The Finance Committee recommends that the City Council adopt the following: 1. For the Water Utility, a Resolution (Attachment A): a. Approving the FY 2027 Water Utility Financial Forecast and Reserves Management Practices; and b. Approving the transfer of up to $5.5 million from the Operations Reserve to the CIP Reserve in FY 2026; and c. Amending the Water Utility Rate Schedules effective July 1, 2026 (FY 2027): i. W-1 (General Residential Water service), ii. W-2 (Water Service from Fire Hydrants), iii. W-3 (Fire Service Connections), iv. W-4 (Residential Master-Metered and General Non-Residential Water Service), and v. W-7 (Non-Residential Irrigation Water Service); and 2. For the Wastewater Collection Utility, a Resolution (Attachment B): a. Approving the Fiscal Year (FY) 2027 Wastewater Collection Utility Financial Forecast and Reserves Management Practices; and b. Amending the Wastewater Collection Utility Rate Schedules effective July 1, 2026 (FY 2027): i. S-1 (Residential Wastewater Collection and Disposal), ii. S-2 (Commercial Wastewater Collection and Disposal), iii. S-6 (Restaurant Wastewater Collection and Disposal), and iv.S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger); and 3. For Refuse, a Resolution (Attachment C): a. Amending the Refuse Rate Schedules effective July 1, 2026 (FY 2027): i. R-1 (Domestic Refuse Collection), and ii. R-C (Commercial Refuse Collection); and 4. For the Electric Utility, a Resolution (Attachment D): a. Approving the FY 2027 Electric Utility Financial Forecast, and Amending the Electric Utility Reserves Management Practices; and b. Approving the transfer of up to $5 million from the Electric Utility Distribution Operations Reserve to the Electric Utility Capital Reserve in FY 2026; and c. Amending the Electric Utility Rate Schedules effective July 1, 2026 (FY 2027): i. E-1 (Residential Electric Service), ii. E-1 TOU (Residential Time of Use Electric Service) iii. E-2 (Small Non-Residential Electric Service), iv. E-2-G (Residential Master-Metered and Small Non-Residential Green Power Electric Service, v. E-4 (Medium Non-Residential Electric Service), vi. E-4-G (Medium Non-Residential Green Power Electric Service), vii. E-4 TOU (Medium Non-Residential Time of Use Electric Service), viii. E-7 (Large Non-Residential Electric Service), ix. E-7-G (Large Non-Residential Green Power Electric Service), x. E-7 TOU (Large Non-Residential Time of Use Electric Service), xi. E-14 (Street Lights), xii. E-16 (Unmetered Electric Service), xiii. E-EEC-1 (Export Electricity Compensation), xiv. E-NSE-1 (Net Surplus Electricity Compensation); and d. Directing the Use of Up To $225,000 in Renewable Energy Certificate Exchange Net Revenues in Fiscal Year 2027 to Reduce Electric Customers’ Photovoltaic Generation and Energy Storage System Installation Costs, as local decarbonization efforts, via: i. Changing the funding mechanism for the Cap-and-Invest Reserve to allocate up to $225,000 less in Cap-and-Invest auction revenues in FY 2027 to the City’s Cap-and-Invest Reserve and instead allocate these funds for other local decarbonization efforts; and, as a related matter: 1. Directing staff to review existing HVAC incentive levels including consideration of financial offsets to lower the cost of related work including panel upgrades, electric utility service upgrades, or the cost of building permit fees; and 2. Directing staff to return to City Council within FY 2027 to review the Electric Supply Portfolio Carbon Neutral Plan and use of revenues derived from the REC Exchange program. 5. For the Gas Utility, a Resolution (Attachment E): a. Approving the FY 2027 Gas Utility Financial Forecast, and Amending the Gas Utility Reserves Management Practices; and b. Approving the transfer of up to $1.5 million from the Gas Utility Operations Reserve to the Distribution Rate Stabilization Reserve in FY 2026; and c. Transferring up to 18% of gas utility gross revenues received during FY 2025 to the General Fund in FY 2027; and d. Amending the Gas Utility Rate Schedules effective July 1, 2026 (FY 2027): i. G-1 Residential Gas Service, ii. G-2 Residential Master-Metered and Commercial Gas Service, and iii.G-3 Large Commercial Gas Service; and 6. For the Fiber Optics Utility, a Resolution (Attachment F): a. Amending the Dark Fiber Optic Utility Rate Schedules, consistent with the applicable Consumer Price Index, effective July 1, 2026 (FY 2027): i. EDF-1 (Dark Fiber Licensing Services), and ii. EDF-2 (Dark Fiber Service Connection Fees); and 7. For Storm Water Management, a Resolution (Attachment G): a. Amending the Storm Water Management Fee Rate Schedule, consistent with the applicable Consumer Price Index, D-1 effective July 1, 2026 (FY 2027): i. D-1 (General Storm and Surface Water Drainage) EXECUTIVE SUMMARY 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 storm water management. The recommended resolutions propose rate schedules for these services in FY 2027, beginning July 1, 2026, and present the financial forecasts, reserve management practices, and additional financial adjustments to support the recommended rates, for Council approval as recommended by a majority of the Finance Committee. 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 proposing rate increases this year for electric, natural gas, refuse, wastewater and water services. Storm water management fees and two Dark Fiber rates will increase per the Consumer Price Index (CPI). These rate adjustments are necessary to: Cover operating costs: As a municipal utility, CPAU's rates are designed to recover the costs of providing services. Invest in infrastructure: Funds are needed for critical projects like modernizing the electric grid, rebuilding the wastewater treatment plant (Regional Water Quality Control Plant), and maintaining the water distribution system. Replenish reserves: Utility reserves are currently low due to minimal rate increases during the pandemic, rising commodity prices and past droughts, and need to be restored for financial stability and to prepare for unexpected events. The city aims to provide safe, reliable, environmentally sustainable, and cost-effective services, and is committed to transparency in communicating these rate changes to customers. Estimates for retail revenue impacts are included in the FY 2027 budget assumptions. From November 2025 through June 2026, the Utilities Advisory Commission (UAC) and Finance Committee reviewed preliminary and proposed rate changes recommended by staff for Fiscal Year 2027. This report summarizes the meetings and incorporates UAC and Finance Committee recommendations into the recommendations for Council adoption. The expected residential median utility bill changes are listed below, with the expected overall median utility bill for residential services to increase 8% or approximately $35.20/month in FY 2027: • 8% increase for Water, • 16% increase for Wastewater Collection, • 3% increase for Refuse, • 4.5% increase for Electric, • 9% increase for Gas, • 3% increase for Dark Fiber for pre-2006 commercial customers only, and • 3% increase for Storm Water Management Fee ANALYSIS The rate schedules and recommended changes are summarized below, further details for each can be found in the referenced Utilities Advisory Commission and Finance Committee reports. Water Utility Proposal The FY 2027 Water Utility rate proposal reflects an 8% distribution rate increase and a 7% commodity rate increase, which is equivalent to an 8% overall system average increase. The Water Utility’s five-year financial forecast projects annual rate increases ranging from 6% to 9% for fiscal years 2028 through 2031 (see Table 1). Both the FY 2027 proposed rate increase and the projected increases in the five-year forecast are lower than those included in the FY 2026 Financial Forecast presented to Council on June 16, 20251 (see Table 1). The 5-year projected distribution rate increases are primarily driven by capital spending. The capital plan’s largest projects include water main replacement projects and seismic improvements 1 Staff Report 2411-3776: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83992 to two reservoirs. Additionally, rate increases continue to reflect inflationary increases to operating costs, revenue impacts from the most recent drought, long-term decline in demand, and low rate increases in earlier years. 3, Staff updated the Water Utility Financial Forecast based on updated SFPUC wholesale rate information and the Committee’s feedback and adopted rate recommendation, as described below and in the tables in Exhibit 2 to Attachment A, which amend the Financial Forecast presented to the Finance Committee on March 17, 2026: 4, and the Finance Committee on March 17, 2026. This update lowered the operations reserve by $1.2 million for FY 2027 and resulted in lower contributions to the Operations Reserve and CIP reserves in subsequent years (see Exhibit 2 to Attachment A for details). 3 Staff Report 2512-5604: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86855 4 Staff Report 2512-5639: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86697&dbid=0&repo=PaloAlto Moreover, as of June 30, 2025, the Operations Reserve balance was $16.5 million, approximately $10.2 million higher than projected levels, and the Rate Stabilization Reserve had a balance of $4.0 million. The positive variance is primarily attributed to salary and benefits expenses and capital expenses in FY 2025 that were lower than forecasted by $3.8 million and $5.4 million, respectively. This positive fiscal year-end result contributes to higher reserve balances over the five-year planning period compared to the FY 2026 Financial Forecast. These updates also contribute to the City’s updated rate projections that are lower compared to the FY 2026 Financial Forecast’s rate projections (see Table 1). Table 1: 2026 Actual Rate Increases and Projected Water Rate Trajectory from FY 2027 to FY 2031 Figure 1: Water Utility Operations Reserve Adequacy Fiscal Year Ending Balances Fiscal Year 2026 2027 2028 2029 2030 2031 FY 2027 Proposal 10% 8% 9% 9% 7% 6% FY 2026 Forecast 10% 10% 10% 10% 10% FY 2027 Proposal 17% 8% 11% 13% 9% 7% FY 2026 Forecast 17% 16% 15% 12% 11% FY 2027 Proposal 2% 7% 8% 3% 2% 4% FY 2026 Forecast 2% 1% 1% 5% 8% Overall System Average Rate Trajectory Distribution Rate Trajectory Commodity Rate Trajectory construction (W-2). All customers pay a monthly service charge based on the size of their inlet meter. This charge represents metering, billing, and other customer service costs, and also the cost of maintaining the capability to deliver a peak flow for that customer based on their meter size. 7 Table 2: Current and Proposed Water Distribution Charges Current Rates Proposed Rates W-1 (Residential) Volumetric Rates ($/CCF) W-2 (Construction) Volumetric Rates ($/CCF) W-4 (Commercial) Volumetric Rates ($/CCF) W-7 (Irrigation) Volumetric Rates ($/CCF) Table 3: Current and Proposed Water Monthly Service Charges for W-1 Monthly Service Charge Meter Size Current Proposed 29.92 2.29 29.92 2.29 29.92 2.29 96.69 7.41 149.57 11.46 317.04 24.29 563.87 43.21 7 See Resolution 10176 “Resolution of the Council of the City of Palo Alto Approving the FY 2025 Water Utility Financial Plan and Reserve Transfers, and Increasing Water Rates by Amending Rate Schedules W-1 (General Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service Connections), W-4 (Residential Master-Metered and General Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water Service),” June 17, 2024. 6”1,065.97 1,154.44 88.47 8% 8”1,961.28 2,124.06 162.78 8% 10”3,100.74 3,358.10 257.36 8% 12”4,077.45 4,415.87 338.42 8% Table 4: Current and Proposed Water Monthly Service Charges for W-4 and W-7 Monthly Service Charge ($/month based on meter size) Change Meter Size Current (as of 7/1/2024) Proposed (effective 7/1/2025) $% 5/8”24.16 26.16 2.00 8% 3/4”32.31 34.99 2.68 8% 1”48.59 52.62 4.03 8% 1 ½”89.28 96.69 7.41 8% 2”138.11 149.57 11.46 8% 3”292.75 317.04 24.29 8% 4”520.66 563.87 43.21 8% 6”1,065.97 1,154.44 88.47 8% 8”1,961.28 2,124.06 162.78 8% 10”3,100.74 3,358.10 257.36 8% 12”4,077.45 4,415.87 338.42 8% Table 5 shows the current and proposed monthly service charges for fire services rate schedule W-3. Table 5: Current and Proposed Water Monthly Service Charges for W-3 Monthly Service Charge ($/month based on meter size) Change Meter Size Current (as of 7/1/2025) Proposed (effective 7/1/2026) $% 2”5.68 6.15 0.47 8% 4”35.22 38.14 2.92 8% 6”102.32 110.81 8.49 8% 8”218.07 236.16 18.09 8% 10”392.19 424.74 32.55 8% 12”633.50 686.08 52.58 8% Wastewater Collection Utility Proposal The Wastewater Collection Utility financial forecast proposes a 16% rate increase for FY 2027, which is equivalent to approximately $10.70 per residential customer per month. This forecast also projects annual rate increases of 14% in FY 2028, and 6% annually from FY 2029 and FY 2031. The proposed Wastewater Collection rate trajectory is shown in Table 6 below. The additional funding generated by this rate increase is required to pay for ongoing wastewater treatment and collection operations costs, and collection capital improvement projects (CIP). 9, this forecast assumes deferral of the next sewer main replacement project to FY 2028. This approach limits CIP spending to the highest priority projects, allowing the Wastewater Collection Operations Reserve to recover to within guideline levels and avoid the need for a higher rate increase. Table 6: Projected Wastewater Collection Rate Trajectory from FY 2027 to FY 2031 Figure 2: Operations Reserve Adequacy Fiscal Year Ending Balances Note: Operations Reserve shown with a minimum balance of $0. 9 Staff Report 2412-3871: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=64772 2027, staff anticipates the wastewater utility can resume contributions to the CIP reserve. Table 7: Current and Proposed Sewer Rates Current Proposed Monthly Service Charges ($/Month) Water Quantity Rates ($/CCF) Refuse Rate Proposal 201611, and the current residential rates were effective July 1, 201712. The proposed rate increase is necessary to meet increasing operating expenses, increased expenses related to the cost-of- living adjustments based on multiple indices required in the City’s solid waste contracts, including GreenWaste of Palo Alto and GreenWaste Recovery contracts which account for 76% of fund expenses, increased cost for street sweeping and the post-closure monitoring of the City’s closed landfill, and to reduce reliance on the Refuse Fund’s Rate Stabilization Reserve. Staff reviewed the City’s costs of providing refuse collection services and determined that the 3% increase for Fiscal Year 2027 would not exceed those costs. Staff is conducting a more detailed cost of service analysis and comprehensive review of future financial needs and reserve requirements and will use the results to confirm cost allocation to inform next year’s rate-setting actions. 13 was approved unanimously (3-0). The current and proposed residential rates are reflected in Table 8 and the current and proposed rates for the most common commercial service levels are reflected in Table 9 below. Table 8: Current and Proposed Residential Refuse Monthly Rates ChangeContainer Size Current Rates Proposed Rates (effective 7/1/2026)% Table 9: Current and Proposed Most Common Commercial Refuse Monthly Rates Change Container Size and Service Frequency Current Rates Proposed Rates (effective 7/1/2026) 11 City Council, June 13, 2016; Agenda Item #9; SR #6932 12 City Council, June 19, 2017; Agenda Item 14; SR #8171 13 Finance Committee, March 17, 2026; Agenda Item #3; SR #2601-5866 Electric Utility Proposal The Electric Utility rate forecast proposes a 4.5% overall rate increase for FY 2027. Beyond 2027, the forecast shows additional increases that are slightly lower than the forecasts prepared last year.17 Table 10 shows the proposed rate increases for FY 2027 through FY 2031. FY 2026 Forecast 6%8%8%6%- The drivers for lower rate increases relative to last year’s forecast include a new approach to grid modernization described to the Utilities Advisory Commission on January 7, 2026.18 The new “when and where” approach to grid modernization provides the opportunity to delay costly system upgrades until electric customers are ready to replace gas appliances or install EV chargers. This approach lowers the expected rate increases compared with pre-scheduled upgrades by neighborhood. The rate increases in the outer years of the forecast could change as the Council finalizes plans for debt financing grid modernization costs. In the current year, FY 2026, power supply costs are expected to be slightly lower than forecasted a year ago, mainly due to unexpected extremely high market prices for resource adequacy capacity and renewable energy credits, which have yielded higher wholesale revenues for the City. The City’s load (consumption) for the current year is forecasted to be about 14% higher than previously forecasted but is then expected to be relatively flat over the next several years. Meanwhile, output from the City’s hydroelectric resources is forecasted to be roughly equal to long-term average levels over the next few years. Hydroelectric revenue continues to be a large source of uncertainty in the City’s supply cost forecasts. In the next five years, staff expect steadily increasing electric supply costs due to increasing transmission access charges, rising renewable portfolio standard requirements, and increasing resource adequacy purchase obligations. Capital spending and distribution system maintenance spending is rising due to grid modernization, a dedicated fiber backbone supporting critical City services, and an upgrade to the Hanover Substation which will benefit all electric ratepayers. Staff expect grid modernization and related capital costs to be offset after a series of debt financing with the first bond issuance in FY 2027. The Hydroelectric Rate Stabilization Reserve has a balance of $18.8 million, or approximately equal to the reserve’s target level of $19 million. This reserve is used to manage the supply cost impacts associated with variations in generation from hydroelectric resources. Having sufficient 17 The current year (FY 2026) Financial Forecast for the Electric Utility (approved June 16, 2025) is described in the Finance Committee Staff Report 2412-3870 from April 15, 2025: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=64778 18 Staff Report 2512-5638 Fiscal Year 2026 Mid-Year Electric Grid Modernization Update https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=85181 funds in the reserve allows the City to avoid activating the hydroelectric rate adjuster if an upcoming winter is drier than average. This FY 2027 forecast includes a transfer of an additional $3 million into the Hydroelectric Rate Stabilization Reserve from the Operations Reserve in FY 2027 consistent with guidance from the Finance Committee during its April 21, 2026 meeting. 21 to partially offset the cost of PV and ESS permit fees, and the use of proceeds gained through the sale of freely allocated Cap-and-Invest (C&I) allowances or Public Benefits funds to support HVAC incentives, including costs of related work such as panel replacements, utility service upgrades, or building permit fees. For electric panel replacements less than 400A where there is no direct tie to an action supporting building or transportation electrification, staff is recommending that these building permit fees not be subsidized, to encourage customers to participate in an EV charger or HVAC installation at the time of electric panel replacement, versus some uncertain future date. $225,000 in REC Exchange net revenues in FY 2027 to reduce electric customer costs related to photovoltaic generation and energy storage system installations, as local decarbonization efforts, and direct staff to take the following actions: 21 Reaffirmation of the Carbon Neutral Plan and the Renewable Energy Credit Exchange Program as Recommended by the Utilities Advisory Commission; CEQA Status: Not a project, December 15, 2025 https://cityofpaloalto.primegov.com/api/compilemeetingattachmenthistory/historyattachment/?historyId=af8b2a 70-d917-4868-baa8-8157048a5cc3 Proposed Rates Table 11: Current and Proposed Electric Rates Rate Schedule Current Rates (as of 7/1/25) Proposed Rates (effective of 7/1/26) Change Change (%) E-1 (Residential) E-2 & E-2-G (Small Non-Residential) E-4 & E-4-G (Medium Non-Residential) E-7 & E-7-G (Large Non-Residential) 23. 23 Staff Report #2512-5603: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87766 Table 12: Current and Proposed Electric NEM Buyback Rates $/kWh $/kWh Net Surplus Electricity (E-NSE-1)$0.1012 $0.1064 Export Electricity (E-EEC-1)$0.1206 $0.0990 The City offers an E-16 rate for unmetered electric service for wireless communication facilities and related equipment on wood utility poles and streetlight poles. The E-16 unmetered service rate aligns closely with the E-2 rate for small commercial electric service, excludes costs related to meter reading and is determined based on the energy requirement of equipment specifications. The E-16 rate also includes miscellaneous electric utility charges such as licensing fees for City-owned spare conduit, usable space for utility pole attachments, and mounting communication equipment on utility poles and streetlight poles. In FY 2026, CPAU engaged the services of EES Consulting (EES) to perform a cost of service analysis of the E-16 rate and update the rate schedule to ensure the City is recovering the actual costs of delivering these services. As part of the final cost of service study, EES recommends increasing the miscellaneous unmetered electric service rates by the Consumer Price Index for All Urban Consumers (CPI-U) in the San Francisco area, to recover capital and maintenance expenses associated with utility pole attachments and telecom conduit. This year’s change in CPI-U was 3%, as reported by the Bureau of Labor Statistics. The Gas Utility financial forecast proposes 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. The proposed Gas rate trajectory is shown in Table 13 below. 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. 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. Relative to the FY 2026 financial forecast25, the updated forecast projects total gas usage to be about on average 4% lower in the FY 2027 to FY 2031 period, resulting in 25 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 decreased retail sales revenue. Figure 3: Operations Reserve Projection 27 in the City’s Rates website. The calculated monthly gas bill based on current rates for the median Palo Alto residential customer is about 11% lower than that of a PG&E customer with equivalent consumption. 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 27 City’s Gas Monthly Supply Rates: 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 City Council at the December 1, 2025 meeting29. Table 14: Current and Proposed Gas Monthly Service Charges ($/Month) Rate Schedule Current Rates Proposed Rates Change ($) Change (%) (Residential) (Small Commercial) G-2 (≤ 220 scfh) G-2 (> 220 and < 4,000 scfh) G-2 (≥ 4,000 scfh) (Large Commercial) Table 15: Current and Proposed Gas Distribution Charges ($/Therm) Rate Schedule Current Rates Proposed Rates Change ($) Change (%) G-1 (Residential) G-2 (Residential Master-Metered and Small Commercial) G-3 (Large Commercial) Fiber Utility Proposal Storm Water and Surface Water Drainage Proposal 29 Staff Report 2506-4908: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84117 improvement projects listed in the ballot measure, enhanced maintenance of the storm drainage system, and a variety of storm water quality protection programs. The approved ballot measure allows for an annual adjustment based on the Consumer Price Index (CPI) for the San Francisco-Oakland-San Jose CSMA or 6%, whichever is less. The Storm Water and Surface Drainage Rate will increase 3%, increasing the monthly charge per Equivalent Residential Unit by $0.53, from $17.61 to $18.14 for Fiscal Year 2027, effective July 1, 2026, to reflect the annual CPI change. See Staff Report 2602-598131 for more information. TIMELINE FISCAL/RESOURCE IMPACT 31 Staff Report 2602-5981: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87150 expenses (which are paid from the General Fund) are projected to increase by 4.5% or $0.1 million. Table 17: Median Residential Bill Increase and Revenue Impact Utility Median Residential Bill Increase FY 2027 Estimated Overall Revenue Impact 33 33 Not including fluctuations in commodity revenue/cost. POLICY IMPLICATIONS Policy implications related to the proposed electric, gas, water, wastewater collection, fiber, storm water management fee, and refuse rate actions are detailed fully in the attached Resolutions and associated exhibits. On November 5, 202535, staff presented the preliminary rate proposals at the UAC meeting. The UAC subsequently formed a Subcommittee on December 3, 2025 with a defined scope of reviewing the FY 27 Financial Plan and 5-Year Forecast regarding affordability for the electric and water utilities regarding affordability. On November 18, 202536, staff presented the same preliminary rate proposals to the Finance Committee. Council members emphasized that the absence of rate increases during the pandemic created a catch-up scenario that should be avoided in the future. Water On March 4, 202637, staff presented the Water Utility rate proposal to the UAC, recommending a 12% increase to distribution rates and an 8% increase to commodity rates, for an overall system average increase of 10%. The primary drivers of the proposed distribution rate increase were restoring reserves and funding capital expenses. Commissioners expressed concern that the SFPUC’s FY 2027 wholesale rate increase had risen from the previously projected 1% to 7.4% and noted that wholesale rate projections in subsequent years could increase further. Commissioners also recommended a cost-of-service study, evaluation of rates for different pressure zones, and legal guidance on tiered rates. Commissioners also asked about the proposed $5.5 million transfer from the Operations Reserve to the CIP Reserve and questioned whether reserve guidelines remain appropriate. Some commissioners expressed lack of confidence in the 5-year forecast during the outer years because an updated water master plan was unavailable to inform the capital project forecasts. The UAC then voted 7-0 not to approve the FY 2027 Water Utility Financial Forecast and voted 5-2 to approve both the reserve transfer and an 8% FY 2027 rate increase by decreasing the contribution to the Operations Reserve by $1.2 million from the proposed level. At the March 17, 202638 Finance Committee, Staff presented its recommendation of an overall 10% rate increase. Council members unanimously supported the UAC’s recommendation of an 8% overall rate increase, while emphasizing the need for clearer public communication and additional analysis. They noted the importance of explaining to residents that although unit rates may increase, conservation can help limit bill impacts because customers use fewer units of water. They also encouraged staff to better communicate that investments in technology, such as AMI, are helping reduce labor costs. They emphasized the importance of communicating that 35 Staff Report 2503-4364: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84164 36 Staff Report 2508-5119: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83887 37 Staff Report 2512-5639: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86697 38 Staff Report 2512-5604: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86855 rates fund needed investments in infrastructure. A council member noted ongoing coordination with regional partners and other elected officials to obtain additional information from SFPUC. One council member expressed support for taking a more conservative approach to reserves, while also noting hesitation pending completion of the reserve study by Baker Tilly and requesting additional information on debt capacity. Council members also asked staff to revisit the water sales forecast to better align with RHNA-related growth assumptions and future housing development, and to coordinate with planning staff to confirm which housing unit projections are reflected in the forecast. 43, staff presented the Wastewater Collection Utility rate proposal to the UAC. The UAC voted 6-1 to recommend that the City Council adopt a resolution approving the 16% rate increase. Commissioners asked about wastewater treatment costs including underlying drivers, impact on Wastewater Collection utility rates, and potential cost-saving opportunities at the treatment plant. One Commissioner asked about the assumptions underlying projected capacity fee revenues and the risks associated with those projections. Commissioners also inquired about rainwater infiltration and its potential impact on Collection system costs. In addition, one Commissioner asked about the findings of the sewer master plan and recommended improving the staff report narrative, particularly the discussion of FY 2025 actuals and neighborhood bill comparisons. 44 and unanimously approved the proposal. 45 and the Finance Committee unanimously approved the proposal. 46, the UAC reviewed the Electric rate proposals and financial forecast and voted 6-1 to approve the staff recommendation. 43 Staff Report 2512-5640: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86546 44 Staff Report 2512-5608: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86854 45 Staff Report 2601-5866: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86856 46 Staff Report 2603-6163: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87029 asked questions about time-of-use rates, indexing rate increases to inflation indices, and reserves. 51. As a result of this discussion, the Committee directed Utilities Department Staff to develop a rebate program for building permit fees related to PV and ESS. Further, the Committee directed Utilities Department Staff to develop rebate programs related to HVAC systems and new or replacement service panels less than 400A52. 53, a UAC Commissioner summarized the perspectives of the UAC including that the Commission was generally aligned with the current strategy, expressing support for continued investment in grid modernization while stretching project timelines to mitigate near-term rate pressure. Staff explained the transfer was to hedge against volatility in hydropower costs driven by drought conditions. While hydropower remains a low-cost resource, it is highly sensitive to water availability, creating exposure to sudden cost increases. 54, staff presented the rate proposal to the UAC. Commissioners voted 4-3 to recommend to maintain an overall rate increase of no more than 7% for FY 2027 through a combination of reducing the General Fund Transfer and potentially using other levers such as reserve levels. 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 51 The April 7, 2026, staff report can be viewed through this link. https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=3f9162f0-a2c5-4baf-942e-cf17727675e1 52 The April 7, 2026 Finance Committee meeting resulted in actions directing staff to develop a rebate program funded through Utilities non-rate revenues that provides subsidies for all fee categories at an amount that approximates the difference between City costs and state caps, and to develop a rebate program funded through Utilities non-rate revenues that provides subsidies for all fee categories at an amount that approximates the proposed cost in Table 2, excluding “Electric Service – New or Replacement 400 amp and Greater.” 53 Staff Report 2512-5603: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87766 54 Staff Report 2512-5641: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87025 managing rising operating and capital costs. Lastly, Commissioners debated the General Fund Transfer assumption, with some recommending a reduction from 18%. 59, a Committee member recommended that future reports more explicitly acknowledge that reserve balances were drawn down during COVID to support lower rate increases, and that current upward rate pressure is partially a consequence of those prior decisions. A Finance Committee member noted recent news from the U.S. Energy Information Administration (EIA) of a potential price spike in FY 2027. Staff responded that they actively monitor market conditions and, based on current trends showing declining prices and high levels of storage staff does not anticipate any spike. 60 and unanimously approved the proposal61. The rate increase was subsequently discussed with the Stormwater Management Oversight Committee on April 13, 2026. ENVIRONMENTAL REVIEW 59 Staff Report 2512-5607: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87765 60 Finance Committee, April 7, 2026; Agenda Item #1; SR #2602-5981, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87150 61 Finance Committee, April 7, 2026; Agenda Item #1, Action Minutes, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87140 ATTACHMENTS Attachment A: Resolution for the FY 2027 Water Utility Attachment B: Resolution for the FY 2027 Wastewater Collection Utility Attachment C: Resolution for the FY 2027 Refuse Rates Attachment D: Resolution for the FY 2027 Electric Utility Attachment E: Resolution for the FY 2027 Gas Utility Attachment F: Resolution for the FY 2027 Fiber Optic Utility Attachment G: Resolution for the FY 2027 Storm Water Management Fee Rates Attachment H: Table of URLs for Exhibits to Attachments A - G APPROVED BY: Alan Kurotori, Director of Utilities *NOT YET APPROVED* Attachment A 1 027060226 Resolution No. Resolution of the Council of the City of Palo Alto Approving the FY 2027 Water Utility Financial Forecast and Reserve Transfer, and Amending Rate Schedules W-1 (General Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service Connections), W-4 (Residential Master-Metered and General Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water Service) R E C I T A L S A. Each year the City of Palo Alto (“City”) assesses the financial position of its utilities with the goal of ensuring adequate revenue to fund operations. This includes making long-term projections of market conditions, the physical condition of the system, and other factors that could affect utility costs, and setting rates adequate to recover these costs. The City does this with the goal of providing safe, reliable, and sustainable utility services at competitive rates. The City adopts Financial Plans or Forecasts to summarize these projections. B. The City uses reserves to protect against contingencies and to manage other aspects of its operations, and regularly assesses the adequacy of these reserves and the management practices governing their operation. The status of utility reserves and their management practices are included in Reserves Management Practices (Attachment A, Exhibit 3) and Water Utility Financial Details (Attachment A, Exhibit 2) attached to this resolution and made a part of the staff report presented to the City Council. C. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and charges. D. On June 15, 2026, the City Council held a full and fair public hearing regarding the proposed rate increase and considered all protests against the proposals. E. As required by Article XIII D, Section 6 of the California Constitution and applicable law, notice of the June 15, 2026 public hearing was mailed to all City of Palo Alto Utilities water customers on April 30, 2026. F. The City Clerk has tabulated the total number of written protests presented by the close of the public hearing, and determined that it was less than fifty percent (50%) of the total number of customers and property owners subject to the proposed water rate amendments, therefore a majority protest does not exist against the proposal. The Council of the City of Palo Alto RESOLVES as follows: *NOT YET APPROVED* Attachment A 2 027060226 SECTION 1. The Council hereby approves the Reserves Management Practices (Attachment A, Exhibit 3) and Water Utility Financial Details (Attachment A, Exhibit 2) presented to City Council on June 15, 2026, which are 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 $5,500,000 from the Operations Reserve to the CIP Reserve in FY 2026, as described in the FY 2027 Water Utility Financial Forecast. SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule W-1 (General Residential Water Service) is hereby amended to read as shown in Attachment A, Exhibit 1. Utility Rate Schedule W-1, as amended, shall become effective July 1, 2026. SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read as shown in Attachment A, Exhibit 1. Utility Rate Schedule W-2, as amended, shall become effective July 1, 2026. SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule W-3 (Fire Service Connections) is hereby amended to read shown in Attachment A, Exhibit 1. Utility Rate Schedule W-3, as amended, shall become effective July 1, 2026. SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule W-4 (Residential Master-Metered and General Non-Residential Water Service) is hereby amended to read as shown in Attachment A, Exhibit 1. Utility Rate Schedule W-4, as amended, shall become effective July 1, 2026. SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule W-7 (Non-Residential Irrigation Water Service) is hereby amended to read as shown in Attachment A, Exhibit 1. Utility Rate Schedule W-7, as amended, shall become effective July 1, 2026. SECTION 8. The City Council finds as follows: a. Revenues derived from the water rates approved by this resolution do not exceed the funds required to provide water service. b. Revenues derived from the water rates approved by this resolution shall not be used for any purpose other than providing water service, and the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto, consistent with any limitations imposed by Article XIII C and Article XIII D of the California Constitution. c. The amount of the water rates imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the water service attributable to the parcel. *NOT YET APPROVED* Attachment A 3 027060226 SECTION 9. The Council finds that the fees and charges adopted by this resolution are charges imposed for a specific government service or product provided directly to the payor that are not provided to those not charged, and do not exceed the reasonable costs to the City of providing the service or product. SECTION 10. The Council finds that the adoption of this resolution approving the FY 2027 Water Financial Forecast and Reserve transfers does not meet the California Environmental Quality Act’s (CEQA) definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment, and therefore, no environmental review is required. The Council finds that the adoption of this resolution changing water rates to meet operating expenses, purchase supplies and materials, meet financial reserve needs and obtain funds for capital improvements necessary to maintain service is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Utilities Director of Administrative Services *NOT YET APPROVED* Attachment B 1 6059756 Resolution No. ______ Resolution of the Council of the City of Palo Alto Approving the FY 2027 Wastewater Collection Utility Financial Forecast and Reserve Management Practices, and Amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger) R E C I T A L S A. Each year the City of Palo Alto (“City”) assesses the financial position of its utilities with the goal of ensuring adequate revenue to fund operations. This includes making long-term projections of market conditions, the physical condition of the system, and other factors that could affect utility costs, and setting rates adequate to recover these costs. The City does this with the goal of providing safe, reliable, and sustainable utility services at competitive rates. The City adopts Financial Forecasts or Plans to summarize these projections. B. The City uses reserves to protect against contingencies and to manage other aspects of its operations, and regularly assesses the adequacy of these reserves and the management practices governing their operation. The status of utility reserves and their management practices are included in Reserves Management Practices (Attachment B, Exhibit 3) and Wastewater Collection Utility Financial Details (Attachment B, Exhibit 2) attached to this resolution and made a part of the staff report presented to the City Council. C. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and charges. D. On June 15, 2026, the City Council held a full and fair public hearing regarding the proposed rate increase and considered all protests against the proposals. E. As required by Article XIII D, Section 6 of the California Constitution and applicable law, notice of the June 15, 2026 public hearing was mailed to all City of Palo Alto Utilities wastewater customers on April 30, 2026. F. The City Clerk has tabulated the total number of written protests presented by the close of the public hearing, and determined that it was less than fifty percent (50%) of the total number of customers and property owners subject to the proposed wastewater rate amendments, therefore a majority protest does not exist against the proposal. The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. The Council hereby approves the Reserves Management Practices (Attachment B, Exhibit 3) and Wastewater Collection Utility Financial Details (Attachment B, Exhibit 2) presented to City Council on June 15, 2026, which are attached to this resolution and made a part of the staff report presented to the City Council. *NOT YET APPROVED* Attachment B 2 6059756 SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule S-1 (Residential Wastewater Collection and Disposal) is hereby amended to read as shown in Attachment B, Exhibit 1. Utility Rate Schedule S-1, as amended, shall become effective July 1, 2026. SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule S-2 (Commercial Wastewater Collection and Disposal) is hereby amended to read as shown in Attachment B, Exhibit 1. Utility Rate Schedule S-2, as amended, shall become effective July 1, 2026. SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule S-6 (Restaurant Wastewater Collection and Disposal) is hereby amended to read as shown in Attachment B, Exhibit 1. Utility Rate Schedule S-6, as amended, shall become effective July 1, 2026. SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger) is hereby amended to read as shown in Attachment B, Exhibit 1. Utility Rate Schedule S-7, as amended, shall become effective July 1, 2026. SECTION 6. The Council finds that the revenue derived from the wastewater rates approved by this resolution do not exceed the funds required to provide wastewater service, and the revenue derived from the adoption of this resolution shall be used only for the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto, consistent with any limitations imposed by Article XIII C and Article XIII D of the California Constitution. SECTION 7. The Council finds that the fees and charges adopted by this resolution are charges imposed for a specific government service or product provided directly to the payor that are not provided to those not charged, and do not exceed the reasonable costs to the City of providing the service or product. // // // // *NOT YET APPROVED* Attachment B 3 6059756 SECTION 8. The Council finds that the adoption of this resolution approving the FY 2027 Wastewater Collection Utility Financial Forecast and Reserve Management Practices does not meet the California Environmental Quality Act’s definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment, and therefore, no environmental review is required. The Council finds that the adoption of this resolution changing Wastewater collection rates to meet operating expenses, purchase supplies and materials, meet financial reserve needs and obtain funds for capital improvements necessary to maintain service is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Utilities Director of Administrative Services ***NOT YET APPROVED*** 1 0290196_20260604_ms29 Attachment C Resolution No. ______ Resolution of the Council of the City of Palo Alto Amending the Utility Rate Schedules R-1 and R C to Increase Refuse Rate for Fiscal Year 2027 R E C I T A L S A. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the City Council may by resolution adopt rules and regulations governing utility services, fees, and charges; and B. The City has considered the need for an adjustment in refuse collection rates to reconcile the solid waste revenues with the projected costs of providing refuse services and to minimize reliance on the Refuse Fund Rate Stabilization Reserve and has determined that the proposed refuse collection rates will not result in revenues that exceed the funds required to provide refuse service or in fees imposed on any parcel that exceed the proportional cost of service attributable to that parcel; and C. Pursuant to Article XIIID Sec. 6 of the California Constitution and Government Code Section 53755, on June 15, 2026 the Council of the City of Palo Alto held a full and fair public hearing to consider all protests against the proposed refuse rate increases; and D. As required by Article XIII D, Section 6 of the California Constitution and applicable law, notice of the June 15, 2026 public hearing was mailed to all City of Palo Alto Utilities refuse customers and property owners on April 30, 2026; and E. The total number of written protests submitted by parcels receiving refuse collection services, prior to the close of the public hearing, was less than fifty percent (50%) of the total number of parcels subject to the proposed refuse rate increases. The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule R-1 (Domestic Refuse Collection) is hereby amended to read as shown in Attachment C, Exhibit 1. Utility Rate Schedule R-1, as amended, shall become effective on July 1, 2026. SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule R-C (Commercial Refuse Collection) is hereby amended to read in as shown in Attachment C, Exhibit 1. The foregoing Utility Rate Schedule R-C, as amended, shall become effective on July 1, 2026. SECTION 3. The Council finds that the revenue derived from the authorized 2 0290196_20260604_ms29 Attachment C adjustments of the refuse collection rates shall be used only for the purpose of providing refuse service and minimizing reliance on the Refuse Fund Rate Stabilization Reserve, the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto, consistent with any limitations imposed by Article XIII C and Article XIII D of the California Constitution. SECTION 4. The Council finds that the adoption of this resolution amending the Utility Rate Schedules R-1 and R-C 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). This action is also not subject to CEQA under 14 CCR Sec. 15378(b)(4), as a fiscal activity that does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: __________________________ _____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: __________________________ _____________________________ City Attorney or Designee City Manager _____________________________ Director of Public Works / City Engineer _____________________________ Director of Administrative Services NOT YET APPROVED Attachment D 1 027060426 Resolution No. _ Resolution of the Council of the City of Palo Alto Approving the Fiscal Year 2027 Electric Utility Financial Forecast and Reserve Transfer, Amending the Electric Utility Reserves Management Practices and Utility Rate Schedules E-1 (Residential Electric Service), E-1 TOU (Residential Time of Use Electric Service), E-2 (Residential Master-Metered and Small Non-Residential Electric Service), E-2-G (Residential Master- Metered and Small Non-Residential Green Power Electric Service), E-4 (Medium Non-Residential Electric Service), E-4-G (Medium Non- Residential Green Power Electric Service), E-4 TOU (Medium Non-Residential Electric Time of Use Service), E-7 (Large Non Residential Electric Service), E-7-G (Large Non- Residential Green Power Electric Service), E-7 TOU (Large Non-Residential Electric Time of Use Service), E-14 (Street Lights), E-16 (Unmetered Electric Service), E-EEC-1 (Export Electricity Compensation), and E-NSE-1 (Net Metering Surplus Electricity Compensation), and Directing the Use of Up To $225,000 in Renewable Energy Certificate Exchange Net Revenues in Fiscal Year 2027 to Reduce Electric Customers’ Photovoltaic Generation and Energy Storage System Installation Costs R E C I T A L S A. Each year the City of Palo Alto (“City”) assesses the financial position of its utilities with the goal of ensuring adequate revenue to fund operations. This includes making long-term projections of market conditions, the physical condition of the system, and other factors that could affect utility costs, and setting rates adequate to recover these costs. 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 (Attachment D, Exhibit 3) and Electric Utility Financial Details (Attachment D, Exhibit 2) attached to this resolution and made a part of the staff report presented to the City Council. C. On April 7, 2026, the Finance Committee directed staff 1 to develop financial offsets for building permits related to electrification, photovoltaic (PV) generation, energy storage systems (ESS), HVAC systems, and electric panel upgrades less than 400amps. D. After review of possible funding sources, which include revenues from the REC 1 April 7, 2026 Action Minutes for item 2: https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=18557&compileOutputType=1 NOT YET APPROVED Attachment D 2 027060426 Exchange Program 2, public benefits funds, and Cap-and-Invest program revenues, staff recommend using REC Exchange Program revenues for PV and ESS building permit fees, and using existing efficiency electrification incentive programs to offset the related costs of HVAC systems, including panel upgrades, service upgrades, and building permit fees. E. The use of REC Exchange Program revenues for local decarbonization requires an offsetting reduction in the allocation of Cap-and-Invest auction revenues to the City’s Cap-and- Invest Reserve. F. 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. G. 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 RESOLVES as follows: SECTION 1. The Council hereby approves the fiscal year (“FY”) 2027 Amended Electric Utility Reserve Management Practices (Attachment D, Exhibit 3) and Electric Utility Financial Details (Attachment D, Exhibit 2) presented to the City Council on June 15, 2026, which are 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 $5 million from the Electric Utility Distribution Operations Reserve to the Electric Utility Capital Reserve in FY 2026, as described in the FY 2027 Electric Utility Financial Forecast (Attachment D, Exhibit 2); SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-1 (Residential Electric Service) is hereby amended to read as shown in Attachment D, Exhibit 1. Utility Rate Schedule E-1, as amended, shall become effective July 1, 2026; SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-1 TOU (Residential Time of Use Electric Service) is hereby amended to read as shown in Attachment D, Exhibit 1. Utility Rate Schedule E-1 TOU, as amended, shall become 2 On August 24, 2020, the City Council adopted Resolution 9913, amending the Electric Utility’s Carbon Neutral Plan to permit the exchange of Bucket 1 RECs for Bucket 3 RECS (the REC Exchange Program); Staﬀ report 11556, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86875&dbid=0&repo=PaloAlto&cr=1. In 2022 and 2025 Council directed staﬀ via minute order to allocate an amount equivalent to all of the revenues earned from the REC Exchange Program from the City’s Cap and Trade Reserve to local decarbonization eﬀorts. Staﬀ Report 14735, 12/12/2022, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82045; Staﬀ Report 2510-5281, 12/15/25, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84126 NOT YET APPROVED Attachment D 3 027060426 effective July 1, 2026; SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-2 (Residential Master-Metered and Small Non-Residential Electric Service) is hereby amended to read as shown in Attachment D, Exhibit 1. Utility Rate Schedule E-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 E-2-G (Residential Master-Metered and Small Non-Residential Green Power Electric Service) is hereby amended to read as shown in Attachment D, Exhibit 1. Utility Rate Schedule E-2-G, as amended, shall become effective July 1, 2026; SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-4 (Medium Non-Residential Electric Service) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-4, as amended, shall become effective July 1, 2026; SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-4-G (Medium Non-Residential Green Power Electric Service) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-4-G, as amended, shall become effective July 1, 2026; SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-4 TOU (Medium Non-Residential Time of Use Electric Service) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-4 TOU, as amended, shall become effective July 1, 2026; and SECTION 10. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-7 (Large Non-Residential Electric Service) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-7, as amended, shall become effective July 1, 2026; SECTION 11. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-7-G (Large Non-Residential Green Power Electric Service) is hereby amended to read as shown in Attachment D, Exhibit 1. Utility Rate Schedule E-7-G, as amended, shall become effective July 1, 2026; SECTION 12. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-7 TOU (Large Non-Residential Time of Use Electric Service) is hereby amended to read as shown in Attachment D, Exhibit 1. Utility Rate Schedule E-7 TOU, as amended, shall become effective July 1, 2026; NOT YET APPROVED Attachment D 4 027060426 SECTION 13. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-14 (Street Lights) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-14, as amended, shall become effective July 1, 2026; SECTION 14. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-16 (Unmetered Electric Service) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-16, as amended, shall become effective July 1, 2026; SECTION 15. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-EEC-1 (Export Electricity Compensation) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-EEC-1, as amended, shall become effective July 1, 2026; SECTION 16. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-NSE-1 (Net Surplus Electricity Compensation Rate) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-NSE-1, as amended, shall become effective July 1, 2026; SECTION 17. The Council finds that the revenue derived from the adoption of this resolution shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto, consistent with any limitations imposed by Article XIII C and Article XIII D of the California Constitution. SECTION 18. 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 19. The Council directs the use of up to $225,000 in REC Exchange net revenues in FY 2027 to reduce electric customer costs related to photovoltaic generation and energy storage system installations, as local decarbonization efforts, and directs staff to take the following actions: a. change the funding mechanism for the Cap-and-Invest Reserve to allocate up to $225,000 less in Cap-and-Invest auction revenues in FY 2027 to the City’s Cap- and-Invest Reserve and instead allocate these funds for other local decarbonization efforts; and b. review existing HVAC incentive levels including consideration of financial offsets to lower the cost of related work including panel upgrades, electric utility service upgrades, or the cost of building permit fees; and c. return to Council within Fiscal Year 2027 to review the Electric Supply Portfolio Carbon Neutral Plan and use of revenues derived from the REC Exchange Program. NOT YET APPROVED Attachment D 5 027060426 SECTION 20. The Council finds that approving the Electric Reserves Management Practices, Electric Financial Forecast, Electric Reserve transfer and Directing the Use of Up To $225,000 in Renewable Energy Certificate Exchange Net Revenues in Fiscal Year 2027 to Reduce Electric Customers’ Photovoltaic Generation and Energy Storage System Installation Costs 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 each 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 electric 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 CEQA Guidelines Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Utilities Director of Administrative Services *NOT YET APPROVED* Attachment E 6059758 1 Resolution No. Resolution of the Council of the City of Palo Alto Approving the Fiscal Year 2027 Gas Utility Financial Forecast, Reserve Transfer and General Fund Transfer, and Amending the Gas Utility Reserves Management Practices and 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 (Attachment E, Exhibit 3) and Gas Utility Financial Details (Attachment E, Exhibit 2) attached to this resolution and made a part of the staff report presented to the City Council. C. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and charges. D. On June 15, 2026, the City Council heard and approved the proposed rate increase at a noticed public hearing. The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. The Council hereby approves the fiscal year (“FY”) 2027 Amended Reserves Management Practices (Attachment E, Exhibit 3) and Gas Utility Financial Details (Attachment E, Exhibit 2) presented to the City Council on June 15, 2026, which are 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 in 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 Attachment E, Exhibit 1. Utility Rate Schedule G-1, as amended, shall become effective July 1, 2026. *NOT YET APPROVED* Attachment E 6059758 2 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 Attachment E, 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 Attachment E, 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, consistent with any limitations imposed by Article XIII C and Article XIII D of the California Constitution. 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. // // // // // // // *NOT YET APPROVED* Attachment E 6059758 3 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. 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 *NOT YET APPROVED* Attachment F 027060426 1 Resolution No. _________ Resolution of the Council of the City of Palo Alto Amending Rate Schedules EDF-1 (Dark Fiber Licensing Services) and EDF-2 (Dark Fiber Connection Fees) The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule EDF-1 (Dark Fiber Licensing Services) is hereby amended to read as shown in Attachment F, Exhibit 1. Utility Rate Schedule EDF-1, as amended, shall become effective July 1, 2026. SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule EDF-2 (Dark Fiber Connection Fees) is hereby amended to read as shown in Attachment F, Exhibit 1. Utility Rate Schedule EDF-2, as amended, shall become effective July 1, 2026. SECTION 3. The Council finds that the revenue derived from the adoption of this resolution shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto, consistent with any limitations imposed by Article XIII C and Article XIII D of the California Constitution. // // // // // // *NOT YET APPROVED* Attachment F 027060426 2 SECTION 4. The Council finds that the adoption of this resolution amending Dark Fiber utility rates by the Consumer Price Index to meet operating expenses, purchase supplies and materials, meet financial reserve needs and obtain funds for capital improvements necessary to maintain service is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Utilities Director of Administrative Services Attachment G ***NOT YET APPROVED*** 1 0290195_20260604_ms29 Resolution No. ______ Resolution of the Council of the City of Palo Alto Amending Utility Rate Schedule D-1 (Storm and Surface Water Drainage) to Increase Storm Water Management Fee Rates by 3.0% Per Month Per Equivalent Residential Unit for Fiscal Year 2027 R E C I T A L S A. In April 2017, a majority of property owners approved a ballot measure adopting a monthly Storm Water Management Fee to fund storm drain capital improvements projects, enhanced maintenance of the storm drain system, storm water quality protection programs, and related activities. B. The ballot measure allowed for annual increases to the fee based on lesser of the local rate of inflation (based on changes to the Consumer Price Index for the San Francisco- Oakland-San Jose region as published by the Bureau of Labor Statistics) or 6%. C. According to the Bureau of Labor Statistics, the Consumer Price Index for the San Francisco-Oakland-San Jose region increased by 3.0% between December 2024 and December 2025. The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule D-1 (Storm and Surface Water Drainage) is hereby amended to read as shown in Attachment G, Exhibit 1. Utility Rate Schedule D-1, as amended, shall become effective July 1, 2026. SECTION 2. The Council finds that this rate increase is being imposed to offset the effects of inflation on labor and material costs pursuant to the annual inflationary fee escalator provision of the Storm Water Management Fee ballot measure, which was approved by a majority of Palo Alto property owners on April 11, 2017. SECTION 3. The Council finds that the revenue derived from the authorized adoption enumerated herein shall be used only for the purposes set forth in the 2017 Storm Water Management Fee ballot measure, and Article VII, Section 2, of the Charter of the City of Palo Alto, consistent with any limitations imposed by Article XIII C and Article XIII D of the California Constitution. // // Attachment G ***NOT YET APPROVED*** 2 0290195_20260604_ms29 SECTION 4. The Council finds that the adoption of this resolution changing the Storm Water Management Fee 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. 15378(b)(4). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: City Attorney or Designee City Manager Director of Public Works Director of Administrative Services Attachment H: Table of URLs for Exhibits to Attachments A - G Attachment Exhibit Title URL A 1 FY27 Water Rate Schedule https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-a-exhibit-1-fy27-water-rate- schedules.pdf A 2 FY27 Water Utility Financial Details https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-a-exhibit-2-fy27-water-utility- ﬁnancial-details.pdf A 3 FY27 Water Reserve Management Practices https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-a-exhibit-3-fy27-water- reserve-management-practices.pdf A 4 FY27 Water Utility Communications Plan and Samples https://www.paloalto.gov/ﬁles/assets/public/v/2/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-a-exhibit-4-fy27-water-utility- communications-plan-and-samples.pdf B 1 FY27 Wastewater Collection Rate Schedule https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-b-exhibit-1-fy27-wastewater- collection-rate-schedules.pdf B 2 FY27 Wastewater Collection Utility Financial Details https://www.paloalto.gov/ﬁles/assets/public/v/2/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-b-exhibit-2-fy27-wastewater- collection-utility-ﬁnancial-details.pdf B 3 FY27 Water Utility Reserves Management Practices https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-b-exhibit-3-fy27-wastewater- collection-reserve-management-practices.pdf B 4 FY27 Wastewater Collection Utility Communications Plan https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-b-exhibit-4-fy27-wastewater- collection-utility-communications-plan.pdf C 1 FY27 Refuse Rate Schedules https://www.paloalto.gov/ﬁles/assets/public/v/2/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-c-exhibit-1-fy27-refuse-rate- schedules.pdf D 1 FY27 Electric Rate Schedules https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-d-exhibit-1-fy27-electric-rate- schedules.pdf D 2 FY27 Electric Utility Financial Details https://www.paloalto.gov/ﬁles/assets/public/v/2/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-d-exhibit-2-fy27-electric- utility-ﬁnancial-details.pdf Attachment H: Table of URLs for Exhibits to Attachments A - G Attachment Exhibit Title URL D 3 FY27 Electric Reserves Management Practices https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-d-exhibit-3-fy27-electric- reserves-management-practices-redline.pdf D 4 FY27 Electric Utility Communications Plan https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-d-exhibit-4-fy27-electric- communications-plan.pdf E 1 FY27 Gas Rate Schedules https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-e-exhibit-1-fy27-gas-rate- schedules.pdf E 2 FY27 Gas Utility Financial Details https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-e-exhibit-2-fy27-gas-utility- ﬁnancial-details.pdf E 3 FY27 Gas Reserve Management Practices https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-e-exhibit-3-fy27-gas-reserve- management-practices-redline.pdf E 4 FY 27 Gas Utility Communications Plan https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-e-exhibit-4-fy27-gas-utility- communications-plan.pdf F 1 FY27 Fiber Rate Schedules https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-f-exhibit-1-fy27-ﬁber-rate- schedules.pdf G 1 FY27 Storm and Surface Water Drainage Rate Schedule https://www.paloalto.gov/ﬁles/assets/public/v/2/agendas-minutes- reports/agendas-minutes/city-council-agendas- minutes/2026/june/rates/attachment-g-exhibit-1-fy27-storm-and- surface-water-drainage-rate-schedule.pdf June 15, 2026 PaloAlto.gov FY 2027 Utility Financial Forecasts and Rate Proposals City Council Presenter: Lisa Bilir, Assistant Director of Utilities, Resource Management 2 Palo Alto Utilities: Reliability, Safety, and Sustainability Pole removal for undergrounding electric service in Foothills for wildfire mitigation Reliable, Essential Services •Delivering 900GWh of electricity, 23.7M therms of natural gas and 3.4 billion gallons of drinking water annually with strong system reliability, advanced metering, and proactive maintenance. Infrastructure Renewal and Safety •Electric, gas, water, and wastewater collection system replacements, modernizing the electric grid, undergrounding, leak reduction, and storm-damage repairs, plus Palo Alto’s share of wastewater treatment plant rebuilding. Resilience and Climate Leadership •~60% renewable, 100% carbon-neutral electricity, electrification programs, and wildfire-mitigation investments. Financial Stewardship •Managing $500M+ in annual budgets, ensuring fair cost recovery, stable operations, and long-term capital planning. 3 Resources to Help Customers Save on Utility Bills •Rate Assistance •Expanded eligibility for income-qualified customers. •Discounts on utility bills - electric increase from 25–35%, gas discount 25%, water rate assistance from Valley Water. •Residential Energy Assistance Program (REAP) •Home upgrades and weatherization for income -qualified residents. •Efficiency Measures and Electrification Support •Free customer surveys, efficiency devices, rebates. •AMI and Leak Detection •Advanced Metering Infrastructure (AMI) energy and water usage data, automated leak alerts with WaterSmart. 4 Water, Wastewater Collection, and Refuse Rate Proposals Water - 8% Rate Increase •Finance Committee reduced proposed FY 2027 rate increase from 10% to 8% and reduced projected rate increases for subsequent years. •Key driver: San Francisco Public Utilities Commission (SFPUC) wholesale rate increase of 7.4%. Wastewater Collection - 16% Rate Increase •Regional treatment plant rebuild and increased operating costs. •Large wastewater main replacements, collection system improvements, lift station replacement, 5-mile main replacement scheduled for FY 2028. Refuse Collection - 3% Rate Increase •Recover collection and processing costs of solid waste materials. 4 5 Residential Median Monthly Bill Projections Proposed 2026 2027 2028 2029 2030 2031 $5.00 $4.00 $6.10 $7.10 $7.40 $7.10 6%4.50%7%7%7%6% $8.60 $7.30 $6.10 $5.60 $6.00 $6.50 12%9%7%6%6%6% $11.40 $10.00 $12.10 $13.20 $11.20 $10.30 10%8%9%9%7%6% $11.20 $10.70 $10.90 $5.30 $5.60 $6.00 20%16%14%6%6%6% $0.40 $0.50 $0.50 $0.60 $0.60 $0.60 2%3%3%3%3%3% $0.00 $1.50 $1.60 $1.60 $1.60 $1.70 0%3%3%3%3%3% Monthly Bill Amount $441.50 $476.70 $515.20 $549.90 $583.70 $617.10 $37.80 $35.20 $38.50 $34.70 $33.80 $33.40 9%8%8%7%6%6% Stormwater (2) Refuse Monthly Bill Change Fiscal Year Projections Electric Gas (1) Water Wastewater Collection 1)FY 2026 includes results of cost-of-service analysis; changes shown with commodity rates held constant; actual gas commodity rat es vary monthly 2)Storm water management fees increase by CPI index annually per approved 2017 ballot measure (2.4% in FY 2026) 6 Recommendation The Finance Committee recommends that Council adopt resolutions approving/amending: Wastewater Collection •The FY 2027 Wastewater Collection Utility Financial Forecast and Reserves Management Practices; and •Wastewater Collection Utility Rate Schedules effective July 1, 2026. Water •The FY 2027 Water Utility Financial Forecast and Reserves Management Practices; and •The transfer of up to $5.5 million from the Operations Reserve to the CIP Reserve in FY 2026; and •Water Utility Rate Schedules effective July 1, 2026. Refuse •Refuse Utility Rate Schedules effective July 1, 2026. Proposal •4.5% overall rate increase in FY 2027 (Finance Committee voted unanimously to recommend reducing the proposed FY 2027 rate increase from 6% to 4.5%). Rate Increase Drivers •Investment in electric grid modernization funded by revenues and bond financing; first bond issuance in FY 2027 (estimated $85 million). •Rising long-term costs for grid upgrades, increased mandates for renewable energy targets, increasing requirements for power reliability. Building Permit Fees: Directing the use of up to $225,000 in FY 2027 of non-rate revenues to reduce electric customers’ Photovoltaic Generation and Energy Storage System installation costs as local decarbonization efforts. Electric Utility Rate Proposal 7 Palo Alto’s electric bills are about 44% lower than PG&E for commercial and residential customers. 8 Gas Utility Rate Proposal Proposal: •9% overall rate increase in FY 2027. •UAC voted 4-3 to recommend keeping the FY 2027 rate increase at or below 7% by reducing the General Fund Transfer or possibly using reserves (March 31, 2026). •Finance Committee voted 2-1 to recommend a 9% overall rate increase; discussed but did not recommend slowing the gas price spike mitigation reserve recovery to 32 months (~1% gas bill reduction) (April 21, 2026). Rate Increase Drivers •Lower sales revenue from lower gas usage due to mild weather. •Capital Improvement Projects (CIP) gas main replacement cost increases (for non- grant-funded project). 9 Recommendation (1 of 2) The Finance Committee recommends that Council adopt resolutions approving/amending: Electric •The FY 2027 Electric Utility Financial Forecast, and amended Electric Utility Reserve Management Practices; and •The transfer of up to $5 million from the Electric Utility Distribution Operations Reserve to the Electric CIP Reserve in FY 2026; and •Electric Utility Rate Schedules Effective July 1, 2026; and •Directing the use of up to $225,000 in Renewable Energy Certificate Exchange net revenues in FY 2027 to reduce electric customers’ photovoltaic generation and energy storage system installation costs, with an offsetting reduction in the allocation of Cap-and-Invest auction revenues to the City’s Cap-and-Invest reserve. 10 Recommendation (2 of 2) The Finance Committee recommends that City Council adopt resolutions approving: Gas •The FY 2027 Gas Utility Financial Forecast, including Amending the Gas Utility Reserve Management Practices; and •The transfer of up to $1.5 million from the Gas Utility Operations Reserve to the Distribution Rate Stabilization Reserve in FY 2026; and •Transferring up to 18% of gas utility gross revenues received during FY 2025 to the General Fund in FY 2027; and •Amending the Gas Utility Rate Schedules Effective July 1, 2026. Fiber Optics •Amending the Fiber Optic Utility Rate Schedules Effective July 1, 2026, consistent with the applicable Consumer Price Index. Storm Water Management •Amending the Storm Water Management Fee Rate Schedule Effective July 1, 2026, consistent with the applicable Consumer Price Index. Questions