HomeMy WebLinkAboutRESO 103016059758
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Resolution No. 10301
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.
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
6059758
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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.
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Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
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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: JUNE 15, 2026
AYES: BURT, LAUING, LU, LYTHCOTT-HAIMS, RECKDAHL, STONE, VEENKER
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
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-$0.10
Distribution Charge:.......................................................................................$ 1.1972
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 E, Exhibit 1Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
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 E, Exhibit 1Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
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 E, Exhibit 1Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
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 E, Exhibit 1Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
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 E, Exhibit 1Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
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 E, Exhibit 1Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
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 E, Exhibit 1Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 2
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 2
Gas Utility Capital Improvement Program (CIP) Financial Details
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 3
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)
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 3
Section 4. Reserve for Commitments
At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for
Commitments will be set to an amount equal to the total remaining spending authority for
all contracts in force for the Wastewater Collection Utility at that time.
Section 5. Reserve for Reappropriations
At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for
Reappropriations will be set to an amount equal to the amount of all remaining capital and
non‐capital budgets, if any, that will be re‐appropriated to the following fiscal year for each
fund in accordance with Palo Alto Municipal Code Section 2.28.090.
Section 6. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for
capital contingencies. Staff will manage the CIP Reserve according to the following practices:
a) The following guideline levels are set forth for the CIP Reserve1. These guideline levels are
calculated for each fiscal year of the Financial Planning Period and approved by Council
resolution.
b) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and
the Reserve for Commitments when funds are added to or removed from the Reserve for
Commitments as a result of a change in contractual commitments related to CIP projects.
Any other additions to or withdrawals from the CIP reserve require Council action.
c) Minimum Level:
i) Funds held in the Reserve for Commitments may be counted as part of the CIP Reserve
for the purpose of determining compliance with the CIP Reserve minimum guideline
level.
ii) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present
a plan to the City Council to replenish the reserve. The plan shall be delivered by the
end of the following fiscal year, and shall, at a minimum, result in the reserve reaching
its minimum level by the end of the next fiscal year. For example, if the CIP Reserve is
below its minimum level at the end of FY 2017, staff must present a plan by June 30,
2018 to return the reserve to its minimum level by June 30, 2019. In addition, staff
may present, and the Council may adopt, an alternative plan that takes longer than
one year to replenish the reserve, or that does so in a shorter period of time.
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
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 3
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 7. Rate Stabilization Reserve
The Rate Stabilization Reserve is used to manage the trajectory of future year rate increases
and mitigate the impact of short‐term gas market price spikes. This reserve holds revenues
derived from the gas price mitigation adder adopted by Council on August 19, 2024;
additionalThe Rate Stabilization Reserve is used to manage the trajectory of future Ffunds
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, with
the exception that gas price mitigation adder revenues may be held in the Rate Stabilization
Reserve until needed..
Section 8. 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.
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 3
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.
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 9. 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 10. 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 11. Cap‐ and‐ Trade Invest Program Reserve
This reserve tracks holds 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.
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 4
COMMUNICATIONS PLAN AND OUTREACH EX AMPLES – 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.
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 4
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
Engagement with key stakeholders is a central component of this effort.
Ongoing stakeholder engagement will include:
• 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.
This multi-channel engagement and communication strategy will help maintain public trust, promote
understanding of the financial pressures driving the proposed adjustment, and ensure that all
stakeholders have opportunities to provide input before final rate adoption.
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Attachment E, Exhibit 4
Docusign Envelope ID: D923AF9E-0800-8216-810A-CA746C3F2107
Certificate Of Completion
Envelope Id: D923AF9E-0800-8216-810A-CA746C3F2107 Status: Completed
Subject: RESO 10301 - Resolution for the FY 2027 Gas Utility
Source Envelope:
Document Pages: 19 Signatures: 6 Envelope Originator:
Certificate Pages: 5 Initials: 0 Christine Prior
AutoNav: Enabled
EnvelopeId Stamping: Enabled
Time Zone: (UTC-08:00) Pacific Time (US & Canada)
250 Hamilton Ave
Palo Alto , CA 94301
Christine.Prior@PaloAlto.gov
IP Address: 170.85.155.40
Record Tracking
Status: Original
6/23/2026 5:54:11 PM
Holder: Christine Prior
Christine.Prior@PaloAlto.gov
Location: DocuSign
Security Appliance Status: Connected Pool: StateLocal
Signer Events Signature Timestamp
Amy Bartell
Amy.Bartell@paloalto.gov
Assistant City Attorney
City of Palo Alto
Security Level: Email, Account Authentication
(None)
Signature Adoption: Pre-selected Style
Using IP Address: 136.226.72.81
Sent: 6/23/2026 5:56:45 PM
Viewed: 6/24/2026 9:39:04 AM
Signed: 6/24/2026 9:40:00 AM
Electronic Record and Signature Disclosure:
Accepted: 7/16/2015 5:52:40 AM
ID: d8ecb53d-ef81-4016-8886-1560c48de42a
Lauren Lai
Lauren.Lai@paloalto.gov
Director Administrative Services/CFO
COPA
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2601:647:c201:8af0:bd23:f457:1f41:4515
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Alan Kurotori
Alan.Kurotori@paloalto.gov
Director of Utilities
City of Palo Alto
Security Level: Email, Account Authentication
(None)
Signature Adoption: Pre-selected Style
Using IP Address: 170.85.54.101
Sent: 6/25/2026 6:06:00 PM
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Ed Shikada
Ed.Shikada@paloalto.gov
City Manager
City of Palo Alto
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Signer Events Signature Timestamp
Vicki Veenker
Vicki.Veenker@paloalto.gov
City of Palo Alto
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(None)Signature Adoption: Uploaded Signature Image
Using IP Address: 174.249.144.59
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Signed: 7/2/2026 3:33:33 PM
Electronic Record and Signature Disclosure:
Not Offered via Docusign
Mahealani Ah Yun
Mahealani.AhYun@paloalto.gov
City Clerk
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(None)Signature Adoption: Pre-selected Style
Using IP Address: 170.85.155.5
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Electronic Record and Signature Disclosure:
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Editor Delivery Events Status Timestamp
Agent Delivery Events Status Timestamp
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Envelope Summary Events Status Timestamps
Envelope Sent Hashed/Encrypted 6/23/2026 5:56:45 PM
Certified Delivered Security Checked 7/2/2026 3:39:35 PM
Signing Complete Security Checked 7/2/2026 3:40:27 PM
Completed Security Checked 7/2/2026 3:40:27 PM
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Electronic Record and Signature Disclosure
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Electronic Record and Signature Disclosure created on: 10/1/2013 8:33:53 AM
Parties agreed to: Amy Bartell
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