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Home My WebLink AboutStaff Report 2512-56453.Recommendation to the City Council to Adopt the Proposed Operating and Capital Budgets for the Utilities Department for Fiscal Year 2027 (ACTION: 6:55PM – 7:40PM) Supplemental Report Added Item No. 3 Page 1 of 2 8 8 3 7 Utilities Advisory Commission Staff Report From: Alan Kurotori, Director Utilities Lead Department: Utilities Meeting Date: May 6, 2026 Report #: 2512-5645 TITLE Recommendation to the City Council to Adopt the Proposed Operating and Capital Budgets for the Utilities Department for Fiscal Year 2027 RECOMMENDATION Staff recommends the Utilities Advisory Commission (UAC) recommend that the City Council adopt the proposed operating and capital budgets for the Utilities Department for Fiscal Year 2027 SUMMARY Staffing Highlights of the FY 2027 Utilities Budget No new Full-Time Employees (FTEs) being requested Elimination of 5 full-time and 3 part-time positions due to Advanced Metering Infrastructure program Freeze of 3 full-time FTEs in the Fiber Utility pending results of Fiber-to-the-Premises pilot CIP Highlights Wastewater has three new projects Project Title Proj. No. 5 Year Budget Sewer Master Plan WC-30001 $0.4M Wastewater Line Replacement at Arastradero Creek WC-27002 $2.4M Wastewater Pump Station Retrofit WC-28000 $3.8M Total $6.6M Item No. 3 Page 2 of 2 8 8 3 7 Electric Grid Modernization has become a project category encompassing 12 distinct projects rather than a single project. This allows staff to better track project costs, dependencies, priorities and progress within the Grid Modernization effort Water has three new projects Will be released on April 24, 2026 on the City’s Budget webpage: https://www.paloalto.gov/Departments/Administrative-Services/City-Budget FY 2027 Proposed Operating Budget FY 2027 Proposed Capital Budget AUTHOR/TITLE: Alan Kurotori, Director of Utilities Staff: Anna Vuong, Senior Business Analyst Project Title Proj. No. 5 Year Budget Adobe Creek Substation Reconstruction EL-27006 $3.8M Alma Junction to Quarry 60kV T-Line Reconductor EL-27002 $1.2M Colorado 60/12kV Banks Relocation & Rebuild EL-27007 $30.6M Colorado 60kV Bus Rebuild EL-17002 $11.6M Colorado to Adobe Creek 60kV T-Line Reconductor EL-27003 $1.4M East Meadow Substation 4 to 12kV Conversion EL-27004 $29.2M East Meadow to Maybell 60kV T-Line Reconductor EL-27001 $2.6M GM 12kV Distribution Feeder Ties EL-27010 $23.1M GM Hopkins Distribution 4 to 12kV Conversion EL-27009 $29.9M GM 12kV Distribution Residential Rebuild EL-24000 $62.5M Hopkins Substation 4 to 12kV Conversion EL-27005 $3.8M Park Blvd 60kV Breaker Replacements EL-27008 $6.4M Total $206.1M Project Title Proj. No. 5 Year Budget Water Main Replacement - Project 33 WS-20001 $0.6M Water Line Replacement at Arastradero Creek WS-27001 $2.9M Water System Master Plan WS-27000 $0.8M Total $4.2M Item No. 3 Page 1 of 2 9 9 0 8 Utilities Advisory Commission Supplemental Memo From: Alan Kurotori, Director of Utilities Meeting Date: May 6, 2026 Item Number: 3 Report #:2604-6310 TITLE SUPPLEMENTAL REPORT: Recommendation to the City Council to Adopt the Proposed Operating and Capital Budgets for the Utilities Department for Fiscal Year 2027 BACKGROUND Linked and referenced below are the FY 2027 Proposed Operating and Capital budgets for the Utilities Department. The entire Utilities Operating budget for FY 2027 can be downloaded and viewed in full from the link below: Proposed Utilities Operating Budget for FY 20271 Utilities Department - Pages 445 - 515 The entire Utilities CIP budget for FY 2027 – FY 2031 with the individual project pages can be downloaded and viewed in full from the link below: Proposed Utilities Capital Budgets for FY 2027 – FY 20312 Electric CIP – Pages 417 – 495 Fiber Optic CIP – Pages 497 - 517 Gas CIP – Pages 519 – 553 Wastewater Collection CIP – Pages 587 - 625 1 Proposed Utilities Operating Budget for FY 2027 https://www.paloalto.gov/files/assets/public/v/1/administrative-services/city-budgets/fy-2027-city- budget/proposed/fy-2027-proposed-operating-budget-book_online.pdf 2 Proposed Utilities Capital Budgets for FY 2027 – FY 2031 https://www.paloalto.gov/files/assets/public/v/1/administrative-services/city-budgets/fy-2027-city- budget/proposed/fy-2027-proposed-capital-budget-book_online.pdf Item No. 3 Page 2 of 2 9 9 0 8 Water CIP – Pages 667 – 711 APPROVED BY: Alan Kurotori, Director of Utilities Staff: Dave Yuan, Strategic Business Manager UTILITIES ADVISORY COMMISSION Proposed FY 2027 Utilities Operating and Capital Budgets MAY 6, 2026 www.paloalto.gov PURPOSE FOR PRESENTATION •Highlights of the Proposed FY 2027 Utilities Operating and Capital Budgets •Cost Recovery and Reduction Proposals •Operational Efficiencies •Accomplishments •Initiatives •Staffing •Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council approve proposed FY 2027 Utilities Operating and Capital Budget 2 2 BUDGET REQUEST PROCESS Starts in Sept/Oct, Submits Requests Department HR In Feb, Internal Reviews and Proposals Office of Mgmt & Budget In Mar, Reviews Requests City Manager’s Office In Mar/Apr, Rates and Financial Forecasts UAC and Subcommittee In May, Public Hearings Finance Committee In June, Approval of Rates and Budgets Council Typical process for reviewing staffing, budget, and project changes In Jan, Staffing Requests FY2027 UTILITIES OPERATING AND CIP BUDGET SUMMARY 4 Utilities Department has a proposed budget of $525M total with $6.4M or 1.2% Y/Y. •Electric: $316M or $0.8M Y/Y ; 123 FTEs, •Gas: $87 million or $1.5M Y/Y ; 53 FTEs •Water: $68 million or $0.3M Y/Y ; 44 FTEs •Wastewater Collection: $31M or $4.5M Y/Y ; 28 FTEs •Fiber: $22M or ($0.7M) Y/Y ; 10 FTEs (3 frozen) FY2027 UTILITIES BUDGET – PROPOSED EXPENSES, $525M 5 Allocated Charges, $31 M, 6% Contracts & General expense, $56 M, 11% Debt Service, $9 M, 2% Equity Transfer, $29 M, 5% Salary & Benefits, $58 M, 11%CIP, $146 M, 28% Utility Purchase, $193 M, 37% FY 2027 CAPITAL IMPROVEMENT BY UTILITY: $146M Modernizing end-of-life infrastructure to improve reliability, reduce risk, and increase capacity. 6 $11M $84M $26M $9M $16M $0M $10M $20M $30M $40M $50M $60M $70M $80M $90M 522 - Water 523 - Electric 524 - Gas 527 - Wastewater 533 - Fiber COST RECOVERY INITIATIVES – FY 2027 7 Credit card processing fees: $1.5M •Pass-through costs to customers paying their utility bills by credit card (2.75%). Electric capacity fees for new developments: $0.8 -$1.5M •New cost-recovery fees for transformer, switch, and equipment costs. •New data centers will increase City’s load and peak demand and potentially temper electric rates; structure contracts to share infrastructure costs and fixed cost recovery. Customer connection fees: $0.2M •CPI-adjusted based on DGS California Construction Cost Index (3.9% in 2025). •New cost of service study of capacity fees for water and wastewater. Water utilities program services: $0.2M •Contribution from Valley Water for water AMI -related and efficiency initiatives. EXPENDITURE REDUCTIONS – FY 2027 8 •Full-time headcount –Reduced from 266 FTEs to 258 FTEs •Eliminate 5.0 FTE AMI related positions |$(0.8M) •Freeze 3.0 FTE Fiber positions |$(0.9M) •Transfer from pension trust: |$(1.4M) •Outsource and promote paperless billing |$(0.3M) •Decrease in administrative cost allocation | $(0.7M) •Reduce reliance on contractors | $(1-2M) •Optimize debt issuance timing and amount for Grid Modernization to minimize debt service costs to electric customers | $(4-6M) ACCOMPLISHMENTS – FY 2026 0 •Undergrounded ~9 miles of electric overhead and fiber cable in the Foothills; 2 miles remaining for CY 2026. •Began Gas Main Replacement #25 funded by $16.5M federal grant. •Received approval from the California Independent System Operator (CAISO) for a second 115 kilovolt (kV) electric transmission corridor. •Completed construction of Grid Mod and Fiber-to-the-Premises (FTTP) pilot area. •Launched voluntary Time-of-Use (TOU) rates. •Updated 2025 Sewer Master Plan. •Gas Cost-of-Service Analysis (COSA) update approved by Council. •Purchased new warehouse and laydown yard for CIP projects. EFFICIENCY INITIATIVES -OPERATIONS 0 Utilizing technology to improve system reliability and identify infrastructure needs •AMI – real time power outage, transformer loading, and water leak detection •Mobile apps for Operations & Engineering •CCTV sewer mains and laterals to assess pipe conditions Improving Facility Utilization •Moving Engineering from Elwell Court to City Hall •Municipal Service Center Space Efficiency and Needs Study •New warehouse at 2575 E.Bayshore Road for CIP projects INITIATIVES – FY 2027 0 •Review and implement recommendations from Reserves Study. •Metrics and lessons learned from Grid Mod and Fiber-to-the- Premises pilots. •Gas transition study and modeling. •New power purchasing agreements. •Initiate water cost of service study. •Debt financing for Capital Improvement Projects. •Time-of-Use Rates – marketing and cost of service update. •Review annual utility rates with focus on affordability and equity •Support Sustainability and Climate Action Plan (S/CAP) initiatives. FY 2026 VACANCY REPORT - AUTHORIZED 266 FTE 12 Admin Customer Support Electric Engineering Electric Operations Fiber RMD, UPS, S/CAP WGW Engineering WGW Operations Vacancy %0%0%4%19%0%14%17%13% Vacancies 1 0 1 14 0 4 4 9 Budget FTE 18 18 23 74 3 28 24 72 1 0 1 14 0 4 4 9 0 10 20 30 40 50 60 70 80 90 100 Fu l l T i m e E m p l o y e e s Utilities Vacancies - 33 FTE or 13% STAFF RECOMMENDATION TO UAC FOR APPROVAL 1.Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council approve proposed FY 2027 Utilities Operating Budget. 2.Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council approve proposed FY 2027 Utilities Capital Budget. 13