HomeMy WebLinkAboutUtilities Quarterly Report for FY2026-Q3Staff Report: 2512-5647 – Page 1 of 47
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: August 5, 2026
Staff Report: 2512-5647
TITLE
Informational Report: Utilities Quarterly Report for FY2026-Q3
RECOMMENDATION
This is an informational report, and no action is requested.
EXECUTIVE SUMMARY
This report has been prepared to keep the Utilities Advisory Commission (UAC) apprised of the major issues that are facing
the water, gas, electric, wastewater collection and fiber utilities including legislative/regulatory issues, utility-related
capital improvement programs, operations, reliability impact measures and a utility financial summary.
Items of special interest in this report are summarized below:
Vacancies and Staffing – Appendix B
The Utilities Department has 37 vacant positions out of 269 authorized positions or a 14% vacancy rate at the end
of March 2026, compared to 46 vacancies or 17% in December 2025.
Electric Operations continues to have the highest number of vacancies at 16 full-time employees (FTEs) or a 20%
vacancy rate, however, there are 3 new hires since the previous quarter. CPAU is in the process of hiring and
developing in-house crews to reduce reliance on third party contractors to reduce construction cost, improve
work quality, and build in-house expertise.
Electric Utility:
Electric net supply cost for FY 2026 is currently projected to be $83.8M, which represents an 8.34% decrease from
the adopted budget level of $91.7M. During FY 2026 through Q3, congestion and loss costs were down $6.2 million
and transmission costs were down $1.8 million. (Section 1.1.1)
Utilities staff is working with the Northern California Power Agency (NCPA) to identify new renewable energy and
storage projects. (Section 1.1.3)
An update regarding the electric grid modernization work is provided. With the completion of the pilot project in
April 2025, 908 homes in the Pilot area are ready for electrification and overhead design and material procurement
is in progress for the remainder of Phase 1, which will include an additional ~3,500 homes (Section 1.2). An update
on electric power outages and reliability is provided (Section 1.3)
Electric sales volumes in FY 2026 through Q3 were 6.1% higher than forecasted. (Section 1.4.1)
Gas Utility:
Gas prices have been relatively low and stable. (Section 2.1)
Staff Report: 2512-5647 – Page 2 of 47
One gas main replacement project is in progress, and one is in the design stage; repairs at Arastradero Creek from
the winter of 2023 storms are anticipated to begin mid-2027. (Section 2.2)
An update on gas service interruptions and work to proactively meet new compliance goals before they go into
effect is provided (Section 2.3)
Gas sales are highly weather-dependent and were down 8.8% below forecast through Q3 of FY 2026 resulting from
mild winter conditions. (Section 2.4.1)
Water Utility:
As of April 1, precipitation at the Hetch Hetchy weather station was about 93% of median for Water Year 2026.
(Section 3.1)
Two water main replacement projects are in the design stage; design work to relocate a water pumping line at
Arastradero Creek is underway and the relocation work is anticipated to begin July 2028. (Section 3.2)
Water sales through Q3 of FY 2026 were about 3.6% lower than forecasted; this number increased relative to Q2
when water sales were 6.1% below forecast driven by the water March weather in 2026. (Section 3.4.1)
Wastewater Utility:
Actual wastewater sales revenues through Q3 are tracking 3.8% above the budget. (Section 4.3.1)
Fiber Utility:
Dark fiber sales decreased by $0.3 million compared to the same period in the prior fiscal year. This decline in
operating revenues is mainly from lower customer sales associated with customer disconnections due to move-
outs and business closures.
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Staff Report: 2512-5647 – Page 3 of 47
Utilities Quarterly Report
Fiscal Year 2023
Staff Report: 2512-5647 – Page 4 of 47
1 ELECTRIC UTILITY.....................................................................................................................................................................6
1.1 ELECTRICITY SUPPLY AND TRANSMISSION ...........................................................................................................................................6
1.1.1 Forecasted Supply Costs...................................................................................................................................................6
1.1.2 Hydroelectric Conditions ..................................................................................................................................................7
1.1.3 Renewable Energy Procurement ......................................................................................................................................8
1.2 CAPITAL IMPROVEMENT PLAN STATUS ...............................................................................................................................................8
1.3 RELIABILITY ................................................................................................................................................................................10
1.4 FINANCIAL HEALTH ......................................................................................................................................................................10
1.4.1 Sales Forecasts vs. Actuals .............................................................................................................................................10
1.4.2 Financial Position ...........................................................................................................................................................11
2.1 GAS SUPPLY AND TRANSMISSION ....................................................................................................................................................13
2.1.1 Actual and Forecasted Supply Costs ..............................................................................................................................14
2.2 CAPITAL IMPROVEMENT PLAN STATUS .............................................................................................................................................14
2.3 RELIABILITY ................................................................................................................................................................................15
2.4 FINANCIAL HEALTH ......................................................................................................................................................................15
2.4.1 Sales Forecasts vs. Actuals .............................................................................................................................................15
2.4.2 Financial Position ...........................................................................................................................................................16
3.1 WATER SUPPLY AND TRANSMISSION ...............................................................................................................................................18
3.2 CAPITAL IMPROVEMENT PLAN STATUS .............................................................................................................................................20
3.3 RELIABILITY ................................................................................................................................................................................22
3.4 FINANCIAL HEALTH ......................................................................................................................................................................23
3.4.1 Sales Forecasts vs. Actuals .............................................................................................................................................23
3.4.2 Financial Position ...........................................................................................................................................................24
4.1 WASTEWATER TREATMENT UPDATES AND CAPITAL PLANNING STATUS ..................................................................................................25
4.1.1 Treatment Cost Trends...................................................................................................................................................25
4.1.2 Regional Water Quality Control Plant Capital Planning Status .....................................................................................26
4.2 COLLECTION SYSTEM CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................................27
4.3 FINANCIAL HEALTH ......................................................................................................................................................................28
4.3.1 Sales Forecasts vs. Actuals .............................................................................................................................................28
4.3.2 Financial Position ...........................................................................................................................................................29
5.1 FIBER UTILITY STRATEGIC PLANNING ...............................................................................................................................................30
5.2 CAPITAL IMPROVEMENT PLAN STATUS .............................................................................................................................................30
5.3 RELIABILITY ................................................................................................................................................................................31
5.4 FINANCIAL HEALTH ......................................................................................................................................................................31
5.4.1 Fiber Sales ......................................................................................................................................................................31
5.4.2 Financial Position ...........................................................................................................................................................31
7.1 STATE LEGISLATIVE ACTIVITY ..........................................................................................................................................................34
7.2 STATE REGULATORY ACTIVITY ........................................................................................................................................................34
7.3 FEDERAL ACTIVITY .......................................................................................................................................................................35
Staff Report: 2512-5647 – Page 5 of 47
8 APPENDIX A: ENERGY RISK MANAGEMENT PROGRAM ..........................................................................................................37
8.1 OVERVIEW OF HEDGING PROGRAMS ...............................................................................................................................................37
8.2 OVERVIEW OF ENERGY RISK MANAGEMENT PROGRAM.......................................................................................................................37
8.3 FORWARD DEALS.........................................................................................................................................................................38
8.4 ELECTRIC MARKET EXPOSURE ........................................................................................................................................................38
Figures
FIGURE 1: FY 2026 Q3 NET SUPPLY COST FORECAST VS. ACTUALS..........................................................................................................................7
FIGURE 2: FY 2026 Q1 – Q3 ADOPTED BUDGET VS ACTUAL NET SUPPLY COST ($K)..................................................................................................7
FIGURE 3: HYDRO GENERATION: FY 2026-2028 ACTUALS & PROJECTIONS (GWH)...................................................................................................8
FIGURE 4: HYDRO GENERATION: FY 2027-2029 UNCERTAINTY (GWH) ..................................................................................................................8
FIGURE 5: ELECTRIC SALES VOLUME (KWH), FY 2026-Q3...................................................................................................................................10
FIGURE 6: ELECTRIC SALES REVENUE ($), FY 2026-Q3.......................................................................................................................................11
FIGURE 7: BUDGET VS CURRENT ESTIMATE ($1,000S), FY 2026..........................................................................................................................11
FIGURE 8: PALO ALTO GAS COMMODITY RATES .................................................................................................................................................13
FIGURE 9: GAS SUPPLY COSTS ($), ACTUAL VS BUDGET, FY2026-Q3....................................................................................................................14
FIGURE 10: SEWER LATERAL INSPECTION...........................................................................................................................................................15
FIGURE 11: GAS SERVICE INTERRUPTIONS, FY 2025 TO FY 2026..........................................................................................................................15
FIGURE 12: GAS SALES VOLUME (THERMS), FY 2026 Q3....................................................................................................................................16
FIGURE 13: GAS SALES REVENUE ($), FY 2026 Q3............................................................................................................................................16
FIGURE 14: CURRENT WATER YEAR 10-STATION SNOW PILLOWS INDEX .................................................................................................................19
FIGURE 15: SFPUC WATER DELIVERIES ............................................................................................................................................................19
FIGURE 16: WATER SERVICE INTERRUPTIONS, FY 2025 TO FY 2026.....................................................................................................................23
FIGURE 17: WATER SALES VOLUME (CCF), FY 2026 Q3 ....................................................................................................................................23
FIGURE 18: WATER SALES REVENUE ($), FY 2026 Q3........................................................................................................................................24
FIGURE 19: PALO ALTO’S SHARE OF WASTEWATER TREATMENT EXPENSES ..............................................................................................................26
FIGURE 20: CURRENT RWQCP CAPITAL WORK IN-PROGRESS (AS OF MARCH 31, 2026)..........................................................................................27
FIGURE 21: WASTEWATER SALES REVENUE ($), FY 2026 Q3...............................................................................................................................28
FIGURE 22: ELECTRIC RESOURCE ADEQUACY DEALS.............................................................................................................................................38
FIGURE 23: ELECTRIC LOAD RESOURCE BALANCE, FY 2026 – 2029.......................................................................................................................38
FIGURE 24: UTILITIES VACANCIES AND RECRUITMENTS BY DIVISION........................................................................................................................40
FIGURE 25: ELECTRIFICATION PERMITS BY CATEGORY ..........................................................................................................................................41
FIGURE 26: ELECTRIC OUTAGE RELIABILITY, CY 2019 THROUGH 2025...................................................................................................................42
FIGURE 27 : CALENDAR YEAR 2025 SUSTAINED OUTAGES BY CAUSE ......................................................................................................................43
FIGURE 28: OFFSET PORTFOLIO COMPOSITION ...................................................................................................................................................45
FIGURE 29: OFFSET PROJECT DESCRIPTIONS ......................................................................................................................................................46
Staff Report: 2512-5647 – Page 6 of 47
1 Electric Utility
The City’s electric utility serves all residential and non-residential electric demands in Palo Alto at a lower cost than PG&E
in surrounding communities. Its electric supply portfolio is 100% carbon neutral. The City maintains and operates an
electric distribution system but does not operate any transmission lines or any generating capacity on its own. Instead,
the City belongs to Northern California Power Agency (NCPA) which operates its Calaveras hydroelectric generating plant
and provides power scheduling services for its other generating resources. This carbon free power is supplied through
power purchase agreements with various generation operators.
1.1 Electricity Supply and Transmission
Below is an update on electricity supply and transmission services.
1.1.1 Forecasted Supply Costs
The electric net supply cost for FY 2026 is currently projected to be $83.8 M, which represents an 8.34% decrease from
the Adopted Budget level of $91.7 M. For FY 2027, electric net supply cost is projected to be $95.78 M. During Q3 of FY
2026, net supply cost was about ~$4.0M lower than the adopted budget. The largest changes relative to the previous
quarter’s actual cost were the lower congestion and loss costs (down $3.5 M) and the lower transmission costs (down
$1.1M). Overall, actual supply costs for FY 2026 through the end of Q3 are currently 8.71% below the budgeted level.
Similar to Q3’s performance, actual congestion and loss costs were below budget by $6.2 million, and transmission costs
were lower than budget by $1.8 million year to date. FY 2026 has seen higher-than-expected load demand, which reduced
surplus energy sales (down $3.5M). Revenue from RA sales as well was also higher than expected (up $2.2 M). Based on
these actuals and the forecasted supply costs for the remainder of the year, which differ from the estimated April and
May costs shown in the figure below, FY 2026 net supply cost is projected to end the fiscal year $7.65 M below the adopted
budget.
Staff Report: 2512-5647 – Page 7 of 47
Figure 1: FY 2026 Q3 Net Supply Cost Forecast vs. Actuals
Figure 2: FY 2026 Q1 – Q3 Adopted Budget vs Actual Net Supply Cost ($K)
1.1.2 Hydroelectric Conditions
The City receives power from two hydroelectric projects, the Calaveras project and the Western Base Resource contract
for federal hydropower from the Central Valley Project.1 The watershed for Western hydropower is primarily in the
northern end of California, while the watershed for the Calaveras project is in the Central Sierras.
Following the average water year of 2024-2025, reservoir levels across the state have maintained slightly above average
levels. As of April 21st, precipitation in northern California is about 1% above average for this time of year, while central
California is 11% below average. Hydro generation levels are currently projected to be roughly average for FY 2026 and FY
1 The Calaveras project is a hydropower project located in Calaveras County that is maintained and operated by the Northern California Power Agency
on behalf of the City and other project participants. The City is also one of several public entities with contracts with the Western Area Power
Administration for “Base Resource” electricity, which is the hydroelectric power available from the federal government’s Central Valley Project
(operated by the Bureau of Reclamation) after accounting for power used for Central Valley Project operations and power delivered to certain
“preference” customers.
Adopted
Budget
Back
Office
Actual
Variance Variance %
Jul-25 4,553 4,184 (368) -8.1%
Aug-25 6,431 6,651 220 3.4%
Sep-25 6,714 5,590 (1,124) -16.7%
Oct-25 8,346 6,978 (1,368) -16.4%
Nov-25 8,709 9,836 1,127 12.9%
Dec-25 8,786 8,222 (563) -6.4%
Jan-26 9,490 6,342 (3,149) -33.2%
Feb-26 8,193 7,299 (894) -10.9%
Mar-26 8,446 8,499 53 0.6%
Total 69,667 63,601 (6,066) -8.7%
Staff Report: 2512-5647 – Page 8 of 47
2027, with total output of about 96% of the long-term average level for FY 2026 through FY 2028. As shown in Figure 3,
hydropower generation has high uncertainty beyond roughly six months from the forecast date.
Figure 3: Hydro Generation: FY 2026-2028 Actuals & Projections (GWh)
Figure 4: Hydro Generation: FY 2027-2029 Uncertainty (GWh)
1.1.3 Renewable Energy Procurement
1.2 Capital Improvement Plan Status
EL-17001 (East Meadow Circles 4/12kV Conversion)
This project is scheduled to be completed in several phases. Phase 1 is completed. Phase 2 engineering design is
completed. Phase 2 construction is expected to be completed December 2026.
EL-10006 (Rebuild Underground 24)
This project is in the design phase, which is scheduled to be completed in December 2026. Construction will be
completed by December 2027.
EL-16000 (Rebuild Underground 26)
FY 2026 FY 2027 FY 2028
Calaveras Generation (GWh)106 113 97
Western Generation (GWh)244 259 259
Total Hydro Generation (GWh)350 372 356
% of Long-term Average Total 93%99%95%
Long-term Average Total Hydro (GWh)376 376 376
Staff Report: 2512-5647 – Page 9 of 47
The engineering design for this project is currently in progress. The project will be completed in multiple phases
and will take additional years to complete. All engineering design phases are expected to be completed by
December 2026. Construction is expected to be completed by December 2028.
EL-19004 (Wood Pole Replacement)
CPAU staff and contract consultants are continuously working on pole replacement designs for construction. 44
poles were replaced to date in FY 2026. The replacement of poles will continue to be prioritized in the Grid
Modernization areas.
EL-16003 (Substation Physical Security)
This project is scheduled to be completed in two phases. Substation Security lighting and camera contract was
awarded in June 2022. The installation for the first phase was completed for 7 of the 9 substations in December
2024. The next phase of the Substation Physical Security Project is pending the Colorado Master Plan. The
Colorado Master Plan incorporates and coordinates all planned construction work at Colorado Substation, and
the Physical Security work is expected to start in FY27.
EL-17002 (Substation 60kV Breaker Replacement)
This project funds the purchase and replacement of both 60kV and 12kV substation circuit breakers that are
reaching the end of their useful life expectancy. Council approved the purchase request for the sixteen 12kV
circuit breakers and eight 60kV breakers. The installation of the 12kV breakers is complete. The project to
purchase the eight 60KV breakers was approved by City Council on May 20, 2024. The engineering design and
installation of the 60kV breakers has been postponed pending the results and recommendations of a Master Plan
for Colorado Substation, a Plan that coordinates all planned work in the Substation and is expected to result in a
re-design of the 60KV Buss to either a Breaker-and-a-Half or Ring Buss scheme. The final Master Plan from the
City's consultant Ampirical is expected to be delivered by the end of FY26, and the tentative schedule for the
Colorado Substation re-design is expected to commence in FY27.
EL-21001 (Foothills Rebuild)
This project will rebuild approximately 9 miles of overhead line in Foothills Park, as necessary to lower the risk of
wildfires due to overhead electric lines. Staff has completed 39,200 feet of substructure work and de-energized
an equivalent amount of overhead electric lines. Substructure for Phase 1 was completed in Spring 2022 and the
substructure for Phase 2 was completed in June 2023. Phase 3 construction is 100% complete with substructures
and cable installed and energized. Phase 4 construction has completed 20,700 feet of the planned 22,000 feet.
Phase 4 undergrounding and has slowed due to winter weather. Phase 5 substructure installation along
Arastradero road is 100% completed with all substructure and cable installed and energized. Phase 4
undergrounding is planned for completion this summer and overhead lines (currently de-energized) will be
removed on all phases as weather permits. All work is expected to be complete before the end of fiscal year 2026.
EL-02011 (Electric Utility Geographic Information System (GIS))
The project scope includes on-going maintenance/technical support of the existing GIS system and
implementation of the new GIS platform, ESRI. IT is developing a new ESRI based, asset management system
Electric Engineering and Operations that will be completed by July 2026.
EL-24000 (Grid Modernization)
The Pilot project was completed April 2025. Sixty-six poles have been replaced in the Grid Modernization Pilot
area. Additionally, 908 homes in the Pilot area are ready for electrification. The overhead design and material
procurement is in progress for the remainder of Phase 1. This includes an additional ~3,500 homes within
boundaries of Embarcadero Road, West Bayshore Road, Loma Verde Ave, Middlefield Road, Oregon Expressway,
and El Camino Real. The scope remains the same as the Pilot area, which is to upgrade and install new
transformers, overhead wires, poles and attachment equipment. The target date for Engineering design is
December 2026 and construction to follow (12-18 months). Additionally, as Engineering staff review customer
Staff Report: 2512-5647 – Page 10 of 47
service upgrade requests and maintenance projects throughout the City, opportunities for infrastructure upgrades
are being designed and constructed. An additional 24 transformers have been designed for upgrade or new install,
which makes 150+ homes ready for electrification outside of the Phase 1 area. East Meadow Circles is also
currently in construction which will convert the line voltage to 12kV and electrify 289 homes by July 2026.
1.3 Reliability
CPAU tracks electric power outages through industry recognized indices; System Average Interruption Duration Index
(SAIDI), System Average Interruption Frequency Index (SAIFI), and Customer Average Interruption Duration Index (CAIDI).
The chart below summarizes outage indices for Palo Alto. With this quarterly update, staff is presenting outage indices
and discussion in Appendix C.
1.4 Financial Health
Below is a summary of the financial position for the electric utility.
1.4.1 Sales Forecasts vs. Actuals
Actual electric sales volumes through FY 2026-Q3 were 6.1% higher than forecast (653.9 GWh), driven by continued
consumption from the top ten commercial customers, largely reflecting increased data center demand. Overall, actual
sales revenues through FY 2026-Q3 exceeded the Financial Plan by 1.5%.
Figure 5: Electric Sales Volume (kWh), FY 2026-Q3
6.1%
Staff Report: 2512-5647 – Page 11 of 47
Figure 6: Electric Sales Revenue ($), FY 2026-Q3
1.4.2 Financial Position
In FY 2026, total revenues are expected to be about $16.6 million, or 7% higher than budgeted, due to load growth and
higher-than-expected wholesale revenues. Total expenses are expected to be about $27.5 million, or 12% higher than
budgeted, due to higher supply purchases and increased capital investment funding, including grid modernization,
partially offset by lower operations costs. Staff will update the estimated numbers with actual figures in the Q4 report.
Figure 7: Budget vs Current Estimate ($1,000s), FY 2026
Budget Estimated Var.Var. %
Sales Revenue 190,025 199,175 9,151 5%
Other Revenue 49,870 57,326 7,456 15%
Revenue 239,895 256,501 16,607 7%
Supply Purchases 127,961 134,879 6,919 5%
Operations (w/o CIP) 91,434 81,766 (9,668)-11%
CIP 5,332 35,591 30,259 567%
Expense 224,727 252,236 27,509 12%
Net (Cost)/Benefit 15,168 4,265 (10,902)-72%
Staff proposed a 6% rate increase in FY 2027 in the March 31 UAC meeting3, which is the same as projected in the FY 2026
Financial Forecast4 presented to Council on June 16, 2025. Staff projects the Electric Utility’s Operations Reserve will total
$41.6 million at end of FY 2026, which is below the target level of $49.3 million. Staff expects that debt will be issued in
FY 2027 to offset a portion of the grid modernization costs already spent and planned in FY 2026 – FY 2029. At the Finance
Committee meeting on April 21, 20265, the Finance Committee approved staff’s proposal, with a modification to increase
the $6 million to the hydro stabilization reserve over a two-year period with a corresponding reduction in the rate increase
3 Staff Report 2512-5641: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87018&dbid=0&repo=PaloAlto
4 Attachment D, Exhibit 1 to Staff Report 2411-3776, June 16, 2025:
5 Staff Report 2512-5603: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87766&dbid=0&repo=PaloAlto
1.5%
Staff Report: 2512-5647 – Page 12 of 47
from 6% to 4.5% in FY 2027. This revised proposal was approved unanimously. The City Council approved the revised
Electric rate proposal in June 2026.
Staff Report: 2512-5647 – Page 13 of 47
2 Gas Utility
The City’s gas utility serves all residential and non-residential gas demand in Palo Alto. The City maintains and operates a
system of medium-pressure gas lines for delivering gas but does not operate any transmission lines. Costs for the gas
utility are split approximately two thirds for the operation, maintenance, and capital improvement and one third for the
cost of the gas commodity, PG&E gas transmission, compliance with the State’s Cap and Trade Program and the City’s
Carbon Neutral Gas Program.
2.1 Gas Supply and Transmission
After experiencing a notable price spike during winter 2022-2023, natural gas prices in California have seen a significant
decline, returning to more typical ranges. This shift can be attributed to several factors, including milder temperatures
and above average gas storage levels in the West. The combination of these factors has kept natural gas prices low, and
we do not expect a significant price spike to occur in the near future. The chart below shows Palo Alto’s gas commodity
rates from September 2021 through March 2026.
Figure 8: Palo Alto Gas Commodity Rates
Staff Report: 2512-5647 – Page 14 of 47
2.1.1 Actual and Forecasted Supply Costs
Actual supply costs ($11.42 million) through FY 2026-Q3 were approximately 32% lower than budgeted ($16.88 million)
in the FY 2026 Financial Forecast. This variance was primarily driven by historically low natural gas prices, which remained
well below initial forecasts. PG&E benchmark prices at Citygate and Malin were projected at $4.74 and $4.14 per MMBtu
through the third quarter of 2026, while actual average costs have been substantially lower at $3.28 per MMBtu.
Figure 9: Gas Supply Costs ($), Actual vs Budget, FY2026-Q3
2.2 Capital Improvement Plan Status
The following capital projects are currently in progress:
GS-15000 – GMR 25 (Gas Main Replacement 25)
The GMR 25 project will replace approximately 26,000 linear feet of gas mains on Ross Road from Colorado Avenue
to East Meadow Drive and surrounding streets, as well as North and Southampton Drive and surrounding streets,
and Walter Hays Drive and surrounding streets. Construction on the project began in March 2026 and is anticipated
to finish in mid-2027. Currently the contractor is installing pipelines in the North and Southampton Drive and
surrounding streets area. A $16.5 million reimbursable grant from the Pipeline and Hazardous Material Safety
Administration was awarded for this project.
GS-25001 – Gas Line Repair at Arastradero Creek
During the 2023 winter storms, portions of Arastradero Creek eroded away and exposed a gas pipeline crossing
Arastradero Creek. This project completed the data gathering phase and will begin the design and permitting phase
of the work. A permanent solution was presented to the permitting agencies (Water Board, CDFW, USACE) in
August 2025 for input. Construction on this project is anticipated in mid-2027 through mid-2028. All work will take
place in the Pearson Arastradero Preserve.
GS-16000 – GMR 26 (Gas Main Replacement 26)
The GMR 26 project will replace approximately 26,000 linear feet of gas mains in the Midtown, Palo Verde,
Fairmeadow, and Evergreen Park neighborhoods. The project is currently in design with construction anticipated
in mid-2027.
Operational Fund – Historic Crossbore Inspection Project
The Cross Bore Phase IV Project includes a total of 963 sewer laterals located throughout the City. The project
inspections are on-going and are being performed by the City’s Operational crew. The laterals that cannot be
completed by city crews, will be inspected by a contractor at a later date. A total of 271 laterals have been inspected
by city crews, with 153 confirmed to be free of cross bores, and 118 more presenting more complex situations
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requiring reinspection with specialty equipment, which may be completed by a contractor or staff with additional
training. A lateral launch camera may be required for the reinspection, which Operations staff recently acquired.
Training was completed in December 2025. 692 sewer laterals remain to be inspected by city crews and will
continue in 2026 when new hourly employees are anticipated to be hired.
Figure 10: Sewer Lateral Inspection
2.3 Reliability
The City of Palo Alto tracks all gas service interruptions. A summary chart of these interruptions can be found below. Gas
service interruptions are usually due to repairs of broken or damaged gas services and mains. This kind of damage is often
caused by excavation by outside parties digging in the City. In Q1 FY25, staff recorded higher numbers in gas service
interruption tracking due to the division allocating more resources to resolve existing gas leaks. These leaks are small and
are monitored; however, expected changes in gas legislation will require them to be resolved more quickly. The gas
division has been proactively working to meet upcoming compliance goals before the new rules go into effect. In Q2 FY
2026 there was an increased number of gas dig-ins by outside contractors. These were responsible for 7 of the 11 outages
and 189 of the customers affected. In Q3 FY 2026 the total minutes increased from Q2 due to unplanned gas leaks and
repairs needed to resolve these leaks.
Figure 11: Gas Service Interruptions, FY 2025 to FY 2026
FY 2025 FY 2026
Gas Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Number of Breaks 13 7 6 6 4 11 9
Total Minutes 1860 1205 1050 930 300 1063 1770
Customers
Affected 135 48 23 40 17 200 202
2.4 Financial Health
Below is a summary of the financial position for the gas utility.
2.4.1 Sales Forecasts vs. Actuals
Actual gas sales volumes through Q3 2026 were approximately 8.8% below forecast, resulting in revenues 20.6% below
budget, as gas market prices remained lower than anticipated. In addition, milder-than-normal winter conditions in the
Palo Alto area contributed to reduced heating demand, with approximately 57% of days in Q3 2026 above historical
temperature norms and no corresponding increase in extreme cold days.
153
118
692
Total Sewer Laterals Completed
Total Sewer Laterals Incomplete
Total Addresses remaining to be
Inspected
963 sewer laterals for Inspection
Staff Report: 2512-5647 – Page 16 of 47
Figure 12: Gas Sales Volume (Therms), FY 2026 Q3
2.4.2 Financial Position
At the end of FY 2025, the Gas Utility’s Operations Reserve was $9.7 million, slightly above the minimum guideline level
of $8.6 million (this balance includes $8.57 million held in the CIP Reappropriations Reserve to be reimbursed through a
grant, and $5.4 million temporarily recorded in the Operations Commitments Reserve due to an administrative oversight,
which should have been placed in Operations Reserve).
Gas sales revenue in FY 2025 was about $4.7 million below forecast due to lower usage. Although supply purchases were
$3.2 million below forecast and distribution expenses were $0.6 million lower, these savings did not fully offset the
revenue shortfall. CIP expenses exceeded projections by $6.8 million, funded largely through the CIP Reappropriation and
Commitments Reserve for Gas Main Replacement Project 24. In FY 2026 and FY 2027, staff projects the Operations Reserve
will be impacted by lower sales revenues from lower consumption and higher CIP expenses. Staff projects the Gas Utility’s
Operations Reserve will total $12.1 million at end of FY 2026.
-20.6%
Staff Report: 2512-5647 – Page 17 of 47
As a result, staff proposed a 9% overall increase for FY 2027 in the March 31 UAC meeting9, assuming supply charges
remain unchanged, which is higher than the 6% overall increase projected in the FY 2026 Financial Forecast10 presented
to Council on June 16, 2025. Commissioners voted 4-3 to recommend an overall rate increase of 7% for FY 2027, instead
of the staff proposed overall rate increase of 9%, and identify potential options to address the resulting gap, including
reducing the General Fund Transfer and tapping reserves. At the April 21 Finance Committee meeting11, staff proposed a
9% overall increase for FY 2027 and outlined alternative options for lowering the rate increases. A Committee member
proposed deferring the staff’s rate reduction options, particularly reducing and extending the gas spike mitigation
collection, for consideration by the full City Council. However, another Committee member expressed concern about the
risk of future gas commodity spikes and preferred to maintain the current pace of rate increases as proposed by staff. The
Finance Committee approved staff’s proposal, which passed on a 2-1 vote. The City Council approved the 9% overall gas
rate increase in June 2026.
9 Staff Report 2512-5641: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87018&dbid=0&repo=PaloAlto
10 Attachment D, Exhibit 1 to Staff Report 2411-3776, June 16, 2025:
11 Staff Report 2512-5607: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87765&dbid=0&repo=PaloAlto
Staff Report: 2512-5647 – Page 18 of 47
3 Water Utility
The Water Utility serves water to virtually all Palo Alto residential and non-residential customers. All potable water in the
City is from the San Francisco Public Utilities Commission (SFPUC) Hetch Hetchy Water System. This system delivers high
quality water from the Sierra Nevada and uses no pumping to deliver water to the City. Palo Alto uses a small amount of
recycled water for irrigation of the Municipal Golf Course and a few other sites near the Regional Water Quality Control
Plant. The City also maintains a system of reservoirs, wells, and emergency interties that enable Palo Alto to serve water
during an interruption of the Hetch Hetchy system. Costs for the Water Utility are split approximately half for the
operation, maintenance and periodic replacement of Palo Alto’s water system and half for the costs of the water
purchased.
3.1 Water Supply and Transmission
As of April 1, 2026, cumulative Hetch Hetchy Weather Station precipitation for Water Year (WY) 2026 was 93% of median,
and the Regional Water System total storage operated by the San Francisco Public Utilities Commission (SFPUC) was at
93% of maximum storage and the Water Bank was full. Regional Water System Storage is 1,387 Thousand Acre Feet (TAF)
as of April 1, 2026.
March 2026 brought unusually hot and dry conditions in the Tuolumne River Basin, accelerating snowmelt and producing
earlier-than-normal runoff and elevated river flows. Even so, reservoir operations are being actively managed to maintain
seasonal targets, and all upcountry reservoirs are projected to reach maximum storage by the end of runoff, with the
Water Bank expected to remain full. Overall, current storage conditions remain strong, supporting a reliable water supply
outlook for the year. The figure below shows current water year 10-Station Snow Pillows Index as of April 1 (red line),
based on real-time snow water equivalent measurements in the Tuolumne Basin. Historic median, wet and dry years, and
previous water year are included for comparison purposes.
Staff Report: 2512-5647 – Page 19 of 47
Figure 14: Current Water Year 10-Station Snow Pillows Index
The figure below shows water usage for the South Bay/East Bay (including Palo Alto) compared to several benchmarks,
including 2015, 2025 and a five-year average. For the South Bay/East Bay region as well as systemwide, demand for 2026
has been higher than the average of the last five years, reflecting the unusually hot and dry conditions in March.
California Senate Bill 555, adopted in 2015, requires all California water suppliers to submit annual validated water loss
audits to the Department of Water Resources. These audits are prepared and validated in accordance with the American
Water Works Association M36 Manual for Water Audits and Loss Control Programs. The audits help identify the scale and
sources of water loss and guide operational and capital investments that improve the efficiency of water production and
delivery.
Staff Report: 2512-5647 – Page 20 of 47
Each year the City tests its water supply meters and more than one hundred customer meters for accuracy. Meters with
low or no flow are identified and replaced to maintain accurate accounting and billing. Staff issued a notice of award to
ME Simpson to conduct an acoustical leak detection survey of the water distribution system, with field work expected to
begin in Spring 2026.
CY2022
o Apparent Losses: 16.1 gal/connection/day
o Real Losses: 6.7 gal/connection/day
CY2023
o Apparent Losses: 16.7 gal/connection/day
o Real Losses: 4.0 gal/connection/day
CY2024
o Apparent Losses: 11.6 gal/connection/day
o Real Losses: 6.8 gal/connection/day
3.2 Capital Improvement Plan Status
WS-09000 – Water Tank Seismic Upgrade and Rehabilitation
The seismic water system improvement project will be completing an engineering assessment and seismic analysis
of two 60-year-old, one-million-gallon, welded steel tanks located near the San Andreas Fault. These are the last
two water storage tanks in the distribution network yet to be seismically retrofitted. The tanks also require
rehabilitation and new coatings. The engineering assessment will be completed by Fall of 2026. Staff will solicit
services for engineering design, and the anticipated project construction start date for rehabilitation is January
2030.
WS-16001 – WMR 30 (Water Main Replacement 30)
The WMR 30 project is currently in the design phase and will replace approximately 2,700 linear feet of water main
on Stanford Avenue and Channing Avenue. The anticipated project construction start date is in Spring of 2027.
WS-19001 – WMR 31 (Water Main Replacement 31)
The WMR 31 project is currently in a preliminary scoping phase. The project will replace approximately 4,000
linear feet of water main. This pipe replacement project is being coordinated with the Gas Replacement Program.
A combined water and gas replacement project is anticipated to start in Summer of 2028.
WS-11003 – Water Distribution System Improvements
Arastradero Creek Relocation: During the 2023 winter storms, a section of Arastradero Creek eroded away and
exposed a gas pipeline crossing. The gas line is in close proximity to a large diameter water pumping line. This
project will relocate the water pumping line to a location out of the creek bed and eliminate the undermined creek
crossing. The project is currently in design and permitting phase of the work. A preliminary design for the relocated
water line has been completed. Work to relocate the pipeline is anticipated for July 2028.
Staff Report: 2512-5647 – Page 21 of 47
Water System Leak Detection: Leaks are repaired when they reach the surface, but small leaks can remain hidden.
This project will use acoustical leak detection to identify and map small, unreported leaks in the distribution
system. The data will guide future repairs and pipe replacement priorities. Leak detection began in April of 2026
and will finish by Summer of 2026, with additional leak detection repeated in 2027 and 2028 under a 3-year
contract, as needed. This approach follows state guidance.
Water HDPE and Water Standard Updates: The Plastic Pipe Institute released a new technical paper for
engineering and design of in-line anchor blocks for new HDPE pipe. This project will prepare new engineering
calculations and standard details. HDPE is the primary pipe material for all new water pipes in Palo Alto. These
engineered details will be used in all water main replacement projects within the City. Calculation and new details
are expected to be completed by Summer of 2026.
WS-11004 – Water System Supply Improvements
Risk and Resilience Assessment & Emergency Response Plan: In compliance with the Safe Drinking Water Act
Section 1433 and the America’s Water Infrastructure Act Section 2013 an update to the Risk and Resilience
Assessment was completed in December of 2025 and certified with the U.S. EPA before the deadline. An update
to the Emergency Response Plan (“ERP”) for the water utility began in January of 2026. The first draft of the ERP
was completed in April of 2026 and the final plan will be completed and certified by June of 2026.
Water System Master Plan: The previous full system water system master plan was completed in 1999, and a
Master Plan of the water distribution piping network was completed in 2015. A new Water System Master Plan
will evaluate the City’s existing water distribution system, demands, and maintenance needs. The plan will develop
a recommended and prioritized list of capital improvement projects. Professional engineering services to prepare
the plan will be solicited by Spring of 2026.
Well Improvements: Palo Alto owns eight wells. The pump at the El Camino Park Well failed and was removed,
rebuilt, and returned to service. About one hundred eighty feet of column pipe was replaced with new 10-inch
steel pipe, and the pump received a new power cable, new coatings, and a new intake strainer. The well casing
was inspected and cleaned before reinstallation. Engineering and operations staff are planning a well site
assessment for potential emergency backup power needs, with an informal review completed in Winter 2025 to
identify generator locations, new power cables, and other well site improvements. Generator sizing calculations
and a strategic plan to provide back-up power generation to each well site will be completed in Summer of 2026.
Wildfire Hardening Improvements: Wildfires can contaminate potable water and damage water system
infrastructure. The Office of Emergency Services, with input from water engineering staff, updated vegetation
removal plans and wildfire hardening buffers around water facilities in Fire Hazard Severity Zones. Professional
services will be solicited in 2026 to evaluate vulnerable facilities in these zones and recommend improvements.
Appurtenances and Large Meter Replacements: Small water meters are routinely replaced and monitored for
low and no flow errors. Meters three inches and larger serve critical customers and require more complex testing
and replacement. Several large meters have been identified for replacement through the AMI program, which will
improve accuracy and data quality for annual water audits and loss reduction efforts. A solicitation for
construction services is planned for Spring 2026 and will include on call work to replace aging sampling stations
and air release valves.
Water Storage Improvements: The City of Palo Alto owns and maintains seven water storage reservoirs, two of
which need improvement or replacement. A new PAX water tank mixer has been purchased to replace the mixer
for the Montebello Tank site after the water tank mixer failed. The Boronda Tank roof has multiple indentations
where water collects and ponds on the roof. Construction services will be solicited in 2026 to mitigate the roof
ponding in accordance with State Water Resources Control Board requirements.
Staff Report: 2512-5647 – Page 22 of 47
Water Supply Connections: Palo Alto receives water through five connections to the San Francisco Public Utility
Commission Regional Water System. Three of the connections tie into the 36-inch Palo Alto Pipeline along El
Camino Real. The supply connection at California Avenue and El Camino Real was reconstructed in 2024, providing
improved control of water supply pressure. Engineering and operations plan to adjust valving from the new station
to serve a second pressure zone and strengthen system resiliency. This project will also add communication and
control devices and pipe supports. Operations have improved water quality monitoring with new on demand
chlorine analyzers installed at the supply connections.
Automatic Flushing Systems: Most storage in the distribution network is reserved for emergency supply. About
six and a half million gallons are stored west of El Camino Real in tanks built in the 1950s and 1960s, including a
series of five tanks and pump stations from Arastradero Road to Montebello Road. Water in these tanks and in
the main City reservoirs is routinely cycled into the system to maintain freshness, and staff flush low-demand
areas to manage water age. Operations and engineering have identified potential sites for automatic flushing
systems that can be coordinated with tank down flush cycles and seasonal water quality needs. A pilot is planned
for 2026.
WS-13002 – Water General Equipment/Tools
This project will purchase multiple new tools and equipment to support operation and engineering needs. The
following equipment and tools will be purchased this fiscal year.
o A new tapping machine to replace an old tapping machine with a failed motor
o New clamp-on flow monitoring device
o New line stopping equipment and replacement components
WS-80013 – Water System Customer Connections
This project is a permanent, ongoing project. The project includes improvements required to provide service to
new customers and customers requesting expanded service. Work includes new main extensions, valves, domestic
services, meters on upgraded services, backflow devices, fire services, and fire hydrants.
WS-80014 – Water Service and Hydrant Replacement
This project is a permanent, ongoing project. The project replaces system control valves, deteriorated services,
and replacing fire hydrants.
WS-80015 – Water Meters
New meters have been purchased for the AMI program, which is currently 90% complete. In 2026, staff will
purchase all of the new large meters of 3” and larger, for the Appurtenance and Large Meter Replacement project
work described above in the WS-11004 section.
3.3 Reliability
The City of Palo Alto tracks all water service interruptions. A summary chart of these interruptions can be found below.
Water service interruptions are usually due to repairs of broken or damaged water services and mains. The number of
water service interruptions increased in Q3, although there is no systemic cause. Five incidents in Q3 affected more
customers than usual and a few were longer shutdowns than usual. For example, one break affected 25 people with an
outage of 600 minutes.
Staff Report: 2512-5647 – Page 23 of 47
Figure 16: Water Service Interruptions, FY 2025 to FY 2026
FY 2025 FY 2026WaterQ1Q2Q3Q4Q1Q2Q3 Q4
Number of Breaks 8 7 7 8 6 7 12
Combined Minutes 510 1250 795 960 1200 1295 2308
Customers Affected 127 99 61 146 95 114 162
Water distribution network hydraulic capacity design includes sizing pipelines, pump stations, pressure-regulating valves,
tanks and reservoirs to meet water demand and system flow needs. Fire-flow demand plus maximum day demand is an
important limiting demand condition for pipe sizing and system operation. In 2025, the Fire Department and Water
Transmission Operational team completed multiple large, multi-hydrant fire flow tests throughout the two largest
pressure zones. The results indicated stronger than expected water system performance, and it improved coordination
between the Fire Department and Water utility.
The City of Palo Alto’s water system has seven emergency interties with neighboring water agencies. There are two
interties with Stanford University, one intertie with the City of East Palo Alto, two interties with the City of Mountain View,
and two interties with Purissima Hills Water District. The City of Palo Alto and the City of East Palo Alto maintain an
emergency intertie on the University Avenue bridge over the San Francisquito Creek. The City of East Palo Alto completed
the first phase of the reconstruction of the emergency intertie. The project improved reliability and flows of the emergency
intertie. The General Manager of Purissima Hills Water District requested an additional emergency intertie located near
the intersection of Page Mill and Old Page Mill Road. City of Palo Alto and Purissima Hills Water District engineering teams
are analyzing benefits.
3.4 Financial Health
Below is a summary of the financial position for the water utility.
3.4.1 Sales Forecasts vs. Actuals
Actual water sales volumes through FY 2026 Q3 were 3.6% lower than forecasted, and actual water sales revenues were
about 3.9% lower than budgeted. However, warmer-than-expected weather in March drove usage above budget.
-3.6%
Staff Report: 2512-5647 – Page 24 of 47
Figure 18: Water Sales Revenue ($), FY 2026 Q3
3.4.2 Financial Position
At FY 2025 year-end, the Water Operations Reserve balance was $16.35 million, which is within the guideline range.
Additionally, the Rate Stabilization Reserve had $4 million remaining at the end of FY 2025. In March 2026, staff presented
to the Utilities Advisory Commission (UAC)15 and the Finance Committee16 a 12% distribution rate increase and an 8%
commodity rate increase, which is equivalent to a 10% overall system average increase. The UAC recommended (vote: 5-
2) an overall 8% rate increase for FY 2027 and reducing the amount going to the operation reserves by $1.2 million from
the proposed amount. The Finance Committee (vote: 3-0) agreed with that recommendation. On April 28, 2026, the San
Francisco Public Utilities Commission adopted a wholesale rate (commodity rate) increase of 7.4% for FY 2027. The City
Council approved the overall 8% rate increase in June 2026, which reflects an 8.3% distribution rate increase and a pass-
through 7.4% commodity rate increase.
15 Staff Report 2512-5639: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86697&dbid=0&repo=PaloAlto
16 Staff Report 2512-5604: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86855&dbid=0&repo=PaloAlto
-3.9%
Staff Report: 2512-5647 – Page 25 of 47
4 Wastewater Utility
The Wastewater Utility includes the system of sewer pipes that collect and transport wastewater to the Regional Water
Quality Control Plant (RWQCP) operated by the City of Palo Alto under a partnership agreement with several surrounding
communities, as well as Palo Alto’s share of the cost of operating the RWQCP. The RWQCP provides treatment and disposal
of wastewater for Palo Alto. Costs for the Wastewater Utility are split approximately half for the operation, maintenance
and periodic replacement of Palo Alto’s sewer collection system and half for the costs of wastewater treatment at the
RWQCP.
4.1 Wastewater Treatment Updates and Capital Planning Status
The RWQCP, operated by Palo Alto's Public Works Department, provides wastewater treatment to Palo Alto, Mountain
View, Stanford, Los Altos, East Palo Alto, and Los Altos Hills. The Palo Alto Wastewater Collection Utility contributes
approximately 36% of the costs in FY 2025. Capital costs, driven by necessary upgrades to aging equipment and changing
environmental regulations, are a major factor in cost increases. With plant equipment over 50 years old, significant
rehabilitation and replacement are required to maintain safe, compliant wastewater treatment operations.
4.1.1 Treatment Cost Trends
RWQCP staff project a 10% average annual increase in net treatment costs paid by Palo Alto’s Wastewater Utility from FY
2027 to FY 2031. The main drivers are capital projects, materials, and debt service (including loan repayments). Treatment
capital expenses, including debt service, are expected to rise by about 29% per year on average to fund equipment
replacement and major upgrades. The figure below outlines Palo Alto’s share of estimated net treatment costs, including
treatment operations costs, pay-as-you-go CIP expenses, existing debt service, and planned debt service payments shown
in the "Planned Debt Service" bar.
Staff Report: 2512-5647 – Page 26 of 47
Figure 19: Palo Alto’s Share of Wastewater Treatment Expenses
Note: Total wastewater treatment expenses (green line) shown above are presented net of projected Valley Water grant funding
While operations costs make up the bulk of treatment expenses, they are growing slower than planned debt service. The
largest increase in planned debt service in FY 2030 is primarily due to the debt service repayments beginning on the
Secondary Treatment Upgrades, which is an estimated $193 million capital project to remove nutrients from the
wastewater (denitrification) in order to meet upcoming regulatory requirements. Nutrient removal is important to reduce
algae blooms that kill fish and other aquatic life. The Secondary Treatment Upgrades project will also replace critical, aging
mechanical and electrical equipment.
In June 2024, the Council approved a Cost-Sharing Agreement with the Santa Clara Valley Water District for the Guiding
Principle 5 grant program, which funds future RWQCP19 projects. The program supports communities like Palo Alto, where
taxpayers pay State Water Project property taxes but rely on non-Valley Water supplies for most of their water. Staff
estimates a total of $11.2 million in grant funding for Palo Alto’s share of approved RWQCP projects, directly benefiting
local customers. Four upcoming projects are eligible for this funding:
Outfall Line Construction
Headworks Facility Replacement
12kV Electrical Power Distribution Loop Improvements
Joint Intercepting Sewer Rehabilitation
In FY 2025, approximately $2.8 million in CIP expenses were reimbursed through this funding, and about $3.9 million in
reimbursements are anticipated in FY 2026.
4.1.2 Regional Water Quality Control Plant Capital Planning Status
The RWQCP continues to undergo significant capital improvements to address aging infrastructure, respond to evolving
regulations, and meet future capacity needs. These efforts are guided by the Long-Range Facilities Plan (LRFP), which was
originally adopted in 2012 and is now undergoing a comprehensive update, anticipated for completion in 2027. The
19 Staff Report 2404-2877, June 3, 2024 https://portal.laserfiche.com/Portal/DocView.aspx?id=72164&repo=r-704298fc
12,734
5%
13,387
24%
16,625
7%
17,833
2%
18,200
32%
24,101
3%
24,861
-
5,000
10,000
15,000
20,000
25,000
30,000
2025 2026 2027 2028 2029 2030 2031
Actuals Projected
Ne
t
E
x
p
e
n
s
e
s
(
$
0
0
0
)
Fiscal Year
Treatment O&M Pay-as-you-go CIP Expenses Existing Debt Services
Planned Debt Services Total and YOY%
Staff Report: 2512-5647 – Page 27 of 47
following table summarizes these ongoing projects and provides their status and costs. Palo Alto’s share of these costs is
captured in Figure 17 in the “Planned Debt Service” category.
Figure 20: Current RWQCP Capital Work In-Progress (as of March 31, 2026)
4.2 Collection System Capital Improvement Plan Status
WC-15002 – Wastewater System Improvements - Sewer Master Plan Study
The Master Plan Study evaluated the City’s existing wastewater collection system, flows, and flow patterns to
determine the adequacy of the system’s hydraulic capacity to meet current and anticipated future wastewater flow
demands and develop a recommended prioritized Sewer Main rehabilitation plan. The project kicked off in
December 2023. The project was completed in December 2025.
WC-15002– Wastewater System Improvements and WC-13002 – Lodge/Foothills Lift Station Emergency Back-up
Generator Purchase
The Lodge/Foothills Lift Station (LFHLS) experienced pump failure of Pump #1 and partial failure of Pump #2. Pump
#1 was removed, repaired, and reinstalled. Pump #2 was removed and transported to vendor to repair. Pump #2
was repaired and installed in December 2025. Engineering assessed that the current back-up generator was
undersized for load demands on the lift station pumps. An undersized generator at a lift station causes severe
damage to the pumps by failing to provide enough starting wattage, leading to low voltage (brownout conditions).
This causes excessive heat, overloaded motors, premature mechanical seal failure, and burnout. The generator
was delivered to the City on December 24, 2025. The City has finalized the DMV Special Equipment registration of
this generator in February 2026. The City is now in the process of obtaining a PERP permit (Portable Equipment
Registration Program) and schedule a training session for our City staff to safely operate this new generator in April
2026. Shortly after the City will begin mobilization to the Lodge/Foothills Lift Station location.
WC-15002– Wastewater System Improvements – Arastradero Creek Wastewater Relocation
During the 2023 winter storms, a section of Arastradero Creek eroded away and exposed a gas pipeline crossing.
The gas line is in close proximity to a sanitary sewer main. This project will relocate the sanitary sewer main to a
location out of the creek bed and eliminate the undermined creek crossing. The project is currently in design and
Staff Report: 2512-5647 – Page 28 of 47
permitting phase of the work. A preliminary design for the relocated sanitary sewer main has been completed.
Work to relocate the pipeline is anticipated for July 2028.
WC-20000 - SSR 32 (Sanitary Sewer Replacement 32)
The SSR 32 project is currently in the planning phase and will replace approximately 26,000 lineal feet of sewer
mains, laterals, and manholes. Currently, the project is in the process of being rescoped based on the recently
received Sewer Master Plan which identifies prioritized improvements based on rehabilitation and capacity issues.
Design will restart in FY27 for construction in FY28.
WC-26001 – 3-Year CCTV Sanitary Sewer Main Inspection
The City has created a Request for Proposal (RFP) for a three-year program to Closed Circuit Television (CCTV)
Sanitary Sewer Mains. The project will incorporate CCTV pipeline inspections to approximately 225,000 linear feet
of Sanitary Sewer Main over a three-year duration at an annual rate of approximately 75,000 linear feet per year.
Results of the project will be used to identify defective Sanitary Sewer Mains which will be incorporated into future
SSRs to rehabilitate and replace Sanitary Sewer Mains. The project has an anticipated start date in October 2026.
WC-99013 – Sanitary Sewer Lateral Rehabilitation and Replacement
The City is in the process of developing an IFB for a three-year program to rehabilitate or replace Sanitary Sewer
Lower Laterals (Lower Laterals). City staff has identified approximately 210 Lower Laterals that will be rehabilitated
or replaced over a three-year period at an annual rate of approximately 70 per year. In addition to addressing
defective Lower Laterals, the project will reduce inflow and infiltration into the sanitary sewer system. The target
date for Solicitation process will be in April 2026. The project will go to council in August 2026, with an anticipated
project commencement date in September 2026.
4.3 Financial Health
Below is a summary of the financial position for the wastewater utility.
4.3.1 Sales Forecasts vs. Actuals
Wastewater sales revenues through Q3 FY 2026 were 3.8% above budget.
Figure 21: Wastewater Sales Revenue ($), FY 2026 Q3
3.8%
Staff Report: 2512-5647 – Page 29 of 47
4.3.2 Financial Position
At the end of FY 2025, the Wastewater Collection Utility’s Operations Reserve was $1.7 million, which is below the risk
assessment level of $2.8 million.
In FY 2025, the Utility received $2.7 million in Valley Water grant revenue to offset Wastewater Treatment costs, directly
benefiting Palo Alto customers. The cash balance at the end of FY 2025 was approximately $0.9 million, which is lower
than Staff’s projections. The Utility plans to fully repay the Fiber Utility loan21 due in FY 2026.
Staff proposed a 16% rate increase in FY 2027 at the March 4 UAC meeting22 and March 17 Finance Committee meeting23.
The UAC voted 6-1 and the Finance Committee voted unanimously to move forward with the proposal. The City Council
approved the Wastewater Collection 16% rate increase in June 2026.
21 Resolution 10173: https://portal.laserfiche.com/Portal/DocView.aspx?id=83857&repo=r-704298fc
22 Staff Report 2503-4364: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=18457643-b8bd-4c15-b8db-822059719251
23 Staff Report 2512-5608: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86858&dbid=0&repo=PaloAlto
Staff Report: 2512-5647 – Page 30 of 47
5 Fiber Utility
The City offers a "dark" fiber service, providing a fiber connection from Palo Alto businesses to the downtown Internet
Exchange. At the exchange, businesses select an internet service provider (ISP) for bandwidth and connection speed. The
City is piloting Palo Alto Fiber ISP service under the fiber-to-the-premises project (FTTP) to provide residents with a fast,
reliable, affordable, and local internet service.
5.1 Fiber Utility Strategic Planning
Below are highlights and status updates of the Fiber-to-the-Premises (FTTP) Project:
The fiber hut at the Colorado Substation is fully operational, supporting the Phase 1 pilot area for residential
fiber internet services and providing the infrastructure needed to support future system growth.
Staff connected the first early adopter customer to Palo Alto Fiber internet and received positive feedback.
Activation of 20 or more early adopters in the pilot area is targeted by the end of July. These early adopters will
help staff validate contractor installation processes, service activation, customer service workflows, and network
support.
5.2 Capital Improvement Plan Status
The following capital projects are currently in progress:
FO-16000 – Fiber Optic System Rebuild
o The new fiber backbone will be built in segments based on City and dark fiber business needs and in
consideration of any strategic FTTP opportunities. CPAU is installing new aerial ducts or substructure
(conduit and boxes) and fiber backbone cables to increase capacity from 144 to 432 fiber strands in areas
that are at or near capacity to meet new customer dark fiber connection requests. The initial areas of
rebuild are in Stanford Research Park for capacity and along Colorado Ave to provide resiliency and
redundancy for electric and fiber.
FO-24000 – Fiber-to-the-Premises
o The pilot area consists of approximately 800 homes which are bounded by Embarcadero Road, Louis
Road, Colorado Avenue, Greer Road and West Bayshore Road. Staff anticipate launch of service in
March of 2026. As of May, the fiber hut at the Colorado Substation is fully operational, supporting the
Phase 1 pilot area for residential fiber internet services and providing the infrastructure needed to
support future system growth. Staff also completed installation for two early adopter customers, and
working through initial performance challenges, received positive feedback from the residents on staff’s
support and responsiveness. Activation of 20 or more early adopters in the pilot area is targeted by the
end of June.
Staff Report: 2512-5647 – Page 31 of 47
5.3 Reliability
There were no unplanned fiber outages or events to report in Q3 of FY 2026.
5.4 Financial Health
Below is a summary of the financial position for the fiber utility.
5.4.1 Fiber Sales
Through FY 2026 Q3, dark fiber licensing sales were $2.4M and ($0.2M) or (8%) below the revenue forecast of $2.6M.
Fiber expenses were $4.0M and $0.4M or 11% above forecast of $2.6M due to construction costs and network equipment
for FTTP. Three of the four positions added in FY 2024 to support FTTP are on hold, pending results of the FTTP Palo Alto
Fiber pilot. Existing staff and contractors are collectively performing the work that staff in those roles would perform at
this time.
5.4.2 Financial Position
At the end of FY 2025, the Fiber Fund had a total reserve of $34 million which consists of $17.4 million of rate stabilization,
$13.1 million of commitments and reappropriations, and $3 million loan to Wastewater Collection utility. As of Q3 FY
2026, the Fiber Fund has a total reserve of $32 million including the $3 million loan to Wastewater Collection utility. The
$3 million loan is anticipated to be repaid as part of the year-end close out activities for FY 2026.
Staff Report: 2512-5647 – Page 32 of 47
6 Communications
This section summarizes communication highlights from the City of Palo Alto Utilities (CPAU), updates on major campaigns
and noteworthy events. Copies of ads, bill inserts, and brochures are available online at www.paloalto.gov/UTLbillinsert
Gas COSA Update: The Gas Cost of Service Analysis (COSA) update was approved by Council in December for an
effective date of February 1, 2026. Staff are communicating with customers about this and other proposed utility
rate changes for fiscal year 2027.
Time-of-Use (TOU) Rates Implementation Update: CPAU began a phased rollout of the TOU rate to customers
in March 2026. Several customers expressed interest in switching to the TOU rate and requested an assessment
of whether the TOU rate would be financially beneficial based on household energy consumption. The TOU rate
may be favorable for customers who have high energy consumption and/or may drive an EV and charge at
home. For customers with lower energy consumption and/or the inability to shift energy usage, switching to the
TOU may not be beneficial due to limited savings or a potential increase in monthly billing costs. Broader
marketing of this new rate schedule is planned for early summer following testing in the first and second
quarters of 2026.
Utility Billing Print Vendor Change: CPAU is working with a new vendor to print utility bills, which provides the
city with multiple benefits. The new vendor, InfoSend, provides continuity of operations for utility billing with
redundant facilities in multiple states. The city will be saving approximately $150,000 annually, or 25% from the
previous contract, for printing and mailing. E-bill customers will now be able to see utility bill inserts with their
bills rather than having to click through our website. Key information on the bill remains the same, and there
is no change to billing processes, schedules, or payment options.
Gas Main Replacement Project 25 (GMR 25): GMR 25 will replace roughly five miles of gas mains and services
that are near their operational life expectancy in the Duveneck/St. Francis, Leland Manor, and Midtown and
Palo Verde neighborhoods. This is a critical infrastructure initiative to enhance safety and reliability of gas
distribution infrastructure. CPAU is using funding for this project from the $16.5 million-dollar federal grant
awarded by the Pipeline and Hazardous Material Safety Administration (PHMSA). GMR 25 began in early 2026
and is scheduled for completion in summer 2027.
Wildfire Mitigation: The California Wildfire Safety Advisory Board (WSAB) completed its review of utilities
wildfire mitigation plans and applauded Palo Alto in its public report for substantially reducing wildfire risk by
undergrounding overhead utility lines in the high fire threat district, the Foothills. The WSAB also commended
the city for its contributions to an innovative gas monitoring network for early detection of wildfire. The WSAB
members and staff acknowledged that this technology is not widely used by publicly owned utilities or investor-
owned utilities. It was recommended that CPAU report on the status of its undergrounding project (scheduled
for completion in 2026) in the next wildfire mitigation plan, and its efforts to reduce risk from remaining
infrastructure. WSAB also advised that the city report the results, benefits, and challenges of deploying gas
monitoring technology to inform broader adoption decisions in the utility community.
Electric Integrated Resource Plan: Every five years, CPAU submits an Electric Integrated Resource Plan (IRP) to
the California Energy Commission (CEC) to demonstrate that the city is on track to meet the state’s requirements
for long-term energy policy goals, greenhouse gas emissions reduction targets, and renewables portfolio
standard. The CEC recently sent CPAU a detailed report and letter from the Executive Director to verify that the
2023 IRP, which staff provided in April 2024, satisfies all requirements, including meeting the state’s mandated
60% by 2030 renewables standard.
Charging Smart Gold Designation: The city received Gold level designation from Charging Smart, a program
funded by the US Department of Energy and implemented by the International Renewable Energy Council, for
its leadership in advancing efficient EV charging. After reviewing the city’s efforts, the program awarded Palo
Staff Report: 2512-5647 – Page 33 of 47
Alto its highest-level award for robust planning, streamlined permitting, community programs, and fleet and
infrastructure investments. This recognition showcases our progress and helps us exchange best practices with
other communities advancing clean mobility.
Staff Report: 2512-5647 – Page 34 of 47
7 Legislative, Regulatory and Industry Activity
7.1 State Legislative Activity
The 2026 California legislative session continues last year’s focus on utilities affordability, wildfire mitigation, and
permitting streamlining with data center costs and rates seeing increased attention. Hundreds of utilities-related bills have
been introduced, though many only impact investor-owned utilities (IOUs), and CPAU staff are actively tracking about 130
bills with help from trade associations NCPA and CMUA. Some bills of particular interest to CPAU are listed below:
AB 34 (Patterson) | California Renewables Portfolio Standard Program: local publicly owned electric utilities: large
hydroelectric generation. This bill is a reintroduction of last year’s AB 1273 with the language relating to CPUC
oversight (the reason for the Governor’s veto in 2025) removed to focus AB 34 solely on large hydropower
generation, specifically, it would allow local publicly owned electric utilities to count large hydroelectric
generation toward their renewable procurement goals. Sponsored by NCPA at the behest of CPAU, AB 34 is
estimated to save CPAU roughly $1 million per year starting in 2030. AB 34 was signed into law by Governor
Newsom on July 13, 2026.
SB 222 (Wiener) | Residential heat pump systems: water heaters and HVAC: installations. This bill is a
reintroduction of last year’s SB 282 and aims to streamline permitting and installation of heat pump water heater
and HVAC systems. Some of the bill’s goals include automated permitting for simple installations, easier
inspection requirements, and caps on permit fees.
SB 868 (Wiener) | Electricity: portable solar generation devices. This bill is part of a nationwide trend to allow
small, safety-certified solar generation systems up to 1,200 watts to plug directly into standard electrical outlets
to offset electricity usage. SB 868 forbids utilities from requiring interconnection agreements or approval or
imposition of fees for the installation of plug-in solar generation systems.
SB 875 (Wiener) | Public utilities: eminent domain. This bill seeks to reduce the barriers local public entities face
when trying to break away from PG&E and form their own publicly owned utility (POU). The driving force behind
this bill is a desire to address legal delays faced by San Francisco as they attempt to leave PG&E and form their
own POU. SB 875 failed passage out of the Senate Energy, Utilities, and Communications Committee and will not
advance.
SB 943 (Becker) | Public utilities: electricity: transmission charge: industrial transition usage. This bill, among other
things, directs the CPUC to request the California Independent System Operator (CAISO) reconsider the structure
of the transmission access charge (TAC) to better reflect cost causation principles. CPAU supports TAC reforms
that move away from charging based solely on the volume of electricity and towards a hybrid structure that
incorporates both volume and demand for electricity, because CPAU would see lower TAC costs.
7.2 State Regulatory Activity
Long-awaited draft amendments to the Cap and Invest regulation were released by the California Air Resources Board
(CARB) in January and April 2026, consuming most of the regulatory focus for CPAU staff. The first round of Cap and Invest
amendments focused on accelerating emission reductions to meet state goals in 2030 and 2045, primarily by reducing
electric and gas utility free allowance allocations. An allowance is equivalent to one ton of CO2 and they are bought and
sold in CARB’s quarterly auctions. CARB elected not to change the allowance allocation methodology and simply updated
the data for electric load forecasts, electric resource mixes, and Renewable Portfolio Standard (RPS) requirements for each
utility. As a result, most electric utilities would have seen a significant decrease in their free allowance allocations from
2027 – 2030. To protect ratepayer affordability, utilities and their associations, including NCPA and CMUA, pushed back
strongly on this proposal by advocating for methodological changes that properly account for the RPS program or prevent
allowance allocation reductions entirely. The second round of amendments incorporated some of the recommended
changes, thereby reducing the severity of the allowance reductions for most utilities. Some utilities, including CPAU, see
an increase in allowance allocation for a variety of reasons including increasing load or changing electric portfolios. On
the gas utility side, AB 1207 required CARB to transition free allowances away from natural gas corporations and to electric
Staff Report: 2512-5647 – Page 35 of 47
utilities. CPAU occupies a unique niche in the proposed amendments because as a gas POU, CPAU will not lose any
allowances allocated to its natural gas utility but also will not receive any of the additional allowances that are transitioned
away from natural gas corporations. The other proposed change is restricting allowable uses of new natural gas allowance
value to fuel switching and electrification, eliminating the existing usage of allowance value for more efficient natural gas
appliances, though allowance value acquired before September 1, 2026 may still be used for natural gas efficiency
projects. To have an effective date of 2027, CARB has a self-imposed deadline of May 28th for Board adoption of the
amended regulation, so another round of proposed amendments is unlikely at this time.
7.3 Federal Activity
Staff Report: 2512-5647 – Page 36 of 47
Appendices
Staff Report: 2512-5647 – Page 37 of 47
8 Appendix A: Energy Risk Management Program
This appendix provides a quarterly update on the City’s Energy Risk Management Program.
8.1 Overview of Hedging Programs
The City’s Utilities Department maintains a hedging program for its Electric and Gas Utilities. In the Gas Utility, the program
protects against short-term (intra-month) price spikes caused by weather or major incidents on the Western gas system.
However, the City does not hedge its gas supply more than one month in advance, choosing instead to protect the Gas
Utility’s financial position by passing gas supply costs through to customers via a charge that varies monthly based on gas
market prices. As a result, the Gas Utility’s only market exposure is the amount by which gas demand deviates from
forecasts within the month. This exposure is relatively small and can be managed using Gas Utility Operating Reserves.
Additionally, the City Council approved a $0.055 charge per therm for mitigating the impact of short-term natural gas price
spikes.27 A risk assessment is performed each year as part of the Gas Utility financial planning process to ensure adequate
reserves to cover all risks. The most recent Gas Utility Financial Forecast was adopted June 16, 2026 (Staff Report #2602-
589428).
The City has entered into long-term contracts for its Electric Utility to ensure that the City has carbon free electricity
supplies equal to 100% of Palo Alto’s annual electric demand. However, the output from these generating sources does
not match Palo Alto’s electric load on an hourly basis. In the summer, the City has a surplus of carbon free energy and it
has a deficit in the winter. This exposes the City to market price risk, and staff maintains a hedging program (executing
short-term market purchases and sales to balance the City’s load and supplies) to protect against this risk.((executing
short-term market purchases and sales to balance the City’s load and supplies) to protect against this risk. In addition,
hydroelectric generation makes up approximately half the City’s energy supply. During dry years, these resources do not
generate as much energy, creating an additional market exposure that must be hedged. All hedging transactions are
executed in compliance with the Council-approved Energy Risk Management Policy (Resolution 1016629).
8.2 Overview of Energy Risk Management Program
The hedging programs described above are conducted in accordance with the City’s Energy Risk Management Program,
which includes a set of Policies adopted by the City Council (Resolution 1016630), Guidelines adopted by the City’s Utilities
Risk Oversight Coordinating Committee (UROCC), and Procedures approved by the Utilities Director. In addition, NCPA
maintains its own Risk Management Program that applies to intra-month transactions it makes on behalf of the City (and
other NCPA members) to balance the City's hourly load and supplies. The City is able to provide policy level oversight of
this program through its seat on the NCPA Risk Oversight Committee, which is held by the City’s Risk Manager.
Per the Energy Risk Management Policies, the City Council must receive semi-annual reports on the City’s forward contract
purchases, market exposure, credit exposure, counterparty credit ratings, transaction compliance, and other relevant
data.
27 Resolution 10187, adopted August 19, 2024: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=62063&dbid=0&repo=PaloAlto
28 Staff Report #2411-3776 https://cityofpaloalto.primegov.com/api/compilemeetingattachmenthistory/historyattachment/?historyId=35104f06-
6925-4fe3-89c7-b0e53e6eec42
29 Resolution 10166, adopted June 10, 2024: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=62033&dbid=0&repo=PaloAlto
30 Resolution 10166, adopted June 10, 2024: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=62033&dbid=0&repo=PaloAlto
Staff Report: 2512-5647 – Page 38 of 47
8.3 Forward Deals
Palo Alto executed the following Electric and Gas transaction in Q3 of FY 2026.
Figure 22: Electric Resource Adequacy Deals
Delivery Month Deal Type Avg RA
(MW-mo)
Price ($/kW-mo)
Apr’26 Purchase 26.00 $1.60
8.4 Electric Market Exposure
The chart below shows the City’s electric supply market exposure and committed purchases and sales to cover timeframes
where load is expected to exceed supply. The load resource balance (LRB) for the prompt 12-month period is 103%. The
LRB percentage represents the percentage of resources available to cover the City’s load (i.e. the resources available for
the prompt 12 months are 3% greater than the City’s load). The City’s expected load for the prompt 36-month period is
shown by the black line in the chart below. The red dashed line below represents the City’s net resource position, including
completed energy transactions. Additional purchases will be executed for FY 2027 and FY 2028 in the coming months.
Figure 23: Electric Load Resource Balance, FY 2026 – 2029
Staff Report: 2512-5647 – Page 39 of 47
Staff Report: 2512-5647 – Page 40 of 47
9 Appendix B: Staffing and Vacancies
The Utilities Department has 37 vacant positions out of 269 authorized positions, or a 14% vacancy rate. The City
developed a Recruitment Strategic Plan35 to reduce the citywide vacancy rate. Some of the many initiatives and
accomplishments completed to improve the city’s recruitment and retention include:
Through analysis of workflow and process efficiency opportunities, the City successfully reduced the onboarding
timeline from 60+ days to an average of 23 days from time an offer is accepted to the new employee’s first days.
Relaunched the Citywide Internship program and continues to expand participation to grow and invest in building
a strong future talent pipeline.
Enhanced the City’s training courses for hiring managers to provide opportunities to learn about recruitment
trends and improving the employee experience.
Reengaged active participation in career fairs at community colleges, universities and local community events.
Enhanced collaboration with the City Communications team to create active social media recruitment campaigns
for hard-to-fill positions.
Strengthened citywide training programs to strengthen the knowledge, skills, and abilities of all employees,
empowering them to grow at their own pace as leaders, whether as supervisors and managers or as individual
contributors.
Figure 24: Utilities Vacancies and Recruitments by Division
35 May 6, 2024 City Council Meeting, Staff Report 2404-2890:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82820&dbid=0&repo=PaloAlto&searchid=d230fd3b-dd24-4eb1-b495-
84560e808bc3
As of March 31, 2026
Division
Authorized
FTEs
Vacant
FTEs
Active
Recruitments Vacancy %
Administration 15 2 0 13%
Customer Service 24 0 0 0%
FTTP & S/CAP 6 3 0 50%
Resource Management 26 4 3 15%
Electric Engineering 25 2 2 8%
Electric Operations 81 16 14 20%
WGW Engineering 23 4 4 17%
WGW Operations 69 6 6 9%
Total 269 37 29 14%
Staff Report: 2512-5647 – Page 41 of 47
10 Appendix C: Electric Utility Annual Infrastructure Maintenance and
Replacement Report
Executive Summary
Calendar year 2024 safety metrics include zero OSHA recordable injuries and no lost workdays but did include
three minor, non-recordable accidents. To maintain employee competency with safe working practices, the City
provides ten department-wide safety meetings, numerous online training courses and field assessments. During
CY2024 employees collectively completed over 1,388 training courses.
The City of Palo Alto continues to provide safe and reliable electric service at the lowest reasonable cost. System
reliability numbers have improved primarily due to milder winter weather but also due to improvements in
restoration processes following an outage.
While slowed by the loss of key staff within the metering division, progress continues to complete the AMI project.
Currently staff are coordinating across departments to add a new AMI base station atop City Hall providing
connectivity and transmission for the downtown district, Stanford campus, and Oak Creek apartments. The base
station will allow approximately 3,000 electric meters to be modernized.
The Grid Modernization Pilot for the distribution system is completed. The electric infrastructure suppling roughly
908 homes has been upgraded including the replacement of 70 wood utility poles, 106 new transformers, and
22,650 feet of new low-voltage wire. The cost to complete the pilot area reached just over $10 million with
contracted labor being the largest cost.
Design work continues on necessary upgrades to the Colorado Substation. Recently the City Council approved of
a professional services agreement with Burns & McDonnell to support the City in the redesign and replacement
of aging infrastructure within the Colorado substation. Staff have begun scoping the work with Burns & McDonnell
and expect to have a final high-level assessment of the substation by December of 2025.
CY2025 (to-date) Electrification Permit Applications
To manage increased load, CPA’s Electric Engineering is responsible for evaluating all electrification-related applications.
Figure 1 provides a summary of activity levels across the five main categories. As shown, electrification and the adoption
of electric appliances is increasing year over year.
Figure 25: Electrification Permits by Category
Between 2021 and 2025, electrification experienced Compound Annual Growth Rates (CAGR) ranging from 13% for ESS
up to 74% for hot water heat pumps. This upward trajectory is anticipated to persist through 2026, as suggested by mid-
year performance data.
0
100
200
300
400
2021 2022 2023 2024 2025
PV ESS EVCS HEAT PUMPS W_HEATPUMP
Electrification Trends
Nu
m
b
e
r
o
f
U
n
i
t
s
Year
Staff Report: 2512-5647 – Page 42 of 47
Electrification is placing pressure on local permitting organizations, including the City of Palo Alto (CPA). CPA is grappling
with a flood of permit applications, often with longer review times and at times inadequate staffing to perform the
necessary permit reviews. Although CPA Electric Engineering staff are relatively new, they have undergone training to
competently conduct the required reviews.
System Reliability Indices
Figure 26: Electric Outage Reliability, CY 2019 through 2025
Major Event Days Included Major Event Days Excluded
CY SAIDI SAIFI CAIDI SAIDI SAIFI CAIDI
2019
2020
2021
2022
2023
2024
2025
Staff Report: 2512-5647 – Page 43 of 47
Figure 27 : Calendar Year 2025 Sustained Outages by Cause
CY2025 Facility Inspections
General Order 165 (overhead and underground) and 174 (substations) cover facility inspections. Some inspections are
monthly, some annual, and others are between 3 to 10-year cycles. Completion of these inspections helps to identify
issues that can be resolved prior a power outage, or that otherwise could impact customer service.
Type of Inspection (inspection unit)
Units Due in CY
2025 Still Outstanding
Percent
Complete
Annual Visual Patrols (equipment)6,816 0 100.0%
Overhead Detailed (poles & all related equip.)1,215 451*62.88%
Underground Detailed (subsurface equipment, boxes,
& vaults)1,258 0 100
Wood Pole Intrusive (poles tested)22 222**0
Substation (inspections)132 132 100.0%
* Grid Mod Construction in zone of inspection. These inspections will be completed in the current year.
**Previous contract ended in 2025, new contract awarded in 2026. These intrusive inspections will be completed in the current calendar
year.
Preventative Maintenance Tags
GO 165 inspections generate maintenance tags to correct either construction infractions or maintenance issues. Tags are
graded based upon their severity and risk to the public or potential to cause a power outage. Three rankings are possible:
Priority-1, complete immediately or within 30-days, Priority-2, complete within 24 months, and Priority-3, complete within
60-months. Maintenance tags can range from minor work of clearing vegetation around poles or pad-mounted equipment
to identifying portions of the system that need to be fully reconstructed. Lack of maintaining an adequate number of
qualified staff impacts the City’s ability to complete preventative maintenance tags.
CY2025 Overhead Maintenance Tags
Grade Total Due in CY2025 Completed Pending
Priority-1 14 14 0
Priority-2 26 108 26
Staff Report: 2512-5647 – Page 44 of 47
Priority-3 335 250 321
Total 375 372 347
Overhead maintenance tags typically include the replacement of reflective strips at the base of utility poles, high-voltage
warning signs, replacement of down guy visibility markers, and others. Most work helps maintain the City’s compliance
with industry construction standards and prevents future power outages.
CY2025 Underground Maintenance Tags
Grade Total Due in CY2025 Completed Pending
Priority-1 2 2 0
Priority-2 158 0 158
Priority-3 133 0 133
Total 293 2 293
Underground maintenance tags typically include the replacement of signage on vaults and pad-mounted equipment,
replacement of cracked or broken vault lids, removal of vegetation, replacement of worn or deteriorated underground
equipment, and others. This work also maintains the City’s compliance with industry construction standards and prevents
future power outages.
Staff Report: 2512-5647 – Page 45 of 47
11 Appendix D: PaloAltoGreen Gas Program
In December 2020, Council adopted Resolution #993037 maintaining the Carbon Neutral Natural Gas Plan to achieve
carbon neutrality for the gas supply portfolio using high-quality carbon offsets with a cost cap of $19 per ton CO2e.
Offsets are purchased to neutralize emissions equal to those caused by natural gas usage in Palo Alto. Staff procured
115,000 tons of offsets from U.S. Forest and Livestock projects during Spring 2025 to cover FY25 usage. The figure below
shows the composition of all offset purchases for the Carbon Neutral Gas Plan through Q3 2026.
Figure 28: Offset Portfolio Composition
The following table provides a description of the projects.
37 Resolution #9930 https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/resolutions-1909-to-present/2020/reso-9930.pdf
Staff Report: 2512-5647 – Page 46 of 47
Figure 29: Offset Project Descriptions
Project Name Project Type Description
Grotegut Dairy Livestock Grotegut Dairy is a 3,900 milk-cow operation in Newton, Wisconsin with a methane capture system.
Green Trees U.S. Forest
GreenTrees Advanced Carbon Restored Ecosystem is reforestation of agricultural lands into native
hardwood forest in Mississippi, Louisiana, Arkansas, and Illinois
San Juan Lachao Mexico Forest
Protection of forests located in High Biological Value Zones which contain flora and fauna listed in the
Mexican Endangered Species List and the International Union for Conservation of Nature’s Red List of
Threatened Species. Project in San juan Lachao near Palo Alto's Sister City of Oaxaca.
Blandin Forest U.S. Forest Blandin Native American Hardwoods Conservation and Carbon Sequestration project in Minnesota.
Pocosin+ U.S. Forest
These projects are all forested land that will not be disturbed by human development. Without this
protection, the forests would be converted to grow wheat or corn. Forest conservation plays a vital role in
protecting freshwater systems like lakes. The forests around the lakes act as natural water filters and purify
the water for all who use it. The projects also support healthy populations of red wolf, bald eagle, black
bear, and various bird species.
Refex ODS Ozone Depleting Substance
The RemTec facility in Bowling Green, Ohio uses an argon arc plasma destruction device to achieve 99.99
percent removal. The majority of refrigerants originated in California, and all were sourced within the
United States.
The RemTec facility uses an argon arc plasma destruction device to achieve the required destruction and
removal efficiency of 99.99 percent. The majority of ODS refrigerants originated in California, and all were
sourced within the United States.
Methane Capture Mine Methane Capture
This project is the first of its kind. Peabody Natural Gas, LLC removed methane from the North Antelope
Rochelle Coal Mine before mining. The methane was compressed and transported to a natural gas pipeline
and distributed to a national gas grid for use as fuel. Before implementation of the project, all the methane
was vented to the atmosphere.
Virginia
Conservation
Forestry Program U.S. Forest
The Virginia Conservation Forestry Program - Clifton Farm and Rich Mountain is a 9000+ acre
improved forest management project in which the timber and carbon ownership and
management rights have been transferred to The Nature Conservancy's Conservation Forestry
Program. The program manages for multiple goals to include: Water quality protection,
habitat diversity, high value forest products, and carbon sequestration.
Co-benefits: Biodiversity, Watershed Protection, Climate Resilience, and Connectivity
Riverview Farm
Anaerobic Digester Livestock
Riverview is a carbon offset project generating emission reductions thought the capture and destruction of
methane at a dairy farm in Minnesota. Under the baseline, manure managed in open lagoons led to the
fugitive emission of methane to the atmosphere. In the project scenario, this methane is captured by an
anaerobic digester and destroyed on site in the production of electricity. Co-benefits include job creation
and the improvement of local air and water quality.
Big River / Salmon
Creek Forests IFM U.S. Forest
The Big River and Salmon Creek Forests are located in Mendocino County, CA and cover 16,000 acres of
redwood and Douglas-fir forest. This project is a conservation-based forest management project.
Co-benefits include the creation of 140 jobs, protection of 37 miles of streams, and improved water quality
for local fish and bird species.
Hiawatha
Sportsmans Club U.S. Forest
Located in Michigan’s Upper Peninsula, Hiawatha Sportsmans Club (HSC) is a member-owned 35,000-acre
forest and Michigan’s oldest certified Tree Farm. The property contains a variety of habitats: Lake Michigan
shoreline, inland lakes, spring-fed rivers, marsh, mature conifer and hardwood forest and open fields.
Supported by HSC’s sustainable forest management, these diverse habitats attract and sustain a wide
variety of birds, mammals and other wildlife.
Appalachian
Mountain Club
Maine Woods
Initiative U.S. Forest
Founded in 1876, the Appalachian Mountain Club (AMC) is the oldest outdoor conservation and recreation
organization in the U.S. By implementing sustainable management practices like deferred harvesting,
extended rotations, and the retention of standing dead wood, AMC enhances forest carbon stocks and
promotes long-term ecological health. The project sequesters carbon effectively while supporting diverse
wildlife habitats and protecting soil and water quality, all in alignment with Maine's best management
practices. Through the Maine Woods Initiative, AMC demonstrates that conservation and economic
opportunity can coexist, integrating sustainable forestry with outdoor recreation to create lasting, positive
impacts for Maine's forests and communities.
Alliance Dairy Livestock
Founded in 1876, the Appalachian Mountain Club (AMC) is the oldest outdoor conservation and recreation
organization in the U.S. By implementing sustainable management practices like deferred harvesting,
extended rotations, and the retention of standing dead wood, AMC enhances forest carbon stocks and
promotes long-term ecological health. The project sequesters carbon effectively while supporting diverse
wildlife habitats and protecting soil and water quality, all in alignment with Maine's best management
practices. Through the Maine Woods Initiative, AMC demonstrates that conservation and economic
opportunity can coexist, integrating sustainable forestry with outdoor recreation to create lasting, positive
impacts for Maine's forests and communities.
Staff Report: 2512-5647 – Page 47 of 47
Approved By:
Alan Kurotori, Director of Utilities
Staff: Tim Denterlein, Resource Planner