HomeMy WebLinkAboutStaff Report 2608-6709CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, October 05, 2026
Council Chambers & Hybrid
5:30 PM
Agenda Item
A.Informational Report: Utilities Quarterly Report for FY2026-Q3 (January 2026 – March
2026)
Staff Report: 2608-6709 – Page 1 of 49
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City Council
Staff Report
From: City Manager
Report Type: INFORMATION REPORTS
Lead Department: Utilities
Meeting Date: October 5, 2026
Report #:2608-6709
TITLE
Informational Report: Utilities Quarterly Report for FY2026-Q3 (January 2026 – March 2026)
RECOMMENDATION
This is an informational report, and no action is requested.
EXECUTIVE SUMMARY
This report has been prepared to keep the Council 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.
This item was transmitted to the Utility Advisory Commission (UAC) on August 5, 2026; however, upon
further review, certain components of this report are required to be transmitted to the City Council per
the Energy Risk Management Guidelines. Information required includes:
- Net supply cost versus budget for the reporting fiscal year (Figure 2)
- Electric market exposure that includes a 36 month load resource balance by month (section 8.4)
- Hydro Generation providing a 36 month review of hydro and renewables uncertainty in the
electric utility (Figure 3)
- Financial forecasted position reflecting the estimated and/or approved ending balance of the
electric utility reserves and net revenue projections and uncertainty for the electric utility
- Annually the transmission of the cap and invest allowance revenues and expenditures per City
Council approved resolutions 9487 and 10077 for the electric and gas utilities.
Key information is 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.
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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 prices have been relatively low and stable. (Section 2.1)
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)
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)
Actual wastewater sales revenues through Q3 are tracking 3.8% above the budget. (Section 4.3.1)
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: 2608-6709 – Page 3 of 49
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Utilities Quarterly Report
Fiscal Year 2023
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1 ELECTRIC UTILITY..........................................................................................................................................7
1.1 ELECTRICITY SUPPLY AND TRANSMISSION ...............................................................................................................7
1.1.1 Forecasted Supply Costs ......................................................................................................................7
1.1.2 Hydroelectric Conditions .....................................................................................................................8
1.1.3 Renewable Energy Procurement .........................................................................................................9
1.2 CAPITAL IMPROVEMENT PLAN STATUS ..................................................................................................................9
1.3 RELIABILITY ....................................................................................................................................................11
1.4 FINANCIAL HEALTH ..........................................................................................................................................11
1.4.1 Sales Forecasts vs. Actuals ................................................................................................................11
1.4.2 Financial Position ..............................................................................................................................12
2.1 GAS SUPPLY AND TRANSMISSION .......................................................................................................................14
2.1.1 Actual and Forecasted Supply Costs ..................................................................................................15
2.2 CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................................15
2.3 RELIABILITY ....................................................................................................................................................16
2.4 FINANCIAL HEALTH ..........................................................................................................................................17
2.4.1 Sales Forecasts vs. Actuals ................................................................................................................17
2.4.2 Financial Position ..............................................................................................................................18
3.1 WATER SUPPLY AND TRANSMISSION ...................................................................................................................20
3.2 CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................................22
3.3 RELIABILITY ....................................................................................................................................................25
3.4 FINANCIAL HEALTH ..........................................................................................................................................26
3.4.1 Sales Forecasts vs. Actuals ................................................................................................................26
3.4.2 Financial Position ..............................................................................................................................27
4.1 WASTEWATER TREATMENT UPDATES AND CAPITAL PLANNING STATUS .....................................................................28
4.1.1 Treatment Cost Trends ......................................................................................................................28
4.1.2 Regional Water Quality Control Plant Capital Planning Status .........................................................30
4.2 COLLECTION SYSTEM CAPITAL IMPROVEMENT PLAN STATUS....................................................................................30
4.3 FINANCIAL HEALTH ..........................................................................................................................................32
4.3.1 Sales Forecasts vs. Actuals ................................................................................................................32
4.3.2 Financial Position ..............................................................................................................................32
5.1 FIBER UTILITY STRATEGIC PLANNING ...................................................................................................................33
5.2 CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................................33
5.3 RELIABILITY ....................................................................................................................................................34
5.4 FINANCIAL HEALTH ..........................................................................................................................................34
5.4.1 Fiber Sales .........................................................................................................................................34
5.4.2 Financial Position ..............................................................................................................................34
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7 LEGISLATIVE, REGULATORY AND INDUSTRY ACTIVITY .................................................................................37
7.1 STATE LEGISLATIVE ACTIVITY .............................................................................................................................37
7.2 STATE REGULATORY ACTIVITY ............................................................................................................................37
7.3 FEDERAL ACTIVITY ...........................................................................................................................................38
8.1 OVERVIEW OF HEDGING PROGRAMS...................................................................................................................40
8.2 OVERVIEW OF ENERGY RISK MANAGEMENT PROGRAM ..........................................................................................40
8.3 FORWARD DEALS ............................................................................................................................................41
8.4 ELECTRIC MARKET EXPOSURE ............................................................................................................................41
Figures
FIGURE 1: FY 2026 Q3 NET SUPPLY COST FORECAST VS. ACTUALS .............................................................................................8
FIGURE 2: FY 2026 Q1 – Q3 ADOPTED BUDGET VS ACTUAL NET SUPPLY COST ($K).....................................................................8
FIGURE 3: HYDRO GENERATION: FY 2026-2028 ACTUALS & PROJECTIONS (GWH)......................................................................9
FIGURE 4: HYDRO GENERATION: FY 2027-2029 UNCERTAINTY (GWH)......................................................................................9
FIGURE 5: ELECTRIC SALES VOLUME (KWH), FY 2026-Q3 ......................................................................................................12
FIGURE 6: ELECTRIC SALES REVENUE ($), FY 2026-Q3 ...........................................................................................................12
FIGURE 7: BUDGET VS CURRENT ESTIMATE ($1,000S), FY 2026 ..............................................................................................13
FIGURE 8: PALO ALTO GAS COMMODITY RATES .....................................................................................................................14
FIGURE 9: GAS SUPPLY COSTS ($), ACTUAL VS BUDGET, FY2026-Q3........................................................................................15
FIGURE 10: SEWER LATERAL INSPECTION ..............................................................................................................................16
FIGURE 11: GAS SERVICE INTERRUPTIONS, FY 2025 TO FY 2026 .............................................................................................17
FIGURE 12: GAS SALES VOLUME (THERMS), FY 2026 Q3 .......................................................................................................17
FIGURE 13: GAS SALES REVENUE ($), FY 2026 Q3................................................................................................................18
FIGURE 14: CURRENT WATER YEAR 10-STATION SNOW PILLOWS INDEX ....................................................................................21
FIGURE 15: SFPUC WATER DELIVERIES ...............................................................................................................................21
FIGURE 16: WATER SERVICE INTERRUPTIONS, FY 2025 TO FY 2026 .........................................................................................25
FIGURE 17: WATER SALES VOLUME (CCF), FY 2026 Q3 ........................................................................................................26
FIGURE 18: WATER SALES REVENUE ($), FY 2026 Q3 ...........................................................................................................27
FIGURE 19: PALO ALTO’S SHARE OF WASTEWATER TREATMENT EXPENSES .................................................................................29
FIGURE 20: CURRENT RWQCP CAPITAL WORK IN-PROGRESS (AS OF MARCH 31, 2026).............................................................30
FIGURE 21: WASTEWATER SALES REVENUE ($), FY 2026 Q3 ..................................................................................................32
FIGURE 22: ELECTRIC RESOURCE ADEQUACY DEALS ................................................................................................................41
FIGURE 23: ELECTRIC LOAD RESOURCE BALANCE, FY 2026 – 2029 ..........................................................................................42
FIGURE 24: UTILITIES VACANCIES AND RECRUITMENTS BY DIVISION ...........................................................................................43
FIGURE 25: ELECTRIFICATION PERMITS BY CATEGORY ..............................................................................................................45
FIGURE 26: ELECTRIC OUTAGE RELIABILITY, CY 2019 THROUGH 2025 ......................................................................................45
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FIGURE 27 : CALENDAR YEAR 2025 SUSTAINED OUTAGES BY CAUSE .........................................................................................46
IGURE 28: OFFSET PORTFOLIO COMPOSITION ......................................................................................................................48
IGURE 29: OFFSET PROJECT DESCRIPTIONS ..........................................................................................................................48
IGURE 29: OFFSET PROJECT DESCRIPTIONS (CONT’D.)...........................................................................................................49
Staff Report: 2608-6709 – Page 7 of 49
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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 $7.65 M below the adopted budget.
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Figure 1: FY 2026 Q3 Net Supply Cost Forecast vs. Actuals
Figure 2: FY 2026 Q1 – Q3 Adopted Budget vs Actual Net Supply Cost ($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
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%
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hydropower is primarily in the northern end of California, while the watershed for the Calaveras project
is in the Central Sierras.
st, 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 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
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
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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.
This project is in the design phase, which is scheduled to be completed in December 2026.
Construction will be completed by December 2027.
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.
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.
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.
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.
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
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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
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%.
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Figure 5: Electric Sales Volume (kWh), FY 2026-Q3
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.
6.1%
1.5%
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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
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.
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
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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
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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.
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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.
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 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.
153
118
692
Total Sewer Laterals Completed
Total Sewer Laterals Incomplete
Total Addresses remaining to be
Inspected
963 sewer laterals for Inspection
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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.
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Figure 13: Gas Sales Revenue ($), 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.
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
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
-20.6%
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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.
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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.
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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.
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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.
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.
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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.
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.
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.
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
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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.
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
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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.
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
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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
3.4.1 Sales Forecasts vs. Actuals
Figure 17: Water Sales Volume (CCF), FY 2026 Q3
-3.6%
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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%
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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.
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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.
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%
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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 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)
The RWQCP plans to fund these capital projects through a combination of mechanisms including pay-as-
you-go, State Revolving Fund loans, and revenue bonds. One of the largest projects is the Headworks
Facility Replacement, which will upgrade the raw sewage pumping systems along with bar screens and
grit removal equipment to improve reliability and protect downstream processes. As part of a broader
campus-wide approach to meet future space needs, the RWQCP is evaluating the purchase of neighboring
properties and, following Council approval of a 20-year lease agreement in May 2025, has initiated design
and construction of tenant improvements at a leased facility located at 2470 Embarcadero Way to provide
necessary laboratory and office space.
4.2 Collection System Capital Improvement Plan Status
The following capital projects are currently in progress:
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
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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 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.
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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
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
3.8%
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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
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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.
5.3 Reliability
5.4 Financial Health
5.4.1 Fiber Sales
5.4.2 Financial Position
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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.
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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 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.
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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
Staff Report: 2608-6709 – Page 38 of 49
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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 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
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Appendices
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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. 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.
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 1016629),
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
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
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of this program through its seat on the NCPA Risk Oversight Committee, which is held by the City’s Risk
Manager.
8.3 Forward Deals
Figure 22: Electric Resource Adequacy Deals
Delivery Month Deal Type Avg RA
(MW-mo)
Price ($/kW-mo)
8.4 Electric Market Exposure
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.
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Figure 23: Electric Load Resource Balance, FY 2026 – 2029
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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 Plan33 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
33 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%
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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.
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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.
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
The reliability indices presented below, in general, represent the duration and frequency of unplanned
outages to the average Palo Alto electric customer. By including and excluding Major Event Days (MED),
staff can review both the impact of major events (impacting more than 10% of Palo Alto’s electric
customers) versus more typical day-to-day operations. Reliability indices for CY2025 show improvement
over CY2023 and CY 2024. The improved system reliability is attributed to milder winter weather and
improvements in outage restoration procedures.
Figure 26: Electric Outage Reliability, CY 2019 through 2025
132.8 1.065 124.7 25.3 0.225 112.0
46.2 0.830 55.7 20.9 0.165 126.7
39.7 0.277 143.1 9.4 0.029 329.3
71.7 0.622 115.3 13.4 0.070 190.5
0
50
100
150
200
250
300
350
400
2021 2022 2023 2024 2025
PV ESS EVCS HEAT PUMPS W_HEATPUMP
Electrification Trends City of Palo Alto
Nu
m
b
e
r
o
f
U
n
i
t
s
Year
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Major Event Days Included Major Event Days Excluded
CY SAIDI SAIFI CAIDI SAIDI SAIFI CAIDI
2023 154.1 1.182 130.4 43.5 0.176 247.0
2024 134.7 0.844 159.7 67.4 0.474 142.1
2025 68.1 0.617 110.4 27.2 0.111 245.2
CPAU Reliability indices compared to PG&E’s performance locally show Palo Alto’s electric system roughly
five times more reliable than PG&E’s. When compared nationally, Palo Alto’s reliability numbers for
FY2025 fall within the nation’s top quartile for best performing systems. Continued investment in
preventative maintenance and asset replacement will help to maintain and improve overall system
reliability.
Separating unplanned power outages
by their primary cause helps focus
where reliability work is needed. For
CPAU most unplanned outages are due
to equipment-related failures (failure,
damage or worn out). The next two
largest causes of power outages are
trees outages and outages where the
cause could not be determined
(unknown). Equipment failures
continue to be the leading cause of
outages indicating a need for ongoing
planned replacement through the
City’s Capital Improvement Program.
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 % 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
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Type of Inspection (inspection unit)Units Due in CY 2025 Still Outstanding % Complete
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
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.
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11 Appendix D: PaloAltoGreen Gas Program
In December 2020, Council adopted Resolution #993035 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.
Figure 29: Offset Project Descriptions
35 Resolution #9930 https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/resolutions-1909-to-
present/2020/reso-9930.pdf
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.
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Figure 29: Offset Project Descriptions (Cont’d.)
Approved By:
Alan Kurotori, Director of Utilities
Staff: Tim Denterlein, Resource Planner
Project Name Project Type DescriptionGrotegut 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 IllinoisSan 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.