HomeMy WebLinkAbout2026-10-07 Utilities Advisory Commission Agenda PacketUTILITIES ADVISORY COMMISSION
Regular Meeting
Wednesday, October 07, 2026
Council Chambers & Hybrid
6:00 PM
Utilities Advisory Commission meetings will be held as “hybrid” meetings with the option to
attend by teleconference/video conference or in person. To maximize public safety while still
maintaining transparency and public access, members of the public can choose to participate
from home or attend in person. Information on how the public may observe and participate in
the meeting is located at the end of the agenda. Masks are strongly encouraged if attending in
person. The meeting will be broadcast on Cable TV Channel 76, live on
YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media
Center https://midpenmedia.org.
VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/96691297246)
Meeting ID: 966 9129 7246 Phone: 1(669)900-6833
PUBLIC COMMENTS
General Public Comment for items not on the agenda will be accepted for up to three minutes
or an amount of time determined by the Chair. In-person comments will be heard at the
beginning of the agenda and remote comments will be heard at the end of the agenda. All
requests to speak will be taken until 5 minutes after the staff’s presentation. Written public
comments can be submitted in advance to UAC@PaloAlto.gov and will be provided to the
Council and available for inspection on the City’s website three days before the meeting. Please
clearly indicate which agenda item you are referencing in your subject line.
PowerPoints, videos, or other media to be presented during public comment are accepted only
by email to UAC@PaloAlto.gov at least 24 hours prior to the meeting. Once received, the Clerk
will have them shared at public comment for the specified item. To uphold strong cybersecurity
management practices, USB’s or other physical electronic storage devices are not accepted.
Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,
posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do not
create a facility, fire, or safety hazard; and (3) persons with such items remain seated when
displaying them and must not raise the items above shoulder level, obstruct the view or passage
of other attendees, or otherwise disturb the business of the meeting.
TIME ESTIMATES
Listed times are estimates only and are subject to change at any time, including while the
meeting is in progress. The Commission reserves the right to use more or less time on any item,
to change the order of items and/or to continue items to another meeting. Particular items may
be heard before or after the time estimated on the agenda. This may occur in order to best
manage the time at a meeting to adapt to the participation of the public, or for any other
reason intended to facilitate the meeting.
1 Regular Meeting October 07, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas
CALL TO ORDER 6:00PM - 6:05PM
AGENDA CHANGES, ADDITIONS AND DELETIONS 6:05PM - 6:10PM
The Chair or Board majority may modify the agenda order to improve meeting management.
IN PERSON PUBLIC COMMENT 6:10PM - 6:15 PM
Members of the public may speak to any item NOT on the agenda. 1-3 minutes depending on number of speakers. In-person
comments will be heard at the beginning of the agenda and remote comments will be heard at the end of the agenda.
APPROVAL OF MINUTES 6:15PM - 6:20PM
1.Approval of the Minutes of the Utilities Advisory Commission Meeting Held on
September 2, 2026
UTILITIES DIRECTOR REPORT 6:20PM - 6:30PM
NEW BUSINESS
2.Approval of Water and Wastewater Collection Rate Design Guidelines and Principles
(ACTION: 6:30PM – 7:30PM)
3.Electric Grid Modernization Bond Financing; Recommendation to the City Council to
Adopt a Resolution Authorizing the Issuance and Sale of Tax-Exempt Electric Revenue
Bonds Principal Amount Not-to-Exceed $100,000,000 (ACTION: 7:30PM – 7:45PM)
4.Recommending Approval of Updated Palo Alto Low Carbon Fuel Standards Program
Guidelines, including a Definition for Low-Income and a Methodology to Allocate
Customer Program Cost Across Low-Income and Non-Low-Income (ACTION: 7:45PM –
8:30PM) Late Packet Report Added
FUTURE TOPICS FOR UPCOMING MEETINGS (8:30PM - 8:45PM)
12 Month Rolling Calendar
COMMISSIONER COMMENTS AND REPORTS FROM MEETINGS/EVENTS
VIRTUAL PUBLIC COMMENT
Members of the public may speak to any item NOT on the agenda. 1-3 minutes depending on number of speakers. In-person
comments will be heard at the beginning of the agenda and remote comments will be heard at the end of the agenda.
2 Regular Meeting October 07, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas
ADJOURNMENT
OTHER INFORMATION
The materials below are provided for informational purposes, not for action or discussion during this meeting’s agenda. Written
public comments may be submitted in advance and will be provided to the Board and available for public inspection on the
City’s website three days before the meeting.
A.Public Comments
B.Informational Report on Framework for Data Center Capacity Reservation and Cost
Recovery
C.Informational Update on Voluntary Residential Time-of-Use Electric Rate Enrollment and
Customer Outreach
3 Regular Meeting October 07, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas
PUBLIC COMMENT INSTRUCTIONS
Members of the Public may provide public comments to teleconference meetings via email,
teleconference, or by phone.
1.Written public comments may be submitted by email to UAC@PaloAlto.gov.
2.Spoken public comments using a computer will be accepted through the teleconference
meeting. To address the Council, click on the link below to access a Zoom-based meeting.
Please read the following instructions carefully.
◦You may download the Zoom client or connect to the meeting in- browser. If using
your browser, make sure you are using a current, up-to-date browser: Chrome 30 ,
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that it is your turn to speak.
◦When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will
activate and unmute speakers in turn. Speakers will be notified shortly before they
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◦When called, please limit your remarks to the time limit allotted. A timer will be
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3.Spoken public comments using a smart phone will be accepted through the
teleconference meeting. To address the Council, download the Zoom application onto
your phone from the Apple App Store or Google Play Store and enter the Meeting ID
below. Please follow the instructions B-E above.
4.Spoken public comments using a phone use the telephone number listed below. When
you wish to speak on an agenda item hit *9 on your phone so we know that you wish to
speak. You will be asked to provide your first and last name before addressing the Council.
You will be advised how long you have to speak. When called please limit your remarks to
the agenda item and time limit allotted.
CLICK HERE TO JOIN Meeting ID: 966 9129 7246 Phone:1-669-900-6833
Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public
programs, services and meetings in a manner that is readily accessible to all. Persons with
disabilities who require materials in an appropriate alternative format or who require auxiliary
aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at
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accommodations must be submitted at least 24 hours in advance of the meeting, program, or
service.
4 Regular Meeting October 07, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas
Utilities Advisory Commission
Staff Report
Report Type: APPROVAL OF MINUTES 6:15PM - 6:20PM
Lead Department: Utilities
Meeting Date: October 7, 2026
Report #:2609-6804
TITLE
Approval of the Minutes of the Utilities Advisory Commission Meeting Held on September 2,
2026
RECOMMENDATION
Staff recommends that the Utility Advisory Commission review and approve the September 2,
2026 minutes.
Commissioner ______ moved to approve the draft minutes of the September 2, 2026 meeting
as submitted/amended.
Commissioner ____ seconded the motion.
ATTACHMENTS
Attachment A: September 2, 2026 Draft Minutes
APPROVED BY:
Alan Kurotori, Director Utilities
Item #1
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Utilities Advisory Commission Summary Minutes – September 2, 2026 Page 1 of 17
UTILITIES ADVISORY COMMISSION
MINUTES OF SEPTEMBER 2, 2026, REGULAR MEETING
CALL TO ORDER
Chair Mauter called the meeting of the Utilities Advisory Commission (UAC) to order at 6:00
p.m.
Present: Chair Mauter, Vice Chair Phillips, Commissioners Croft, Gupta, Metz, Scharff, and
Tucher
Absent: None
AGENDA REVIEW AND REVISIONS
None.
IN-PERSON PUBLIC COMMENT
None.
APPROVAL OF THE MINUTES
ITEM 1: ACTION: Approval of the Minutes of the Utilities Advisory Commission Meeting Held on
August 5, 2026
Commissioner Croft requested an edit to the August 5, 2026, minutes to reflect the wording
included in the motion.
MOTION: Vice Chair Phillips moved, seconded by Commissioner Scharff, to approve the
minutes of the August 5, 2026, meeting including the following amendment:
1. On Packet Page 14, replace, “Commissioner Croft liked the 4 nines” with “Commissioner
Croft recommended setting a goal slightly better than 4 nine since we already meet that
metric.”
Item #1
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MOTION PASSED: 7-0
UTILITIES DIRECTOR REPORT
Utilities Director Alan Kurotori stated that future Utilities Director Reports would be provided in
presentation format before meetings and designed to provide sufficient context as stand-alone
documents, as requested by the UAC. Mr. Kurotori thanked Commissioners Gupta, Metz, and
Tucher for suggestions regarding the report content. S&P Global assigned a AAA rating to the
refunding of the 2009 Water Revenue Bonds. The refunding will save approximately $309,000
through 2035, eliminate reserve requirements involving the Water, Gas, and Electric Funds, and
reduce exposure to federal interest subsidy sequestration. The Finance Committee reviewed
the refunding on August 18 and Council consideration is scheduled for September. Mr. Kurotori
noted the favorable rating as the City prepares for upcoming Electric Fund bonds related to grid
modernization.
Mr. Kurotori reported that Public Works, Utilities, and IT staff participated in an EPA call
regarding cybersecurity threats following reported attacks in Minnesota and subsequently
found no indications of risks or penetrations into City systems. The U.S. Department of
Transportation awarded the City a $16.5M grant and Palo Alto was 1 of only 2 recipient cities to
receive a low-risk rating in a subsequent assessment of grant recipients. Mr. Kurotori noted that
the rating could benefit the City when pursuing future grants. The statewide commercial
customer survey conducted with CMUA was completed in August, with Palo Alto-specific
outreach beginning September 15, results expected in November and presentation to the UAC
anticipated in January. A residential customer survey will follow. Mr. Kurotori reported that the
high-voltage underground electric lines in the Foothills have been energized, with only the low-
voltage service lines remaining. Referencing slides, Mr. Kurotori discussed Palo Alto's
participation in a CEC workshop regarding large-load projections and stated that the CEC is
considering thresholds and policies similar to Palo Alto's process of grouping projected loads by
confidence level. Induction cooktop rebates have been offered since March as an energy-
efficiency measure funded through a dedicated fee rather than ratepayer revenues, with
income-qualified customers eligible for twice the standard rebate. Palo Alto libraries have
expanded an induction cooktop loaner program in response to high demand. Mr. Kurotori
concluded by referencing a slide tracking outstanding UAC follow-up items and their anticipated
scheduling and stated that staff will continue to update the list.
Commissioner Gupta inquired about the timing of the tentative November 16 joint Council/UAC
study session. Mr. Kurotori stated that the study session would be part of the City Council
meeting and held in the evening.
Commissioner Tucher thanked Mr. Kurotori for incorporating prior Commission suggestions
into the expanded report, including updates from Council, committee, and regional agency
meetings and follow-up from prior UAC meetings. Commissioner Tucher suggested that the
Item #1
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Commission could identify selected projects for periodic updates in future Director's Reports to
help determine whether related items should be scheduled sooner for UAC consideration.
NEW BUSINESS
ITEM 2: DISCUSSION: Special Presentation and Discussion on Partnering Norms for Staff and
Commissioners Effectiveness. CEQA – Not a Project
City Manager Ed Shikada clarified that the discussion was not prompted by wrongdoing and
was the 4th such discussion held with a City commission. The purpose was to support the
working relationship between commissioners and staff and establish common expectations.
Mr. Shikada noted that the BCC Handbook provides general guidance and suggested revisiting
the discussion periodically. Referencing a slide, Mr. Shikada described tensions inherent in
commission work, including individual interests versus Commission priorities, emerging issues
versus public noticing and work plan requirements, governance versus management, progress
reporting versus making progress, and time management. Mr. Shikada reviewed staff-
generated norms addressing Commission scope and role, professional conduct and
communication, time management, transparency and legal compliance, feedback on staff work,
and public trust. Regarding feedback on staff work, Mr. Shikada requested that public
discussion focus on the work rather than individual staff members and that concerns regarding
staff performance be directed to the Utilities Director.
Item 2 Public Comment: None.
Vice Chair Phillips asked whether the staff-generated norms were intended as expectations for
Commissioner conduct or as suggestions for discussion. Mr. Shikada clarified that the norms
were intended as general guidance rather than requirements and could serve as a point of
reference if issues arise. Vice Chair Phillips expressed concern that the norm regarding feedback
on staff work could be interpreted as limiting Commissioners' ability to publicly critique or
question the substance of staff presentations. Mr. Shikada clarified that criticism of the work is
appropriate and summarized the intent as criticizing the work rather than the worker.
Commissioner Croft asked whether the UAC could receive earlier Council feedback on its
proposed work plan, noting that the UAC had devoted considerable time to developing the
work plan in the prior year. Mr. Shikada stated that Council consideration of commission work
plans had been inconsistent in part because of the Council's heavy docket and reported that the
UAC work plan is scheduled for Council consideration in October, providing an opportunity for
substantive feedback. Commissioner Croft supported receiving Council feedback, noting that
the UAC has limited direct interaction with the Council.
Chair Mauter asked whether she could directly ask Councilmembers about their priorities when
presenting the UAC work plan. Mr. Shikada stated that there was no restriction on doing so.
Councilmember Lauing noted that Council does not automatically approve commission work
Item #1
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plans and supported asking questions during Council consideration. Commissioner Scharff
clarified that Council had substantively discussed the prior UAC work plan, including questions
and concerns raised by Councilmembers.
Commissioner Scharff expressed concern that Commissioners had at times been rude toward
staff and supported identifying incomplete or inadequate work while providing feedback
respectfully, particularly to junior staff. Mr. Shikada noted that prospective employees may
watch Commission meetings when considering employment with the City. Utilities Director
Alan Kurotori reported that candidates for a current Assistant Utilities Director position had
watched UAC meetings to understand the Commission's interests and interactions with staff.
Commissioner Scharff emphasized that respectful and functional Commission interactions can
affect whether prospective employees view the City as a desirable place to work.
Chair Mauter echoed Commissioner Scharff's comments and stated that the Chair has a role in
maintaining respectful communication with staff. Chair Mauter encouraged Commissioners to
speak up if interactions, including her own, cross that boundary. Chair Mauter emphasized that
although the Commission does not manage staff time, Commissioner requests and interests can
consume time needed to operate the Utilities Department. Chair Mauter supported prioritizing
topics included in the Council-approved work plan and being receptive when staff indicates that
time or resources are unavailable. Chair Mauter emphasized that the UAC serves in an advisory
rather than managerial role and that responsibility for managing Utilities staff rests with Mr.
Kurotori.
Commissioner Gupta emphasized the importance of respectful communication, particularly
when disagreements arise, and noted that disrespectful interactions on the UAC have been
rare. Commissioner Gupta asked whether Council had participated in developing the proposed
norms. Mr. Shikada stated that the norms were developed by staff without direct Council
involvement, although BCC Chairs had discussed the topic with the Mayor and Vice Mayor.
Commissioner Gupta encouraged periodic review of the BCC Handbook and suggested
providing examples to help clarify the distinction between the UAC's advisory role and matters
considered part of daily Utilities operations.
Commissioner Scharff added that Council developed the BCC Handbook and characterized the
guidance in the handbook as a Council directive.
Commissioner Tucher questioned the purpose of discussing norms that Commissioners
generally agreed were appropriate and requested specific observations from Mr. Shikada based
on his review of prior UAC meetings. Mr. Shikada stated that he had observed instances in
which frustration became apparent and could reflect poorly on the UAC as a whole. Mr. Shikada
identified that concern as one reason for bringing the norms forward.
Chair Mauter noted that UAC meetings frequently run long and emphasized more closely
adhering to the agenda as a way to respect Commissioners' and staff's time.
Item #1
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Commissioner Tucher acknowledged the amount of time staff spends preparing and presenting
materials to the UAC and Council but suggested that clearer staff reports and presentations
could significantly reduce meeting length. Commissioner Tucher questioned whether lengthy
meetings resulted from discussion outside the agenda, noting that the Commission may instead
spend considerable time discussing agendized items. Mr. Shikada noted that Council uses timed
comments to manage meeting length and suggested that Commissioners may underestimate
the amount of time they spend speaking.
Commissioner Scharff suggested limiting Commissioners to an initial opportunity to speak and 1
follow-up, noting that repeated rounds of comments contribute to lengthy meetings. Chair
Mauter agreed and suggested that Commissioners prioritize their most important points during
meetings and reserve less critical comments for appropriate follow-up outside the meeting.
Commissioner Tucher discussed his use of public memoranda to provide questions in advance
and suggested evaluating whether that approach is effective and constructive. Chair Mauter
proposed experimenting with a 2-round approach, with Commissioners generally speaking once
and using a second opportunity for necessary follow-up, while limiting each exchange to
approximately 2 minutes.
Commissioner Croft supported trying the approach and observed that UAC discussions have
become more detailed and antagonistic during her 3 years on the Commission, expressing
concern that the nature of the discussions could make staff hesitant to present to the UAC.
Vice Chair Phillips suggested limiting meeting questions to matters relevant to the decision
before the Commission and reserving ancillary questions for subsequent email. Commissioner
Gupta was willing to try a more structured approach while preserving substantive discussion
and staying on topic.
NO ACTION
ITEM 3: ACTION: Discussion of Baker Tilly Reserves Advisory Report and Recommendation to
the City Council of Proposed Policy Updates to the Utilities Reserve Management Policies
Utilities Director Alan Kurotori introduced the item and noted that 2 Baker Tilly representatives
were available remotely to participate in the discussion.
Assistant Utilities Director Lisa Bilir reported that Council accepted the Baker Tilly reserve
advisory report in June and staff subsequently developed recommendations and a workflow for
revising the Utilities Reserve Management Practices. The advisory report recommended
retaining the existing reserve funds, clarifying Capital Improvement Program (CIP) Reserve
language, formalizing reserve tracking, considering adjustments to CIP Reserve guideline levels,
and aligning the Rate Stabilization Reserve (RSR) policy with bond covenants and benchmark
Item #1
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communities. Ms. Bilir stated that no action was needed on the recommendation to retain
existing reserves, revisions involving the Electric Special Projects Reserve would be addressed in
Phase 2, and that staff recommended exception-based reserve reporting. The current
discussion focused on the CIP and RSR recommendations because they have the most
significant rate impacts. Staff proposed addressing Electric, Gas, and Water reserve policies
during Phase 1, with Council adoption targeted for January 2027 before FY 2028 rates are
considered. Wastewater Collection recommendations are planned for separate UAC
consideration in November pending analysis of the treatment component. More detailed
supply-related reserve policies, including the Hydro Rate Stabilization Reserve and Gas Price
Mitigation Adder, would be addressed with assistance from a rate consultant in Phase 2.
Ms. Bilir reported that Baker Tilly recommended setting the CIP Reserve target at 1 year of
budgeted CIP expenses, with annual depreciation expense as an alternative. The existing policy
uses 1 year of budgeted CIP expenses as the maximum and establishes a separate minimum.
Staff recommended simplifying the policy by replacing the minimum and maximum guidelines
with a single target based on the average annual CIP budget. Ms. Bilir noted that annual
depreciation is approximately 30 to 40 percent of the annual CIP budget and therefore
substantially lower than annual CIP needs. Staff recommended achieving the proposed CIP
target over 5 years for Gas and Water, which currently have limited reserves, and 10 years for
Electric, which has additional reserves. The UAC could alternatively recommend different
targets by utility.
Regarding the RSR, Ms. Bilir reported that peer utility targets range from 10 to 65 percent of
operating revenues or expenses. Palo Alto's existing policy has no RSR target and requires any
balance to be returned to ratepayers by the end of the 5-year planning period. Staff
recommended establishing a target of 10 percent of operating expenses, the low end of the
peer range, and achieving the target over 5 years. Staff further recommended eliminating the
requirement to draw down the entire RSR during the planning period so funds remain available
to stabilize rates following unexpected events. If a rate increase is proposed, however, any RSR
balance exceeding the target would be required to offset the proposed increase during the 5-
year period. Ms. Bilir clarified that the current recommendation addresses the distribution
component of rates and that supply-related components would be addressed in Phase 2. The
Gas Utility would experience the greatest rate impact from the proposed reserve changes.
Ms. Bilir summarized staff's recommendation that the UAC recommend Council revise the
Utilities Reserve Management Practices to establish a CIP Reserve target based on the average
annual CIP budget and an RSR target of 10 percent of operating expenses with rules governing
balances above or below the target; establish a 5-year period for achieving the RSR target;
establish CIP target implementation periods of 5 years for Gas and Water and 10 years for
Electric; and approve the proposed FY 2027 workflow for revising the Utilities Reserve
Management Practices.
Item 3 Public Comment: None.
Item #1
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Commissioner Tucher asked whether bond- and grant-funded CIP projects were excluded from
the Electric CIP Reserve calculation. Ms. Bilir confirmed that the calculation includes only the
cash-funded portion of CIP projects, including grid modernization projects.
Vice Chair Phillips asked how the proposed RSR for distribution operations would relate to
existing supply-related reserves and whether an additional reserve would be needed for other
supply costs. Ms. Bilir explained that the Gas Price Spike Mitigation Adder and Hydro Rate
Stabilization Reserve were established by Council for specific purposes and require further
analysis with a rate consultant. Staff recommended proceeding with the distribution-related
RSR now to meet the timeline for FY 2028 rates and addressing supply-related reserves in Phase
2. The reserves ultimately could be combined into a single reserve, which would require a
subsequent policy modification. Phase 2 work would begin during the current fiscal year but
would not be ready for consideration within the current implementation timeline.
Chair Mauter asked how interest earned on reserves is allocated and whether the proposed
changes would affect transfers among reserves. Ms. Bilir stated that interest is calculated
quarterly and allocated to the appropriate enterprise fund reserve. Ms. Bilir explained that staff
will revise the Reserve Management Practices before Council consideration in January to
specify allowable transfers among reserves and the respective approval authority of Council
and staff. Staff is not currently proposing changes to existing transfer practices, although the
policies could be revised based on UAC and Finance Committee feedback.
Commissioner Croft asked approximately what percentage of rates is attributable to operating
expenses excluding supply costs. Ms. Bilir estimated approximately 50 percent but stated that
staff would need to develop a more precise estimate. Staff separated operating and supply
costs to avoid establishing an overly broad RSR target before conducting a more detailed
analysis of supply-related reserves.
Commissioner Scharff asked about existing RSR balances and Council policies. Ms. Bilir stated
that most Utilities have no RSR balance and that existing RSRs do not have a general target. The
Water Utility has approximately $4M remaining from funds accumulated before the drought,
which have been used during and after the drought to manage the rate trajectory. Ms. Bilir
identified the Hydro Rate Stabilization Reserve and the Gas Price Mitigation Adder Reserve as
reserves with specific Council-approved funding levels or purposes.
Commissioner Scharff asked whether the proposed policy was intended to create larger RSRs.
Baker Tilly Representative Ross Hagen stated that Baker Tilly's review of industry practices and
comparable local utilities found that maintaining an RSR with a defined target or guideline is a
best practice, with peer targets ranging from 10 to 65 percent of operating revenues or
expenses. Mr. Hagen identified 2 concerns with Palo Alto's existing policy: the absence of
defined RSR targets and the requirement to draw down existing balances during the financial
planning period. Mr. Hagen explained that requiring the balances to be drawn down runs
Item #1
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counter to the purpose of an RSR, which is to absorb unexpected financial volatility and
mitigate resulting rate increases. Baker Tilly therefore recommended establishing appropriate
RSR targets and revising the policy language governing excess reserve balances.
Commissioner Gupta asked why the projected rate impacts were lower than those presented in
staff's initial management response to the Baker Tilly report. Ms. Bilir explained that the initial
analysis modeled an immediate increase maintained over several years, while the current
proposal would build reserves through smaller cumulative increases over 5 or 10 years. The
total amount recovered would be the same but achieved more gradually. Ms. Bilir noted that
the implementation estimates reflect rounding and cumulative effects and that staff could
provide additional calculations regarding the compounded rate impact.
Commissioner Gupta asked whether the total rate impact remained within the range estimated
in the initial management response. Assistant City Manager Kiely Nosé stated that staff could
not make an equivalent comparison because the current analysis addresses only 2 reserves. The
phased process would allow staff and the UAC to evaluate the reserve policies collectively
during the second year and make adjustments if necessary.
Commissioner Metz supported several proposed changes to the Reserve Management Practices
but questioned the rationale for increasing reserve levels based primarily on comparisons with
other utilities. Commissioner Metz asked what risks the City would face without the proposed
reserves and initially indicated that he could not support the recommendation without a clearer
explanation of the benefits and trade-offs. Ms. Nosé stated that reserve levels are ultimately a
policy decision reflecting the City's risk tolerance and that maintaining the existing reserve
levels remained an option. Ms. Nosé cautioned that S&P's rating identified factors that could
result in a downgrade and noted that a lower credit rating would increase borrowing costs,
particularly as the Electric Utility prepares to issue significant debt. Mr. Kurotori added that
Palo Alto's AAA rating reflects several strengths but that its days of cash on hand were below
the median considered by the rating agency. Mr. Kurotori explained that an RSR provides
greater ability to manage financial changes while stabilizing rates for residents and businesses
and noted differences in the reserve structures of benchmark utilities. Commissioner Metz
found the additional explanation more compelling but continued to seek clarity regarding the
trade-off involved. Ms. Nosé stated that the UAC's recommendation would help establish the
City's risk tolerance by balancing affordability against the amount collected and retained to
mitigate future financial volatility.
Commissioner Scharff distinguished between maintaining adequate reserves and using reserves
to stabilize rates. Maintaining only the cash reserves and liquidity necessary to protect the
City's bond rating and address emergencies would be preferable to using reserves to suppress
price signals or subsidize future ratepayers with funds collected from prior ratepayers.
Commissioner Scharff suggested slowing noncritical CIP projects during periods of unusually
high rate increases, noting that the existing Hydro Rate Stabilization Reserve mitigates some
Item #1
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electric supply risk. Commissioner Scharff noted he could not support the motion as currently
presented.
Ms. Nosé stated that no formula identifies the reserve level necessary to maintain a AAA rating
because ratings reflect multiple factors. Staff therefore sought a moderate approach that
considered affordability, including an RSR target at the low end of the peer range and excluding
supply-related reserves from the current analysis. Mr. Kurotori noted the need to replenish the
Gas Utility's insufficient CIP reserves and stated that grant funding requires the City to maintain
existing project commitments, limiting the ability to defer projects without jeopardizing
eligibility for additional grants. Ms. Bilir stated that the City's cash levels are below those
identified in the Baker Tilly report as extremely strong and associated with AAA ratings.
Establishing reserve levels based solely on protecting the rating would require substantially
higher rate increases, while staff's recommendation was intended to balance affordability with
peer practices and industry guidance.
Mr. Hagen explained that liquidity and reserves account for 25 percent of S&P's rating
scorecard for electric and gas utilities. The final rating considers additional factors, including
confidence in the City's governance and management and their ability to make necessary rate
and reserve decisions to meet debt service obligations. Mr. Hagen noted that S&P may
therefore assign a rating above that indicated by the scorecard based on its broader evaluation.
Commissioner Croft asked what risks associated with operating expenses, excluding supply
costs, would require an RSR. Mr. Hagen distinguished an O&M reserve, which supports short-
term liquidity and continued operations during unexpected events, from an RSR, which
provides medium- to long-term protection of the rate plan.
Commissioner Croft questioned whether the O&M reserve could serve the rate-stabilization
function rather than creating a separate reserve, asked whether the existing O&M reserve
levels would be sufficient for that purpose, and questioned differences in the reserve balances
shown in the report. Ms. Bilir explained that the figures reflect FY 2027 projected ending
balances from the budget and that differences from the financial forecast are explained in the
footnotes, which incorporate additional information available during the forecasting process.
Ms. Bilir confirmed that O&M reserve funds could be used for rate stabilization but noted that
maintaining separate reserves is more consistent with the peer practices and industry guidance
identified by Baker Tilly. Ms. Nosé agreed that the City could establish a policy allowing the
O&M reserve to serve O&M and rate-stabilization purposes but stated that staff had not
determined whether the existing targets would be sufficient. Mr. Hagen explained that
separate O&M and rate stabilization reserves provide clearly defined purposes for the funds
and greater assurance that each reserve will be used as intended.
Commissioner Metz asked how replacing the existing minimum and maximum reserve
guidelines with a single target would help protect the City's bond rating and debt coverage. Ms.
Nosé stated that using a target rather than a range would not affect debt coverage and was a
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policy choice intended to provide greater simplicity and clarity based on Baker Tilly's
assessment.
Commissioner Metz asked how staff would respond if planned rate increases failed to achieve
the reserve targets. Ms. Bilir stated that staff would reevaluate reserve levels annually through
the rate forecast, report the results, and revise the approach as appropriate. Ms. Nosé added
that the UAC could choose not to recommend making up lost ground toward the target when
other financial challenges arose, similar to decisions Council regularly makes regarding
proactive pension funding. Mr. Kurotori confirmed that the annual process would provide an
operational feedback loop.
Commissioner Gupta emphasized evaluating reserve policies based on their cumulative rate
impacts rather than individual annual increases and requested that future presentations
include the cumulative impact over a 5-year period. Commissioner Gupta expressed concern
about growing customer sensitivity to utility costs and the potential effect of recurring 6 to 7
percent annual rate increases on affordability. Ms. Bilir clarified that the rate impacts presented
by staff reflect the combined effect of the proposed CIP and RSR changes, which would increase
projected rates by less than 1 percentage point for the Electric and Water Utilities and
approximately 0.5 percentage point annually for the Gas Utility. Ms. Bilir stated that staff
sought to balance affordability with appropriate reserve levels and that any additional reserve
changes considered in Phase 2 would be incorporated into the overall rate impact before
further decisions were made.
Commissioner Tucher questioned why staff proposed the same CIP Reserve methodology for all
3 Utilities rather than considering different approaches based on each Utility's circumstances,
noting the substantial difference between the average annual CIP budget and depreciation
methodologies. Ms. Nosé explained that historical CIP costs are not a reliable indicator of future
costs because capital costs for materials, labor, and supply-chain challenges have increased
substantially. Commissioner Tucher requested greater clarity regarding policies governing
transfers among Utilities and between CIP and operating reserves and questioned whether the
combined reserve levels could exceed what is necessary. Commissioner Tucher suggested that
future presentations identify the specific risks the reserves are intended to address and explain
how those risks differ among the Gas, Electric, and Water Utilities.
Chair Mauter stated that the discussion had persuaded her that separate reserves could
appropriately address different risks. Chair Mauter supported staff's relatively conservative 10
percent RSR target and emphasized balancing adequate reserves and favorable bond ratings
against rate impacts. Chair Mauter requested stronger justification for applying different
approaches among the Utilities and information regarding the financial implications of a lower
bond rating, particularly as the City moves forward with wastewater investments.
Vice Chair Phillips questioned whether the individual risks could be sufficiently identified and
quantified and suggested focusing instead on the total reserve level and policies necessary to
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provide high confidence in maintaining the City's AAA rating under a range of circumstances.
Vice Chair Phillips understood the rationale for maintaining reserves for different purposes but
favored consolidating them into fewer reserves. Concern about acting before the forthcoming
Wastewater Collection reserve analysis led Vice Chair Phillips to indicate that he was leaning
against the current proposal.
Commissioner Croft expressed concern about the low Gas CIP Reserve balance and proposed
using annual depreciation expense as the target for replenishing the reserve. Commissioner
Croft suggested the same methodology for the Electric CIP Reserve but questioned whether
that amount would be sufficient given upcoming large projects. Commissioner Croft placed
greater priority on funding the CIP Reserves than establishing an RSR and proposed deferring a
separate RSR until the hydro analysis and IRP provide a more complete understanding of
exposure to market price volatility and potential rate impacts. In the interim, Commissioner
Croft suggested using the O&M Reserve for rate stabilization and having staff determine the
reserve level needed to support future financing requirements.
Commissioner Scharff distinguished the need for sufficient reserves to support the City's bond
rating from the purpose of an RSR and opposed establishing an RSR under the current proposal.
Commissioner Scharff supported increasing the O&M Reserve if additional reserves were
needed for financing purposes and could consider an RSR in the future if its use were limited to
temporary, extraordinary events rather than offsetting ongoing cost increases. Commissioner
Scharff supported the proposed CIP Reserve changes and was open to using annual
depreciation expense as the target for the Electric and Gas Utilities if staff determined that
approach was sufficient. Commissioner Scharff supported the proposed FY 2027 workflow and
suggested developing a recommendation that could gain broader Commission support.
Vice Chair Phillips asked what would occur if the UAC did not provide a recommendation or
alternative proposal. Ms. Nosé stated that staff would forward the item to the Finance
Committee with a summary of the UAC discussion and note that the UAC had not provided an
alternative.
Chair Mauter proposed moving the staff-recommended motion and then considering
amendments based on the Commission's discussion. The Commission and staff discussed
potential modifications to the staff recommendation and worked together to develop the
motion language. The Commission informally polled its members regarding use of the annual
depreciation expense methodology for the CIP Reserve and further discussed incorporating that
approach into the motion.
MOTION: Chair Mauter moved, seconded by Commissioner Scharff, to recommend the City
Council (via the Finance Committee) adopt the following:
1. Revisions to the Utilities Reserve Management Practices based on staff’s proposed
policies for the reserve targets:
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a. Replace the Capital Improvement Program (CIP) Reserve minimum and
maximum guidelines with a reserve target based on the Average Annual CIP
Budget.
b. Add a Rate Stabilization Reserve (RSR) target based on 10% of operating
expenses and define rules for when reserve balance is above or below target;
and
2. Proposed 5-year timeline for achieving revised RSR policy targets; and
3. Proposed timelines for achieving revised CIP Reserve policy targets: 5 years for the
Gas and Water Utilities and 10 years for the Electric Utility; and
4. Proposed FY 2027 workflow for revising and approving the Utilities Reserve
Management Practices
5. Recommend that staff return with the pros and cons of the Rate Stabilization
Reserve
FRIENDLY AMENDMENTS INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE
MAKER AND SECONDER
MOTION PASSED: 5-2, Gupta, Tucher no
[The Commission took a 9-minute break]
ITEM 4: DISCUSSION: Update on Electric System Long Duration Resiliency; CEQA Status – Not a
Project
Utilities Chief Operating Officer Terry Crowley reported that Council considered local energy
resources and long-duration resiliency in March 2026 and determined that local utility-scale
microgrids were not sufficiently cost-effective to pursue additional studies or site development.
Council directed staff to continue engaging the UAC, Climate Action and Sustainability
Committee (CASC), and Council during 2026. Mr. Crowley reported that utility-scale microgrid
costs remain high relative to their benefits. Citing estimates from the National Laboratory of the
Rockies, Mr. Crowley stated that a 4 MW, 4-hour battery costing approximately $5.4M could
serve approximately 300 single-family homes for 24 hours, representing approximately 1
percent of Palo Alto's residential customers. The estimate excludes the solar generation needed
to recharge the battery, which would require approximately 20 acres and cost an additional
$12M to $15M. Battery costs are projected to decline significantly by 2035 and staff will
continue monitoring costs and address local renewable energy and battery storage projects in
the IRP scheduled for 2027. Mr. Crowley stated that resiliency planning must account for
system damage that could prevent customers from accessing stored energy during an outage.
Staff is considering rapid repairs, redundant facilities, and resilient infrastructure as part of grid
modernization CIP planning and will identify relevant hazards and potential mitigation
measures. Staff recommended continuing to monitor local utility-scale battery storage costs,
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providing an update with the next IRP, and proposing reasonable hazard mitigation measures
through recommended CIP projects.
Item 4 Public Comment: None.
Commissioner Metz asked what hazard mitigation measures staff anticipated proposing. Mr.
Crowley identified potential measures addressing flooding and sea-level rise at the Colorado
Substation, liquefaction and earthquake risks associated with new foundations, and capacity
needs related to grid modernization. Staff would evaluate these and other hazards, including
cybersecurity and pandemics, assess the costs and propose reasonable mitigation measures
through the CIP budget.
Chair Mauter inquired whether staff was requesting a motion supporting the
recommendations. Mr. Crowley stated that staff was seeking clarification or advice regarding
how to proceed.
Commissioner Gupta sought clarification regarding whether the estimate of 300 homes
assumed normal or reduced electricity use. Mr. Crowley stated that the estimate assumes
normal customer usage and that reduced consumption could extend the duration or number of
customers served. Mr. Crowley reiterated that battery storage would provide limited benefit if
an event damaged the grid and prevented power from reaching customers.
Commissioner Tucher requested clarification regarding Council's purpose in directing staff to
engage the UAC on battery storage. Mr. Crowley recalled that Council was interested in
exploring microgrids of varying sizes and the potential use of battery technology to provide
long-duration resiliency. Mr. Crowley understood resiliency to be the sole focus of Council's
direction.
Commissioner Metz stated that the key question was what CPAU should be doing to prepare
for long-term resilience. He supported continuing efforts to improve grid resilience, including
grid modernization and improvements to the system's ability to remain connected to the
transmission grid. He stated that CPAU should work towards long-term resilience in worst-case
emergencies.
Commissioner Metz stated that CPAU should first recognize the need to invest in electrical
resilience and noted that the Water Utility already has emergency preparedness measures,
such as wells and diesel generators. Commissioner Metz suggested working with the Office of
Emergency Services (OES) to define the emergencies the Electric Utility should be prepared to
address. He stated that OES has strong opinions regarding anticipated emergencies and their
effects on the community, while CPAU has special domain knowledge regarding how
emergencies such as fires, earthquakes, and floods could affect the electric utility. If CPAU
could work together with OES, it would be very valuable for the community.
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Commissioner Metz also recommended explicitly considering risk and developing scenarios for
potential CPAU responses to a major emergency, including different levels of action. He
suggested evaluating the benefits, risks, and costs of the alternatives and presenting them to
the City Council and the community. Finally, he stated that CPAU should develop stronger
internal competencies in emergency preparedness, reliability, and resilience, which he
identified as important long-term strategic areas for the Utility.
Commissioner Scharff expressed concern that the presentation did not clearly convey the scale
and cost of battery storage or the specific resiliency problem it was intended to address.
Commissioner Scharff questioned whether protection against a 24-hour outage would justify a
multimillion-dollar investment and requested that staff provide Council with clearer cost
information and identify the types and magnitude of outages the proposed resiliency measures
would address.
Vice Chair Phillips supported continued monitoring of battery costs and emerging technologies
but questioned whether microgrids would play a significant role in a broader resiliency plan.
Vice Chair Phillips supported staff's recommendation and encouraged continued coordination
with the OES.
Commissioner Croft supported clearly defining the resiliency goal, including whether battery
storage would provide backup power broadly to residents or serve critical emergency needs.
Commissioner Croft suggested that future analysis consider solar generation with battery
storage for long-duration resiliency and evaluate whether batteries could provide economic
benefits through energy arbitrage while providing backup power as an ancillary benefit.
Commissioner Croft supported deferring investment while incorporating these issues into
disaster mitigation planning and returning to the UAC with a clearer definition of the resiliency
objectives.
Commissioner Gupta agreed that battery storage was not currently cost-effective and
emphasized near-term mitigation measures. Commissioner Gupta noted that residents may be
unprepared for extended power outages and suggested increasing communication regarding
emergency preparedness, particularly for residents dependent on medical devices or
refrigerated medications, while staff continues monitoring battery costs.
Commissioner Tucher supported staff's recommendation but suggested that Council consider a
broader analysis of where large-scale battery storage could provide value in Palo Alto rather
than focusing solely on resiliency. Commissioner Tucher referenced prior analysis of solar and
storage applications and recommended evaluating where battery projects would be most
beneficial and their value proposition. Commissioner Tucher requested that future staff reports
provide additional context regarding Council's specific direction, including a link to the relevant
Council discussion.
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An informal poll indicated interest in moving a motion. Commissioner Metz proposed amending
the motion to focus future efforts on what CPAU should be doing to achieve long-term
resiliency. Commissioner Tucher proposed directing staff to return to the UAC with an analysis
of potential large-scale battery applications, including substation and distributed installations
with or without solar. Chair Mauter expressed concern that the proposal would direct specific
staff work rather than provide policy guidance and supported framing the motion more broadly
around long-term resiliency. The Commission further discussed and refined the motion
language.
MOTION: Vice Chair Phillips moved, seconded by Commissioner Scharff, to recommend the
following
1. Staff continue monitoring and provide updated estimates for local utility scale battery
storage and update the UAC with the next Integrated Resource Plan
2. Recommend staff review and propose reasonable hazard mitigations with
recommended capital improvement projects
3. Recommend that the focus of future efforts should be what CPAU should do for long
term resilience
FRIENDLY AMENDMENT INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE
MAKER AND SECONDER
MOTION PASSED: 7-0
ITEM 5: ACTION: City of Palo Alto Utilities Wildfire Mitigation Plan (WMP) 2026 Update: CEQA –
Not a Project
Utilities Chief Operating Officer Terry Crowley reported that the City is required by the Public
Utilities Code to prepare a Utility Wildfire Mitigation Plan (WMP) focused on reducing the risk
of utility-caused wildfires, present the plan at a public meeting, and receive public comments.
The 2026 WMP is due to the California Wildfire Safety Advisory Board (WSAB) by October 2,
2026, with the next update due in October 2028. Palo Alto's highest-risk area identified by the
California Public Utilities Commission (CPUC) is primarily in the Foothills, where high winds and
low fuel moisture increase wildfire risk. Mr. Crowley identified undergrounding overhead
electric lines as the City's primary wildfire mitigation measure, supplemented by vegetation
management, equipment inspections and monitoring, public safety power shutoff policies, and
customer education and notification. The City has completed 9 miles of undergrounding in the
wildfire area, including the high-voltage lines, with remaining low-voltage connections to
homes targeted for completion by the end of 2026. Future work includes establishing
inspection and vegetation management practices for underground facilities, updating public
safety power shutoff policies for the underground system, and evaluating additional mitigation
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work adjacent to the wildfire area. Staff requested that the UAC review the WMP, receive
public comments, and recommend submission of the plan to the California WSAB.
Item 5 Public Comment: None.
Commissioner Scharff inquired about using drones for vegetation management and utility
inspections. Mr. Crowley stated that inspections are currently conducted visually from the road
and that City use of drones for surveillance would require a policy or Council authorization.
Utilities Director Alan Kurotori noted that undergrounding reduces the potential benefit of
drones in the wildfire area but that drones can be used for substation and other inspection
work. Mr. Kurotori reported that staff is evaluating use of drone surveillance.
Vice Chair Phillips sought clarification regarding vegetation management for underground
facilities. Mr. Crowley explained that vegetation must be maintained at least 3 feet from pad-
mounted equipment and inspected for encroachment or debris following events such as heavy
windstorms.
Commissioner Croft requested that the WMP performance metrics on Packet Page 50 quantify
the percentage of vegetation cleared and equipment inspected annually. Commissioner Croft
questioned whether staff was comfortable submitting the existing public safety power shutoff
(PSPS) plan given that it was developed for the overhead system. Mr. Crowley described the
plan as a living document and stated that staff would continue revising the PSPS standard to
reflect the underground system rather than relying on provisions that no longer fit current
conditions. Mr. Kurotori reiterated that the remaining low-voltage lines would be
undergrounded within a few months. Commissioner Croft commended staff on the milestone
of de-energizing the overhead lines before the rainy season.
MOTION: Vice Chair Phillips moved, seconded by Chair Mauter, to recommend the City of Palo
Alto Utilities submit the 2026 Wildfire Mitigation Plan to the California Wildfire Safety Advisory
Board (WSAB) in accordance with Public Utilities Code Section 8387.
MOTION PASSED: 7-0
COMMISSIONER COMMENTS AND REPORTS FROM MEETINGS/EVENTS
None.
VIRTUAL PUBLIC COMMENT
None.
ADJOURNMENT
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Chair Mauter noted that the 12-month rolling calendar was included in the packet and would
be discussed the following month.
The meeting adjourned at 9:49 p.m.
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Item No. 2 Page 1 of 4
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: October 7, 2026
Report #: 2608-6657
TITLE
Approval of Water and Wastewater Collection Rate Design Guidelines and Principles
RECOMMENDATION
Staff recommends that the Utilities Advisory Commission (UAC) recommend that the Council
approve the Design Principles for Water and Wastewater Collection Rates in Alignment with
Proposition 218 Cost of Service Analysis.
EXECUTIVE SUMMARY
Article XIII D of California Constitution (often referred to as Proposition 218, added in 1996)
requires that the amount of a fee or charge imposed upon any parcel or person as an incident
of property ownership shall not exceed the proportional cost of the service attributable to the
parcel. Public agencies rely on ratemaking consultants to determine the costs of providing
services and to design rates that accurately recover those costs; this is referred to as a “cost of
service analysis”, or COSA. This report proposes design principles to guide staff and the City’s
ratemaking consultants on Water and Wastewater Utility COSAs in alignment with California’s
Constitutional requirements.
BACKGROUND
Periodically, the City of Palo Alto Utilities Department staff reviews and updates its COSAs in
combination with other information to evaluate the adequacy and fairness of its rate
structures. The Utilities Department plans to complete an updated Water COSA in Fiscal Year
(FY) 2028. The COSA will assist staff in determining if new or modified rate structures should be
considered in light of updated utility financial information and customer usage data while also
ensuring compliance with Proposition 218 and other regulatory requirements. Given the
upcoming Water COSA, this staff report focuses on Water Utility-specific considerations though
the recommended rate design principles apply to both the Water and Wastewater Collection
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Item No. 2 Page 2 of 4
Utilities. The recommendations are also consistent with the Council-approved rate design
principles for the Electric and Gas Utilities1.
2, 20153 and
20194 to ensure continued compliance with Proposition 218. The most recent review in 2019
determined that the methodology and rate structure described in the 2012 COSA study
remained fundamentally sound. In addition, it updated data and refined the analysis which
resulted in several COSA adjustments. The constitutional requirements for existing, new or
increased fees under Article XIII.D(b) include the following five factors:
ANALYSIS
1 City Council Staff Report 2507-4958, September 15, 2025:
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=043abd5a-f59f-4702-ad04-845541a8133f
2 City Council Staff Report 2676, April 18, 2012:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=78511&dbid=0&repo=PaloAlto
3 City Council Staff Report 5951, August 17, 2015:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86549&dbid=0&repo=PaloAlto&searchid=c0ca7cc0
-d00f-44e3-8af6-606737da65b9
4 City Council Staff Report 10295, June 17, 2019:
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Item No. 2 Page 3 of 4
Each utility is operated as a separate enterprise; ratepayer funds are not comingled among
enterprises. Rates cannot be structured solely to drive policy goals such as conservation;
instead rates must be based on the utility’s cost of providing service.
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Item No. 2 Page 4 of 4
FISCAL/RESOURCE IMPACT
The work associated with this project will be absorbed using existing staff and contract budgets.
STAKEHOLDER ENGAGEMENT
After receiving the UAC’s recommendation, staff will present the Design Principles for Water
Rates to the Finance Committee, followed by review and consideration by the City Council. If
accepted by Council, staff will apply these Design Principles to the Water COSA which will be
used to develop water rates, effective January 1, 2028. Additionally, if accepted by Council, staff
will apply these Design Principles to the next Wastewater Collection Utility COSA. The most
recent Wastewater Collection COSA was completed in 20219 and staff plans to complete an
update in the next three to four years.
ENVIRONMENTAL REVIEW
Recommendation of rate Design Principles for Water and Wastewater Utilities does not meet
the definition of a project, under Public Resources Code Section 21065 and CEQA Guidelines
Section 15378(b)(5), because it is an administrative governmental activity which will not cause a
direct or indirect physical change in the environment, thus no environmental review is required.
AUTHOR/TITLE:
Alan Kurotori, Director Utilities
Staff: Adriana Artola, Senior Resource Planner
9 City Council Staff Report 12378, August 9, 2021:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=81558&dbid=0&repo=PaloAlto
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Item No. 3 Page 1 of 5
1
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4
9
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Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: October 7, 2026
Report #: 2609-6818
TITLE
Electric Grid Modernization Bond Financing; Recommendation to the City Council to Adopt a
Resolution Authorizing the Issuance and Sale of Tax-Exempt Electric Revenue Bonds Principal
Amount Not-to-Exceed $100,000,000
RECOMMENDATION
Staff recommend that the Utilities Advisory Commission (UAC) recommend that the City
Council adopt a resolution authorizing the issuance and sale of tax-exempt Electric Revenue
Bonds in a principal amount not to exceed $100,000,000 under the first tranche and authorize
official actions and related documents thereto.
EXECUTIVE SUMMARY
The Electric Utility’s Electric Grid Modernization Project (Grid Mod) is a multi-year investment
to improve reliability, support electrification, and replace aging infrastructure. Previous staff
reports presented to the Utilities Advisory Commission (UAC) and City Council have outlined
both the capital needs and long-term financial considerations of the Electric Utility.
Staff recommends that the UAC recommend that the City Council authorize financing the
Electric Grid Mod project through issuance of Electric Revenue Bonds.
PROJECT DESCRIPTION
The Electric Grid Modernization Project includes high-priority system upgrades identified in
earlier UAC and Council briefings. Major components include:
Replacement of aging transformers, switches, and distribution lines
Feeder capacity expansion to support electrification and reduce overload risk
Deployment of advanced automation and outage-management tools
Infrastructure readiness for distributed energy resources
Conversion of 4kV to 12kV systems to increase capacity and reliability
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Item No. 3 Page 2 of 5
1
0
4
9
0
The project timeline is informed by technical assessments presented in the City’s Sustainability
and Climate Action Plan1 and successive CIP updates
BACKGROUND
2 including an electric capital improvement budget of roughly $206 million over five
years (FY 2027 – FY 2031) for Electric Grid Modernization (Grid-Mod) Projects.
City Council, June 15, 2026 – FY 2027 Electric Rates and CIP Budget
City Council, May 4, 2026 – Electric Grid Modernization FY 2026 Update
Climate Action & Sustainability Ad Hoc Committee, March 6, 2026 – Grid Modernization
Update
Utilities Advisory Commission, January 7, 2026 – FY 2026 Mid-Year Electric Grid
Modernization Update
City Council, December 16, 2024 – Adoption of a Resolution of Intention to Reimburse
Expenditures for the Grid Modernization and Related Projects of the Electric Utility
System Infrastructure from the Proceeds of Tax-Exempt Utility Revenue Bonds
Finance Committee, October 20th – Electric Grid Mod Bond Authorization Approval
Week of December 14th – Receive ratings from rating agencies
City Council, December 7th – Electric Grid Mod Bond Authorization Approval
Week of January 11th – Pricing
Week of January 25th - Closing
3, the City Council adopted a resolution of intent to reimburse
expenditures for Grid-Mod and related projects of the Electric Utility system infrastructure from
the proceeds of tax-exempt utility revenue bonds. The resolution allows the City’s Utility
enterprise fund to use bond proceeds to reimburse itself for certain pre-construction and
construction costs within the scope of the Grid-Mod project that are incurred before the bonds
are issued. The reimbursement of these expenditures would restore the Electric Fund’s
1 City of Palo Alto 2022 Sustainability and Climate Action Plan
2 FY 2027 Adopted Capital Budget (pp. 439 – 519)
3 City Council, December 16, 2024:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83165&dbid=0&repo=PaloAlto&searchid=ed2c3129
-ccb2-4781-8182-c461eb1a6b5d
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1
0
4
9
0
reserve(s) and as of June 30, 2026, Grid-Mod project costs eligible for reimbursement by future
bond proceeds total $27.1 million. These project costs are attributed to the following activities
in Table 1.
Table 1: Grid Mod Expenditures from Dec 19, 2024 – Jun 30, 2026
Description Amount
Colorado Substation Master Plan $ 102,000
Distribution System Upgrade $ 272,000
Engineering Design $ 1,103,000
Line Clearing $ 314,000
Line Conversion $ 4,468,000
Overhead Construction $ 3,467,000
Pole Replacement $ 1,231,000
Transformer $ 7,103,000
Underground Construction $ 463,000
Warehouse Purchase $ 8,614,000
Grand Total $ 27,137,000
ANALYSIS
Debt Structure, Policy, and Administration
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1
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4
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0
execute a Bond Purchase Agreement. Interest rates on the 2027 Bonds will be determined on
the pricing date and will reflect prevailing market conditions at that time.
Table 2: Estimated Funding Results
(rates as of September 23, 2026)
Principal Amount of Bonds $98,050,000
True Interest Cost (TIC)4.80%
All-In TIC 4.83%
First Maturity 06-01-2028
Final Maturity 06-01-2057
7.
Rating Agency Presentation
Financing Mechanics
FISCAL/RESOURCE IMPACT
7 California Debt and Investment Advisory Commission, California Debt Financing Guide: https://debtguide-
api.treasurer.ca.gov/guide-pages/chapter-5-sale-of-municipal-debt/5-3-negotiated-public-offerings/5-3-1-
advantages-of-a-negotiated-public-offering
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1
0
4
9
0
sale date. The expenses associated with issuing the 2027 Bonds are estimated to be $0.6 million
and will be paid with proceeds of the 2027 Bonds.
STAKEHOLDER ENGAGEMENT
9, the Climate Action & Sustainability
Committee (CASC) on March 6, 202610, and as an Informational Report to City Council on May
4, 2026Error! Bookmark not defined.. The Administrative Services, Utilities Department, City Attorney’s
Office, and City Manager Office worked collaboratively to develop this debt financing strategy
and on the required documents for this bond refinancing.
ENVIRONMENTAL REVIEW
ATTACHMENTS
AUTHOR/TITLE:
9 Palo Alto Utility Advisory Commission, January 7, 2026:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=85181&dbid=0&repo=PaloAlto
10 Climate Action & Sustainability Committee, March 6, 2026:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86701&dbid=0&repo=PaloAlto
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Resolution No. _____
Resolution of the Council of the City of Palo Alto Authorizing the Issuance and Sale of
Electric Revenue Bonds to Finance the Electric Grid Modernization for Electrification
Project, Approving an Electric Revenue Bond Indenture, a First Supplemental Electric
Revenue Bond Indenture, a Bond Purchase Agreement and an Official Statement, and
Authorizing Official Actions and Documents
RECITALS
WHEREAS, the City of Palo Alto (the “City”) is a chartered city and municipal
corporation organized and existing under the constitution and laws of the State of
California; the City is duly empowered as a chartered city to exercise the powers
reserved to it under such constitution with respect to municipal affairs; and
WHEREAS, as an exercise of such powers, the City has adopted the provisions
of Chapter 12.28 (commencing with Section 12.28.010) of the Palo Alto Municipal Code
(the "Bond Law") which authorize the City, when the public interest and necessity
require, by resolution, to issue its revenue bonds for the purpose of financing or
refinancing the acquisition, construction, extension or improvement of any utility
enterprise system or facility of the City; and
WHEREAS, the City furnishes electric utility service to its inhabitants, and owns
and operates an electric system which includes facilities for the transmission and
distribution of electric energy (the “Electric System”); and
WHEREAS, the City has developed an Electric Grid Modernization for
Electrification Project to increase distribution capacity, enhance grid resiliency and
reliability of the electric distribution system, and to continue to accelerate the City’s clean
energy and decarbonization goals; and
WHEREAS, the City Council, after due investigation and deliberation, has
determined that the public interest and necessity require the City at this time to authorize
the issuance of its revenue bonds in the maximum principal amount of $_____ (the
“Bonds”) under the Bond Law to finance the Electric Grid Modernization Project and pay
certain costs of issuing the Bonds; and
WHEREAS, the Bonds will be secured by a pledge of and lien on net revenues of
the Electric System; and
WHEREAS, staff has worked with the City’s financing team to prepare the
necessary agreements and other documents, including a form of preliminary Official
Statement to be distributed in connection with the marketing of the Bonds, and the City
Council has reviewed the preliminary Official Statement to assure proper disclosure of all
material facts relating to the Bonds that are in the personal knowledge of the members
of the City Council and the City staff; and
WHEREAS, the City proposes to sell the Bonds to J.P. Morgan (the
“Underwriter”) pursuant to a Bond Purchase Agreement (the “Bond Purchase
Agreement”) between the City and the Underwriter; and
Item #3
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-2-
WHEREAS, in accordance with Government Code Section 5852.1, the City
Council has obtained and wishes to disclose the information set forth in Exhibit A.
NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE,
as follows:
1. Recitals. The Council hereby finds that the foregoing recitals are true and
correct.
2. Authorization of the Bonds. The Council hereby authorizes the issuance of the
Bonds under the Bond Law and the Indenture of Trust that is approved below, in a
maximum principal amount of $_________. The Bonds shall be designated the “City of
Palo Alto Electric Revenue Bonds, Series 2027,” or such other designation given them
by an Authorized Official (as defined below).
The Bonds shall be dated their date of issuance and mature no later than [to
come]. The Bonds shall accrue interest at a fixed interest rate, and the principal of and
interest on the Bonds shall be payable on the dates specified in the Indenture (defined
below). The terms of redemption of the Bonds shall be set forth in the Indenture.
3. Sale of the Bonds. The Council hereby approves the sale of the Bonds by the
City to the Underwriter pursuant to the terms and provisions of the Bond Purchase
Agreement, provided that the aggregate principal amount of the Bonds may not exceed
$_______, the true interest cost may not exceed ______% and the underwriter's
discount (exclusive of any original issue discount) may not exceed ________%.
4. Bond Purchase Agreement. The City Council hereby approves the Bond
Purchase Agreement, in substantially the form on file with the City Clerk, together with
any changes therein or additions thereto deemed advisable by the City Manager, the
Administrative Services Director or a designee appointed in writing by any such officer
(the “Authorized Officials”; each, an “Authorized Official”), each acting alone. The Mayor
or City Manager, acting alone, is hereby authorized and directed for and on behalf of the
City to execute the final form of the Bond Purchase Agreement. Execution of the Bond
Purchase Agreement by the Mayor or City Manager shall be conclusive evidence of the
approval of the final form of the Bond Purchase Agreement.
5. Indenture of Trust. The Bonds shall be issued pursuant to an Electric
Revenue Bond Indenture (the “Master Indenture”), as supplemented by a First
Supplemental Electric Revenue Bond Indenture (“First Supplemental Indenture; together
with the Master Indenture, the “Indenture”), each by and between the City and U.S. Bank
Trust Company, National Association, as trustee (the "Trustee"). As provided in the
Indenture, the Bonds shall be secured by the Electric Net Revenues (as that term is
defined in the Indenture) of the Electric System. The Indenture, in substantially the form
on file with the City Clerk, is hereby approved, together with any changes therein or
additions thereto deemed advisable by an Authorized Official, acting alone. The final
form of the Indenture shall be executed in the name and on behalf of the City by the
Mayor or City Manager, and such execution shall be conclusive evidence of the approval
of the final form of the Indenture. The City Clerk is hereby authorized and directed to
attest to the Mayor or City Manager’s signature.
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-3-
6. Preliminary Official Statement; Official Statement. Staff has caused to be
prepared a preliminary Official Statement relating to the Bonds, a copy of which is on file
with the City Clerk, for distribution to potential purchasers of the Bonds.
The City Council hereby approves and deems nearly final within the meaning of
Rule 15c2-12 of the Securities Exchange Act of 1934 (the “Rule”) the preliminary Official
Statement describing the Bonds, in the form on file with the City Clerk, together with
such modifications thereof as may be approved by an Authorized Official after
consultation with Stradling Yocca Carlson & Rauth LLP (“Disclosure Counsel”), the
Municipal Advisor, the Bond Counsel and the City Attorney. An Authorized Official is
hereby authorized to execute an appropriate certificate stating the Council's
determination that the preliminary Official Statement has been deemed nearly final within
the meaning of the Rule.
The Underwriter is hereby authorized and directed to distribute the preliminary
Official Statement to prospective bidders for the Bonds.
The Authorized Officials, each acting alone, are hereby authorized and directed,
upon consultation with the Municipal Advisor, Disclosure Counsel, Bond Counsel and
the City Attorney, to approve such changes to the preliminary Official Statement as shall
be necessary to cause such preliminary Official Statement to be brought into the form of
a final Official Statement, and an Authorized Official, acting alone, is hereby authorized
and directed to execute and deliver the final Official Statement to the Underwriter, at the
time of delivery of the Bonds.
7. Continuing Disclosure Certificate. The City Council hereby approves the
Continuing Disclosure Certificate, pursuant to which the City will agree to provide certain
information on a continuing basis, in substantially the form on file with the City Clerk,
together with any changes therein or additions thereto deemed advisable by an
Authorized Official, acting alone. The Mayor or City Manager, acting alone, is hereby
authorized and directed for and on behalf of the City to execute the final form of the
Continuing Disclosure Certificate. Execution of the Continuing Disclosure Certificate by
the Mayor or City Manager shall be conclusive evidence of the approval of the final form
of the Continuing Disclosure Certificate.
8. Preparation of Bonds. The Director of Administrative Services (or their
designee) is directed to cause the Bonds to be prepared in the form set forth in, and in
accordance with the provisions of, the Indenture of Trust and to cause their execution by
the proper officers of the City and authentication by the Trustee, and to cause the Bonds
to be delivered when so executed and authenticated to or on behalf of the purchaser or
purchasers thereof, upon the receipt of the purchase price therefor.
9. Additional Authority. The Mayor, Vice Mayor, City Manager, City Clerk,
Director of Administrative Services, Director of Utilities, Director of Public Works, City
Attorney and any and all other officers of the City, each acting alone, are authorized and
directed in the name and on behalf of the City to execute and deliver any and all
certificates, requisitions, agreements, notices, consents, warrants and other documents,
which they or any of them might deem necessary or appropriate in order to consummate
the lawful issuance, sale and delivery of the Bonds to the original purchaser thereof.
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-4-
10. Exemption from CEQA. The City Council finds that this resolution and the
issuance of the Bonds are not projects under Section 21065 of the California
Environmental Quality Act. [confirm]
11. Effective Date. This resolution shall be effective upon the date of its
adoption.
* * * * * *
INTRODUCED:
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
_________________________________
City Clerk
APPROVED AS TO FORM:
By:
Chief Assistant City Attorney
By:
Christopher K. Lynch,
Bond Counsel
APPROVED:
_________________________________
Mayor
APPROVED AS TO CONTENT:
City Manager
Director of Utilities
Director of Administrative Services
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EXHIBIT A
GOVERNMENT CODE SECTION 5852.1 DISCLOSURE
The following information consists of estimates that have been provided by the Municipal
Advisor, which has been represented by such party to have been provided in good faith:
(A) True Interest Cost with respect to the Bonds: ______%.
(B) Finance Charge with respect to the Bonds (Sum of all fees paid to third parties):
$_______.
(C) Net Proceeds to be Received from the sale of the Bonds (net of finance charges,
reserves and capitalized interest, if any): $________.
(D) Total Payment Amount Through Maturity: $________.
The foregoing estimates constitute good faith estimates based on a refinancing of the
2009 Bonds. The principal amount of the Bonds, the true interest cost of the Bonds, the
finance charges thereof, the amount of proceeds received therefrom and total payment
amount with respect thereto may differ from such good faith estimates due to (a) the
actual date of the sale of the Bonds being different than the date assumed for purposes
of such estimates, (b) the actual principal amount of Bonds sold being different from the
estimated amount used for purposes of such estimates, (c) the actual amortization of the
Bonds being different than the amortization assumed for purposes of such estimates, (d)
the actual market interest rates at the time of sale of the Bonds being different than
those estimated for purposes of such estimates, (e) other market conditions, (f)
alterations in the City’s financing plan, or a combination of such factors and (g) the
treatment of the interest with respect to the Bonds under federal tax law. The actual date
of sale of the Bonds and the actual principal amount of Bonds sold will be determined by
the City based on the timing of the need for proceeds of the Bonds and other factors.
The actual interest rates borne by the Bonds will depend on market interest rates at the
time of sale thereof. The actual amortization of the Bonds will also depend, in part, on
market interest rates at the time of sale thereof. Market interest rates are affected by
economic and other factors beyond the control of the City.
Item #3
Packet Pg. 36
Utilities Advisory Commission
Staff Report
Report Type: NEW BUSINESS
Lead Department: Utilities
Meeting Date: October 7, 2026
Report #:2609-6805
TITLE
Recommending Approval of Updated Palo Alto Low Carbon Fuel Standards Program Guidelines,
including a Definition for Low-Income and a Methodology to Allocate Customer Program Cost
Across Low-Income and Non-Low-Income
This item will be a late packet publication on 10/1/26.
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12-MONTH ROLLING CALENDAR
FORECAST
*Numbers at the end of titles correspond with Workplan line
City Council
CCM – City Council Meeting FCM – Finance Committee Meeting
2026
October 7, 2026
•Water Cost of Service Analysis Guidelines (#3)
•Bond Financing for Grid Modernization Project
(#14)
•Palo Alto Low Carbon Fuel Standards Program
Update (#10)
•Informational Report - Time of Use Update (#8)
•Informational Report - Preliminary Electric
Utility Contract Policies for Data Centers or
•
•Recommend Approval of Bond Financing for Grid
Modernization Project (FCM)
•Update on Electric System Long Duration Resiliency (CASC)
2026
November 4, 2026
•FY 2028 Preliminary Rates (#3)
•Reserve Policy Recommendations for
Wastewater Collection and Rate Stabilization for
All Utilities (#4)
•Utilities Legislative & Regulatory Updates (#11)
•Informational Report - Customer
Communication Programs, Activities and
Methods (#12)
•Informational Report - Dahl and Park Storage
Reservoir Condition Assessment (#2)
•Electric Long Duration Resiliency
•Transmission Agency of Northern California Contract
Modifications
•Veolia Contract for Efficiency and Electrification Program
•Accent Gold Contract for Customer Program Management
•Purchase and Installation of Security Cameras at Bayshore
Warehouse and Substations
•Woodard and Curran Contract for Hydraulic Modeling Support
•Utilities Reserve Management Policies (FCM)
•Water Cost of Service Guidelines and Principles (FCM)
•Legislative Guidelines, Utilities Legislative Guidelines,
Legislative/Regulatory Updates (PS)
•Muni Code Change to Allow Power Purchasing Agreements
November 16, 2026
•
2026
December 2, 2026
•Review of Electric Supply Portfolio Carbon
Neutral Plan and Use of Revenues Derived from
the REC Exchange Program (#10)
•Study Results from CASC and UAC June 12, 2026
Joint Meeting "Evaluating Strategies for
Community Wide Electrification" (#10)
•Discussion on Utilities Quarterly Report FY26 –
Q4
•Fiber Expansion and Fiber to the Premises
(FTTP) Update (#6)
•Informational Report - Annual Review of the
City’s Renewable Procurement Plan, Renewable
Portfolio Standard Compliance, and Carbon
•
•Approval of Water Cost of Service Guidelines and Principles
•Approval of Bond Financing for Grid Modernization Project
•Informational Report on FY 2026 Cap and Trade Program
•Informational Report - Annual Review of the City’s Renewable
Procurement Plan, Renewable Portfolio Standard Compliance,
and Carbon Neutral Electric Supplies for 2025
•Informational Report – Utilities Quarterly Report FY26-Q4
2027
January 6, 2027
•5 Year Capital Improvement Project (Includes
Treatment Plant and Grid Modernization) (#5)
•Utility Legislative Guidelines (#11)
•Gas Transition Study (#1)
•Informational Report – Utilities Quarterly
•
•Informational Report – Utilities Quarterly Report FY27-Q1
Future Topics for
Upcoming Meetings
Packet Pg. 38
February
2027
February 3, 2027
•Electric Utility Business Strategy (#15)
•Interim update on Electric Supply Costs
(3/02/26 Council Action minutes) (#9)
•Customer Satisfaction Results, Outreach
Method, and New Initiatives from Key Accounts
and Businesses (#12)
•Fiber Expansion and FTTP Update (#6)
March
2027
March 3, 2027 (Estimated 1.5hrs)
•FY2028 Water Rates, 5 Year Forecast, and Cost
of Service Analysis (#3)
•FY2028 Wastewater Rates and 5 Year Forecasts
•
Analysis (FCM)
•FY2028 Wastewater Rates and 5 Year Forecasts (FCM)
•Fiber Expansion and FTTP Update (FCM)
April 7, 2027
•FY2028 Electric Rates and 5 Year Forecasts (#3)
•FY2028 Gas Rates and 5 Year Forecasts (#3)
•FY2028 Fiber Rates and 5 Year Forecasts and
Next Steps (#6)
•Informational Report – Utilities Quarterly
•
•FY2028 Gas Rates and 5 Year Forecasts (FCM)
•FY2028 Fiber Rates and 5 Year Forecasts and Next Steps (FCM)
•Informational Report – Utilities Quarterly Report FY27-Q2
May 5, 2027
•FY2028 Utilities Operating and CIP Budget (#3)
•Election of the UAC Chair and Vice Chair
FY2028 Utilities Operating and CIP Budget (FCM)
June 2027 June 2, 2027
•UAC Workplan
•
•FY 2028 Utilities Operating and CIP Budget
July 2027 July 7, 2027 (potential break)
•Informational Report – Utilities Quarterly
COUNCIL SUMMER BREAK
August 4, 2027 •
September 1, 2027
Council Recap on Utilities Items – September 2026
Approved By Council:
•Adopt a Resolution approving the City of Palo Alto
Utilities Electric Utility Physical Security Plan Update
•Refinancing of the 2009A Water Revenue Bonds, Series A;
Adoption of a Resolution Authorizing the Issuance and
Sale of Tax-Exempt Water Revenue Refunding Bonds in a
Principal Amount Not-to-Exceed $20,000,000, Approval of
the Official Notice of Sale, Indenture of Trust, Official
Statement, Irrevocable Refunding Instructions, and
•Approval of Contract Number C27197641 with A3 Pipeline in
the Amount Not-to-Exceed $2,466,255 for the Sewer Lateral
Replacement Project (WC-99013) at various locations across
the City; Authorization for the City Manager or Designee to
Negotiate and Execute Related Change Orders Not-to-Exceed
$246,626 for a Total Not-to-Exceed Amount of $2,712,881 for
a Three-Year Term.
Work Plan Items to Be Scheduled Items to Be Scheduled
•
•Upcoming Power Purchasing Agreements (#9)
One Year look back at DER, Cost Effectiveness (#10)
•LAFCO, Water and Wastewater Review
Link to UAC Workplan Pending Council Approval: https://www.paloalto.gov/files/assets/public/v/1/utilities/utilities-advisory-
commission/uac-approved-fy-2027-utility-advisory-commission-priorities.pdf
Future Topics for
Upcoming Meetings
Packet Pg. 39
Item B. Page 1 of 4
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: October 7, 2026
Report #: 2606-6502
TITLE
Informational Report on Framework for Data Center Capacity Reservation and Cost Recovery
RECOMMENDATION
This is an informational report and no action is needed by the Utilities Advisory Commission.
EXECUTIVE SUMMARY
Electric Utility staff are seeing an increase in the number of applicants requesting to connect to
Palo Alto’s electric system to serve large computational loads. These applicants are not the
typical large data centers seen in other jurisdictions; they are seeking service for smaller loads
focused on product research and development. The increased number of projects will impact
available electric system capacity, sub-transmission and substation capacity. Staff are
developing a framework for managing requests for electric system capacity for specific projects,
including a capacity reservation agreement and associated capacity reservation fee.
The framework under development would provide a voluntary process for committed
developers of new or expanded loads greater than 2.5 megawatts (MW) to secure capacity for
projects in the early concept phase, as well as provide a formalized process for staff to track
and equitably manage available system capacity. At base, the capacity reservation agreement
would provide a limited-term guarantee of electric capacity availability in exchange for
payment of a non-refundable capacity-reservation fee.
BACKGROUND
The City of Palo Alto has seen growing requests to serve research and development loads, such
as small (boutique) data centers. While these loads are relatively small from a utility industry
perspective, within Palo Alto they are often competing for existing electric system capacity,
creating a need to formalize the allocation and reservation of electric system capacity to
interested developers and property owners.
Palo Alto’s Planning & Development Department implements the City’s adopted policies for
development within the City. Planning Department staff would explore developing objective
Item #B
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Item B. Page 2 of 4
measurable standards for data centers or similar research and development facilities if directed
by City Council. While Planning design guidelines and permitting requirements are outside of
the purview of the Utilities Advisory Commission, it’s informative to understand limits being
considered. If directed Planning Staff would consider the following restrictions for commercial
and industrial facilities that may house full or partial data centers; these would need to be
further vetted through the Planning and Transportation Commission and City Council.
Palo Alto Building Height & Equipment screening requirement1 (existing)
Backup generation (Tier II or Tier III as required by Bay Area Air District (existing)
Palo Alto Noise Ordinances2 (existing)
Closed loop water system or recycled water (in development)
Aesthetics (in development)
Parking (in development)
Equitable contributions to the community (in development)
ANALYSIS
1 City of Palo Alto Municipal Code Zoning General Standards and Exceptions
https://codelibrary.amlegal.com/codes/paloalto/latest/paloalto_ca/0-0-0-80178
2 City of Palo Alto Municipal Code Title 9 - Public Peace, Morals, and Safety
https://codelibrary.amlegal.com/codes/paloalto/latest/paloalto_ca/0-0-0-66052
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Item B. Page 3 of 4
2) “Will Serve” letter: Electric Utility staff issues this after determining that the proposed
project is in City of Palo Alto Utilities (CPAU) service territory, making clear that additional
system studies may be needed to determine what facilities are needed to provide the
requested capacity, and the associated costs;
5.
Item Description Value
5 Under Palo Alto’s Utility Rule and Regulation 20, customers can request additional facilities beyond what the City
deems necessary to serve their load. When requested the ongoing costs of these facilities are recovered through a
special facilities agreement. Special Facilities agreements can accommodate customers who wish to reserve
additional system capacity beyond their current monthly demands (planned growth or ramping of usage over
time).
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Item B. Page 4 of 4
In administration of the agreement and fee, the capacity fee remain non-refundable and as
developers execute cost recovery agreements, capacity fees paid may be used to offset electric
infrastructure costs that would otherwise be paid to the City for design and installation of
electric infrastructure necessary to offer the new or expanded service. The fee would require a
financial commitment from an applicant seeking to reserve capacity and would remain non-
refundable.
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
7). The UAC’s overall message was
to mitigate risks while exploring data center opportunities and asked about next steps,
including whether staff would pursue outreach, develop a plan, or bring recommendations to
the City Council. Director Kurotori responded that staff will continue evaluating expectations
and community concerns, including noise and aesthetics, and may coordinate with other
departments on potential permitting approaches to provide clarity for prospective projects.
ENVIRONMENTAL REVIEW
ATTACHMENTS
AUTHOR/TITLE:
7Utilities Advisory Commission Meeting February 4, 2026: Background and Discussion on Data Centers in Palo Alto
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=c5a04a11-8a1a-4ce8-a339-
34e23c788430
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Item C. Page 1 of 15
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: October 7, 2026
Report #: 2609-6819
TITLE
Informational Update on Voluntary Residential Time-of-Use Electric Rate Enrollment and
Customer Outreach
RECOMMENDATION
This is an informational report for the Utilities Advisory Commission (UAC) on implementation
of the voluntary residential Time-of-Use (TOU) electric rate schedule (E-1 TOU), including
customer enrollment, billing system and customer portal testing, electricity usage patterns,
customer experience and the Utilities Department's expanded marketing and outreach
strategy, which began in September 2026. No action is required.
EXECUTIVE SUMMARY
This report provides an interim update on the implementation and customer enrollment
in the Residential E-1-TOU rate in response to the Utilities Advisory Commission’s (UAC)
interest in including an update on the E-1-TOU rate implementation in the UAC’s
workplan.1 The report presents preliminary analysis of customer behavior and load
shifting changes, bill impacts and experiences, and planned marketing and outreach for
continuing customer enrollment in the TOU rate. An initial set of seven customers have
approximately six months of billing data available since enrolling in the E-1-TOU rate.
Given the limited number of participants and duration of the data available, the results
are preliminary and provided for informational purposes only.
As of the early September, the number of residential customers enrolled in the E-1-TOU
rate has grown to 96 without any widescale publicity. Staff began broadly marketing the
TOU rate to the community in September and anticipate there may be a potential 300-
400 enrollees by the end of the 2026 calendar year. Preliminary observations for the
initial seven participants indicate that peak period consumption is lower post
1 The UAC’s FY 2027 Draft Workplan line #8 includes the objective to review and evaluate preliminary results of the
E-1-T time of use rate pilot, changes in energy usage patterns and financial impacts to customers and utility to
inform further implementation to the full Palo Alto community.
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Item C. Page 2 of 15
enrollment in the E-1-TOU rate compared with the same customer’s usage for the same
months one year prior. Additionally, preliminary results indicate that customers with
low overall electricity usage and little opportunity to shift load to different times of day
do not experience bill savings under the E-1-TOU rate. However, preliminary results for
the first seven customers indicate that customers with higher overall electricity use and
who are able to shift load, such as EV charging, into off-peak hours are most likely to
experience bill savings with the E-1-TOU rate. These results are preliminary and need to
be analyzed with a larger sample size over a longer time period to attribute the changes
to the E-1-TOU rate. Survey results reinforce the value of providing customers with clear
information about who may benefit financially from TOU rates and how customers can
manage their electricity consumption.
BACKGROUND
3 The TOU rate
provides City of Palo Alto Utilities residential customers with separately metered,
Advanced Metering Infrastructure (AMI), with an alternative to the city's existing
electric rate. The TOU rate aligns with the requirements of Article XIII C of the California
Constitution, often referred to as Proposition 26, and provides customers with the
opportunity to take advantage of lower-cost and lower carbon intensity time periods for
electric vehicle charging or other electric uses.
4, most carbon intensive grid electric
supply, as well as distribution system and residential class peak demand. Conversely,
super off-peak TOU rates for electricity are from 9 a.m. - 3 p.m. every day. These are the
solar production hours when electricity has the lowest marginal cost, and the lowest
carbon intensity. The off-peak rates are charged from 3 p.m.- 4 p.m. and 9 p.m. – 9 a.m.
as these rates are between the peak and super off-peak rates.
3 Staff Report 2505-4750; https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=031339b2-
900e-422e-96c0-b5a0be11056b
4 The electricity price changes every hour in the market place, this is the marginal energy cost.
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Item C. Page 3 of 15
Staff presented the TOU implementation and communications plan to the UAC on October 1,
2025.7 Since then, staff finalized the outreach and marketing materials for the E-1-TOU rate,
taking into account the feedback from UAC Commissioners. In February 2026, the city began
enrolling a small number of customers to beta test the implementation of the new rate in the
utilities billing system, identify and resolve implementation issues, evaluate customer
experience, and gather feedback from early adopters before conducting broader outreach.
Since then, the Utilities Department has continued a phased approach to launching the
voluntary TOU rate.
Beta test the E-1 TOU rate in the utilities billing system;
Confirm that customers are correctly enrolled and billed;
Evaluate customer-facing information and the MyCPAU customer portal;
Identify and resolve implementation issues before expanding enrollment;
Gather feedback from early-adopter customers;
Analyze customer electric usage patterns and potential bill impacts; and
Use lessons learned to improve customer education and outreach materials.
8 Enrollment has grown steadily from seven customers in February
2026 to 96 customers as of the beginning of September 2026. The initial enrollment period has
provided staff with valuable operational experience.
7 Staff Report 2508-5128; UAC report dated October 1, 2025 (page 73 of 125)
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=11770&dbid=0&repo=PaloAlto&searchid=7d626dac
-8a01-4981-9e35-6c66b9187096
8 Staff Report 2605-6329; UAC report dated June 3, 2026 (page 16 of 64)
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=896997&dbid=0&repo=PaloAlto&searchid=7d626d
ac-8a01-4981-9e35-6c66b9187096
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Item C. Page 4 of 15
Figure 1: Illustration of TOU Rate
11
ANALYSIS
12 The report presents preliminary analysis of customer behavior and load
shifting changes, bill impacts and experiences, and planned marketing and outreach for
11 Customers who enroll in the TOU rate must remain enrolled for a minimum period of six months. If a
customer decides to switch back to the standard residential electric rate, they cannot return to the TOU
rate for another 12 months. These restrictions are designed to lower administrative burden and prevent
customers from frequently switching to a rate that benefits them financially (e.g. if certain seasonal usage
is beneficial under one rate and the next seasonal usage beneficial under the second rate).
12 The UAC’s FY 2027 Draft Workplan line #8 includes the objective to review and evaluate preliminary results of
the E-1-T time of use rate pilot, changes in energy usage patterns and financial impacts to customers and utility to
inform further implementation to the full Palo Alto community.
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Item C. Page 5 of 15
continuing customer enrollment in the TOU rate. An initial set of seven customers have
approximately six months of billing data available since enrolling in the E-1-TOU rate.
Given the limited number of participants and duration of the data available, the results
are preliminary and provided for informational purposes only.
BACKGROUND
15 The TOU rate
provides City of Palo Alto Utilities residential customers with separately metered,
Advanced Metering Infrastructure (AMI), with an alternative to the city's existing
electric rate. The TOU rate aligns with the requirements of Article XIII C of the California
Constitution, often referred to as Proposition 26, and provides customers with the
opportunity to take advantage of lower-cost and lower carbon intensity time periods for
electric vehicle charging or other electric uses.
16, most carbon intensive grid electric
15 Staff Report 2505-4750; https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=031339b2-
900e-422e-96c0-b5a0be11056b
16 The electricity price changes every hour in the market place, this is the marginal energy cost.
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Item C. Page 6 of 15
supply, as well as distribution system and residential class peak demand. Conversely,
super off-peak TOU rates for electricity are from 9 a.m. - 3 p.m. every day. These are the
solar production hours when electricity has the lowest marginal cost, and the lowest
carbon intensity. The off-peak rates are charged from 3 p.m.- 4 p.m. and 9 p.m. – 9 a.m.
as these rates are between the peak and super off-peak rates.
19 Since then, staff finalized the outreach and marketing materials for the E-1-TOU rate,
taking into account the feedback from UAC Commissioners. In February 2026, the city began
enrolling a small number of customers to beta test the implementation of the new rate in the
utilities billing system, identify and resolve implementation issues, evaluate customer
experience, and gather feedback from early adopters before conducting broader outreach.
Since then, the Utilities Department has continued a phased approach to launching the
voluntary TOU rate.
Beta test the E-1 TOU rate in the utilities billing system;
Confirm that customers are correctly enrolled and billed;
Evaluate customer-facing information and the MyCPAU customer portal;
Identify and resolve implementation issues before expanding enrollment;
Gather feedback from early-adopter customers;
Analyze customer electric usage patterns and potential bill impacts; and
Use lessons learned to improve customer education and outreach materials.
20 Enrollment has grown steadily from seven customers in February
2026 to 96 customers as of the beginning of September 2026. The initial enrollment period has
provided staff with valuable operational experience.
19 Staff Report 2508-5128; UAC report dated October 1, 2025 (page 73 of 125)
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=11770&dbid=0&repo=PaloAlto&searchid=7d626dac
-8a01-4981-9e35-6c66b9187096
20 Staff Report 2605-6329; UAC report dated June 3, 2026 (page 16 of 64)
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=896997&dbid=0&repo=PaloAlto&searchid=7d626d
ac-8a01-4981-9e35-6c66b9187096
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Figure 1: Illustration of TOU Rate
In September 2026, the city transitioned from the initial low-profile TOU enrollment and
testing phase to a broader customer marketing and outreach campaign. The campaign
aims to employ a comprehensive communication approach to increase customer
awareness, explain how the rate schedule works, help customers determine whether
the rate may be appropriate for their household, and encourage customers to shift
electricity use away from peak period to super off-peak and off-peak hours. Because E-1
TOU is voluntary, some customers may enroll in TOU, determine that the rate does not
provide sufficient financial benefit for their household, and return to the standard rate
after meeting the minimum participation requirement.23
DISCUSSION
In February 2026 staff enrolled seven customers, verified the customers were accurately billed
in March, then subsequently enrolled three customers in April, and four in May. After adjusting
for a few billing system integration challenges that affected customer electric consumption data
in the MyCPAU portal display, staff increased enrollment to about 20 customers per month
from June through August. The pace of enrollment is likely to accelerate, as staff began a
23 Customers who enroll in the TOU rate must remain enrolled for a minimum period of six months. If a
customer decides to switch back to the standard residential electric rate, they cannot return to the TOU
rate for another 12 months. These restrictions are designed to lower administrative burden and prevent
customers from frequently switching to a rate that benefits them financially (e.g. if certain seasonal usage
is beneficial under one rate and the next seasonal usage beneficial under the second rate).
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dedicated marketing campaign in September. Figure 2 illustrates the cumulative number of
customers on the TOU rate as of end of August.
Figure 2: Cumulative Number of Customers Enrolled in E-1 TOU Rate by Month in 2026
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Figure 3: Customer Electricity Usage Patterns
(March 2026 to August 2026)
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Figure 4: Comparison of Consumption Patterns
(March to August 2026 vs. 2025)
*Note: AMI-based consumption data for Customer #1 is available only from July 2025, as reflected in Figure 2. The
total consumption shown in the figure excludes Customer #1.
Early Customer Bill Analysis
Staff analyzed customer bills to gauge the impact on customer bills of switching from the City’s
standard electric rates to the TOU rate.
The preliminary findings indicate:
1. Customers with lower overall electricity use generally do not experience financial
savings under the TOU rate.
2. Customers with higher overall electricity use and with a very large percentage of
electricity usage outside of peak hours, tend to experience modest savings of
approximately 1% to 5%, or $1 to $8 per month.
3. Customer circumstances and electric use patterns vary significantly, reinforcing the
importance of helping customers understand their individual usage before deciding to
enroll in TOU.
Table 1 shows the bill analysis for the first seven customer enrollees in the E-1-TOU Rate.
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Table 1. Utility Bill Analysis of the First Seven Customers Enrolled in the TOU Rate
Customer 6, with a high monthly energy load and low consumption during peak hours, saved
the most money by switching to TOU. Customer 5 also has a similar profile. Customer 1 and 2
had low consumption, which fall in the lower cost tier of the standard rate, hence their bill
under the TOU rate is higher25.
A simulated bill comparison for the July 2025 to June 2026 period for 68* customers who were
enrolled as of August showed, for 25 customers the TOU bill would have been lower by
$7.60/month on average, and for 43 customers the TOU bill would have been higher by
$4.20/month on average. The corresponding average monthly electricity use was 1,110 kWh
and 640 kWh respectively, further illustrating that high usage customers tend to gain more by
switching and low usage customers do not save money by switching. Note that this analysis
assumes no behavior change after switching to the TOU rate for most of the data points.
25 TOU rate is designed to collect the average rate for the residential class; this is higher than the Tier 1 rate and
lower than the Tier 2 rate.
Customer
Average Monthly
Consumption
(kWh)
Average
Monthly Bill
E1-TOU ($)
Average
Monthly Bill
E1-Tiered ($)
Average Monthly
Bill Decrease/
(increase) under
TOU ($)
Percentage
Change
Customer#1 340.57 79.31 75.20 (4.10) -5%
Customer#2 410.77 93.78 90.25 (3.53) -4%
Customer#3 735.48 160.41 163.20 2.79 2%
Customer#4 545.19 119.70 120.44 0.73 1%
Customer#5 560.38 117.59 123.05 5.45 5%
Customer#6 723.43 152.28 160.44 8.15 5%
Customer#7 510.52 111.63 111.59 (0.05) 0%
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Figure 5: Variation of Bill Differential with Electricity Consumption for 68* Customers Enrolled
(simulated comparative bills for the period July 2025 to June 2026, presented on an average/month basis)
*Of the 74 customers enrolled only 68 customers had AMI data going back to July 2025
Customer Feedback and Survey Results
Staff conducted a survey of the seven initial participants in March/April 2026. Four customers
responded, and feedback was generally positive. Participants indicated that communication
about the TOU rate was helpful, and respondents demonstrated awareness of technologies
that can help automatically manage electricity use. Responses regarding bill impacts were
mixed. Two customers reported no meaningful impact on their bills, while one customer
reported that their bill had decreased.
Survey respondents also highlighted that the TOU rate may not be equally advantageous for all
households. One participant was hesitant to recommend the rate because they believed the
schedule might not work as well for families whose daily routines do not allow them to switch
energy usage to lower-cost periods.
Staff distributed a second survey to participating customers in mid-August 2026 and received
eight responses. The feedback generally reinforces the value of providing customers with clear
information about who may save money from TOU rates and how customers can manage their
electricity consumption.
Selected comments have helped staff understand how to refine messaging through the broader
outreach campaign, including:
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Providing clearer information about what the TOU rate is, and when it was
implemented. One customer had moved to Palo Alto from a different city and thought
TOU was the standard electric rate.
Clearly explaining when customers can change back to the standard residential electric
rate.
Highlighting the benefits of TOU for customers with electric vehicles who have greater
flexibility to shift charging to lower-cost periods.
Staff will continue to monitor customer enrollment, retention, behavior changes, bill impacts,
and feedback to identify opportunities for additional education and refinements. A complete
summary of the April and August survey results is provided in Attachment B.
Customer Marketing and Outreach
During the initial implementation period, the Utilities Department intentionally used lower-
profile communications channels, such as word of mouth, to introduce the TOU rate while the
billing system was being tested and staff gained experience with customer questions. This
approach allowed staff to refine messaging before promoting the rate to a larger audience.
Utilities staff also used community engagement opportunities at outreach events to share
information on the TOU rate and gather informal feedback.
With the initial billing system beta testing substantially complete and 74 customers enrolled as
of the end of August, staff began a more comprehensive marketing and outreach effort in
September 2026. The purpose of the expanded campaign is not simply to increase enrollment,
but to increase informed enrollment. Communications will focus on helping customers
understand whether the TOU rate may be a good fit for their household and what actions they
can take to maximize potential savings.
Educational materials will explain TOU pricing and peak periods, and practical examples of ways
customers can shift electricity use to lower-cost periods. Messaging will emphasize that the
TOU rate is voluntary and that customer results will vary.
Messaging will inform customers that they can use Advanced Metering Infrastructure (AMI)
data on the MyCPAU portal to better understand when they are using energy and modify their
consumption behaviors to shift electricity usage to super off-peak and off-peak hours.
Messaging will also highlight the benefits for customers who may have greater flexibility to shift
electricity use, including households with electric vehicles, battery storage, smart appliances,
electric water heating, or other controllable loads.
Customer communication methods are expected to include:
Utility bill inserts and bill messaging;
Direct customer communications;
Customer feedback surveys;
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City and Utilities residential newsletters;
Website (www.paloalto.gov/timeofuse) with frequently asked questions;
MyCPAU information;
Social media and Nextdoor;
Flyers and brochures;
Videos;
Advertisements in local media publications;
Community events and outreach opportunities;
Updates for the UAC and City Council.
In addition to regular circulation of marketing materials, staff will attempt to engage local
media publications for coverage and advertisements, which have a broad print and digital
audience reach of tens of thousands of readers.
Table 2 provides an overview of planned outreach activities, the approximate number of Palo
Alto residents reached through each venue, and the frequency of those communications.
Samples of outreach materials are provided in Attachment C.
Table 2: Customer Communication and Outreach Methods
Anticipated Outcomes
The broader outreach campaign is expected to substantially increase awareness and
participation in the TOU rate. Based on the planned marketing effort and current enrollment
trajectory, staff project that 300 to 400 residential customers could be enrolled by the end of
2026. The expanded enrollment will provide several benefits beyond increasing participation,
including providing more representative data for evaluating bill impacts across different levels
and patterns of electricity consumption. As additional customers participate for longer periods,
staff will be able to better assess whether TOU pricing results in measurable changes in when
customers use electricity. Impact on utility sales revenue and utility costs to purchase electricity
will also be assessed.
Customer questions and survey responses will continue to inform refinements to outreach
materials and messaging, helping to provide clearer information about the rate, potential
benefits, limitations, and enrollment requirements. Expanded enrollment should also provide
Communication Method
Estimated
Reach
% of
Residential
Accounts Frequency
Residential Utility Bill Inserts 26,428 100% Monthly
Utilities and Community Announcements on Bill 26, 428 100% Monthly
Utilities Subscriber Email Newsletter 11,000 42% 1-2x/month
MyCPAU Portal Messaging (residential users) 22,647 86% Ongoing
Website (paloalto.gov/timeofuse) 2,677 10% Ongoing
Social Media and Nextdoor (followers) 7,038 27% 1-2x/month
Community Outreach Events and Workshops 4,000 15% 30-50/year
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Utilities with an improved understanding of which customers save money on the TOU rate.
Over time, staff will be able to better identify customer characteristics and usage patterns
associated with financial savings and successful participation. Results from the broader
enrollment period will guide decisions on additional targeted outreach and customer tools or
program modifications that could improve the effectiveness of the voluntary TOU rate.
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
ATTACHMENTS
AUTHOR/TITLE:
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1
2
6
1
7
Attachment A: Screenshots of MyCPAU Customer Portal Displays
OPENING SCREEN
DAILY CONSUMPTION PATTERN
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1
2
6
1
7
HOURLY CONSUMPTION PATTERN
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1
2
6
1
5
Attachment B: Customer Survey Results
Shown below is a compilation of 4 survey responses received March-May and 8 survey
responses received in August through early Sept 2026.
Open-ended comments from survey respondents:
o I didn't know what I didn't know about TOU. I thought it was the standard (having
moved from Sunnyvale). When was TOU implemented/revised?
o Can I change TOU back to normal in October?
o It would be nice to have a real-time demand-response option, or a real-time rate. I
realize these would not be attractive to most customers, though.
o Mainly I’d recommend to folks with EVs.
o One participant was hesitant to recommend the rate because they believed the
schedule might not work as well for families whose daily routines do not allow them
to switch energy usage to lower-cost periods.
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Attachment C: Customer Communication and Outreach Materials
September 2026 Utilities Bill Insert
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Tri-Fold Brochure – Outside Cover
Tri-Fold Brochure – Interior Pages
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TOU Removable Cling Sticker and Magnet
Sample Image of TOU Cling or Magnet on an Appliance
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Rotating Banner Image on Utilities Home Webpage (www.paloalto.gov/utilities)
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Time-of-Use Webpage Screenshot (www.paloalto.gov/timeofuse)
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Sample Social Media Graphics
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Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: October 7, 2026
Report #: 2605-6404
TITLE
Recommending Approval of a Definition of “Low-Income Individual” for Palo Alto’s Low Carbon
Fuel Standards Program
RECOMMENDATION
Staff recommends that the Utilities Advisory Commission (UAC) recommend that the City
Council adopt a definition of “low-income individual” for Palo Alto’s Low Carbon Fuel Standards
(LCFS) program that includes individuals eligible for Palo Alto’s Rate Assistance Program (RAP).
EXECUTIVE SUMMARY
The LCFS Program, administered by the California Air Resources Board (CARB) is designed to
reduce the carbon intensity of transportation fuel and is a funding source for the City of Palo
Alto Utilities (CPAU) transportation electrification customer programs. The LCFS regulations,
effective July 1, 2025, require that at least 50%1 of LCFS credit proceeds from residential Electric
Vehicle (EV) charging be spent on equity-focused transportation electrification projects
benefiting disadvantaged communities, low-income communities, rural areas, or low-income
individuals. The regulation also provides an updated list of approved transportation
electrification efforts that could qualify as equity project spending.2
The LCFS regulation describes several bases on which an individual may qualify as “low-
income,” including those that meet “the definition of low-income established by a POU’s
[publicly owned utility’s] governing body.”3 CPAU operates a Rate Assistance Program (RAP) for
qualifying customers based on financial or medical need. This report recommends that the
1 17 CCR 95483(c)(1)(A)(5)(a), page 45 Unofficial electronic version of the Low Carbon Fuel Standard Regulation effective July 1,
2025 (https://ww2.arb.ca.gov/sites/default/files/2025-08/2025_lcfs_fro_oal-approved_unofficial_08112025.pdf ) specifies the
50% spending requirement. The equity project spending requirement was 30% in 2022, 40% in 2023, and 50% from 2024
onwards.
2 Additionally, as a result of the changes in the regulation, the number of electricity credits CPAU earns has decreased, and
compressed natural gas (CNG) dispensed at the Municipal Service Center generates deficits, rather than credits, as of 2025.
3 17 CCR 95483(c)(1)(A)(5)(a).
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Council adopt a definition of “low-income individual” for the purposes of Palo Alto’s LCFS
program that includes customers who are eligible for RAP based on financial need.
BACKGROUND
7 in funding
and has expended $8.1 million on projects and programs supporting the transition to electric
transportation in Palo Alto8. Palo Alto transportation electrification programs provide technical
assistance to multi-family and non-profit organizations to install EV charging infrastructure
and provide cash rebates to partially defray the cost of installing EV chargers. As of December
2025, approximately $6.8 million in reserves and annual revenues of ~$1.3 million are available
for future transportation electrification customer programs.
7 The $14.9 million is the proceeds from the sale of 135,000 LCFS credits received since 2016. Of these proceeds $14.3 million
was related to sale of LCFS ’base credits’ earned by City of Palo Alto Utilities (CPAU) for electricity provided for residential
charging. Electricity and Natural gas dispensed by PWD-operated EV chargers and CNG stations received ~$465k and ~$150k of
the proceeds respectively. Due to changes to the LCFS regulation, the CNG station no longer receives credits, but instead, needs
to buy credits to meet the LCFS regulatory requirements.
8 EV customer programs have providing EV charger rebates ($3M), CALeVIP rebates ($0.53M), California Clean Fuel Rebate
($1.66M), technical assistance program for multi-family and non-profits to install EV chargers ($0.64M), DCFC electricity rate
discount ($0.23M), funding for the installation and maintenance of EV chargers in City garages ($0.35M), educational programs
and events promoting EVs and available customer programs ($0.57M), program management services/staffing ($1.1M), other
($0.1M).
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Table 1: FY 2027 Budget for Transportation Electrification
Spending Category FY2027 Budget Reappropriations LCFS Electric C&I Total FY2027
Outreach and
Education $172,548 -$172,548 -$172,548
Multi-Family/ Nonprofit EV 1.0 (projects in progress)
Multi-family
Affordable Chargers - $872,960 $872,690 -$872,960
Multi-family &
Nonprofit Full /
Partial Market Rate
Chargers - $1,491,087 $1,491,087 -$1,491,087
Multi-Family EV 2.0 (new projects)
Multi-family
Affordable Charging
and Programs $1,427,480 -$1,427,480 -$1,427,480
Multi-family Full /
Partial Market Rate
Charging $2,183,000 $525,000 $1,114,410 $1,593,590 $2,708,000
Public Agency EV
Charger Program $566,400 $181,248 $385,152 $566,400
FUNDING TOTALS:$5,259,463 $1,978,742 $7,238,475
Palo Alto is categorized as an Electric Distribution Utility (EDU) in the LCFS regulation. The LCFS
regulation requires that 50% of holdback credit annual spending11 be directed towards projects
serving low-income individuals and low-income communities (also known as “equity projects”
in the LCFS regulation). Per the LCFS Regulation, approved uses of equity project spending
include transportation electrification efforts for the primary benefit of or primarily serving
disadvantaged communities, rural areas, tribal lands, low-income communities, or low-income
individuals. The regulation lists the following pre-approved categories of equity projects:
Electrification of drayage trucks and other medium-, heavy-duty, or off-road vehicles,
including school and transit buses;
Publicly accessible and multifamily EV charging infrastructure;
o Public EV charging infrastructure must be in a disadvantaged community, low-
income community, rural area, or tribal land, while multifamily EV charging
infrastructure may also qualify by specifically benefitting low-income individuals.
Investment in e-mobility options such as EV sharing and ride-hailing;
11 Base credits are allocated to EDUs based on the number of EVs registered in its service territory, in recognition of the
electricity supplied to charge the EVs. There is an obligation for EDUs to contribute certain amount of these sales proceeds to
fund the statewide Clean Fuels Rewards (CFR) program. Remaining base credits are called the holdback credits. Starting in
CY2026 CPAU does not have any obligation to fund the CFR program, hence the number of base credits and holdback credits
are the same.
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o Rebates and incentives must directly benefit low-income individual drivers or
riders, or the majority of ride endpoints must occur in disadvantaged
communities, low-income communities, rural areas, or tribal lands.
Rebates and incentives beyond existing local, federal and State rebates and incentives
for purchasing/leasing new and used EVs, for residential EV charging infrastructure, and
offsetting costs for residential and nonresidential EV charging;
o The rebates and incentives must be offered to low-income individuals.
Promoting use and additional incentives for use of public transit and other clean
mobility solutions via charging equipment or infrastructure that directly supports the
following categories:
o EV sharing and ride hailing programs
These incentives must directly benefit low-income individuals, or the
majority of ride endpoints must occur in disadvantaged communities,
low-income communities, rural areas, or tribal lands.
o Electrification of public transit and school buses, including battery swap
programs
These transit vehicles and school buses must serve disadvantaged
communities, low-income communities, rural areas, or tribal lands.
o Use or ownership of neighborhood EVs, eBikes, eScooters, eMotorcycles, and
other micromobility solutions
These electric vehicles must be owned by low-income individuals, or
provided for disadvantaged communities, low-income communities, rural
areas, and/or tribal lands.
Workforce development programs in support of transportation electrification;
Grid-side infrastructure that supports medium and heavy-duty charging.
o The infrastructure must directly support a disadvantaged community, low-
income community, rural area, or tribal lands.
Transportation electrification projects that are identified in, or consistent with, a
Community Emission Reduction Plan created in response to AB 617: Community Air
Protection Program (2017).
Projects not listed above may still be treated as equity projects with prior approval from CARB.
In addition to the equity projects listed above, other non-equity approved uses of holdback
credit annual spending per the LCFS Regulation are:
Investments in grid-side distribution infrastructure necessary for EV charging.
Support for vehicle-grid integration with projects such as:
o Encouraging the optimization of EV charging through education in peak
demand, rate pricing, grid emergencies, potential power shutoffs,
infrastructure deferral, renewable integration, and/or other signals and grid
needs to provide grid and customer benefits.
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o Providing program incentives to encourage driver participation in
monitored/managed charging, demand response, or vehicle-to-load /
vehicle-to-grid applications.
o Supporting the deployment and installation of bidirectional charging
equipment.
o Other innovative approaches to promoting and managing EV charging and
discharging that provides benefits to customers and the grid.
Hardware and software that decrease the cost of or avoid updates to infrastructure,
including load management software or outlet splitting.
Projects listed above as approved uses of equity project spending that do not
primarily serve DACs or low-income communities or individuals.
CPAU Future Plans for LCFS Spending, with a Focus on Low-Income Programs
Staff plans to develop new transportation electrification programs that primarily benefit low-
income customers including publicly-accessible curbside EV chargers, EV chargers in publicly-
accessible parking lots within walking distance of affordable housing that can accommodate
electric vehicle (EV) charging infrastructure, and EV and other e-mobility offerings for low-
income individuals such as vehicle leasing or purchasing incentives, EV charging rate discounts,
EV charging infrastructure incentives, and electric carsharing or ride hailing services. Staff plans
to seek approval from CARB in support of its transportation electrification programs and
projects where necessary.
In September 2016, Council approved the City’s first Program for the use of Revenues from the
sale of LCFS Credits (LCFS Program Guideline)13 and in December 2019, Council approved (Staff
Report 1084614, Resolution 987115) an update to the Program. With CARB’s updates in the LCFS
regulations since 2019, staff plans to incorporate feedback from CARB and bring an update to
the LCFS Program Guidelines to the City Council.
If an EDU fails to spend the required percentage on equity projects in a calendar year, the
shortfall of spending is added to its total equity spending requirement for the following year.
For example, during CY2025, Palo Alto’s equity spending requirement was $838,779 (50% of the
total spending of $1,677,558), but the actual equity spending was $459,546. Since
the equity spending was less than the equity spending requirement, the remaining
$379,232 will be carried forward to be spent in CY2026+ for low-income programs.
A project’s eligibility as an equity project can depend in part on whether it specifically benefits
low-income individuals. This report recommends that individuals eligible for Palo Alto’s RAP
13 Staff Report 7128
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=79787&dbid=0&repo=PaloAlto&searchid=a38366f6-5872-4e32-
acf7-3833f61cb71c
14 Staff Report 10846
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=896778&dbid=0&repo=PaloAlto&searchid=ce0a135e-2f36-4b0c-
abe5-fe0ab62722d3
15 Resolution 9871 https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=54120&dbid=0&repo=PaloAlto
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program be considered “low-income individuals” for the purposes of Palo Alto’s LCFS program,
in order to maintain consistency across eligibility criteria for CPAU’s income-based programs.
ANALYSIS
or the definition of low-income established by a
POU’s governing body . . .”19 (emphasis added).
20 Using eligibility for RAP as
the definition of “low-income individual” for the purposes of Palo Alto’s LCFS program will
provide consistency across utility programs, even in the event that the financial eligibility
criteria for RAP changes in the future. Additionally, this definition will allow for ease of
implementation as well as ensure the LCFS funds benefit the low-income individuals that staff
and Council have identified through development of the RAP program.
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
19 17 CCR 95483(c)(1)(A)(5)(a).
20 Staff Report 2501-4065:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=887042&dbid=0&repo=PaloAlto&searchid=de51859c-8532-
420b-8018-dfcfcfef9a93; additionally, Palo Alto operates a Residential Energy Assistance Program (REAP) that provides free
energy efficiency and electrification solutions. To qualify for REAP, residents must be enrolled in the RAP program. Owner-
occupied residents must meet additional qualifying criteria to qualify for REAP.
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On June 1, 2026, the City Council approved changes to the Residential Rate Assistance Program
(RAP) to set the qualifying income level to 80% of the Santa Clara County Area Median Income
(AMI).23 On November 17, 2025, Council approved the Program Design Guidelines for Successor
to Multi-family Electric Vehicle Charger Program24 (EV 2.0 Design Guidelines) to guide
development of a revised multi-family electric vehicle (EV) charger program. These guidelines,
informed by conversation with electrical contractors and EV service providers that had
completed EV infrastructure projects in Palo Alto, were unanimously recommended to Council
by the City’s Climate Action and Sustainability Committee (CASC) on September 19, 2025. These
design guidelines focus on the financial and technical design of future EV charging
infrastructure program offerings. They also highlight complementary customer-facing
programming that would support EV infrastructure investments. On August 18, 2025 the City
Council accepted the E-Mobility Strategic Roadmap.25 The E-Mobility Strategic Roadmap
coordinates and prioritizes the City’s efforts in expanding electric mobility options to meet
climate and transportation goals.
ENVIRONMENTAL REVIEW
AUTHOR/TITLE:
23 Staff Report 2501-4065:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=887042&dbid=0&repo=PaloAlto&searchid=de51859c-8532-
420b-8018-dfcfcfef9a93
24 Staff Report 2508-5087:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83873&dbid=0&repo=PaloAlto&searchid=3bff221c-e00d-44a0-
8593-9d6e3a5ddfe7
25 City Council, August 18, 2025, Staff and the Climate Action and Sustainability Committee Recommendation to Accept the E-
Mobility Strategic Roadmap, Attachment B,
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83554&dbid=0&repo=PaloAlto&searchid=fe370365-e701-4f14-
b9fd-13d37b1a8254
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