Utilities Advisory Commission - April 2, 2025

Commission recommends gas rate increase with $73.20 residential credit

The Utilities Advisory Commission recommended that the City Council approve a fiscal 2026 gas package with a 5% overall rate increase and a one-time $73.20 credit for each customer in the G-1 residential class. Staff said cost allocations in a new cost-of-service study would raise the median residential gas bill by 22% before the credit; the credit would reduce the estimated impact to 13%. The rate changes would take effect July 1, 2025, if approved by the council.

The modified recommendation also includes transferring up to $1.5 million from the Gas Utility Operations Reserve to the Distribution Rate Stabilization Reserve and transferring up to 18% of fiscal 2024 gross gas revenue to the General Fund. The General Fund transfer is projected at $9.735 million. The named roll call recorded five ayes, one no and one abstention, with Utsav Gupta opposed and Chis Tucher abstaining, although the chair announced the result as 5-2.

The commission separately voted 6-1 to add the approximately $1.6 million residential credit, funded from cap-and-trade auction revenue reserves. Commissioners debated whether that money should soften the immediate bill increase or instead support electrification and other greenhouse-gas reduction efforts. Supporters described the credit as a one-time response to the sharp increase, while critics objected to using climate funds to subsidize gas consumption.

A proposal to limit the General Fund transfer to 14.5% instead of 18% failed 3-4. Staff estimated that the lower transfer would reduce the projected median residential increase by about four percentage points, from 22% to 18%. Gupta also proposed returning the cost-of-service study to the consultant and reverting specified allocation changes, but his motion received no second. The City Council was scheduled to discuss broader climate-action and cap-and-trade funding choices on May 5.

Commission unanimously recommends a 5.1% electric-rate increase

The commission voted 7-0 to recommend that the City Council approve the fiscal 2026 Electric Utility Financial Forecast, amend electric rate schedules effective July 1 and transfer up to $5 million from the Supply Operations Reserve to the Distribution Operations Reserve. Staff described the proposal as a 5.1% overall electric-rate increase, consisting of an 11% distribution-rate increase and a 1% supply-rate increase.

Staff cited grid-modernization investments, reserve recovery, rising transmission and renewable-energy requirements, and higher resource-adequacy costs as drivers of the proposal. The forecast shows potential annual electric-rate increases of 6% to 8% from fiscal 2027 through fiscal 2030. The first bond issuance for grid modernization is expected in fiscal 2026.

Commissioners focused part of their discussion on uncertain load growth, including the possibility of data centers and other large electricity users. Staff said the forecast uses a conservative growth scenario, while commissioners asked how a 60-gigawatt-hour annual capacity reservation discussed in the meeting could affect grid capacity, finances, rates and renewable-energy targets. Staff plans to continue analyzing high-growth scenarios and their financial and physical effects on the grid.

Commission advances gas, fiber and data-center work plan

The commission unanimously approved a revised fiscal 2025-2026 work plan for recommendation to the City Council. The plan adds distinct topics for long-term gas-utility planning and fiber-utility oversight while incorporating most of 14 proposed topics into broader standing assignments. New work-plan items require City Council approval before work begins.

Staff plans to schedule an initial data-center review focused on feasibility, electric-system capacity and customer-rate impacts, with a broader market analysis possible later. Discussion referenced Palo Alto’s approximately 170-megawatt peak electric load and potential smaller data centers using 10 to 20 megawatts. The commission recommended studying the issue; it did not approve a data-center project.

Staff expects to return in late summer or fall with gas-system modeling as an initial step toward a long-term gas strategy. The work plan also calls for emergency-preparedness measures of success, continued oversight of grid modernization and a review of the fiber pilot’s results, business model and decision criteria before any full-city rollout decision.

An off-cycle analysis will examine credit-card fees, which were associated in the discussion with potential annual utility savings of $1.2 million. Staff will return to the commission to discuss a possible rate or policy change. The plan also retains the proposed second transmission corridor within a broader electric-system and supply topic.

Embarcadero gas-main work is expected to last six weeks

Staff said Gas Main Replacement Project 24B is expected to take about six weeks along Embarcadero Road between Alma Street and Emerson Street. Construction was planned for weekdays from 9 a.m. to 5 p.m. and will replace gas mains, pipelines and customer service lines in coordination with new bike-lane installation.

The city’s annual walking gas-leak survey will cover southern Palo Alto this year. The program surveys half of the city annually, allowing the full gas distribution system to be reviewed over two years.

Primary sources

Watch the meeting on YouTube · Read the official meeting packet