Utilities Advisory Commission - March 31, 2026

Commission recommends limiting gas-rate increase to 7%

The Utilities Advisory Commission voted 4-3 to recommend limiting Palo Alto’s overall gas-rate increase to no more than 7% beginning July 1, 2026. Staff had proposed a 9% increase, including a 14.5% increase in distribution rates. The recommendation is scheduled for Finance Committee consideration April 21.

The adopted recommendation calls for achieving the lower increase by reducing the gas utility’s contribution to the General Fund and potentially using other measures, such as adjusting reserve levels. It also includes transferring up to $1.5 million at the end of FY 2026 from the gas operations reserve to the distribution rate stabilization reserve.

Staff estimated its original 9% proposal would add about $7.30 a month for a typical residential customer. Staff said actual FY 2025 gas use was about 8% below forecast, while the high-electrification forecast projects sales declining about 1.1% annually. Lower sales increase rates by spreading fixed system costs among fewer therms.

The debate centered on whether reserve levels, the General Fund transfer and gas-system capital spending could be adjusted to reduce the increase. Commissioners also questioned continued investment as Palo Alto studies a long-term gas transition, while staff emphasized its obligation to replace aging pipelines and operate the system safely. Staff warned that reducing the utility transfer would add pressure to a projected $15 million General Fund deficit and could require further city service cuts.

Electric rate recommendation advances on 6-1 vote

The commission separately voted 6-1 to endorse staff’s electric utility recommendation, including a 6% overall rate increase for 2027.

Staff cited grid modernization, transmission expenses, resource-adequacy costs and reserve funding as major drivers. The five-year forecast includes the first grid-modernization debt-service issuance beginning in 2027 and a second in 2030, while another issuance and additional project costs fall outside the forecast period. Staff said three- to four-year equipment lead times contribute to higher planned spending in 2030.

Commissioners requested more analysis showing how the rate change would affect customers across actual usage levels, rather than only at median consumption. They also sought scenarios for higher electricity demand, including potential data-center growth, and questioned applying the same increase to time-of-use rates. Staff said the uniform increase reflects the absence of a new cost-of-service study and indicated that the analysis would be revisited.

Drought assumptions drive debate over water plan

The commission asked for more information before the draft 2025 Urban Water Management Plan returns for a recommendation in May. Staff plans to seek City Council adoption in June, ahead of the state’s July 1 deadline. The commission took no formal action on the plan.

Because the San Francisco Public Utilities Commission supplies all of Palo Alto’s potable water, state requirements call for the city plan to use SFPUC supply information. That information shows potential wholesale-system cutbacks ranging from 31% in the first drought year to 48% in the fifth consecutive drought year under a 2050 planning case.

Public commenters and commissioners questioned the transparency and severity of those drought assumptions. Some favored developing an alternative scenario, while others opposed commissioning a costly independent study. Staff said a separate analysis could be vetted later but could not be completed within the current plan schedule. Staff will also review Water Research Foundation Project 473 and provide more detail about the city’s demand-model assumptions.

The plan will reflect state restrictions on using potable water for nonfunctional turf. Palo Alto must update its ordinance by Jan. 1, 2027, with state implementation scheduled for government properties in 2027, commercial, industrial and institutional properties in 2028, and homeowner associations in 2029. Commissioners discussed whether the city should move the commercial and institutional deadline forward by one year, but reached no decision.

Solar and battery proposals could arrive in May

Staff may bring terms for as many as two solar-and-storage power purchase agreements to the commission as early as May. The procurement sought up to 100 megawatts of solar power and 50 megawatts of battery storage and drew 60 responses. No contract action was taken at the meeting.

Commissioners asked staff to evaluate any proposals within Palo Alto’s full power-supply portfolio, including possible declines in hydropower, replacement capacity and peak-load needs. Roughly half of the city’s portfolio is hydroelectric power. Staff agreed to provide supply-gap graphs and broader portfolio context while seeking to avoid delays in contract negotiations.

Primary sources

Watch the meeting on YouTube · Read the official meeting agenda