Utilities Advisory Commission - March 4, 2026

Commission recommends an 8% water rate increase

The Utilities Advisory Commission voted 5-2 to recommend an 8% water rate increase for fiscal 2027, which would take effect July 1 if adopted by the City Council. The vote reduced staff’s proposed increase from 10%. Commissioners chose to absorb the difference by putting less money into the operating reserve than staff had proposed, rather than cutting planned capital spending.

In separate votes, the commission voted 7-0 to recommend that the Council not approve the water utility’s five-year financial forecast and 5-2 to support authority for transferring up to $5.5 million from the operating reserve to the capital reserve. Staff said that transfer would not change total utility funds but would move money between reserve categories to support capital work.

Commissioners said the rate and forecast needed clearer support for reserve targets, deferred capital projects and future distribution-rate increases, including projections of 12% in fiscal 2028 and 14% in fiscal 2029. They requested more detail on which projects would be paid from reserves and which might use debt, along with a broader review of reserve policy and emergency preparedness.

Staff attributed the proposal to higher operating and construction costs, system replacement needs and reserve restoration. Planned work includes water-main replacement, storm-related pipeline mitigation at Daryl Creek, reservoir seismic evaluations and a new water-system master plan. Staff also projected a 7.4% increase in the San Francisco Public Utilities Commission’s wholesale commodity charge, which is passed through under an existing mechanism, while the Council action concerns the local distribution-rate component.

Public commenters questioned regional demand forecasts, wholesale costs and affordability. Commissioners requested further review of reserves, capital spending and the fiscal 2028-31 outlook. Staff also plans a water cost-of-service study, and customers are expected to receive Proposition 218 notices by the end of April before any approved rate takes effect.

Commissioners scrutinize 16% wastewater proposal

Commissioners also reviewed a staff proposal for a 16% fiscal 2027 wastewater collection rate increase, estimated at about $10.70 a month for a typical residential customer. The commission did not take action on the forecast.

Staff said the increase would fund aging sewer infrastructure, regulatory treatment upgrades, the fiscal 2028 restart of the Five Mile Sewer Replacement Project, higher capital costs and replenishment of a depleted capital reserve. The $192 million Secondary Treatment Upgrade, required for biological nutrient removal, is planned for full operation in 2029. Palo Alto’s capital share is approximately 38%, and debt service on the related State Revolving Fund loan is forecast to begin in 2030.

Commissioners sought clearer information about treatment costs, capacity-fee revenue and whether wastewater charges properly reflect customer use and wet-weather flows. Staff said normal treatment-plant flow is about 18 million gallons per day but reached 40 million gallons per day during a recent storm. The next wastewater cost-of-service study is expected to follow the water study, while a draft sewer collection plan will identify and prioritize future rehabilitation projects.

Primary sources

Watch the meeting on YouTube · Read the official meeting agenda