Utilities Advisory Commission - May 6, 2026

Commission recommends $511 million utilities budget in split vote

The Utilities Advisory Commission voted 5-1, with one abstention, to recommend that City Council adopt an approximately $511 million Utilities Department operating and capital budget for fiscal year 2027. The advisory vote sends the package to the council, which is scheduled to consider budget adoption June 15.

The proposal includes a $146 million capital program across five utilities. The electric plan contains $84 million, including $57 million for Grid Mod, the city’s distribution-grid modernization initiative. Staff said council approval would support a revised “when and where” rollout based on customer demand and allow the city to order substation transformers with three- to four-year lead times. An initial debt issue of approximately $80 million is planned for fall 2026, while discussion placed the overall Grid Mod estimate at $375 million to $450 million.

The split vote followed concerns about reserve transparency, transfers to the General Fund, contractor costs, staffing vacancies and the explanation for rate increases while overall spending is lower than the prior year. Staff reported a 13% department vacancy rate and proposed eliminating five vacant meter-reader positions effective July 1. Staff also acknowledged a duplicate $14 million climate-action entry that will be corrected in the adopted budget.

The budget includes approximately $7 million for potential Fiber-to-the-Premises expansion, but staff said expansion still requires City Council authorization and that pilot findings would return to the commission in the fall. Staff reported that the first early-adopter customer was connected in early May, with more installations planned beginning the week of May 11. Approximately $5.5 million was spent on the pilot, about 10% above its original $5 million estimate.

Commissioners also pressed for earlier review of utility reserve policies before preliminary rates are presented in November. Staff agreed to examine a July start, noting that the review could require more than one meeting. Separately, staff reported a proposal to raise the residential rate-assistance discount from 25% to 35% and increase eligibility from 50% to 80% of Santa Clara County median income.

Water plan advances with a letter proposing additions

The commission voted 4-1-1 to recommend a water-planning package to City Council while sending an accompanying letter containing proposed additions to the 2025 Urban Water Management Plan. The package also includes the Water Shortage Contingency Plan and amendments to the city’s water-use ordinance. An earlier substitute motion to amend the plan directly failed 2-4.

Discussion centered on San Francisco Public Utilities Commission and regional demand and storage assumptions, population forecasts and modeled cutbacks of 31% to 48% during a five-year drought. Some commissioners and public commenters wanted more context about those projections. Staff said the current plan meets state requirements and warned that adding unvetted demand or storage figures could require consultant analysis, legal review and a later addendum or revision.

City Council is scheduled to consider the package June 8, ahead of the state’s July 1 submission deadline. Staff said maintaining a current plan is necessary to protect eligibility for a State Revolving Fund loan of up to $192 million for secondary-treatment upgrades at the Regional Water Quality Control Plant. The proposed ordinance changes are also intended to bring Palo Alto into compliance with Assembly Bill 1572’s restrictions on using potable water for nonfunctional turf.

In a related action, the commission recommended adoption of the 2026 Annual Water Shortage Assessment Report, with the chair announcing that the motion passed with six votes. Staff said no water shortage is anticipated for fiscal year 2027. Under the proposed contingency-plan update, the city would present future annual assessments for adoption only when a shortage is anticipated.

Megan Mer elected chair in divided leadership votes

The commission selected Megan Mer as its 2026 chair on a 4-2 vote and chose Commissioner Phillips as vice chair by a 4-3 margin. Utsaf Gupta was the alternate candidate in both votes.

The leadership discussion reflected differing priorities for the commission. Mer’s supporters cited her organization, meeting leadership and follow-through, while other commissioners called for process changes, earlier and deeper review of complex issues, greater use of ad hoc committees and a more developed work-plan calendar. The commission plans to develop a 12-month work plan at its next meeting.

Primary sources

Watch the meeting on YouTube · Read the official meeting agenda