Utilities Advisory Commission - November 5, 2025

Commission backs gas cost overhaul in 5-1 vote

The Utilities Advisory Commission voted 5-1 in favor of Palo Alto’s 2026 natural gas cost-of-service analysis and related changes to rate schedules G1, G2 and G3, advancing the package for City Council consideration. The proposal also would repeal G10, the schedule used for the city’s sole compressed-natural-gas refueling station, and replace it with cost-based interfund billing.

Staff said the analysis does not increase the gas utility’s total revenue requirement but redistributes costs using updated usage, load and meter-replacement data. The rebalancing would increase costs for the median residential customer by about 8%. Staff said retaining the previous methodology with current costs would produce an $80.88 median monthly residential bill, $1.55 more than under the new approach.

Much of the debate centered on whether the allocation fairly treats customer classes and supports electrification. One commissioner questioned why residential volumetric charges would exceed G2 and G3 charges and objected to reducing the fixed charge for the smallest G2 meter group from about $170 to $29.24 for roughly 100 customers. Staff and the consultant said residential customers have a peakier load profile and lower total volume, producing higher capacity-related volumetric charges.

A public commenter supported the revised analysis overall but argued that the lower G2 fixed charge could discourage customers from switching away from gas. The commenter also requested clearer presentations of total fiscal-year rate impacts and the effects of methodology changes on each customer class.

Preliminary forecast puts next combined bill increase near 9%

Staff separately projected a preliminary increase of about 9% in the median residential combined utility bill for fiscal year 2027, equal to approximately $37.80 per month on a $442 average 2026 bill. Assumptions for individual utilities included a 6% electric increase, a 9% total gas-bill impact that includes a 14.5% gas distribution-rate increase, and a 10% water increase.

Commissioners raised concerns that repeated increases could become unaffordable. One commissioner calculated from the multiyear projections that the median combined bill could reach about $680 per month, roughly $237 higher, with cumulative increases of 46% for electricity, 50% for gas, 75% for water and 84% for wastewater. Those figures were the commissioner’s calculation rather than a separate staff forecast.

The commission requested comparisons with other cities, future presentations showing dollar amounts as well as percentages, and a more fundamental review of operating and capital costs as gas and water demand decline. Commissioners also sought further discussion of reserve consolidation, appropriate reserve levels and the use of debt versus cash for capital projects. Staff said the preliminary forecast would return for another review and planned to develop a specific charge for an fiscal year 2027 rates subcommittee.

Commission revises 2026 utility advocacy guidelines

The commission voted 4-2 to amend its recommendation on the draft 2026 Utilities Legislative Policy Guidelines, then approved the revised recommendation 6-0. The change addressed greater policy flexibility for rate designs and programs supporting beneficial electrification and decarbonization, with discussion focused on how that goal intersects with cost-allocation constraints under Propositions 26 and 218. Staff said the final wording should receive City Attorney review.

The remaining draft was described as substantively unchanged from the 2023 guidelines apart from grammatical edits. Staff said the broad policies allow the city to respond quickly to state and federal proposals, including federal hydropower changes that could affect a source providing about 40% of Palo Alto’s electricity and potentially carry costs in the tens of millions of dollars annually. The revised recommendation is expected to proceed to the Policy and Services Committee and then City Council.

Temporary utility-payment protections head to council

Staff said it would bring City Council a temporary utility-payment assistance proposal. Under the measure, customers in rate-assistance programs would be protected from automatic shutoffs and late fees, while affected federal employees could enroll after verification.

Primary sources

Watch the meeting on YouTube · Read the official meeting agenda