Utilities Advisory Commission - October 1, 2025

Commission backs REC exchanges and a 2028 review

The Utilities Advisory Commission voted 4-0 to recommend that the City Council reaffirm the Carbon Neutral Plan and continue the Renewable Energy Credit Exchange Program. The motion calls for staff to return to the commission and council in 2028 for another review; the recommendation now advances to the council.

Under the program, the utility exchanges surplus in-state “Bucket 1” renewable energy credits one-for-one for out-of-state “Bucket 3” credits. Staff said the exchanges do not change the program’s climate impact, but they make the state-required power-content label show more unspecified power and a higher carbon intensity. Staff projected 2025 portfolio carbon intensity at about 159 pounds of carbon dioxide per megawatt-hour with the exchanges, compared with 45 pounds without them.

Agenda materials reported $28.7 million in net program earnings from 2020 through 2025, with $25.3 million set aside for future local decarbonization programs. Staff projected average annual net revenue of about $1.9 million from 2026 through 2030, or approximately $9.5 million total. Commissioners questioned whether the local decarbonization benefits sufficiently offset the effect on the power-content label but ultimately supported continuing the program. Staff plans to return later with a recommendation on handling exchange revenue above the amount available to the decarbonization reserve from carbon-allowance sales.

Gas transition modeling flags pressure on remaining customers

Preliminary gas-transition modeling suggests that falling gas sales could raise rates for customers who remain connected before enough gas mains can be retired. The commission took no action, and staff emphasized that the study examines voluntary customer disconnections and potential system effects, not a plan to withdraw gas service.

Staff estimated that a 25% reduction in gas sales could correspond to an approximately 10% rate increase, even as system costs fell to about 85% of current levels. Under a random-electrification scenario, gas sales would need to decline by an estimated 60% before about 10% of mains could be abandoned. An 80% bookend scenario estimated that about 85% of mains could be abandoned if all residential and small- and medium-business customers disconnected; the analysis assumed no electrification among large commercial and industrial customers.

Staff said about 6% of Palo Alto homes have at least one electric appliance and about 3% are fully electrified. Commissioners asked for comparisons with data from five years earlier, more analysis of affordability and customer-group impacts, coordination with electric-grid planning, and clearer treatment of gas-price volatility, geographic clustering and fugitive emissions. A commissioner also raised a possible sale or other arrangement with PG&E, but staff said selling the gas utility is not contemplated by the study.

The study has an estimated consulting cost of $150,000 and requires an estimated 0.3 full-time-equivalent staff position. Staff plans additional data cleaning and analysis before returning to the commission.

Staff plans limited January launch for time-of-use rate

Staff plans to begin voluntary enrollment in the residential E-1 time-of-use rate with about 10 customers per month during the first quarter of 2026. Enrollment could increase to as many as 50 customers per month if testing and customer feedback are positive, followed by broader enrollment around July 2026. Staff estimated 100 to 500 enrollments during the first year after the rate becomes available to all customers. Participants would have to remain enrolled for at least six months before returning to the standard E-1 rate.

The schedule sets super-off-peak hours from 9 a.m. to 3 p.m. and peak hours from 4 to 9 p.m. The summer rate would range from $0.16645 per kilowatt-hour during super-off-peak hours to $0.33309 during peak hours; the winter range would be $0.17790 to $0.26660. In staff’s illustration for 450 kilowatt-hours of monthly use without behavior changes, the standard E-1 rate would cost about $37.96 less annually. With average use plus 200 kilowatt-hours per month of off-peak or super-off-peak electric-vehicle charging, the time-of-use option could save about $55.61 annually.

The commission did not vote on the plan. Commissioners generally supported the voluntary offering but differed over whether the initial rollout was too cautious. They also warned that the three-tier schedule, particularly the transition from 3 to 4 p.m., and the draft graphics could confuse customers. Staff will revise the materials, develop targeted outreach and individualized rate analysis, and use advanced-meter data to evaluate customer usage and enrollment effects.

Electric supply costs projected at $99.2 million

Palo Alto’s net electric supply costs are projected to increase from $76.2 million in fiscal year 2025 to $99.2 million in fiscal year 2026. Staff said fiscal 2025 costs came in below budget largely because of renewable-energy-credit and resource-adequacy sales, while the higher fiscal 2026 projection reflects resource-adequacy purchases and Western restoration fund costs.

Staff also reported that electric load grew in fiscal 2025 primarily because of data-center demand. Commissioners requested a future discussion of prospective data-center load, local market conditions, potential customers, rate effects and the utility’s policy toward additional data-center demand. Staff said it intended to return with the topic in the December time frame, but the commission issued no formal direction.

Staff described Palo Alto’s electric utility as about five times more reliable than PG&E’s local system. Commissioners asked staff to add Santa Clara reliability metrics while retaining the PG&E comparison, and staff agreed to provide total sales revenue and volume figures rather than only percentage changes in future reports. Commissioners also sought clearer reporting of Palo Alto’s share of a reported $496 million in wastewater-treatment capital work in progress; a figure near 37% was discussed but not confirmed. The commission took no action on the quarterly report.

Battery and fiber plans advance as panel questions fee review

The standalone Trolley Battery Storage Project is moving forward after City Council approved a third-phase agreement, staff reported. The executed agreement has a 20-year term and calls for 50 megawatts of battery storage.

Permits were also approved for the fiber hut at the Colorado Substation, a centralized equipment building supporting the city’s Fiber-to-the-Premises Project. Contractor MP Next Level was scheduled to begin pre-construction mobilization during the week of October 6.

Separately, commissioners questioned whether significant utility connection-fee changes should be presented to the commission before Finance Committee and City Council consideration because of their potential effects on residents and developers. Staff said the fees are intended to recover the city’s full costs and that future updates would be included in the municipal fee schedule process. Staff expected the revised fees to reach City Council on October 20, but the commission took no action.

Primary sources

Watch the meeting on YouTube · Read the official meeting packet