Utilities Advisory Commission - October 7, 2026

Commission backs $100 million grid bonds with a 1% rate-impact limit

The Utilities Advisory Commission recommended that the City Council authorize up to $100 million in tax-exempt electric revenue bonds for the first financing tranche of grid modernization. The commission conditioned its support on an all-in true interest cost that would produce no more than a one-time 1% increase over the electric-rate forecast the council approved June 15.

The recommendation also called for a bond call feature and language addressing recent interest-rate increases. Staff described a 10-year call as the base case but said it would evaluate whether an eight- or nine-year option would provide a pricing benefit.

Staff estimated the broader modernization effort at $300 million to $400 million over eight to 10 years. Projected spending through 2029 totaled $123.5 million, including about $27 million incurred in 2025 and 2026 that could be reimbursed from bond proceeds.

Commissioners pressed for more detailed rate-impact calculations, financial sensitivity analysis and complete bond documents. They also debated whether a smaller borrowing at a higher interest cost could still comply with the 1% limit, and whether reserves or pay-as-you-go funding should be used if market conditions remain unfavorable.

The Finance Committee is scheduled to review the financing Oct. 20, followed by the City Council on Dec. 7. Bond pricing is anticipated in January 2027. If the city cannot issue the debt within the rate-impact limit, staff would return with alternatives such as delaying the sale, changing the project sequence, using more cash or reducing the amount borrowed.

Water and wastewater rate principles advance on a split vote

The commission voted 4-2-1 to advance design principles for upcoming water and wastewater cost-of-service work, rejecting an effort to table the matter until staff could provide a fuller menu of possible rate structures.

Staff’s proposal called for rates proportional to the cost of service, a review of all existing rate schedules and consideration of how fixed and variable costs are allocated. Staff said the principles would apply to both utilities, with water as the near-term focus.

Members who sought a delay said the framework risked restating existing legal requirements or constraining the consultant before alternatives were examined. Commissioners asked about tiered and budget-based rates, pressure-zone charges, drought surcharges, conservation pricing and the use of advanced-meter data. Staff said those approaches could be evaluated during the study but that it could not prepare a complete options menu by November.

Commissioners also requested a separate review of recycled-water uses, costs, customers and pricing. That work was left for future scheduling rather than added to the design-principles action.

Low-income EV funding definition expands to match assistance rules

The commission approved a revised low-income definition for Palo Alto’s Low Carbon Fuel Standard programs, linking eligibility to the city’s Rate Assistance Program. The City Council had raised the assistance threshold in June from 50% to 80% of Santa Clara County area median income; the commission’s action applies that standard to LCFS-funded transportation programs rather than changing the underlying utility discount.

Staff estimated that 6,000 to 7,000 households qualify under the expanded threshold, while about 780 residential customers were enrolled. Staff said state rules effective in July 2025 require half of LCFS spending to focus on equity customers, posing a challenge because Palo Alto lacks communities that qualify under the state’s disadvantaged or rural designations.

Palo Alto has received nearly $15 million in LCFS revenue over 10 years and spent $8.1 million, according to staff. Commissioners requested fuller future reporting on program mechanics, revenue drivers and spending.

Staff also reported that Palo Alto has approximately 12,000 registered electric vehicles, representing nearly a quarter of registered vehicles, and that EVs accounted for 60% of new vehicle purchases in 2025. Only 16% of the city’s EVs were registered at multifamily properties. Commissioners urged staff to prioritize the lowest-income households, renters and affordable housing while considering e-bikes, charging hubs and other forms of electric transportation.

PG&E pause leaves second transmission corridor timeline uncertain

Palo Alto’s proposed second electric transmission corridor remains stalled after PG&E stopped work in 2026, staff reported. The California Independent System Operator approved the project in 2025 for regional reliability, but PG&E shifted limited resources toward wildfire-prevention work.

The corridor carried a 2034 in-service goal, while city staff said additional reliability could be needed as early as 2027 or 2028. Staff said it will continue discussions with PG&E and the system operator and submit comments through the transmission-planning process.

Primary sources

Watch the meeting on YouTube · Read the official meeting agenda