Agenda packet — Palo Alto City Council, April 17, 2023 (part 3 of 6)

State and federal law shall govern the granting of military leaves of absence and the rights of employees returning from such absence.

ARTICLE X – EMPLOYEE/EMPLOYER RELATIONS
Section 44 – Probationary Period.
a) All original appointments to full-time or part-time regular municipal service positions shall be tentative and subject to a probationary period of twelve months for management employees b) The probationary period shall be regarded as part of the testing process and shall be utilized for closely observing the employees work, for securing the effective adjustment of a new employee to his/her position, and for rejecting any probationary employee whose performance does not meet the acceptable standards of work. c) A report of performance of each probationary employee shall be made by the department head and shown to the probationary employee on or before expiration of the probationary period.
d) During the probationary period a new employee may be suspended, demoted or terminated at any time by the appointing authority without cause and without right of appeal or to submit a grievance.

Section 45 – Disciplinary Action and Unsatisfactory Work or Conduct. Disciplinary action shall be governed by the City’s Merit Rules and Regulation, Palo Alto Police Department Policy 340 on Conduct, the Palo Alto Police Department Internal Affairs and Complaint Investigations Guidelines, and the Police Officer Procedural Bill of Rights Act.

Section 46 – Grievance Procedure.
a) The City and the Association recognize that early settlement of grievances is essential to sound employee-employer relations. The parties seek to establish a mutually satisfactory method for the settlement of employee grievances, or Association grievances, as provided for below. In presenting a grievance, the aggrieved and/or his or her representative is assured freedom from restraint, interference, coercion, discrimination or reprisal. b) Definition. A Grievance is:

1. An unresolved complaint or dispute regarding the application or interpretation of this Memorandum of Agreement

2. An appeal from a disciplinary action of any kind against an employee covered by this Memorandum of Agreement.
c) Access to the Grievance Procedure. Except as otherwise provided in the Memorandum of Agreement for probationary employees, all employees represented by the Association may file and process a grievance. Such aggrieved employees may be represented by the Association or may represent themselves in preparing and presenting their grievance at any level of review. The Association may file a grievance when an Association right under this Memorandum of Agreement not directly related to an individual employee becomes subject to dispute.
d) Conduct of Grievance Procedure.

Item 11
Attachment B PMA
Memorandum of
Agreement

Item 11: Staff Report
Pg.
167

Packet Pg. 412 of 853

City of Palo Alto and PAPMA
January 1, 2023 – June 30, 2025

Page 21 of 23 ends

1. The time limits specified in this Article may be extended by written mutual agreement of the aggrieved employee or the Association and the reviewer concerned.

2. If a decision is not rendered within a stipulated time limit, the aggrieved employee may immediately appeal to the next step.

3. The grievance will be considered settled if the decision at any step is not appealed within the specified time limit.

4. The aggrieved employee or the Association and Human Resources Director may mutually agree in writing to waive any step of the grievance procedure.

5. Written grievances shall be submitted on forms provided by the City or on forms that are mutually agreeable to the City and the Association.

6. Any retroactive monetary arbitrator award or settlement by mutual agreement shall not extend more than ninety (90) days before the date that the grievance was filed in writing at Step 2 below.

The following steps shall apply:

Step I. The aggrieved employee will first attempt to resolve the grievance through informal discussions with his or her immediate supervisor by the end of the tenth working day following the discovery of or the incident upon which the grievance is based. Every attempt will be made to settle the issue at this level. (Note: For purposes of time limits, the working days are considered to be Monday through Friday, exclusive of City holidays.) Appeals of disciplinary action should be processed through the procedures outlined in Step 2-3 of the Grievance Procedure.

Step II. If the grievance is not resolved through the informal discussion, the employee will reduce the grievance to writing and submit copies to the department head or his/her designee within ten (10) working days of the discussion with the immediate supervisor.

The department head or his/her designee shall have ten (10) working days from the receipt of a written grievance to review the matter and prepare a written statement.

Step III. If the grievance is not resolved at Step II, the aggrieved employee may choose between final and binding resolution of the grievance through appeal to the City Manager or through appeal to final and binding grievance arbitration. For the term of this Memorandum of Agreement, appeals to final and binding arbitration may be processed only with Association approval. All Step III appeals must be filed in writing at the Human Resources Department Office within ten (10) working days of receipt of the Step II appeal.

If the aggrieved employee elects final and binding resolution by the City Manager, the City Manager will choose the methods he or she considers appropriate to review and settle the grievance. The City Manager shall render a written decision to all parties directly involved within ten working days after receiving the employee's appeal.

Item 11
Attachment B PMA
Memorandum of
Agreement

Item 11: Staff Report
Pg.
168

Packet Pg. 413 of 853

City of Palo Alto and PAPMA
January 1, 2023 – June 30, 2025

Page 22 of 23 ends

If the aggrieved employee elects final and binding arbitration in accordance with this provision, the parties shall mutually select an arbitrator. In the event the parties cannot agree on an arbitrator, they shall mutually request a panel of five arbitrators from the California State Conciliation Service or from the American Arbitration Association if either party objects to the State Conciliation Service, and select an arbitrator by the alternate strike method.

The arbitrator shall have jurisdiction and authority only to interpret, apply, or determine compliance with the provisions of this Memorandum of Agreement and such Merit System Rules, regulations, policies, procedures, City ordinances, resolutions relating to terms or conditions of employment, wages or fringe benefits, as may hereafter be in effect in the City insofar as may be necessary to the determination of grievances appealed to the arbitrator. The arbitrator shall be without power to make any decision:

1) Regarding matters of interest.
2) Contrary to, or inconsistent with or modifying in any way, the terms of this Memorandum of Agreement.
3) Granting any wage increases or decreases.

The arbitrator shall be without authority to require the City to delegate or relinquish any powers which by State law or City Charter the City cannot delegate or relinquish. If either party seeks arbitration and the other party claims the matter is not subject to the arbitration provisions of this Memorandum of Agreement, the issue of arbitrability shall first be decided by the arbitrator using the standards and criteria set forth in this section and without regard to the merits of the grievance.

If the issue is held to be arbitrable, the arbitration proceedings will be recessed for up to five working days during which the parties shall attempt to resolve the grievance. If no resolution is reached, the arbitrator will resume the hearing and hear and resolve the issue on the merits.

Copies of the arbitrator's decision shall be submitted to the City, the aggrieved employee and the Association. All direct costs emanating from the arbitration procedure shall be shared equally by the City and the aggrieved employee or the Association.

Section 47 – No Strikes. The Association, its representatives, or members, shall not engage in or cause, instigate, encourage, sanction, or condone a strike, withholding of services, concerted abuse of leave of absence provisions, work stoppage or work slowdown of any kind. No employee shall refuse to cross any picket line in the conduct of Police Department business, nor shall the Association, its representatives, or members discriminate in any way toward anyone who refuses to participate in a strike, or any of the job actions cited above.

Section 48 – Reduction in Workforce. In the event of reductions in force, they shall be accomplished wherever possible through attrition.

If the work force is reduced in the Association, the City will give an employee impacted by a potential lay off 30 days' notice prior to any reduction in force.

Item 11
Attachment B PMA
Memorandum of
Agreement

Item 11: Staff Report
Pg.
169

Packet Pg. 414 of 853

City of Palo Alto and PAPMA
January 1, 2023 – June 30, 2025

Page 23 of 23 ends

ARTICLE XI – LOOKING FORWARD
Section 49 – Full Understanding. This Memorandum of Agreement contains the full and entire understanding of the parties regarding the matters set forth herein. The parties agree that they shall each carry out their responsibilities under the MOA in good faith.

Section 50 – Legal Compliance/Severability. If any provision herein contained is rendered or declared invalid by reason of existing State or Federal legislation or by reason of State Supreme Court or U. S. Supreme Court ruling, such invalidation of such part or portion of this Memorandum of Agreement shall not invalidate the remaining portions hereof, and they shall remain in full force and effect, insofar as such remaining portions are severable.

Section 51 – Duration. The term of this Agreement shall become effective upon ratification and adoption by both parties and shall expire on June 30, 2025.

Item 11
Attachment B PMA
Memorandum of
Agreement

Item 11: Staff Report
Pg.
170

Packet Pg. 415 of 853

Palo Alto Peace Officers' Association (PAPOA)
Salary Schedule
Job Code FLSA Job Title Effective 04/08/2023 (5% Increase + Med Ben) Effective 07/15/2023 (4% Increase) Rate Monthly Annual
Effective 01/13/2024 (Med Ben)
Rate Monthly Annual
Effective 07/13/2024 (4% Increase)
Step Rate Monthly Annual Step Step Step Rate
$60.40
$60.40
$60.40
$60.40
$60.40
$60.40
Monthly Annual
1 2
3 4
5 6
$
$
$
$
$
$

55.27 1
2 3
4 5
6 $
$
$
$
$
$

57.49 1
2 3
4 5
6 $
$
$
$
$
$

58.07 1
2 3
4 5
6 55.27

55.27 55.27

57.49 57.49

57.49 58.07

58.07 58.07

58.07 58.07
617 Non‐exempt Police Trainee‐Bilingual
$
$
$
$
$
$
$
$
$
9,580.13 $
$
$
$
$
$
$
$
$
114,962 $
$
$
$
$
$
$
$
$
9,964.93 $
$
$
$
$
$
$
$
$
119,579 $
$
$
$
$
$
$
$
$
10,065.47 $
$
$
$
$
$
$
$
$
120,786 $
$
$
$
$
$
$
$
$
10,469.33 $
$
$
$
$
$
$
$
$
125,632
1 2
3 4
5 6
$
$
$
$
$
$

52.69 52.69

52.69 52.69
1 2
3 4
5 6
$
$
$
$
$
$

54.80 54.80

54.80 54.80
1 2
3 4
5 6
$
$
$
$
$
$

55.38 55.38

55.38 55.38
1 2
3 4
5 6
$57.60
$57.60
$57.60
$57.60
$57.60
$57.60
620
621
622
623
624
625
626
627
Non‐exempt
Non‐exempt
Non‐exempt
Non‐exempt
Non‐exempt
Non‐exempt
Non‐exempt
Non‐exempt
Police Trainee
Police Officer
9,132.93
12,362.13
12,975.73
13,251.33
13,913.47
12,975.73
15,684.93
12,362.13
109,595
148,346
155,709
159,016
166,962
155,709
188,219
148,346
9,498.67
12,857.87
13,495.73
13,781.73
14,471.60
13,495.73
16,312.40
12,857.87
113,984
154,294
161,949
165,381
173,659
161,949
195,749
154,294
9,599.20
12,958.40
13,596.27
13,882.27
14,572.13
13,596.27
16,412.93
12,958.40
115,190
155,501
163,155
166,587
174,866
163,155
196,955
155,501
9,984.00
13,478.40
14,140.53
14,438.67
15,156.27
14,140.53
17,069.87
13,478.40
119,808
161,741
169,686
173,264
181,875
169,686
204,838
161,741
1 2
3 4
5 6
$
$
$
$
$
$

55.32 58.20

61.23 64.42

67.78 71.32
1 2
3 4
5 6
$
$
$
$
$
$

57.40 60.42

63.60 66.95

70.47 74.18
1 2
3 4
5 6
$
$
$
$
$
$

57.98 61.00

64.18 67.53

71.05 74.76
1 2
3 4
5 6
$60.17
$63.34
$66.67
$70.18
$73.87
$77.76
1 2
3 4
5 6
$
$
$
$
$
$

58.06 61.09

64.27 67.62

71.15 74.86
1 2
3 4
5 6
$
$
$
$
$
$

60.25 63.42

66.76 70.27

73.97 77.86
1 2
3 4
5 6
$
$
$
$
$
$

60.83 64.00

67.34 70.85

74.55 78.44
1 2
3 4
5 6
$63.13
$66.45
$69.95
$73.63
$77.50
$81.58
Police Officer‐Inter
1 2
3 4
5 6
$
$
$
$
$
$

59.30 62.39

65.64 69.06

72.66 76.45
1 2
3 4
5 6
$
$
$
$
$
$

61.51 64.75

68.16 71.75

75.53 79.51
1 2
3 4
5 6
$
$
$
$
$
$

62.09 65.33

68.74 72.33

76.11 80.09
1 2
3 4
5 6
$64.46
$67.85
$71.42
$75.18
$79.14
$83.30
Police Officer‐Adv
1 2
3 4
5 6
$
$
$
$
$
$

62.24 65.48

68.90 72.50

76.29 80.27
1 2
3 4
5 6
$
$
$
$
$
$

64.60 68.00

71.58 75.35

79.32 83.49
1 2
3 4
5 6
$
$
$
$
$
$

65.18 68.58

72.16 75.93

79.90 84.07
1 2
3 4
5 6
$67.66
$71.22
$74.97
$78.92
$83.07
$87.44
Police Officer‐Adv‐Bilingual
Police Off Training‐Bilingual
Police Sergeant‐Bilingual
Police Off Training
1 2
3 4
5 6
$
$
$
$
$
$

58.06 61.09

64.27 67.62

71.15 74.86
1 2
3 4
5 6
$
$
$
$
$
$

60.25 63.42

66.76 70.27

73.97 77.86
1 2
3 4
5 6
$
$
$
$
$
$

60.83 64.00

67.34 70.85

74.55 78.44
1 2
3 4
5 6
$63.13
$66.45
$69.95
$73.63
$77.50
$81.58
1 2
3 4
5 6
$
$
$
$
$
$

70.15 73.81

77.66 81.72

85.99 90.49
1 2
3 4
5 6
$
$
$
$
$
$

72.82 76.65

80.68 84.93

89.40 94.11
1 2
3 4
5 6
$
$
$
$
$
$

73.40 77.23

81.26 85.51

89.98 94.69
1 2
3 4
5 6
$76.21
$80.22
$84.44
$88.88
$93.56
$98.48
1 2
3 4
5 6
$
$
$
$
$
$

55.32 58.20

61.23 64.42

67.78 71.32
1 2
3 4
5 6
$
$
$
$
$
$

57.40 60.42

63.60 66.95

70.47 74.18
1 2
3 4
5 6
$
$
$
$
$
$

57.98 61.00

64.18 67.53

71.05 74.76
1 2
3 4
5 6
$60.17
$63.34
$66.67
$70.18
$73.87
$77.76
1 $ 73.78 1 $ 76.59 1 $ 77.17 1 $80.12
Item 11
Attachment C POA Salary Schedule

Item 11: Staff Report
Pg.
171

Packet Pg. 416 of 853

77.63 2
3 4
5 6
$
$
$
$
$

80.62 2
3 4
5 6
$
$
$
$
$

81.20 2
3 4
5 6
$84.34
$88.78
$93.45
$98.37
$103.55

81.68 85.95

90.44 95.17

84.86 89.33

94.03 98.98

85.44 89.91

94.61 99.56
628 Non‐exempt Police Sgt/Inter‐Bilingual
$
$
$
$
$
16,496.13 $
$
$
$
$
197,954 $
$
$
$
$
17,156.53 $
$
$
$
$
205,878 $
$
$
$
$
17,257.07 $
$
$
$
$
207,085 $
$
$
$
$
17,948.67 $
$
$
$
$
215,384
1 2
3 4
5 6
$
$
$
$
$
$

75.42 79.36

83.51 87.87

92.46 97.30
1 2
3 4
5 6
$
$
$
$
$
$

78.30 82.42

86.76 91.33

96.14 101.20
1 2
3 4
5 6
$
$
$
$
$
$

78.88 83.00

87.34 91.91

96.72 101.78
1 2
3 4
5 6
$81.91
$86.22
$90.76
$95.54
$100.57
$105.86
629
631
632
633
Non‐exempt
Non‐exempt
Non‐exempt
Non‐exempt
Police Sgt/Adv‐Bilingual
16,865.33
14,937.87
15,728.27
16,073.20
202,384
179,254
188,739
192,878
17,541.33
15,535.87
16,357.47
16,716.27
210,496
186,430
196,290
200,595
17,641.87
15,636.40
16,458.00
16,816.80
211,702
187,637
197,496
201,802
18,349.07
16,262.13
17,116.67
17,491.07
220,189
195,146
205,400
209,893
1 2
3 4
5 6
$
$
$
$
$
$

66.81 70.30

73.97 77.83

81.90 86.18
1 2
3 4
5 6
$
$
$
$
$
$

69.36 73.01

76.85 80.89

85.15 89.63
1 2
3 4
5 6
$
$
$
$
$
$

69.94 73.59

77.43 81.47

85.73 90.21
1 2
3 4
5 6
$72.60
$76.42
$80.44
$84.67
$89.13
$93.82
Police Sergeant
1 2
3 4
5 6
$
$
$
$
$
$

70.35 74.02

77.88 81.95

86.23 90.74
1 2
3 4
5 6
$
$
$
$
$
$

73.02 76.86

80.91 85.17

89.65 94.37
1 2
3 4
5 6
$
$
$
$
$
$

73.60 77.44

81.49 85.75

90.23 94.95
1 2
3 4
5 6
$76.41
$80.43
$84.66
$89.12
$93.81
$98.75
Police Sgt/Inter
1 2
3 4
5 6
$
$
$
$
$
$

71.88 75.63

79.58 83.74

88.12 92.73
1 2
3 4
5 6
$
$
$
$
$
$

74.63 78.56

82.69 87.04

91.62 96.44
1 2
3 4
5 6
$
$
$
$
$
$

75.21 79.14

83.27 87.62

92.20 97.02
1 2
3 4
5 6
$78.08
$82.19
$86.52
$91.07
$95.86
$100.91
Police Sgt/Adv
Item 11
Attachment C POA Salary Schedule

Item 11: Staff Report
Pg.
172

Packet Pg. 417 of 853

Palo Alto Police Managers' Association (PAPMA)
Salary Schedule
Adoption ‐ Effective 04/08/2023: 5% Market + Benefit Offset Job Code
147
FLSA
Exempt
Exempt
Classification
Police Captain‐Adv
Police Liet‐Adv
Grade Code Min Hourly Rate Mid Hourly Rate Max Hourly Rate Approx Max Monthly Salary Approx Max Annual Salary 023 $
$

88.05 78.72
$
$
110.06

98.40 $
$
132.08
118.08
$
$
22,894
20,467
$
$
274,726
245,606149 086
Effective 07/15/2023: 4% General Increase
Job Code
147
FLSA
Exempt
Exempt
Classification
Police Captain‐Adv
Police Liet‐Adv
Grade Code Min Hourly Rate Mid Hourly Rate Max Hourly Rate Approx Max Monthly Salary Approx Max Annual Salary 023 $
$

91.58 81.88
$
$
114.47
102.34
$
$
137.37
122.81
$
$
23,811
21,287
$
$
285,730
255,445149 086
Effective 01/13/2024: Benefit Offset
Job Code
147
FLSA
Exempt
Exempt
Classification
Police Captain‐Adv
Police Liet‐Adv
Grade Code Min Hourly Rate Mid Hourly Rate Max Hourly Rate Approx Max Monthly Salary Approx Max Annual Salary 023 $
$

92.04 82.34
$
$
115.05
102.92
$
$
138.06
123.51
$
$
23,930
21,408
$
$
287,165
256,901149 086
Effective 07/13/2024: 4% General Increase
Job Code
147
FLSA
Exempt
Exempt
Classification
Police Captain‐Adv
Police Liet‐Adv
Grade Code Min Hourly Rate Mid Hourly Rate Max Hourly Rate Approx Max Monthly Salary Approx Max Annual Salary 023 $
$

95.73 85.64
$
$
119.66
107.04
$
$
143.60
128.45
$
$
24,891
22,265
$
$
298,688
267,176149 086
Item 11
Attachment D PMA Salary Schedule

Item 11: Staff Report
Pg.
173

Packet Pg. 418 of 853

Non-Shift
Job Code Classifications Grade Codes Hourly Rate Approx Monthly Salary Approx. Annual Salary 018 Battalion Chief 40-hour workweek 28 $116.99 $20,278 $243,339 015 Battalion Chief EMT 40-hour workweek 28E $120.17 $20,829 $249,954 2019 Battalion Chief EMT, Training 40-hour workweek 28E $120.17 $20,829 $249,954 Shift
Job Code Classifications Grade Codes Approx Monthly Salary Approx. Annual Salary 116 Battalion Chief 56-hour workweek 030 $79.81 $19,367 $232,407 016 Battalion Chief EMT 56-hour workweek 030E $81.97 $19,891 $238,697 Non-Shift
Job Code Classifications Grade Codes Hourly Rate Approx Monthly Salary Approx. Annual Salary 018 Battalion Chief 40-hour workweek 28 $121.67 $21,089 $253,074 015 Battalion Chief EMT 40-hour workweek 28E $124.98 $21,663 $259,958 2019 Battalion Chief EMT, Training 40-hour workweek 28E $124.98 $21,663 $259,958 Shift
Job Code Classifications Grade Codes Approx Monthly Salary Approx. Annual Salary 116 Battalion Chief 56-hour workweek 030 $83.01 $20,144 $241,725 016 Battalion Chief EMT 56-hour workweek 030E $85.25 $20,687 $248,248 Non-Shift
Job Code Classifications Grade Codes Hourly Rate Approx Monthly Salary Approx. Annual Salary 018 Battalion Chief 40-hour workweek 28 $122.25 $21,190 $254,280 015 Battalion Chief EMT 40-hour workweek 28E $125.56 $21,764 $261,165 2019 Battalion Chief EMT, Training 40-hour workweek 28E $125.56 $21,764 $261,165 Shift
Job Code Classifications Grade Codes Approx Monthly Salary Approx. Annual Salary 116 Battalion Chief 56-hour workweek 030 $83.59 $20,285 $243,414 016 Battalion Chief EMT 56-hour workweek 030E $85.83 $20,828 $249,937 Non-Shift
Job Code Classifications Grade Codes Hourly Rate Approx Monthly Salary Approx. Annual Salary 018 Battalion Chief 40-hour workweek 28 $127.14 $22,038 $264,451 015 Battalion Chief EMT 40-hour workweek 28E $130.59 $22,636 $271,627 2019 Battalion Chief EMT, Training 40-hour workweek 28E $130.59 $22,636 $271,627 Shift
Job Code Classifications Grade Codes Approx Monthly Salary Approx. Annual Salary 116 Battalion Chief 56-hour workweek 030 $86.94 $21,097 $253,169 016 Battalion Chief EMT 56-hour workweek 030E $89.27 $21,663 $259,954 Non-Shift
Job Code Classifications Grade Codes Hourly Rate Approx Monthly Salary Approx. Annual Salary 018 Battalion Chief 40-hour workweek 28 $129.69 $22,480 $269,755 015 Battalion Chief EMT 40-hour workweek 28E $133.21 $23,090 $277,077 2019 Battalion Chief EMT, Training 40-hour workweek 28E $133.21 $23,090 $277,077 Shift
Job Code Classifications Grade Codes Approx Monthly Salary Approx. Annual Salary 116 Battalion Chief 56-hour workweek 030 $88.68 $21,520 $258,236 016 Battalion Chief EMT 56-hour workweek 030E $91.06 $22,097 $265,167 07/12/2024 (4% Increase)
1/11/2025 (2% Increase)
Adoption (11% Increase+Benefit Offset)
07/15/2023 (4% Increase)
1/13/2024 (Benefit Offset)
Palo Alto Fire Chiefs' Association (PAFCA)
Salary Schedule
Item 11
Attachment E Corrected FCA Salary
Schedule

Item 11: Staff Report
Pg.
174

Packet Pg. 419 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
190 Non-Exempt Accountant 690P $40.52 $50.65 $60.78 $84,282 $105,352 $126,422 76 Exempt Administrative Assistant 750P $32.40 $40.50 $48.60 $67,392 $84,240 $101,088 115 Exempt Assistant Chief Building Official 405M $58.82 $73.52 $88.23 $122,346 $152,922 $183,518 132 Exempt Assistant Chief of Police 100A $96.40 $120.49 $144.59 $200,512 $250,619 $300,747 108 Exempt Assistant City Attorney 165A $73.98 $92.47 $110.97 $153,878 $192,338 $230,818 109 Exempt Assistant City Clerk 630M $44.79 $55.98 $67.18 $93,163 $116,438 $139,734 107 Exempt Assistant City Manager 20E $96.15 $120.18 $144.22 $199,992 $249,974 $299,978 73 Exempt Assistant Director Administrative Services 120A $79.80 $99.74 $119.69 $165,984 $207,459 $248,955 126 Exempt Assistant Director Community Services 150A $76.40 $95.50 $114.60 $158,912 $198,640 $238,368 1007 Exempt Assistant Director Human Resources 155A $73.88 $92.34 $110.81 $153,670 $192,067 $230,485 2001 Exempt Assistant Director Library Services 160A $68.99 $86.23 $103.48 $143,499 $179,358 $215,238 10 Exempt Assistant Director Planning & Community Environment 130A $77.70 $97.12 $116.55 $161,616 $202,010 $242,424 143 Exempt Assistant Director Public Works 140A $76.80 $96.00 $115.20 $159,744 $199,680 $239,616 168 Exempt Assistant Fleet Manager 585M $44.50 $55.62 $66.75 $92,560 $115,690 $138,840 102 Exempt Assistant Manager WQCP 240D $63.52 $79.40 $95.28 $132,122 $165,152 $198,182 30 Exempt Assistant to the City Manager 390M $62.29 $77.86 $93.44 $129,563 $161,949 $194,355 118 Exempt Chief Building Official 290M $75.35 $94.18 $113.02 $156,728 $195,894 $235,082 2008 Exempt Chief Communications Officer 135A $73.47 $91.83 $110.20 $152,818 $191,006 $229,216 112 Exempt Chief Planning Official 220D $67.39 $84.23 $101.08 $140,171 $175,198 $210,246 95 Exempt Chief Procurement Officer 235D $57.56 $71.94 $86.33 $119,725 $149,635 $179,566 82 Exempt Chief Transportation Official 140A $73.01 $91.26 $109.52 $151,861 $189,821 $227,802 96 Exempt Claims Investigator 660P $39.36 $49.20 $59.04 $81,869 $102,336 $122,803 24 Exempt Communication Specialist 615M $42.60 $53.24 $63.89 $88,608 $110,739 $132,891 89 Exempt Contracts Administrator 585P $50.00 $62.50 $75.00 $104,000 $130,000 $156,000 186 Non-Exempt Coordinator Library Circulation 675M $40.66 $50.82 $60.99 $84,573 $105,706 $126,859 191 Exempt Fire Marshal* 125A $87.72 $109.65 $131.58 $182,458 $228,072 $273,686 11 Exempt Deputy City Attorney 375M $58.02 $72.52 $87.03 $120,682 $150,842 $181,022 71 Exempt Deputy City Clerk 720M $35.08 $43.85 $52.62 $72,966 $91,208 $109,450 55 Exempt Deputy City Manager 115A $76.28 $95.34 $114.41 $158,662 $198,307 $237,973 195 Exempt Deputy Director Technical Services Division 200D $71.96 $89.95 $107.94 $149,677 $187,096 $224,515 20 Exempt Deputy Fire Chief* 110A $91.38 $114.22 $137.07 $190,070 $237,578 $285,106 81 Exempt Director Administrative Services/Chief Financial Officer 50E $92.88 $116.09 $139.31 $193,190 $241,467 $289,765 72 Exempt Director Community Services 45E $88.32 $110.39 $132.47 $183,706 $229,611 $275,538 City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective 12/31/2022 (Market and Benefits Offset)
Hourly Rate Annual Salary

Page 1 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
175

Packet Pg. 420 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective 12/31/2022 (Market and Benefits Offset)
Hourly Rate Annual Salary
1012 Exempt Director Development Services 145A $77.59 $96.98 $116.38 $161,387 $201,718 $242,070 133 Exempt Director Human Resources/Chief People Officer 55E $88.55 $110.68 $132.82 $184,184 $230,214 $276,266 128 Exempt Director Information Technology/Chief Information Officer 25E $96.71 $120.88 $145.06 $201,157 $251,430 $301,725 131 Exempt Director Libraries 60E $82.69 $103.36 $124.04 $171,995 $214,989 $258,003 2028 Exempt Director of Emergency Medical Services 215D $69.63 $87.03 $104.44 $144,830 $181,022 $217,235 2005 Exempt Director Office of Emergency Services 215D $69.63 $87.03 $104.44 $144,830 $181,022 $217,235 49 Exempt Director Office of Management and Budget 120A $79.80 $99.74 $119.69 $165,984 $207,459 $248,955 134 Exempt Director Planning & Community Environment 40E $93.12 $116.39 $139.67 $193,690 $242,091 $290,514 135 Exempt Director Public Works/City Engineer 30E $94.31 $117.88 $141.46 $196,165 $245,190 $294,237 121 Exempt Director Utilities 10E $111.29 $139.11 $166.94 $231,483 $289,349 $347,235 2002 Exempt Division Head Library Services 260D $60.28 $75.34 $90.41 $125,382 $156,707 $188,053 172 Exempt Division Manager Open Space, Parks & Golf 245D $62.66 $78.32 $93.99 $130,333 $162,906 $195,499 2031 Exempt Division Manager Planning 220D $67.39 $84.23 $101.08 $140,171 $175,198 $210,246 1005 Exempt Executive Assistant to the City Manager 705M $36.60 $45.74 $54.89 $76,128 $95,139 $114,171 139 Exempt Fire Chief* 35E $105.11 $131.38 $157.66 $218,629 $273,270 $327,933 163 Exempt Hearing Officer 480M $51.51 $64.38 $77.26 $107,141 $133,910 $160,701 101 Exempt Human Resources Representative 735P $34.24 $42.79 $51.35 $71,219 $89,003 $106,808 90 Exempt Landscape Architect Park Planner 510M $49.05 $61.31 $73.58 $102,024 $127,525 $153,046 2015 Exempt Legal Fellow 755P $43.14 $53.92 $64.71 $89,731 $112,154 $134,597 171 Exempt Management Analyst 585M $44.50 $55.62 $66.75 $92,560 $115,690 $138,840 79 Exempt Manager Accounting 235D $60.86 $76.07 $91.29 $126,589 $158,226 $189,883 2007 Exempt Manager Airport 210D $69.86 $87.32 $104.79 $145,309 $181,626 $217,963 2023 Exempt Manager Budget 360M $64.58 $80.72 $96.87 $134,326 $167,898 $201,490 38 Exempt Manager Communications 525M $49.35 $61.68 $74.02 $102,648 $128,294 $153,962 154 Exempt Manager Community Services 630M $45.88 $57.34 $68.81 $95,430 $119,267 $143,125 169 Exempt Manager Community Services Sr Program 585M $49.28 $61.60 $73.92 $102,502 $128,128 $153,754 1013 Exempt Manager Development Center 495M $55.69 $69.61 $83.54 $115,835 $144,789 $173,763 63 Exempt Manager Economic Development 220D $64.31 $80.38 $96.46 $133,765 $167,190 $200,637 44 Exempt Manager Employee Benefits 450M $55.02 $68.77 $82.53 $114,442 $143,042 $171,662 45 Exempt Manager Employee Relations & Training 235D $60.86 $76.07 $91.29 $126,589 $158,226 $189,883 93 Exempt Manager Environmental Control Program 419M $59.86 $74.82 $89.79 $124,509 $155,626 $186,763 1116 Exempt Manager Facilities 445M $52.81 $66.01 $79.22 $109,845 $137,301 $164,778 2030 Exempt Manager Finance 223D $63.88 $79.84 $95.81 $132,870 $166,067 $199,285

Page 2 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
176

Packet Pg. 421 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective 12/31/2022 (Market and Benefits Offset)
Hourly Rate Annual Salary
127 Exempt Manager Fleet 255D $53.35 $66.68 $80.02 $110,968 $138,694 $166,442 2018 Exempt Manager Human Services 540M $51.74 $64.67 $77.61 $107,619 $134,514 $161,429 32 Exempt Manager Information Technology 230D $62.22 $77.77 $93.33 $129,418 $161,762 $194,126 2006 Exempt Manager Information Technology Security 230D $58.84 $73.55 $88.26 $122,387 $152,984 $183,581 158 Exempt Manager Laboratory Services 495M $50.27 $62.83 $75.40 $104,562 $130,686 $156,832 78 Exempt Manager Library Services 565M $48.66 $60.82 $72.99 $101,213 $126,506 $151,819 92 Exempt Manager Maintenance Operations 469M $49.24 $61.55 $73.86 $102,419 $128,024 $153,629 26 Exempt Manager Transportation Planning 345M $64.68 $80.84 $97.01 $134,534 $168,147 $201,781 51 Exempt Manager Planning 415M $59.10 $73.87 $88.65 $122,928 $153,650 $184,392 103 Exempt Manager Real Property 235D $57.56 $71.94 $86.33 $119,725 $149,635 $179,566 2011 Exempt Manager Revenue Collections 250D $54.09 $67.61 $81.14 $112,507 $140,629 $168,771 160 Exempt Manager Solid Waste 330M $58.22 $72.77 $87.33 $121,098 $151,362 $181,646 57 Exempt Manager Treasury, Debt & Investments 235D $59.35 $74.18 $89.02 $123,448 $154,294 $185,162 86 Exempt Manager Urban Forestry 436M $54.87 $68.58 $82.30 $114,130 $142,646 $171,184 178 Exempt Manager Water Quality Control Plant 205D $71.70 $89.62 $107.55 $149,136 $186,410 $223,704 39 Exempt Manager Watershed Protection 330M $64.51 $80.63 $96.76 $134,181 $167,710 $201,261 1008 Exempt Office of Emergency Services Coordinator 525M $47.86 $59.82 $71.79 $99,549 $124,426 $149,323 2024 Exempt Performance Auditor I 750P $32.40 $40.50 $48.60 $67,392 $84,240 $101,088 100 Exempt Performance Auditor II 585M $44.50 $55.62 $66.75 $92,560 $115,690 $138,840 148 Exempt Police Chief 15E $108.51 $135.63 $162.76 $225,701 $282,110 $338,541 2021 Exempt Chief Assistant City Attorney 101A $95.65 $119.56 $143.48 $198,952 $248,685 $298,438 2016 Exempt Principal Business Analyst 310M $61.32 $76.64 $91.97 $127,546 $159,411 $191,298 2029 Exempt Principal Planner 469M $49.64 $62.04 $74.45 $103,251 $129,043 $154,856 2003 Exempt Principal Management Analyst 360M $61.08 $76.34 $91.61 $127,046 $158,787 $190,549 2009 Exempt Project Manager 570M $50.32 $62.90 $75.48 $104,666 $130,832 $156,998 2012 Exempt Public Safety Communications Manager 495M $50.27 $62.83 $75.40 $104,562 $130,686 $156,832 166 Exempt Public Safety Program Manager 585M $44.50 $55.62 $66.75 $92,560 $115,690 $138,840 117 Exempt Senior Accountant 525M $53.78 $67.22 $80.67 $111,862 $139,818 $167,794 2013 Exempt Senior Business Analyst - M 420M $53.39 $66.73 $80.08 $111,051 $138,798 $166,566 187 Exempt Senior Engineer 300M $68.72 $85.89 $103.07 $142,938 $178,651 $214,386 106 Exempt Senior Executive Assistant 450M $52.04 $65.04 $78.05 $108,243 $135,283 $162,344 157 Exempt Senior Human Resources Administrator 545M $46.84 $58.54 $70.25 $97,427 $121,763 $146,120 14 Exempt Senior Management Analyst 465M $52.00 $64.99 $77.99 $108,160 $135,179 $162,219

Page 3 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
177

Packet Pg. 422 of 853

Page 4 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
178

Packet Pg. 423 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
190 Non-Exempt Accountant 690P $42.15 $52.68 $63.22 $87,672 $109,574 $131,498 76 Exempt Administrative Assistant 750P $33.70 $42.12 $50.55 $70,096 $87,610 $105,144 115 Exempt Assistant Chief Building Official 405M $61.18 $76.47 $91.77 $127,254 $159,058 $190,882 132 Exempt Assistant Chief of Police 100A $100.25 $125.31 $150.38 $208,520 $260,645 $312,790 108 Exempt Assistant City Attorney 165A $76.94 $96.17 $115.41 $160,035 $200,034 $240,053 109 Exempt Assistant City Clerk 630M $46.58 $58.22 $69.87 $96,886 $121,098 $145,330 107 Exempt Assistant City Manager 20E $100.00 $124.99 $149.99 $208,000 $259,979 $311,979 73 Exempt Assistant Director Administrative Services 120A $82.99 $103.73 $124.48 $172,619 $215,758 $258,918 126 Exempt Assistant Director Community Services 150A $79.46 $99.32 $119.19 $165,277 $206,586 $247,915 1007 Exempt Assistant Director Human Resources 155A $76.84 $96.04 $115.25 $159,827 $199,763 $239,720 2001 Exempt Assistant Director Library Services 160A $71.75 $89.68 $107.62 $149,240 $186,534 $223,850 10 Exempt Assistant Director Planning & Community Environment 130A $80.81 $101.01 $121.22 $168,085 $210,101 $252,138 143 Exempt Assistant Director Public Works 140A $79.88 $99.84 $119.81 $166,150 $207,667 $249,205 168 Exempt Assistant Fleet Manager 585M $46.28 $57.85 $69.42 $96,262 $120,328 $144,394 102 Exempt Assistant Manager WQCP 240D $66.07 $82.58 $99.10 $137,426 $171,766 $206,128 30 Exempt Assistant to the City Manager 390M $64.79 $80.98 $97.18 $134,763 $168,438 $202,134 118 Exempt Chief Building Official 290M $78.36 $97.95 $117.54 $162,989 $203,736 $244,483 2008 Exempt Chief Communications Officer 135A $76.41 $95.51 $114.62 $158,933 $198,661 $238,410 112 Exempt Chief Planning Official 220D $70.08 $87.60 $105.12 $145,766 $182,208 $218,650 95 Exempt Chief Procurement Officer 235D $59.86 $74.82 $89.79 $124,509 $155,626 $186,763 82 Exempt Chief Transportation Official 140A $75.94 $94.92 $113.91 $157,955 $197,434 $236,933 96 Exempt Claims Investigator 660P $40.94 $51.17 $61.41 $85,155 $106,434 $127,733 24 Exempt Communication Specialist 615M $44.30 $55.37 $66.45 $92,144 $115,170 $138,216 89 Exempt Contracts Administrator 585P $52.00 $65.00 $78.00 $108,160 $135,200 $162,240 186 Non-Exempt Coordinator Library Circulation 675M $42.29 $52.86 $63.44 $87,963 $109,949 $131,955 191 Exempt Fire Marshal 125A $91.24 $114.04 $136.85 $189,779 $237,203 $284,648 11 Exempt Deputy City Attorney 375M $60.35 $75.43 $90.52 $125,528 $156,894 $188,282 71 Exempt Deputy City Clerk 720M $36.49 $45.61 $54.74 $75,899 $94,869 $113,859 55 Exempt Deputy City Manager 115A $79.33 $99.16 $119.00 $165,006 $206,253 $247,520 195 Exempt Deputy Director Technical Services Division 200D $74.84 $93.55 $112.26 $155,667 $194,584 $233,501 20 Exempt Deputy Fire Chief 110A $95.04 $118.79 $142.55 $197,683 $247,083 $296,504 81 Exempt Director Administrative Services/Chief Financial Officer 50E $96.60 $120.74 $144.89 $200,928 $251,139 $301,371 72 Exempt Director Community Services 45E $91.85 $114.81 $137.78 $191,048 $238,805 $286,582 City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective 07/01/2023 (4% Increase)
Hourly Rate Annual Salary

Page 5 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
179

Packet Pg. 424 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective 07/01/2023 (4% Increase)
Hourly Rate Annual Salary
1012 Exempt Director Development Services 145A $80.69 $100.86 $121.04 $167,835 $209,789 $251,763 133 Exempt Director Human Resources/Chief People Officer 55E $92.09 $115.11 $138.14 $191,547 $239,429 $287,331 128 Exempt Director Information Technology/Chief Information Officer 25E $100.58 $125.72 $150.87 $209,206 $261,498 $313,810 131 Exempt Director Libraries 60E $86.00 $107.50 $129.00 $178,880 $223,600 $268,320 2028 Exempt Director of Emergency Medical Services 215D $72.42 $90.52 $108.63 $150,634 $188,282 $225,950 2005 Exempt Director Office of Emergency Services 215D $72.42 $90.52 $108.63 $150,634 $188,282 $225,950 49 Exempt Director Office of Management and Budget 120A $82.99 $103.73 $124.48 $172,619 $215,758 $258,918 134 Exempt Director Planning & Community Environment 40E $96.84 $121.05 $145.26 $201,427 $251,784 $302,141 135 Exempt Director Public Works/City Engineer 30E $98.08 $122.60 $147.12 $204,006 $255,008 $306,010 121 Exempt Director Utilities 10E $115.75 $144.68 $173.62 $240,760 $300,934 $361,130 2002 Exempt Division Head Library Services 260D $62.69 $78.36 $94.04 $130,395 $162,989 $195,603 172 Exempt Division Manager Open Space, Parks & Golf 245D $65.17 $81.46 $97.76 $135,554 $169,437 $203,341 2031 Exempt Division Manager Planning 220D $70.08 $87.60 $105.12 $145,766 $182,208 $218,650 1005 Exempt Executive Assistant to the City Manager 705M $38.06 $47.57 $57.09 $79,165 $98,946 $118,747 139 Exempt Fire Chief 35E $109.32 $136.64 $163.97 $227,386 $284,211 $341,058 163 Exempt Hearing Officer 480M $53.57 $66.96 $80.36 $111,426 $139,277 $167,149 101 Exempt Human Resources Representative 735P $35.61 $44.51 $53.42 $74,069 $92,581 $111,114 90 Exempt Landscape Architect Park Planner 510M $51.02 $63.77 $76.53 $106,122 $132,642 $159,182 2015 Exempt Legal Fellow 755P $44.87 $56.08 $67.30 $93,330 $116,646 $139,984 171 Exempt Management Analyst 585M $46.28 $57.85 $69.42 $96,262 $120,328 $144,394 79 Exempt Manager Accounting 235D $63.30 $79.12 $94.95 $131,664 $164,570 $197,496 2007 Exempt Manager Airport 210D $72.66 $90.82 $108.99 $151,133 $188,906 $226,699 2023 Exempt Manager Budget 360M $67.16 $83.95 $100.74 $139,693 $174,616 $209,539 38 Exempt Manager Communications 525M $51.32 $64.15 $76.98 $106,746 $133,432 $160,118 154 Exempt Manager Community Services 630M $47.72 $59.64 $71.57 $99,258 $124,051 $148,866 169 Exempt Manager Community Services Sr Program 585M $51.26 $64.07 $76.89 $106,621 $133,266 $159,931 1013 Exempt Manager Development Center 495M $57.92 $72.40 $86.88 $120,474 $150,592 $180,710 63 Exempt Manager Economic Development 220D $66.88 $83.60 $100.32 $139,110 $173,888 $208,666 44 Exempt Manager Employee Benefits 450M $57.23 $71.53 $85.84 $119,038 $148,782 $178,547 45 Exempt Manager Employee Relations & Training 235D $63.30 $79.12 $94.95 $131,664 $164,570 $197,496 93 Exempt Manager Environmental Control Program 419M $62.26 $77.82 $93.39 $129,501 $161,866 $194,251 1116 Exempt Manager Facilities 445M $54.93 $68.66 $82.40 $114,254 $142,813 $171,392 2030 Exempt Manager Finance 223D $66.44 $83.04 $99.65 $138,195 $172,723 $207,272

Page 6 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
180

Packet Pg. 425 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective 07/01/2023 (4% Increase)
Hourly Rate Annual Salary
127 Exempt Manager Fleet 255D $55.48 $69.35 $83.22 $115,398 $144,248 $173,098 2018 Exempt Manager Human Services 540M $53.81 $67.26 $80.72 $111,925 $139,901 $167,898 32 Exempt Manager Information Technology 230D $64.72 $80.89 $97.07 $134,618 $168,251 $201,906 2006 Exempt Manager Information Technology Security 230D $61.20 $76.50 $91.80 $127,296 $159,120 $190,944 158 Exempt Manager Laboratory Services 495M $52.28 $65.35 $78.42 $108,742 $135,928 $163,114 78 Exempt Manager Library Services 565M $50.61 $63.26 $75.92 $105,269 $131,581 $157,914 92 Exempt Manager Maintenance Operations 469M $51.22 $64.02 $76.83 $106,538 $133,162 $159,806 26 Exempt Manager Transportation Planning 345M $67.27 $84.08 $100.90 $139,922 $174,886 $209,872 51 Exempt Manager Planning 415M $61.47 $76.83 $92.20 $127,858 $159,806 $191,776 103 Exempt Manager Real Property 235D $59.86 $74.82 $89.79 $124,509 $155,626 $186,763 2011 Exempt Manager Revenue Collections 250D $56.26 $70.32 $84.39 $117,021 $146,266 $175,531 160 Exempt Manager Solid Waste 330M $60.56 $75.69 $90.83 $125,965 $157,435 $188,926 57 Exempt Manager Treasury, Debt & Investments 235D $61.72 $77.15 $92.58 $128,378 $160,472 $192,566 86 Exempt Manager Urban Forestry 436M $57.07 $71.33 $85.60 $118,706 $148,366 $178,048 178 Exempt Manager Water Quality Control Plant 205D $74.57 $93.21 $111.86 $155,106 $193,877 $232,669 39 Exempt Manager Watershed Protection 330M $67.09 $83.86 $100.64 $139,547 $174,429 $209,331 1008 Exempt Office of Emergency Services Coordinator 525M $49.78 $62.22 $74.67 $103,542 $129,418 $155,314 2024 Exempt Performance Auditor I 750P $33.70 $42.12 $50.55 $70,096 $87,610 $105,144 100 Exempt Performance Auditor II 585M $46.28 $57.85 $69.42 $96,262 $120,328 $144,394 148 Exempt Police Chief 15E $112.85 $141.06 $169.28 $234,728 $293,405 $352,102 2021 Exempt Chief Assistant City Attorney 101A $99.48 $124.35 $149.22 $206,918 $258,648 $310,378 2016 Exempt Principal Business Analyst 310M $63.77 $79.71 $95.66 $132,642 $165,797 $198,973 2029 Exempt Principal Planner 469M $51.63 $64.53 $77.44 $107,390 $134,222 $161,075 2003 Exempt Principal Management Analyst 360M $63.52 $79.40 $95.28 $132,122 $165,152 $198,182 2009 Exempt Project Manager 570M $52.34 $65.42 $78.51 $108,867 $136,074 $163,301 2012 Exempt Public Safety Communications Manager 495M $52.28 $65.35 $78.42 $108,742 $135,928 $163,114 166 Exempt Public Safety Program Manager 585M $46.28 $57.85 $69.42 $96,262 $120,328 $144,394 117 Exempt Senior Accountant 525M $55.93 $69.91 $83.90 $116,334 $145,413 $174,512 2013 Exempt Senior Business Analyst - M 420M $55.52 $69.40 $83.28 $115,482 $144,352 $173,222 187 Exempt Senior Engineer 300M $71.47 $89.33 $107.20 $148,658 $185,806 $222,976 106 Exempt Senior Executive Assistant 450M $54.12 $67.65 $81.18 $112,570 $140,712 $168,854 157 Exempt Senior Human Resources Administrator 545M $48.72 $60.89 $73.07 $101,338 $126,651 $151,986 14 Exempt Senior Management Analyst 465M $54.08 $67.59 $81.11 $112,486 $140,587 $168,709

Page 7 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
181

Packet Pg. 426 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective 07/01/2023 (4% Increase)
Hourly Rate Annual Salary
130 Exempt Senior Performance Auditor 510M $51.02 $63.77 $76.53 $106,122 $132,642 $159,182 53 Exempt Senior Project Manager 300M $71.47 $89.33 $107.20 $148,658 $185,806 $222,976 33 Exempt Senior Technologist 420M $55.52 $69.40 $83.28 $115,482 $144,352 $173,222 155 Exempt Superintendent Animal Services 540M $48.59 $60.73 $72.88 $101,067 $126,318 $151,590 83 Exempt Superintendent Community Services 480M $58.01 $72.51 $87.02 $120,661 $150,821 $181,002 1117 Exempt Superintendent Recreation 480M $58.01 $72.51 $87.02 $120,661 $150,821 $181,002 2022 Exempt Supervising Librarian 675M $42.45 $53.06 $63.68 $88,296 $110,365 $132,454 161 Exempt Supervisor Facilities Management 600M $45.25 $56.56 $67.88 $94,120 $117,645 $141,190 113 Exempt Supervisor Inspection and Surveying 540M $48.59 $60.73 $72.88 $101,067 $126,318 $151,590 146 Exempt Supervisor Warehouse 660M $40.94 $51.17 $61.41 $85,155 $106,434 $127,733 181 Exempt Supervisor Water Quality Control Operations 525M $49.78 $62.22 $74.67 $103,542 $129,418 $155,314 2027 Exempt Utilities Chief Operating Officer 60E $83.41 $104.26 $125.12 $173,493 $216,861 $260,250 905 Non-Exempt Human Resources Technician 830C $29.85 $37.31 $44.78 $62,088 $77,605 $93,142 903 Non-Exempt Legal Secretary-Confidential 820C $30.60 $38.24 $45.89 $63,648 $79,539 $95,451 67 Exempt Secretary to City Attorney 800C $36.26 $45.32 $54.39 $75,421 $94,266 $113,131 1004 Non-Exempt Senior Legal Secretary - Confidential 810C $33.70 $42.12 $50.55 $70,096 $87,610 $105,144 Confidential Classifications

Page 8 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
182

Packet Pg. 427 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
190 Non-Exempt Accountant 690P $42.61 $53.26 $63.92 $88,629 $110,781 $132,954 76 Exempt Administrative Assistant 750P $34.16 $42.70 $51.24 $71,053 $88,816 $106,579 115 Exempt Assistant Chief Building Official 405M $61.64 $77.05 $92.46 $128,211 $160,264 $192,317 132 Exempt Assistant Chief of Police 100A $100.72 $125.89 $151.07 $209,498 $261,851 $314,226 108 Exempt Assistant City Attorney 165A $77.40 $96.75 $116.10 $160,992 $201,240 $241,488 109 Exempt Assistant City Clerk 630M $47.04 $58.80 $70.56 $97,843 $122,304 $146,765 107 Exempt Assistant City Manager 20E $100.46 $125.57 $150.69 $208,957 $261,186 $313,435 73 Exempt Assistant Director Administrative Services 120A $83.45 $104.31 $125.18 $173,576 $216,965 $260,374 126 Exempt Assistant Director Community Services 150A $79.92 $99.90 $119.88 $166,234 $207,792 $249,350 1007 Exempt Assistant Director Human Resources 155A $77.30 $96.62 $115.95 $160,784 $200,970 $241,176 2001 Exempt Assistant Director Library Services 160A $72.21 $90.26 $108.32 $150,197 $187,741 $225,306 10 Exempt Assistant Director Planning & Community Environment 130A $81.28 $101.59 $121.91 $169,062 $211,307 $253,573 143 Exempt Assistant Director Public Works 140A $80.34 $100.42 $120.51 $167,107 $208,874 $250,661 168 Exempt Assistant Fleet Manager 585M $46.75 $58.43 $70.12 $97,240 $121,534 $145,850 102 Exempt Assistant Manager WQCP 240D $66.53 $83.16 $99.80 $138,382 $172,973 $207,584 30 Exempt Assistant to the City Manager 390M $65.25 $81.56 $97.88 $135,720 $169,645 $203,590 118 Exempt Chief Building Official 290M $78.83 $98.53 $118.24 $163,966 $204,942 $245,939 2008 Exempt Chief Communications Officer 135A $76.88 $96.09 $115.31 $159,910 $199,867 $239,845 112 Exempt Chief Planning Official 220D $70.55 $88.18 $105.82 $146,744 $183,414 $220,106 95 Exempt Chief Procurement Officer 235D $60.32 $75.40 $90.48 $125,466 $156,832 $188,198 82 Exempt Chief Transportation Official 140A $76.40 $95.50 $114.60 $158,912 $198,640 $238,368 96 Exempt Claims Investigator 660P $41.40 $51.75 $62.10 $86,112 $107,640 $129,168 24 Exempt Communication Specialist 615M $44.76 $55.95 $67.14 $93,101 $116,376 $139,651 89 Exempt Contracts Administrator 585P $52.47 $65.58 $78.70 $109,138 $136,406 $163,696 186 Non-Exempt Coordinator Library Circulation 675M $42.76 $53.44 $64.13 $88,941 $111,155 $133,390 191 Exempt Fire Marshal 125A $91.70 $114.62 $137.55 $190,736 $238,410 $286,104 11 Exempt Deputy City Attorney 375M $60.81 $76.01 $91.22 $126,485 $158,101 $189,738 71 Exempt Deputy City Clerk 720M $36.96 $46.19 $55.43 $76,877 $96,075 $115,294 55 Exempt Deputy City Manager 115A $79.80 $99.74 $119.69 $165,984 $207,459 $248,955 195 Exempt Deputy Director Technical Services Division 200D $75.31 $94.13 $112.96 $156,645 $195,790 $234,957 20 Exempt Deputy Fire Chief 110A $95.50 $119.37 $143.25 $198,640 $248,290 $297,960 81 Exempt Director Administrative Services/Chief Financial Officer 50E $97.06 $121.32 $145.59 $201,885 $252,346 $302,827 72 Exempt Director Community Services 45E $92.32 $115.39 $138.47 $192,026 $240,011 $288,018 City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective pay period inclusive of 01/01/2024 (Annual $100 Medical Offset) Hourly Rate Annual Salary

Page 9 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
183

Packet Pg. 428 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective pay period inclusive of 01/01/2024 (Annual $100 Medical Offset) Hourly Rate Annual Salary
1012 Exempt Director Development Services 145A $81.16 $101.44 $121.73 $168,813 $210,995 $253,198 133 Exempt Director Human Resources/Chief People Officer 55E $92.56 $115.69 $138.83 $192,525 $240,635 $288,766 128 Exempt Director Information Technology/Chief Information Officer 25E $101.04 $126.30 $151.56 $210,163 $262,704 $315,245 131 Exempt Director Libraries 60E $86.47 $108.08 $129.70 $179,858 $224,806 $269,776 2028 Exempt Director of Emergency Medical Services 215D $72.88 $91.10 $109.32 $151,590 $189,488 $227,386 2005 Exempt Director Office of Emergency Services 215D $72.88 $91.10 $109.32 $151,590 $189,488 $227,386 49 Exempt Director Office of Management and Budget 120A $83.45 $104.31 $125.18 $173,576 $216,965 $260,374 134 Exempt Director Planning & Community Environment 40E $97.31 $121.63 $145.96 $202,405 $252,990 $303,597 135 Exempt Director Public Works/City Engineer 30E $98.55 $123.18 $147.82 $204,984 $256,214 $307,466 121 Exempt Director Utilities 10E $116.21 $145.26 $174.32 $241,717 $302,141 $362,586 2002 Exempt Division Head Library Services 260D $63.16 $78.94 $94.73 $131,373 $164,195 $197,038 172 Exempt Division Manager Open Space, Parks & Golf 245D $65.64 $82.04 $98.45 $136,531 $170,643 $204,776 2031 Exempt Division Manager Planning 220D $70.55 $88.18 $105.82 $146,744 $183,414 $220,106 1005 Exempt Executive Assistant to the City Manager 705M $38.52 $48.15 $57.78 $80,122 $100,152 $120,182 139 Exempt Fire Chief 35E $109.78 $137.22 $164.67 $228,342 $285,418 $342,514 163 Exempt Hearing Officer 480M $54.04 $67.54 $81.05 $112,403 $140,483 $168,584 101 Exempt Human Resources Representative 735P $36.08 $45.09 $54.11 $75,046 $93,787 $112,549 90 Exempt Landscape Architect Park Planner 510M $51.48 $64.35 $77.22 $107,078 $133,848 $160,618 2015 Exempt Legal Fellow 755P $45.33 $56.66 $68.00 $94,286 $117,853 $141,440 171 Exempt Management Analyst 585M $46.75 $58.43 $70.12 $97,240 $121,534 $145,850 79 Exempt Manager Accounting 235D $63.76 $79.70 $95.64 $132,621 $165,776 $198,931 2007 Exempt Manager Airport 210D $73.12 $91.40 $109.68 $152,090 $190,112 $228,134 2023 Exempt Manager Budget 360M $67.63 $84.53 $101.44 $140,670 $175,822 $210,995 38 Exempt Manager Communications 525M $51.79 $64.73 $77.68 $107,723 $134,638 $161,574 154 Exempt Manager Community Services 630M $48.18 $60.22 $72.27 $100,214 $125,258 $150,322 169 Exempt Manager Community Services Sr Program 585M $51.72 $64.65 $77.58 $107,578 $134,472 $161,366 1013 Exempt Manager Development Center 495M $58.39 $72.98 $87.58 $121,451 $151,798 $182,166 63 Exempt Manager Economic Development 220D $67.35 $84.18 $101.02 $140,088 $175,094 $210,122 44 Exempt Manager Employee Benefits 450M $57.69 $72.11 $86.54 $119,995 $149,989 $180,003 45 Exempt Manager Employee Relations & Training 235D $63.76 $79.70 $95.64 $132,621 $165,776 $198,931 93 Exempt Manager Environmental Control Program 419M $62.72 $78.40 $94.08 $130,458 $163,072 $195,686 1116 Exempt Manager Facilities 445M $55.40 $69.24 $83.09 $115,232 $144,019 $172,827 2030 Exempt Manager Finance 223D $66.90 $83.62 $100.35 $139,152 $173,930 $208,728

Page 10 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
184

Packet Pg. 429 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective pay period inclusive of 01/01/2024 (Annual $100 Medical Offset) Hourly Rate Annual Salary
127 Exempt Manager Fleet 255D $55.95 $69.93 $83.92 $116,376 $145,454 $174,554 2018 Exempt Manager Human Services 540M $54.28 $67.84 $81.41 $112,902 $141,107 $169,333 32 Exempt Manager Information Technology 230D $65.18 $81.47 $97.77 $135,574 $169,458 $203,362 2006 Exempt Manager Information Technology Security 230D $61.67 $77.08 $92.50 $128,274 $160,326 $192,400 158 Exempt Manager Laboratory Services 495M $52.75 $65.93 $79.12 $109,720 $137,134 $164,570 78 Exempt Manager Library Services 565M $51.08 $63.84 $76.61 $106,246 $132,787 $159,349 92 Exempt Manager Maintenance Operations 469M $51.68 $64.60 $77.52 $107,494 $134,368 $161,242 26 Exempt Manager Transportation Planning 345M $67.73 $84.66 $101.60 $140,878 $176,093 $211,328 51 Exempt Manager Planning 415M $61.93 $77.41 $92.90 $128,814 $161,013 $193,232 103 Exempt Manager Real Property 235D $60.32 $75.40 $90.48 $125,466 $156,832 $188,198 2011 Exempt Manager Revenue Collections 250D $56.72 $70.90 $85.08 $117,978 $147,472 $176,966 160 Exempt Manager Solid Waste 330M $61.02 $76.27 $91.53 $126,922 $158,642 $190,382 57 Exempt Manager Treasury, Debt & Investments 235D $62.19 $77.73 $93.28 $129,355 $161,678 $194,022 86 Exempt Manager Urban Forestry 436M $57.53 $71.91 $86.30 $119,662 $149,573 $179,504 178 Exempt Manager Water Quality Control Plant 205D $75.04 $93.79 $112.55 $156,083 $195,083 $234,104 39 Exempt Manager Watershed Protection 330M $67.56 $84.44 $101.33 $140,525 $175,635 $210,766 1008 Exempt Office of Emergency Services Coordinator 525M $50.24 $62.80 $75.36 $104,499 $130,624 $156,749 2024 Exempt Performance Auditor I 750P $34.16 $42.70 $51.24 $71,053 $88,816 $106,579 100 Exempt Performance Auditor II 585M $46.75 $58.43 $70.12 $97,240 $121,534 $145,850 148 Exempt Police Chief 15E $113.32 $141.64 $169.97 $235,706 $294,611 $353,538 2021 Exempt Chief Assistant City Attorney 101A $99.95 $124.93 $149.92 $207,896 $259,854 $311,834 2016 Exempt Principal Business Analyst 310M $64.24 $80.29 $96.35 $133,619 $167,003 $200,408 2029 Exempt Principal Planner 469M $52.09 $65.11 $78.14 $108,347 $135,429 $162,531 2003 Exempt Principal Management Analyst 360M $63.99 $79.98 $95.98 $133,099 $166,358 $199,638 2009 Exempt Project Manager 570M $52.80 $66.00 $79.20 $109,824 $137,280 $164,736 2012 Exempt Public Safety Communications Manager 495M $52.75 $65.93 $79.12 $109,720 $137,134 $164,570 166 Exempt Public Safety Program Manager 585M $46.75 $58.43 $70.12 $97,240 $121,534 $145,850 117 Exempt Senior Accountant 525M $56.40 $70.49 $84.59 $117,312 $146,619 $175,947 2013 Exempt Senior Business Analyst - M 420M $55.99 $69.98 $83.98 $116,459 $145,558 $174,678 187 Exempt Senior Engineer 300M $71.93 $89.91 $107.90 $149,614 $187,013 $224,432 106 Exempt Senior Executive Assistant 450M $54.59 $68.23 $81.88 $113,547 $141,918 $170,310 157 Exempt Senior Human Resources Administrator 545M $49.18 $61.47 $73.77 $102,294 $127,858 $153,442 14 Exempt Senior Management Analyst 465M $54.54 $68.17 $81.81 $113,443 $141,794 $170,165

Page 11 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
185

Packet Pg. 430 of 853

Page 12 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
186

Packet Pg. 431 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
190 Non-Exempt Accountant 690P $44.32 $55.40 $66.48 $92,186 $115,232 $138,278 76 Exempt Administrative Assistant 750P $35.53 $44.41 $53.30 $73,902 $92,373 $110,864 115 Exempt Assistant Chief Building Official 405M $64.12 $80.14 $96.17 $133,370 $166,691 $200,034 132 Exempt Assistant Chief of Police 100A $104.75 $130.93 $157.12 $217,880 $272,334 $326,810 108 Exempt Assistant City Attorney 165A $80.50 $100.62 $120.75 $167,440 $209,290 $251,160 109 Exempt Assistant City Clerk 630M $48.93 $61.16 $73.40 $101,774 $127,213 $152,672 107 Exempt Assistant City Manager 20E $104.48 $130.60 $156.72 $217,318 $271,648 $325,978 73 Exempt Assistant Director Administrative Services 120A $86.80 $108.49 $130.19 $180,544 $225,659 $270,795 126 Exempt Assistant Director Community Services 150A $83.12 $103.90 $124.68 $172,890 $216,112 $259,334 1007 Exempt Assistant Director Human Resources 155A $80.40 $100.49 $120.59 $167,232 $209,019 $250,827 2001 Exempt Assistant Director Library Services 160A $75.11 $93.88 $112.66 $156,229 $195,270 $234,333 10 Exempt Assistant Director Planning & Community Environment 130A $84.53 $105.66 $126.80 $175,822 $219,773 $263,744 143 Exempt Assistant Director Public Works 140A $83.56 $104.44 $125.33 $173,805 $217,235 $260,686 168 Exempt Assistant Fleet Manager 585M $48.62 $60.77 $72.93 $101,130 $126,402 $151,694 102 Exempt Assistant Manager WQCP 240D $69.20 $86.49 $103.79 $143,936 $179,899 $215,883 30 Exempt Assistant to the City Manager 390M $67.87 $84.83 $101.80 $141,170 $176,446 $211,744 118 Exempt Chief Building Official 290M $81.99 $102.48 $122.98 $170,539 $213,158 $255,798 2008 Exempt Chief Communications Officer 135A $79.96 $99.94 $119.93 $166,317 $207,875 $249,454 112 Exempt Chief Planning Official 220D $73.37 $91.71 $110.06 $152,610 $190,757 $228,925 95 Exempt Chief Procurement Officer 235D $62.74 $78.42 $94.11 $130,499 $163,114 $195,749 82 Exempt Chief Transportation Official 140A $79.46 $99.32 $119.19 $165,277 $206,586 $247,915 96 Exempt Claims Investigator 660P $43.06 $53.82 $64.59 $89,565 $111,946 $134,347 24 Exempt Communication Specialist 615M $46.56 $58.19 $69.83 $96,845 $121,035 $145,246 89 Exempt Contracts Administrator 585P $54.57 $68.21 $81.86 $113,506 $141,877 $170,269 186 Non-Exempt Coordinator Library Circulation 675M $44.47 $55.58 $66.70 $92,498 $115,606 $138,736 191 Exempt Fire Marshal 125A $95.37 $119.21 $143.06 $198,370 $247,957 $297,565 11 Exempt Deputy City Attorney 375M $63.25 $79.06 $94.88 $131,560 $164,445 $197,350 71 Exempt Deputy City Clerk 720M $38.44 $48.04 $57.65 $79,955 $99,923 $119,912 55 Exempt Deputy City Manager 115A $82.99 $103.73 $124.48 $172,619 $215,758 $258,918 195 Exempt Deputy Director Technical Services Division 200D $78.32 $97.90 $117.48 $162,906 $203,632 $244,358 20 Exempt Deputy Fire Chief 110A $99.32 $124.15 $148.98 $206,586 $258,232 $309,878 81 Exempt Director Administrative Services/Chief Financial Officer 50E $100.95 $126.18 $151.42 $209,976 $262,454 $314,954 72 Exempt Director Community Services 45E $96.01 $120.01 $144.02 $199,701 $249,621 $299,562 City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective Pay period inclusive of 07/01/2024 (4% Increase) Hourly Rate Annual Salary

Page 13 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
187

Packet Pg. 432 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective Pay period inclusive of 07/01/2024 (4% Increase) Hourly Rate Annual Salary
1012 Exempt Director Development Services 145A $84.40 $105.50 $126.60 $175,552 $219,440 $263,328 133 Exempt Director Human Resources/Chief People Officer 55E $96.26 $120.32 $144.39 $200,221 $250,266 $300,331 128 Exempt Director Information Technology/Chief Information Officer 25E $105.09 $131.36 $157.64 $218,587 $273,229 $327,891 131 Exempt Director Libraries 60E $89.93 $112.41 $134.90 $187,054 $233,813 $280,592 2028 Exempt Director of Emergency Medical Services 215D $75.80 $94.75 $113.70 $157,664 $197,080 $236,496 2005 Exempt Director Office of Emergency Services 215D $75.80 $94.75 $113.70 $157,664 $197,080 $236,496 49 Exempt Director Office of Management and Budget 120A $86.80 $108.49 $130.19 $180,544 $225,659 $270,795 134 Exempt Director Planning & Community Environment 40E $101.20 $126.50 $151.80 $210,496 $263,120 $315,744 135 Exempt Director Public Works/City Engineer 30E $102.49 $128.11 $153.74 $213,179 $266,469 $319,779 121 Exempt Director Utilities 10E $120.87 $151.08 $181.30 $251,410 $314,246 $377,104 2002 Exempt Division Head Library Services 260D $65.68 $82.10 $98.52 $136,614 $170,768 $204,922 172 Exempt Division Manager Open Space, Parks & Golf 245D $68.27 $85.33 $102.40 $142,002 $177,486 $212,992 2031 Exempt Division Manager Planning 220D $73.37 $91.71 $110.06 $152,610 $190,757 $228,925 1005 Exempt Executive Assistant to the City Manager 705M $40.07 $50.08 $60.10 $83,346 $104,166 $125,008 139 Exempt Fire Chief 35E $114.17 $142.71 $171.26 $237,474 $296,837 $356,221 163 Exempt Hearing Officer 480M $56.20 $70.25 $84.30 $116,896 $146,120 $175,344 101 Exempt Human Resources Representative 735P $37.52 $46.90 $56.28 $78,042 $97,552 $117,062 90 Exempt Landscape Architect Park Planner 510M $53.55 $66.93 $80.32 $111,384 $139,214 $167,066 2015 Exempt Legal Fellow 755P $47.15 $58.93 $70.72 $98,072 $122,574 $147,098 171 Exempt Management Analyst 585M $48.62 $60.77 $72.93 $101,130 $126,402 $151,694 79 Exempt Manager Accounting 235D $66.32 $82.89 $99.47 $137,946 $172,411 $206,898 2007 Exempt Manager Airport 210D $76.05 $95.06 $114.08 $158,184 $197,725 $237,286 2023 Exempt Manager Budget 360M $70.34 $87.92 $105.51 $146,307 $182,874 $219,461 38 Exempt Manager Communications 525M $53.86 $67.32 $80.79 $112,029 $140,026 $168,043 154 Exempt Manager Community Services 630M $50.11 $62.63 $75.16 $104,229 $130,270 $156,333 169 Exempt Manager Community Services Sr Program 585M $53.80 $67.24 $80.69 $111,904 $139,859 $167,835 1013 Exempt Manager Development Center 495M $60.72 $75.90 $91.08 $126,298 $157,872 $189,446 63 Exempt Manager Economic Development 220D $70.04 $87.55 $105.06 $145,683 $182,104 $218,525 44 Exempt Manager Employee Benefits 450M $60.00 $75.00 $90.00 $124,800 $156,000 $187,200 45 Exempt Manager Employee Relations & Training 235D $66.32 $82.89 $99.47 $137,946 $172,411 $206,898 93 Exempt Manager Environmental Control Program 419M $65.24 $81.54 $97.85 $135,699 $169,603 $203,528 1116 Exempt Manager Facilities 445M $57.61 $72.01 $86.42 $119,829 $149,781 $179,754 2030 Exempt Manager Finance 223D $69.58 $86.97 $104.37 $144,726 $180,898 $217,090

Page 14 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
188

Packet Pg. 433 of 853

Job Code FLSA Status Classifications Grade
Codes Min Mid Max Min Mid Max
City of Palo Alto
Management, Professional and Confidential Salary Schedule Effective Pay period inclusive of 07/01/2024 (4% Increase) Hourly Rate Annual Salary
127 Exempt Manager Fleet 255D $58.19 $72.73 $87.28 $121,035 $151,278 $181,542 2018 Exempt Manager Human Services 540M $56.45 $70.56 $84.68 $117,416 $146,765 $176,134 32 Exempt Manager Information Technology 230D $67.79 $84.73 $101.68 $141,003 $176,238 $211,494 2006 Exempt Manager Information Technology Security 230D $64.14 $80.17 $96.21 $133,411 $166,754 $200,117 158 Exempt Manager Laboratory Services 495M $54.86 $68.57 $82.29 $114,109 $142,626 $171,163 78 Exempt Manager Library Services 565M $53.12 $66.40 $79.68 $110,490 $138,112 $165,734 92 Exempt Manager Maintenance Operations 469M $53.76 $67.19 $80.63 $111,821 $139,755 $167,710 26 Exempt Manager Transportation Planning 345M $70.44 $88.05 $105.66 $146,515 $183,144 $219,773 51 Exempt Manager Planning 415M $64.41 $80.51 $96.62 $133,973 $167,461 $200,970 103 Exempt Manager Real Property 235D $62.74 $78.42 $94.11 $130,499 $163,114 $195,749 2011 Exempt Manager Revenue Collections 250D $59.00 $73.74 $88.49 $122,720 $153,379 $184,059 160 Exempt Manager Solid Waste 330M $63.47 $79.33 $95.20 $132,018 $165,006 $198,016 57 Exempt Manager Treasury, Debt & Investments 235D $64.68 $80.84 $97.01 $134,534 $168,147 $201,781 86 Exempt Manager Urban Forestry 436M $59.84 $74.79 $89.75 $124,467 $155,563 $186,680 178 Exempt Manager Water Quality Control Plant 205D $78.04 $97.55 $117.06 $162,323 $202,904 $243,485 39 Exempt Manager Watershed Protection 330M $70.26 $87.82 $105.39 $146,141 $182,666 $219,211 1008 Exempt Office of Emergency Services Coordinator 525M $52.26 $65.32 $78.39 $108,701 $135,866 $163,051 2024 Exempt Performance Auditor I 750P $35.53 $44.41 $53.30 $73,902 $92,373 $110,864 100 Exempt Performance Auditor II 585M $48.62 $60.77 $72.93 $101,130 $126,402 $151,694 148 Exempt Police Chief 15E $117.85 $147.31 $176.78 $245,128 $306,405 $367,702 2021 Exempt Chief Assistant City Attorney 101A $103.95 $129.93 $155.92 $216,216 $270,254 $324,314 2016 Exempt Principal Business Analyst 310M $66.81 $83.51 $100.22 $138,965 $173,701 $208,458 2029 Exempt Principal Planner 469M $54.18 $67.72 $81.27 $112,694 $140,858 $169,042 2003 Exempt Principal Management Analyst 360M $66.55 $83.18 $99.82 $138,424 $173,014 $207,626 2009 Exempt Project Manager 570M $54.92 $68.64 $82.37 $114,234 $142,771 $171,330 2012 Exempt Public Safety Communications Manager 495M $54.86 $68.57 $82.29 $114,109 $142,626 $171,163 166 Exempt Public Safety Program Manager 585M $48.62 $60.77 $72.93 $101,130 $126,402 $151,694 117 Exempt Senior Accountant 525M $58.65 $73.31 $87.98 $121,992 $152,485 $182,998 2013 Exempt Senior Business Analyst - M 420M $58.23 $72.78 $87.34 $121,118 $151,382 $181,667 187 Exempt Senior Engineer 300M $74.81 $93.51 $112.22 $155,605 $194,501 $233,418 106 Exempt Senior Executive Assistant 450M $56.77 $70.96 $85.16 $118,082 $147,597 $177,133 157 Exempt Senior Human Resources Administrator 545M $51.15 $63.93 $76.72 $106,392 $132,974 $159,578 14 Exempt Senior Management Analyst 465M $56.72 $70.90 $85.08 $117,978 $147,472 $176,966

Page 15 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
189

Packet Pg. 434 of 853

Page 16 ends

Item 11
Attachment F Revised Management
and Conf Salary Schedule

Item 11: Staff Report
Pg.
190

Packet Pg. 435 of 853

1 7
7 8
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Public Works
Meeting Date: April 10, 2023
Report #:2302-1026
TITLE
Approval of a Funding Agreement with the Santa Clara Valley Water District for Reimbursement Costs Incurred in Support of the Purified Water Project, and a Budget Amendment in the Wastewater Treatment Fund Advanced Water Purification Facility capital project (WQ-19003)

RECOMMENDATION
Staff recommends that Council:

1. Approve and authorize the City Manager or their designee to execute an agreement between the Santa Clara Valley Water District and the City for reimbursement of City costs incurred in support of Valley Water’s Purified Water Project; and

2. Amend the Fiscal Year 2023 Budget Appropriation for the Wastewater Treatment Fund by (requires a 2/3 vote):
a. Increasing the revenue estimate from other agencies by $500,000 in the Advanced Water Purification Facility capital project (WQ-19003); and b. Increasing the ending fund balance by $500,000.

EXECUTIVE SUMMARY
The Regional Water Quality Control Plant (RWQCP) treats wastewater from the City of Palo Alto (Palo Alto), City of Mountain View (Mountain View), City of Los Altos, East Palo Alto Sanitary District, Stanford University and Los Altos Hills. A small fraction of the effluent from the RWQCP is further treated and then used for irrigation and toilet flushing.

In November 2019, Council approved the Agreement between the City of Palo Alto, City of Mountain View and Santa Clara Valley Water District to Advance Resilient Water Reuse Programs in Santa Clara County1 (Partnership Agreement). The Partnership Agreement includes an option for the Santa Clara Valley Water District (Valley Water) to receive approximately half 1 City Council, November 18,2019; Agenda Item #17; SR #10627, https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2019/id-10627-mini-packet-11182019.pdf?t=60382.02 Item 12
Item 12 Staff Report

Item 12: Staff Report
Pg.
1 Packet Pg. 436 of 853

1 7
7 8
of the treated wastewater produced by the RWQCP for use in the county south of Mountain View.

Palo Alto is assisting Valley Water staff with the design criteria for the potential Purified Water Project. The proposed funding agreement (“Agreement By and Between the Santa Clara Valley Water District and the City of Palo Alto relating to Valley Water’s Payment for City’s Support Services to Valley Water’s Purified Water Project”, Attachment A) would allow the City to be reimbursed for staff time.

Staff will return to Council at a future meeting to discuss the cost of the local salt removal facility, a lease agreement, and an operations and maintenance agreement with the Regional Purification Facility managed by Valley Water.

BACKGROUND
Water is a scarce resource in California. Availability is affected by droughts and climate change, and may be subject to changes to the state water system. The RWQCP is a local source of drought-proof, sustainable water, only a small fraction of which is currently being used for irrigation and toilet flushing. Investments in pipeline expansions and additional treatment facilities are needed to increase the amount of water reused from the facility.

In 2019, Palo Alto and Mountain View entered into an agreement with Valley Water (Partnership Agreement) which grants Valley Water an option to take approximately half of the effluent from the RWQCP. Valley Water intends to purify the effluent at the old Los Altos Treatment Plant location and use it to recharge the groundwater basin south of Mountain View.

Palo Alto and Valley Water are assessing construction feasibility for a Purified Water Project in Palo Alto at the former Los Altos Treatment Plant (LATP) site at the end of San Antonio Road. RWQCP effluent would receive additional treatment at the proposed Purified Water Facility for groundwater recharge south of Mountain View. The Purified Water Project is part of Valley Water's response strategy to the multi-year drought and is consistent with Board direction to expand the County's recycled water supply.

In September 2020, Valley Water’s Board approved a Design-Build-Finance-Operate-Maintain procurement process under a Public/Private Partnership (P3) to expand potable water reuse and delivery to the Los Gatos Recharge System (Purified Water Project). The Board directed Valley Water staff to launch a P3 procurement process once all the necessary elements for the project were secured. Valley Water plans to implement the Board’s potable reuse directive through a North County production facility to begin operation in 2028.

In September 2022, staff and Valley Water provided a Council study session regarding the partnership with Valley Water to build a Regional Purification Facility at the old Los Altos Treatment Plant (Purified Water Project). Then, in October 2022, Council accepted the updated Item 12
Item 12 Staff Report

Item 12: Staff Report
Pg.
2 Packet Pg. 437 of 853

1 7
7 8
S/CAP Goals and Key Actions2. The S/CAP Goals and Key Actions include a goal to "Develop a water supply portfolio which is resilient to droughts, changes in climate, and water demand and regulations, that supports our urban canopy" and a key action to "Develop and implement projects that result from a "One Water" Portfolio for Palo Alto, including but not limited to:
stormwater, recycled water, on-site reuse, conservation, groundwater.” The partnership with Valley Water supports this objective by providing $16 million of funding towards Palo Alto’s Local Salt Removal Facility. Additionally, the Council’s 2023 Objective of “Climate Change and the Natural Environment” includes a Priority Objective to “Approve agreements with Valley Water for the purified water facility at LATP Area B”.

Valley Water requires support services from various City departments, including Public Works – Environmental Services Division, Engineering, Real Estate, Utilities, and City Attorney to accomplish the various tasks in support of the Purified Water Project. Palo Alto staff currently assist Valley Water with this effort and will continue to do so to ensure successful implementation of the Purified Water Project. Assistance will include developing needed agreements, such as a ground lease for the former LATP site; resolving technical and operational issues such as tie-ins at the RWQCP for source water, pump station location, pipeline alignments, and power; and resolving legal issues, including regulatory permitting requirements. The foregoing will require the dedication of considerable amount of time from Palo Alto staff and consultants.

ANALYSIS
Valley Water and the City must resolve several key issues before a Purified Water Project can be constructed in Palo Alto, including but not limited to:
· A facilities and land lease on former Los Altos Treatment Plant (LATP) lands. · Identification of diversion point of source water (tertiary-treated wastewater) to be conveyed to the new Purified Water Project facility.
· Siting of pump stations, pipeline, and appurtenances on RWQCP property. · Siting of pipeline for source water and RO concentrate within the City’s jurisdiction. · Identification of return point of RO Concentrate to the RWQCP. · Management and disposal of reverse osmosis (RO) concentrate including an Operations and Maintenance agreement and an RO concentrate agreement. · Other requisite legal agreements (i.e., power, signage) associated with purified water production on City-owned land.
· Potential connection of the Local Salt Removal Facility with the Project. CEQA documentation preparation and review
2 City Council, September 27, 2022; Agenda Item #10; SR#14606 https://portal.laserfiche.com/Portal/DocView.aspx?id=59252&repo=r-704298fc&searchid=7ffbcd4d-1198-43da- a959-4ea68fce4c50
Item 12
Item 12 Staff Report

Item 12: Staff Report
Pg.
3 Packet Pg. 438 of 853

1 7
7 8
· Parameters and expectations for communications and responsiveness of P3 entity to City and the public during construction and ongoing operations.

The attached Funding Agreement (Attachment A) will enable Valley Water to provide reimbursement for City of Palo Alto’s staff and consultant time on the Purified Water Project for:
1) Meeting Attendance
2) Regulatory Coordination and Resolution of RO Concentrate Management and Disposal 3) Land Lease to Site Purification Facilities
4) Development of Agreements: O&M, lease, and RO Concentrate disposal 5) Technical Support and Coordination
The term of the Funding Agreement commences on its Effective Date and expires two years after the Effective Date. The term of the Funding Agreement will be automatically extended for additional annual periods up to four additional years unless Palo Alto or Valley Water provide a notice of termination.

As part of the development of this Funding Agreement, Palo Alto staff identified a list of expected positions and hourly rates (mainly from Public Works Department and Utilities) that will support the Purified Water Project. The hourly rates were calculated using the maximum hourly rate per the current Salary Schedule and a percentage for benefits based on the labor group. These rates will be updated as new Salary Schedules are adopted by City Council.

In addition to City staff, Palo Alto requires consultant services to support specific technical issues related to the Purified Water Project. In December 2022, Council approved a Professional Services Contract3 with Woodard & Curran which includes a task to assist with the coordination of technical issues related to the Purified Water Project. Woodard & Curran services covered under this Contract related to the Purified Water Project, will be also reimbursed by Valley Water.

City staff anticipates returning to Council for approvals and status updates on the project deliverables and milestones listed above in due course.

Separately, Valley Water will submit a planning application with the City’s Planning and Development Services Department for any land use approvals, planning entitlements, site and design reviews and other environmental review under the California Environmental Quality Act/National Environmental Policy Act. City’s staff time related to these items work is not 3,4 City Council, December 19, 2022; Agenda Item #15, SR#14685 https://portal.laserfiche.com/Portal/DocView.aspx?id=59041&repo=r-704298fc&searchid=1bc9fc14-b715-4880- 8750-4d78098829ab
Item 12
Item 12 Staff Report

Item 12: Staff Report
Pg.
4 Packet Pg. 439 of 853

1 7
7 8
covered by this Funding Agreement. Valley Water has set up a deposit account with the Planning and Development Services Department.

FISCAL/RESOURCE IMPACT
Work covered in the Scope of Services (Exhibit A) of the Funding Agreement and performed by City staff will first be paid for by the City through regular payroll. Work performed by Woodard & Curran will first be paid by the City through the existing contract. An increase of $500,000 in revenue from Valley Water is recommended in the Advanced Water Purification Facility capital project (WQ-19003) to offset costs in this project via the attached Funding Agreement.

Quarterly invoices will be submitted to Valley Water for reimbursement.

STAKEHOLDER ENGAGEMENT
Palo Alto hosted a community meeting on October 23, 2019 to inform the community and answer questions about the components of the Partnership Agreement. Approximately 20 members of the public attended. Overall, the attendees were supportive of the Partnership Agreement. Since 2019, public outreach and engagement has been led by Valley Water with assistance from the City. Valley Water has presented the project to the Conservation Council (an active group of non-governmental organizations focused on environmental causes within Palo Alto) and other key stakeholders. Public outreach will continue to be an important component of the Purified Water Project as it progresses.

ENVIRONMENTAL REVIEW
The proposed funding agreement is not a project subject to CEQA review under section 15378(b)(4) because the funding agreement is government funding mechanisms or fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.

Valley Water is the lead agency for the Purified Water Project and will be preparing the Environmental Impact Report (State Clearinghouse #2021030519).

ATTACHMENTS
Attachment A: Valley Water Funding Agreement for Purified Water Project APPROVED BY:

Brad Eggleston, Director Public Works/City Engineer
Item 12
Item 12 Staff Report

Item 12: Staff Report
Pg.
5 Packet Pg. 440 of 853

1 | P a g e

AGREEMENT BY AND BETWEEN THE

SANTA CLARA VALLEY WATER DISTRICT AND
THE CITY OF PALO ALTO RELATING TO VALLEY WATER’S PAYMENT FOR CITY’S SUPPORT SERVICES TO VALLEY WATER’S PURIFIED WATER PROJECT This Master Agreement (Agreement) is made and entered this ____ day of ___________ 2023 (Effective Date), by and between the City of Palo Alto (City or Palo Alto), a California municipal corporation, and the Santa Clara Valley Water District (Valley Water), an independent special district of the State of California. The City and Valley Water may be referred to individually as a Party, or collectively as Parties, to this Agreement.

RECITALS
A. The City is the owner and operator for the Palo Alto Regional Water Quality Control Plant (RWQCP), which treats wastewater for the communities of Los Altos, Los Altos Hills, Mountain View, Palo Alto, Stanford University, and the East Palo Alto Sanitary District.

B. In August 2017, Valley Water and Palo Alto executed a Memorandum of Understanding for the purpose of developing plans and studies to expand the production and use of recycled and purified water within the County.

C. In December 2019, Valley Water, Palo Alto, and the City of Mountain View executed a Partnership Agreement to Advance Resilient Water Reuse Programs in Santa Clara County to achieve the most cost effective, environmentally beneficial utilization of treated wastewater in the County.

D. Valley Water desires to develop a process and facilities to purify treated wastewater for potable reuse, including (1) using purified water to replenish groundwater basins, an outcome commonly referred to as Indirect Potable Reuse, and/or (2) delivering the purified water with additional treatment directly to Valley Water's raw water or treated water sources and subsequent delivery to potable water consumers, an outcome commonly referred to as Direct Potable Reuse.

E. In September 2020, Valley Water’s Board of Directors (Board) approved a design- build-finance-operate-maintain procurement process under a public/private partnership to expand potable water reuse and delivery to the Los Gatos Recharge System (Purified Water Project).

F. The Parties desire to cooperate with one another to construct the Purified Water Project, including pipelines, pump station, and related appurtenances, on City-owned property, using treated effluent from the Palo Alto RWQCP as source water for the advanced water purification facilities and the Palo Alto RWQCP outfall to discharge the reverse osmosis concentrate produced by the purification process
G. Valley Water requires support services from various City departments, including Public Works – Environmental Services Division, Engineering, Real Estate, Utilities, and City Attorney to accomplish the various tasks in support of the Purified Water Project.

Now, therefore, in consideration of the mutual promises set forth below, the Parties agree as follows:

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
6 Packet Pg. 441 of 853

2 | P a g e

AGREEMENT

1. Purpose
The purpose of this Agreement is to establish the basis and procedure for reimbursement by Valley Water for the costs and expenses incurred by City in the performance of support services in connection with the Purified Water Project, including services performed during the period from July 1, 2022 through the effective date of this Agreement.

2. Scope of Agreement
A. The Parties have agreed that the City will provide support services generally described in Scope of Services, attached hereto as Exhibit A and incorporated into the Agreement by this reference (Scope of Services); the Parties furthermore agree that City shall provide such services to the extent necessary in its professional judgment and discretion to complete the tasks described in the Scope of Services, and to satisfy any regulatory, technical or similarly applicable requirements.

B. This Agreement does not apply to services performed by the City’s Planning and Development Services Department for any land use approvals or entitlements required by the City of Palo Alto and environmental review under the California Environmental Quality Act/National Environmental Policy Act.

C. Nothing in this Agreement commits either Party to the implementation of any project, including without limitation, the City's provision of land or permission to discharge into the RWQCP outfall.

D. Nothing in this Agreement modifies the terms of any existing Agreement between the City and Valley Water.

3. Agreement Term; Termination
A. Term. The term of this Agreement commences on its Effective Date and expires two years after the Effective Date. The term of this Agreement shall be automatically extended for an additional period of one (1) year, not to exceed four (4) additional years, unless either party provides written notice of termination at least 30 days prior to the immediately preceding one-year renewal period.

B. Termination. Any Party may terminate this Agreement by providing thirty (30) days written notice to the other Party. The City shall send Valley Water a final invoice within sixty (60) days of the effective date of termination of this Agreement.

4. Reimbursement
A. Services Performed by City Prior to Effective Date of this Agreement. Within thirty (30) days of the effective date of this Agreement, Valley Water agrees to reimburse City for services performed in connection with the Purified Water Project for the period from July 1, 2022 through January 31, 2023, as detailed in Exhibit D.

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
7 Packet Pg. 442 of 853

3 | P a g e

B. Services Performed by City After January 31, 2023. The City shall provide Valley Water with an initial written invoice for work performed from February 1, 2023 through March 31, 2023. Thereafter, commencing on or around July 1, 2023, the City, on a quarterly basis, shall provide Valley Water a written invoice for the work performed during the immediately previous three months. The invoice shall set forth the relevant period, the number of hours worked and the applicable hourly rates, a description of the reimbursable expenses incurred and the amount of such expenses, and documents supporting the reimbursable expenses.

C. Within 45 days of receipt of an invoice, Valley Water shall remit payment to City, subject to review and approval of Valley Water. Such approval shall not be unreasonably withheld.

5. Responsibilities of the Parties
A. Valley Water agrees to:

1. Ensure sufficient staff resources and consultant services are devoted to development and pursuit of the Scope of Services.

2. Provide all necessary studies, reports, plans, specifications, maps, and other documents to City in a timely manner, and allow the City at least 2 weeks for detailed review and comments, unless mutually agreed otherwise by the Parties.

3. Schedule meetings with 2 weeks advance notice and cognizant of City availabilities unless mutually agreed to otherwise by the Parties.

4. In collaboration with the City, review and respond to subsequent requests for additional information to complete the Scope of Services.

5. Work collaboratively with City staff and consultants retained by City to ensure timely discussion and review of the Purified Water Project tasks.

B. City agrees to:

1. Ensure sufficient staff resources and consultant services are devoted to City's responsibilities with respect to the Scope of Services, subject to the appropriation of funds by City's Council.

2. Review and provide comments on the Scope of Services and any amendments thereto within a timeframe mutually agreed to by the Parties.

3. Work collaboratively with Valley Water and its consultant, contractors, and agents (including the private entity) to ensure timely discussion and review of Purified Water Project tasks associated with design and construction.

4. Once per quarter, submit invoices documenting costs incurred by the City and any consultants retained by City for review and approval by Valley Water.

6. Records Retention and Audit
DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
8 Packet Pg. 443 of 853

4 | P a g e

A. The City agrees to make available for examination by Valley Water, subject to limitations established by state law, its authorized agents, officers, or employees, any and all ledgers, books of accounts, invoices, vouchers, cancelled checks, and other records or documents evidencing or relating to the expenditures and disbursements invoiced to Valley Water or amounts deducted from the Funding Account. City shall also furnish to Valley Water, its authorized agents, officers or employees such other evidence or information as Valley Water may request with regard to any such expenditure or disbursement charged by City.

B. The City shall maintain full and adequate records to document the actual costs it incurs which are subject to reimbursement of the City's costs pursuant to this Agreement. City shall provide such assistance as may be reasonably requested in the course of such inspection.

7. Notices
Any and all notices required to be given to a Party hereunder shall be deemed to have been delivered upon deposit in the United States mail, postage prepaid, addressed to either of the Parties at the following address or such other address, or via e-mail with a written confirmation of receipt at the address(es) below, as is provided by either Party in writing:

City:

City of Palo Alto
Public Works Department
Attention: Karin North, Assistant Director of Public Works

2501 Embarcadero Way
Palo Alto, CA 94303
Phone: (650) 329-2104
Email address: [email protected]

Valley Water:

Santa Clara Valley Water District
Water Utility Enterprise
Attention: Kirsten Struve, Assistant Officer

5750 Almaden Expressway
San Jose, CA 95118
Phone: (408) 630-3138
Email address: [email protected]

8. Severability
If a court of competent jurisdiction holds any provision of this Agreement to be illegal, unenforceable, or invalid in whole or in part for any reason, the validity and enforceability of the remaining provisions, or portions of them, will not be affected, unless an essential purpose of this Agreement would be defeated by the loss of the illegal, unenforceable, or invalid provision.

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
9 Packet Pg. 444 of 853

5 | P a g e

9. Mutual Indemnification
In lieu of and notwithstanding the pro rata risk allocation, which might otherwise be imposed between the Parties pursuant to Government Code Section 895.6, the Parties agree that all losses or liabilities incurred by a Party shall not be shared pro rata but, instead, Valley Water and City agree that, pursuant to Government Code Section 895.4, each of the Parties hereto shall fully indemnify and hold each of the other Party, including its officers, board members, employees, and agents, harmless from any claim, expense or cost, damage or liability imposed for injury (as defined in Government Code Section 810.8) occurring by reason of the negligent acts or omissions or willful misconduct of the indemnifying Party, its officers, employees, or agents, under or in connection with or arising out of any work, authority, or jurisdiction delegated to such Party under this Agreement. No Party, nor any officer, board member, or agent thereof shall be responsible for any damage or liability occurring by reason of the negligent acts or omissions or willful misconduct of the other Party hereto, its officers, board members, employees, or agents, under or in connection with or arising out of any work authority or jurisdiction delegated to such other Party under this Agreement.

10. Governing Law and Compliance with Laws
The Parties agree that California law governs this Agreement. In the performance of this Agreement each Party will comply with all applicable laws, ordinances, codes and regulations of the federal, state, and applicable local government.

11. Disputes
The Parties agree that they will work together in good faith to achieve the intent of this Agreement. In the event that a dispute arises as to the proper interpretation of the respective obligations and responsibilities of the Parties as described herein, or as to any other aspect of this Agreement, Valley Water and the City agree that they each will assign the appropriate individuals to meet and make good faith efforts to negotiate in order to arrive at a resolution of the dispute. If any legal action or other proceeding is commenced to enforce or interpret any provision of, or otherwise relating to, this Agreement, each Party shall bear the entirety of its owns costs and expenses including but not limited to attorneys’ fees.

12. Venue
In the event that suit is brought by any Party to this Agreement, the Parties agree that venue will be exclusively vested in the state courts of the County of Santa Clara, or if federal jurisdiction is appropriate, exclusively in the United States District Court, Northern District of California, San Jose, California.

13. Assignability
Parties will not assign this Agreement or any portion thereof to a third party without the prior written consent of the other Party.

14. Ownership of Materials
All reports, documents, technical data, findings, or other materials (collectively, the Work Product") developed by City as part of this Agreement shall be the property of the City. Valley Water shall have right to the Work Product for Valley Water business, including, without limitation, further development of its water supply infrastructure.

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
10 Packet Pg. 445 of 853

6 | P a g e

This section shall not apply to any Work Product or documents or communications covered by attorney-client privilege.

15. Entire Agreement
This Agreement constitutes the entire agreement between the City and Valley Water with respect to the subject matter hereof and supersedes all prior offers and negotiations, oral and written. This Agreement may not be amended or modified in any respect except by an instrument in writing signed by authorized representatives of the Parties.

16. Counterparts and Electronic Signatures
This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, will be deemed to be an original, and all of which, taken together, will be deemed to be one and the same instrument. Unless otherwise prohibited by law or policy of a Party, the Parties agree that an electronic copy of a signed contract, or an electronically signed contract, has the same force and legal effect as a contract executed with an original ink signature. The term “electronic copy of a signed contract” refers to a writing as set forth in Evidence Code Section 1550. The term “electronically signed contract” means a contract that is executed by applying an electronic signature using technology approved by the City.

17. Nonwaiver
A Party's waiver of any term, condition, or covenant, or breach of any term, condition or covenant will not be construed as a waiver of any other term, condition or covenant.

18. Third Parties
This Agreement is entered into only for the benefit of the Parties executing this Agreement and not for the benefit of any other individual, entity, or person.

19. Debt Limitation
The City and Valley Water are both subject to laws or policies which limit their ability to incur debt in future years. Nothing in this Agreement shall constitute an obligation of future legislative bodies of the City or Valley Water to appropriate funds for purposes of this Agreement.

20. No Partnership or Agency
Nothing in this Agreement is intended to constitute a partnership between the Parties, or authorize either party to act as agent for the other, or authorize a party to act in the name or on behalf of or otherwise to bind the other in any way.

21. Exhibits
The following listed Exhibits are incorporated herein by this reference as though set forth in full:

Exhibit A - Scope of Services
Exhibit B - Schedule of Performance
Exhibit C – Compensation
Exhibit D – Initial Statement
DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
11 Packet Pg. 446 of 853

7 | P a g e

IN WITNESS WHEREOF, the City and Valley Water have executed this Agreement on the Effective Date as defined in the introductory paragraph of this Agreement.

APPROVED AS TO FORM FOR CITY:

_______________________________

MOLLY STUMP
City Attorney

CITY OF PALO ALTO

By_______________________________

ED SHIKADA
City Manager

Date_____________________________

APPROVED AS TO FORM FOR
VALLEY WATER:

_______________________________

ANTHONY FULCHER
Sr. Assistant District Counsel

Date_____________________________

SANTA CLARA VALLEY WATER DISTRICT

By_______________________________
RICK L. CALLENDER, ESQ
Chief Executive Officer

Date_____________________________

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 2/22/2023 2/28/2023
Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
12 Packet Pg. 447 of 853

8 | P a g e

EXHIBIT A

SCOPE OF SERVICES

A. Background: The Purified Water Project

The Purified Water Project is part of Valley Water's strategy to respond to the multi-year drought and is consistent with Board direction to expand the County's recycled water supply. Valley Water’s 2040 Water Supply Master Plan (WSMP) recommends developing at least 24,000 AFY of potable water reuse (above the current target of 33,000 AFY of non- potable reuse). Valley Water has developed a Countywide Water Reuse Master Plan (CoRe Plan) that has evaluated potable reuse expansion throughout Santa Clara County, including identifying options for achieving the WSMP’s water reuse target.

In September 2020, the Board approved a Design-Build-Finance-Operate-Maintain procurement process under a Public/Private Partnership (P3) to expand potable water reuse and delivery to the Los Gatos Recharge System (Purified Water Project). The Board directed Valley Water staff to launch a P3 procurement process once all necessary elements for an advanced water purification project were secured. Valley Water will implement the Board’s potable reuse directive through a North County production facility to begin operation in 2028. The Purified Water Project will purify water for potable reuse to supplement groundwater recharge from existing sources such as imported and local water supplies. Implementation of the Purified Water Project will also mitigate the risk of land subsidence, which could significantly impact the infrastructure and economy of Santa Clara County.

Valley Water and the City must resolve several key issues before a Purified Water Project can be constructed in Palo Alto, including but not limited to:

1. A facilities and land lease on former Los Altos Treatment Plant (LATP) lands.

2. Identification of diversion point of source water (tertiary-treated wastewater).

3. Siting of pump stations, pipeline, and appurtenances on RWQCP property.

4. Management and disposal of reverse osmosis (RO) concentrate including an Operations and Maintenance agreement and a RO concentrate agreement.

5. CEQA document preparation and review.

6. Siting of pipeline for source water and RO concentrate within the City’s jurisdiction.

7. Potential connection of the Local Salt Removal Facility with the Project.

8. Identification of return point of RO Concentrate to the RWQCP.

9. Other requisite legal agreements (i.e., power, signage) associated with purified water production on City-owned land.

10. Parameters and expectations for communications and responsiveness of P3 entity to City and the public during construction and ongoing operations.

B. General Provisions

The Parties acknowledge the complexity of the project and the need for ongoing coordination of efforts; the Parties further agree to work in good faith to resolve the issues DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
13 Packet Pg. 448 of 853

9 | P a g e

enumerated above and complete the tasks described below.

Valley Water agrees to provide adequate funding to reimburse the City for approved costs incurred in connection with the implementation of the project.

City agrees to use Valley Water funds only for direct project costs.

C. Description of Tasks

Task 1 - Attendance of Meetings
City will attend meetings with Valley Water, federal and state regulatory staff, and the private entity to identify, discuss, and resolve issues, to establish priorities, and to review progress. This includes development of a schedule for the execution of the needed agreements for Valley Water’s planning purposes. These meetings will be used to further refine the principal terms to be included in various agreements that will establish commitments for the above-listed key issues and legal aspects of a water purification facility.

Task 2 – Regulatory Coordination and Resolution of RO Concentrate Management and Disposal

City, Valley Water, and applicable consultants will develop strategies for regulatory compliance with pertinent regulatory agencies, including the Regional Water Quality Control Board (RWQCB) on various permitting items including application of existing permit conditions and agency issues regarding RO concentrate management, NPDES permitting, and IPR facility permitting.

City’s work under this task may include, but is not limited to:
a) fulfillment of data requests and site access coordination, b) review of studies prepared by Valley Water or its consultants pertaining to RO concentrate management including, but not limited to, assessing the feasibility of using the existing RWQCP outfall for RO concentrate discharge within the constraints of continued compliance with the City’s National Pollutant Discharge Elimination System (NPDES) limitations, and
c) participation in the evaluation and discussions of regulatory options for addressing RO concentrate management.

This task may require City, at City’s sole discretion, to provide peer review, responding to regulatory agencies, consultant support services, and attendance at meetings, as appropriate, to discuss study outcomes.

Task 3 - Land Lease for Purification Facilities
City and Valley Water will develop an executable lease agreement option for buildable land at the site of the former Los Altos Treatment Plant (LATP) to accommodate the Project and associated facilities. The lease agreement will include an option for additional facilities for educational outreach and training activities associated with purified water. In addition to development of the lease, City work under this task may include, but is not limited to:
support and coordination regarding remediation of hazardous materials at the LATP site, regulatory permitting support, coordination of site entry, permission to sample, and support of materials registration.

Task 4 – Development of Agreements
DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
14 Packet Pg. 449 of 853

10 | P a g e

City will review legal memoranda developed by Valley Water and/or its consultants in support of Project development and implementation. These activities will provide the legal foundation for agreements supporting purified water facility construction and production, including but not limited to the following:

1. A facilities and land lease on RWQCP or City lands,

2. Specifications for diversion point of source water (tertiary treated wastewater),

3. Management and disposal of reverse osmosis (RO) concentrate,

4. Return point to RWQCP for RO Concentrate; and

5. Revised legal agreements (i.e., O&M, power, signage) associated with purified water production on City’s lands.

6. Development and review of the present Funding Agreement

7. Support related to Palo Alto City Council and Valley Water Board approval of these Agreements

Task 5 – Technical Support and Coordination
City shall provide technical support and coordinate with Valley Water and the private entity to support the Project development and implementation. City, with necessary consultant services, will review engineering, environmental, regulatory, and technical memoranda and reports developed by Valley Water and/or its consultants in support of P3 Purified Water Project development. This task includes general project coordination during the design- build and post-construction phases and work activities and coordination associated with but not limited to:

1. Tie-in Connections at RWQCP for RO concentrate and tertiary effluent pipelines

2. Abandonment of existing monitoring well at the former LATP site

3. Former LATP site boundaries and survey

4. Project Homekey

5. RWQCP water quality sampling, as needed

6. Existing utility identification and connections

7. Current and historical water quality information

8. Effluent water samples for additional testing

9. As-Built drawings of the RWQCP, if available.

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
15 Packet Pg. 450 of 853

11 | P a g e

EXHIBIT B

SCHEDULE OF PERFORMANCE
The Parties will mutually agree to the schedule to perform tasks under this Agreement. Parties agree to perform tasks in a reasonable amount of time.

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
16 Packet Pg. 451 of 853

12 | P a g e

EXHIBIT C

COMPENSATION

Not to Exceed Amount: $500,000. Valley Water funding for this Agreement will not exceed $500,000, unless increased through a written amendment to this Agreement signed by both parties.

Hourly Rates: Valley Water will compensate City at the hourly rates in Exhibit C.1 of this Agreement. Notwithstanding anything to the contrary, these hourly rates are valid at the time of execution but may be subject to increase following each new fiscal year.

Reimbursable Expenses: Valley Water will reimburse for expenses subject to the following:

The following expenses are reimbursable to the extent City documents to Valley Water's satisfaction that they were incurred in performing the work required by Exhibit A:
o the cost of City’s Consultant services supporting the Purified Water Program. o the cost of mailing, shipping and/or delivery of documents or products to Valley Water. o the cost of photographing, reproducing and/or copying. o telephone and fax charges.
o the rental of any specialized equipment to the extent Valley Water has preapproved, in writing, the cost of such rental.

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
17 Packet Pg. 452 of 853

13 | P a g e

EXHIBIT C.1

SCHEDULE OF CHARGES
The following City staff positions are anticipated to be necessary to provide support services under this Agreement. Additional or alternative positions may be necessary throughout the Agreement. The rates will be subject to change based on City’s salary schedules approved by City Council.

City Department Title Hourly Rate (Funding
Agreement)
Public Works Administrative Associate I $63
Public Works Administrative Associate II $68
Public Works Administrative Associate III $73
City Attorney Assistant City Attorney $192
Public Works Assistant Director Public Works $199
Utilities Assistant Director - UTL $210
Utilities Assistant Director (WGW) $215
Public Works Assistant Manager WQCP $165
Public Works Associate Engineer $108
Utilities Associate Resource Planner $105
City Attorney Deputy City Attorney $151
Public Works Director of Public Works $245
Public Works Engineer $122
Utilities Engineering Manager $188
Public Works Management Analyst $116
Public Works Manager Environmental Control $155
Administrative Services Manager Real Property $149
Public Works Manager WQCP $186
Utilities Principal Engineer $164
Public Works Project Engineer $131
Utilities Project Engineer $131
Public Works Project Manager $131
Public Works Sr. Engineer $178
Utilities Sr. Engineer $178
Administrative Services Sr. Management Analyst $135
Utilities Sr. Resource Planner $168
Utilities Supervising Project Engineer $147
Utilities Sr. Resource Planner $168

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
18 Packet Pg. 453 of 853

14 | P a g e

EXHIBIT C.2

SCHEDULE OF CHARGES

The following consultant support positions are anticipated to be necessary to provide support services under this Agreement and are subject to change per consultant agreements between the City and Woodard & Curran.

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
19 Packet Pg. 454 of 853

15 | P a g e

EXHIBIT D
INITIAL STATEMENT JULY 1, 2022
TO JANUARY 31, 2023

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
20 Packet Pg. 455 of 853

16 | P a g e

MEMORANDUM

FROM: Karin North, Assistant Director of Public Works
Diego Martinez Garcia, Associate Engineer

TO: Kirsten Struve, Assistant Officer Water Supply Division

PROJECT: Regional Water Purification Facility

DATE: January 31, 2023

SUBJECT: Progress Report #1

The project report for this invoice is provided for the period July 1, 2022 through January 31, 2023.

ACTIVIES THIS PERIOD BY TASK

Task 1. Attendance of Meetings

 City staff attended meetings with Valley Water related to the development of Agreements, ROC Management, Regulatory Strategies, Tie-ins and special studies.

Task 2. Regulatory Coordination and Resolution of RO Concentrate Management and Disposal

 Review and editing Toxicity Pilot Study Plan and Effluent Hauling Memos  Coordination related to Toxicity Pilot Study
 Preparation for meetings with Regional Board
 Review and editing of technical memo’s: Reasonable Potential Analysis, Selenium TMDL and Hydraulic Modeling

Task 3. Land Lease for Purification Facilities

 No activities performed this period

Task 4. Development of Agreements

 Development and review of the Funding Agreement
 Development and review of reimbursement statements forms  Development of strategy to fund Planning Account and Public Works staff time  Onboard Consultant to support City on Agreement’s development and review

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
21 Packet Pg. 456 of 853

17 | P a g e

Task 5. Technical Support and Coordination

 Final effluent data request (5 years of minute flow data)  Recycled Water data request (5 years of hourly flow data)  Internal discussions about tie-in connections at the RWQCP  RWQCP effluent sampling coordination
 Responded to RWQCP requests for information (as-builts, process information).  Initial support to setup a Planning Account

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
22 Packet Pg. 457 of 853

18 | P a g e

City Support Services for the Period July 1, 2022 to January 31, 2023

Job Classification Employee Department Hours Total Cost Assistant Director Public Works Karin North Public Works 33.50 $ 6,119.52 Senior Engineer Samantha Engelage Public Works 37.50 $ 5,907.69 Manager RWQCP James Allen Public Works 3.00 $ 500.40
Associate Engineer Diego Martinez Garcia Public Works 99.50 $ 10,779.53 Senior Engineer Tom Kapushinski Public Works 6.00 $ 945.23 Assistant Director Utilities Karla Dailey Utilities 0.00 $ -.-- Senior Resource Planner Lisa Bilir Utilities 0.00 $ -.-- Manager Real State Sunny Tong Administrative
Services

0.00 $ -.--
Assistant City Attorney Caio Arellano City Attorney 13.75 $ 2,569.10

GRAND TOTAL 193.25 $26,821.48

DocuSign Envelope ID: 6FFE6495-C3A7-4C5F-844A-D66B39897583 Item 12
Attachment A. Valley
Water Funding
Agreement for Purified
Water Project

Item 12: Staff Report
Pg.
23 Packet Pg. 458 of 853

City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: April 17, 2023
Report #:2303-1108
TITLE
Approval of Tenant Work Letter for Lease of 300 Homer Avenue Roth Building between the City of Palo Alto and the Palo Alto Museum; CEQA Status--Not a Project

RECOMMENDATION
Staff recommends that the City Council approve and authorize the City Manager or their designee to execute the Tenant Work Letter, Exhibit D to the lease agreement by and between the City of Palo Alto and Palo Alto History Museum to rehabilitate the Roth Building to “Warm Shell” condition.

EXECUTIVE SUMMARY
The Tenant Work Letter is the third and final necessary document for construction to begin the Roth Building rehabilitation. Staff and the Museum have finalized the Tenant Work Letter to define the parties’ respective funding contributions and roles and responsibilities during construction. Both parties acknowledge that construction costs will continue to change and therefore acknowledge that the total project cost will increase, however, the federal earmark of $3 million is expected to support the rehabilitation and restoration of this facility and assist in ensuring the project is funded. The Museum most recently estimated construction to commence in May 2023 and expects to open its doors to the public at the end of 2024 or early 2025.

BACKGROUND
At the December 12, 2022 meeting (Item 6 – CMR 15017)1, the Council approved the lease and license agreement with the Palo Alto Museum for the Roth Building at 300 Homer Avenue.

Those two documents have been executed and the Palo Alto Museum has assumed responsibility for the property. The parties mutually agreed to the extension of the lease term requiring the completion of the Tenant Work Letter within 60 days of completion of the lease agreement. All documents remain in full effect.
1 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council-agendas- minutes/2022/20221212/20221212pccsm-amended-linked.pdf
Item 13
Item 13 Staff Report

Item 13: Staff Report
Pg.
1 Packet Pg. 459 of 853

ANALYSIS
The Tenant Work Letter (Attachment A) is the third and final document and is now before Council for consideration. The Tenant Work Letter for the Roth Building Warm Shell rehabilitation, referenced as Exhibit D to the Lease Agreement, sets forth the terms and conditions for planned Phase 1 “warm shell” rehabilitation of the building and capital improvements to the site, including project funding. Below is a summary of selected terms included and recommended for approval in this item. The agreement, containing the full terms and conditions, can be found in the attachment. This document was delayed as the Museum and staff worked with the Federal government in the requirements for the $3 million federal earmark secured by Congresswoman Eshoo. This grant is a critical funding source to ensure this project can proceed and parties have worked to meet the requirements and adjusted terms and conditions to provide sufficient time for these funds to be made available.

Summary of Selected Terms Included in Tenant Work Letter:
•Communications:
oMuseum will keep the City updated on progress and significant developments by informal communication in addition to scheduled meetings and reports oMuseum will provide a weekly written report via e-mail summarizing progress made in preceding week
•Funding:
oCity’s contribution of funding from sources such as restricted impact fees and grant funding is in reliance on the Museum’s commitment to comply with the applicable conditions associated with those funding sources oCity will contribute $10.02 million – 20% to be deposited after the museum has provided evidence of required funds/pledges for project construction followed by periodic disbursements for progress payments by Museum to general contractor.
oAfter funds from the City contribution have been exhausted, the museum anticipates using pledge funding and the Federal HUD funds to pay for remaining construction costs
▪Museum is solely responsible for complying with HUD grant conditions and consequences of any failure to comply and the City will make all reasonable efforts to support the museum in this work.
•Prior to Construction:
oMuseum to provide written proof that it has entered into construction contract with general contractor that meets requirements in TWL
oMuseum to obtain all necessary permits and authorizations (the City will reimburse the museum of permit costs of $100,000)
oFunding schedule to be updated with final Guaranteed Maximum Price contract amounts
Item 13
Item 13 Staff Report

Item 13: Staff Report
Pg.
2 Packet Pg. 460 of 853

oProject schedule to be updated based on updated construction contract details •During Construction:
oMuseum is solely responsible for construction administration services during construction and closeout
oVance Brown will serve as the general contractor; contract will be a guaranteed maximum price contract and include all subcontracts and a 10% construction contingency
oAll work will be done in accordance with design documents and construction contract and in compliance with all applicable laws (including City ordinances, rules, and regulations)
oA preconstruction conference will take place before any work begins on the project and weekly meetings will continue through construction

FISCAL/RESOURCE IMPACT
The City and the Museum spent significant resources to reach all three agreements. Staff dedicated significant staffing resources and outside legal support to the negotiation process. A FY 2023 Mid-Year budget amendment funded the legal contractual services needed to complete these documents. Under the City’s supervision, the Museum is responsible for rehabilitating the Roth Building at a total estimated cost of $11.9 million, which is budgeted in the Roth Building Rehabilitation capital project (PF-23001).

The Tenant Work Letter reflects revised funding allocations which recognize and allocate additional grant funding from the County of Santa Clara and most significantly, an additional $3 million received through a federal earmark with the assistance of Congresswoman Anna Eshoo.

These federal funds are to be used for the restoration and rehabilitation of the Museum and will be critical to enabling the completion of this Phase 1 “warm shell” of the project.

STAKEHOLDER ENGAGEMENT
Staff met with representatives of the Museum including their counsel to discuss and negotiate the Tenant Work Letter terms.

ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) in that approval of the Tenant Work Letter is a government fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. (CEQA Guidelines section 15378(b)(4)).

The rehabilitation and restoration work to the Roth Building is categorically exempt from the CEQA review in that the work to be performed is limited to maintenance, repair, stabilization, rehabilitation, restoration, preservation, conservation or reconstruction of historical resources Item 13
Item 13 Staff Report

Item 13: Staff Report
Pg.
3 Packet Pg. 461 of 853

in a manner consistent with the Secretary of the Interior’s Standards for the Treatment of Historic Properties with Guidelines for Preserving, Rehabilitating, Restoring, and Reconstructing Historic Buildings (1995), Weeks and Grimmer. (CEQA Guidelines Section 15331)

ATTACHMENTS
Attachment A: Tenant Work Letter, 300 Homer Ave “ROTH Facility” APPROVED BY:

Kiely Nose, Assistant City Manager
Item 13
Item 13 Staff Report

Item 13: Staff Report
Pg.
4 Packet Pg. 462 of 853

1Tenant Work Letter
Roth Building Warm Shell Rehabilitation

TENANT WORK LETTER
FOR

ROTH BUILDING WARM SHELL REHABILITATION

EXHIBIT D
TO

LEASE AGREEMENT

BY AND BETWEEN

CITY OF PALO ALTO

AS LANDLORD
AND

PALO ALTO HISTORY MUSEUM

AS TENANT
Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
5 Packet Pg. 463 of 853

2Tenant Work Letter
Roth Building Warm Shell Rehabilitation

TABLE OF CONTENTS
Recitals...................................................................................................................................3 Terms and Conditions

1. Definitions and Purpose ..................................................................................................4

2. Party Representatives and Relations..............................................................................7

3. Term................................................................................................................................8

4. Project Funding ...............................................................................................................8

5. Conditions for Commencement of Project Construction ...............................................11

6. Project Construction......................................................................................................12

7. Maintenance and Repair ...............................................................................................17

8. Utility Service ................................................................................................................17

9. Insurance ......................................................................................................................17

10. Damage to Project ........................................................................................................19

11. Project Records.............................................................................................................19

12. Disclaimers....................................................................................................................20

13. Default...........................................................................................................................20

14. Notice ............................................................................................................................21

15. Miscellaneous Provisions..............................................................................................21 Attachment A Project Funding
Attachment B Project Schedule
Attachment C Insurance Requirements (Architect)
Attachment D Insurance Requirements (General Contractor) Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
6 Packet Pg. 464 of 853

3Tenant Work Letter
Roth Building Warm Shell Rehabilitation

TENANT WORK LETTER
FOR

ROTH BUILDING WARM SHELL RENOVATIONS

EXHIBIT D
TO

LEASE AGREEMENT BETWEEN

CITY OF PALO ALTO AND

PALO ALTO HISTORY MUSEUM
This Tenant Work Letter (“Tenant Work Letter”) is made this ___ day of April, 2023 (“Effective Date”), and supplements the Lease Agreement dated December 12, 2022 (“Lease”) between the City of Palo Alto (“City”) and the Palo Alto History Museum (“Museum”) (individually, a “Party” and, collectively, the “Parties”), in reference to the following facts and circumstances:

RECITALS
A. Pursuant to the terms of the Lease, Museum is leasing the Premises.

B. The purpose of this Tenant Work Letter is to set forth the terms and conditions for planned Phase 1 “warm shell” rehabilitation of the Building (the “Project”), including the terms and conditions for funding Project costs.

C. The Museum has retained the architectural firm Garavaglia Architecture, Inc. (“Garavaglia”), to develop the design documents, dated October 10, 2008, for construction of the Project (“Design Documents”), which were submitted for City approval and issuance of a building permit for construction of the Project.

D. The City issued Building Permit # 16000-03285 on February 26, 2019 for construction of the Project pursuant to the Design Documents (“Permit”). The Permit was extended to June 25, 2023.

E. The Museum has retained Vance Brown, Inc., as the general contractor (“General Contractor”) pursuant to a construction contract dated August 29, 2022, as amended, to construct the Project pursuant to the Design Documents and as authorized by the Permit (as amended, “Construction Contract”).

F. Prior to execution of this Tenant Work Letter, the Museum has estimated the cost to construct the Project based on the Construction Contract’s “Guaranteed Maximum Price” (“GMP”) of $11,513,075. However, the Museum anticipates that the GMP will increase prior to commencement of construction on the Project, and this Tenant Work Letter will be updated prior to Project commencement to reflect the final GMP for the Construction Contract.

G. The City has agreed to contribute funds derived from various funding sources, including restricted impact fees and certain grant funding, toward the Museum’s cost to Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
7 Packet Pg. 465 of 853

4Tenant Work Letter
Roth Building Warm Shell Rehabilitation
construct the Project, as further specified herein, in reliance on the Museum’s commitment to comply with the applicable conditions associated with those funding sources, as set forth in the Lease.

H. The City has agreed to provide the City Contribution to apply to payment for the Construction Cost in reliance on the Museum’s representations that the Museum will have sufficient additional funds for the Museum Contribution to complete the Project, based on (i) pledged donations for the Project (“Museum Donations”), and (ii) use of federal Community Project Funding (“CPF”) grant funds pursuant to written notice from the Department of Housing and Urban Development (“HUD”) confirming that the HUD CPF Form HUD-7015.15, "Request for Release of Funds and Certification" has been received by the HUD Community Planning and Development Western Region Officer.

I. Use of funds from the HUD Grant for the Museum Contribution is subject to compliance with applicable grant conditions, including those set forth in HUD’s FY 2022 Community Funding Grant Guide (“CPF Grant Guide”), which, among other things, provides that the provisions of 2 CFR Part 200 apply to all CPF awards, including the procurement requirements set forth in 2 CFR §200.317-327.

IN CONSIDERATION OF the foregoing and the following covenants, terms and conditions, the Parties agree as follows:

TERMS AND CONDITIONS

1. DEFINITIONS AND PURPOSE.

1.1 Recitals Incorporated. The foregoing Recitals are expressly incorporated into this Tenant Work Letter.

1.2 Definitions. Capitalized terms used in this Tenant Work Letter have the same meaning as provided in the Lease for those terms unless otherwise specified herein. The following terms used in this Tenant Work Letter, including the Recitals, have the meanings set forth in this Section 1.2:
“Architect” means the architectural firm retained by the Museum to provide architectural design services for the Project.
“City” means the City of Palo Alto, a California chartered municipal corporation, acting by and through its City Council.
“City Agents” means individuals or entities acting within their capacity as duly authorized agents of the City for the Project, including, but not limited to, members of the Construction Liaison Team.
“City Contribution” is the amount the City has agreed to contribute toward the Construction Cost as further detailed in Section 4.2 and Attachment A (Project Funding).

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
8 Packet Pg. 466 of 853

5Tenant Work Letter
Roth Building Warm Shell Rehabilitation
“Commencement Deadline” means the date by which construction of the Project must commence as stated in Section 4.3, including any duly authorized amendments thereto, if any.
“Conditions Deadline” means the date by which the conditions precedent for commencement of construction set forth in Section 5 must be met, as further specified in Section 5.1.
“Construction Contract” means the contract between Museum and the General Contractor for construction of the Project as stated in Recital E. “Construction Cost” means the amount the Museum must pay to the General Contractor to construct the Project based on the GMP in the fully executed Construction Contract, at the time that Attachment A is revised with updated construction costs, if applicable, pursuant to Section 5.4, including the costs for all subcontracts, and including, unless otherwise indicated by the context, authorized change orders, if any, and the Contingency Funds included in the Construction Contract.
“Construction Liaison Team” has the meaning provided in Section 2.1. “Contingency Funds” means the amount set forth in line 44 of Exhibit B (Schedule of Values) to the Construction Contract, based on 10 % of the total Construction Pricing, which may be used, if needed, to cover increases in the cost to construct the Project as further specified in Section 4.4. “County” means the County of Santa Clara.
“County Grant Agreements” has the meaning provided in the Lease. “CPF Grant Guide” has the meaning provided in Recital I. “Design Documents” means the design documents described in Recital C, including, unless otherwise indicated by the context, any modifications pursuant to duly authorized change orders.
“Effective Date” has the meaning set forth in the introductory paragraph to this Tenant Work Letter.
“General Contractor” means the general contractor referenced in Recital E, or any replacement contractor, if any, approved by the Parties pursuant to Section 6.3 to construct the Project.
“GMP” has the meaning provided in Recital F, the amount of which is subject to update prior to commencement of construction pursuant to Section 5.4. “HUD Funds” has the meaning provided in Attachment A (Project Funding). “HUD Grant” means the $3,000,000 CPF grant (Consolidated Appropriations Act, 2022) approved as Grant number B-22-CP-CA-0071.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
9 Packet Pg. 467 of 853

6Tenant Work Letter
Roth Building Warm Shell Rehabilitation
“Laws” means all applicable local, state, and federal laws, regulations, rules, codes, ordinances, permits, orders, and the like enacted or imposed by or under the auspices of any governmental entity with jurisdiction over the Project, including labor, health and safety requirements. “Museum” means the Palo Alto History Museum (aka, the “Palo Alto Museum”), a nonprofit corporation.
“Museum’s Agents” means individuals or entities acting within their capacity as duly authorized agents of the Museum for the Project, which includes the employees and contractors of Museum.
“Museum Contribution” is the amount the Museum has agreed to contribute to pay for the Project as further specified in Section 4.3 and Attachment A (Project Funding).
“Museum Donations” has the meaning provided in Recital H and as further specified in Attachment A (Project Funding).
“PAMC” means the Palo Alto Municipal Code.
“Permit” has the meaning provided in Recital D above, including any City- authorized amendments or extensions thereto, if any.
“Project” has the meaning provided in Recital B above, and as further specified in the Design Documents and as authorized by the Permit. “Project Account” means the account jointly maintained by the City and the Museum into which the City Contribution will be deposited in specified increments for the Museum to pay for progress payments for the Construction Contract until the City Contribution is exhausted.
“Project Representative” means the individual(s) designated by City to serve as the primary point of contact for communications with the City regarding Project construction and as further specified in Section 2.1. “Project Schedule” means the planned time for construction of the Project as set forth in Attachment B (Project Schedule), which is subject to update prior to commencement of construction pursuant to Section 5.2.
“Recital” means the recitals set forth at the beginning of this Tenant Work Letter.
“Section” means a section or subsection of this Tenant Work Letter, unless otherwise indicated.
“Site” means the area or areas being used for construction of the Project, including any staging area(s).

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
10 Packet Pg. 468 of 853

7Tenant Work Letter
Roth Building Warm Shell Rehabilitation
“Tenant Work Letter” means this Tenant Work Letter regarding construction of the Project.
“Term” has the meaning provided in Section 3.

1.3 Purpose of Tenant Work Letter. The purpose of this Tenant Work Letter is to provide for the General Contractor’s construction of the Project, including terms and conditions for funding, change orders, Project completion, and acceptance.

2. PARTY REPRESENTATIVES AND RELATIONS.

2.1 City’s Representatives.

A.Construction Liaison Team. The City’s representatives for administration of this Tenant Work Letter are the Director of Administrative Services or his or her designee(s), the Director of Public Works or his or her designee(s), the City Manager’s Office representative(s), and the Project Representative (collectively, the “Construction Liaison Team”). The Construction Liaison Team will be the City’s representative for all purposes of administering and implementing this Tenant Work Letter, including approval of change orders on behalf of the City, subject to the limits of authority granted by the City Council. The Construction Liaison Team will be responsible for efficient coordination of internal City review and approval procedures, and for direct communications with the Museum’s representative(s) identified in Section 2.2, below.

B.Project Representative. The Project Representative will be the Construction Liaison Team’s primary point of contact for routine communications concerning the Project. The Project Representative will not have independent authority to accept, reject, direct, or stop work on the Project; to modify the approved design; or to approve change order requests on behalf of the City. The Project Representative may attend the pre-construction conference and weekly progress meetings, and will be present on the Site during construction.

2.2 Museum’s Representative. The Museum’s authorized representative for administration and implementation of this Tenant Work Letter, including coordination and direct communications with the Construction Liaison Team, is Richard C. Green, Board President, or such other person designated by the Museum from time to time.

2.3 Communications.

A.Duty to Update. Beginning one week after the Effective Date, the Museum will keep the Construction Liaison Team updated on progress and significant developments concerning Project construction by informal communication in addition to the scheduled meetings and reports required in this Tenant Work Letter.

B.Pre-Construction Meetings. In addition to the weekly construction meetings in Section 6.7, prior to commencement of construction of the Project, the Parties will schedule regular meetings at mutually convenient times, to keep the Construction Liaison Team informed and updated on the progress of funding the Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
11 Packet Pg. 469 of 853

8Tenant Work Letter
Roth Building Warm Shell Rehabilitation
Museum Contribution, meeting other conditions for commencement of construction pursuant to Section 5, and any other pre-construction issues.

C.Weekly Reports. The Museum will submit a weekly written report, distributed by email to all members of the Construction Liaison Team, summarizing the progress made during the preceding week, including funding, schedule and cost updates, and identifying any significant issues or concerns relating to the Project.

3. TERM.

The Term of this Tenant Work Letter will begin upon the Effective Date and will remain in effect until a notice of completion has been recorded following City acceptance of the Project, as further specified in Section 6.13, unless the Tenant Work Letter is terminated sooner pursuant to Sections 5.1 or 13.

4. PROJECT FUNDING.

4.1 Project Costs. The anticipated costs for all work and services to be performed to construct the Project, including, but not limited to, the Construction Cost, is set forth in Attachment A (Project Funding), subject to updating pursuant to Section 5.4.

4.2 City Contribution. The City will contribute funds toward the Construction Cost as further specified in Attachment A (Project Funding), including both direct funding and reimbursements, and including funds from the County Grant Agreements (collectively, the “City Contribution”). The City Contribution includes reimbursement of permit and processing fees from the City’s general fund, as authorized by the City Council on November 15, 2021.

However, Museum is solely responsible for payment of any utility fees that are due and payable to any of the City’s enterprise funds or any other fund separate from the City’s general fund. The City Contribution may not be used for any purpose other than the Construction Cost in accordance with the terms of this Tenant Work Letter.

A.Limitations. Except as set forth in Section 4.4 and Section 6.8 below, the City Contribution may not be used for additional costs due to changes or additions to the scope of work set forth in the Construction Contract and Design Documents unless and only to the extent that the City agrees in writing in advance to contribute to the added costs resulting from any such added or changed work. The City has no obligation to provide any funds for the Project in addition to the City Contribution unless and only to the extent agreed pursuant to Section 4.4(B) below in a writing memorialized pursuant to Section 15.1.

B.Payment of City Contribution. Within 30 days after the Museum has provided evidence, to the Liaison Team’s reasonable satisfaction, that the Museum has sufficient liquid and reliably pledged funds pursuant to Section 4.3, the City will deposit 20% of the total City Contribution into the Project Account. Thereafter, once Project construction has commenced, within 30 days after receiving a copy of the most recent Museum-approved monthly progress payment application from the General Contractor, the City will deposit the amount approved for the progress payment into the Project Account for the Museum to draw on to pay the General Contractor until the City Contribution is exhausted, at which point the Museum will be solely responsible for paying the General Contractor for its work on the Project.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
12 Packet Pg. 470 of 853

9Tenant Work Letter
Roth Building Warm Shell Rehabilitation
C.County Grant Funding. The portion of the City Contribution derived from the County Grant Agreements will be specifically and solely allocated for the particular uses specified in each of the respective County Grant Agreements. The Museum will ensure that all eligible costs that are funded through the County Grant Agreements are separately invoiced and documented, to ensure compliance with the requirements of the individual County Grant Agreements.

4.3 Museum Contribution. The “Museum Contribution” will consist of the amounts set forth in Section 1 of Attachment A, which are intended to be sufficient to complete construction of the Project after the City Contribution has been exhausted. The Museum Contribution will include the cost of those utility and permit costs and fees for the Project that are not expressly waived or reimbursed by the City. The Museum will use reasonable efforts to obtain contributions from the community in the amount of the Museum Donations identified in Section 1 of Attachment A in order to commence construction of the Project (as evidenced by commencement of labor for the Project at the Premises) no later than 270 days following the Effective Date (“Commencement Deadline”).

A.Evidence of Sufficient Funds for the Museum Donations. Within 90 days following the Effective Date, the Museum will provide evidence satisfactory to the City that (i) the Museum holds sufficient liquid funds in the amount of at least ninety percent (90%) of the Museum Donations and (ii) that funds in the amount of the remaining ten percent (10%) of the Museum Donations have been reliably pledged to pay for construction of the Project pursuant to the terms of the Construction Contract.

Within six months following the Effective Date, Museum will provide evidence satisfactory to the City that any such pledged, but unfunded portions of the Museum Donations have been funded to the Museum and will be available to timely pay the General Contractor for construction of the Project.

B.HUD Grant Funds and Compliance. The Parties acknowledge that the Museum Donations alone will be insufficient to pay all costs to complete the Project after the City Contribution has been exhausted. The Museum represents that it is authorized to use the HUD Funds to pay for completion of the Project pursuant to the terms of the Construction Contract, and for Project-related costs, including required environmental review. Within 270 days following the Effective Date, the Museum will provide evidence satisfactory to the City that sufficient HUD Funds will be available on a timely basis to complete construction of the Project after funds from the City Contribution have been exhausted. The Museum will use commercially reasonable efforts to satisfy all applicable conditions and requirements of the HUD Grant, including the requirements set forth in the CPF Grant Guide, so as to enable the HUD Funds to be available to pay for construction of the Project as soon as reasonably possible, and, the City will use commercially reasonable efforts to cooperate with the Museum to satisfy those requirements. The Museum is solely responsible for complying with the HUD Grant conditions and for the consequences of any failure to so comply, including additional costs due to delay from failure to timely secure adequate funding or for penalties or repayment obligations for failure to comply with the HUD Grant funding conditions, including the applicable requirements of the CPF Grant Guide and the federal regulations referenced therein. The Museum represents that the Construction Contract is exempt from the competitive procurement requirements included in those federal regulations because the Construction Contract Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
13 Packet Pg. 471 of 853

10Tenant Work Letter
Roth Building Warm Shell Rehabilitation
pre-dates award of the HUD Grant. The Museum will indemnify, hold harmless, and defend City against any claim, damages, or liability incurred due to any actual or alleged failure by Museum to comply with the applicable HUD Grant funding conditions. The Museum’s obligations in this paragraph will survive expiration or termination of this Tenant Work Letter.

4.4 Contingency Funds.

A.General. The Contingency Funds are solely intended for unforeseeable increases to the Construction Contract cost that arise after construction commences, including costs increases that arise during construction due to changes in the work authorized pursuant to Section 6.8. The Museum will provide an accounting of any use of Contingency Funds to the City when such funds are used.

B.Insufficient Funds. If the Contingency Funds will be inadequate to complete the Project following exhaustion of the City Contribution, the Museum will complete the Project using the remaining funds from the HUD Grant. If, following exhaustion of the City Contribution, it becomes evident that the combined Contingency Funds and funds from the HUD Grant will be insufficient to pay for unforeseen costs that arise before the Project is completed, at the request of either Party, the Parties will meet and confer in an endeavor to mutually agree on a plan to address the shortfall and complete the Project in a manner that is consistent with the objectives of this Agreement, which may include change of Project scope, value engineering, or other cost saving measures.

4.5 Project Account. Within 30 days after the Effective Date, the Parties will establish the Project Account at a mutually acceptable financial institution with an office within the City of Palo Alto. If a minimum deposit is required to establish the account, the City will provide the necessary amount from the City Contribution. The City will deposit the City Contribution into the Project Account as further specified in Section 4.2, above, which the Museum may then draw from to pay for the Construction Contract, provided that the Project is timely commenced as specified in Section 5, including any mutually agreed extensions to the Commencement Deadline. Funds in the Project Account may only be used for costs authorized by this Tenant Work Letter. Any unauthorized use by Museum of City Contribution funds constitutes a default subject to the terms of Section 13, below.

A.General. The Museum will administer and coordinate the receipt and disbursement of such funds for all costs and expenses related to the Project, consistent with the terms of this Tenant Work Letter, including the most current version of Attachment A (Project Funding). Deposits into and withdrawals from the Project Account will be made by the Parties in accordance with this Tenant Work Letter. The cost of the Project Account will be shared equally by the Parties. Any earnings from the investment of funds in the Project Account, if any, will remain or be deposited in the Project Account and be applied toward construction of the Project.

B.Investment Limitations. Except to the extent otherwise approved in writing by the Parties, funds in the Project Account may only be invested in (1) immediately available funds (cash and cash equivalents), (2) fully insured FDIC certificates of deposits with daily trading liquidity, or (3) treasury bonds in tranches Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
14 Packet Pg. 472 of 853

11Tenant Work Letter
Roth Building Warm Shell Rehabilitation
with the objective to hold to maturity and have sufficient liquidity to pay construction obligations when due.

C.Disbursements. The Museum will promptly provide the Construction Liaison Team with a copy of each Museum-approved payment application from the General Contractor, but disbursements from the Project Account for the Museum’s payments to the General Contractor, will not be subject to prior approval by the City.

D.Closure. The Parties will take action to close the Project Account once the City Contribution has been exhausted and all proceeds from the City Contribution paid out from the Project Account.

5. CONDITIONS FOR COMMENCEMENT OF PROJECT CONSTRUCTION.

The Parties recognize that while time is of the essence for commencing work on the Project, it would be undesirable to commence Project construction before conditions have been met to ensure successful and timely completion of the Project, including firm contracts, required permits and authorizations, and adequate funding to ensure the Project can be timely completed by the Museum after the City Contribution is exhausted. The terms and conditions set forth in this Section 5 are intended to supplement the general requirements set forth in Section 12 of the Lease.

5.1 Conditions Precedent to Construction Commencement. Project construction may not commence until all of the conditions precedent to construction set forth in this Section 5 have been satisfied. The Museum will ensure that all of the conditions in this Section have been met to the City’s reasonable satisfaction within 150 days following the Effective Date (”Conditions Deadline”). The Museum will notify the Construction Liaison Team in writing when the Museum believes that all of the conditions set forth in this Section 5 have been met. Within 30 days following receipt of this notice, the Construction Liaison Team will either (i) notify the Museum in writing that the City is satisfied that all of the Section 5 conditions have been met such that construction may commence; or (ii) notify the Museum in writing identifying any Section 5 conditions that have not been met to the City’s reasonable satisfaction, such that construction may not yet commence.

A.Conditions Deadline. If the Museum is unable to meet the conditions set forth in this Section 5 by the Conditions Deadline, the Museum’s Representative will meet with the Construction Liaison Team to develop a plan for timely commencement of the Project consistent with the terms and objectives set forth in Section 3 of the Lease, which may include value engineering, scope reduction, phasing, or other cost saving measures so that the Project or an amended version of the Project can be timely completed with available funds.

B.Commencement Deadline. If construction of the Project has not commenced by the Commencement Deadline (within 270 days following the Effective Date), this Tenant Work Letter will terminate unless the Parties mutually agree to extend the Commencement Deadline.

5.2 Construction Contract and Project Schedule. As a condition precedent to commencement of construction, the Museum will provide written proof to the Construction Liaison Team that it has affirmed or entered into a completed and up-to-date Construction Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
15 Packet Pg. 473 of 853

12Tenant Work Letter
Roth Building Warm Shell Rehabilitation
Contract with the General Contractor that meets the requirements specified in this Tenant Work Letter, including, but not limited to, Sections 6.3, 6.4, 6.7, 6.10, and 9. The written proof required for satisfying this condition includes delivery of fully executed copies of the final Construction Contract and subcontract agreements. If needed, the Parties will revise and update the Project Schedule set forth in Attachment B (Project Schedule) to ensure that it reflects the most current as-planned schedule available prior to commencement of construction. The revised Project Schedule will be dated, memorialized pursuant to Section

15.1, and will supersede the original Attachment B.

5.3 Permits and Authorizations. As a condition precedent to commencement of construction, the Museum will provide written proof to the Construction Liaison Team that in addition to the Permit, all necessary permits and approvals for the commencement of construction from any and all agencies having jurisdiction over the Project, including the City, have been authorized and will remain in effect during construction, including, as applicable, street opening permits, encroachment permits, utility encroachment permits, and health permits.

5.4 Project Funding Update. As a condition precedent to commencement of construction, Attachment A (Project Funding) will be amended to reflect the final GMP for the Construction Contract and to adjust the amount of the Museum Contribution commensurate with any adjustment to the GMP. The revised Attachment A will be dated, memorialized pursuant to Section 15.1, and will supersede the original Attachment A. The Museum has an ongoing obligation during the Term to promptly notify the Construction Liaison Team in writing of any increases in the Construction Cost from the amount stated in Attachment A.

6. PROJECT CONSTRUCTION.

6.1 Project Administration. The Museum will be solely responsible for construction administration services as needed during Project construction and closeout, including administration of the Construction Contract, review and response to requests for information, change order proposals, shop drawings, addressing any claims, if any, and preparation of record documents.

6.2 Architect. The City hereby approves of Garavaglia as the Architect for the Project. If, for any reason, the Museum wishes to substitute a different firm to serve as Architect for the Project, the substitution will be subject to the City’s prior written approval of the proposed firm, which approval shall not be unreasonably withheld.

A.Design Services. The Museum will continue to engage and pay for the services of its Architect to handle any architectural services needed during construction of the Project, at the Museum’s sole expense.

B. Insurance. Museum will require the Architect to provide and maintain insurance coverage, including professional liability insurance, that meets the City’s standard requirements for design professional insurance as further specified in Section 9, below.

6.3 General Contractor and Construction Contract. The City hereby approves of Vance Brown, Inc. to serve as the General Contractor. If the Museum wishes to substitute Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
16 Packet Pg. 474 of 853

13Tenant Work Letter
Roth Building Warm Shell Rehabilitation
a different contractor to serve as General Contractor for the Project, the substitution will be subject to the City’s prior written approval of the proposed contractor, which approval shall not be unreasonably withheld.

A.Construction Contract. The Construction Contract between the Museum and its General Contractor will provide for a GMP, including the cost for all subcontracts and the 10% Construction Contingency Funds. The Construction Contract must also include provisions to ensure the following:

1.No Default. The Construction Contract will provide that the General Contractor will not take any action or fail to take any action which would cause the Museum to be in default under this Tenant Work Letter or the Lease, including, but not limited to, compliance with requirements pertaining to Site security, and compliance with Laws.

2.Compliance. The Construction Contract will require the General Contractor to construct the Project as specified in the approved Design Documents, which must be attached or incorporated therein, and in accordance with all applicable permits and authorizations. The Construction Contract will also require the General Contractor to construct the Project in compliance with applicable Laws, including prevailing wage and Labor Code requirements.

3.Bond and Insurance Requirements. The Construction Contract will include all applicable requirements for a payment and a performance bond, each for 100% of the Construction Cost, using bond forms provided or approved by the City and in compliance with Laws, including Civil Code section 9550 and PAMC section 2.30.500. The Construction Contract will also require the City’s standard insurance requirements applicable to the General Contractor as further specified in Section 9, below.

4.As-Built Drawings. The Construction Contract will require the General Contractor to prepare and maintain as-built drawings showing any changes from or details not shown in the Design Documents, suitable for preparation of record drawings.

5.Representation as to Form. The Museum represents that the Construction Contract complies with applicable Laws and the terms of this Tenant Work Letter, and, as applicable, any funding conditions associated with the HUD Grant, and the Museum agrees to indemnify, defend, and hold City harmless against any alleged or actual noncompliance with those requirements, including, but not limited to, noncompliance with prevailing wage laws. The Museum’s obligations in this paragraph will survive expiration or termination of this Tenant Work Letter.

6.4 Compliance. The Museum will require its General Contractor to accomplish all associated work required to complete the Project in accordance with the Design Documents and Construction Contract, and to comply with all conditions that are imposed on the Project during the City’s approval process. The Museum will require its Architect and General Contractor to ensure that the Project is constructed and completed in accordance with all Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
17 Packet Pg. 475 of 853

14Tenant Work Letter
Roth Building Warm Shell Rehabilitation
applicable Laws, including City ordinances, rules, and regulations, governing construction noise, traffic controls, and dust control, as may be set forth in the PAMC and the City’s Department of Public Works’ Standard Drawings and Specifications for construction projects and other related construction rules and regulations. The City Contribution will not be increased to cover any added costs resulting from change order work required for code compliance requirements that apply generally in the City, unless and only to the extent the City Council has authorized an increase to the amount of City Contribution for that purpose.

The Museum will require the General Contractor to arrange for the placement of portable restrooms at the Project Site to the extent required for work to be performed on the Project.

6.5 Access. The Project Representative and City Agents, including City inspectors, will have reasonable access during normal business hours to the Site during construction of the Project in order to perform their respective duties following 24 hours prior notice to the Museum, except in the event of an emergency or for meetings scheduled pursuant to Sections 2.3.B or 6.7. Any such access shall be subject to the Museum’s and the General Contractor’s written reasonable security and safety protocols, which will be provided to the Construction Liaison Team within 30 days following the Effective Date. Nothing in this Tenant Work Letter will be construed to limit the City’s right to enforce contractual or legal requirements intended to protect workers, the environment, or public or worker health, safety and welfare.

6.6 Project Schedule. The Parties’ planned schedule for construction of the Project is set forth in the Project Schedule, attached as Attachment B (Project Schedule) hereto, subject to updating pursuant to Section 5.2. Each Party will exercise its reasonable efforts to perform its respective obligations in a manner to ensure timely completion of the Project consistent with the Project Schedule to the extent it is possible to do so. The Museum has an ongoing obligation during the Term to promptly notify the Construction Liaison Team of any changes or impacts to the Project Schedule that may delay substantial completion (as set forth in Section 6.11) by two or more weeks.

6.7 Construction Meetings.

A.Pre-Construction Conference. The Parties will schedule a pre- construction conference to take place before any work begins on the Project. The pre- construction conference will be attended by the Project Representative; members of the Construction Liaison Team; other City Agents with responsibilities relating to construction of the Project; the Museum’s representative; the General Contractor’s representatives, including the General Contractor’s designated project representative and superintendent(s); the Architect; the designated inspector(s); and any other individuals whom the Parties mutually agree should be in attendance. The Project Representative and the Museum’s representative, in consultation with the General Contractor, will mutually develop an agenda for the pre-construction conference, which must include communication protocols to ensure efficient and effective communications throughout the construction process; safety requirements; environmental considerations; scheduling; submittals; change order procedures; traffic management; noise management; security; parking; and authorized staging area(s).

B.Weekly Meetings. In addition, the Parties will schedule weekly meetings for the duration of the Project, which will be attended by the General Contractor and each Party’s designated representative(s). The weekly meetings will Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
18 Packet Pg. 476 of 853

15Tenant Work Letter
Roth Building Warm Shell Rehabilitation
focus on Project progress, including updates on construction, schedule, costs, change orders, and other construction-related issues, such as changes in design, changed conditions, inspection, testing, and similar matters. The General Contractor will be responsible for preparing and distributing agendas and minutes for the pre- construction conference (based on the agenda developed pursuant to Section 6.7.A) and the weekly meeting to all meeting participants with copies to the Construction Liaison Team.

6.8 Change Orders. The Museum may authorize change orders to the Construction Contract without City approval, except under any of the following circumstances, each of which requires prior written approval by the Construction Liaison Team:

A.Violation of Lease Requirements for Funding Conditions. The proposed change would likely have a material adverse effect on the ability of the Museum to satisfy the required services and uses specified in Section 3 the Lease.

B.Material Scope Change. The proposed change would materially alter the approved Project scope, including, but not limited to, size, footprint, appearance, or impact on normal operations and use of Heritage Park.

C.Building Impacts. The proposed change would significantly reduce the quality, functionality, or life-expectancy of the improvements or constituent components or the current or future value of the Building.

D.Maintenance Impacts. The proposed change would materially increase the City’s costs to operate, repair, or maintain the Public Parkside Restroom, or future cost to operate, repair, or maintain the Building.

E.Conflict. The proposed change would conflict with or be inconsistent with the provisions or objectives of this Tenant Work Letter, including, but not limited to, the indemnity and insurance requirements set forth herein.

F.Governmental Approval. The proposed change would require new or amended governmental approval, including amendments to any required permit(s).

G.Insufficient Funds. The cost of the proposed change would likely result in insufficient funds to complete the Project as approved, including exhaustion of the City Contribution, the Contingency Funds, and the HUD Grant funds.

6.9 Contractor’s Licenses. The General Contractor, its subcontractors, and any other Museum’s Agents who will perform construction work for the Project will obtain and maintain all current licenses required by the State of California before performing any work on the Project.

6.10 Prevailing Wages. Each worker performing Work under this Contract that is covered under Labor Code sections 1720 or 1720.9, including cleanup at the Project site, must be paid at a rate not less than the prevailing wage as defined in sections 1771 and 1774 of the Labor Code. Pursuant to Labor Code section 1773, the general prevailing rate of per diem wages and the general rate for holiday and overtime work in this locality for each craft, classification, or type of worker needed to perform the work for the Project may be obtained Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
19 Packet Pg. 477 of 853

16Tenant Work Letter
Roth Building Warm Shell Rehabilitation
at the Purchasing Office of the City of Palo Alto. The Contractor must post a copy of the applicable prevailing rates at the Project site. Before entering into the Construction Contract to perform work on the Project and at all times while performing work on the Project, the General Contractor and its subcontractors must be registered with the California Department of Industrial Relations (“DIR”) to perform public work under Labor Code section 1725.5. All contractors and subcontractors for the Project must comply with the provisions of Labor Code sections 1775, 1776, 1777.5, 1810, and 1813. The General Contractor must also comply with the provisions of Labor Code sections 1771.4, 1776 and 1812 and all implementing regulations, which are fully incorporated by this reference, including requirements for electronic submission of payroll records. The Construction Contract will be subject to compliance monitoring and enforcement by the DIR, pursuant to Labor Code section 1771.4.

6.11 Substantial Completion. For purposes of this Tenant Work Letter, the Project will be deemed substantially completed when all of the following have occurred, as confirmed by the Construction Liaison Team:

A.Written Notice. The General Contractor has delivered a written statement to the Construction Liaison Team stating that the Project is substantially completed in accordance with the Design Documents and Construction Contract.

B.Approvals and Inspections. The Museum has obtained all necessary City final inspections of and approvals for the Project.

C.Punch List. All work has been completed in conformance with the Construction Contract with the exception of minor punch list items.

D.Site Restoration. All equipment, materials, and garbage have been removed from the Project Site and any staging area(s).

E.City Access. The City has been provided with the necessary access, including keys or codes, for those portions of the Building to be used for City purposes, including the Public Parkside Restrooms, the City Archives Room, and Community Rooms.

6.12 Record Drawings. Upon completion of the Project, the Architect will prepare the record drawings and provide the City’s Director of Public Works with one PDF of a red- lined set of the Design Documents reflecting the actual construction of the Project based on the Contractor’s as-built drawings. Submission of such complete and accurate record drawings is a condition precedent to City acceptance of the Project.

6.13 Completion and Acceptance. Once the Project has been completed in accordance with the Design Documents and the terms of this Tenant Work Letter, the City will accept the Project as complete in accordance with standard City procedure, and will notify the Museum of acceptance of the Project, subject to the following conditions:

A.Punch List Completion. All punch list items have been completed and the Project site completely restored by the removal of all equipment, fencing, job trailers, and the like.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
20 Packet Pg. 478 of 853

17Tenant Work Letter
Roth Building Warm Shell Rehabilitation
B.Record Drawings. The City must receive the record drawings pursuant to Section 6.12.

7. CONSTRUCTION SITE MAINTENANCE. At all times during construction of the Project, the Museum is solely responsible for maintaining the Project Site, including any staging area(s), in a commercially reasonable, clean and safe manner in compliance with all permits, the Lease, and applicable Laws. The Museum or the Museum Agents will provide approved containers for trash generated during construction of the Project and arrange for regular disposal of such trash.

8. UTILITY SERVICE. The City’s obligation under Section 18 of the Lease to pay for all utilities for the Public Parkside Restrooms will be suspended once construction of the Project commences and will be reinstated upon City’s acceptance of the Project. During that time, Museum will be solely responsible for all utility services to the Building, including the Public Parkside Restrooms.

9. INSURANCE.

9.1 Coverage Requirements. In addition to the insurance requirements set forth in the Lease, the Museum must require its Architect to obtain and maintain during the Term the insurance coverage described in Attachment C (Insurance Requirements (Architect)).

The Museum must require the General Contractor to obtain prior to beginning and to maintain throughout construction of the Project, up to the date of Project acceptance, the insurance coverage described in Attachment D (Insurance Requirements (General Contractor)).

9.2 General Requirements. The insurance must remain in full force and effect during the Term, commencing on the Effective Date, except as otherwise specified for the General Contractor in Section 9.1, above. Each builder’s risk insurance policy must be endorsed to name the City of Palo Alto as a loss payee. With the exception of workers’ compensation, employer’s liability, and professional liability insurance, each insurance policy required by the Tenant Work Letter must contain the following clauses or endorsements:

A. “Coverage will not be suspended, voided, canceled by either party, reduced in coverage or in limits except after 30 days’ prior written notice by certified mail, return receipt requested, has been given to the City.” B. “All rights of subrogation are hereby waived against the City of Palo Alto and its elected and appointed officials, officers or employees, when acting within the scope of their employment or appointment.”
C. “The City of Palo Alto, its elected and appointed officials, officers, employees, agents and volunteers are to be covered as insureds as respects: liability arising out of activities performed by or on behalf of the insured; products and completed operations of the insured; premises owned, occupied or used by the insured; or automobiles owned, subleased, hired or borrowed by the insured. Except for the waiver of subrogation contained in Section B, the coverage will contain no special limitations on the scope of protection afforded to the City, its elected and appointed officials, officers, employees, agents or volunteers.” Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
21 Packet Pg. 479 of 853

18Tenant Work Letter
Roth Building Warm Shell Rehabilitation
D. “For any claims related to the Tenant Work Letter, the insured’s insurance coverage will be primary insurance as respects the City of Palo Alto, its elected and appointed officials, officers, employees, agents and volunteers. Any insurance or self-insurance maintained by the City, its elected and appointed officials, officers, employees, agents or volunteers will be in excess of the insured’s insurance and will not contribute with it.”
E. “Any failure to comply with reporting or other provisions of the policies, including breaches of warranties, will not affect coverage provided to the City of Palo Alto, its elected and appointed officials, officers, employees, agents or volunteers.” F. “The insured’s insurance will apply separately to each insured against whom a claim is made or suit is brought, except with respect to the limits of the insurer’s liability.”

9.3 Sufficiency. All insurance required of the Museum, the General Contractor, or the Architect will be provided by insurance carriers with a current A.M. Best’s rating of not less than A-VII. The certificates of insurance required for the Architect must be submitted electronically, on or before the Effective Date. The certificates of insurance required for the General Contractor must be submitted electronically to the Project Representative for review by the City’s risk manager, no later than 21 calendar days before commencement of construction. If the Museum does not provide evidence of required coverage at least 30 days prior to the expiration of any existing insurance coverage, the City may purchase such insurance coverage for not more than a six-month period, on behalf of and at the sole cost and expense of the Museum. The City retains the right to review the coverage, form, and amount of the insurance coverage required by this Tenant Work Letter and require the Museum to alter the coverage, or coverage requirements for the Architect or General Contractor as appropriate. The City’s requirements to alter the coverage, if any, will be reasonable and will be designed to assure protection from and against the kind and extent of risk which exists at the time a change in insurance is required. A failure by the Museum to provide acceptable insurance policies or certificates to the City, incorporating any such changes, within 30 days of receipt of such notice will constitute a default under this Tenant Work Letter. Such default will constitute a material breach and will be grounds for termination of this Tenant Work Letter by the City. The procurement of such required insurance will not be construed to limit the Museum’s liability hereunder or to fulfill the indemnification requirements in the Lease. Notwithstanding the policy or policies of insurance, the Museum will be responsible for the full and total amount of any uninsured damage, injury, or loss occurring during the Term that is caused, directly or indirectly, by the willful or negligent acts and/or omissions of the Museum or the Museum’s Agents.

9.4 Subrogation. On behalf of itself and its insurers, all rights of subrogation are hereby waived by the City against the Museum and its managers, members, employees, and the Museum’s Agents when any of them is acting on behalf of the Museum in the performance of this Tenant Work Letter.

10. Damage to Project.

10.1 General. In the event any part of the Project is damaged by fire, other peril, or any other cause, before the Project has been accepted by the City, the Museum will promptly direct its General Contractor to take appropriate measures to secure the Building and Project Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
22 Packet Pg. 480 of 853

19Tenant Work Letter
Roth Building Warm Shell Rehabilitation
Site to avoid further damage or unsafe conditions; and prepare and submit a claim to its insurer(s) for funds to repair and rebuild all insured loss pursuant to the applicable insurance coverage required under Section 9. Both Parties will cooperate to expedite recovery of insurance proceeds to cover the insured loss.

10.2 Project Construction. The Museum will make reasonable efforts to complete the Project on schedule, if reasonably possible depending on the scope and nature of the damage. The Museum will promptly apply the insurance proceeds to pay for repair, replacement, or restoration of damaged components of the Project. Construction of the Project will be suspended, in whole or in part, to the extent necessary to ensure worker and public safety or to limit the cost to repair and complete the Project.

10.3 Insufficient Funds. The Museum will notify City in writing if the Museum determines that it is unable to secure sufficient insurance proceeds to pay for the full cost of repair. The Parties will arrange to meet and confer within ten days following such notice to develop a mutually acceptable approach to addressing the uninsured loss, which may include securing additional funds, phased completion, reduction in scope and/or other reasonable efforts to complete the Project in furtherance of the purpose set forth in Section 1.3, above. If the Parties are unable to develop a mutually acceptable solution for completing the Project despite the uninsured loss, either Party, within 180 days of the date of the notice of uninsured loss, may terminate the Tenant Work Letter by giving 60 days written notice to the other Party; provided, however, that the Museum may not exercise the right to terminate if the City agrees to provide the additional funds needed by the Museum to pay for the uninsured loss. If the Tenant Work Letter is terminated because of insufficient funds to complete the Project following damage to or destruction of the Project while it is under construction, once all outstanding payments have been made, including any payments due to the General Contractor, any remaining amount of the City Contribution remaining in the Project Account, if any, will be returned to the City.

11. PROJECT RECORDS.

The Museum will maintain, or cause to be maintained by its General Contractor and subcontractors, if any, books and records relating to the Project for three years following City’s acceptance of the Project. The City may inspect, audit, and copy the Museum’s books and records pertaining to its obligations imposed by this Tenant Work Letter upon 30 days’ prior written notice from the City at any reasonable time during the Term and for three years following City acceptance of the Project or earlier termination of the Tenant Work Letter, whichever occurs first. The Museum will retain such books and records at accessible locations during that three-year period. This provision will survive the expiration or termination of this Tenant Work Letter.

12. DISCLAIMER.

Nothing in this Tenant Work Letter will be construed to establish a partnership, joint venture, group, pool, syndicate or agency between the Parties. No provision contained herein will be construed as authorizing or empowering either Party to assume or create any obligation or responsibility whatsoever, express or implied, on behalf, or in the name of, the other Party in any manner, or to make any representation, warranty or commitment on behalf of the other Party. In no event will the City be liable for any loss caused by the Museum in the Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
23 Packet Pg. 481 of 853

20Tenant Work Letter
Roth Building Warm Shell Rehabilitation
course of its performance hereunder, except as expressly provided herein; or any alleged or actual debts, obligations or liabilities of the Museum, whether due or to become due.

13. DEFAULT.

13.1 Remedies for Museum Default. In addition to any remedies available under the Lease or Laws, if the Museum defaults in the performance of any covenant, term or condition contained in this Tenant Work Letter and such default is not corrected within 30 days of receipt of a written notice of default from the City (or such longer period as may be reasonably required to cure such default so long as the Museum commences to cure such default within such 30-day period and thereafter diligently pursues such cure), the City retains the right, but not the obligation, to elect any of the following rights and remedies. The following rights and remedies are cumulative and the exercise of one right or remedy will not impair the right of the City to exercise any or all other remedies.

A.Termination. In the case of a material default, such as wrongful suspension, termination, or abandonment of the Project; uncorrected or repeated violation of Laws; or refusal or failure to construct the Project as required by the Design Documents or this Tenant Work Letter, City may terminate this Tenant Work Letter and all rights of the Museum and its consultants and contractors, if any, as further specified in Section 13.4. Upon termination, City will have no further obligation to deposit any outstanding portion, if any, of the City Contribution into the Project Account.

B.City Contribution. Unless otherwise specified in the City’s notice of default, (i) the Museum’s right to withdraw funds from the Project Account is suspended until or unless that right is reinstated by the City upon timely cure of the default, (ii) the City’s obligation to deposit portions of the City Contribution into the Project Account will likewise be suspended pending timely cure of the default and (iii) the City will have the right to withdraw all unexpended portions of the City Contribution from the Project Account, and City will have no further obligation to deposit any outstanding portion, if any, of the City Contribution into the Project Account.

C.Cure at Museum’s Expense. The City may cure any default of the Museum by any act, including payment of money, and the cost and expense thereof, plus all reasonable administrative costs, will become immediately due and payable by the Museum to the City.

D.Legal Action. The City may initiate an action or suit in law or equity to enjoin any acts which may be unlawful or in violation of the City’s rights hereunder.

E.Other. The City may pursue any other right or remedy available under Laws, the Lease, or this Tenant Work Letter.

13.2 Opportunity to Cure. Notwithstanding the foregoing, in the event of default which cannot reasonably be cured within 30 days, the Museum will have such additional period of time as is reasonably necessary to cure the default, provided the default can be cured.

13.3 Remedies for City Default.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
24 Packet Pg. 482 of 853

21Tenant Work Letter
Roth Building Warm Shell Rehabilitation
A.Cost to Complete. If City wrongfully stops or suspends work on the Project, other than as authorized herein or pursuant to exercise of the City’s police powers, City will be responsible for additional costs, if any, reasonably incurred by Museum to complete the Project as a direct result of such wrongful stoppage or suspension. As used in this paragraph, “wrongful” and “wrongfully” refer to actions that constitute a material breach of this Tenant Work Letter, but exclude City’s reasonable exercise of its police powers.

B.Remedies. Except as otherwise provided in the Lease or this Tenant Work Letter, in the event of any material default by City that is not cured within 30 days of written notice of default from the Museum, or such additional period of time as is reasonably necessary to cure the default, the Museum may pursue any rights or remedies provided by law or equity to enforce the Tenant Work Letter.

13.4 Termination. If this Tenant Work Letter is terminated by the City for uncured default by the Museum because of the Museum’s refusal or failure to complete the Project in accordance with the terms of this Tenant Work Letter or pursuant to Section 5.1, in addition to any other available remedies, the City will be immediately entitled, but not obligated, to use any remaining funds in the Project Account to complete the Project, including a modified or reduced version of the Project.

13.5 Restoration. In case any suit, action or proceeding to enforce any right or exercise any remedy is brought or taken and then discontinued or abandoned, the Parties will be restored to their former positions, rights and remedies as if no such suit, action or proceedings had been brought or taken.

14. NOTICES.

In addition to the notice requirements set forth in the Lease, or as otherwise specified herein, a copy of any notice required or given pursuant to the terms of this Tenant Work Letter must be concurrently transmitted to the City’s Director of Public Works in the manner specified in the Lease.

15. MISCELLANEOUS PROVISIONS.

15.1 Entire Tenant Work Letter; Amendment. This Tenant Work Letter represents the entire agreement between the Parties with respect to construction of the Project and supersedes all prior negotiations, representations and contracts, whether written or oral, except for the applicable terms and conditions of the Lease. This Tenant Work Letter and the attachments hereto may only be amended as specified in the Lease.

15.2 Attachments. All Attachments referred to in this Tenant Work Letter are by such references incorporated herein and made a part hereof, including the following:

Attachment A Project Funding
Attachment B Project Schedule
Attachment C Insurance Requirements (Architect)
Attachment D Insurance Requirements (General Contractor) Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
25 Packet Pg. 483 of 853

22Tenant Work Letter
Roth Building Warm Shell Rehabilitation

15.3 Modification for Lack of Funds. The City Contribution is subject to the fiscal provisions of the Charter of the City of Palo Alto and the PAMC, and the Tenant Work Letter will be modified to exclude or reduce the City Contribution under the following circumstances:
at the end of any fiscal year, if funds for the City Contribution are not appropriated for the following fiscal year; or at any time within a fiscal year if funds are only appropriated for a portion of the fiscal year and funds for the City Contribution are no longer available, provided that the City will not be excused from using funds previously appropriated for the City Contribution. This provision will take precedence in the event of a conflict with any other covenant, term or condition of this Tenant Work Letter.

15.4 Severability. If a court of competent jurisdiction finds or rules that any provision of this Tenant Work Letter, the Attachments, or any amendment thereto, is void or unenforceable, the unaffected provisions of this Tenant Work Letter, the Attachments, or any amendment thereto, will remain in full force and effect.

15.5 Consent. When either Party is required to give its consent to the other Party, the Party whose consent is required will not unreasonably withhold or delay that consent, unless it is specifically stated that it is within the Party’s sole discretion to give or withhold its consent.
[Signature page follows.]
Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
26 Packet Pg. 484 of 853

23Tenant Work Letter
Roth Building Warm Shell Rehabilitation
IN WITNESS WHEREOF, the Parties by their duly authorized representatives have executed this Tenant Work Letter.

CITY OF PALO ALTO
_______________________________
City Manager
APPROVED AS TO FORM:
_______________________________
City Attorney
APPROVED:
_______________________________
Director of Administrative Services
_______________________________
Director of Public Works
PALO ALTO HISTORY MUSEUM, a
California nonprofit public benefit
corporation
_______________________________
Board President
_______________________________
Treasurer
Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
27 Packet Pg. 485 of 853

Tenant Work Letter
Roth Building Warm Shell Renovations

ATTACHMENT A

PROJECT FUNDING
This Attachment A details the Parties’ respective funding commitments for construction of the Project, based on the estimated Construction Cost set forth in Recital F, which is subject to amendment prior to commencement of Project construction. Pursuant to Section 5.4, this Attachment A will be amended based on the final GMP, as a condition precedent to commencement of Project construction.

1.Museum Contribution. The Museum is contributing $1,828,825.00 to pay for certain hard and soft costs for the construction of the Project as further specified in Section 4.3, which is comprised of the following:

A. The Museum will contribute $335,750.00 to pay for all construction phase soft costs, including, without limitation, all permit and utility fees that are not expressly waived or reimbursed by the City and the premiums for the Builder’s Risk insurance for the Project.

B. The Museum will contribute $1,493,075.00, based on the difference between the City Contribution and the estimated amount of the GMP as of the Effective Date.

The Museum Contribution shall be funded by pledged and received donations in the amount of $850,000.00 (the “Museum Donations”) and, to the extent available and subject to Section 4.3 of the Tenant Work Letter, funds from the HUD Grant in the amount of $978,825.00 (the “HUD Funds”). Notwithstanding the foregoing, the amounts set forth herein are subject to amendment pursuant to Section 5.4 to reflect the final GMP and commensurate adjustments to the final amount of the Museum Contribution as a condition precedent to commencement of Project construction.

2.City Contribution. The City Contribution is comprised of the following contributions and reimbursements for construction of the Project, for a total City Contribution of $10,020,000, provided the Museum meets its funding obligations and timely complies with the conditions for Project commencement set forth in this Tenant Work Letter:

A. The City will contribute $4,900,000.00 from transferable development rights and City general funds.

B. The City will contribute $2,000,000.00 from Stanford University Medical Center development agreement funds.

C. The City will contribute $653,000.00 from funds received pursuant to the County Grant Agreements, which is to be allocated solely for the improvements specified in the County Grant Agreements, and conditioned upon the Museum’s compliance with the terms and conditions of the County Grant Agreements, as may be further specified in the Lease.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
28 Packet Pg. 486 of 853

Tenant Work Letter
Roth Building Warm Shell Renovations
D. The City will contribute $1,650,000.00 from Community Center Impact Fees, toward construction cost for the community room facilities in the Building, provided those facilities are available for public community center use as further specified in the Lease.

E. The City will contribute $350,000.00 from Park Impact Fees toward construction costs for the restroom facilities on the northeast side of the Building, provided those facilities are available as the public restrooms serving Heritage Park as further specified in the Lease.

F. The City will contribute $300,000.00 from Library Impact Fees toward construction costs for the City Archive Room, provided the City Archive Room is available and accessible for City archives as further specified in the Lease.

G. The City will reimburse the Museum in the amount of $100,000.00 for permit fees previously assessed for the Project.

H. The City will contribute $67,000.00 to offset the cost for the General Contractor’s procurement of a payment bond and a performance bond.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
29 Packet Pg. 487 of 853

Tenant Work Letter
Roth Building Warm Shell Renovations

ATTACHMENT B

PROJECT SCHEDULE
Pursuant to Section 6.6 of the Tenant Work Letter, the attached schedule, dated <________>, constitutes the planned schedule for construction of the Project.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
30 Packet Pg. 488 of 853

Tenant Work Letter
Roth Building Warm Shell Renovations

ATTACHMENT C

INSURANCE REQUIREMENTS (ARCHITECT)
Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
31 Packet Pg. 489 of 853

Rev. 2017
ATTACHMENT “C”

INSURANCE REQUIREMENTS (ARCHITECT)

CONTRACTORS, AT THEIR SOLE EXPENSE, SHALL FOR THE TERM OF THE CONTRACT OBTAIN AND

MAINTAIN INSURANCE IN THE AMOUNTS FOR THE COVERAGE SPECIFIED BELOW, AFFORDED BY COMPANIES WITH AM BEST’S KEY RATING OF A-:VII, OR HIGHER, AUTHORIZED TO TRANSACT INSURANCE BUSINESS IN THE STATE OF CALIFORNIA.

MINIMUM LIMITS

REQUIRED TYPE OF COVERAGE REQUIREMENT EACH

OCCURRENCE AGGREGATE
YES WORKER’S COMPENSATION
YES EMPLOYER’S LIABILITY

STATUTORY

YES GENERAL LIABILITY, INCLUDING

PERSONAL INJURY, BROAD FORM

PROPERTY DAMAGE BLANKET

CONTRACTUAL, AND FIRE LEGAL LIABILITY

BODILY INJURY PROPERTY
DAMAGE

BODILY INJURY & PROPERTY
DAMAGE COMBINED.
$1,000,000
$1,000,000
$1,000,000
$2,000,000
$2,000,000
$2,000,000

YES AUTOMOBILE LIABILITY, INCLUDING ALL

OWNED, HIRED, NON-OWNED

BODILY INJURY
-EACH PERSON
-EACH OCCURRENCE

PROPERTY DAMAGE

BODILY INJURY AND PROPERTY

DAMAGE, COMBINED
$1,000,000
$1,000,000
$1,000,000
$1,000,000
$1,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000

PROFESSIONAL LIABILITY,

YES INCLUDING, ERRORS AND OMISSIONS,

MALPRACTICE (WHEN APPLICABLE), AND

NEGLIGENT PERFORMANCE
ALL DAMAGES $2,000,000
YES THE CITY OF PALO ALTO IS TO BE NAMED AS AN ADDITIONAL INSURED: CONTRACTOR, AT ITS SOLE COST

AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND EFFECT THROUGHOUT THE ENTIRE

TERM OF ANY RESULTANT AGREEMENT, THE INSURANCE COVERAGE HEREIN DESCRIBED, INSURING NOT ONLY CONTRACTOR AND ITS SUBCONSULTANTS, IF ANY, BUT ALSO, WITH THE EXCEPTION OF WORKERS’ COMPENSATION, EMPLOYER’S LIABILITY AND PROFESSIONAL INSURANCE, NAMING AS ADDITIONAL INSUREDS CITY, ITS COUNCIL MEMBERS, OFFICERS, AGENTS, AND EMPLOYEES.

I.ENDORSEMENT PROVISIONS, WITH RESPECT TO THE INSURANCE AFFORDED TO “ADDITIONAL INSUREDS”
A.PRIMARY COVERAGE

WITH RESPECT TO CLAIMS ARISING OUT OF THE OPERATIONS OF THE NAMED

INSURED, INSURANCE AS AFFORDED BY THIS POLICY IS PRIMARY AND IS NOT

ADDITIONAL TO OR CONTRIBUTING WITH ANY OTHER INSURANCE CARRIED BY OR FOR THE BENEFIT OF THE ADDITIONAL INSUREDS.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
32 Packet Pg. 490 of 853

Rev. 2017
ATTACHMENT “C”

INSURANCE REQUIREMENTS (ARCHITECT)
B.CROSS LIABILITY

THE NAMING OF MORE THAN ONE PERSON, FIRM, OR CORPORATION AS INSUREDS

UNDER THE POLICY SHALL NOT, FOR THAT REASON ALONE, EXTINGUISH ANY

RIGHTS OF THE INSURED AGAINST ANOTHER, BUT THIS ENDORSEMENT, AND THE

NAMING OF MULTIPLE INSUREDS, SHALL NOT INCREASE THE TOTAL LIABILITY OF THE COMPANY UNDER THIS POLICY.

C.NOTICE OF CANCELLATION

1.IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR ANY REASON

OTHER THAN THE NON-PAYMENT OF PREMIUM, THE CONTRACTOR SHALL PROVIDE CITY AT LEAST A THIRTY (30) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION.

2.IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR THE NON-

PAYMENT OF PREMIUM, THE CONTRACTOR SHALL PROVIDE CITY AT LEAST A TEN (10) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
33 Packet Pg. 491 of 853

Tenant Work Letter
Roth Building Warm Shell Renovations

ATTACHMENT D

INSURANCE REQUIREMENTS (GENERAL CONTRACTOR)
Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
34 Packet Pg. 492 of 853

Rev. 2022
ATTACHMENT “D”

INSURANCE REQUIREMENTS (GENERAL CONTRACTOR)

CONTRACTORS, AT THEIR SOLE EXPENSE, SHALL FOR THE TERM OF THE CONTRACT OBTAIN AND MAINTAIN

INSURANCE IN THE AMOUNTS FOR THE COVERAGE SPECIFIED BELOW, AFFORDED BY COMPANIES WITH AM BEST’S KEY RATING OF A-:VII, OR HIGHER, AUTHORIZED TO TRANSACT INSURANCE BUSINESS IN THE STATE OF CALIFORNIA.

MINIMUM LIMITS
R
E
Q
UI
R
E
D

TYPE OF COVERAGE REQUIREMENT EACH

OCCURRENCE AGGREGATE
YES WORKER’S

COMPENSATION
YES EMPLOYER’S LIABILITY

STATUTORY

YES GENERAL LIABILITY,

INCLUDING PERSONAL

INJURY, BROAD FORM

PROPERTY DAMAGE

BLANKET

CONTRACTUAL, AND

FIRE LEGAL LIABILITY

BODILY INJURY

PROPERTY DAMAGE

BODILY INJURY & PROPERTY DAMAGE
COMBINED.
$5,000,000
$5,000,000
$5,000,000
$10,000,000
$10,000,000
$10,000,000

YES AUTOMOBILE LIABILITY,

INCLUDING ALL OWNED,

HIRED, NON-OWNED

BODILY INJURY
-EACH PERSON
-EACH OCCURRENCE

PROPERTY DAMAGE

BODILY INJURY AND PROPERTY

DAMAGE, COMBINED
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
YES POLLUTION LIABILITY ALL DAMAGES $2,000,000
YES BUILDERS RISK- Full Insurable
Value
YES THE CITY OF PALO ALTO IS TO BE NAMED AS AN ADDITIONAL INSURED: CONTRACTOR, AT ITS SOLE

COST AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND EFFECT THROUGHOUT THE

ENTIRE TERM OF ANY RESULTANT AGREEMENT, THE INSURANCE COVERAGE HEREIN DESCRIBED, INSURING

NOT ONLY CONTRACTOR AND ITS SUBCONSULTANTS OR SUBCONTRACTORS, IF ANY, BUT ALSO, WITH THE EXCEPTION OF WORKERS’ COMPENSATION, EMPLOYER’S LIABILITY AND PROFESSIONAL INSURANCE, NAMING AS ADDITIONAL INSUREDS CITY, ITS COUNCIL MEMBERS, OFFICERS, AGENTS, AND EMPLOYEES.

II.ENDORSEMENT PROVISIONS, WITH RESPECT TO THE INSURANCE AFFORDED TO “ADDITIONAL INSUREDS”
A.PRIMARY COVERAGE

WITH RESPECT TO CLAIMS ARISING OUT OF THE OPERATIONS OF THE NAMED INSURED,

INSURANCE AS AFFORDED BY THIS POLICY IS PRIMARY AND IS NOT ADDITIONAL TO OR

CONTRIBUTING WITH ANY OTHER INSURANCE CARRIED BY OR FOR THE BENEFIT OF THE ADDITIONAL INSUREDS.

B.CROSS LIABILITY
Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
35 Packet Pg. 493 of 853

Rev. 2022
ATTACHMENT “D”

INSURANCE REQUIREMENTS (GENERAL CONTRACTOR)

THE NAMING OF MORE THAN ONE PERSON, FIRM, OR CORPORATION AS INSUREDS UNDER THE

POLICY SHALL NOT, FOR THAT REASON ALONE, EXTINGUISH ANY RIGHTS OF THE INSURED

AGAINST ANOTHER, BUT THIS ENDORSEMENT, AND THE NAMING OF MULTIPLE INSUREDS, SHALL NOT INCREASE THE TOTAL LIABILITY OF THE COMPANY UNDER THIS POLICY.

C.NOTICE OF CANCELLATION

1.IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR ANY REASON

OTHER THAN THE NON-PAYMENT OF PREMIUM, THE CONTRACTOR SHALL PROVIDE CITY AT LEAST A THIRTY (30) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION.

2.IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR THE NON-

PAYMENT OF PREMIUM, THE CONTRACTOR SHALL PROVIDE CITY AT LEAST A TEN (10) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION.

Item 13
Attachment A - Tenant
Work Letter, 300 Homer
Ave “ROTH Facility”

Item 13: Staff Report
Pg.
36 Packet Pg. 494 of 853

City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Utilities
Meeting Date: April 17, 2023
Staff Report: 2303-1219
TITLE
PUBLIC HEARING: Adoption of a Resolution Approving the Fiscal Year 2024 Gas Utility Financial Plan, Including Proposed Reserve and General Fund Transfers and Amending the Gas Utility Reserve Management Practices, and Increasing Gas Rates by Amending Rate Schedules G-1 (Residential Gas Service), G-2 (Residential Master-Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service), and G-10 (Compressed Natural Gas Service); CEQA status:
exempt/not a project under Public Resources Code section 21080(b)(8)

RECOMMENDATION
The Finance Committee and the Utilities Advisory Commission (UAC) recommend the City Council adopt a resolution (Attachment A):
a. Approving the fiscal year (FY) 2024 Gas Utility Financial Plan (Attachment B); b. Amending the Gas Utility Reserve Management Practices (Attachment C); c. Transferring up to 18% of gas utility gross revenues received during fiscal year 2021 to the general fund in FY 2023;
d. Transferring up to 15.5% of gas utility gross revenues received during fiscal year 2022 to the general fund in FY 2024;
e. Transferring up to $3.82 million from the CIP Reserve to the Operations Reserve in FY 2023; and
f. Increasing gas rates by amending Rate Schedules G-1 (Residential Gas Service), G-2 (Residential Master-Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service), and G-10 (Compressed Natural Gas Service) (Attachment D).

The UAC and Finance Committee both recommend transferring 15.5% of gas utility gross revenues received during fiscal year (FY) 2022 to the General Fund in FY 2024, which is below the voter approved level of 18.0% (item (d) above). The UAC had one dissenting vote for reasons unrelated to the transfer and the Finance Committee had one dissenting vote specifically related to the transfer level.

Item 14
Item 14 Staff Report

Item 14: Staff Report
Pg.
1 Packet Pg. 495 of 853

EXECUTIVE SUMMARY
The Utilities Advisory Commission (UAC) and Finance Committee have reviewed the attached proposed Gas Utility Financial Plan and proposed rate changes recommended by staff for FY 2024. The UAC and Finance Committee recommend approval of the staff recommendation, which includes the transfers described in the Recommendation section above. The rate changes included in Attachment D are expected to result in an 8% increase in the customer bill (due to a 21% increase to the distribution component of the rates). The actual bill change customers would experience would vary due to various pass-through rate components related to gas supply costs, which vary as frequently as monthly. Approval of this item would result in implementation of the finalized rates for FY 2024, beginning July 1, 2023.

Staff is requesting that Council determine the amount of the General Fund transfer for the gas utility. This is another component of the City’s gas rates. City voters first authorized the transfer in 1950, and in November 2022 voters approved Measure L, affirming the continuation of this practice by adding section 2.28.185 to the Municipal Code. Each year the City Council may transfer from the gas utility to the general fund an amount up to 18% of the gross revenues of the gas utility, though Council may choose to transfer a lesser amount. Two alternatives and their associated rate increases are shown in the section below titled “Alternative Gas Increase Plans.” All rate and cost discussions in this staff report and the Financial Plan are based on Alternative 2, which involves transferring up to 18% of gas utility gross revenues in FY 2023 and 15.5% in FY 2024, as recommended by the UAC and Finance Committee.

BACKGROUND
The FY 2024 Gas Utility Financial Plan includes projections of the utility’s costs and revenues for FY 2023 through FY 2028. Gas utility costs are made up of:
•gas supply costs (60 percent of costs in FY 2023), which represent the cost of buying gas and transporting it to Palo Alto and associated environmental charges, and •distribution-related costs (40 percent of costs in FY 2023), which represent the cost of operating Palo Alto’s gas distribution system, administration, customer service, and other day to day operations.

Gas supply revenues to cover gas supply costs are collected through four rate components (commodity, transmission, cap and trade, and Carbon Neutral Gas) that pass gas supply costs through directly to customers, and which change as frequently as monthly. Gas distribution revenues to cover gas distribution costs which are collected through a distribution rate that is typically adjusted annually. Distribution rates last increased on July 1, 2022, which resulted in a roughly 3 percent increase in the total system average gas rate (the supply rates plus the distribution rates).

Gas market prices rose to unprecedented levels in FY 2023, leading to far higher gas supply costs for Palo Alto in FY 2023 than are projected for FY 2024 through FY 2028. As shown in Figure 1 below, customer gas bills spiked in the winter of 2022/2023 and are expected to decrease Item 14
Item 14 Staff Report

Item 14: Staff Report
Pg.
2 Packet Pg. 496 of 853

significantly by June 2023, when this rate change would take effect, and are not currently forecasted (based on current forward market prices) to reach similar levels next winter, though these forecasts are uncertain.

Figure 1: Monthly Median Residential Gas Bill

ANALYSIS
Staff is proposing to increase the distribution component of the gas rates in FY 2024 to ensure the utility is recovering its costs of operations. Revenues were already below costs after keeping rate increases low through the pandemic, but construction inflation and other factors have driven costs up. In addition, the gas market price spikes in FY 2023, which were not fully passed through to customers, decreased reserves well below Council-approved minimums. The distribution rate increase is projected to increase overall customer bills approximately 8%, though changes to gas supply costs mean that the actual impact to customer bills may be higher or lower. This 8% increase in customer bills results from increasing the distribution component of the rates 21% to fully recover distribution costs and avoid decreasing reserves further.

Even with this distribution rate increase, based on current market forecasts staff expects average annual customer gas bills to decline 13% in FY 2024 compared to FY 2023 because gas supply costs were extremely high in FY 2023, particularly in the winter. FY 2024 annual gas supply costs are forecasted to be about 36% lower than FY 2023. Gas market prices are uncertain, however, and these forecasts can change.

The distribution rate increase is driven by two things:
1) the need to replenish reserves, which were depleted by significant losses due to FY 2023 commodity costs that were not be fully passed through to customers under the City’s commodity rate cap of $4 per therm, and
Item 14
Item 14 Staff Report

Item 14: Staff Report
Pg.
3 Packet Pg. 497 of 853

2) continuing increases in capital and operating costs. Distribution rates did not keep up with these increased costs as the City pursued a Council policy to minimize rate increases during the economic downturn associated with the COVID-19 pandemic.

Additional detail on the staff proposal is available in the March 21, 2023 Finance Committee staff report (2302-0946).

Alternative Gas Increase Plans
The gas utility's transfer to the City’s General Fund is a component of the City’s gas rates. City voters first authorized the transfer in 1950, and in November 2022 voters approved Measure L, affirming the continuation of this practice by amending the Municipal Code. Specifically, section

2.28.185, “Natural Gas Utility Transfer” states:

Each fiscal year the City Council may transfer from the natural gas utility to the general fund an amount equal to 18% of the gross revenues of the gas utility received during the fiscal year two fiscal years before the fiscal year of the transfer.

At its discretion, the City Council may decide to transfer a lesser amount. The projected cost of the transfer shall be included in the City’s retail natural gas rates as part of the cost of providing gas service.

The attached Financial Plan proposes an 18% transfer, $7,191,000 for FY 2023, which aligns with the voter-approved changes codified in PAMC 2.28.185. Measure L authorized Council to make the transfer annually and granted Council the ability to approve a lower amount. Although Council will formally direct the FY 2024 transfer amount next year, Staff provided preliminary projections for FYs 2024 – 2026 for the UAC and Finance Committee’s consideration and feedback: Alternative 1 proposes transferring 18% of gross revenue as voters approved in Measure L, and Alternative 2 proposes a transfer between 15.5% and 11.1% annually through FY 2026.

Staff prepared Alternative 2’s lower transfer percentages in response to recent increases in gas distribution rates and supply costs; this alternative is projected to create FY 2024 - 2026 transfers similar to the annual 2% to 3% growth rate in the transfer prior to Measure L. To illustrate, Alternative 2 links the FY 2024 – 2026 transfers to the Consumer Price Index (CPI). CPI is projected to be 3% long term, though staff projects 5% CPI increases in FY 2024 and FY 2025. Table 1 shows a 6% per year projection as the maximum proposed increase under Alternative 2; actual increases for the years shown would be capped at 6% or CPI, whichever is less.

Table 1 shows the amount of the transfer both in dollars and as a percentage of utility revenue for each fiscal year, as well as the projected rate of annual growth in the transfer. Table 2 below shows the distribution rate increases (as a percentage of the total bill, excluding supply cost changes) associated with each alternative.

Item 14
Item 14 Staff Report

Item 14: Staff Report
Pg.
4 Packet Pg. 498 of 853

Table 1: Proposed / Projected General Fund Transfers
as % of Gross Gas Revenues Two FYs Prior1
Proposed Projected
FY 2023 FY 2024 FY 2025 FY 2026
Gas Utility Gross Revenue Two Fiscal Years Prior ($000) Alternative 1 66,927
Alternative 2 39,950 49,721 72,570 66,269
Percent of gas utility gross revenue to transfer
Alternative 1 18.0% 18.0% 18.0%
Alternative 2 18.0% 15.5% 11.1% 12.9%
Transfer amount ($000)
Alternative 1 8,934 13,063 12,047
Alternative 2 7,191 7,707 8,080 8,565
Change in Transfer from Prior Fiscal Year (%)
Alternative 1 24% 46% -8%
Alternative 2 -1% 6% 6% 6%
Table 2: Summary of Distribution Rate Changes for Transfer Proposal and Alternatives FY 2023 FY 2024 FY 2025 FY 2026
Alternative 1 9% 10% 8%
Alternative 2 4% 8% 7% 5%

FISCAL/RESOURCE IMPACT
The resource impact of the recommendations summarized in this report is the continued financial solvency of the gas utility and, as the City is a ratepayer, an increase to General Fund expenses (due to the rate increases) and revenues (due to the General Fund transfer). Normal year sales revenues for the Gas Utility in FY 2024 are projected to increase by roughly 8 percent or $5.7 million as a result of the proposed rate increases, not including fluctuations in commodity revenue/cost. General Fund utility bill costs are expected to increase by $0.06 million as a result of these rate changes. The change in General Fund revenues from FY 2023 to FY 2024 would depend on the General Fund transfer alternative chosen by Council, as shown above in Table 1.

Under Alternative 2, which was recommended by the UAC and Finance Committee, General Fund revenues would increase from $7.191 million in FY 2023 to $7.707 million in FY 2024, an increase of about $516,000.

1 Measure L authorizes a transfer based on 18% (or a lesser percentage if approved by Council) of the revenue for two fiscal years prior, so the FY 2024 transfer is based on FY 2022 revenue.

Item 14
Item 14 Staff Report

Item 14: Staff Report
Pg.
5 Packet Pg. 499 of 853

POLICY IMPLICATIONS
The proposed gas rate adjustments are consistent with Council-adopted Reserve Management Practices that are part of the Financial Plan and were developed using a cost-of-service study and methodology consistent with the California constitution and industry-accepted cost of service principles. As noted in the Reserves Management Practices (Attachment B), if reserves fall below the minimum guidelines, Council approval is required for a rate plan that requires more than one year to return reserves to within guideline levels.

STAKEHOLDER ENGAGEMENT
These recommendations were reviewed by the UAC and Finance Committee in public meetings.

Public communications of issues related to winter gas supply price spikes were done via social media, City newsletters, and other channels. The public will be notified of the final rate changes adopted by Council through various channels, including social media, the website, utility bill inserts, and City newsletters. Published in the Palo Alto Daily on April 7th and 14th, 2023.

ENVIRONMENTAL REVIEW
Adoption of the Financial Plans and budgeted transfers referenced in this report does not meet the California Environmental Quality Act’s definition of a project, pursuant to Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(4) and (5), because it is a governmental fiscal and administrative activity which will not cause a direct or indirect physical change in the environment. Adoption of the proposed gas rates to meet operating expenses, purchase supplies and materials, meet financial reserve needs and obtain funds for capital improvements necessary to maintain service is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption.

ATTACHMENTS
Attachment A: Gas Resolution FY24
Attachment B: Reserves Management Practices Redlined
Attachment C: Gas FY 2024 Financial Plan
Attachment D: Rate Schedule for FY2024
APPROVED BY:

Dean Batchelor, Director Utilities
Staff: Jonathan Abendschein, Assistant Director of Utilities Item 14
Item 14 Staff Report

Item 14: Staff Report
Pg.
6 Packet Pg. 500 of 853

Attachment A
* NOT YET APPROVED *
6056713C
Resolution No.

Resolution of the Council of the City of Palo Alto Approving the Fiscal Year 2024 Gas Utility Financial Plan, Including Proposed Reserve and General Fund Transfers and Amendment to the Gas Utility Reserve Management Practices, and Increasing Gas Rates by Amending Rate Schedules G-1 (Residential Gas Service), G-2 (Residential Master- Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service), and G- 10 (Compressed Natural Gas Service)

R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of its utilities with the goal of ensuring adequate revenue to fund operations, including reserves.

This includes making long-term projections of market conditions, the physical condition of the system, and other factors that could affect utility costs, and setting rates adequate to recover these costs. It does this with the goal of providing safe, reliable, and sustainable utility services at competitive rates. The City adopts Financial Plans to summarize these projections.

B. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and charges.

C. On April 17, 2023, the City Council heard and approved the proposed rate increase at a noticed public hearing.

The Council of the City of Palo Alto does hereby RESOLVE as follows:

SECTION 1. The Council hereby adopts the FY 2024 Gas Utility Financial Plan.

SECTION 2. The Council hereby approves the amendment to the Gas Utility Reserves Management Practices as shown in Attachment B.

SECTION 3. The Council hereby approves the transfer of up to 18% of gas utility gross revenues received during fiscal year 2021 to the general fund in FY 2023.

SECTION 4. The Council hereby approves the transfer of up to 15.5% of gas utility gross revenues received during fiscal year 2022 to the general fund in FY 2024.

SECTION 5. The Council hereby approves the transfer of up to $3.82 Million from the CIP Reserve to the Operations Reserve, as described in the FY 2024 Gas Utility Financial Plan approved via this resolution.

Item 14
Attachment A - Gas
Resolution FY24

Item 14: Staff Report
Pg.
7 Packet Pg. 501 of 853

Attachment A
* NOT YET APPROVED *
6056713C
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule G-1 (Residential Gas Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule G-1, as amended, shall become effective July 1, 2023.

SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule G-2 (Residential Master-Metered and Commercial Gas Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule G-2, as amended, shall become effective July 1, 2023.

SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule G-3 (Large Commercial Gas Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule G-3, as amended, shall become effective July 1, 2023.

SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule G-10 (Compressed Natural Gas Service Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule G-10, as amended, shall become effective July 1, 2023.

SECTION 10. The City Council finds as follows:
a. Revenues derived from the gas rates approved by this resolution do not exceed the funds required to provide gas service.
b. Revenues derived from the gas rates approved by this resolution shall not be used for any purpose other than providing gas service, and the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.

SECTION 11. The Council finds that the fees and charges adopted by this resolution are charges imposed for a specific government service or product provided directly to the payor that are not provided to those not charged, and do not exceed the reasonable costs to the City of providing the service or product.
//
//
//
//
//
//
//
//
Item 14
Attachment A - Gas
Resolution FY24

Item 14: Staff Report
Pg.
8 Packet Pg. 502 of 853

Attachment A
* NOT YET APPROVED *
6056713C
//
SECTION 12. The Council finds that approving the Financial Plan does not meet the California Environmental Quality Act’s (CEQA) definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment, and therefore, no environmental assessment is required. The Council finds that changing gas rates to meet operating expenses, purchase supplies and materials, meet financial reserve needs and obtain funds for capital improvements necessary to maintain service is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption.

INTRODUCED AND PASSED:

AYES:

NOES:

ABSENT:

ABSTENTIONS:

ATTEST:

City Clerk Mayor
APPROVED AS TO FORM: APPROVED:

Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
Item 14
Attachment A - Gas
Resolution FY24

Item 14: Staff Report
Pg.
9 Packet Pg. 503 of 853

APPENDIX C: GAS UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Gas Utility Financial Plan:

Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal years covered by the Financial Plan . For example, if the Financial Plan delivered in conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY 2015 to FY 2019 would be the Financial Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers to the Utility’s Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net Assets as the difference between its assets and liabilities.
d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital assets (net of related debt) or restricted for debt service or other restricted purposes.

Section 2. Supply Fund Reserves
The Gas Utility’s Supply Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 4 (Reserve for Commitments) b) For operating and capital budgets re -appropriated from previous years, as described in Section 5 (Reserve for Re-appropriations)
S
ection 3. Distribution Fund Reserves
a) For existing contracts, as described in Section 4 (Reserve for Commitments) b) For operating and capital budgets re -appropriated from previous years, as described in Section 5 (Reserve for Re-appropriations)
c) For cash flow management and contingencies related to the Gas Utility’s Capital Improvement Program (CIP), as described in Section 6 (CIP Reserve) d) For rate stabilization, as described in Section 7 (Rate Stabilization Reserve) e) For operating contingencies, as described in Section 8 (Operations Reserve) f) Any funds not included in the other reserves will be considered Unassigned Reserves and shall be returned to ratepayers or assigned a specific purpose as described in Section 9 (Unassigned Reserves)
Section 4. Reserve for Commitments
At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for Commitments will be set to an amount equal to the total remaining spending authority for all contracts in force for the Wastewater Collection Utility at that time.

Attachment B
Item 14
Attachment B - Reserve
Management Practices
Redline

Item 14: Staff Report
Pg.
10 Packet Pg. 504 of 853

Section 5. Reserve for Reappropriations
At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for Reappropriations will be set to an amount equal to the amount of all remaining capital and non-capital budgets, if any, that will be re-appropriated to the following fiscal year for each fund in accordance with Palo Alto Municipal Code Section 2.28.090.

Section 6. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for capital contingencies. Staff will manage the CIP Reserve according to the following practices:

The following guideline levels are set forth for the CIP Reserve. These guideline levels are calculated for each fiscal year of the Financial Planning Period based on the levels of CIP expense budgeted for that year.

Minimum Level 12 months of budgeted CIP expense
Maximum Level
24 months of budgeted CIP expense
a) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and the Reserve for Commitments when funds are added to or removed from the Reserve for Commitments as a result of a change in contractual commitments related to CIP projects.

Any other additions to or withdrawals from the CIP reserve require Council action. b) Minimum Level:
i) Funds held in the Reserve for Commitments may be counted as part of the CIP Reserve for the purpose of determining compliance with the CIP Reserve minimum guideline level.
ii) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present a plan to the City Council to replenish the reserv e. The plan shall be delivered by the end of the following fiscal year, and shall, at a minimum, result in the reserve reaching its minimum level by the end of the next fiscal year. For example, if the CIP Reserve is below its minimum level at the end of FY 2017, staff must present a plan by June 30, 2018 to return the reserve to its minimum level by June 30, 2019 . In addition, staff may present, and the Council may adopt, an alternative plan that takes longer than one year to replenish the reserve, or that does so in a shorter period of time. c) Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds may be added to this reserve. If there are funds in this reserve in excess of the maximum level staff must propose to transfer these funds to another reserve or return them to ratepayers in the next Financial Plan. Staff may also seek Council approval to hold funds in this reserve in excess of the maximum level, if they are held for a specific future purpose related to the CIP.

Item 14: Staff Report
Pg.
11 Packet Pg. 505 of 853

Stabilization Reserve requires Council action . If there are funds in the Rate Stabilization Reserve at the end of any fiscal year, any subsequent Gas Utility Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the Financial Planning Period.

Section 8. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for contingencies. Any portion of the Gas Utility ’s Fund Balance not included in the reserves described in Section 4-Section 7 above will be included in the Operations Reserve unless this reserve has reached its maximum level as set forth in Section 8 d) below. Staff will manage the Operations Reserve according to the following practices:

a) The following guideline levels are set forth for the Operations Reserve. These guideline levels are calculated for each fiscal year of the Financial Planning Period based on the levels of Operations and Maintenance (O&M) and commodity expense forecasted for that year in the Financial Plan.

Minimum Level
60 days of O&M and commodity expense
Target Level
90 days of O&M and commodity expense
Maximum Level
120 days of O&M and commodity expense
b) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations Reserve are lower than the minimum level set forth above, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered within six months of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its minimum level by the end of the following fiscal year . For example, if the Operations Reserve is below its minimum level at the end of FY 2014, staff must present a plan by December 31, 2014 to return the reserve to its minimum level by June 30, 2015 . In addition, staff may present, and the Council may adopt, an alternative plan that takes longer than one year to replenish the reserve.
c) Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower than the target level, any Financial Plan created for the Gas Utility shall be designed to return the Operations Reserve to its target level by the end of the forecast period. d) Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no funds may be added to this reserve. Any further increase in the Gas Utility’s Fund Balance shall be automatically included in the Unassigned Reserve described in Section 9, below.

Item 14: Staff Report
Pg.
12 Packet Pg. 506 of 853

example, if there were funds in the Unassigned Reserves at the end of FY 2015, and the next Financial Planning Period is FY 2016 through FY 2020, the Financial P lan shall include a plan to return or assign any funds in the Unassigned Reserve by the end of FY 2016. Staff may present an alternative plan that retains these funds or returns them over a longer period of time.

Section 10. Intra-Utility Transfers Between Supply and Distribution Funds

The Gas Utility records costs in two separate funds: the Gas Supply Fund and the Gas Distribution Fund. At the end of each fiscal year staff is authorized to transfer an amount equal to the difference between Gas Supply Fund costs and Gas Supply Fund Revenues, from the Gas Distribution Fund Operations Reserve to the Gas Supply Fund, or vice versa. Such transfers shall be included in the ordinance closing the budget for the fiscal year.

Section 11. Cap and Trade Program Reserve

This reserve tracks revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the gas utility, under the State’s Cap and Trade Program.

Funds in this Reserve are managed in accordance with the City’s Policy on the Use of Freely Allocated Allowances under the State’s Cap and Trade Program (the Policy), adopted by Council Resolution 9487 in January 2015. At the end of each fiscal year staff is authorized to transfer all revenues from the sale of allocated carbon allowances to this reserve.

Item 14
Attachment B - Reserve
Management Practices
Redline

Item 14: Staff Report
Pg.
13 Packet Pg. 507 of 853

Item 14
Attachment B - Reserve
Management Practices
Redline

Item 14: Staff Report
Pg.
14 Packet Pg. 508 of 853

FY 2024 GAS

UTILITY

FINANCIAL PLAN
FY 2024 TO FY 2028
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
15 Packet Pg. 509 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 2 | P a g e
1 1
8 8

GAS UTILITY FINANCIAL PLAN
FY 2024 TO FY 2028

TABLE OF CONTENTS
Section 1: Definitions and Abbreviations .................................................................................4 Section 2: Executive Summary and Recommendations ............................................................5 Section 2A: Overview of Financial Position..................................................................................5 Section 2B: Summary of Proposed Actions..................................................................................8 Section 3: Detail of FY 2023 Rate and Reserve Proposals .........................................................9 Section 3A: Rate Design...............................................................................................................9 Section 3B: Current and Proposed Rates ...................................................................................10 Section 3C: Bill impact of Proposed Rate Changes ....................................................................12 Section 3D: Proposed Reserve Transfers ...................................................................................13 Section 4: Utility Overview ....................................................................................................14 Section 4A: Gas Utility History...................................................................................................14 Section 4B: Customer Base ........................................................................................................16 Section 4C: Distribution System.................................................................................................16 Section 4D: Cost Structure and Revenue Sources ......................................................................17 Section 4E: Reserves Structure ..................................................................................................18 Section 4F: Competitiveness......................................................................................................18 Section 4G: Gas Supply Rates ....................................................................................................19 Section 5: Utility Financial Projections ...................................................................................21 Section 5A: Load Forecast .........................................................................................................21 Section 5A: FY 2018 to FY 2022 Cost and Revenue Trends ........................................................23 Section 5B: FY 2022 Results.......................................................................................................25 Section 5C: FY 2023 Projections.................................................................................................25 Section 5D: FY 2024-FY 2028 Projections ..................................................................................26 Section 5E: Risk Assessment and Reserves Adequacy ...............................................................28 Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
16 Packet Pg. 510 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 3 | P a g e
1 1
8 8
Section 5F: Long-Term Outlook .................................................................................................29 Section 5G: Alternative Gas Increase Plans ...............................................................................31 Section 6: Details and Assumptions .......................................................................................34 Section 6A: Gas Purchase Costs.................................................................................................34 Section 6B: Operations ..............................................................................................................37 Section 6C: Capital Improvement Program (CIP).......................................................................38 Section 6D: Debt Service............................................................................................................40 Section 6E: Equity Transfer........................................................................................................42 Section 6F: Revenues .................................................................................................................42 Section 6G: Communications Plan.............................................................................................42 Appendices............................................................................................................................44 Appendix A: Gas Financial Forecast Detail ................................................................................45 Appendix B: Gas Utility Capital Improvement Program (CIP) Detail .........................................46 Appendix C: Gas Utility Reserves Management Practices .........................................................47 Appendix D: Description of Gas Utility Cost Categories.............................................................51 Appendix E: Gas Utility Communications Samples ....................................................................52 Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
17 Packet Pg. 511 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 4 | P a g e
1 1
8 8
SECTION 1: DEFINITIONS AND ABBREVIATIONS
ABS: Acrylonitirile butydene styrene, a plastic gas main material AMI: Advanced Metering Infrastructure
CARB: California Air Resources Board
CIP: Capital Improvement Program
CNG: Compressed Natural Gas
CPAU: City of Palo Alto Utilities Department
CPUC: California Public Utilities Commission
Cross-bore: A cross-bore exists when one utility line has been drilled or “bored” through a portion of another line. Gas cross-bores can occur in sewer lines as a result of “horizontal boring” construction practices.

Distribution: transportation of gas to customers.

GMR Program: Gas Main Replacement Program
Local Transportation: transportation of gas to Palo Alto across PG&E’s distribution system from PG&E City Gate.

Malin: a delivery hub referred to in gas purchase contracts and located in Malin, Oregon, where the northern end of PG&E’s Redwood Transmission Pipeline is located.

MMBtu: Millions of British thermal units, a unit of gas measurement equal to ten therms.

Commonly used for high volume gas measurement. Wholesale purchases of gas from suppliers are typically measured in MMBtu.

O&M:Operations and Maintenance
PE or HDPE: Polyethylene, a gas main material (more specifically, High-Density Polyethylene) PG&E: Pacific Gas and Electric
PG&E Citygate, or Citygate: a delivery hub referred to in gas purchase contracts. Any gas delivered to PG&E’s distribution system (such as gas delivered at the southern end of PG&E’s Redwood Transmission Pipeline) is said to have been delivered at PG&E Citygate.

PVC: Polyvinyl chloride, a plastic gas main material
Summer: April 1 to October 31
Therms: The standard unit of measurement for natural gas sales to customers, equal to 100,000 British thermal units. Therms measure the heating value of the gas, rather than its volume.

Transmission: transportation of gas between major gas delivery hubs via a gas transmission pipeline, such as PG&E’s Redwood pipeline.

UAC: Utilities Advisory Commission, an appointed body that advises the City Council on CPAU issues.

Winter: November 1 to March 31
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
18 Packet Pg. 512 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 5 | P a g e
1 1
8 8
SECTION 2: EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City’s Gas Utility for the next five years. This Financial Plan provides revenues to cover the costs of operating the utility safely over that time while adequately investing for the future. It also addresses the financial risks facing the utility over the short term and long term and includes measures to mitigate and manage those risks.

SECTION 2A: OVERVIEW OF FINANCIAL POSITION
Gas commodity costs were extremely high in FY 2023 due to unprecedented supply and demand conditions throughout the western United States. These commodity costs are not projected to recur in FY 2024, and staff plans to propose hedging alternatives to Council that could mitigate futures increases. Staff is proposing to increase the distribution component of the gas rates in FY 2024 to ensure the utility is recovering its costs of operations. Revenues were already below costs after keeping rate increases low through the pandemic, but construction inflation and other factors have driven costs up. The distribution rate increase is projected to increase overall customer bills approximately 8% if supply costs remain the same in FY 2024 as they were in FY 2023, though staff does not expect this. This 8% increase in customer bills results from increasing the distribution component of the rates 21% to fully recover distribution costs and avoid decreasing reserves further. Even with this distribution rate increase, staff expects average annual customer gas bills to decline 13% in FY 2024 compared to FY 2023 because gas supply costs were extremely high in FY 2023, particularly in the winter. FY 2024 annual gas supply costs are forecasted to be about 36% lower than FY 2023. Gas market prices are uncertain, however, and these forecasts can change.

From FY 2024 through FY 2028 gas supply costs are projected to increase by only 1% per year (though this forecast is uncertain) 1 and distribution operational costs are projected to increase by about 4% per year, leading to average overall costs for the gas utility to increase about 3% per year. Total gas bills (including both commodity and distribution components) are forecasted to rise at a slightly higher average rate, 4% per year. However, because distribution rates are currently below costs, distribution rates will have to increase faster than distribution costs to ensure full cost recovery. The commodity component of the rates is forecasted to increase no more than 1% per year on average, but the distribution component is expected to increase 6% per year on average, for a net 4% per year on average over the forecast period.

Gas commodity costs are extremely uncertain, and changes in commodity costs are passed directly to customers through a month-varying rate adjuster (capped at $4/therm). This Financial Plan projects that increasing gas utility distribution operational costs will cause distribution rates (all costs excluding commodity, transportation, or environmental rate components, which includes operational costs, capital costs, overhead, transfers, and other similar costs) to increase 1 This results from a projected gradual decline in the main component of gas supply costs, the cost of gas purchased in the market (the “commodity” charge), combined with significant increases in smaller components of commodity costs: gas transportation and environmental charges. The net result is a gradual increase in costs. However, forecasting commodity costs if very uncertain. For more detail gas supply rate design and the sources for these forecasts, see Section 4G: Gas Supply Pass-Through Rates and Section 6A: Gas Purchase Costs Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
19 Packet Pg. 513 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 6 | P a g e
1 1
8 8
customer bills by 6% per year on average over the forecast period, with higher rate increases in FY 2024 and FY 2025. The significantly higher rate changes are due to the fact that distribution revenues are currently approximately 20% below distribution costs, leading to a need for distribution rate increases to exceed distribution cost increases. Distribution rates are not high enough to recover costs because the utility minimized rate increases in FY 2021 and FY 2022 to minimize the impact of gas rate increases on a community struggling to manage the economic impact of the pandemic.

As shown in Table 1, below, total gas utility costs are projected to be 20% higher in FY 2024 than they were in FY 2022. This is primarily due to higher long-term commodity prices, which are projected to be 25% higher than FY 2022 and are forecasted to remain approximately at those levels through the forecast period (though these forecasts are uncertain). Staff projects operations costs to increase by about 2.6% on average annually through the forecast period primarily due to salary and benefit increases both in the gas utility and for administrative functions provided by the City’s General Fund staff.

Capital Improvement Program (CIP) costs vary from year to year and staff projects the two-year average CIP costs to increase by about 10% on average over the forecast horizon. While CPAU has historically planned a new gas main replacement project every year, higher than expected bid proposals have required resizing and redesign of some projects. Since FY 2020, staff has been budgeting for a new, larger main replacement project every other year, and this revised main replacement schedule has allowed CPAU to reasonably meet its main replacement needs while addressing challenges in the construction market and optimizing staffing resources. However, replacement costs continue to rise and holding the gas main replacement program budget steady results in a reduction of the rate of main replacement over time. This Financial Plan addresses these challenges in a way that will allow CPAU to meet its main replacement needs by increasing main replacement budget beginning in FY 2025 and including a 3% annual construction inflationary increase thereafter. Table 1 shows the Gas Utility expenses over the period of this Financial Plan. Staff is also controlling costs by applying for grant funding for the upcoming main replacement project and is currently awaiting a response on a Natural Gas Distribution Infrastructure Safety and Modernization grant opportunity.

Table 1: Gas Utility Expenses for FY 2022 to FY 2028 (Thousand $’s) Expenses
($000)
FY 2022
(act.)
FY 2023
(est.) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Commodity Costs 24,103 48,057 29,948 28,556 29,625 30,289 31,178 Operations 23,225 26,590 26,101 27,393 28,276 28,363 29,134 Capital Projects 4,674 8,217 7,036 10,347 7,500 10,150 7,818 TOTAL 52,002 82,863 63,085 66,296 65,401 68,802 68,130
In order to move towards full cost recovery while minimizing rate impacts, the Financial Plan includes the rate trajectory shown in Table 2.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
20 Packet Pg. 514 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 7 | P a g e
1 1
8 8
Table 2: Projected Gas Rate Trajectory for FY 2024 to FY 2028 Projection FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Current (FY 2024) Financial Plan 8% 7% 5% 5% 5%
FY 2023 Financial Plan 4% 4% 4% 3% N/A
FY 2022 Financial Plan 5% 5% 0% N/A N/A
The unprecedented and extreme gas prices in FY 2023 impacted the gas utility’s reserves significantly, and very high double-digit rate increases would be required to return reserves to within guidelines. Staff is proposing to allow the Gas Operations Reserve to be below the risk assessment levels for two fiscal years and below the minimum guideline for three. If costs exceeded available reserves during this time, the gas utility could explore borrowing from another City fund or other short-term financing. See Section 5E: Risk Assessment and Reserves Adequacy for more information.

The gas utility's transfer to the City’s General Fund is another component of the City’s gas rates.

City voters first authorized the transfer in 1950, and in November 2022 voters approved Measure L, affirming the continuation of this practice by amending the Municipal Code. The measure states that each year the City Council may transfer from the gas utility to the general fund an amount up to 18% of the gross revenues of the gas utility, 2 though Council may choose to transfer a lesser amount. This Financial Plan proposes an 18% transfer, $7,191,000 for FY 2023, which aligns with the voter-approved changes codified in PAMC 2.28.185. Although Council will formally direct the FY 2024 transfer amount next year, Staff has provided preliminary projections for FYs 2024 – 2026: Alternative 1 proposes transferring 18% of gross revenue as voters approved in Measure L, and Alternative 2 proposes a transfer between 15.5% and 11.1% annually through FY 2026.

Additional details are shown in Section 5G: Alternative Gas Increase Plans.

Table 3 shows the projected reserve transfers over the forecast period. As noted above, staff is proposing to allow the Gas Operations Reserve to be below the risk assessment levels for two fiscal years and below the minimum guideline for three. The Gas Utility Reserves Management Practices (Attachment B, Section 8) require returning Operations reserves to within minimum guidelines (60 days of O&M and commodity expense) within one year unless an alternative plan is approved by Council.
2 18% of the gross revenues of the gas utility received “during the fiscal year two fiscal years before the fiscal year of the transfer.” (Section 2.28.185, Palo Alto Municipal Code).

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
21 Packet Pg. 515 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 8 | P a g e
1 1
8 8
Table 3: Operations, Rate Stabilization and CIP Reserve Starting and Ending Balances, Revenues, Transfers To/(From) Reserves, Capital Program (CIP) Contribution To/(From) Reserves, and Reserve Guideline Levels for FY 2023 to FY 2028 ($000) *Operations Reserve represents the Gas Supply Fund Rate Stabilization Reserve and the Gas Distribution Fund Operations Reserve combined.

SECTION 2B: SUMMARY OF PROPOSED ACTIONS
Staff proposes the following actions for the Gas Utility in FY 2023:

1. Transfer up to 18% of gas utility gross revenues received during fiscal year 2021 to the general fund; and

2. Transfer up to $3.82 million from the CIP Reserve to the Operations Reserve; and

3. Amend the Gas Utility Reserve Management Practices reflected in Appendix C: Gas Utility Reserves Management Practices, section 11.

Staff proposes the following actions for the Gas Utility in FY 2024:

1. Transfer up to ___% of gas utility gross revenues received during fiscal year 2022 to the general fund; and
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028Starting Reserve Balances1 Operations Reserve* 11,300 3,666 4,169 3,983 8,536 13,1012 CIP Reserve 3,820 - - - - -3 Cap and Trade Reserve 6,732 8,834 11,908 15,395 19,294 23,6234 Debt Service Reserve 434 434 434 434 - - Revenues5 Total Revenues 70,468 63,223 65,479 68,993 72,516 76,6226 Cap and Trade 2,102 3,074 3,487 3,898 4,329 4,776 Transfers7 Operations Reserve* 1,718 (3,074) (3,487) (3,464) (4,329) (4,776)8 CIP Reserve (3,820) - - - - -9 Cap and Trade Reserve 2,102 3,074 3,487 3,898 4,329 4,77610 Debt Service Reserve (434) Expenses11 Total Non-CIP Expenses (71,704) (55,684) (55,318) (57,374) (57,800) (59,122)12 Planned Distribution CIP (10,217) (7,036) (10,347) (7,500) (10,150) (11,818) Ending Reserve Balances1+5+6+7+11+12 Operations Reserve* 3,666 4,169 3,983 8,536 13,101 18,7842+8 CIP Reserve - - - - - -3+9 Cap and Trade 8,834 11,908 15,395 19,294 23,623 28,3984+10 Debt Service Reserve 434 434 434 - - - Operations Reserve Guidelines13 Minimum 13,394 10,044 10,055 10,450 10,575 11,50414 Maximum 26,788 20,089 20,111 20,900 21,151 23,008 CIP Reserve Guidelines15 Minimum 10,217 7,036 10,347 7,500 10,150 11,81816 Maximum 17,253 17,383 17,847 17,650 21,968 26,261 Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
22 Packet Pg. 516 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 9 | P a g e
1 1
8 8

2. Increase distribution rates by 21.4% (for an estimated 8% increase to total rates) for FY 2024, primarily reflecting increases to capital expenditures and increased operations costs. See Section 3B: Current and Proposed Rates for more details.

Staff requests that Council determine the FY 2024 General Fund transfer and has provided two alternatives for determining the amount of the transfer, which are shown in Section 5G:

Alternative Gas Increase Plans. At their March 1, 2023 and March 21, 2023 meetings, respectively, the UAC and Finance Committee recommended transferring 15.5% of gas utility revenues received during FY 2022 to the General Fund in FY 2024, and all rate and cost discussions in this Financial Plan reflect that recommendation.

SECTION 3: DETAIL OF FY 2023 RATE AND RESERVE PROPOSALS SECTION 3A: RATE DESIGN
The Gas Utility’s rates are evaluated and implemented in compliance with cost of service requirements set forth in the California Constitution and applicable statutory law. The Gas Utility’s proposed rates are based on the methodology from the March 2019 Natural Gas Cost of Service and Rates Study.

The City’s natural gas rates are based on the 2019 Natural Gas Cost of Service and Rates Study, updated with current and proposed operating costs. During the COVID-19 pandemic, usage amongst customer classes dropped to reflect people working and staying at home rather than going to the workplace. Similarly, businesses operated at minimum staffing conditions or fully remote. Costs related to salaries and benefits, administrative functions provided by the City’s General Fund staff, and supply costs are increasing. In order to move towards full cost recovery while minimizing rate impacts, staff recommends a distribution rate increase to all customer classes of 21.4%, which staff estimates will result in an approximate 8% system average rate increase. If, after recovery from the pandemic, usage and/or spending projections change, staff may suggest a re-balancing of rates at that time.

Distribution rates typically comprise approximately 70% of the overall rate, which consists of both gas supply and distribution components (though in FY 2023 it accounted for about 40% due to unprecedented supply cost increases). Supply-related costs include the cost of the natural gas itself (the “commodity” rate), gas transmission, and gas environmental charges, and these are a fluctuating component of the Gas Utility’s expenses. Commodity rates, which typically make up approximately 30% of overall retail gas rates, vary significantly due to changes in market conditions. Staff monitors market prices monthly and automatically incorporates market prices into monthly supply rate adjustments, which are passed directly to customers as a line item on their utility bills.

The overall rate changes (commodity plus distribution) referenced in this report are based on current gas market forecasts that indicate that the commodity portion of the overall rate is unlikely to continue at the unprecedented level observed in FY 2023. Current gas market forward prices indicate that average annual commodity costs are likely to decline 36% in FY 2024 from FY 2023. This is consistent with current gas market forecasts from various sources, including Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
23 Packet Pg. 517 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 10 | P a g e
1 1
8 8
forward gas contracts on exchanges and forecasts from suppliers, but staff cautions that these forecasts can change rapidly due to changing weather, economic factors, or gas supply constraints.

Staff recommends increasing the distribution component of the rates by 21.4%, which equates to an 8% increase to total rates, if commodity rates remained unchanged from FY 2023 (which, as noted above, staff does not project to be the case). Table 6 below shows both the proposed increase in distribution rates (about 21%) and the net impact on rates including commodity costs (about 8% overall, as distribution is about 40% of total rate revenue in FY 2023). From FY 2023 to FY 2024, the distribution portion of customer gas bills will increase 8%, and the commodity portion of the bill is projected to decline 22%. The result is that customers should see a 13% overall decrease in their bills in FY 2024 over the prior year, if, as forecasted above, commodity rates drop 36% from FY 2023 to FY 2024.

Table 4: Cost of Service (COSA) Distribution Revenue Requirement by Customer Class Cost of Service Analysis
FY 2024
Proposed Distribution
Rate Increase
Forecasted
Commodity Rate
Change
Net Change for
Combined Commodity
and Distribution Rate
G1 – Residential
G2 - Small Commercial
G3 - Large Commercial
Total
21% -36% -13%
Rate impacts of these changes are outlined in Section 3B: Current and Proposed Rates.

SECTION 3B: CURRENT AND PROPOSED RATES
Gas rates have two drivers: 1) Supply costs – these are costs related to the purchase of gas supply, transmission costs to bring the gas to Palo Alto’s meters, and environmental costs, such as the purchase of cap and trade allowances for gas burned and carbon neutral offsets; and 2) Distribution costs. Supply costs are charged to customers via four pass-through rate components related to supplying gas to customers: 1) gas commodity, which represents the cost of buying gas in the markets, 2) gas transportation, which represents the cost of transporting purchased gas to Palo Alto, 3) Cap and Trade compliance, which represents the cost of mandated participation in the State’s cap and trade program, and 4) carbon offset charge, which represents the cost of buying offsets for the City’s Carbon Neutral Gas Portfolio.

On July 1, 2012 CPAU restructured its rates so that the commodity component of the rates varied monthly to match changes in gas market prices.3 In January 2015, the Council adopted a new rate component to collect the costs of purchasing allowances for the purpose of compliance with the 3 Staff Report 2812, 5/17/2012: http://archive.cityofpaloalto.org/civica/filebank/blobdload.asp?BlobID=31395 Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
24 Packet Pg. 518 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 11 | P a g e
1 1
8 8
State’s cap-and-trade program.4 This component changes depending on the cost of allowances and gas demand.

Another component of the City’s supply costs is the Transportation Charge, which is the cost that PG&E charges CPAU for transporting gas to Palo Alto via PG&E’s pipelines. This charge applies to Palo Alto and other cities and agencies who procure natural gas for resale. In October 2016, the Council adopted a resolution changing the Local Transportation rate (which had been collapsed into the Distribution rate in 2015 to streamline bill presentation), to be reflected on the bill as a pass-through of PG&E’s Gas Transportation Rate to Wholesale/Resale Customers (G-WSL) charge to Palo Alto. 5 PG&E’s G-WSL rate is currently $0.15/therm as shown in the “Transportation Charge” column of the linked schedule of monthly rates and has a cap of $0.25/therm, which went into effect on July 1, 2022. The transportation charge continues to increase as PG&E collects costs related to improving storage facilities, decommissioning older facilities, increased costs resulting from wildfire mitigation, accounting for and greenhouse gas mitigation costs. Based on PG&E’s estimates, prices are going to continue to escalate between 6% and 22% between 2023 and 2026. Current and historic per therm rates for the Transportation Charges are posted on the City Utilities website.6
In December 2016, Council approved a carbon neutral gas plan, with a goal of achieving a carbon neutral gas portfolio by FY 2018. 7 Costs associated with the carbon neutral gas plan are passed directly to customers as well, although the maximum rate impact is $0.10 per therm. All gas supply, transmission, and environmental costs are passed through to customers as monthly prices change. Three years’ worth of history of these supply rate components can be found on Palo Alto’s website.8
CPAU has four rate schedules: one for separately metered residential customers (G-1), one for small commercial and master-metered multi-family residential customers (G-2), one for customers using over 250,000 therms per year (G-3), and a specific schedule for the City’s Compressed Natural Gas (CNG) station (G-10). To recover distribution costs, all customers pay a monthly service charge, which funds meter reading, billing, and other customer service costs, as well as a portion of Operations and Maintenance (O&M) costs. All customers are also assessed a distribution charge based on each therm of gas used. Separately metered residential customers are charged on a tiered basis, differentiated by season. During the winter months, the first 2 therms per day (60 therms for a 30 day billing period) are charged a base price per therm, and all additional units charged a higher price per therm. During the summer months, the first tier level is 0.667 therms per day, or 20 therms for a 30 day billing period. Commercial customers pay a uniform price for each therm used.

Table 5 shows the current monthly service charges for all rate schedules. Table 6 shows the consumption charges related to distribution. As mentioned earlier, commodity charges change 4 Staff Report 5397, 1/26/2015: https://www.cityofpaloalto.org/civicax/filebank/documents/45537 5 Staff Report 7260 10/17/2016 http://www.cityofpaloalto.org/civicax/filebank/documents/54165 6 Monthly Gas Commodity & Volumetric Rates http://www.cityofpaloalto.org/civicax/filebank/documents/30399 7 Staff Report 7533 12/05/2016 http://www.cityofpaloalto.org/civicax/filebank/documents/54882 8 Monthly Gas Commodity & Volumetric Rates http://www.cityofpaloalto.org/civicax/filebank/documents/30399 Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
25 Packet Pg. 519 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 12 | P a g e
1 1
8 8
monthly, and transportation charges are tied to the PG&E G-WSL rate schedule. Some recent commodity price history is discussed in Section 6A: Gas Purchase Costs.

Table 5: Current and Proposed Monthly Service Charges
Rate Schedule Current
(as of 1/1/23)
Proposed for
FY 2024 Change ($) Change (%)
G-1 (Residential) $ 11.54 $ 14.01 $ 2.47 21.4%
G-2 (Small Commercial) 106.90 129.78 22.88 21.4%
G-3 (Large Commercial) 489.12 593.79 104.67 21.4%
G-10 (CNG) 72.30 87.77 15.47 21.4%
Table 6: Current and Proposed Gas Distribution Charges
Current
(as of 1/1/23)
Proposed for
FY 2024 Change ($) Change (%)
G-1 (Residential)
Tier 1 Rates $ 0.5607 $ 0.6807 $ 0.1200 21.4%
Tier 2 Rates 1.4338 1.7406 0.3068 21.4%
G-2 (Residential Master-Metered and Small Commercial)
Uniform Rate 0.7365 0.8941 0.1576 21.4%
G-3 (Large Commercial)
Uniform Rate 0.7292 0.8852 0.1560 21.4%
G-10 (CNG)
Uniform Rate 0.0120 0.0145 0.0025 20.8%*
*Adjusted downward due to rounding
SECTION 3C: BILL IMPACT OF PROPOSED RATE CHANGES
Table 7 shows the impact of the proposed July 1, 2023 rate changes on the median residential bill for representative average winter and summer bills, with average winter bills forecasted to be significantly lower and summer bills higher. The average annual gas bill for the median residential customer is projected to be 13% lower in FY 2024 than FY 2023. However, since customer gas usage varies and the price of commodities changes monthly, the actual change may vary. Table 7 shows a representative winter period (November thru March) and summer period (April through October) bill comparison.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
26 Packet Pg. 520 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 13 | P a g e
1 1
8 8
Table 7: Impact of Proposed Gas Rate Changes on Residential Bills ChangeUsage (Therms/month) Bill under Current
Rates
Bill under Proposed
Rates $/mo. %
Winter Commodity
Prices based on:

Average Actual
Commodity Cost
Nov. 2022 – Jan.
2023
Average Forecast
Commodity Cost
Nov. 2023 – Jan.
2024
30 $ 98.98 $ 66.53 $(32.45) -33%
54 (median) 168.93 108.54 (60.39) -36%
80 262.18 175.25 (86.92) -33%
150 527.32 371.99 (155.34) -29%
Summer (Based on May 2022 Commodity Prices)
10 $ 27.41 $ 31.08 $ 3.67 13%
18 (median) 40.11 44.74 4.63 12%
30 67.89 75.83 7.94 12%
45 104.80 117.34 12.54 12%
Table 8 shows the impact of the proposed July 1, 2023 rate changes on various representative commercial customer bills. The overall increases for the G-2 and G-3 classes are projected to be about -13% on an annual basis, assuming gas commodity prices decline as described in Section 6A: Gas Purchase Costs.

Table 8: Impact of Proposed Gas Rate Changes on Commercial Bills9 ChangeUsage
(Therms/month)
Bill under
Current Rates
Bill under
Proposed Rates %
500 $ 1,282 $ 1,146 -11%
5,000 11,855 10,295 -13%
10,000 23,604 20,460 -13%
50,000 117,609 101,802 -13%
SECTION 3D: PROPOSED RESERVE TRANSFERS
This Financial Plan includes a proposed transfer of up to $3.82 million from the CIP Reserve to the Operations Reserve in FY 2023, bringing the CIP Reserve to zero. These funds will be used to cover some of the costs for planned CIP. The CIP Reserve has a minimum level of 12 months of budgeted CIP expense (more details are in Section 6 of Appendix C: Gas Utility Reserves Management Practices). In FY 2024, the minimum level is $7.04 million. According to the Reserves Management Practices, if at the end of any fiscal year, the minimum guideline is not met, staff shall present a plan to the City Council to replenish the reserve. Due to the extreme 9 Commodity prices for bills under current rates are based on the average actual commodity prices from July 2022 through February 2023 and projections for March 2023 to June 2023. Commodity prices for bills under the proposed rates are based on staff’s forecast for July 2023 through June 2024.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
27 Packet Pg. 521 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 14 | P a g e
1 1
8 8
impact of the supply cost spikes during the winter of FY 2023 on the Gas Utility’s reserves, balances needed to replenish the CIP Reserve are not projected to become available until FY 2028. In FY 2028, this Financial Plan projects that the Operations Reserve will reach target levels, and staff plans to transfer amounts above the target level at year end FY 2028 or sooner to the CIP Reserve and continue to replenish the reserve with available funds until the CIP Reserve is within the target range.

Also in FY 2023, staff forecasts $2.102 million in revenue from sales of allowances related to California’s cap-and-trade program. These funds are committed for specific programs that reduce greenhouse gas and are tracked separately in the Cap and Trade Reserve. Staff requests Council authorization to transfer up to the $2.102 million from the Rate Stabilization Reserve to the Cap and Trade Reserve. Staff also recommends amending the Gas Utility Reserves Management Practices (see Appendix C: Gas Utility Reserves Management Practices) to authorize staff to perform this transfer each year into the future without a separate resolution.

In FY 2026, the final debt service payment is expected on the 2011 Utility Revenue Refunding Bonds, Series A. At that time, the $0.434 million in the debt service reserve will be returned to the Operations Reserve.

The impact of these proposed transfers on reserves levels can be seen in Table 3 above and in Appendix A: Gas Utility Financial Forecast Detail.

SECTION 4: UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It is intended as general background information and to help readers better understand the forecasts in Section 5: Utility Financial Projections and Section 6: Details and Assumptions.

SECTION 4A: GAS UTILITY HISTORY
On September 22, 1917, the City of Palo Alto issued a bond to purchase the property of Palo Alto Gas Company and continue it as a municipal enterprise. At the time, the system was comprised of 21 miles of mains, 1,900 meters, and was valued at $65,500. PG&E supplied the gas, which was synthesized from coal at its Potrero gasification facility. Almost immediately the City faced challenges. Losses were at nearly 25% according to PG&E’s master meter, and PG&E had filed with the Railroad Commission (the forerunner to today’s CPUC) to increase rates by nearly 72.5%.

Despite these initial hurdles, Palo Alto’s system grew tremendously, and by 1924 revenues had exceeded those of the electric utility. Sales were such that the annual reports of the time noted gas usage “appears to be greater than that of any other city in the state, showing that gas is a very popular form of fuel in Palo Alto.” Just prior to the acquisition of the neighboring town of Mayfield’s gas system (centered around today’s California Avenue) in 1929, the miles of main in service and customer connections had doubled.

Notable changes to the gas supply itself came in 1930, when PG&E ceased supplying purely manufactured (or coal) gas from its Potrero Hill facility in San Francisco and instead switched to natural gas. In 1935, a supplementary butane injection system (later retired) was purchased from Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
28 Packet Pg. 522 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 15 | P a g e
1 1
8 8
Standard Oil to mitigate large wintertime peaks. Gas sales were at 248,658 million cubic feet (MCF) with 4,849 active services.

Early gas mains in Palo Alto were made of steel, but in the 1950s, like many other utilities, CPAU switched to ABS plastic. CPAU switched to PVC plastic in the early 1970s, but around 100 miles of ABS mains had already been installed. A 1990 evaluation of the system found a steadily increasing rate of gas leaks associated with those mains, something that other gas utilities had also been experiencing. To reduce leaks, CPAU accelerated its main replacement program from 7,000 feet (1.3 miles) of replacements per year to 20,000 feet (3.8 miles) per year. This would enable the utility to replace all of its ABS and its most vulnerable steel and PVC mains with polyethylene (PE) mains over the course of the following 36 years.10 The Gas Utility has replaced all but .11 miles of ABS gas mains, which consists of mainly short sections of pipelines in various locations throughout the City. These sections will be replaced as the distribution mains around them are replaced. The majority of ABS, Taenite, and K40 gas services were replaced in 2020. The only ABS, Tenite and K40 gas services remaining are on moratorium streets; these services will be replaced as the street moratorium expires. The Gas Utility completed the replacement of approximately 22,000 linear feet of PVC gas main and over 250 natural gas services in FY22 under the Gas Main Replacement Project 23. This is an example of how local control of its Gas Utility has provided Palo Alto residents with substantial benefits. During the 1990s and 2000s, while CPAU was increasing its main replacement rate to ensure a robust gas distribution system, PG&E was underspending on safety-related infrastructure, according to a past audit.11 In the 1990s, while grappling with the issues surrounding its distribution system, CPAU was also participating in major changes to the structure of the gas industry in California. Until 1988 CPAU had a formal policy of setting its rates equal to PG&E’s rates and successfully did so with the exception of one year in the mid-1970s. At times this led to inadequate revenue (1974 to 1981) as PG&E, the City’s only gas supplier, regularly filed requests with the CPUC to increase the wholesale gas supply rates charged to the Gas Utility. In the 1990s, as the CPUC began deregulating the natural gas industry in California, the Gas Utility began purchasing gas from suppliers other than PG&E. In 1997 the CPUC adopted the “Gas Accord,”12 which enabled the Gas Utility (along with other local transportation-only customers) to obtain transmission rights on PG&E’s Redwood transmission pipeline running from Malin, Oregon into California.

In 2000/2001 the California energy crisis occurred, causing major disruptions to the Gas Utility’s supply costs. Wholesale gas prices rose over 500% between January 2000 and January 2001. The Council approved drawing down reserves to provide ratepayer relief and, for two years following the crisis, CPAU rates were above PG&E’s as reserves were replenished. In April 2001 the Council approved a hedging practice of buying fixed price gas one to three years into the future. After reaching a low point in October 2001, prices continued to rise, and the CPAU hedging strategy frequently resulted in a wholesale supply cost advantage compared to PG&E until prices began to decline steeply in mid-2008. At that point the Gas Utility’s wholesale supply costs became 10 Staff Report CMR:183:90. Infrastructure Review and Update, March 1, 1990 11 Focused Financial Audit of The Pacific Gas & Electric Company’s Gas Distribution Operations, Overland Consulting, made available through a CPUC Administrative Law Judge’s ruling on A12-11-009/I13-03-007 on 5/31/2013 12 CPUC decision 97-08-055. Since then, the Gas Accord has been amended four times, with the most recent being Gas Accord V, application A.09-09-013
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
29 Packet Pg. 523 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 16 | P a g e
1 1
8 8
higher than market gas prices due to fixed price contracts entered into prior to 2008. As a result the Gas Utility’s wholesale supply costs were higher than PG&E’s for several years. In 2012 Council approved a plan to formally cease the hedging strategy and purchase all gas on the short- term (“spot”) markets. As of July 1, 2012, the commodity portion of the gas rates changes every month based on the spot market gas price. In January 2015, the Council adopted a new rate component to collect the costs of purchasing allowances for the purpose of compliance with the State’s cap-and-trade program. 13 As of November 1, 2016, the Council adopted a resolution changing the Local Transportation rate (which had been collapsed into the Distribution rate in 2015 to streamline bill presentation), to be a pass-through of PG&E’s Gas Transportation Rate to Wholesale/Resale Customers (G-WSL) charge to Palo Alto.14 In December 2016, Council approved a carbon neutral gas plan, with a goal of achieving a carbon neutral gas portfolio by FY 2018. 15 The City’s gas utility has been carbon neutral since FY 2018 through the purchase of offsets.

SECTION 4B: CUSTOMER BASE
CPAU’s Gas Utility provides natural gas service to the residents, businesses, and other gas customers in Palo Alto. Close to 23,800 customers are connected to the natural gas system, approximately 21,500 (90%) of which are residential and 2,300 (10%) of which are non- residential. In a normal year, residential customers consume about 10 to 11 million therms of gas per year, roughly 40% of the gas sold, while non-residential customers consume 60% (about 15 to 18 million therms). Residential customers use gas primarily for space heating (46% of gas consumed) and water heating (42%), with the remainder consumed for other purposes such as cooking, clothes drying, and heating pools and spas. 16 Non-residential customers use gas for space and water heating (73% of gas consumed), cooking (20%), and industrial processes (6%).17 The Gas Utility receives gas at the four receiving stations within Palo Alto where CPAU’s distribution system connects with Pacific Gas and Electric’s (PG&E’s) system. These receiving stations are jointly operated by CPAU and PG&E. CPAU purchases gas from various natural gas marketers, with PG&E providing only local transportation service (transportation from the PG&E City Gate gas delivery hub to Palo Alto). CPAU also has transmission rights on PG&E’s transmission pipeline from Malin, Oregon to PG&E City Gate, allowing it to purchase lower priced gas at that location. CPAU does not produce or store any natural gas, and purchases gas in the monthly and daily spot markets. The cost of the purchased gas is passed through directly to customers through a rate adjuster that varies monthly with market (Bidweek) prices. In a similar fashion, the costs for local transportation is tied to PG&E’s G-WSL rate schedule, and it varies when and if PG&E changes its rate schedule. The cost of purchased gas and PG&E local transportation service usually account for roughly one third of the utility’s expenditures. 13 Staff Report 5397, 1/26/2015: https://www.cityofpaloalto.org/civicax/filebank/documents/45537 14 Staff Report 7260 10/17/2016 http://www.cityofpaloalto.org/civicax/filebank/documents/54165 15 Staff Report 7533 12/05/2016 http://www.cityofpaloalto.org/civicax/filebank/documents/54882 16 http://energyalmanac.ca.gov/naturalgas/overview.html 17 Source: Statewide Commercial End Use Study, California Energy Commission report, 2006. Statistics shown are for end users in PG&E Climate Zone 4 (the Peninsula) where Palo Alto is located.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
30 Packet Pg. 524 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 17 | P a g e
1 1
8 8
SECTION 4C: DISTRIBUTION SYSTEM
To deliver gas from the receiving stations to its customers, the utility owns 210 miles of gas mains (which transport the gas to various parts of the city) and close to 23,800 gas services (which connect the gas mains to the customers’ gas lines). These mains and services, along with their associated valves, regulators, and meters, represent the vast majority of the infrastructure used to deliver gas in Palo Alto. CPAU has an ongoing CIP to repair and replace its infrastructure over time, the expense of which normally accounts for around 15 to 20% on average of the utility’s expenditures. Costs for main replacements have been going up in recent years.

In addition to the CIP, the Gas Utility performs a variety of maintenance activities related to the system, such as monitoring the system for leaks, testing and replacing meters, monitoring the condition of steel pipe, and building and replacing gas services for buildings being built or redeveloped throughout the city. The utility also shares the costs of other system-wide operational activities (such as customer service, billing, meter reading, supply planning, energy efficiency, equipment maintenance, and street restoration) with the City’s other utilities. These maintenance and operations expenses, as well as associated administration, debt service, rent, and other costs, make up roughly half of the utility’s expenses.

In addition to these ongoing activities, CPAU has conducted a program to find and replace cross- bores over the last several years. Currently, an average of $0.7 million is estimated per year for the cross-bore program through FY 2028.

SECTION 4D: COST STRUCTURE AND REVENUE SOURCES
As shown in Figure 1, the Gas Utility
receives about 92% of its revenue from
sales of gas and the remainder from
capacity and connection fees, interest
on reserves, and other sources.

Appendix A: Gas Utility Financial
Forecast Detail shows more detail on
the utility’s cost and revenue
structures.

Figure 1: Revenue Structure (FY 2022)
92%
8%
Sales of Gas
Other Revenue
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
31 Packet Pg. 525 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 18 | P a g e
1 1
8 8
As shown in Figure 2, in FY 2022, gas
purchase costs accounted for about
46% of the Gas Utility’s costs. This
percentage can vary widely from year
to year, as this cost is based upon
market purchases, and includes costs
related to cap and trade. Operational
costs in FY 2022 represented 45% of
expenses and capital investment was
responsible for the remaining 9%. CIP
is on average about 15 to 20% of
expenses, but as main replacement
projects are only occurring every other
year, the percentage swings more.

SECTION 4E: RESERVES STRUCTURE
CPAU maintains six reserves for its Gas Utility to manage various types of contingencies and track program spending. The summary below describes each of these briefly. See Appendix C: Gas Utility Reserves Management Practices for more detailed definitions and guidelines for reserve management:
•Reserve for Commitments: A reserve equal to the utility’s outstanding contract liabilities for the current fiscal year. Most City funds, including the General Fund, have a Commitments Reserve.
•Reserve for Re-appropriations: A reserve for funds dedicated to projects re-appropriated by the City Council, nearly all of which are capital projects. Most City funds, including the General Fund, have a Re-appropriations Reserve.
•Capital Improvement Program (CIP) Reserve: The CIP reserve can be used to accumulate funds for future expenditure on CIP projects. This CIP can also act as a contingency reserve for the CIP. This type of reserve is used in other utility funds (Electric, Water, and Wastewater Collection) as well.
•Rate Stabilization Reserve: This reserve is intended to be empty unless one or more large rate increases are anticipated in the forecast period. In that case, funds can be accumulated to spread the impact of those future rate increases across multiple years.

This type of reserve is used in other utility funds (Electric, Water, and Wastewater Collection) as well.
•Operations Reserve: This is the primary contingency reserve for the Gas Utility and is used to manage yearly variances from budget for operational gas costs. This type of reserve is used in other utility funds (Electric, Water, and Wastewater Collection) as well. •Unassigned Reserve: This reserve is for any funds not assigned to the other reserves and is normally empty.
•Cap and Trade Reserve: This reserve tracks unspent or unallocated revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the gas utility, under the State’s Cap and Trade Program.

Figure 2: Cost Structure (FY 2022)
45%
46%
9%
O perations
Gas Purchases
Capital
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
32 Packet Pg. 526 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 19 | P a g e
1 1
8 8
SECTION 4F: COMPETITIVENESS
Table 9 presents residential bills for Palo Alto and PG&E for Calendar Years 2021 and 2022 compared to winter months in 2022 – 2023 during the recent supply price spikes at median usage levels. The annual gas bill for the median residential customer for CY 2022 was $821, about 11% lower than the annual bill for a PG&E customer with the same consumption. PG&E’s distribution rates for gas have increased to collect for needed system improvements for pipeline safety and maintenance.

The bill calculations for PG&E customers are based on PG&E Climate Zone X, an area which includes the surrounding communities.

Table 9: Residential Natural Gas Bill Comparison ($/month or year) Year/Month Median Usage
(therms)18 Palo Alto PG&E Zone X % Difference
CY 2021 402 $ 631.28 $ 701.60 (14%)
CY 2022 402 821.33 868.62 (11%)
November 2022 32 62.64 76.93 (19%)
December 2022 69 175.06 171.96 2%
January 2023 76 393.57 217.25 81%
Historically, Palo Alto’s residential gas bills have been competitive relative to PG&E. During January 2023, bills increased significantly relative to PG&E. Staff is looking into reasons why gas prices spiked this winter and why PG&E’s gas rates did not rise as rapidly as Palo Alto’s gas rates during the recent market price spikes. Governor Newsom has requested that the Federal Electric Regulatory Commission start an investigation of winter gas prices. The Mayor sent a letter to the Governor on February 7, 2023 expressing the City’s support for pursuing these investigations.

Similar investigations are underway by the California Public Utilities Commission (CPUC) in collaboration with the California Energy Commission and California Independent System Operator (CAISO). Staff is also in the process of doing a more extensive competitiveness review of commercial customer bills and will provide updates in the future.

SECTION 4G: GAS SUPPLY PASS-THROUGH RATES
The City has four pass-through rates related to supplying gas to customers: 1) gas commodity, which represents the cost of buying gas in the markets, 2) gas transportation, which represents the cost of transporting purchased gas to Palo Alto, 3) Cap and Trade compliance, which represents the cost of mandated participation in the State’s cap and trade program, and 4) carbon offset charge, which represents the cost of buying offsets for the City’s Carbon Neutral Gas Portfolio. Gas commodity rates are forecasted to decline slightly over the forecast period, but increases in other rate components are forecasted to lead to a net gradual increase in total gas supply costs over the forecast period.
18 Median usage data based on CY 2022
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
33 Packet Pg. 527 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 20 | P a g e
1 1
8 8
For the gas commodity charge, starting in July 2012, CPAU replaced a “laddering” hedging strategy for purchasing gas supplies with a strategy to buy gas on the short-term, or “spot” markets and pass the commodity cost to customers on a monthly basis. Prior to December 2018, commodity prices had generally fluctuated in a fairly narrow band, averaging around $0.32/therm. Over the last few years, a variety of factors combined that led to more variability in prices: Regional temperatures were cooler than normal, but in addition, gas supplies stored in underground facilities have been lower than normal, as well as constrained due to problems with the Aliso Canyon facility in southern California. There have been periodic pipeline constraints at both the northern and southern California borders. While there was not an actual constriction on supply, the confluence of all these factors drove up the bidweek prices for all California delivery points. There has continued to be a bit more volatility in the market, and while the gas market price trend appears slightly downward over time, commodity prices are not projected to decrease to FY 2022 levels. Figure 3 shows the City’s actual commodity rates through December 2022, and projected rates through FY 2025. Note that while gas commodity costs might be forecasted to decline slightly, increases in other gas supply components (transportation, environmental charges) are expected to offset that, leading to a gradual increase in overall gas supply costs.

Natural gas prices through the forecast period are projected to remain higher than the very low levels seen in in FY 2022 and earlier due to a number of factors. These factors include inflation, the war in Ukraine, and growth in LNG exports due to global demand. Prices are also forecasted to be higher in the region due to more reliance on natural gas for power generation due to low or unpredictable hydro conditions, continued likelihood of extreme or unexpected weather events, lower gas storage levels, constraints on the transportation of gas, and overall increased market volatility resulting in pricing premiums.

Figure 3: Palo Alto Gas Commodity Rates, Actual and Projected, FY 2012 - FY 2025

During winter 2022/2023, gas commodity prices at the monthly and daily Citygate indexes were abnormally high. In mid-December, Citygate daily index prices settled higher than $5/therm, the Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
34 Packet Pg. 528 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 21 | P a g e
1 1
8 8
highest natural gas spot prices since December 2000. Several trends occurring simultaneously contributed to prices rising to these levels including widespread below-normal temperatures, high natural gas consumption, reduced natural gas flows, transmission pipeline constraints, and low natural gas storage levels in the Pacific region. These extreme market conditions impacted most utilities throughout the Pacific and Rocky Mountain regions of the United States.

Staff anticipated that the Citygate commodity price for January 2023 would exceed the Commodity rate cap of $2/therm, based on the monthly forward price data that suggested it would settle around $3.5/therm. The City Council approved staff’s recommendation to double the commodity rate cap to $4/therm (see Reso #10090) effective January 1, 2023. The settled commodity price at Citygate index for January 2023 was around $5/therm - even higher than the updated rate cap. Due to the rate cap, CPAU was not able to recover the full costs of January 2023 supply purchases from customers, but the impact to the gas reserves was far less than if the commodity rate cap had stayed at $2/therm.

Figure 4 below shows the actual and projected Palo Alto gas commodity rates and the settled Citygate price on January 2023. The projected commodity rates in February 2023 and beyond are expected to be lower than January 2023, but are not expected to decline to FY 2022 levels.

Figure 4: Palo Alto Gas Commodity Rates, Commodity Rate Caps, and Citygate Actual Prices SECTION 5: UTILITY FINANCIAL PROJECTIONS
SECTION 5A: LOAD FORECAST
Gas usage in Palo Alto is volatile, varying with both economic and weather conditions. As shown in Figure 5, in the early 1970s, gas purchases reached over 45 million therms per year. Usage dropped dramatically in the 1976/1977 drought when customers saved significant amounts of (hot) water by upgrading to efficient showerheads. During the 1980s and 90s average gas usage was around 36 million therms per year. Usage dropped again in the early 2000s. In FY 2001, gas prices escalated during the California energy crisis and Palo Alto’s rates increased by nearly 200%.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
35 Packet Pg. 529 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 22 | P a g e
1 1
8 8
From 2003 to 2011, usage decreased by 2.3% mainly as a result of continued customer investments in energy efficiency.

In 2014 and 2015, unusually warm winters, as well as ongoing drought, caused gas usage to tumble to historic lows. In 2017 and 2018, as the drought eased, gas usage increased again, but appeared to have stabilized. The COVID pandemic resulted in gas usage decreasing again, mainly in the commercial sectors as a result of many businesses operating staff remotely. Gas usage decreased by about 12% in 2020 and 2021, compared with 2019.

Figure 5: Historical Gas Supply Purchases
The ongoing pandemic recovery, as well as usage declines similar to what has been seen in the electric utility, leads to questions of how long the trend of reduced consumption in gas will last.

As seen with prior economic and drought-related gas usage declines in the past, it is likely that consumption will not come back to pre-conservation/pandemic levels but will likely become a long-run usage decline. Further changes, such as the voluntary replacement of gas appliances with electric appliances, building electrification of new construction as mandated by the 2019 Reach Code, and customer behavior are also expected to lower long run usage, and this forecast will be revised accordingly as more customers adopt these measures. 19 In addition, separate strategic planning and financial analysis will be performed separate from this Financial Plan to address a financial and infrastructure strategy for the gas utility during a transition to an electrified community. Any insights from separate analyses will be integrated into future Financial plans.

Based on billing data through the end of 2022, gas usage has shown modest recovery with the return of winter heating. It is too early in the winter heating season to tell what the trend will continue to be. However, long term declining gas consumption will put upward pressure on rates, as a generally increasing cost to operate and distribute gas will be spread across fewer units of sale.
19 The City’s Sustainability and Climate Action Plan (S/CAP) is currently being updated. As building electrification goals in the S/CAP are updated, they will be modeled in this load forecast or alternative load forecasts.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
36 Packet Pg. 530 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 23 | P a g e
1 1
8 8
Figure 6: Gas Supply Purchases Forecast
SECTION 5A: FY 2018 TO FY 2022 COST AND REVENUE TRENDS
Figure 7 and Appendix A: Gas Utility Financial Forecast Detail show how costs have changed during the last five years as well as how staff project costs to change over the next five years.

While the gas utility strives to maintain a steady rate of funding for main replacement over time, this funding pattern was disrupted from FY 2015 to FY 2020. In FY 2015, no funding for gas main replacement was budgeted due to the fact that staff was completing a prior major gas main replacement project, the largest in utility history, which completed replacement of most of the ABS gas mains in Palo Alto. The next main replacement to be budgeted involved replacements of gas mains on University Avenue, a project that evolved into the Upgrade Downtown project involving a coordinated replacement of several different types of infrastructure to avoid multiple disruptions to the business district. This multi-year planning effort did not allow for design of other new projects, and the hiatus in starting a new main replacement project allowed the Gas Utility to temporarily keep rates lower. In FY 2021 the gas utility returned to routine funding for main replacement for the gas utility, though gas main replacement investment is likely to become more complex as the City plans for a transition to an electrified community.

Revenues have fluctuated but generally matched expenses in the years between FY 2018 and FY 2022. The absence of new budget for main replacement projects for several years, as well as the availability of relatively large reserves, reduced the need for rate increases until FY 2019.

The last adjustment to gas distribution rates was a 3% increase to the total system average gas rate (supply rates plus distribution rates) in July 2022. The commodity cost and revenue increases in FY 2022 were the result of higher market commodity prices. Figure 4 in Section 4G shows the gas commodity prices and Figure 3 Palo Alto’s gas commodity rates. Gas supply costs are passed through to customers, and change month to month with a cap of $4/therm.

Figure 7 shows the actual overall system average rate change from FY 2018 through FY 2023 (shown in grey) and the projected overall system average rate change for FY 2024 through FY Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
37 Packet Pg. 531 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 24 | P a g e
1 1
8 8
2028 (shown in red) both excluding supply-related rate changes. The rate increases only include the needed increase for the distribution rate as a percentage of the base gas utility sales revenue.

Figure 7: Gas Utility Expenses, Revenues, Rate Changes Excluding Supply-Related Changes Actual Costs through FY 2022 and Projections through FY 2028 Figure 8 shows the actual overall system average rate change from FY 2018 through FY 2023 (shown in grey) and the projected overall system average rate increase for FY 2024 through FY 2028 (shown in red) including the supply-related rate changes. The rate changes include the overall change in the rate as a percentage of the base sales revenue for the gas utility. Because staff expects the spike in gas market commodity prices in FY 2023 not to continue, the projected FY 2024 costs are much lower in FY 2024. This is effectively an overall decrease in the system average rate despite rising costs for operating and capital costs for the distribution system.

Figure 8: Gas Utility Expenses, Revenues, Rate Changes Including Supply-Related Changes Actual Costs through FY 2022 and Projections through FY 2028 Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
38 Packet Pg. 532 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 25 | P a g e
1 1
8 8
SECTION 5B: FY 2022 RESULTS
Sales revenues were higher than projected in the FY 2023 Financial Plan by about $3.6 million, due to higher revenue from higher gas commodity rates, but other sources of funds were lower by $0.7 million. On the expense side, purchase costs came in about $4.4 million higher than projected due to increased market commodity costs. Operational expenses were about $0.9 million higher than projected, with increases in Salary and Benefits and Allocated Charges. Total FY 2022 expenses were $52.7 million compared to $47.3 million projected in the FY 2023 Financial Plan. Table 10 summarizes the variances from forecast.

Table 10: FY 2022 Actual Results vs. FY 2023 Financial Plan Forecast ($000) Net Cost/(Benefit) Type of Change
Sales Increase due to Commodity Price Increases (3,624) Revenue Increase Lower Interest Income and Non-Sales Revenues 721 Revenue Decrease Higher Gas Purchase Costs 4,396 Cost Increase
Higher O&M and Customer Services Costs 941 Cost Increase Net Cost / (Benefit) of Variances 2,435
SECTION 5C: FY 2023 PROJECTIONS
Current projections indicate that sales revenues will be higher than last year’s forecast by about $23.4 million, due to higher projected commodity costs. Other revenues and transfers are projected to be nearly $1 million lower. Operations costs estimated to be lower by about $0.6 million due to lower transfers. Gas purchase costs greatly increased due to higher than expected market commodity prices. Not all gas commodity costs were passed through to customers, leading to a $5 million variance for FY 2023 that significantly impacted the Operations Reserve.

Table 11 summarizes the projected variances from the FY 2023 Financial Plan.

Table 11: FY 2023 Projected Results vs. FY 2023 Financial Plan Forecast ($000) Net Cost/ (Benefit) Type of Change
Sales Increase due to Commodity Price Increases (23,411) Revenue Increase Lower Interest Income and Non-Sales Revenues 963 Revenue Decrease Higher Gas Purchase Costs 28,045 Cost Increase
Lower O&M and Customer Services Costs (565) Cost Decrease Net Cost / (Benefit) of Variances 5,031
SECTION 5D: FY 2024-FY 2028 PROJECTIONS
Figure 7 above shows overall costs for the Gas Utility increasing by over 50% from FY 2022 to FY 2023 due to the supply cost increases discussed above. Costs are projected to decline in FY 2024 and increase by 3% annually on average throughout the rest of the forecast period.

Gas commodity costs are the most variable component and represent the largest estimated jump in costs from FY 2022 to FY 2023. Staff projects commodity costs to approximately double from FY 2022 to FY 2023 and then decline in FY 2024, though not to FY 2022 levels. For the remainder of the five-year forecast period from FY 2024 through FY 2028, total gas supply costs are Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
39 Packet Pg. 533 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 26 | P a g e
1 1
8 8
projected to increase gradually, with gas commodity costs projected to decline gradually, offset by significant increases in transportation and environmental costs. Commodity price forecasts that far into the future are highly uncertain. Market prices could increase or decrease. Cap and Trade allowance costs are increasing by 15.7% annually from FY 2024 to FY 2028.20 Staff projects transmission costs to increase steadily at 4-6% annually from FY 2024 to FY 2028.21 Carbon offset products are also increasing at 7% per year on average.22 Staff anticipates annual capital expenditures will fluctuate during the forecast period due to planning for larger main replacement construction projects every other year instead of smaller projects annually. This main replacement schedule allows CPAU to meet its main replacement needs while addressing challenges in the current construction market and optimizing current staffing resources. Averaging the cost of CIP over these two-year cycles, costs are expected to increase by around 10.9% on average annually from FY 2024 through FY 2028.

General inflationary increases for operating expenses are around 2 to 3% per year. Salaries and benefits expenses are projected to rise at 2 to 8% per year, per similar assumptions used in the City’s Long-Range Financial Forecast.

As shown in Figure 9, this Financial Plan projects to utilize all funds from the CIP Reserve in FY 2023 in order to partially fund the CIP budget. Because of the sharp rise in commodity costs, there will be no available funds to replenish the CIP Reserve until around FY 2028. By FY 2026, staff expects gas fund costs to align more closely with revenues and this will allow the Operations Reserve to begin to replenish. In FY 2027 and FY 2028 the Operations Reserve reaches levels within the guideline range. Once those reserve balances are available, staff will consider transfers to replenish the CIP Reserve. Per the Reserves Management Practices (Appendix C), Section 6, any rate plan that does not return CIP reserves to minimum levels within one year requires Council approval.

Figure 10 shows the year end FY 2022 CIP Reserve levels and shows the reduction to zero by the end of FY 2023. At the end of FY 2022 there were also balances in the CIP Reappropriations and Commitments Reserves, which is common because capital projects often cover multiple years.

Figure 10 also shows an assumption that the level of funding in the CIP Reappropriations and Commitments Reserves will be the same during the forecast period as at year end FY 2022.

However, even with the CIP Reserve together with the CIP Reappropriations and Commitments Reserves, staff does not expect that the reserve balances will reach the minimum level of 12 months of budgeted CIP expense.
20 Based on allowance broker quotes.
21 The transportation rates for calendar years 2022-2026 reflect the rates in the September 30, 2021 prepared testimony (A.21-09-018) regarding PG&E’s 2023 Gas Transmission & Storage (GT&S) Cost Allocation and Rate Design (CARD), afterward a 3% escalation rate is applied.
22 Based on carbon offset provider quotes.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
40 Packet Pg. 534 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 27 | P a g e
1 1
8 8
Figure 9: Gas Utility Reserves
Actual Reserve Levels for FY 2022 and Projections through FY 2028 Figure 10: Gas CIP Actual Reserve Levels for FY 2022 and Projections through FY 2028 Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
41 Packet Pg. 535 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 28 | P a g e
1 1
8 8
Staff is evaluating when to implement a fixed funding amount that will be provided from the Operations Reserve to the CIP Reserve to fund capital improvements. This approach will provide stability to the Operations Reserve by providing for a steady funding stream for CIP work and by reflecting fluctuations due to CIP such as project delays or accelerations in the CIP Reserve; ultimately, this should result in more stable customer rates. The use of the CIP Reserve in this way will isolate fluctuations due to CIP delays or accelerations and allow those to be viewed together in the CIP Reserve. Conversely, other trends or factors affecting the Operations Reserve will be easier to identify and communicate. Without this change, both CIP costs and revenues flow solely through the Operations Reserve.

Because of the substantial impacts to gas reserves due to recent increases in supply costs, CIP fixed funding will not be implemented at this time, and possibly not within the 5-year planning horizon. Staff will continue to evaluate as ending reserve balances become available.

SECTION 5E: RISK ASSESSMENT AND RESERVES ADEQUACY
As noted earlier, unprecedented and extreme gas prices in FY 2023 and unexpected expenses in FY 2022 significantly impacted the gas utility’s reserves, and double-digit rate increases would be required to return reserves to within guidelines. Staff is proposing to allow the Gas Operations Reserve to be below the risk assessment levels for two fiscal years and below the minimum guideline for three.

This Financial Plan projects the Gas Utility’s primary contingency reserve, the Operations Reserve, to be below guideline levels at the end of FY 2023 through FY 2026 and then return to within the guideline range by the end of FY 2027 and increase to approximately target levels by the end of the forecast period. Per the Reserves Management Practices (Appendix C) any rate plan that involves returning the Operations Reserve to within guideline levels in more than one year requires Council approval. Figure 11 shows the Operations Reserve alongside the guideline levels.

Figure 11: Operations Reserve Adequacy
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
42 Packet Pg. 536 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 29 | P a g e
1 1
8 8
Forecasted Operations Reserve levels also drop below the short-term risk assessment for the Utility at the end of FY 2023 through FY 2025, return to above the short-term risk assessment level by the end of FY 2026, and remain above this level for the remainder of the forecast period.

Table 12 summarizes the risk assessment calculation for the Gas Utility through FY 2028. The risk assessment includes the revenue shortfall that could accrue due to:

1. Lower than forecasted distribution sales revenue; and

2. An increase of 10% of planned system improvement CIP expenditures for the budget year.

Table 12: Gas Risk Assessment ($000)
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Total non-commodity revenue $26,328 $32,014 $35,518 $37,972 $40,519 $43,327 Max. revenue variance,
previous ten years 16% 16% 16% 16% 16% 16%
Risk of revenue loss $4,222 $5,134 $5,696 $6,089 $6,498 $6,948 CIP Budget $9,050 $5,825 $9,100 $6,400 $9,050 $10,685
CIP Contingency @10% $905 $583 $910 $640 905 $1,069
Total Risk Assessment value $5,127 $5,716 $6,606 $6,729 $7,403 $8,016 SECTION 5F: LONG-TERM OUTLOOK
It is difficult to predict commodity costs in the long-term (5 to 35 years) as a variety of trends can impact them positively or negatively. For example, advancements in gas extraction technology like fracking may lead to increased supplies of gas, but also face increased scrutiny for their environmental effects. Additionally, factors such as pipeline capacity for transporting natural gas, storage levels impacted by weather and changes in demand, and injection or withdrawal activity also play a role in determining commodity costs. On the demand side, a continued shift from coal to natural gas for electricity generation, an expansion of liquified natural gas export capabilities, or an increase in manufacturing in the U.S. might drive up natural gas prices, but other factors, such as generally more mild winters or an increased drive towards electrification, might drive gas demand lower. It is also difficult to predict the magnitude of the additional cost impacts associated with the State’s cap-and-trade program over the long term. In the face of this uncertainty, CPAU is able to protect the financial position of the Gas Utility by continuing its current strategy of passing these costs directly to its customers via month-varying rate adjustment mechanisms, though the City plans to evaluate a potential winter hedging program.

The City pursues a policy of purchasing offsets to make gas usage in Palo Alto carbon neutral. The cost is not to exceed $0.10/therm.

Future CIP investment needs for the Gas Utility may be lower than in the past, although costs per foot for main replacement have increased substantially. The Gas Utility has replaced nearly all of its ABS gas mains and its most problematic steel and PVC mains as well. The PE pipe being used now is expected to have at least a fifty-year lifetime, and there is growing evidence that it may last much longer than that. This would result in lower CIP investment over the long term. CPAU is continuing to study and develop its future main replacements priorities and strategy.

Long-term state or local climate goals will also have a major impact on the Gas Utility. The Global Warming Solutions Act, Assembly Bill 32, set a goal of reducing greenhouse gas (GHG) emissions Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
43 Packet Pg. 537 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 30 | P a g e
1 1
8 8
to 1990 levels by 2020. In its December 2007 Climate Protection Plan, the City set a goal of lowering emissions to 15% below 2005 levels by 2020. As a community Palo Alto achieved these goals in 2012 even with continued use of natural gas for heating, cooking, and industrial processes. However, to achieve the recently adopted Sustainability and Climate Action Plan (S/CAP) goal of an 80% reduction in carbon emissions by 2030, or the State’s adopted goal of an 80% reduction in emissions by 2050, extensive electrification of gas-using appliances is necessary.

Extensive electrification could result in stranded investment and higher rates as the costs of the distribution system are recovered over a lower sales base. It is instructional that, in the recent discussion draft of its scoping plan update, CARB says, to meet those goals, natural gas use would have to be “mostly phased out.”23 Staff has begun to evaluate how to manage potential impacts of these trends. Staff expects gas utility costs associated with electrification including safely decommissioning gas pipes. This Financial Plan includes $4 million in FY 2028 for these costs, although detailed cost estimates are not yet available. These costs are expected to grow as staff studies them in more detail, and alternative funding sources may be required. The S/CAP Goals and Key Actions and Work Plan will include strategic planning for the gas utility for managing the transition to an electrified community, and this is also a strategic planning priority for the Utilities Department.

SECTION 5G: ALTERNATIVE GAS INCREASE PLANS
The gas utility's transfer to the City’s General Fund is a component of the City’s gas rates. City voters first authorized the transfer in 1950, and in November 2022 voters approved Measure L, affirming the continuation of this practice by amending the Municipal Code. Specifically, section

2.28.185, “Natural Gas Utility Transfer” states:

The projected cost of the transfer shall be included in the City’s retail natural gas rates as part of the cost of providing gas service.

The attached Financial Plan proposes an 18% transfer, $7,191,000 for FY 2023, which aligns with the voter-approved changes codified in PAMC 2.28.185. Measure L authorized Council to make the transfer annually, and granted Council the ability to approve a lower amount. Although Council will formally direct the FY 2024 transfer amount next year, Staff has provided preliminary projections for FYs 2024 – 2026: Alternative 1 proposes transferring 18% of gross revenue as voters approved in Measure L, and Alternative 2 proposes a transfer between 15.5% and 11.1% annually through FY 2026.

Staff prepared Alternative 2’s lower transfer percentages in response to recent increases in gas distribution rates and supply costs; this alternative is projected to create FY 2024 - 2026 transfers similar to the annual 2% to 3% growth rate in the transfer prior to Measure L. To illustrate, Alternative 2 links the FY 2024 – 2026 transfers to the Consumer Price Index (CPI). CPI Error! 23 Climate Change Scoping Plan, First Update, Discussion Draft for Public Review and Comment, California Air Resources Board, October 2013, pg. 88.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
44 Packet Pg. 538 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 31 | P a g e
1 1
8 8
Reference source not found. is projected to be 3% long term, though staff projects 5% CPI increases in FY 2024 and FY 2025. Table 15 shows a 6% per year projection as the maximum proposed increase under Alternative 2; actual increases for the years shown would be capped at 6% or CPI, whichever is less.

Error! Reference source not found. 16Error! Reference source not found. shows the amount of the transfer both in dollars and as a percentage of utility revenue for each fiscal year, as well as the projected rate of annual growth in the transfer. Error! Reference source not found. below shows the distribution rate increases (as a percentage of the total bill, excluding supply cost changes) associated with each alternative.

Table 13: Proposed / Projected Transfers as % of Gross Revenues Two FY Prior24 Proposed Projected
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Gas Utility Gross Revenue Two Fiscal Years Prior ($000) Alternative 1 66,927 71,878 78,305
Alternative 2 39,950 49,721 72,570 66,269 69,453 75,133 Percent of gas utility gross revenue to transfer
Alternative 1 18.0% 18.0% 18.0% 18.0% 18.0%
Alternative 2 18.0% 15.5% 11.1% 12.9% 13.1% 12.8%
Transfer amount ($000)
Alternative 1 8,934 13,063 12,047 12,938 14,095
Alternative 2 7,191 7,707 8,080 8,565 9,078 9,623
Change in Transfer (%)
Alternative 1 24% 46% -8% 7% 9%
Alternative 2 -1% 6% 6% 6% 6% 6%
Table 14: Summary of Rate Changes for Alternatives (Excludes Supply Rate Changes) FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Alternative 1 9% 10% 8% 5% 5%
Alternative 2 4% 8% 7% 5% 5% 5%
24 Measure L authorizes a transfer based on 18% (or a lesser percentage if approved by Council) of the revenue for two fiscal years prior, so the FY 2024 transfer is based on FY 2022 revenue.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
45 Packet Pg. 539 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 32 | P a g e
1 1
8 8
Figure 12: Gas Utility Expenses, Revenues, and Rate Changes Excluding Supply-Related Rate Changes (Alternative 1)
Actual Costs through FY 2022 and Projections through FY 2028 SECTION 6: DETAILS AND ASSUMPTIONS
SECTION 6A: GAS PURCHASE COSTS
The Gas Utility purchases much of its gas for delivery at Malin, Oregon which is almost always less expensive than delivery at PG&E Citygate, even including the costs of transmission from Malin to Citygate. The Gas Utility purchases gas on a month-ahead and day-ahead basis in the spot market. The years from FY 2009 through FY 2022 have seen gas prices in a relatively narrow but low band. Starting in late 2021, and becoming more acute starting in the summer of 2022, lower levels of natural gas in storage, along with colder than normal weather and transmission pipeline constraints on both the northern and southern borders of California has created short- term price spikes and increased volatility, as shown in Figure 13.

These market conditions exacerbated and caused unprecedented price spikes during December 2022 and January 2023 when Citygate prices reached as high as $49.52 on the monthly index and up to $57.07 on the daily index. Details of this event was described in Section 4G: Gas Supply Rates. This event has greatly increased the commodity costs in FY 2023, estimated at about $22 million or 327% above budgeted, through January 2023. The commodity costs are a pass-through to customers, and the gas utility was able to recover most of the costs. To mitigate impacts of Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
46 Packet Pg. 540 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 33 | P a g e
1 1
8 8
future short-term spikes for customers, the gas utility plans to investigate the possibility of a winter hedging program, with the goals to mitigate risks for the gas utility and bring price stability to ratepayers.

Figure 13: Gas Commodity Monthly Market Prices at Malin and PG&E Citygate Even as supply conditions improve, relieving the high prices seen in the winter of 2022/2023, natural gas prices through the forecast period are projected to remain higher than the very low levels seen in previous years due to a number of factors described in Section 4G: Gas Supply Rates.

On September 15, 2014, Council adopted a resolution ( Reso. #9451) authorizing the City’s participation in a natural gas purchase from Municipal Gas Acquisition and Supply Corporation (MuniGas) for the City’s entire retail gas load for a period of at least 10 years. The MuniGas transaction includes a mechanism for municipal utilities to utilize their tax-exempt status to achieve a discount on the market price of gas. As of November 1, 2018, gas began flowing under this program, reducing the City’s gas commodity cost by about $1 million per year and saving gas customers approximately $0.03 per therm on the commodity portion of their bills.

Gas commodity costs are forecasted to stay fairly steady over the next several years, but forecasts of commodity costs are very uncertain. Figure 14 shows the projected gas prices used to generate this forecast. Projections for transmission costs associated with transporting gas over PG&E’s Redwood transmission pipeline (from Malin, Oregon to the PG&E Citygate) are based on rates adopted in the most recent update to the Gas Accord.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
47 Packet Pg. 541 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 34 | P a g e
1 1
8 8
Figure 14: Annual Average Wholesale Gas Market Price Projections PG&E’s Local transportation rates have increased over the past few years and are projected to slowly increase annually in future years. Figure 15 shows the average annual PG&E gas transportation rates without the Cap-and-Trade exemption rates for actuals up to Q2 of FY 2023 and projected up to FY 2033.

Figure 15: PG&E Gas Local Transportation Rates, Actual and Projected For Cap and Trade compliance costs, the gas utility has been regulated under California’s greenhouse house (GHG) regulations since January 2015 with a GHG emissions cap that declines over time. The gas utility receives carbon allowances equal to the emissions allowed under the cap and is required to auction off a portion (60% in 2022, increasing by 5% annually) of the allowances through the state Cap and Trade Program. To meet its annual GHG compliance obligation, the gas utility must purchase allowances based on actual gas load. Proceeds of allowance sales must be used within 10 years of their receipt, and Palo Alto is developing programs and plans to utilize them.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
48 Packet Pg. 542 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 35 | P a g e
1 1
8 8

The auction price to either purchase or sell allowances also increases annually by 5% plus inflation. Given the rate of increased allowance purchases and the increasing market prices, these costs are anticipated to increase from $1.5 million in FY 2022 to $6.8 million in FY 2030, about an 18% increase per year on average.

The City also has a Carbon Neutral Natural Gas plan (Staff Report 744125) whereby carbon offsets are purchased in an amount equal to the emissions generated by the communities’ natural gas use. These high-quality carbon offsets support projects that reduce the amount of GHGs in the atmosphere, such as forest maintenance or capturing methane from dairy farms. Purchasing carbon offsets is a good first step towards reducing carbon in the atmosphere, but the longer- term goal is to reduce the community’s use of natural gas by maximizing efficiency and switching to high-efficiency electric appliances where possible. The costs for these offsets are projected to increase from $2.2 million in FY 2022 to $2.9 million in FY 2030.

SECTION 6B: OPERATIONS
Operations costs include the Customer Service, Demand Side Management, Operations and Maintenance (including Engineering), Resource Management, and Administration categories in Figure 16, below. Debt service, rent, and transfers are also included in Operations costs (excluding the General Fund equity transfer). Appendix D: Description of Gas Utility Cost Categories includes detailed descriptions of the activities associated with these cost categories.

Operations costs are generally projected to increase by 2 to 3% per year on average. Salary and benefits, inflation, and other assumptions match those used in the City’s long-range financial forecast.

Operations costs include funding for the cross-bore program. In the 1970s CPAU, like many other utilities, adopted horizontal drilling as an alternative to trenching when installing new gas services. This created the possibility of cross-bores, which can happen when a gas service is bored through a sewer lateral. Though cross-bores are very rare, they can create a dangerous situation when a contractor attempts to clear a blocked sewer line, because if the cross-bored gas service is damaged during the line, clearing it can result in a gas leak. CPAU has been inspecting new gas services since 2001, and in 2011 began video inspections of the sewer laterals at the location of horizontally-drilled gas services installed before 2001. This inspection program has cost roughly $1 million per year since FY 2012 and decreased in FY 2023 with the completion of Phase III of the cross-bore inspection project. While a majority of sewer laterals have been inspected, staff has come across several services which are not able to be scoped, either due to infiltration by roots or broken/collapsed pipe segments. Staff has included $0.6 million to $0.8 million per year in additional funding between FY 2024 and FY 2028 to complete the inspections within the next 5 years.

During FY 2021, administration costs, that include charges for administrative functions provided by the City’s General Fund staff, were lower than usual because of the impacts of the pandemic 25 https://www.cityofpaloalto.org/civicax/filebank/documents/54588 Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
49 Packet Pg. 543 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 36 | P a g e
1 1
8 8
increasing vacancies as well as with cost reduction measures implemented across the City departments.

Figure 16: Actual and Projected Operational Costs
SECTION 6C: CAPITAL IMPROVEMENT PROGRAM (CIP)
The Gas Utility’s CIP consists of the following programs and budgets:
•The Gas Main Replacement Program, under which the Gas Utility replaces aging gas mains and mains ranked to have the greatest risk scores within the system. •Customer Connections, which cover the cost when the Gas Utility installs new services or upgrades existing services at a customer’s request in response to development or redevelopment. The Gas Utility charges a fee to these customers to cover the cost of these projects.
•Ongoing Projects, which cover the cost of routine meter, regulator, and service replacement, minor projects to improve reliability or increase capacity, and other general improvements.
•Tools and Equipment, which cover the cost of capitalized equipment, such as directional boring, gas pipeline maintenance and emergency equipment. •One-time Projects, which represent occasional large projects that do not fall into any other category.

Table 15 shows the current status of these project categories and future projected spending.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
50 Packet Pg. 544 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 37 | P a g e
1 1
8 8
Table 15: Budgeted Gas CIP Spending ($000)
Gas Main Replacements
The Gas Main Replacement (GMR) Program is the largest budgeted category in the gas fund and is used to replace ageing natural gas infrastructure throughout the City. This program improves safety and reliability of the natural gas system by replacing pipe material and components, prior to failure, with reliable polyethylene pipe and fittings.

The GMR Program completed a major milestone in 2013 with the replacement of gas mains made from Acrylonitrile-Butadiene-Styrene (ABS) plastic with Polyethylene (PE) pipe. The City’s 2015 Distribution Integrity Management Plan (DIMP) identified ABS pipe and components as suitable for replacement due to the pipe’s brittleness and difficulty of repair. There are 0.1 miles of remaining ABS in the system, which is scattered throughout the City in very small sections.

After the replacement of ABS pipe, CPAU’s 2015 Risk Assessment identified PVC pipe material as the next pipe material to be reviewed for replacement. In general, CPAU replaces about 4 miles (1.9% of the system) of pipe on each GMR project, accounting for approximately 75% of PVC and 25% of steel. The pipelines are replaced with PE pipe.

With the ongoing discussions and direction from City Council related to electrification of homes and neighborhoods throughout the City and transitioning away from natural gas, it will be necessary at some point to scale back the rate of replacement of the existing gas system. Staff is working to develop an efficient phasing plan for electrification and the scaling back of the gas infrastructure. However, staff believes it is necessary to continue the current efforts to replace older and higher-risk materials within the gas system to maintain safety and system integrity.

This investment is recommended until a more defined plan on electrification and the transition away from natural gas is completed. That transition plan may involve aggressive electrification in areas with PVC pipe to avoid future investments in PVC pipe replacement. The priority for the gas utility fund is continued safe operation to manage the overall risk and continue the reliable and safety delivery of natural gas throughout the City. In the short term that requires investing in replacement of highest risk PVC pipe, prioritizing areas of the gas system that will be needed the longest during the transition to an electrified community, and gradually that will be integrated with a strategy to aggressively electrify neighborhoods and abandon PVC pipe rather than replace it.

Several factors are contributing to an increase in construction costs in the Bay Area, such as a greater focus on infrastructure improvement by many municipal agencies and the higher demand for utility contractors within these fields. The current budget for the GMR program has held Project Category Current Budget* FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Gas Main Replacement 12,237 4,725 8,000 5,300 7,950 4,000 Gas Tools and Equipment 59 100 100 100 100 100
Ongoing Projects 1,541 1,000 1,000 1,000 1,000 1,000
Customer Connections 1,042 1,211 1,247 1,100 1,100 1,100 Electrification Transition - - - - 4,000
TOTAL 14,880 7,036 10,347 7,500 10,150 10,200
*Includes unspent funds from previous years carried forward or reappropriated into the current fiscal year Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
51 Packet Pg. 545 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 38 | P a g e
1 1
8 8
steady over the last few years, which results in a reduction of replacement due to the steady increase in the replacement cost. CPAU recently posted the Gas Main Replacement 24A Project for competitive bidding and resulted in one contractor submitting a bid for almost two times the engineering estimate, even after it was bid a second time. Future GMR projects will require a budget increase to maintain a similar rate of PVC and steel main replacement. Currently, CPAU plans to replace as many aging mains as possible within its current budget. However, if this trend of higher construction cost continues, the Gas Utility may require larger CIP budgets and as a result, an increase in rates to maintain an adequate rate of replacement to relieve the risks of PVC and steel pipe in the system.

This Financial Plan addresses these challenges in a way that will allow CPAU to meet its main replacement needs. This plan includes approximately $12 million to $13 million starting in FY25 and includes a 3% annual construction cost inflationary increase. This will assist in keeping up with the increasing cost of replacement of PVC mains and steel mains as needed. Additionally, the GMR project schedule for gas will be staggered with water and wastewater (water and wastewater construction every even year and gas construction every odd year), which will ease scheduling difficulties for inspection coverage due to shared inspection staff across water, wastewater, gas, and large development services projects.

Construction of the GMR 24A commenced during January 2023 and is anticipated to be completed in March 2023 (FY 2023). However, work will also continue on GMR 24B in FY 2024 and into FY 2025. The GMR 24B project is awaiting a response to an application submitted for a Natural Gas Distribution Infrastructure Safety and Modernization grant opportunity. CPAU intends to apply each year for the grant funding opportunity, which would assist with the replacement of PVC and steel distribution mains in the gas system. If CPAU determines that grant funding is not likely to be awarded, CPAU will evaluate the merit of continuing to apply for the grant.

Tools and Equipment, Ongoing Projects, and Customer Connections Staff estimates ongoing projects, tools and equipment, and customer connections to cost approximately $2.2 million through the end of the forecast period. In practice, these projects can fluctuate dramatically depending on prices of material, system conditions and the pace of development and redevelopment in the city. It is worth noting that fee revenue pays for the Customer Connections program, so when costs go up fees will be adjusted as well.

Aside from customer connections and transfers from other funds, the CIP plan for FY 2023 to FY 2028 is funded by utility rates. Appendix B: Gas Utility Capital Improvement Program (CIP) Detail shows the details of the plan.

SECTION 6D: DEBT SERVICE
The Gas Utility currently makes debt service payments on one bond issuance, the 2011 Series A Utility Revenue Refunding Bonds. This bond issuance was to refinance the $18 million principal remaining on the Utility Revenue Bonds, 2002 Series A issued for the Gas and Water Utilities to finance various improvements to the distribution systems. $9.4 million of this issuance was Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
52 Packet Pg. 546 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 39 | P a g e
1 1
8 8
secured by the net revenues of the Gas Utility. Table 16 shows debt service for this bond for the financial forecast period. Debt service on this bond will continue through 2026.

Table 16: Gas Utility Debt Service
FY 2024 FY 2025 FY 2026
2011 Utility Revenue
Refunding Bonds, Series A 802 799 802
The 2011 bonds include two covenants stating that 1) the Gas Utility will maintain a debt coverage ratio of 125% of debt service, and 2) that the City will maintain “Available Reserves” 26 equal to five times the annual debt service. This Financial Plan complies with these covenants throughout the forecast period, as shown in Table 19 and Table 20.

Table 17: Debt Service Coverage Ratio ($000)
FY 2024 FY 2025 FY 2026
Revenues 66,297 68,966 72,891
Expenses (Excluding
CIP and Debt Service) (54,882) (54,519) (56,572)
Net Revenues 11,415 14,447 16,319
Debt Service 802 799 802
Coverage Ratio 1423% 1807% 2036%
Table 18: Debt Service Minimum Reserves ($000)
FY 2023 FY 2024 FY 2025 FY 2026
Gas and Water Utilities a 28,383 20,108 23,904 18,266
Debt Service b 1463 1459 1454 1457
Reserves Ratio c 35x 25x 30x 23x
a) CIP, Rate Stabilization, Operations, and Unassigned Reserves b) Gas and Water Utility’s share of the debt service on the 2011 bonds. c) Calculated using combined Gas and Water Utility reserves. The actual reserves ratio for the 2011 bonds is calculated based on the combined Electric, Gas, and Water Utility reserves and total debt service and is higher than shown here.

The Gas Utility’s reserves and net revenue are also pledged as security for the bond issuances listed in Table 19, even though the Gas Utility is not responsible for the debt service payments.

The Gas Utility’s reserves or net revenues would only be called upon if the responsible utilities are unable to make their debt service payments. Staff does not currently foresee this occurring. 26 Available Reserves as defined in the 2011 bonds include the reserves for the Water, Electric, and Gas Utilities Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
53 Packet Pg. 547 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 40 | P a g e
1 1
8 8
Table 19: Other Issuances Secured by Gas Utility’s Revenues or Reserves Secured by Gas Utility’sBond Issuance Responsible Utilities Annual Debt Service ($000) Net Revenues Reserves
1999 Utility Revenue
Bonds, Series A
Wastewater Collection
Wastewater Treatment
Storm Drain
$1,207 No Yes
2009 Water Revenue
Bonds (Build America
Bonds)
Water $1,977* No Yes
*Net of Federal interest subsidy
SECTION 6E: EQUITY TRANSFER
The equity transfer is discussed in Section 5G: Alternative Gas Increase Plans SECTION 6F: REVENUES
The Gas Fund receives most of its revenues from sales of gas, but about 8% comes from other sources including interest income, service connection and capacity fees, and sales of allowances related to California’s cap-and-trade program. The Cap and Trade compliance charge is another revenue item related to the cap-and-trade program that is collected in customers’ bills. While the State provides CPAU with a certain number of free allowances each year, the Gas Utility is required to sell a portion of those in accordance with the regulations. In order to have enough allowances to cover customers’ natural gas emissions, CPAU must buy allowances at market, and subsequently passes through the cost of those allowances to customers. The regulations do not allow the revenue derived from the sale of the free allowances to offset allowance purchases, thus the pass-through rate component. These funds are transferred to the Cap and Trade Reserve (see Section 3D: Proposed Reserve Transfers for more details).

This Financial Plan bases sales revenue projections on the load forecast in Section 5A: Load Forecast. Except where stated otherwise, these load forecasts are based on normal weather.

Weather can vary substantially, however, and this can affect revenues substantially. Also, changes in customer behavior, as well as changes to more efficient gas appliances, or switching to electric appliances, will modify these forecasts. Staff continually evaluates forecasts to see when new trends emerge.

SECTION 6G: COMMUNICATIONS PLAN
The FY 2024 gas utility communications strategy covers these primary areas: natural gas market supply costs, supply and demand, operations, infrastructure, safety, efficiency, carbon neutrality, and cost containment measures. The City of Palo Alto Utilities (CPAU) communication methods include the website, utility bill inserts, messaging on bills and envelopes, email newsletters, print and digital ads in local publications, and participation in community outreach events.

Since moving to market pricing for commodity rates several years ago, monthly gas rates can fluctuate for CPAU customers based on a variety of factors affecting the market. Staff post the Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
54 Packet Pg. 548 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 41 | P a g e
1 1
8 8
monthly rates online at www.cityofpaloalto.org/RatesOverview and provide additional updates as necessary via other communication channels. During the FY 2023 winter, utilities across the region saw extremely high gas market prices projected for January and February; much higher than last year’s winter prices, and the highest since the 2001 energy crisis. Staff have engaged in a robust and proactive outreach campaign to try to inform customers in advance about the extremely high gas rates to help avoid surprisingly high bills, emphasizing the importance of saving energy to keep utility costs low. Consistent with the Utilities Strategic Plan, CPAU is instituting cost containment as an ongoing priority that is part of our annual cycle. To keep customers apprised of its rates the status and accomplishments of capital improvement projects, the City maintains a network of project web pages. Print and digital ads, social media and email blasts drive traffic to the website.

CPAU promotes gas use efficiency incentives year-round, but most heavily during winter months to impact heating activities. Programs such as the Home Efficiency Genie and commercial energy efficiency programs help residents and businesses better understand energy usage, activities and/or upgrades they can implement to improve efficiency and keep utility costs low. The MyCPAU online account management portal provides customers with direct access and more information about utility account and consumption data.

CPAU communicates about safety for all utility services year-round including the need to call USA (811) before digging to check for underground utility lines. Staff also emphasize the importance of contacting CPAU to check for potential sewer and gas line cross-bores prior to clearing a sewer line. Every year, CPAU publishes an updated gas safety awareness brochure and mails it to all customers in Palo Alto as well as other stakeholders. CPAU will continue to promote messaging about safety, rates, and more, through a variety of marketing and media channels. Staff talk with business customers at special facilities meetings, attend neighborhood safety and emergency preparedness fairs and offer presentations to school and community groups. While print materials and webpages still feature prominently, CPAU is increasing use of other outreach channels such as email newsletters, direct mail, newspaper inserts, social media and online videos. The Gas Safety Public Awareness Plan contains saved copies of all outreach materials and activity logs.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
55 Packet Pg. 549 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 42 | P a g e
1 1
8 8

APPENDICES
Appendix A: Gas Financial Forecast Detail
Appendix B: Gas Utility Capital Improvement Program (CIP) Detail Appendix C: Gas Utility Reserves Management Practices
Appendix D: Description of Gas Utility Cost Categories
Appendix E: Gas Utility Communications Samples
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
56 Packet Pg. 550 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 43 | P a g e
1 1
8 8
APPENDIX A: GAS FINANCIAL FORECAST DETAIL

($'000)($'000)($'000) ($'000)($'000)($'000)($'000)($'000)($'000)($'000)($'000)201820192020202120222023202420252026202720281 RATE CHANGE (%) 0%4%5%2%3%3%8%7%7%5%5%2 TOTAL SYSTEM AVERAGE RATE ($/Therm) 1.203$ 1.340$ 1.289$ 1.417$ 1.802$ 2.524$ 2.175$ 2.281$ 2.479$ 2.613$ 2.756$ 3 SUPPLY COMPONENTS ($/Therm) 0.597$ 0.412$ 0.513$ 0.896$ 1.678$ 1.129$ 1.070$ 1.125$ 1.161$ 1.207$ 1.260$ 4 SALES IN THOUSAND THERMS 28,31429,11026,61025,45125,42626,50126,67026,31026,05825,80525,6585 CHANGE IN RETAIL SALES REVENUE 9101,4921,817 9531,1911,4925,6694,3304,4863,2053,44867 Utilities Retail Sales 34,05639,01734,29436,07145,81666,88158,01360,01064,59567,43070,7028 Service Connection & Capacity Fees 1,078997 902 8404751,1671,2111,2471,1001,1001,1339 Other Revenues & Transfers In 1,7402,0232,1592,5592,9153,9106,6847,7398,85110,05011,36710 Interest plus Gain or Loss on Investment 568597 578 479427612361 456 588 9551,39811 Total Sources of Funds 37,44242,63437,93339,95049,63472,57066,26969,45375,13379,53584,5991213 Purchases of Utilities:14 Supply Commodity & Cap and Trade 9,69812,4708,3769,89120,59143,79623,48921,75722,49422,92523,63615 Supply Transportation 3,2233,4872,7272,8593,5134,2616,4596,7997,1317,3647,54216 Total Purchases 12,92115,95811,10212,75024,10348,05729,94828,55629,62530,28931,1781718 Administration (CIP + Operating) 3,5743,3533,7113,2484,4034,5124,7594,9825,1215,2615,41019 Customer Service 1,5291,5631,8721,9042,0352,1102,2672,3432,3882,4242,47520 Demand Side Management 829536 550 417306316338 350 358 365 37421 Engineering (Operating) 351400 666 571659480516 533 544 552 56422 Operations and Maintenance 4,6734,9575,3346,6007,4227,2967,8158,2508,3958,5338,48623 Resource Management 357401 463 551668694748 771 785 795 81123 Supply and Distribution Operations 11,31311,21112,59613,29115,49315,40816,44217,22917,59217,93118,12124 Debt Service Payments 203179 155 135108804802 799 802 - -25 Rent 602621 645 471481494507 521 532 543 55526 Transfers to General Fund 6,6996,6016,9426,8477,2407,1917,6228,0808,5659,0789,62327 Other Transfers Out 808704 521 512277693727 764 787 810 83528 Capital Improvement Programs 7,8045,5673,3429,2834,67410,2177,03610,3477,50010,1507,81829 Total Uses of Funds 40,34940,84035,30443,28852,00282,86363,08566,29665,40168,80268,1303031 Into/ (Out of) Reserves (2,907)1,7932,629(3,339)(2,368)(10,293)3,1843,1569,73210,73316,4693233 Reappropriations + Commitments 8,67411,2513,6629,0865,5415,5415,5415,5415,5415,5415,54134 Plant Replacement 0 0 0 0 0 0 0 0 0 0 0Debt Service Reserve 795795 804 434434434434 434 0 0 035 CIP Reserve 3,8203,8203,8203,8203,820 0 0 0 0 0 036 Rate Stabilization 7,0902,5338,4192,766 0 0 0 0 0 0 037 Operations Reserve 8,6389,96613,45011,98111,3002,7242,8342,5048,77115,17522,869Cap and Trade Reserve 04,5426,7318,83411,90815,39519,29323,62328,39838 Unassigned 0 0 0 0 0 0 0 0 0 0 039 Total Reserves 29,01728,36530,15532,63027,82717,53420,71823,87433,60544,33956,80840 (1,112)(651) 1,7892,475(4,803) 3,1843,1569,73210,73312,46941 Short Term Risk Assessment Value 4,0514,1383,9404,6254,2915,1275,7166,6907,0967,8338,1184243 Operations Reserve Guidelines44 Min (60 Days Commodity + O&M) 5,7276,1735,2546,0517,78013,54910,10410,15910,53710,71511,70045 Target (90 Days Commodity + O&M) 8,5909,2607,8819,07611,67020,32415,15715,23915,80516,07317,54946 Max (120 Days Commodity + O&M) 11,45412,34610,50812,10215,56027,09820,20920,31821,07421,43123,39947 City of Palo Alto Gas Utility
Fiscal Year
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
57 Packet Pg. 551 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 44 | P a g e
1 1
8 8
APPENDIX B: GAS UTILITY CAPITAL IMPROVEMENT PROGRAM (CIP) DETAIL Project # Project Name
Reappropriated / Carried Forward from Previous Years /Accrual (A) Current Year Estimate (B) Current Year Funding (B-A) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028GAS MAIN REPLACEMENT PROGRAMGS-13001 Gas Main Replacement - Project 23 2,282,610 2,282,304 - - - - - -GS-14003 Gas Main Replacement - Project 24 1,955,001 9,955,001 8,000,000 - - - - -GS-15000 Gas Main Replacement - Project 25 - 4,725,000 8,000,000 - - -GS-XXXXX Gas Main Replacement - Project 26 - - - 5,300,000 7,950,000 -GS-XXXXX Gas Main Replacement - Project 27 - - - - - - - 4,000,000GS-18000 Gas ABS/Tenite Replacement Project - - - - - - -Subtotal, Gas Main Replacement Prog. 4,237,611 12,237,305 8,000,000 4,725,000 8,000,000 5,300,000 7,950,000 4,000,000TOOLS AND EQUIPMENTGS-13002 Gas Tools and Equipment 9,096 59,096 50,000 100,000 100,000 100,000 100,000 100,000Subtotal, Tools and Equipment 9,096 59,096 50,000 100,000 100,000 100,000 100,000 100,000ONGOING PROJECTSGS-11002 Gas Distribution System Improvements 410,796 910,796 500,000 500,000 500,000 500,000 500,000 500,000GS-80019 Gas Meters and Regulators 129,987 629,987 500,000 500,000 500,000 500,000 500,000 500,000Subtotal, Ongoing Projects 540,783 1,540,783 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000CUSTOMER CONNECTIONS (FEE FUNDED)GS-80017 Gas System, Customer Connections 124,408 1,042,486 1,166,894 1,210,900 1,247,200 1,100,000 1,100,000 1,100,000Subtotal, Customer Connections 124,408 1,042,486 1,166,894 1,210,900 1,247,200 1,100,000 1,100,000 1,100,000ELECTRIFICATION TRANSITIONGS-XXXXX Electrification Transition 4,000,000Subtotal, Electrification Transition 4,000,000GRAND TOTAL 4,911,898 14,879,670 10,216,894 7,035,900 10,347,200 7,500,000 10,150,000 10,200,000Funding SourcesConnection/Capacity Fees 1,166,894 1,210,900 1,247,200 1,100,000 1,100,000 1,100,000Other Utility Funds (Asset Mgmt, GIS Systems)Utility Rates 9,050,000 5,825,000 9,100,000 6,400,000 9,050,000 9,100,000 CIP-RELATED RESERVES DETAIL 6/30/2022ActualReappropriations & Commitments 4,150,829 Item 14
Attachment C - Gas FY2024 Financial
Plan

Item 14: Staff Report
Pg.
58 Packet Pg. 552 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 45 | P a g e
1 1
8 8
APPENDIX C: GAS UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Gas Utility Financial Plan:

Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal years covered by the Financial Plan. For example, if the Financial Plan delivered in conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY 2015 to FY 2019 would be the Financial Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers to the Utility’s Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net Assets as the difference between its assets and liabilities.
d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital assets (net of related debt) or restricted for debt service or other restricted purposes.

Section 2. Supply Fund Reserves
The Gas Utility’s Supply Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 4 (Reserve for Commitments) b) For operating and capital budgets re-appropriated from previous years, as described in Section 5 (Reserve for Re-appropriations)
Section 3. Distribution Fund Reserves
a) For existing contracts, as described in Section 4 (Reserve for Commitments) b) For operating and capital budgets re-appropriated from previous years, as described in Section 5 (Reserve for Re-appropriations)
c) For cash flow management and contingencies related to the Gas Utility’s Capital Improvement Program (CIP), as described in Section 6 (CIP Reserve) d) For rate stabilization, as described in Section 7 (Rate Stabilization Reserve) e) For operating contingencies, as described in Section 8 (Operations Reserve) f) Any funds not included in the other reserves will be considered Unassigned Reserves and shall be returned to ratepayers or assigned a specific purpose as described in Section 9 (Unassigned Reserves)
Section 4. Reserve for Commitments
At the end of each fiscal year the Gas Supply Fund and Gas Distribution Fund Reserve for Commitments will be set to an amount equal to the total remaining spending authority for all contracts in force for the Wastewater Collection Utility at that time.

Item 14: Staff Report
Pg.
59 Packet Pg. 553 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 46 | P a g e
1 1
8 8
non-capital budgets, if any, that will be re-appropriated to the following fiscal year for each fund in accordance with Palo Alto Municipal Code Section 2.28.090.

Minimum Level 12 months of budgeted CIP expense
Maximum Level 24 months of budgeted CIP expense
a) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and the Reserve for Commitments when funds are added to or removed from the Reserve for Commitments as a result of a change in contractual commitments related to CIP projects.

Any other additions to or withdrawals from the CIP reserve require Council action. b) Minimum Level:
i) Funds held in the Reserve for Commitments may be counted as part of the CIP Reserve for the purpose of determining compliance with the CIP Reserve minimum guideline level.
ii) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered by the end of the following fiscal year, and shall, at a minimum, result in the reserve reaching its minimum level by the end of the next fiscal year. For example, if the CIP Reserve is below its minimum level at the end of FY 2017, staff must present a plan by June 30, 2018 to return the reserve to its minimum level by June 30, 2019. In addition, staff may present, and the Council may adopt, an alternative plan that takes longer than one year to replenish the reserve, or that does so in a shorter period of time. c) Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds may be added to this reserve. If there are funds in this reserve in excess of the maximum level staff must propose to transfer these funds to another reserve or return them to ratepayers in the next Financial Plan. Staff may also seek Council approval to hold funds in this reserve in excess of the maximum level, if they are held for a specific future purpose related to the CIP.

Section 7. Rate Stabilization Reserve
Funds may be added to the Rate Stabilization Reserve by action of the City Council and held to manage the trajectory of future year rate increases. Withdrawal of funds from the Rate Stabilization Reserve requires Council action. If there are funds in the Rate Stabilization Reserve at the end of any fiscal year, any subsequent Gas Utility Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the Financial Planning Period.

Section 8. Operations Reserve
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
60 Packet Pg. 554 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 47 | P a g e
1 1
8 8
The Operations Reserve is used to manage normal variations in costs and as a reserve for contingencies. Any portion of the Gas Utility’s Fund Balance not included in the reserves described in Section 4-Section 7 above will be included in the Operations Reserve unless this reserve has reached its maximum level as set forth in Section 8 d) below. Staff will manage the Operations Reserve according to the following practices:
a) The following guideline levels are set forth for the Operations Reserve. These guideline levels are calculated for each fiscal year of the Financial Planning Period based on the levels of Operations and Maintenance (O&M) and commodity expense forecasted for that year in the Financial Plan.

Minimum Level 60 days of O&M and commodity expense
Target Level 90 days of O&M and commodity expense
Maximum Level 120 days of O&M and commodity expense
b) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations Reserve are lower than the minimum level set forth above, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered within six months of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its minimum level by the end of the following fiscal year. For example, if the Operations Reserve is below its minimum level at the end of FY 2014, staff must present a plan by December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In addition, staff may present, and the Council may adopt, an alternative plan that takes longer than one year to replenish the reserve.
c) Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower than the target level, any Financial Plan created for the Gas Utility shall be designed to return the Operations Reserve to its target level by the end of the forecast period. d) Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no funds may be added to this reserve. Any further increase in the Gas Utility’s Fund Balance shall be automatically included in the Unassigned Reserve described in Section 9, below.

Section 9. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the Gas Utility’s Fund Balance will be held in the Unassigned Reserve. If there are any funds in the Unassigned Reserve at the end of any fiscal year, the next Financial Plan presented to the City Council must include a plan to assign them to a specific purpose or return them to the Gas Utility ratepayers by the end of the first fiscal year of the next Financial Planning Period. For example, if there were funds in the Unassigned Reserves at the end of FY 2015, and the next Financial Planning Period is FY 2016 through FY 2020, the Financial Plan shall include a plan to return or assign any funds in the Unassigned Reserve by the end of FY 2016. Staff may present an alternative plan that retains these funds or returns them over a longer period of time.

Section 10. Intra-Utility Transfers Between Supply and Distribution Funds Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
61 Packet Pg. 555 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 48 | P a g e
1 1
8 8
The Gas Utility records costs in two separate funds: the Gas Supply Fund and the Gas Distribution Fund. At the end of each fiscal year staff is authorized to transfer an amount equal to the difference between Gas Supply Fund costs and Gas Supply Fund Revenues, from the Gas Distribution Fund Operations Reserve to the Gas Supply Fund, or vice versa. Such transfers shall be included in the ordinance closing the budget for the fiscal year.

Section 11. Cap and Trade Program Reserve
This reserve tracks revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the gas utility, under the State’s Cap and Trade Program.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
62 Packet Pg. 556 of 853

GAS UTILITY FINANCIAL PLAN
M a r c h 2 0 2 3 49 | P a g e
1 1
8 8
APPENDIX D: DESCRIPTION OF GAS UTILITY COST CATEGORIES
This appendix describes the activities associated with the various cost categories referred to in this Financial Plan.

Customer Service: This category includes the Gas Utility’s share of the call center, meter reading, collections, and billing support functions. Billing support encompasses staff time associated with bill investigations and quality control on certain aspects of the billing process. It does not include maintenance of the billing system itself, which is included in Administration. This category also includes CPAU’s key account representatives, who work with large commercial customers who have more complex requirements for their gas services.

Resource Management: This category includes gas procurement, contract management, rate setting, and tracking of legislation and regulation related to the gas industry.

Operations and Maintenance: This category includes the costs of a variety of distribution system maintenance activities, including:
•surveying the gas system (50% of the system each year) and repairing any leaks found; •investigating reports of damaged mains or services and perform emergency repairs; •building and replacing gas services for new or redeveloped buildings; and •testing and replacing meters to ensure accurate sales metering.

This category also includes a variety of functions the utility shares with other City utilities, including:
•the Field Services team (which does field research of various customer service issues); •the Cathodic Protection team (which monitors and maintains the systems that prevent corrosion in metal pipes and reservoirs); and
•the General Services team (which manages and maintains equipment, paves and restores streets after gas, water, or sewer main replacements, and provides welding services, including certified gas line welding services)
Administration: Accounting, purchasing, legal, and other administrative functions provided by the City’s General Fund staff, as well as shared communications services and Utilities Department administrative overhead and billing system maintenance costs.

Demand Side Management: Includes the cost of administering gas efficiency programs and the direct cost of rebates paid.

Engineering (Operating): The Gas Utility’s engineers focus primarily on the CIP, but a small portion of their time is spent assisting with distribution system maintenance.

Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
63 Packet Pg. 557 of 853

APPENDIX E: GAS UTILITY COMMUNICATIONS SAMPLES
Item 14
Attachment C - Gas
FY2024 Financial Plan

Item 14: Staff Report
Pg.
64 Packet Pg. 558 of 853

RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Sheet No G-1-1
Effective 71-1-2023
Supersedes Sheet No G-1-1
dated 17-1-20232

A. APPLICABILITY:

This schedule applies to the following Customers receiving Gas Service from City of Palo Alto Utilities:

1. Separately-metered single-family residential Customers;

2. Separately-metered multi-family residential Customers in multi-family residential facilities.

B. TERRITORY:

This schedule applies anywhere the City of Palo Alto provides Gas Service.

C. UNBUNDLED RATES: Per Service

Monthly Service Charge: ..................................................................................................$14.011.54

Tier 1 Rates: Per Therm
Supply Charges:

1. Commodity (Monthly Market Based) .............................................. $0.10-$4.00

2. Cap and Trade Compliance Charge ............................................ $0.00-$0.25

3. Transportation Charge ................................................................. $0.00-$0.25

4. Carbon Offset Charge .................................................................. $0.00-$0.10

Distribution Charge: ..........................................................................................$0.68075607

Tier 2 Rates: (All usage over 100% of Tier 1)
Supply Charges:

1. Commodity (Monthly Market Based) .............................................. $0.10-$4.00

2. Cap and Trade Compliance Charge ............................................. $0.00-$0.25

3. Transportation Charge ................................................................. $0.00-$0.25

4. Carbon Offset Charge .................................................................. $0.00-$0.10

Distribution Charge:............................................................................................. . ...........................................................................................................$1.740643 38 Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
65 Packet Pg. 559 of 853

RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Sheet No G-1-2
Effective 71-1-2023
Supersedes Sheet No G-1-2
dated 17-1-20232

D. SPECIAL NOTES:

1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.

The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will change in response to changing market conditions, retail sales volumes and the quantity of allowances required.

The Transportation Charge is based on the current PG&E Gas Transportation Rate to Wholesale/Resale Customers (G-WSL) G-WSL rate for Palo Alto, accounting for delivery losses to the Customer’s Meter.

The Carbon Offset Charge reflects the City’s cost to purchase offsets for greenhouse gases produced in the burning of natural gas. The Carbon Offset Charge will change in response to changing market conditions, changing sales volumes and the quantity of offsets purchased within the Council-approved per therm cap.

The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto, accounting for delivery losses to the Customer’s Meter.

The Commodity, Cap and Trade Compliance, Transportation, and Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. Current and historic per therm rates for the Commodity, Cap and Trade Compliance, Carbon Offset and Transportation se Charges are posted on the City Utilities website.1

2. Seasonal Rate Changes:

The Summer period is effective April 1 to October 31 and the Winter period is effective from November 1 to March 31. When the billing period includes use in both the Summer and the Winter periods, the usage will be prorated based on the number of days in each Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
66 Packet Pg. 560 of 853

RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Sheet No G-1-3
Effective 71-1-2023
Supersedes Sheet No G-1-3
dated 17-1-20232

1 Monthly gas and commodity and volumetric rates are available here, or by visiting https://www.cityofpaloalto.org/files/assets/public/utilities/rates-schedules-for-utilities/monthly-gas-commodity-rates.pdf Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
67 Packet Pg. 561 of 853

RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Sheet No G-1-4
Effective 71-1-2023
Supersedes Sheet No G-1-4
dated 17-1-20232

seasonal period, and the charges based on the applicable rates for each period. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.

3. Calculation of Usage Tiers
Tier 1 natural gas usage shall be calculated and billed based upon a level of 0.667 therms per day during the Summer period and 2.0 therms per day during the Winter period, rounded to the nearest whole therm, based on meter reading days of service. As an example, for a 30 day bill, the Tier 1 level would be 20 therms during the Summer period and 60 therms during the Winter period months. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.
{End}
Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
68 Packet Pg. 562 of 853

RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No G-2-1
Supersedes Sheet No G-2-1
dated 17-1-20232

A. APPLICABILITY:

This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto Utilities:

1. Commercial Customers who use less than 250,000 therms per year at one site;

2. Master-metered residential Customers in multi-family residential facilities.

B. TERRITORY:

This schedule applies anywhere the City of Palo Alto provides Gas Service.

C. UNBUNDLED RATES: Per Service
Monthly Service Charge: .............................................................................................$129.7806.90

Per Therm
Supply Charges:

1. Commodity (Monthly Market Based) ......................................... $0.10-$4.00

2. Cap and Trade Compliance Charges ........................................... $0.00-$0.25

3. Transportation Charge ................................................................. $0.00-$0.25

4. Carbon Offset Charge .................................................................. $0.00-$0.10

Distribution Charge: ......................................................................................................$0.89417365

D. SPECIAL NOTES:

The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.

Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
69 Packet Pg. 563 of 853

RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No G-2-2
Supersedes Sheet No G-2-2
dated 17-1-20232

The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto, accounting for delivery losses to the Customer’s Meter.

The Commodity, Cap and Trade Compliance, Transportation, and Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. Current and historic per therm rates for these Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the City Utilities website.1

{End}

Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
70 Packet Pg. 564 of 853

RESIDENTIAL MASTER-METERED AND COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No G-2-3
Supersedes Sheet No G-2-3
dated 17-1-20232

Item 14: Staff Report
Pg.
71 Packet Pg. 565 of 853

LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No G-3-1
Supersedes Sheet No G-3-1
dated 17-1-20232

A. APPLICABILITY:

This schedule applies to the following Customers receiving Gas Service from the City of Palo Alto Utilities:

1. Commercial Customers who use at least 250,000 therms per year at one site;

2. Customers at City-owned generation facilities.

B. TERRITORY:

This schedule applies anywhere the City of Palo Alto provides Gas Service.

C. UNBUNDLED RATES: Per Service

Monthly Service Charge: $593.79489.12

Per Therm
Supply Charges:

1. Commodity (Monthly Market Based) .................................................... $0.10-$4.00

2. Cap and Trade Compliance Charges .................................................... $0.00-$0.25

3. Transportation Charge .......................................................................... $0.00-$0.25

4. Carbon Offset Charge ........................................................................... $0.00-$0.10

Distribution Charge: ......................................................................................................$0.88527292

D. SPECIAL NOTES:

1. Calculation of Cost Components

The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or Taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

The Commodity Charge is based on the monthly natural gas Bidweek Price Index for delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.

The Cap and Trade Compliance Charge reflects the City’s cost of regulatory compliance Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
72 Packet Pg. 566 of 853

LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No G-3-2
Supersedes Sheet No G-3-2
dated 17-1-20232

with the state’s Cap and Trade Program, including the cost of acquiring compliance instruments sufficient to cover the City’s Gas Utility’s compliance obligations. The Cap and Trade Compliance Charge will change in response to changi ng market conditions, retail sales volumes and the quantity of allowances required.

The Transportation Charge is based on the current PG&E G -WSL rate for Palo Alto, accounting for delivery losses to the Customer’s Meter.

The Commodity, Cap and Trade Compliance, Transportation, and Carbon Offset and Transportation Charges will fall within the minimum/maximum ranges set forth in Section C. Current and historic per therm rates for these Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the City Utilities website.1

2. Request for Service
A qualifying Customer may request service under this schedule for more than one account or meter if the accounts are located on one site. A site consists of one or more contiguous parcels of land with no intervening public right-of- ways (e.g. streets).

3. Changing Rate Schedules
Customers may request a rate schedule change at any time to any applicable City of Palo Alto full-service rate schedule.
{End}

Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
73 Packet Pg. 567 of 853

LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No G-3-3
Supersedes Sheet No G-3-3
dated 17-1-20232

Item 14: Staff Report
Pg.
74 Packet Pg. 568 of 853

COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No. G-10-1
Supersedes Sheet No G-10-1
dated 17-1-20232

A. APPLICABILITY:

This schedule applies to the sale of natural gas to the City-owned compressed natural gas (CNG) fueling station at the Municipal Service Center in Palo Alto.

B. TERRITORY:

Applies to the City’s CNG fueling station located at the Municipal Service Center in City of Palo Alto.

C. UNBUNDLED RATES: Per Service

Monthly Service Charge: ...............................................................................................$87.7772.30

Per Therm
Supply Charges:

Commodity (Monthly Market Based) ................................................................ $0.10-$4.00 Cap and Trade Compliance Charges.................................................................. $0.00-$0.25 Transportation Charge ....................................................................................... $0.00-$0.25 Carbon Offset Charge ........................................................................................ $0.00-$0.10

Distribution Charge .........................................................................................................$0.0145120

D. SPECIAL CONDITIONS

1. Calculation of Cost Components

The Commodity charge is based on the monthly natural gas Bidweek P rice Index for delivery at PG&E Citygate, accounting for delivery losses to the Customer’s Meter.

Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
75 Packet Pg. 569 of 853

COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No. G-10-2
Supersedes Sheet No G-10-2
dated 17-1-20232

The Transportation Charge is based on the current PG&E G-WSL rate for Palo Alto, accounting for delivery losses to the Customer’s Meter.

The Commodity, Cap and Trade Compliance, Transportation, and Carbon Offset and Transportation Charges will fall within the minimum/maximum range set forth in Section C.

Current and historic per therm rates for these Commodity, Cap and Trade Compliance, Carbon Offset and Transportation Charges are posted on the City Utilities website.1

{End}

Item 14
Attachment D - Gas Rate
Schedules FY24

Item 14: Staff Report
Pg.
76 Packet Pg. 570 of 853

COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10

CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 71-1-2023
Sheet No. G-10-3
Supersedes Sheet No G-10-3
dated 17-1-20232

Item 14: Staff Report
Pg.
77 Packet Pg. 571 of 853

City Council
Staff Report
From: City Manager
Report Type: PUBLIC HEARING
Lead Department: Utilities
Meeting Date: April 17, 2023
Staff Report:2303-1235
TITLE
PUBLIC HEARING: Adoption of a Resolution Approving the Fiscal Year 2024 Electric Utility Financial Plan and Proposed Reserve Transfers, Deactivating Utility Rate Schedule E‐HRA, and Amending Utility Rate Schedules E‐1, E‐2, E‐2‐G, E‐ 4, E‐4‐G, E‐4 TOU, E‐7, E‐7‐G, E‐7 TOU, E‐NSE, and E‐EEC; CEQA Status: Not a project under Public Resources Code 15378(b)(5) and exempt under Public Resources Code 15273(a)

RECOMMENDATION
The Finance Committee and Staff recommend the City Council adopt a Resolution (Attachment A):

1. Approving the FY 2024 Electric Financial Plan (Attachment B); and

2. Approving the following transfers at the end of FY 2023:
a. Up to $12 million from the Supply Operations Reserve to the Distribution Operations Reserve; and
b. Up to $4.5 million from the Supply Operations Reserve to the Cap and Trade Program Reserve; and

3. Approving the following transfers in FY 2024:
a. Up to $10 million from the Supply Operations Reserve to the Electric Special Projects (ESP) reserve; and
b. Up to $8 million from the Supply Operations Reserve to the Hydroelectric Stabilization Reserve; and
c. Up to $3 million from the Supply Operations Reserve to the Cap and Trade Program Reserve; and

4. Approving the following rate actions for FY 2024 (Attachment C):
a. Deactivation of the hydroelectric rate adjuster from customer bills effective July 1, 2023;
b. An increase to retail electric rates E-1 (Residential Electric Service), E-2 (Small Non- Residential Electric Service), E-4 (Medium Non-Residential Electric Service), E-4 TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-Residential Electric Service), and E-7 TOU (Large Non-Residential Time of Use Electric Service) of Item 15
Item 15 Staff Report

Item 15: Staff Report
Pg.
1 Packet Pg. 572 of 853

21% effective July 1, 2023;
c. An increase to the Export Electricity Compensation (E-EEC-1) rate to reflect 2022 avoided cost, effective July 1, 2023;
d. An increase to the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect current projections of FY 2023 avoided cost, effective July 1, 2023; and e. An update to the Residential Master-Metered and Small Non-Residential Green Power Electric Service (E-2-G), the Medium Non-Residential Green Power Electric Service (E- 4-G), and the Large Non-Residential Green Power Electric Service (E-7-G) rate schedules to reflect modified distribution and commodity components, effective July 1, 2023

EXECUTIVE SUMMARY
On March 21, 2023 the Finance Committee reviewed the recommended Council actions above and unanimously recommended them for Council approval. The attached FY 2024 Electric Utility Financial Plan (Attachment B) and proposed rate changes (Attachment C) reflect the Finance Committee (and staff) recommendation. The actions above and rate changes included in Attachment C result in the deactivation of the hydroelectric rate adjuster and a 21% increase to the base electric rates, the net effect of which is a 5% decrease to the customer bill. Approval of this item would result in implementation of the finalized rates for FY 2024, beginning July 1, 2023.

BACKGROUND
Every year staff presents the Finance Committee with Financial Plans for its Electric, Gas, Water, and Wastewater Collection Utilities and recommends any rate adjustments required to maintain their financial health. These Financial Plans include a comprehensive overview of the utility’s operations, both retrospective and prospective, and are intended to be a reference for UAC and Council members as they review the budget and staff’s rate recommendations. Each Financial Plan also contains a set of Reserves Management Practices describing the reserves for each utility and the management practices for those reserves

ANALYSIS
Staff and the Finance Committee propose a set of electric utility rate changes that will decrease bills by 5%. The proposal involves deactivating the hydroelectric rate adjuster while increasing base electric rates 21%, for a net decrease in utility bills of 5%. This is in contrast to the original staff proposal recommended for approval by the UAC in March of this year, which involved a 50% reduction in the hydroelectric rate adjuster and a 14% increase in the base electric rates. The new proposal is made possible by the pending receipt of a $24 million refund from the Bureau of Reclamation of overcharges associated with the Central Valley Project, where the City gets most of its hydroelectric power, due to a successful result in litigation the City participated in against the Federal Bureau of Reclamation over overcharges associated with the Central Valley Project.

Item 15
Item 15 Staff Report

Item 15: Staff Report
Pg.
2 Packet Pg. 573 of 853

Additional detail on the staff proposal is available in the study session staff report on tonight’s Council agenda (Staff Report 2304-1247, April 17, 2023) and in the March 21, 2023 Finance Committee staff report (Staff Report 2303-1109).1

FISCAL/RESOURCE IMPACT
The resource impact of the recommendations summarized in this report is the continued financial solvency of the electric utility and, as the City is a ratepayer, an increase to General Fund expenses (due to the rate increases) and revenues (due to the General Fund transfer). The estimated FY 2024 revenue impact of the recommendations in this report would be a $12 million increase or 6% compared to FY 2023 levels in the Electric Fund (excluding expected monies to be received from the CVPIA payment). General Fund utility bill costs are expected to increase by $0.14 million as a result of these rate changes.

POLICY IMPLICATIONS
The proposed electric rate adjustments are consistent with Council-adopted Reserve Management Practices that are part of the Financial Plan and were developed using a cost-of- service study and methodology consistent with the California constitution and industry-accepted cost of service principles. As noted in the Reserves Management Practices (Appendix C of Attachment B), if reserves fall below the minimum guidelines, Council approval is required for a rate plan that requires more than one year to return reserves to within guideline levels.

COMMITTEE AND COMMISSION REVIEW
Utilities staff presented a different proposal to the UAC on March 1, 2023 which is summarized in the staff report presented to the UAC that evening.2 Staff presented to the Finance Committee on March 21, 20233 a recommendation that Council approve the FY 2024 Electric Utility Financial Plan as follows, as detailed in staff report 2303-1141:

At the March 21 Finance Committee meeting, Staff recommended the following transfers at the end of FY 2023:

1. Up to $12 million from the Supply Operations Reserve to the Distribution Operations Reserve; and

2. Up to $4.5 million from the Supply Operations Reserve to the Cap and Trade Program Reserve; and
1Council Staff Report 2303-1109
https://cityofpaloalto.primegov.com/meeting/document/1854.pdf?name=Item%204%20Staff%20Report 2 Utilities Advisory Commission Staff Report https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/agendas-minutes/utilities-advisory-commission/archived-agenda-and-minutes/agendas-and-minutes- 2023/03-mar-2023/03-01-2023-item-4.pdf
3 Finance Committee Staff Report 2303-1141
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=11228 Item 15
Item 15 Staff Report

Item 15: Staff Report
Pg.
3 Packet Pg. 574 of 853

In addition, Staff recommended the following transfers in FY 2024:

3. Up to $10 million to the Electric Special Projects (ESP) reserve from the Supply Operations Reserve; and

4. Up to $8 million to the Hydroelectric Stabilization Reserve from the Supply Operations Reserve; and

5. Up to $3 million from the Supply Operations Reserve to the Cap and Trade Program Reserve; and
Staff also recommended the following rate actions for FY 2024:

6. Deactivation of the hydroelectric rate adjuster from customer bills effective July 1, 2023; and

7. An increase to retail Electric Utility Rates E-1 (Residential Electric Service), E-2 (Small Non- Residential Electric Service), E-4 (Medium Non-Residential Electric Service), E-4 TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-Residential Electric Service), and E-7 TOU (Large Non-Residential Time of Use Electric Service) of 21% effective July 1, 2023; and

8. An increase to the Export Electricity Compensation (E-EEC-1) rate to reflect 2022 avoided cost, effective July 1, 2023; and

9. An increase to the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect current projections of FY 2023 avoided cost, effective July 1, 2023; and

10. An update to the Residential Master-Metered and Small Non-Residential Green Power Electric Service (E-2-G), the Medium Non-Residential Green Power Electric Service (E-4- G), and the Large Non-Residential Green Power Electric Service (E-7-G) rate schedules to reflect modified distribution and commodity components, effective July 1, 2023 The Finance Committee unanimously recommended approval of this proposal on March 21, 2023.

STAKEHOLDER ENGAGEMENT
These recommendations were reviewed by the UAC and Finance Committee in public meetings.

The public will be notified of the final rate changes adopted by Council through various channels, including social media, the website, utility bill inserts, and City newsletters. Published in the Palo Alto Daily on Friday, April 7th and 14th, 2023.

ENVIRONMENTAL REVIEW
The Council’s approval of the Electric Financial Plan does not meet the California Environmental Quality Act’s (CEQA) definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment, and therefore, no environmental assessment is required. The Council finds that changing electric rates to meet operating expenses, purchase supplies and materials, meet financial reserve needs and obtain funds for capital improvements necessary to maintain service is not subject to CEQA, pursuant to California Public Resources Code Sec. 21080(b)(8) and CEQA Guidelines section 15273(a). After reviewing the staff report and all attachments presented to Council, Item 15
Item 15 Staff Report

Item 15: Staff Report
Pg.
4 Packet Pg. 575 of 853

the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption.

ATTACHMENTS
Attachment A: Electric Resolution FY24
Attachment B: Electric FY 2024 Financial Plan
Attachment C: Rate Schedule Combined
APPROVED BY:

Dean Batchelor, Director Utilities
Staff: Micah Babbitt
Item 15
Item 15 Staff Report

Item 15: Staff Report
Pg.
5 Packet Pg. 576 of 853

Attachment A
6056737CUtility Electric Rate
Schedules FY24 Electric
Financial Plan
1 2
0 0
*Yet to be Passed*
Resolution No.

Resolution of the Council of the City of Palo Alto Approving the Fiscal Year 2024 Electric Utility Financial Plan and Reserve Transfers, Deactivating Utility Rate Schedule E-HRA (Electric Hydro Rate Adjuster), and Amending Utility Rate Schedules E-1 (Residential Electric Service), E-2 (Residential Master-Metered and Small Non-Residential Electric Service), E-2-G (Residential Master- Metered and Small Non-Residential Green Power Electric Service), E-4 (Medium Non-Residential Electric Service), E-4-G (Medium Non-Residential Green Power Electric Service), E-4 TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-Residential Electric Service), E-7-G (Large Non- Residential Green Power Electric Service), E-7 TOU (Large Non-Residential Time of Use Electric Service), E-NSE (Net Surplus Electricity Compensation Rate), and E-EEC (Export Electricity Compensation)

R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of its utilities with the goal of ensuring adequate revenue to fund operations. This includes making long-term projections of market conditions, the physical condition of the system, and other factors that could affect utility costs, and setting rates adequate to recover these costs. It does this with the goal of providing safe, reliable, and sustainable utility services at competitive rates.

The City adopts Financial Plans to summarize these projections.

B. The City uses reserves to protect against contingencies and to manage other aspects of its operations, and regularly assesses the adequacy of these reserves and the management practices governing their operation. The status of utility reserves and their management practices are included in Reserves Management Practices attached to and made part of the Financial Plans.

C. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and charges.

D. On April 17, 2023, the City Council heard and approved the proposed rate increase at a noticed public hearing.

The Council of the City of Palo Alto does hereby RESOLVE as follows:

SECTION 1. The Council hereby approves the FY 2024 Electric Utility Financial Plan Item 15
Attachment A -
Resolution FY 2024
Electric Rates

Item 15: Staff Report
Pg.
6 Packet Pg. 577 of 853

Attachment A
6056737CUtility Electric Rate
Schedules FY24 Electric
Financial Plan
1 2
0 0
SECTION 2. The Council hereby approves the following transfers to be made by the end of FY 2023, as described in the FY 2024 Electric Utility Financial Plan:
a. A transfer of up to $12 million from the Supply Operations Reserve to the Distribution Operations Reserve; and
b. A transfer of up to $4.5 million from the Supply Operations Reserve to the Cap and Trade Program Reserve; and
SECTION 3. The Council hereby approves the following transfers to be made by the end of FY 2024, as described in the FY 2024 Electric Utility Financial Plan:
a. A transfer of up to $10 million from the Supply Operations Reserve to the Electric Special Projects (ESP) reserve; and
b. A transfer of up to $8 million from the Supply Operations Reserve to the Hydroelectric Stabilization Reserve; and
c. A transfer of up to $3 million from the Supply Operations Reserve to the Cap and Trade Program Reserve; and
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-HRA (Electric Hydro Rate Adjuster) is hereby deactivated, effective July 1, 2023.

SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-1 (Residential Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-1, as amended, shall become effective July 1, 2023.

SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-2 (Residential Master-Metered and Small Non-Residential Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-2, as amended, shall become effective July 1, 2023.

SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-2-G (Residential Master-Metered and Small Non-Residential Green Power Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-2-G, as amended, shall become effective July 1, 2023.

SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-4 (Medium Non-Residential Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-4, as amended, shall become effective July 1, 2023.

SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-4-G (Medium Non-Residential Green Power Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-4-G, as amended, shall Item 15
Attachment A -
Resolution FY 2024
Electric Rates

Item 15: Staff Report
Pg.
7 Packet Pg. 578 of 853

Attachment A
6056737CUtility Electric Rate
Schedules FY24 Electric
Financial Plan
1 2
0 0
become effective July 1, 2023.

SECTION 10. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-4 TOU (Medium Non-Residential Time of Use Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-4 TOU, as amended, shall become effective July 1, 2023.

SECTION 11. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-7 (Large Non-Residential Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-7, as amended, shall become effective July 1, 2023.

SECTION 12. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-7-G (Large Non-Residential Green Power Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-7-G, as amended, shall become effective July 1, 2023.

SECTION 13. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-7 TOU (Large Non-Residential Time of Use Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-7 TOU, as amended, shall become effective July 1, 2023.

SECTION 14. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-NSE (Net Surplus Electricity Compensation Rate) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-NSE-1, as amended, shall become effective July 1, 2023.

SECTION 15. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-EEC-1 (Export Electricity Compensation) is hereby amended to read as attached and incorporated. Utility Rate Schedule E-EEC-1, as amended, shall become effective July 1, 2023.

SECTION 16. The Council makes the following findings:
a. The revenue derived from the adoption of this resolution shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. b. The fees and charges adopted by this resolution are charges imposed for a specific government service or product provided directly to the payor that are not provided to those not charged, and do not exceed the reasonable costs to the City of providing the service or product.
//
//
Item 15
Attachment A -
Resolution FY 2024
Electric Rates

Item 15: Staff Report
Pg.
8 Packet Pg. 579 of 853

Attachment A
6056737CUtility Electric Rate
Schedules FY24 Electric
Financial Plan
1 2
0 0
//
SECTION 17. The Council finds that approving the Financial Plan and Reserve transfers does not meet the California Environmental Quality Act’s (CEQA) definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment, and therefore, no environmental assessment is required. The Council finds that changing electric rates to meet operating expenses, purchase supplies and materials, meet financial reserve needs and obtain funds for capital improvements necessary to maintain service is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and CEQA Guidelines Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption.

INTRODUCED AND PASSED:

AYES:

NOES:

ABSENT:

ABSTENTIONS:

ATTEST:

City Clerk Mayor
APPROVED AS TO FORM: APPROVED:

Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
Item 15
Attachment A -
Resolution FY 2024
Electric Rates

Item 15: Staff Report
Pg.
9 Packet Pg. 580 of 853

1 2
0 1
FY 2024 ELECTRIC

UTILITY

FINANCIAL PLAN
FY 2024 TO FY 2028
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
10 Packet Pg. 581 of 853

2 | P a g e
FY 2024 ELECTRIC UTILITY

FINANCIAL PLAN
FY 2024 TO FY 2028

TABLE OF CONTENTS
Section 1: Definitions and Abbreviations .................................................................................4 Section 2: Executive Summary and Recommendations ............................................................5 Section 2A: Overview of Financial Position..................................................................................5 Section 2B: Summary of Proposed Actions..................................................................................9 Section 3: Detail of FY 2023 Rate and Reserves Proposals ......................................................10 Section 3A: Rate Design.............................................................................................................10 Section 3B: Current and Proposed Rates ...................................................................................11 Section 3C: Bill Impact of Proposed Rate Changes ....................................................................13 Section 3D: Proposed Reserve Transfers ...................................................................................14 Section 4: Utility Overview ....................................................................................................16 Section 4A: Electric Utility History .............................................................................................16 Section 4B: Customer Base ........................................................................................................19 Section 4C: Distribution System.................................................................................................19 Section 4D: Cost Structure and Revenue Sources ......................................................................20 Section 4E: Reserves Structure ..................................................................................................21 Section 4F: Competitiveness......................................................................................................22 Section 5: Utility Financial Projections ...................................................................................23 Section 5A: Load Forecast .........................................................................................................23 Section 5B: FY 2018 to FY 2022 Cost and Revenue Trends ........................................................25 Section 5C: FY 2022 Results .......................................................................................................27 Section 5D: FY 2023 Projections ................................................................................................28 Section 5E: FY 2024 – FY 2028 Projections ................................................................................28 Section 5F: Risk Assessment and Reserves Adequacy................................................................30 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
11 Packet Pg. 582 of 853

3 | P a g e
Section 5G: Long-Term Outlook.................................................................................................36 Section 5H: Alternative Rate Projections...................................................................................38 Section 6: Details and Assumptions .......................................................................................39 Section 6A: Electricity Purchases ...............................................................................................39 Section 6B: Operations ..............................................................................................................41 Section 6C: Capital Improvement Program (CIP).......................................................................42 Section 6D: Debt Service............................................................................................................43 Section 6E: Equity Transfer........................................................................................................44 Section 6F: Wholesale Revenues and Other Revenues ..............................................................44 Section 6G: Sales Revenues .......................................................................................................45 Section 7: Communications Plan............................................................................................46 Appendices............................................................................................................................48 Appendix A: Electric Utility Financial Forecast Detail ................................................................49 Appendix B: Electric Utility Reserves Management Practices ...................................................53 Appendix C: Description of Electric utility Operational Activities ..............................................58 Appendix D: Samples of Recent Electric Utility Outreach Communications ..............................59 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
12 Packet Pg. 583 of 853

4 | P a g e
SECTION 1: DEFINITIONS AND ABBREVIATIONS
CAISOCalifornia Independent System Operator
CARBCalifornia Air Resources Board
CIPCapital Improvement Program
CPAUCity of Palo Alto Utilities Department
CPUCCalifornia Public Utilities Commission
CVPCentral Valley Project
GWha gigawatt-hour, equal to 1,000 MWh or 1,000,000 kWh. Commonly used for discussing total monthly or annual electric load for the entire city, or the monthly or annual output of an electric generator.
kWha kilowatt-hour, the standard unit of measurement for electricity sales to customers. kWa kilowatt, a unit of measurement used in reference a customer’s peak demand (the highest 15 minute average consumption level in a month), which is used for billing large and mid-size commercial customers.
kVa kilovolt, one thousand volts, a unit of measurement of the voltage at which a section of the distribution system operates. The transmission system operates at 115-500 kV, and this is lowered to 60 kV in the sub-transmission section of the Electric Utility’s distribution section, then 12 kV or 4 kV in the rest of the distribution system, and finally 120, 240, or 480 volts at the electric outlet.

MWha megawatt-hour, equal to 1,000 kWh. Commonly used for measuring wholesale electricity purchases.

MWa megawatt, equal to 1,000 kW. Commonly used when discussing maximum electricity demand for all customers in aggregate.

PG&EPacific Gas and Electric
RECRenewable Energy Certificate
RPSRenewable Portfolio Standard
Sub-transmission System: The section of the Electric Utility’s distribution system that operates at 60 kV and which interfaces with PG&E’s transmission system.

Transmission System: Sections of the electric grid that operate at high voltages, generally 115 kV or more. The voltage at the intersection of the Electric Utility’s distribution system and PG&E’s transmission system is 115 kV. The Electric Utility does not own or operate any transmission lines.

UCCUtility Control Center
SCADASupervisory Control and Data Acquisition system, the system of sensors, communications, and monitoring stations that enables system operators to monitor and operate the system remotely.

WAPA, or Western: Western Area Power Administration, the agency that markets power from CVP hydroelectric generators and other hydropower owned by the Bureau of Reclamation.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
13 Packet Pg. 584 of 853

5 | P a g e
SECTION 2: EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City of Palo Alto (City) Electric Utility for the next five-year forecast, FY 2024 - 2028. This Financial Plan describes how revenues will cover the costs of operating the utility safely over that time while adequately investing for the future. It also addresses the financial risks facing the utility over the short term and long term and includes measures to mitigate and manage those risks.

SECTION 2A: OVERVIEW OF FINANCIAL POSITION
From July 2019 through April 2022 the City did not increase rates, to mitigate the economic impact of the COVID-19 pandemic on residents and businesses. In that time supply and distribution expenses increased $50 million (30%). The expense increases combined with pandemic-related electricity sales revenue declines created a $43 million shortfall in FY 2022.

Some of this was related to the impacts of extreme drought and rising electricity market prices, and in response, the City activated the hydroelectric rate adjuster (E-HRA) in April 2022. In 2023 the City began increasing base rates to begin recovering costs, starting with a 5% rate increase on July 1, 2022. The intent was to use loans from the Electric Special Projects Reserve and what Operations Reserves remained to phase in rate increases gradually. But in late 2022 electricity market prices increased at unprecedented levels, leading to the need to increase the hydroelectric rate adjuster on January 1, 2023 to match the cost of replacing hydroelectric power with market power. Costs are projected to exceed revenues again in FY 2023, leading to further depletion of reserves.

This forecast assumes some decrease in power prices after this year, but prices are expected to continue to remain elevated over FY 2022 and earlier levels based on forward market price curves developed by OTC Global Holdings, an independent commodity broker. Some recovery of hydroelectric generation is forecasted in FY 2024 based on the Western Area Power Administration’s current forecast, but not to normal levels given the dry ground and low reservoir levels, which are expected to absorb a significant share of precipitation even if it is above average.

Normal levels of hydroelectric generation are not forecasted until FY 2026, assuming normal rainfall in the winter of 2022/2023 and 2023/2024. The forecast assumes it takes multiple years to recover because reservoirs can take multiple seasons to fill and return to normal operations based on historical experience. To reduce hydroelectric-related volatility in the future, staff is now making its rate projections assuming that long-term “normal” production from the City’s hydroelectric resources is about 80% of historical average levels.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
14 Packet Pg. 585 of 853

6 | P a g e
Since presenting the rate proposal and financial plan to the UAC on March 1, 2023, new information has arisen that materially improves the electric utility’s financial position. Staff expects to receive a $24 million payment in the coming weeks from successful litigation against the Bureau of Reclamation for overcharges related to power purchased from the Central Valley Project. The litigation was filed in 2014 by the Northern California Power Agency (NCPA) and its members (NCPA, City of Redding and City of Roseville v. United States; Case No. 14-817C)1. Based on the information, staff revised the rate proposal provided to the UAC and proposes a net average rate reduction of 5%. The net rate reduction results from the combination of deactivating the hydroelectric rate adjuster (HRA) and increasing the base rates by 21%. The previous plan presented to UAC reduced the HRA by 50% and increased the base rates by 14%, resulting in a negligible average rate change. However, the $24M damages repayment can be used to replenish reserves with some funds available for rate stabilization, providing adequate reserves to manage hydroelectric risk and enabling future rate increases to be phased over a slightly longer period.

Significantly for this year’s rate proposal, the replenished reserves enable the HRA to be removed entirely.

Over the forecast period other costs are increasing as well. Cost increases include:
•Significant increases in transmission costs
•Significant increases in capital investment to replace aging infrastructure •Increased operations costs
•Debt service costs for grid modernization improvements and investments in fiber infrastructure to support AMI.

Long-term costs are expected to continue to increase, so the 5% drop in customer bills forecast for July 1, 2023 is projected to be offset with a 5% increase in FY 2025 and another increase of 5% in FY 2026 as shown in table 3, even if hydroelectric and power market conditions improve.

There are some significant uncertainties in this forecast. Load is assumed to stay fairly flat in this forecast, with long-term declines in electric load offset by some load growth due to electrification and potential new data centers. If load growth exceeds expectations, it could improve this forecast and reduce the size of future rate increases. On the other hand, if costs for electrification-related grid modernization and electrification programs exceed forecasts, which is quite possible given the high uncertainties involved in current cost projections, it could offset the benefits of increased load.

The Electric Utility’s costs are projected to decline by about 2% per year from FY2023 levels, before then increasing again in FY2026, for an average of 1% increase from FY 2024 - 2028, as shown in Table 1. As noted above most of the costs are related to electric supply purchases, which continue to increase mainly due to rising transmission costs over the span of the financial plan, but also higher commodity costs in the near term due to low hydro conditions and higher 1 NCPA is a Joint Powers Authority with sixteen public electric utility members, including the City of Palo Alto.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
15 Packet Pg. 586 of 853

7 | P a g e
market prices. Overall supply costs are projected to increase at an estimated 0.5% per year on average from FY2023 levels, which are estimated to be the highest on record. Operations and maintenance costs are about 30% of total costs and are projected to increase by about 1.5% per year on average due to both inflation as well as salary and benefits increases. Capital improvement costs are projected to fall slightly in the short term as the Smart Grid technology project and rebuilding of the Foothill distribution system spending declines from its peaks in FY2022 and FY2023, then stabilize just over $20 million a year thereafter. Ongoing projects will include rebuilds of existing underground districts as well as substation improvements and voltage conversion projects.

As shown in Table 1, debt service payments for grid modernization and fiber begin in FY2025 and increase to $9.6m in FY2028. These new bonds and investments are expected to commence in FY2024 as shown in Table 1.1 below.

Table 1: Electric Utility Expenses for FY 2022 to FY 2028 Expenses ($000) FY 2022
(act)
FY 2023
(est) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Power Supply Purchases 112,525 117,900 118,019 115,638 118,069 118,851 121,028 Operations 61,948 69,337 68,329 65,303 66,547 67,638 64,877 Capital Projects 34,525 28,991 25,508 24,610 22,644 22,716 22,730 Debt Service from Grid
Modernization and Fiber
Projects
2,032 3,632 6,432 9,632
TOTAL 208,998 216,228 211,856 207,583 210,892 215,637 218,268 Table 2.1: Electric Utility Investments FY 2024 to FY 2028 Expenses ($000) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Grid Modernization
Projects 25,000 25,000 50,000 50,000 50,000
Electric Utility Fiber
Backbone 13,000 0 0 0 0
TOTAL 38,000 25,000 50,000 50,000 50,000
Table 2 below shows the proposed rate projections alongside the current rates with the hydroelectric rate adjuster. While base rates increase by 21%, the removal of the hydroelectric rate adjuster means that the total effective rate for FY2024 is 5% lower than the current total effective rate.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
16 Packet Pg. 587 of 853

8 | P a g e
Table 3: Projected Electric Rates, FY 2024 to FY 2028
Current Proposed Projected
Projection Mid-Year
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
System Average Base Rates
($/kWh) $0.171 $0.208 $0.217 $0.227 $0.237 $0.249
Proposed % Base Rate
Increase 21% 5% 5% 5% 5%
Hydroelectric Rate Adjuster
($/kWh) $0.048 Inactive Inactive Inactive Inactive Inactive Proposed % HRA Decrease -100% 0% 0% 0% 0%
Total System Average Rate
($/kWh)
(with Hydroelectric Rate
Adjuster)
$0.219 $0.208 $0.217 $0.227 $0.237 $0.249
% Change in Total System
Average Rate -5% 5% 5% 5% 5%
The rate changes above are made possible by the $24 million refund from the successful litigation against the Bureau of Reclamation for overcharges related to power purchases from the Central Valley Project. Staff is proposing to use $10 million of the funds to repay a loan from the Electric Special Projects Reserve.
•In FY 2018 Council approved ( Staff Report 81862), a $10 million transfer from the Electric Special Projects (ESP) Reserve to the Operations Reserve to mitigate higher supply costs due to the drought, the costs of new renewable energy projects coming online and increasing transmission charges. $5 million was repaid in FY 2020 •In FY 2022 Council approved ( Staff Report 13361, June 13, 2022), a $5 million transfer from the ESP Reserve to the Operations Reserve to avoid rate increases exceeding 5%.

Staff proposes using $8 million of the $24 million refund payment from the Central Valley Project litigation to fund the balance of the Hydroelectric Stabilization Reserve, bringing the balance above the minimum requirement and eliminating the need for the hydroelectric rate adjuster.

Table 4 shows the projected reserve transfers over the forecast period. 2 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city- manager-reports-cmrs/year-archive/2017/8186.pdf
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
17 Packet Pg. 588 of 853

9 | P a g e
Table 4: Reserves Starting and Ending Balances, Revenues, Expenses, Transfers To/(From) Reserves, Operations and Capital (CIP) Reserve Guideline Levels for FY 2023 to FY 2028 ($000) FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Starting Reserve Balances1 Supply Operations 27,197 14,378 14,003 19,933 27,680 33,1362 Distribution Operation 2,945 5,077 7,208 10,124 10,673 12,3043 CIP 880 880 880 880 5,880 10,8804 Electric Special Projects 24,649 17,649 24,649 24,649 26,649 28,6495 Hydro Stabilization 400 400 8,400 8,400 8,400 8,4006 Low Carbon Fuel Standard 7,236 6,214 5,142 4,574 4,121 3,6687 Cap and Trade Program 1,189 5,612 8,577 11,307 11,307 11,307 Revenues8 Supply 134,629 141,976 132,031 136,751 134,384 135,2049 Distribution 60,314 79,398 86,837 94,660 100,856 107,187 Transfers
a -From Supply Operations to Distribution (12,000)
b -From Supply Operations to Cap and Trade Program (4,423) (2,965) (2,730) c -Into Supply Operations from ESP -a+b+c = 10 Supply Operations Total (16,423) (12,965) (2,730) (2,000) (2,000) (2,000)11 Distribution Operations 12,000 - - (5,000) (5,000) (5,000)12 CIP - - - 5,000 5,000 5,00013 Electric Special Projects - 10,000 - 2,000 2,000 2,00014 Hydro Stabilization - 8,000 - - - -15 Low Carbon Fuel Standard - - - - - -16 Cap and Trade Program 4,423 2,965 2,730 - - - Capital Program Contribution17 Distribution Operations18 CIP Reserve Expenses19 Supply Funded Expenses (131,025) (129,386) (123,371) (127,004) (126,927) (131,698)20 Distribution Non-CIP Expenses (48,191) (54,759) (58,311) (63,467) (67,510) (78,601)21 Planned CIP (21,991) (22,508) (25,610) (25,644) (26,716) (25,730)22 ESP Funded (7,000) (3,000) - - - (10,000)23 Hydro Funded - - - - - -24 LCFS Funded (1,022) (1,072) (568) (453) (453) - Ending Reserve Balance1+8+10+19 Supply Operations 14,378 14,003 19,933 27,680 33,136 34,6432+9+11+17+20+21 Distribution Operation 5,077 7,208 10,124 10,673 12,304 10,1603+12+18 CIP 880 880 880 5,880 10,880 15,8804+13+22 Electric Special Projects 17,649 24,649 24,649 26,649 28,649 20,6495+14+23 Hydro Stabilization 400 8,400 8,400 8,400 8,400 8,4006+15+24 Low Carbon Fuel Standard 6,214 5,142 4,574 4,121 3,668 3,6687+16 Cap and Trade Program 5,612 8,577 11,307 11,307 11,307 11,307 Operations Reserve Guidelines (Supply)25 Minimum 21,749 21,765 20,739 21,164 21,326 21,70626 Maximum 43,499 43,530 41,478 42,328 42,652 43,412 Operations Reserve Guidelines (Distribution)27 Minimum 9,057 8,913 9,458 9,975 10,658 10,78828 Maximum 15,785 15,419 16,437 17,396 18,687 18,867 CIP Reserve Guidelines29 Minimum 4,938 5,174 5,685 4,215 4,392 5,87330 Maximum 24,688 25,869 28,425 31,223 34,288 34,288 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
18 Packet Pg. 589 of 853

10 | P a g e
SECTION 2B: SUMMARY OF PROPOSED ACTIONS
Staff recommends the City Council adopt a Resolution:

1. Approving the Fiscal Year (FY) 2024 Electric Financial Plan;

4. Approving the following rate actions for FY 2024:
a. Deactivation of the hydroelectric rate adjuster from customer bills effective July 1, 2023;
b. An increase to retail electric rates E-1 (Residential Electric Service), E-2 (Small Non- Residential Electric Service), E-4 (Medium Non-Residential Electric Service), E-4 TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non- Residential Electric Service), and E-7 TOU (Large Non-Residential Time of Use Electric Service) of 21% effective July 1, 2023;
c. An increase to the Export Electricity Compensation (E-EEC-1) rate to reflect 2022 avoided cost, effective July 1, 2023;
d. An increase to the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect current projections of FY 2023 avoided cost, effective July 1, 2023; and e. An update to the Residential Master-Metered and Small Non-Residential Green Power Electric Service (E-2-G), the Medium Non-Residential Green Power Electric Service (E-4-G), and the Large Non-Residential Green Power Electric Service (E-7- G) rate schedules to reflect modified distribution and commodity components, effective July 1, 2023.

SECTION 3: DETAIL OF FY 2024 RATE AND RESERVES PROPOSALS SECTION 3A: RATE DESIGN
The Electric Utility’s rates are evaluated and implemented in compliance with cost of service requirements set forth in the California Constitution and applicable statutory law. This Financial Plan is based on staff’s assessment of the financial position of the Electric Utility and updated using the methodology from the “City of Palo Alto Electric Cost of Service and Rate Study” 3 3 Staff Report 6857 http://www.cityofpaloalto.org/civicax/filebank/documents/52274 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
19 Packet Pg. 590 of 853

11 | P a g e
drafted by EES Consulting, Inc. in 2015/16. The COSA is also based on design guidelines adopted by Council on September 15, 2015 (Staff Report 6061).

SECTION 3B: CURRENT AND PROPOSED RATES
The City adopted the current rates effective July 1, 2022, when CPAU increased electric rates by 5%. Staff held back further rate increases during the COVID-19 pandemic and instead drew down reserves. While using reserves mitigated larger increases during the pandemic, costs have continued to rise and higher rates are needed to recover costs. In order to move towards full cost recovery, staff recommends a rate increase to all customer classes of 21%. Staff is also engaging the services of consultants to review and revise the Electric Utility’s Cost of Service study and rates. This study will examine how costs are allocated among the residential and commercial classes and realign them if needed, and will develop cost-based rates for several emerging groups, such as: all-electric customers, DC-fast charging facilities, and micro-grid customers. The current rates and proposed FY 2024 rates are reflected in Table 4 below:

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
20 Packet Pg. 591 of 853

12 | P a g e
Table 5: Current and Proposed Electric Rates
Net Energy Metering Compensation Rates
The City operates two Net Energy Metering (NEM) programs. Solar customers served by the City of Palo Alto's (CPAU) original NEM program, also called NEM 1, are compensated at retail rates for electricity they export to the grid, and solar customers served by the NEM successor program, or NEM 2 (effective after the City reached its NEM 1 cap at the end of 2017), are compensated at the Export Electricity Compensation (EEC-1) rate for exported electricity.

Customers on the NEM 1 program who have chosen to have the value of any annual net generation they produced over the past 12 months credited back to their account do so under the Net Metering Net Surplus Electricity Compensation (E-NSE) rate. The Net Surplus Electricity Proposed
Rates
(7/1/2023) $ %
Electric Hydro Rate Adjuster
E-HRA ($/kWh) 0.04800 0.00000 -0.04800 -100%
E-1 (Residential)
Tier 1 Energy ($/kWh) 0.14445 0.17522 0.03077 21%
Tier 2 Energy ($/kWh) 0.20335 0.24666 0.04331 21%
Minimum Bill ($/day) 0.34470 0.41812 0.07342 21%
Summer Energy ($/kWh) 0.21896 0.26560 0.04664 21%
Winter Energy ($/kWh) 0.15355 0.18626 0.03271 21%
Minimum Bill ($/day) 0.87770 1.06465 0.18695 21%
Summer Energy ($/kWh) 0.13490 0.16363 0.02873 21%
Winter Energy ($/kWh) 0.10443 0.12667 0.02224 21%
Summer Demand ($/kW) 30.36000 36.82668 6.46668 21%
Winter Demand ($/kW) 19.92000 24.16296 4.24296 21%
Minimum Bill ($/day) 18.13790 22.00127 3.86337 21%
Summer Energy ($/kWh) 0.12004 0.14561 0.02557 21%
Winter Energy ($/kWh) 0.08125 0.09856 0.01731 21%
Summer Demand ($/kW) 32.22000 39.08286 6.86286 21%
Winter Demand ($/kW) 17.90000 21.71270 3.81270 21%
Minimum Bill ($/day) 51.56960 62.55392 10.98432 21%
Current Rates Change
E-2 & E-2-G (Small Non-Residential)
E-4 & E-4-G (Medium Non-Residential)
E-7 & E-7-G (Large Non-Residential)
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
21 Packet Pg. 592 of 853

13 | P a g e
Compensation rate represents the value of the City’s avoided cost or value of customer- generated electricity in Palo Alto, including compensation for the energy, avoided capacity charges, avoided transmission and ancillary service charges, avoided transmission and distribution (T&D) losses, and renewable energy credits (RECs), or environmental attributes. Staff proposes increasing the E-NSE-1 rate to $0.1535/kWh based on updated avoided cost calculations for 2022 reflecting the greatly increased electricity market prices expected to continue into the future.

Under the City’s NEM successor program, participating solar customers in Palo Alto are billed at the current retail rate for electricity drawn from the grid, and receive a credit for electricity they export to the grid at the Export Electricity Compensation (EEC-1) rate. This compensation rate also reflects the avoided cost or value of customer-generated electricity in Palo Alto, calculated on a forward-looking basis for the upcoming fiscal year. As shown in the table below, the current avoided cost for solar generation in Palo Alto is 10.45 cents/kWh, which is significantly lower than the avoided cost on the proposed NEM compensation rate (16.85 cents/kWh). This increase in the overall avoided cost is driven by greatly increased electricity market prices.

Table 5: NEM Buyback Rates – Current vs. Proposed
Rate
Current
$/kWh
Proposed
$/kWh
Export Electricity (E-EEC) $0.1045 $0.1685
Net Surplus Electricity (E-NSE) $0.1026 $0.1535
Palo Alto Green (PAG) Program
The Palo Alto Green (PAG) program provides CPAU’s commercial customers an opportunity to voluntarily pay a premium to receive renewable electricity credits to match their energy usage.

Under this program, CPAU staff purchase and retire Green-e certified renewable energy certificates (RECs) in the wholesale market on behalf of PAG customers. This enables participating commercial customers to claim credit for the REC purchases in order to satisfy their corporate sustainability goals and meet federal “green certification” requirements.

The PAG charge is a pass-through charge; the revenue collected through the PAG rate premium is intended to fully recover the costs of administering the program. The PAG program has very low overhead costs (e.g., the cost of hiring an auditor to carry out an annual Green-e verification process for the program), so the vast majority of the program cost is the purchase cost of the RECs. In the past year the wholesale cost of Green-e certified RECs in the Western US market has remained relatively flat at around $6.5/REC. As such, the PAG rate premium should remain at $7.5 per 1,000 kWh block (.75 cents/kWh), enough to cover the cost of the RECs and overhead.

The PAG rate premium is reflected on the Residential Master-Metered and Small Non-Residential Green Power Electric Service (E-2-G), the Medium Non-Residential Green Power Electric Service (E-4-G), and the Large Non-Residential Green Power Electric Service (E-7-G) rate schedules.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
22 Packet Pg. 593 of 853

14 | P a g e
SECTION 3C: BILL IMPACT OF PROPOSED RATE CHANGES
Table 6 shows the impact of the proposed July 1, 2023 rate changes on the residential and non- residential bills for various consumption levels. For more on comparisons of rates with surrounding agencies, see Section 4F: Competitiveness below.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
23 Packet Pg. 594 of 853

15 | P a g e
Table 6: Impact of Proposed Electric Rate Changes on Customer Bills Bill under Change
Rate
Schedule
Usage
(kWh/mo)
Peak
Demand
(kW-mo)
Current
Rates
($/mo)
Bill Under
Rates Proposed
7/1/23 ($/mo) $/mo %
300 N/A $58 $53 ($5) -9%
(Summer
Median)
365
N/A $72 $66 ($6) -8%
(Winter
Median)
453
N/A $94 $88 ($6) -7%
650 N/A $144 $137 ($7) -5%
E-1
(Residential)
1200 N/A $282 $272 ($10) -3%
E-2 (Small
Non-
Residential)
1,000 N/A $234 $226 ($8) -4%
160,000 274 $33,715 $31,580 ($2,135) -6%E-4 (Medium
Non-
Residential) 500,000 856 $105,352 $98,680 ($6,672) -6%
E-7 (Large
Non-
Residential
2,000,000 3,424 $383,095 $348,247 ($34,849) -9%
SECTION 3D: PROPOSED RESERVE TRANSFERS
In FY 2018, Council approved a $10 million loan from the ESP Reserve. Prior financial plans assumed full repayment by FY 2025, but with the $24 million refund payment from the successful litigatoin against the Bureau of Reclamation, staff is proposing to repay the loan early. Staff proposes using $8 million of the $24 million payment to increase the balance of the hydro stabilization reserve from the current level of $400,000 above the minimum guideline level, but still below the target level of $19 million.

Given the drought over the prior 3 years and FY 2023 hydroelectric projections currently remaining fairly low, there is an estimated supply cost increase of $8-$10 million in FY 2023 compared to FY 2022. Because of this, Council approved an increase to the hydroelectric rate adjuster effective January 1, 2023 to bring in additional revenue to cover increased supply costs.

Staff proposes to eliminate the HRA mechanism in FY 2024 given the $8 million that can be transferred into the hydro stabilization reserve.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
24 Packet Pg. 595 of 853

16 | P a g e
The remaining $6 million would be added to the Supply and Distribution Operations Reserve and used to phase in the rate increases needed to stabilize those reserves slightly more gradually over the forecast period.

There are repayments of $2 million per year from FY 2026 through FY 2030 to the ESP Reserve for loans to the electric, gas, and fiber utilities for AMI investments.

The City maintains a Cap and Trade Program Reserve within the Electric fund to hold revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the City’s electric utility. Cap and Trade Program revenues are provided to the electric utility to support a wide variety of carbon reducing activities, including local decarbonization. Until the establishment of the REC Exchange program, adopted by Council in August 2020 ( Staff Report #11556),4 all of this revenue was spent on purchasing renewable energy. In accordance with Council’s August 2020 direction, the City has began exchanging certain types of renewable energy to take advantage of market conditions to reduce supply costs, fund electric utility programs and capital investment, and raise funds for local decarbonization. For FY 2021 and FY 2022 Council directed that 1/3 of the revenue be used for local decarbonization and 2/3 for rate reduction. On December 12, 20225 Council approved continuation of the program with 100% of revenue going to local decarbonization. In accordance with Council policy, staff will fund the Cap and Trade Program Reserve with unspent revenues from the sale of carbon allowances freely allocated to the electric utility in an amount equal to 100% of the FY 2022 Renewable Energy Credit (REC) Exchange program revenues, currently estimated to be between $2.7 million and $4.5 million going forward, for future local decarbonization projects.

Figure 8 (for Supply Fund Reserves) and Figure 9 (for Distribution Fund Reserves) in Section 5E:

FY 2022 – FY 2026 Projections show the impact of these transfers on reserves levels. Table 7 shows the projected balance of each of the Electric Utility reserves for the period covered by this Financial Plan. See also: Appendix A: Electric Utility Financial Forecast Detail 4 https://www.cityofpaloalto.org/civicax/filebank/documents/78046 5 https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=8713 Agenda Item 3, Utilities Advisory Commission Recommend the City Council Affirm the Continuation of the REC Exchange Program, Staff Report #14375 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
25 Packet Pg. 596 of 853

17 | P a g e
Table 7: End of Fiscal Year Electric Utility Reserve Balances for FY 2022 to FY 2028 SECTION 4: UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It is intended as general background information to help readers better understand the forecasts in Section 5: Utility Financial Projections and Section 6: Details and Assumptions.

SECTION 4A: ELECTRIC UTILITY HISTORY
On January 16, 1900, Palo Alto began operating its own electric system. One of the earliest sources of Palo Alto's electricity was a steam engine, which was later replaced by a diesel engine in 1914 due to rising fuel oil costs. As the population and the demand for electricity continued to grow, CPAU connected to PG&E’s system in the early 1920s. Power from PG&E proved more economical than the diesel engines, and by the late 1920s CPAU was using its own diesel engines only during peak demand periods. At that time CPAU owned 45 miles of distribution lines and the City used 9.7 GWh annually, less than 1% of today’s annual consumption. The diesel engines remained in operation until 1948, when they were retired.

From 1950 to 1970 electric consumption in Palo Alto grew dramatically, just as it did throughout the rest of the country. In 1970 total annual sales were 602 GWh, twenty times the sales in 1950 (30 GWh). Some of that growth was related to a development boom in Palo Alto, which doubled the number of customers. Some was related to the proliferation of electric appliances, as evidenced by the fact that residential customers were using three times more electricity in 1970 than they had been in 1950. But the most notable factor was the growth of industry in Palo Alto during that time. By 1970, commercial customers were using 20 times more electricity per Ending Reserve Balance
($000) FY 2022 (Act) FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Re-appropriations 120 120 120 120 120 120 120 Commitments 6,679 6,679 6,679 6,679 6,679 6,679 6,679 Low Carbon Fuel Standard (LCFS) 7,236 6,214 5,142 4,574 4,121 3,668 3,668 Cap and Trade 1,189 5,612 8,577 11,307 11,307 11,307 11,307 Underground Loan 727 727 727 727 727 727 727 Public Benefits 3,891 4,608 5,380 6,175 6,910 7,585 8,200 Special Projects 24,649 17,649 24,649 24,649 26,649 28,649 30,649 Hydro Stabilization 400 400 8,400 8,400 8,400 8,400 8,400 Capital 880 880 880 880 5,880 10,880 15,880 Rate Stabilization - - - - - - - Distribution and Supply
Operations 30,142 19,455 21,211 30,057 38,354 45,440 44,802 Unassigned 845 - - - - - - TOTAL 76,757 62,344 81,765 93,569 109,147 123,455 130,432 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
26 Packet Pg. 597 of 853

18 | P a g e
customer than they had been in 1950. These decades also saw several other notable events, including:
•1964: CPAU entered into a favorably priced 40-year contract with the Federal Bureau of Reclamation to purchase power from the Central Valley Project (CVP), a contract which later was managed by the Western Area Power Administration (WAPA) an office of the Department of Energy created in the 1970s to market power from various hydroelectric projects operated by the Federal Government, including the CVP. •1965: The City began a long-term program to underground its overhead utility lines (Ordinance 2231).
•1968: Palo Alto joined several other small municipal utilities to form the Northern California Power Agency (NCPA), a joint action agency intended to make the group less vulnerable to actions by private utilities and to enable investment in energy supply projects.

Palo Alto’s first new power plant investment in over 50 years came in the mid-80s. Palo Alto joined other NCPA members to invest in the construction and operation of the Calaveras Hydroelectric Project on the Stanislaus River in the Sierra-Nevada Mountains. The project commenced operation in 1990. The 1980s also saw an increased focus on infrastructure maintenance. In 1987 the UCC was built to house the terminals for a new SCADA system, which enabled utility staff to monitor the distribution system in real time, improving response time to outages. CPAU also commenced a preventative maintenance and planned replacement program for its underground system in the early 1990s.

In the early 1990s the CPUC issued a ruling to deregulate the electric industry in California, and in 1996 the State legislature passed Assembly Bill 1890, which, among other things, created the California Independent System Operator (CAISO) to operate the transmission system and the Power Exchange to facilitate wholesale energy transactions. This restructuring was anticipated to bring lower costs to consumers, and while CPAU was not required to participate in the industry restructuring, in 1997 the Council approved a Direct Access Program for the Electric Utility 6 that enabled CPAU to sell electricity outside its service territory and allowed customers within CPAU’s service territory to choose other providers. The utility unbundled its electric rates, creating separate supply and distribution components, which would enable customers to receive only distribution service while purchasing the electricity itself from another provider. The energy crisis in 2000 to 2001 led to the suspension of direct access by the CPUC in September 2001 as wholesale energy prices skyrocketed. The Electric Utility was less impacted than other utilities by the 2000 to 2001 energy crisis thanks to the Calaveras project and its contract with WAPA for CVP hydropower.

In 2001 CPAU began planning for the impacts associated with the new terms of its contract with WAPA, set to take effect in 2005. The previous contract had provided 90% of Palo Alto’s power supply at favorable rates, and PG&E, as a party to the contract, had provided supplemental power 6 Implementation of Direct Access for Electric Utility Customers, CMR:460:97, December 1, 1997 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
27 Packet Pg. 598 of 853

19 | P a g e
to balance the monthly and annual variability of CVP generation. The new contract would provide only a third of Palo Alto’s requirement, and the monthly and annual variability in CVP generation would be passed directly to Palo Alto. As a result, electric supply costs would increase and CPAU needed to more actively manage its supply portfolio. CPAU began purchasing power from marketers and also investigated building a power plant in Palo Alto or partnering in the development of a gas-fired power plant elsewhere. Climate change was also becoming more of a concern to the community, and gradually CPAU shifted its focus to the procurement of renewable energy. In 2002 the Council adopted a goal of achieving 20% of its energy supply from renewables by 2015. Subsequently the City signed its first contract for renewable power, a contract for energy from a wind generator commencing deliveries in 2005. In 2011 the renewable energy goal was increased to at least 33% by 2015, and in 2013 the City adopted a plan to make its electric supply 100% carbon neutral, which it achieves through the combination of its carbon- free hydroelectric supplies, purchases of long-term renewable energy supplies, and short-term RECs to meet the balance of its needs.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
28 Packet Pg. 599 of 853

20 | P a g e
SECTION 4B: CUSTOMER BASE
The City of Palo Alto’s Electric Utility
provides electric service to the
residents, businesses, and other
electric customers in Palo Alto. There
are roughly 29,700 customers
connected to the electric system,
25,600 (86%) of which are residential
and 4,100 (14%) of which are non-
residential. Residential customers
consumed 154 gigawatt-hours (GWh)
in FY 2022, approximately 20% of the
electricity sold, while non-residential
customers consumed 80% or 659 GWh.

Residential customers use electricity
primarily for lighting, refrigeration,
electronics, and air conditioning.7 Non-residential customers use the majority of their electricity for cooling, ventilation, lighting, office equipment (offices), cooking (restaurants), and refrigeration (grocery stores).8
As shown in Figure 1, large customer loads represent the biggest proportion of sales for the Electric Utility. The proportion of sales to large vs. small customers is greater than for the City’s other utilities. For example, the largest customers (the 70 customers on the E-7 rate schedule) account for around 44% of CPAU’s sales. The next largest customer group (the 890 non- residential customers on the E-4 rate schedule) represents another 30% of sales. In total, that means that about 3% of customers account for nearly three quarters of the electric load.

SECTION 4C: DISTRIBUTION SYSTEM
The Electric Utility receives electricity at a single connection point with PG&E’s transmission system. From there the electricity is delivered to customers through nearly 472 miles of distribution lines, of which 211 miles (45%) are overhead lines and 261 miles (55%) are underground. The Electric Utility also maintains nine substations, roughly 2,000 overhead line transformers, around 1,100 underground and substation transformers, and the associated electric services (which connect the distribution lines to the customers’ homes and businesses).

These lines, substations, transformers, and services, along with their associated poles, meters, and other associated electric equipment, represent the vast majority of the infrastructure used to deliver electricity in Palo Alto.
7 Source: Residential Appliance Saturation Survey, California Energy Commission, 2010 8 Source: Statewide Commercial End Use Study, California Energy Commission report, 2006.

Figure 1: Customer Consumption By Class (FY 2022)

18%
6%
32%
44% Residential
Small Comm.

Med. Comm.

Large Comm.
2 0 %
5 %
3 0 %
4 5 % R e s id e n t ia l
S m a ll C o m m .

M e d . C o m m .

L a r g e C o m m .

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
29 Packet Pg. 600 of 853

21 | P a g e
SECTION 4D: COST STRUCTURE AND REVENUE SOURCES
As shown in Figure 2, electric
commodity purchases accounted for
roughly 54% of the Electric Utility’s
costs in FY 2022. Operational costs
represented roughly 30%, and
capital investment was responsible
for the remaining 16%. CPAU’s non-
hydro long-term commodity supply
is heavily dependent on long-term
contracts which have little variability
in price. On average, costs for these
long-term contracts are not
predicted to increase as quickly as operations and CIP costs, and will steadily become a smaller proportion of the Electric Utility’s costs. Staff projects commodity supply costs to be approximately 55% of total costs in FY 2028.

While average year purchase
costs for the electric utility
are predictable due to its
long-term contracts,
variability in hydroelectric
generation can result in
increased or decreased costs.

This is by far the largest
source of variability the
utility faces. Figure 3 shows
the difference in the annual
load resource balance under
high, projected, and low hydroelectric
generation scenarios for FY 2022.

Additional costs associated with a very
low generation scenario can range from
$8-20 million per year, depending on
market prices. For the current
hydroelectric risk assessment see Section
5F: Risk Assessment and Reserves
Adequacy.

As shown in Figure 4 the Electric Utility
receives 79% of its revenue from sales of electricity and the remainder from connection fees, interest on reserves, cost recovery transfers from other funds for shared services provided by the electric utility, accounting entries that reflect things such as CPAU’s participation in a pre-funding Figure 2: Cost Structure (FY 2022)
54%
30%
16%
Commodity
Supply
Operations
Capital
54%
30%
16%
Commodity
Supply
Operations
Capital
5 6 %
3 2 %
1 2 %
C o m m o d i t y S u p p l y
O p e r a t i o n s
C a p i t a l
Figure 3: Hydroelectric Variability as a % of Load (FY 2022) 0%
50%
100%
150%
200%
Low Hydro Average High Hydro
Surplus Hydro (sales)
Market Power/RECs
Hydro
Renewables
Load
Figure 4: Revenue Structure (FY 2022)
79%
21%
Sales of Electricity
Other Revenue
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
30 Packet Pg. 601 of 853

22 | P a g e
program associated with its contract with WAPA, revenues from sales of surplus hydroelectric energy during wet years, as well as LCFS and Cap and Trade revenues. Appendix A: Electric Utility Financial Forecast Detail shows more detail on the utility’s cost and revenue structures.

As discussed in Section 4B: Customer Base, nearly three quarters of the utility’s electricity sales are to the 960 largest customers, which provide a similar share of the utility’s revenue stream.

About 25% of the utility’s revenue comes from peak demand charges on large non-residential customers. Due to moderate weather and the prevalence of natural gas heating, however, loads (and therefore revenues) are very stable for this utility, without the large seasonal air conditioning or winter heating loads seen at some other utilities.

SECTION 4E: RESERVES STRUCTURE
CPAU maintains several reserves for its Electric Utility to manage various types of contingencies and for ease of reporting. It also maintains two funds, the Supply Fund and the Distribution Fund, to manage costs associated with electricity supply and electricity distribution, respectively. The City established this separation of supply and distribution costs as the City prepared to allow its customers a choice of electricity providers (referred to as “Direct Access”) in the late 1990s and early 2000s. Though the 2000/2001 energy crisis halted these plans, CPAU continues to maintain separate funds to facilitate separation of supply and distribution costs in the rates. This could be important if California ever decides to broadly reintroduce Direct Access, and is useful for rate design as the nature of utility service evolves in response to higher penetrations of distributed generation. Thus, individual reserves may reside within a particular fund (for instance, Electric Special Projects is under Electric Supply) or be included within both funds (there are both Supply and Distribution Reserves for Commitments).

The summary below describes the various reserves, but see Appendix B: Electric Utility Reserves Management Practices for more detailed definitions and guidelines for reserve management:
•Reserves for Commitments: Reserves equal to the utility’s outstanding contract liabilities for the current fiscal year. Most City funds, including the General Fund, have a Commitments Reserve.
•Reserves for Reappropriations: Reserves for funds dedicated to projects re-appropriated by the City Council, nearly all of which are capital projects. Most City funds, including the General Fund, have a Re-appropriations Reserve. This is currently an important reserve for all utility funds, but changes in budgeting practices will change that in future years, as described in Section 3C (Reserves Management Practices). •Electric Special Projects (ESP) Reserve: This reserve was formerly called the Calaveras Reserve, which was accumulated during deregulation of California’s electric system to fund the stranded costs associated primarily with the Calaveras hydroelectric resource and the California-Oregon Transmission Project. When that reserve was no longer needed for that purpose, the reserve was renamed and the purpose was changed to fund projects with significant impact that provide demonstrable value to electric ratepayers.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
31 Packet Pg. 602 of 853

23 | P a g e
•Hydroelectric Stabilization Reserve: This contingency reserve is used for managing additional costs due to below average hydroelectric generation, or to hold surpluses resulting from above average hydroelectric generation.
•Underground Loan Reserve: This reserve is an accounting tool used to offset receivables associated with loans made through the underground loan program. It is adjusted according to principal payments made on those loans.
•Cap and Trade Program Reserve: This reserve tracks unspent or unallocated revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the electric utility, under the State’s Cap and Trade Program. Funds in this Reserve are managed in accordance with the City’s Policy on the Use of Freely Allocated Allowances under the State’s Cap and Trade Program.
•Low Carbon Fuel Standard (LCFS) Reserve: This reserve tracks revenues earned via the sale of Low Carbon Fuel Credits allocated by the California Air Resources Board to the City, in accordance with California’s Low Carbon Fuel Standard program. •Public Benefits Reserve: CPAU’s electric rates include a separate charge called the “Public Benefits Charge” which generates revenue to be used for energy efficiency, demand-side renewable energy, research and development, and low-income energy efficiency services. Any funds not expended in the current year are added to the Public Benefits Reserve for use in future years.
•Capital Improvement Program (CIP) Reserve: The CIP reserve can be used to accumulate funds for future expenditure on CIP projects, as well as to manage cash flow for ongoing capital projects. This reserve can also act as a contingency reserve for unforeseen capital expenses. This type of reserve is used in other utility funds (Water, Gas, and Wastewater Collection) as well.
•Supply and Distribution Rate Stabilization Reserves: These reserves are intended to be empty unless one or more large rate increases are anticipated in the forecast period. In that case, funds can be accumulated to spread the impact of those future rate increases across multiple years. This type of reserve is used in other utility funds (Gas, Wastewater Collection, and Water) as well.
•Supply and Distribution Operations Reserves: These are the primary contingency reserves for the Electric Utility and are used to manage yearly variances from budget for operational costs and electric supply costs (aside from variances related to hydroelectric generation). This type of reserve is used in other utility funds (Gas, Wastewater Collection, and Water) as well.
•Unassigned Reserves (Supply/Distribution): As in the other utility funds, these reserves are for any financial resources not assigned to the other reserves and are normally empty.

SECTION 4F: COMPETITIVENESS
For the median consumption level, the annual CPAU residential electric bill for calendar year 2022 was $792, which was $683 (46%) lower than the annual bill for a PG&E customer with the same consumption ($1,475) and approximately $142 (22%) higher than the annual bill for a City of Santa Clara customer ($649). The bill calculations for PG&E customers are based on PG&E Climate Zone X, which includes most surrounding comparison communities.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
32 Packet Pg. 603 of 853

24 | P a g e
Table 8 presents sample median residential bills for Palo Alto, PG&E, and the City of Santa Clara (Silicon Valley Power) for several usage levels. Rates used to calculate the monthly bills shown below were in effect as of January 1, 2023.

Over the next several years low usage customers in PG&E territory are expected to continue to see higher percentage rate increases than high usage customers as PG&E compresses its tiers from the highly exaggerated levels that have been in place since the energy crisis. This is likely to make the bill for the median Palo Alto consumer look even more favorable compared to most PG&E customers. Even with the compressed tiers, bills for high usage Palo Alto consumers are likely to remain substantially lower than the bills for high usage PG&E customers.

Table 8: Residential Monthly Electric Bill Comparison (Effective 1/1/2023, $/mo.) Season Usage (kwh) Palo Alto PG&E Santa Clara
300 57.74 94.11 39.31
453 (Median) 94.42 143.32 60.09
650 143.94 221.07 86.85Winter
1200 282.18 438.13 161.54
300 57.74 97.76 39.31
(Median) 365 72.31 123.41 48.14
650 143.94 235.88 86.85Summer
1200 282.18 452.94 161.54
SECTION 5: UTILITY FINANCIAL PROJECTIONS
SECTION 5A: LOAD FORECAST
Figure 5 shows a 38-year history of Palo Alto electricity consumption. Average electricity consumption grew from 1986 to 1998, then returned to 1986 levels by 2002. Since then electricity consumption has declined slowly as a result of a continuing focus on energy efficiency, as well as the adoption of more stringent appliance efficiency standards and energy standards in building codes. Electrification will likely reverse some of this trend, although the pace of that impact is uncertain at this time. In recent years, some larger commercial customers have relocated operations or shifted to more light-commercial type usage. It is unknown how long this trend may continue, or what the longer-term impacts of COVID and work-from home policies might mean for commercial utilization in Palo Alto.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
33 Packet Pg. 604 of 853

25 | P a g e
Figure 5: Historical Electricity Consumption
Figure 6 shows the forecast of electricity consumption through FY 2028. The solid black straight line is the long-term average trend of usage.

The small-dash red line represents the projected retail sales used in the financial forecast. Sales are assumed to recover to a level slightly above the long-term trend line due to conservative expected load growth from data centers. These projections will be revised if continuing sales change.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
34 Packet Pg. 605 of 853

26 | P a g e
Figure 6: Forecasted Electricity Consumption
SECTION 5B: FY 2018 TO FY 2022 COST AND REVENUE TRENDS
As shown in Appendix A: Electric Utility Financial Forecast Detail, annual expenses for the Electric Utility increased markedly in FY 2018 but came back down in FYs 2019 and 2020 before increasing again in FY 2021 and FY 2022. On the capital side, the large Upgrade Downtown CIP project began in FY 2018. Electric supply costs increased as new renewable projects came online, and transmission costs rose and have continued to rise as improvements are made to the California grid.

Section 6A: Electricity Purchases discusses the factors influencing Electric Utility expenses. During the last drought in FYs 2014 and 2015 commodity costs were higher due to lower than average output from hydroelectric resources, and similar circumstances are occurring in FY 2021, FY 2022 and are projected to continue through FY 2024. Transmission costs have increased as projected in prior financial plans. Better than average hydro conditions in FY 2019 led to lower than expected generation expenses as well as better than expected surplus energy revenues, but extreme drought followed.

Commodity costs have increased, on average, by about 4.8% per year over this timeframe.

Operations costs have increased by about 2.9% annually on average. Revenues have increased Projection
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
35 Packet Pg. 606 of 853

27 | P a g e
on average by about 0.5% per year over this period and have been negatively impacted due to declining sales and COVID.

Figure 7 shows the electric utility revenues, expenses, and proposed rate changes for the previous five years, the current year, and the projections for the next five years. The percentages listed do not include the hydroelectric rate adjuster. The total rate, including the adjuster, is shown in Figure 8.

Embedded in the revenue line in Figure 7 is the assumption that the hydroelectric rate adjuster will be cut in half in FY 2024 and the proposed rates changes are just the changes to base rates.

Figure 7: Electric Utility Revenues, Expenses, and Rate Changes:

Actual Costs through FY 2022 and Projections through FY 2028 Figure 8, similar to Figure 7, shows the historical and projected revenues and expenses, but instead of showing the proposed base rate changes, it shows the change to the overall system rate, including both the base rate and the hydroelectric rate adjuster. This shows how significantly rates increased in FY 2022 and FY 2023 due to poor hydroelectric conditions and steeply increasing electricity market prices. In FY 2024, the system average rate decreases 5% from the current system average rate Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
36 Packet Pg. 607 of 853

28 | P a g e
established on January 1, 2023. These forecasts could change depending on changes in hydroelectric generation and electricity market prices.

Figure 8: Electric Utility Revenues, Expenses, and Rate Changes:

Actual Costs through FY 2022 and Projections through FY 2028 SECTION 5C: FY 2022 RESULTS
FY 2022 revenues were $4 million lower than projections, as retail sales and surplus energy sales combined were $2 million less than projected. Revenues from the HRA were also $2 million less than projected as the rate went into effect later than anticipated. Net supply purchase costs came in $12 million higher than projected, but these costs were partially offset by approximately $6 million savings from surplus energy sales as well as lower administration and demand side management (DSM) costs. Capital projects costs exceed projections by $4 million.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
37 Packet Pg. 608 of 853

29 | P a g e
Table 9 FY 2022, Actual Results vs. FY 2022 Financial Plan Forecast ($000) Net Cost/(Benefit) Type of change
Lower revenues from retail sales, surplus
energy sales, and Hydroelectric Rate Adjuster
$4,000 Revenue decrease
High Capital Projects cost $4,000 Cost increase
Higher net purchase cost $12,446 Cost increase
Lower Admin, DSM, and Surplus Energy Costs (5,962) Cost decrease Net Cost / (Benefit) of Variances $14,482
SECTION 5D: FY 2023 PROJECTIONS
Net purchase costs are currently projected to increase by about $19.6 million, due to significantly higher market prices and poor hydro conditions. Some of this increased cost is being recovered by the increase to the hydroelectric rate adjuster on January 1, 2023. About $8 million more in revenue is expected for FY 2023 than the FY 2022 as a result. Surplus energy costs and administration costs are roughly $3 million lower than projected, partially offsetting higher supply costs. However, the increased revenues and lower costs are not sufficient to offset the higher purchase costs completely, leading to a $8.5 million decrease in the Operations Reserve in FY 2023.

Table 10 FY 2022, Change in Projected Results, 2023 Forecast vs. 2022 Forecast ($000) Net Cost/(Benefit) Type of change
Sales revenues higher than forecasted ($8,000) Revenue increase Purchased electricity costs higher than forecasted $19,609 Cost increase Reduced Surplus Energy Cost and Admin ($3,064) Cost decrease Net Cost / (Benefit) of Variances to Ops Reserve $8,545 SECTION 5E: FY 2024 – FY 2028 PROJECTIONS
As shown in Figure 7 above, the Electric Utility’s costs rose significantly in FY 2023 due to extremely high power market prices combined with deep, extended drought that decreased the amount of power coming from the City’s hydroelectric resources. Some recovery of hydroelectric generation and reduction in prices is forecasted in FY 2024, but not to normal levels given the dry ground and low reservoir levels, which are expected to absorb a significant share of precipitation even if it is above average. Normal levels of hydroelectric generation are not forecasted until FY 2026, assuming normal rainfall in the winter of 2022/2023 and 2023/2024. To reduce hydroelectric-related volatility in the future, staff is now making its rate projections assuming that long-term “normal” production from the City’s hydroelectric resources is about 80% of historical average levels.

Staff projects other costs for the Electric Utility to increase through FY 2028 and as a result projects rate increases in FY 2025 through FY 2028 to keep revenues in line with expenses over the next five years. Beyond hydro conditions, electricity purchase costs are increasing substantially as transmission costs rise to make improvements to the California grid. Operations costs are expected to increase at or near the average inflation rate (2-3%/year) through the Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
38 Packet Pg. 609 of 853

30 | P a g e
forecast period. Projected capital expenses are higher due to the rebuilding of existing underground districts, substation and line voltage upgrades. The City is also evaluating the cost and scope of other system resiliency projects, such as pole replacements, which may increase costs as well as rates in the future.

Reserves trends based on these revenue projections are shown in Figure 9 (for Supply Fund Reserves) and Figure 10 (for Distribution Fund Reserves), below. The Supply and Distribution Operations Reserves are not projected to recover until FY 2026. However, the benefits of repaying the loan from the Electric Special Projects Reserve early and transferring $8 million to the Hydro Stabilization Reserve allow staff to comfortably recommend keeping the supply and distribution operation reserves below guidelines in FY 2024 and FY 2025. This forecast includes transfers from the Electric Special Projects Reserve to the Operations Reserve for Advanced Metering Infrastructure expenses, as approved by Council in 2018, but not for other potential projects that might be approved by Council for Electric Special Projects Reserve funding, such as a second transmission line.

Figure 9: Electric Utility Reserves (Supply Fund):

Actual Reserve Levels through FY 2022 and Projections through FY 2028 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
39 Packet Pg. 610 of 853

31 | P a g e
Figure 10: Electric Utility Reserves (Distribution Fund):

Actual Reserve Levels through FY 2022 and Projections through FY 2028 SECTION 5F: RISK ASSESSMENT AND RESERVES ADEQUACY
The Electric Utility currently has two primary contingency reserves, the Supply Operations Reserve and the Distribution Operations Reserve. In addition, the Electric Utility has a Hydro Stabilization Reserve, an ESP Reserve, and a Capital Reserve, which can be utilized with Council approval.

This Financial Plan does not maintain reserves above the reserve minimum for both the Supply and Distribution Operations Reserves in FY 2024 and FY 2025, but does between FY 2026 and FY 2028. Reserve levels also exceed the short-term risk assessment level for the Distribution Fund.

There are a variety of risks associated with the Supply Fund related to resource generation variability, market price volatility, transmission cost increases, regulatory changes to market rules. Because of the high range of uncertainty in energy price predictions more than three years in the future, this risk assessment is only performed for the first two fiscal years of the forecast period. It is important to note that the likelihood of all of these adverse scenarios occurring simultaneously and to the degree described in Table 12 is very low.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
40 Packet Pg. 611 of 853

32 | P a g e
Table 12: Electric Supply Fund Risk Assessment
Estimates of Adverse
Outcomes (M$)
Estimates of Adverse
Outcomes (M$)
Categories of Electric Supply Cost
Uncertainties
FY 2024 FY 2025

1. Load Net Revenue 4.9 5.0

2. Hydro Production:

Western & Calaveras 8.1 9.1

3. Renewable Production: Landfill
& Wind & Solar 1.8 1.8

4. REC Purchases 0.52 0.56

5. REC Sales -0.52 -0.56

6. Market Price 0.7 0.2

7. Resource Adequacy 1 1

8. Transmission/CAISO 3.9 4.3

9. Plant Outage 1 1

10. Western Cost 1.1 1.6

11. Legislative & Regulatory 0 0

12. Supplier Default+ 0.2 0.2
Electric Supply Fund Risks 22.73 24.22
Of the risks faced by the Electric Utility’s Supply Fund, the risk of a dry year with very low hydroelectric output is normally the largest, accounting for more than one-third ($8.1 million) of all the adverse cost uncertainty. Since the utility’s costs for its hydroelectric resources are almost entirely fixed, costs do not decline when the output of those resources are low, but the utility needs to buy power to replace the lost output. The converse happens when hydroelectric output is higher than average.

Of the remaining risks for FY 2024, $3.9 million is related to potential transmission cost increases (above staff’s current forecast). $4.9 million is related to the potential that total load (and the Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
41 Packet Pg. 612 of 853

33 | P a g e
associated retail sales revenue) may be lower than projected, $1.8 million is associated with uncertainty around renewables production, and $1.0 million is associated with possible decreases in Resource Adequacy capacity sales revenues (and/or increases in Resource Adequacy capacity purchase costs).

As shown in Figure 11, staff projects the Supply Operations Reserve to drop below the minimum guideline levels in FY 2023 but return to minimum levels and slowly increase towards the end of the forecast period. Figure 12 shows that the combined Hydro Stabilization and Supply Operations Reserves are projected to be above what is needed for the risk assessment level in FY 2023, but that FY 2024 are approximately at the Risk Assessment level.

Figure 11: Electric Supply Operations Reserve Adequacy
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
42 Packet Pg. 613 of 853

34 | P a g e
Figure 12: Adequacy of Supply Operations and Hydro Stabilization Reserves, Combined Table 13 summarizes the risk assessment calculation for the Distribution Operations Reserve through FY 2027. As shown in Figure 13, the Distribution Operations Reserve is also projected to drop near to the minimum reserve guidelines in FY 2024, but is projected to recover to near target levels over the course of the forecast period. The risk assessment includes the revenue shortfall that could accrue due to:

1. Lower than forecasted sales revenue; and

2. An increase of 10% of planned system improvement CIP expenditures for the budget year.

Table 13: Electric Distribution Fund Risk Assessment ($000) Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
43 Packet Pg. 614 of 853

35 | P a g e
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Total non-commodity revenue $76,791 $82,662 $88,987 $99,524 $109,529 Max. revenue variance, previous ten years 8% 8% 8% 8% 8% Risk of revenue loss $6,061 $6,524 $7,023 $7,855 $8,645 CIP Budget $25,508 $24,610 $22,644 $22,716 $22,730
CIP Contingency @10% $2,551 $2,461 $2,264 $2,272 $2,273 Total Risk Assessment value $8,612 $8,985 $9,288 $10,126 $10,918 Figure 13: Electric Distribution Operations Reserve Adequacy The Electric Utility also has a CIP Reserve that acts as a reserve for short term capital contingencies or as a place to set aside funds for large, one-time projects that the Utilities would otherwise need to debt-fund. In the future, staff would also like to use this reserve to manage cash flow for capital projects on an ongoing basis.

Figure 14 below reflects the maximum and minimum CIP Reserve guideline levels, starting in FY 2022. Because of the fluctuating annual dollar amounts and timing of CIP projects budgeted to Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
44 Packet Pg. 615 of 853

36 | P a g e
occur during the forecast period, as well as the potential for new ongoing projects to be included in the CIP plan in later years, four years of budgeted CIP are used to calculate the reserve maximum levels. The minimum CIP Reserve level is 20% of the maximum CIP Reserve guideline level.

Because of constrained operating conditions resulting from COVID, increasing power supply costs and a desire not to raise rates more than needed, the 2024 Financial Plan doesn’t anticipate funding the CIP Reserve from the Distribution Operations Reserve. In future years, the CIP Reserve will reflect actual fluctuations in CIP expenditures (money spent on actual projects in a given year). CIP expenditures are currently reflected in the Operations Reserve. Staff is anticipating, once the CIP Reserve has an adequate ending balance, to annually fund the CIP reserve with an amount based on average anticipated CIP spending for that year (currently estimated at $20 to $25 million in FY 2024 through FY 2026 and increasing to $30 to $35 million once grid modernization expenses ramp up in FY 2027 and FY 2028. Moving forward, the reserve will allow any cost savings or over-runs be reflected in the CIP Reserve instead of the Operations Reserve, as described above. This will allow for better transparency and accounting of CIP related funds, will address uneven annual funding associated with ongoing CIP projects, and offer a funding source for one-time or immediately needed projects. Having the reserve guidelines in place will ensure the reserve has sufficient funding for budgeted CIP as fluctuating annual amounts of capital investment occur going forward.

Figure 14 shows the projected CIP Reserve balances and guideline levels for FY 2022 through FY 2028, as well as the prior reserve and guidelines in FY 2022. Because of constrained financial conditions, the CIP reserve is projected to be below the minimum guideline for two years, until reserve funding can take place. Per the Reserves Management Practices (Appendix B), Section 10, any rate plan that does not return CIP reserves to minimum levels within one year requires Council approval. Council approved the FY 2023 Electric Utility Financial Plan, which included keeping the CIP Reserve below minimum until FY 2027, and this FY 2024 Financial Plan modifies that plan to keep CIP Reserves below minimum until FY 2026.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
45 Packet Pg. 616 of 853

37 | P a g e
Figure 14: Electric CIP Reserve Adequacy
SECTION 5G: LONG-TERM OUTLOOK
This forecast covers the period from FY 2024 through FY 2028, but various long-term developments may create new costs for the utility over the next 10 to 35 years. While it is challenging to accurately forecast the impact these events will have on the utility’s costs, it is worth noting them as future milestones and keeping them in mind for long-term planning purposes.

For the supply portfolio, the 2020s will see a number of notable events. The contract with the Western Area Power Administration (Western) for power from the Central Valley Project (CVP) will expire in 2024. Determining the future relationship with Western after 2024 will be important in the years leading up to the contract expiration, especially because this resource represents nearly 40% of the electric portfolio and is the utility’s largest source of carbon-free electricity. The utility’s three earliest and lowest cost renewable contracts will also begin expiring around that time, with the first contract expired in 2021 and the last in 2028. These three $0
$5
$10
$15
$20
$25
$30
$35
$40
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
CIP Reappropriations
(Year-End)
CIP Reserve (Year-End)
CIP Commitments (Year-
End)
Reserve Minimum
Reserve Target
Reserve Maximum
Millions
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
46 Packet Pg. 617 of 853

38 | P a g e
contracts, plus one more expiring in 2030, currently provide 17% to 18% of the energy for the utility’s supply portfolio at prices under $65 per megawatt-hour (MWh). It is difficult to know what renewable energy prices will be when those contracts expire. Although recent prices have been in that range (or even lower), and costs may decrease in the future, current renewable projects also benefit from a wide range of tax and other incentives that may or may not be available in the 2020s and beyond. However, staff procured a replacement for the contract expiring in 2021 at a lower price than any of the City’s current renewable contracts. In addition, staff is in the process of procurement for a renewable geothermal project expected to start in 2025.

The costs of the Calaveras hydroelectric project will also change in the 2020s, with debt service costs dropping by half or approximately $4 million in 2025 as some of the debt is paid off, and all debt retired by the end of 2032. Some additional debt may be issued to fund the costs of relicensing the project, but this is not anticipated to be as high as the current debt service. The project will only be 40 years old at that time, and hydroelectric projects can last for 70-100 years before major rebuilding is needed. Calaveras debt service represents roughly 70% of the annual costs of that project (and nearly 7% of the utility’s total costs), so when the debt is retired, the project could be a low-cost asset for the utility, providing carbon-free energy equal to around 13% of the Electric Utility’s supply needs in an average year.

Another factor that may affect the utility’s supply costs in the long run is carbon allowance revenue. Currently the Electric Utility receives $3 to $5 million per year in revenue from allocated carbon allowances under the State’s cap-and-trade program. It uses that revenue to pay for energy efficiency programs and to purchase renewable energy to support the utility’s Carbon Neutral Plan. Staff expects that revenue source to continue in some fashion through 2030, although the number of allowances allocated to Palo Alto have been reduced. Discussions at the state level are ongoing to determine any further restrictions CARB may wish to enact on both the number of future allowances received as well as usage of allocation sales revenues. If the Electric Utility no longer received these allowances or was limited in how it could spend revenues, it would have to fund these programs from sales revenues.

Transmission costs are also continuing to rise. If the State continues to increase mandates or incentives for renewable energy development, integrating these new projects into the transmission grid will be an ever-increasing challenge, some costs of which will be borne by Palo Alto. The planned expansion of the CAISO to a larger regional grid control area may result in additional transmission costs that could further increase CPAU’s transmission costs. In addition to the costs of new transmission lines that will need to be built, flexible resources will be required to balance rapid changes in wind or solar output throughout the day. Palo Alto will likely bear some of the costs of these new lines and resources. CPAU is also currently investigating installing a second transmission interconnection for Palo Alto, which could be funded by the Electric Special Projects Reserve.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
47 Packet Pg. 618 of 853

39 | P a g e
Over the next several years the Electric Utility will continue to execute its usual monitoring, repair, and replacement routine for the distribution system, but will also begin the rollout of various smart grid technologies. The utility is actively promoting electric vehicle ownership and gas-to-electric fuel switching in Palo Alto. In the coming years these factors are expected to create notable increases in electric consumption and have a variety of impacts on the distribution system. Other technologies such as battery storage and rooftop solar installations are also becoming even more common. The utility has already started to take some of these factors into account in its long-term planning processes but will need to continue to incorporate them into its planning methodologies.

Over the long term, electricity may replace natural gas and petroleum almost entirely as part of the City’s efforts to combat climate change. Many, if not most, vehicles would use electricity, though hydrogen is another potential fuel source under development and other technologies might be developed. Staff is undertaking initial analysis of these types of scenarios in the context of the Sustainability and Climate Action Plan (S/CAP) development process. These types of scenarios require careful planning for the associated load growth to make sure the distribution system does not end up overloaded, or conversely, to avoid over-investment, and the evaluation of changes to utility distribution system management to accommodate integration of the various technologies involved in electrification. Utility analyses in progress that take into account potential load growth include a grid modernization study, the Electric Integrated Resource Plan, and a potential upcoming S/CAP funding needs and sources study that may help assess the impact of these trends on rates. Staff will integrate results from these studies in Financial Plans as they become available.

SECTION 5H: ALTERNATIVE RATE PROJECTIONS
As an alternative to the proposed rate increases shown above in figures 7 and 8 of -5% (21% increase to base rates) in FY 2024, 5% in FY 2025-FY 2028, staff could instead set rates to increase the supply and operations reserves to minimum guidelines in FY 2024 as opposed to FY 2026.

This alternative still assumes that the HRA is removed starting in FY 2024 and that revenues must be derived from general rates. This leads to a 1% system average rate reduction (or a 27% increase to base rates) in FY 2024, followed by increases of 2%, 0%, 3%, and 9% in the following years. Supply and Distribution Operations Reserves would reach the minimum guideline levels in FY24 and target levels thereafter.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
48 Packet Pg. 619 of 853

40 | P a g e
Figure 15: Alternative Rate Proposal
SECTION 6: DETAILS AND ASSUMPTIONS
SECTION 6A: ELECTRICITY PURCHASES
As shown in Figure 16 the utility is projected to get roughly 40% of its energy from hydroelectric projects in a normal year, but only 30% is expected or projected during FY 2023 and FY 2024 due Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
49 Packet Pg. 620 of 853

41 | P a g e
to the drought. Contracts with renewable sources make up approximately 50% of the portfolio in FY 2024 before increasing to 60% by FY 2025. Staff expects contracts with renewable sources to continue at approximately 50% of the portfolio for the forecast period. The remainder comes from unspecified market sources. Under the City’s Carbon Neutral Plan, CPAU purchases RECs corresponding to the amount of market energy it purchases.

Figure 16: Electricity Supply by Source
Figure 16 shows the historical and projected costs for the electric supply portfolio, 9 as well as average and actual hydroelectric generation.10 FY 2021, FY 2022, FY 2023, and FY2024 had lower hydroelectric generation than or are projected to be lower. In addition, staff has reduced average hydro generation output expectations to more closely align with the past 10 year of historical averages. Renewable energy costs have stayed relatively flat as one renewable energy contract ended while another renewable project came online to fulfill the City’s carbon neutral and RPS goals. The current market outlook is uncertain for newer renewables projects because of headwinds from supply chain issues and tailwinds from federal subsidies. Transmission charges are projected to increase as new transmission lines are built throughout California to 9 Costs are shown net of wholesale revenues and cannot be directly compared with the electric supply purchase figures shown in Appendix A: Electric Utility Financial Forecast Detail. 10 Average hydroelectric generation based on the current E-HRA rate schedule.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
50 Packet Pg. 621 of 853

42 | P a g e
accommodate new renewable projects. In total, net electric supply costs are projected to increase from about average of $80 million from FY 2018 through FY 2022 to about $100 million between FY 2023 through FY 2028.

Figure 17: Electric Supply Portfolio Costs, Historical and Projected

SECTION 6B: OPERATIONS
CPAU’s Electric Utility operations include the following activities:
•Administration, including financial management of charges allocated to the Electric Utility for administrative services provided by the General Fund and for Utilities Department administration, as well as debt service and other transfers. Additional detail on Electric Utility debt service is provided in Section 6D (Debt Service) •Customer Service
•Engineering work for maintenance activities (as opposed to capital activities) •Operations and Maintenance of the distribution system; and •Resource Management
Appendix C: Description of Electric utility Operational Activities includes detailed descriptions of the work associated with each of these activities.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
51 Packet Pg. 622 of 853

43 | P a g e
From FY 2018 to FY 2022, overall operations costs have risen annually by about 3% on average.

Operations and maintenance costs are increasing mainly due to higher inflation, especially in salaries and benefits, as well as the use of contract line crew to help while the Utility is understaffed. These costs may be reduced depending on how much work is needed and may be phased out as longer-term employees are gained. Debt service is also forecasted to increase due to grid modernization and fiber investments.

Figure 18: Historical and Projected Electric Utility Operational Costs SECTION 6C: CAPITAL IMPROVEMENT PROGRAM (CIP)
Staff projects CIP spending for FY 2024 through FY 2028 to be consistent with last year’s forecast, though there is a slight shift in the funding by project category. There will be a reduction in funding for undergrounding conversion from overhead to underground as current projects are completed and others are delayed. There will be an increase in funding for underground rebuilding and 4/12kV conversion as improvements are made to the system in portions of the Crescent Park/Duveneck/St. Francis/Community Center/Leland Manor/Garland neighborhoods to facilitate rebuild of the Hopkins Substation. An increase in funding is also needed for replacement of distribution system and substation facilities that are at the end of their useful life.

Other significant projects are deteriorated wood pole replacements, substation physical security upgrades, smart grid implementation, and ongoing capital investment in the electric distribution Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
52 Packet Pg. 623 of 853

44 | P a g e
system to maintain/improve reliability. This forecast assumes that the utility finances smart grid projects (along with funding from the water and gas funds), the Foothill fire mitigation rebuilds, and the 115kV electric interconnection from the ESP Reserve. Bond financing may also be considered for some of these capital projects.

Excluding the one-time projects listed above, the CIP plan for FY 2024 to FY 2028 is primarily funded by utility rates, but other sources of funds include connection fees (for Customer Connections), phone and cable companies (primarily for undergrounding), and other funds (for smart grid, foothill rebuilds, electric interconnection). The details of the CIP budget will be available in the Proposed FY 2024 Utilities Capital Budget. Table 14 shows the FY 2022 projected budget and the five year CIP spending plan, although these figures are preliminary pending budget discussions starting in May. The ‘committed’ column represents funds committed to contracts for which work has not yet been completed or invoices paid.

Table 14: Electric Utility CIP Spending ($000)
Expenses outlined in table 14 include grid modernization and fiber investments, which are not shown in table 4.

SECTION 6D: DEBT SERVICE
The Electric Utility made its last payment on the 2007 Electric Utility Clean Renewable Energy Tax Credit Bonds, Series A in FY 2021. This $1.5 million bond issuance was to fund a portion of the construction costs of solar demonstration projects at the Municipal Services Center, Baylands Interpretive Center, and Cubberley Community Center.

The Electric Utility also pledges reserves and net revenue as security for the bond issuances listed in Table 15, even though the Electric Utility is not responsible for the debt service payments. The Electric Utility’s reserves or net revenues would only be called upon if the responsible utilities are Project Category Current Budget * FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 One Time Projects 6,987 6,647 7,350 1,000 1,000 -
Reliability 6,802 3,915 4,765 4,765 3,400 529
Undergrounding 190 - - 100 3,000 -
4/12 kV Conversion 3,500 1,500 1,500 - - -
Underground Rebuild 2,395 - 400 1,850 1,600 -
Ongoing 9,211 5,339 5,415 5,375 5,586 6,093
Customer Connections 5,490 2,700 2,700 2,700 2,700 2,700 Grid Modernization and Fiber** 12,984 28,000 25,000 50,000 50,000 50,000 Electrification - - - 4,300 7,800 19,700
Total 47,560 48,101 47,130 70,090 75,086 79,022
* Includes unspent funds from previous years carried forward or reappropriated into the current fiscal year **Will be funded by sequential bonds, debt service for bonds included in Appendix A Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
53 Packet Pg. 624 of 853

45 | P a g e
unable to make their debt service payments. Staff does not currently foresee this occurring. In FY 2022, the Electric Utility’s net revenues dropped to -12% of debt service. However, the other utilities listed in Table 15 below were able to make their debt service payments in FY 2022 and Electric Utility’s net revenues were not needed. Staff projects that the Electric Utility’s net revenues in each future year will exceed 125% of debt service (see Appendix B, line 70).

Table 15: Other Issuances Secured by Electric Utility’s Revenues or Reserves Secured by Electric Utility’s:Bond Issuance Responsible Utilities Annual Debt Service ($000) Net Revenues Reserves
1999 Utility Revenue Bonds, Series A Storm Drain
Wastewater Collection
Wastewater Treatment
$1,207 No Yes
2009 Water Revenue Bonds (Build
America Bonds) Water $1,977* No Yes
2011 Utility Revenue Refunding
Bonds, Series A
Gas
Water $1,457 No Yes
*Net of Federal interest subsidy
Embedded in this year’s financial plan is the assumption that grid modernization and fiber investments will begin in FY 2024. While the financing details are still being assessed and may differ a bit from these assumptions, the current financial plan assumes the city will issue sequential $50 million bonds every 18 months beginning in FY 2024 until $300 million or 6 bonds have been issued. In addition, the fiber investment costs are estimated to be $13 million and included in the first bond, for a total of $63 million in FY 2024 and $313 million cumulatively. As shown in Appendix A, the financial plan assumes debt service costs beginning in FY 2025 of $2 million and increasing to $9.6 million in FY 2028. Depending on the scope of work, schedule and bond issuance costs, the timing, number of bonds, and amount of the bonds maybe be adjusted.

Table 16 illustrates the estimated bond proceeds and debt service costs over the next ten years.

Table 16: Projected Bond Proceeds and Debt Service Costs SECTION 6E: EQUITY TRANSFER
The City calculates the equity transfer from its Electric Utility based on a methodology adopted by Council in 2009, which has remained unchanged since then. 11 Each year it is calculated according to the 2009 Council-adopted methodology and does not require additional Council action.
11 For more detail on the ordinance adopting the 2009 transfer methodology, see CMR 280:09, Budget Adoption Ordinance for Fiscal Years 2009 and 2010; and CMR 260:09, Finance Committee Report explaining proposed changes to equity transfer methodology.

Expenses ($000) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 Bond Proceeds 63,000 50,000 0 50,000 50,000 0 50,000 50,000 0 0 Debt Service Costs 0 -2,032 -3,632 -6,432 -9,632 -12,832 -16,032 -19,232 -20,032 -20,032 Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
54 Packet Pg. 625 of 853

46 | P a g e
SECTION 6F: WHOLESALE REVENUES AND OTHER REVENUES
The Electric Utility receives most of its revenues from sales of electricity, but about 20 to 25% comes from other sources. Of these other sources, about 50% to 75% represents wholesale revenues of surplus energy sales. These revenues may offset electric supply purchase costs, smooth rate increases, or fund reserves or other costs. Of the remaining revenues, the largest revenue sources are interest on reserves, connection fees for new or replacement electric services, and carbon allowance revenues associated with the State’s cap-and-trade program Revenues from connection fees have increased since FY 2009 but vary from year to year.

Connection fee revenues are collected to offset costs incurred in setting up new connections and are pass-through in nature. Staff forecasts $1.8 million in in FY 2024.

Staff projects carbon allowance and interest income revenues to stay relatively stable through the forecast period. However, both of these revenue sources are subject to some uncertainty.

This forecast assumes the program State’s cap-and-trade program will remain in place but with declining returns through 2030. It is possible this funding source may be removed entirely in the future, as the current CARB plan in the gas fund is for free allowances to stop entirely by 2030.

The forecast for interest income assumes current interest rates continue and there are no major reserve reductions aside from what is anticipated in this Financial Plan. If interest rates rise, interest income could increase, and if reserves decrease (due to drought or a withdrawal from the ESP reserve for a major project), interest income would decrease.

SECTION 6G: SALES REVENUES
The load forecast in Section 5A: Load Forecast and the projected rate changes shown in Figure 7 provide the basis for sales revenue projections. As discussed in Section 5A, sales revenues for this utility have been decreasing due to load reduction but are helped by the mild climate in Palo Alto.

Palo Alto is a built-out City, so the opportunities for increased load growth are limited to the existing footprint of commercial structures and incremental growth in population. As utilization of existing spaces changes, and energy efficiency measures continue, Palo Alto could see greater load loss. Increased loads from electric vehicles and the electrification of households may increase loads somewhat.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
55 Packet Pg. 626 of 853

47 | P a g e
SECTION 7: COMMUNICATIONS PLAN
The fiscal year (FY) 2024 electric utility communications strategy covers these primary areas:
market price increases, cost containment measures, efficiency services and utility bill savings, capital improvement, operations and maintenance for infrastructure safety and reliability, renewables, carbon neutral portfolio, and beneficial electrification. City of Palo Alto Utilities (CPAU) communication methods include use of the utilities website, utility bill inserts, messaging on utility bills, email newsletters, print and digital ads in local publications, social media, and community message boards.

In advance of the rate-setting process, staff working on rates and communications are focusing on informing customers of higher than anticipated electric rates this year due to lower revenues from rates and interest income, impacts to hydroelectric supplies as a result of drought conditions, higher purchase costs, and contract line crew costs. The goal is to help customers navigate a challenging economic situation through efficiency services, rate assistance and bill payment relief programs.

CPAU customers also benefit from local control and policy setting, and community values-driven programs and services, including the decision to go carbon neutral in 2013. Palo Alto’s renewable energy purchase agreements contribute to our utility’s long-term energy security and commitment to sustainability. Power purchase agreements have allowed CPAU to procure long- term renewable electric supplies at low costs. CPAU will highlight these environmental attributes and value in our communications.

Programs such as the Home Efficiency Genie and commercial energy efficiency audits help residents and businesses better understand energy usage, activities and/or upgrades they can implement to improve efficiency and keep utility costs low. For several years, CPAU has offered a Genie in-home assessment, including a virtual option during the pandemic, and webinars about home energy and water efficiency to help customers keep utility costs low. Now the Genie program provides a home electrification readiness assessment so customers who may want to switch out gas for electric appliances or install an electric vehicle (EV) charger, can understand what may be necessary for electric panel upgrades.

Recently CPAU also launched new programs to help businesses improve energy efficiency and investigate the potential to switch from natural gas/fossil-fuel energy supplies to electricity. The Business Energy Advisor provides a “concierge” service for businesses to evaluate areas of their facility for efficiency improvements such as in the areas of building envelope, lighting, and heating. The Business Energy Advisor acts as the flagship program for businesses to then learn about available rebates for appliance or facility upgrades and opportunities for building electrification. CPAU also offers programs to help businesses, multi-family properties, non-profits and schools install EV charging infrastructure to assist employees and tenants with goals to switch from fossil fueled transportation to clean, electric driving.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
56 Packet Pg. 627 of 853

48 | P a g e

APPENDICES
Appendix A: Electric Utility Financial Forecast Detail
Appendix B: Electric Utility Reserves Management Practices Appendix C: Description of Electric utility Operational Activities Appendix D: Samples of Recent Electric Utility Outreach Communications Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
57 Packet Pg. 628 of 853

6056714
APPENDIX A: ELECTRIC UTILITY FINANCIAL FORECAST DETAIL
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
58 Packet Pg. 629 of 853

6056714
(page intentionally left blank)
Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
59 Packet Pg. 630 of 853

6056714
1 FISCAL YEAR FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 2 3 ELECTRIC LOAD 160 159
4 Purchases (MWh) 925,329 905,071 879,913 827,106 836,828 849,043 869,163 869,404 860,135 851,407 843,088 5 Sales (MWh) 899,997 884,322 854,761 813,881 812,841 809,059 830,051 843,322 834,331 825,865 817,795 6 7 BILL AND RATE CHANGES
8 System Average Rate ($/kWh) 0.1413$ 0.1487$ 0.1624$ 0.1590$ 0.1606$ 0.2010$ 0.2078$ 0.2172$ 0.2270$ 0.2374$ 0.2491$ 9 Change in System Average Rate 13% 5% 9% -2% 1% 25% 3% 5% 5% 5% 5% 10 Change in Average Residential Bill 11% 6% 8% -1% -1% 5% 21% 4% 5% 4% 5% 11 12 STARTING RESERVES
13 Reappropriations (Non-CIP) - - - - 56,811 120,000 120,000 120,000 120,000 120,000 120,000 14 Commitments (Non-CIP) 2,970,955 3,725,000 3,910,695 3,518,525 3,512,355 6,679,000 6,679,000 6,679,000 6,679,000 6,679,000 6,679,000 15 Low Carbon Fuel Standard (LCFS) Reserve - - - 6,340,000 6,943,525 7,235,894 6,213,691 5,141,701 4,574,052 4,121,071 3,668,090 16 Cap and Trade Program 1,189,000 1,189,000 5,612,019 8,576,896 11,307,292 11,307,292 11,307,292 17 Underground Loan Reserve 730,147 730,147 726,659 726,659 726,659 726,659 726,659 726,659 726,659 726,659 726,659 18 Public Benefits Reserves 681,330 681,330 809,700 1,904,547 3,027,599 3,890,774 4,608,011 5,380,396 6,175,499 6,910,325 7,584,849 19 Electric Special Projects Reserve 51,837,855 41,837,855 41,664,855 46,664,855 46,664,855 24,649,000 17,649,000 24,649,000 24,649,000 26,649,000 28,649,000 20 Hydro Stabilization Reserve 11,400,000 11,400,000 11,400,000 15,400,000 15,400,000 400,000 400,000 8,400,000 8,400,000 8,400,000 8,400,000 21 Capital Reserves 879,964 879,964 879,964 5,879,964 879,964 879,964 879,964 879,964 879,964 5,879,964 10,879,964 22 Rate Stabilization Reserves 9,010,840 9,010,840 - - - - - - - - - 23 Operations Reserves (Supply & Dist) 29,912,981 18,600,000 45,244,167 38,538,459 29,902,850 30,142,000 19,455,158 21,211,224 30,057,451 38,353,661 45,440,073 24 Unassigned - 244,354 - 0 (0) 844,513 - - - - -
25 TOTAL STARTING RESERVES 107,424,072 87,109,490 104,636,040 118,973,010 108,303,618 76,756,805 62,343,503 81,764,839 93,568,917 109,146,972 123,454,927 26 27 REVENUES
28 Net Sales 127,172,308 131,471,245 137,026,504 129,389,001 130,557,545 162,595,679 172,499,236 183,169,260 189,432,176 196,079,973 203,727,979 29 Wholesale Revenues 18,106,327 21,060,071 20,686,925 25,959,207 25,529,188 24,751,851 25,801,694 27,834,224 28,388,544 26,324,976 26,540,307 30 Other Revenues and Transfers In 13,373,312 19,914,635 15,260,937 9,324,996 9,348,837 9,235,543 34,092,443 10,654,877 13,334,635 13,638,723 10,469,612 31 TOTAL REVENUES 158,651,947 172,445,951 172,974,366 164,673,204 165,435,570 196,583,072 232,393,373 221,658,360 231,155,355 236,043,672 240,737,898 32 33 EXPENSES
34 Electric Supply Purchases 94,629,654 89,625,027 90,645,768 98,460,911 112,524,986 117,899,840 118,019,453 115,637,790 118,068,830 118,850,995 121,028,178 35 Operating Expenses
36 Administration 110.0%
37 Allocated Charges 6,374,241 4,568,027 6,146,498 6,674,515 5,732,098 6,018,937 6,217,658 6,404,293 6,596,079 6,793,665 6,997,186 38 Rent 5,284,977 5,454,097 5,666,805 5,949,976 6,069,000 6,182,562 6,329,377 6,479,932 6,635,163 6,794,135 6,956,847 39 Debt Service 8,867,395 8,464,883 7,170,631 7,841,922 8,068,219 8,502,737 8,275,943 6,253,175 7,855,970 10,694,458 13,851,850 40 Transfers and Other Adjustments 13,632,059 13,342,321 10,133,943 9,610,379 13,811,097 14,572,449 15,482,046 15,629,938 16,040,156 16,449,711 16,838,612 41 Subtotal, Administration 34,158,672 31,829,328 29,117,878 30,076,792 33,680,414 35,276,685 36,305,024 34,767,338 37,127,368 40,731,968 44,644,494 42 Resource Management 1,873,954 2,082,405 2,870,524 2,781,010 2,824,303 2,991,189 3,100,525 3,205,176 3,263,228 3,328,493 3,407,229 43 Demand Side Management 3,889,846 3,655,547 2,733,047 3,819,646 4,086,083 6,179,462 6,693,931 6,543,793 6,809,407 6,831,864 3,040,455 44 Operations and Mtc 11,528,747 11,606,585 13,450,568 15,988,315 16,576,083 20,981,726 18,712,141 19,309,318 19,771,526 20,263,837 20,773,883 45 Engineering (Operating) 1,790,942 1,838,799 2,051,303 2,408,524 1,806,550 1,898,848 1,962,319 2,022,073 2,079,850 2,139,750 2,201,511 46 Customer Service 2,291,246 2,180,400 2,228,469 2,320,338 2,974,968 3,145,349 3,258,085 3,365,609 3,434,569 3,510,129 3,588,840 47 Allowance for Unspent Budget - - - - - (568,039) (587,742) (606,422) (621,182) (636,877) (654,081) 48 Subtotal, Operating Expenses 55,533,407 53,193,063 52,451,788 57,394,624 61,948,401 69,905,219 69,444,285 68,606,884 71,864,768 76,169,165 77,002,331 49 Capital Program Contribution 18,803,467 10,770,456 15,539,840 21,487,061 34,524,744 28,991,316 25,508,299 25,609,608 25,643,701 26,715,557 35,730,230 50 TOTAL EXPENSES 168,966,528 153,588,546 158,637,396 177,342,596 208,998,131 216,796,374 212,972,036 209,854,282 215,577,300 221,735,717 233,760,738 51 52 ENDING RESERVES
53 Reappropriations (Non-CIP) 9,063,000 - - 56,811 120,000 120,000 120,000 120,000 120,000 120,000 120,000 54 Commitments (Non-CIP) 8,637,000 3,910,695 3,518,525 3,512,355 6,679,000 6,679,000 6,679,000 6,679,000 6,679,000 6,679,000 6,679,000 55 Low Carbon Fuel Standard (LCFS) Reserve - - 6,340,000 6,943,525 7,235,894 6,213,691 5,141,701 4,574,052 4,121,071 3,668,090 3,668,090 56 Cap and Trade Program 1,189,000 1,189,000 5,612,019 8,576,896 11,307,292 11,307,292 11,307,292 11,307,292 57 Underground Loan Reserve 730,147 726,659 726,659 726,659 726,659 726,659 726,659 726,659 726,659 726,659 726,659 58 Public Benefits Reserves 681,330 809,700 1,904,547 3,027,599 3,890,774 4,608,011 5,380,396 6,175,499 6,910,325 7,584,849 8,199,937 59 Electric Special Projects Reserve 41,837,855 41,664,855 46,664,855 46,664,855 24,649,000 17,649,000 24,649,000 24,649,000 26,649,000 28,649,000 30,649,000 60 Hydro Stabilization Reserve 11,400,000 11,400,000 15,400,000 15,400,000 400,000 400,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000 57 Capital Reserve 879,964 879,964 5,879,964 879,964 879,964 879,964 879,964 879,964 5,879,964 10,879,964 15,879,964 58 Rate Stabilization Reserve 9,010,840 - - - - - - - - - - 59 Operations Reserve (Supply & Dist) 18,600,000 45,244,167 38,538,459 29,902,850 30,142,000 19,455,158 21,211,224 30,057,451 38,353,661 45,440,073 44,802,144 60 Unassigned 244,354 - 0 (0) 844,513 - - - - - -
61 TOTAL ENDING RESERVES 101,084,490 104,636,040 118,973,010 108,303,618 76,756,805 62,343,503 81,764,839 93,568,917 109,146,972 123,454,927 130,432,086 62 63 OPERATIONS RESERVE
64 Min (60 days of non-capital expenses) 25,849,452 24,700,922 25,579,071 26,397,217 28,629,395 30,806,909 30,678,262 30,197,099 31,138,925 31,984,104 32,493,679 65 Target (90 days of non-capital expenses) 37,071,179 35,342,766 36,507,588 38,417,367 41,834,515 45,045,206 44,813,743 44,055,844 45,431,537 46,661,127 47,386,164 66 Max (120 days of non-capital expenses) 48,292,905 45,984,610 47,436,104 50,437,517 55,039,635 59,283,502 58,949,225 57,914,590 59,724,148 61,338,150 62,278,648 67 Risk Assessment Value 5,622,455 4,992,321 6,001,771 6,381,125 6,668,204 7,063,828 8,756,964 9,247,811 9,902,791 10,615,661 12,442,421 68 69 DEBT SERVICE COVERAGE RATIO
70 Net Revenues (125% of Debt Service) 196% 450% 517% 212% -12% 203% 643% 698% 625% 484% 408% 71 Available Reserves (5x Debt Service)* 9.4 11.9 16.1 13.4 8.7 6.5 9.1 13.9 13.0 10.9 8.9 Item 15
Attachment B - FY24 Electric Utility
Financial Plan

Item 15: Staff Report
Pg.
60 Packet Pg. 631 of 853

6056714
1 FISCAL YEAR FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 2 3 REVENUES
4 Net Sales 80% 76% 79% 79% 78% 71% 74% 83% 82% 83% 85% 5 Other Revenues and Transfers In 20% 24% 21% 21% 21% 17% 26% 17% 18% 17% 15% 6 TOTAL REVENUES 100% 100% 100% 100% 99% 88% 100% 100% 100% 100% 100% 7 8 EXPENSES
9 Commodity Purchases 50% 53% 53% 53% 56% 56% 55% 52% 51% 51% 49% 10 Operating Expenses
11 Administration
12 Allocated Charges 4% 3% 4% 4% 3% 3% 3% 3% 3% 3% 3%
13 Rent 3% 4% 4% 3% 3% 3% 3% 3% 3% 3% 3%
14 Debt Service 5% 6% 5% 4% 4% 4% 4% 3% 4% 5% 6%
15 Transfers and Other Adjustments 8% 9% 6% 5% 7% 7% 7% 7% 7% 7% 7% 16 Subtotal, Administration 20% 21% 18% 17% 17% 17% 17% 17% 17% 18% 19% 17 Resource Management 1% 1% 2% 2% 1% 1% 1% 2% 2% 2% 1% 18 Operations and Mtc 7% 8% 8% 9% 8% 10% 9% 9% 9% 9% 9% 19 Engineering (Operating) 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 20 Customer Service 1% 1% 1% 1% 2% 1% 2% 2% 2% 2% 2%
21 Allowance for Unspent Budget 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 22 Subtotal, Operating Expenses 31% 32% 31% 31% 29% 30% 29% 30% 30% 31% 32% 23 Capital Program Contribution 11% 7% 10% 11% 11% 10% 12% 12% 12% 12% 15% 24 TOTAL EXPENSES 91% 92% 95% 94% 97% 97% 96% 94% 94% 94% 96% 25 26 RISK ASSESSMENT DETAIL (SUPPLY FUND)
27 FISCAL YEAR FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 28 1.Load Net Revenue
29 2.Hydro Production: Western & Calaveras
30 3. Renewable Production: Landfill & Wind & Solar
31 4. Carbon Neutral Cost
32 5. Market Price
33 6. Local Capacity
34 7. Transmission/CAISO
35 8. Plant Outage
36 9. Western Cost
37 10. Regulatory & Legal
38 11. Supplier Default
39 TOTAL
40 Supply Operations + Hydro Stabilization
Reserves, % of Risk Assessment
41 42 RISK ASSESSMENT DETAIL (DISTRIBUTION FUND)
43 FISCAL YEAR FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 44 Distribution Revenue Variance 3,742,109 3,915,276 4,447,787 4,432,418 4,417,304 4,864,696 6,206,135 6,686,850 7,338,421 7,944,105 8,869,398 45 10% CIP Program Contingency 1,880,347 1,077,046 1,553,984 1,948,706 2,250,900 2,199,132 2,550,830 2,560,961 2,564,370 2,671,556 3,573,023 46 Total Risk Asssessment Value 5,622,455 4,992,321 6,001,771 6,381,125 6,668,204 7,063,828 8,756,964 9,247,811 9,902,791 10,615,661 12,442,421 47 Projected Operations Reserve 18,600,000 45,244,167 38,538,459 29,902,850 30,142,000 19,455,158 21,211,224 30,057,451 38,353,661 45,440,073 44,802,144 48 Operations Reserve, % of Risk Value 331% 906% 642% 469% 452% 275% 242% 325% 387% 428% 360% 49 44 SUPPLY OPERATIONS RESERVE
45 Min (60 days of non-capital expenses) 17,841,143 16,831,022 16,957,154 18,345,636 20,817,535 21,749,445 21,765,198 20,738,810 21,164,097 21,325,772 21,705,956 46 Target (90 days of non-capital expenses) 26,761,715 25,246,533 25,435,732 27,518,453 31,226,303 32,624,168 32,647,797 31,108,216 31,746,145 31,988,658 32,558,934 47 Max (120 days of non-capital expenses) 35,682,287 33,662,044 33,914,309 36,691,271 41,635,071 43,498,891 43,530,397 41,477,621 42,328,193 42,651,545 43,411,912 48 49 DISTRIBUTION OPERATIONS RESERVE
50 Min (60 days of non-capital expenses) 8,008,309 7,869,900 8,621,917 8,051,581 7,811,860 9,057,464 8,913,063 9,458,289 9,974,828 10,658,331 10,787,723 51 Target (90 days of non-capital expenses) 10,309,464 10,096,233 11,071,856 10,898,913 10,608,212 12,421,038 12,165,946 12,947,629 13,685,392 14,672,468 14,827,230 52 Max (120 days of non-capital expenses) 12,610,618 12,322,566 13,521,795 13,746,245 13,404,564 15,784,612 15,418,828 16,436,969 17,395,955 18,686,605 18,866,737 53 Risk Assessment Value 5,622,455 4,992,321 6,001,771 6,381,125 6,668,204 7,063,828 8,756,964 9,247,811 9,902,791 10,615,661 12,442,421 54 55 DEBT SERVICE COVERAGE RATIO
56 Net Revenues (125% of Debt Service) 196% 450% 517% 212% -12% 203% 643% 698% 625% 484% 408% 57 Available Reserves (5x Debt Service)* 9.4 11.9 16.1 13.4 8.7 6.5 9.1 13.9 13.0 10.9 8.9 Item 15
Attachment B - FY24 Electric Utility
Financial Plan

Item 15: Staff Report
Pg.
61 Packet Pg. 632 of 853

ELECTRIC UTILITY FINANCIAL PLAN
J u n e 2 0 1 8 53 | P a g e
APPENDIX B: ELECTRIC UTILITY RESERVES MANAGEMENT PRACTICES The following reserves management practices are used when developing the Electric Utility Financial Plan:

Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal years covered by the Financial Plan. For example, if the Financial Plan delivered in conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY 2015 to FY 2019 would be the Financial Planning Period. b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers to the Utility’s Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net Assets as the difference between its assets and liabilities. d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital assets (net of related debt) or restricted for debt service or other restricted purposes.

Section 2. Supply Fund Reserves
The Electric Supply Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 4 (Reserve for Commitments) b) For operating budgets reappropriated from previous years, as described in Section 5 (Reserve for Reappropriations)
c) For special projects for the benefit of the Electric Utility ratepayers, as described in Section 6 (Electric Special Projects Reserve)
d) For year to year balancing of costs associated with the Electric Utility’s hydroelectric resources, as described in Section 7 (Hydroelectric Stabilization Reserve) e) For rate stabilization, as described in Section 1.d) (Rate Stabilization Reserves) f) For operating contingencies, as described in Section 12 (Operations Reserves) g) Any funds not included in the other reserves will be considered Unassigned Reserves and shall be returned to ratepayers or assigned a specific purpose as described in Section 13 (Unassigned Reserves).

Section 3. Distribution Fund Reserves
The Electric Distribution Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 4 (Reserves for Commitments) b) For operating and capital budgets reappropriated from previous years, as described in Section 5 (Reserves for Reappropriations)
c) As an offset to underground loan receivables, as described in Section 8 (Underground Loan Reserve)
d) To hold Public Benefit Program funds collected but not yet spent, as described in Section 9 (Public Benefits Reserve)
e) For cash flow management and contingencies related to the Electric Utility’s Capital Improvement Program (CIP), as described in Section 10 (CIP Reserve) f) For rate stabilization, as described in Section 11.d) (Rate Stabilization Reserves) g) For operating contingencies, as described in Section 12 (Operations Reserves) h) Any funds not included in the other reserves will be considered Unassigned Reserves and shall be returned to ratepayers or assigned a specific purpose as described in Section 14 (Unassigned Reserves).

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
62 Packet Pg. 633 of 853

ELECTRIC UTILITY FINANCIAL PLAN
J u n e 2 0 1 8 54 | P a g e
Section 4. Reserves for Commitments
At the end of each fiscal year the Electric Supply Fund and Electric Distribution Fund Reserves for Commitments will be set to an amount equal to the total remaining spending authority for all contracts in force for the Electric Supply Fund and Electric Distribution Fund, respectively, at that time.

Section 5. Reserves for Reappropriations
At the end of each fiscal year the Electric Supply Fund and Electric Distribution Fund Reserves for Reappropriations will be set to an amount equal to the amount of all remaining capital and non-capital budgets that will be reappropriated to the following fiscal year for each Fund in accordance with Palo Alto Municipal Code Section 2.28.090.

Section 6. Electric Special Projects Reserve
The Electric Special Projects Reserve (ESP Reserve) will be managed in accordance with the policies set forth in Resolution 9206 (Resolution of the Council of the City of Palo Alto Approving Renaming the Calaveras Reserve to the Electric Special Project Reserve and Adoption of Electric Special Project Reserve Guidelines). These policies are included from Resolution 9206 as amended to refer to the reserves structure set forth in these Reserves Management Practices:
a) The purpose of the ESP Reserve is to fund projects that benefit electric ratepayers; b) The ESP Reserve funds must be used for projects of significant impact; c) Projects proposed for funding must demonstrate a need and value to electric ratepayers. The projects must have verifiable value and must not be speculative, or high-risk in nature;
d) Projects proposed for funding must be substantial in size, requiring funding of at least $1 million;
e) Set a goal to commit funds by the end of FY 2025;
f) Any uncommitted funds remaining at the end of FY 2030 will be transferred to the Electric Supply Operations Reserve and the ESP Reserve will be closed; Section 7. Hydroelectric Stabilization Reserve
The Hydroelectric Stabilization Reserve is used to manage the supply cost impacts associated with variations in generation from hydroelectric resources. Staff will manage the Hydroelectric Stabilization Reserve as follows:
a) Projected Hydro Output: Near the end of each fiscal year, staff will determine the actual and expected hydro output for that fiscal year, compare that to the long-term average annual output level (495,957 MWh as of March 2018), and multiply the difference by the average of the monthly round-the-clock forward market prices for each month of the current fiscal year.
b) Changes in Reserves. Staff is authorized to transfer the amount described in Sec. 7(a) from the Operations Reserve to the Hydroelectric Stabilization Reserve for hydro output deviations above long-term average levels, or transfer this amount from the Hydroelectric Stabilization Reserve to the Operations Reserve for hydro output deviations below long-term average levels.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
63 Packet Pg. 634 of 853

ELECTRIC UTILITY FINANCIAL PLAN
J u n e 2 0 1 8 55 | P a g e
c) Implementation of HRA. The level of the Hydroelectric Stabilization Reserve after the transfers described above shall be the basis for staff’s determination, with Council approval, of whether to implement the Hydro Rate Adjuster (Electric Rate E-HRA) for the following fiscal year.
d) Reserve Guidelines. Staff will manage the Hydroelectric Stabilization Reserve according to the following guideline levels:

Minimum Level $3 million
Target Level $19 million
Maximum Level $35 million
Section 8. Underground Loan Reserve
At the end of each fiscal year, the Underground Loan Reserve will be adjusted by the principal payments made against outstanding underground loans.

Section 9. Public Benefits Reserve
The Public Benefits Reserve will be increased by the amount of unspent Public Benefits Revenues remaining at the end of each fiscal year. Expenditure of these funds requires action by the City Council.

Section 10. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for capital contingencies. Staff will manage the CIP Reserve according to the following practices:
a) The following guideline levels are set forth for the CIP Reserve. These guideline levels are calculated for each fiscal year of the Financial Planning Period and approved by Council resolution.

Minimum Level 20% of the maximum CIP Reserve guideline
level
Maximum Level Average annual (12 month)12 CIP budget, for 48 months of budgeted CIP expenses13
b) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and the Reserve for Commitments when funds are added to or removed from the Reserve for Commitments as a result of a change in contractual commitments related to CIP projects.

Any other additions to or withdrawals from the CIP reserve require Council action. c) Minimum Level:
i) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered by the end of the following fiscal year, and shall, at a minimum, result in the reserve reaching its minimum level by the end of the next fiscal year. For example, if the CIP Reserve is below its minimum level at the end of FY 2017, staff must present a plan by June 30, 2018 to return the reserve to its minimum level by June 30, 2019. In addition, staff 12 Each month is calculated based upon 1/12 of the annual budget. 13 For example, in the Financial Plan for FY 2021, the 48 month period to use to derive the annual average is FY 2021 through FY 2024. In the FY 2022 Financial Plan, the 48 month period to use to derive the annual average would be FY 2022 through FY 2025 etc.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
64 Packet Pg. 635 of 853

ELECTRIC UTILITY FINANCIAL PLAN
J u n e 2 0 1 8 56 | P a g e
may present, and the Council may adopt, an alternative plan that takes longer than one year to replenish the reserve, or that does so in a shorter period of time. d) Maximum Level: If there are funds in this reserve in excess of the maximum level staff must propose in the next Financial Plan to transfer these funds to another reserve or return them to ratepayers in the funds to ratepayers, or designate a specific use of funds for CIP investments that will be made by the end of the next Financial Planning period.

Staff may also seek City Council to approve holding funds in this reserve in excess of the maximum level if they are held for a specific future purpose related to the CIP.

Section 11. Rate Stabilization Reserves
Funds may be added to the Electric Supply or Distribution Fund’s Rate Stabilization Reserves by action of the City Council and held to manage the trajectory of future year rate increases.

Withdrawal of funds from either Rate Stabilization Reserve requires action by the City Council. If there are funds in either Rate Stabilization Reserve at the end of any fiscal year, any subsequent Electric Utility Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the Financial Planning Period. The Council may approve exceptions to this requirement, when proposed by staff to provide greater rate stabilization to customers.

Section 12. Operations Reserves
The Electric Supply Fund and Electric Distribution Fund Operations Reserves are used to manage normal variations in the costs of providing electric service and as a reserve for contingencies. Any portion of the Electric Utility’s Fund Balance not included in the reserves described in Section 4 to 11 above will be included in the appropriate Operations Reserve unless the reserve has reached its maximum level as set forth in Section 12 (e) below. Staff will manage the Operations Reserves according to the following practices:
a) The following guideline levels are set forth for the Electric Supply Fund Operations Reserve. These guideline levels are calculated for each fiscal year of the Financial Planning Period based on the levels of Operations and Maintenance (O&M) and commodity expense forecasted for that year in the Financial Plan.

Minimum Level 60 days of Supply Fund O&M and commodity expense Target Level 90 days of Supply Fund O&M and commodity expense Maximum Level 120 days of Supply Fund O&M and commodity expense b) The following guideline levels are set forth for the Electric Distribution Fund Operations Reserve. These guideline levels are calculated for each fiscal year of the Financial Planning Period based on the levels of O&M expense forecasted for that year in the Financial Plan.

Minimum Level 60 days of Distribution Fund O&M expense
Target Level 90 days of Distribution Fund O&M expense
Maximum Level 120 days of Distribution Fund O&M expense c) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Supply Fund or Distribution Fund’s Operations Reserve are lower than the minimum level set forth above, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered within six months of the end of the fiscal year, and shall, at a Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
65 Packet Pg. 636 of 853

ELECTRIC UTILITY FINANCIAL PLAN
J u n e 2 0 1 8 57 | P a g e
minimum, result in the reserve reaching its minimum level by the end of the following fiscal year. For example, if the Operations Reserve is below its minimum level at the end of FY 2014, staff must present a plan by December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In addition, staff may present an alternative plan that takes longer than one year to replenish the reserve.
d) Target Level: If, at the end of any fiscal year, either Operations Reserve is higher or lower than the target level, any Financial Plan created for the Electric Utility shall be designed to return both Operations Reserves to their target levels by the end of the forecast period.
e) Maximum Level: If, at any time, either Operations Reserve reaches its maximum level, no funds may be added to this Reserve. Any further increase in that fund’s Fund Balance shall be automatically included in the Unassigned Reserve described in Section 13, below.

Section 13. Unassigned Reserves
If the Operations Reserve in either the Electric Supply Fund or the Electric Distribution Fund reaches its maximum level, any further additions to that fund’s Fund Balance will be held in the Unassigned Reserve. If there are any funds in either Unassigned Reserve at the end of any fiscal year, the next Financial Plan presented to the City Council must include a plan to assign them to a specific purpose or return them to the Electric Utility ratepayers by the end of the first fiscal year of the next Financial Planning Period. For example, if there were funds in the Unassigned Reserves at the end of FY 2016, and the next Financial Planning Period is FY 2017 through FY 2021, the Financial Plan shall include a plan to return or assign the funds in the Unassigned Reserve by the end of FY 2017. Staff may present an alternative plan that retains these funds or returns them over a longer period of time.

Section 14. Intra-Utility Transfers between Supply and Distribution Funds Transfers between Electric Distribution Fund Reserves and Electric Supply Fund Reserves are permitted if consistent with the purposes of the two reserves involved in the transfer. Such transfers require action by the City Council.

Section 15. Low Carbon Fuel Standard (LCFS) Reserve
This reserve tracks revenues earned via the sale of Low Carbon Fuel Credits allocated by the California Air Resources Board to the City, as well as expenses incurred, in accordance with California’s Low Caron Fuel Standard program. At the end of each fiscal year, the LCFS Reserve will be adjusted by the net of revenues and expenses associated with California’s LCFS program.

Section 16. Cap and Trade Program Reserve
This reserve tracks unspent or unallocated revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the electric utility, under the State’s Cap and Trade Program. Funds in this Reserve are managed in accordance with the City’s Policy on the Use of Freely Allocated Allowances under the State’s Cap and Trade Program (the Policy), adopted by Council Resolution 9487 in January 2015.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
66 Packet Pg. 637 of 853

ELECTRIC UTILITY FINANCIAL PLAN
J u n e 2 0 1 8 58 | P a g e
APPENDIX C: DESCRIPTION OF ELECTRIC UTILITY OPERATIONAL ACTIVITIES This appendix describes the activities associated with the various cost categories referred to in this Financial Plan.

Customer Service: This category includes the Electric Utility’s share of the call center, meter reading, collections, and billing support functions. Billing support encompasses staff time associated with bill investigations and quality control on certain aspects of the billing process. It does not include maintenance of the billing system itself, which is included in Administration.

This category also includes CPAU’s key account representatives, who work with large commercial customers who have more complex requirements for their electric services.

Resource Management: This category includes supply portfolio management, energy procurement, rate setting, and tracking of legislation and regulation related to the electric industry.

Operations and Maintenance: This category includes the costs of a variety of distribution system maintenance activities, including:
•monitoring the substations and performing routine maintenance; •performing preventative maintenance on the system;
•monitoring the system’s status from the UCC using SCADA; •maintaining the SCADA system;
•investigating outages and other customer complaints and performing emergency repairs;
•clearing vegetation near overhead power lines; and
•testing and replacing meters to ensure accurate sales metering.

Administration: Accounting, purchasing, legal, and other administrative functions provided by the City’s General Fund staff, as well as shared communications services, Utilities Department administrative overhead and billing system maintenance costs.

Demand Side Management: Includes the cost of administering energy efficiency programs and the direct cost of rebates paid. Includes solar rebates.

Engineering (Operating): The Electric Utility’s engineers focus primarily on the CIP, but a small portion of their time is spent assisting with distribution system maintenance.

Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
67 Packet Pg. 638 of 853

APPENDIX D: SAMPLES OF RECENT ELECTRIC UTILITY OUTREACH COMMUNICATIONS Item 15
Attachment B - FY24
Electric Utility Financial
Plan

Item 15: Staff Report
Pg.
68 Packet Pg. 639 of 853

RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-1

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-1-1 Sheet No E-1-1
dated 7-1-20192022 Effective 7-1-20222023
A. APPLICABILITY:

This Rate Schedule applies to separately metered single- family residential dwellings receiving Electric Service from the City of Palo Alto Utilities.

B. TERRITORY:

This rate schedule applies everywhere the City of Palo Alto provides Electric Service.

C. UNBUNDLED RATES:

Per kilowatt-hour (kWh) Commodity Distribution Public Benefits Total Tier 1 usage
$

0.099990.08
547

0.069540.05429

0.005680.00469

0.175210.1444
5 Tier 2 usage
Any usage over Tier 1

0.138730.11
858

0.102250.08008

0.005680.00469

0.203354666

Minimum Bill ($/day)

0.41810.3447

D. SPECIAL NOTES:

1. Calculation of Cost Components

The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or taxes. On a C ustomer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

2. Calculation of Usage Tiers

Tier 1 E lectricity usage shall be calculated and billed based upon a level of 11 kWh per day, prorated by M eter reading days of S ervice. As an example, for a 30 -day bill, the Tier 1 level would be 330 kWh. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.
{End}
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
69 Packet Pg. 640 of 853

RESIDENTIAL MASTER-METERED AND SMALL NON-RESIDENTIAL ELECTRIC

SERVICE

UTILITY RATE SCHEDULE E-2

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-2-1 Sheet No E-2-1
dated 7-1-20192022 Effective 7-1-20222023
A. APPLICABILITY:

This Rate Schedule applies to the following Customers receiving Electric Service from the City of Palo Alto Utilities:

1. Small non-residential Customers receiving Non-Demand Metered Electric Service; and

2. Customers with Accounts at Master-Metered multi-family facilities.

B. TERRITORY:

This rate schedule applies everywhere the City of Palo Alto provides Electric Service.

C. UNBUNDLED RATES:

Per kilowatt-hour (kWh) Commodity Distribution Public Benefits Total Summer Period

0.142160.121
51 $

0.117750.09276

0.005680.00469

0.265590.2189
6 Winter Period

0.101960.087
15 0.078610.06171

0.005680.00469

0.186250.1535
5 Minimum Bill ($/day)

1.06460.8777

D. SPECIAL NOTES:

1. Calculation of Cost Components

2. Seasonal Rate Changes

The Summer Period is effective May 1 to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period includes use in both the Summer and the Winter Periods, the usage will be prorated based on the number of days in each Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
70 Packet Pg. 641 of 853

RESIDENTIAL MASTER-METERED AND SMALL NON-RESIDENTIAL ELECTRIC

SERVICE

UTILITY RATE SCHEDULE E-2

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-2-2 Sheet No E-2-2
dated 7-1-20192022 Effective 7-1-20222023
seasonal period, and the charges based on the applicable rates therein. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.

3. Maximum Demand Meter
Whenever the monthly use of energy has exceeded 8,000 kWh for three consecutive months, a maximum D emand Meter will be installed as promptly as is practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kWh for twelve consecutive months, whereupon, at the option of the City, it may be removed.

The maximum Demand
in any month will be the maximum average power in kilowatts taken during any 15- minute interval in the month provided that if the Customer’s load is intermittent or subject to fluctuations, the City may use a 5 -minute interval. A thermal-type Demand Meter which does not reset after a definite time interval may be used at the City's option.

The billing Demand to be used in computing charge s under this schedule will be the actual maximum D emand in kilowatts for the current month. An exception is that the billing Demand for C ustomers with Thermal Energy Storage (TES) will be based upon the actual maximum Demand of such Customers between the hours of noon and 6 pm on weekdays.

{End}
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
71 Packet Pg. 642 of 853

RESIDENTIAL MASTER-METERED AND SMALL NON-RESIDENTIAL GREEN POWER

ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-2-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-2-G-1 Sheet No E-2-G-1
dated 7-1-20221 Effective 7-1-20232
A. APPLICABILITY:

This Rate Schedule applies to the following Customers receiving Electric Service from the City of Palo Alto Utilities under the Palo Alto Green Program:

1. Small non-residential Customers receiving Non-Demand Metered Electric Service; and

2. Customers with Accounts at Master-Metered multi-family facilities.

B. TERRITORY:

This rate schedule applies everywhere the City of Palo Alto provides Electric Service.

C. UNBUNDLED RATES:

1. 100% Renewable Option:

Per kilowatt-hour (kWh) Commodity Distribution
Public
Benefits
Palo Alto
Green
Charge Total
Summer Period

0.142160.12
151

0.117750.09
276

0.005680.0
0469 $ 0.0075

0.273090.
22646
Winter Period

0.101960.08
715

0.078610.06
171

0.005680.0
0469 0.0075

$ 0.19375

0.16105

Minimum Bill ($/day)

1.06460.8777

2. 1000 kWh Block Purchase Option:

Per kilowatt-hour (kWh) Commodity Distribution
Public
Benefits

Total
Summer Period

0.142160.12
151

0.117750.09
276

0.005680.0
0469

0.265590.
21896
Winter Period

0.101960.08
715

0.078610.06
171

0.005680.0
0469

0.186250.
15355

Minimum Bill ($/day)

1.06460.8777
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
72 Packet Pg. 643 of 853

RESIDENTIAL MASTER-METERED AND SMALL NON-RESIDENTIAL GREEN POWER

ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-2-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-2-G-2 Sheet No E-2-G-2
dated 7-1-20221 Effective 7-1-20232
Palo Alto Green Charge (per 1000 kWh block) $7.50

D. SPECIAL NOTES:

1. Calculation of Cost Components

The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

2. Seasonal Rate Changes

The Summer Period is effective May 1 to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period includes use in both the Summer and Winter Periods, usage will be prorated based upon the number of days in each seasonal period, and the charges based on the applicable rates therein. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.

3. Palo Alto Green Program Description and Participation

Palo Alto Green provides for either the purchase of enough renewable energy credits (RECs) to match 100% of the energy usage at the facility every month, or f or the purchase of 1000 kilowatt -hour (kWh) blocks. These REC purchases support the production of renewable energy, increase the financial value of power from renewa ble sources, and create a transparent and sustainable market that encourages new development of wind and solar power.

Customers choosing to participate shall fill out a Palo Alto Green Power Program application provided by the Customer Service Center. Customers may request at any time, in writing, a change to the number of blocks they wish to purchase under the Palo Alto Green Program.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
73 Packet Pg. 644 of 853

RESIDENTIAL MASTER-METERED AND SMALL NON-RESIDENTIAL GREEN POWER

ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-2-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-2-G-3 Sheet No E-2-G-3
dated 7-1-20221 Effective 7-1-20232

4. Maximum Demand Meter
Whenever the monthly use of energy has exceeded 8,000 kWh for three consecutive months, a maximum D emand Meter will be installed as promptly as is practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kWh for twelve consecutive months, whereupon, at the option of the City, it may be removed.

The maximum Demand
in any month will be the maximum average power in kilowatts taken during any 15-minute interval in the month , provided that if the Customer-s load is intermittent or subject to fluctuations, the City may use a 5 -minute interval. A thermal-type Demand Meter which does not reset after a definite time interval may be used at the City's option.

The billing Demand to be used in computing charges under this schedule will be the actual maximum D emand in kilowatts for the current month. An exception is that the billing Demand for C ustomers with Thermal Energy Storage (TES) will be based upon the actual maximum Demand of such Customers between the hours of noon and 6 pm on weekdays.

{End}
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
74 Packet Pg. 645 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-1 Sheet No E-4-1
dated 7-1-202219 Effective 7-1-20223
A. APPLICABILITY:

This Rate Schedule applies to Demand metered S econdary Electric Service for C ustomers with a maximum Demand below 1,000 kilowatts. This Rate Schedule applies to three-phase Electric Service and may include Service to master -metered multi- family facilities or other facilities requiring Demand-metered Service, as determined by the City.

B. TERRITORY:

This rate schedule applies anywhere everywhere the City of Palo Alto p rovides Electric Service.

C. UNBUNDLED RATES:

Rates per kilowatt (kW) and kilowatt-hour (kWh):

Commodity Distribution
Public
Benefits Total
Summer Period
Demand Charge (per kW)

$ 5.284.52

$ 31.5425.84

$ 36.8230.36
Energy Charge (per kWh)

0.131570.10
960

0.026380.020
61 0.005680.004
69 0.163630.13490
Winter Period
Demand Charge (per kW)

$ 3.292.82

$ 20.8717.10

$ 24.1619.92
Energy Charge (per kWh)

0.094610.07
913

0.026380.020
61 0.005680.004
69 0.126670.10443
Minimum Bill ($/day) 22.001218.1379

D. SPECIAL NOTES:

1. Calculation of Cost Components

The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or taxes. On a customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
75 Packet Pg. 646 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-2 Sheet No E-4-2
dated 7-1-202219 Effective 7-1-20223

2. Seasonal Rate Changes

The Summer Period is effective May 1 to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period includes use both in the Summer and the Winter Periods, the usage will be prorated based on the number of days in each seasonal period, and the charges based on the applicable rates therein. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.

3. Maximum Demand Meter
Whenever the monthly use of energy has exceeded 8,000 kWh for three consecutive months, a Maximum Demand M eter will be ins talled as promptly as is practicable and thereafter continued in Service until the monthly use of energy has fallen below 6,000 kWh for twelve consecutive months, whereupon, at the option of the City, it may be removed.

The Maximum Demand
in any month wil l be the maximum average power in kilowatts taken during any 15-minute interval in the month, provided that if the Customer’s load is intermittent or subject to fluctuations, the City may use a 5 -minute interval. A thermal-type Demand Meter which does not reset after a definite time interval may be used at the City's option.

The Billing Demand to be used in computing charges under this schedule will be the actual Maximum Demand in kilowatts for the current month. An exception is that the Billing Demand for Customers with Thermal Energy Storage (TES) will be based upon the actual Maximum Demand of such Customers between the hours of noon and 6 pm on weekdays.

4. Power Factor
For new or existing Customers whose Demand is expected to exceed or has exceeded 300 kilowatts for three consecutive months, the City has the option of installing applicable Metering to calculate a Power Factor. The City may remove such M etering from the Service of a Customer whose Demand has been below 200 kilowatts for four consecutive months.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
76 Packet Pg. 647 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-3 Sheet No E-4-3
dated 7-1-202219 Effective 7-1-20223

When such metering is installed, the monthly Electric bill will include a “Power Factor Adjustment”, if applicable. The adjustment will be applied to a C ustomer’s bill prior to the computation of any primary voltage discount. The Power Factor Adjustment is applied by increasing the total energy and Demand charges for any month by 0.25 percent (0.25%) for each one percent (1%) that the monthly Power Factor of the Customer’s load was less than 95%.

The monthly Power Factor is the average Power Factor based on the ratio of kilowatt hours to kilovolt -ampere hours consumed during the month. Where time -of-day Metering is installed, the monthly Power Factor shall be the Power Factor coincident with the Customer's Maximum Demand.

5. Changing Rate Schedules

Customers may request a rate schedule change at any time to any City of Palo Alto full - service rate schedule as is applicable to their kilowatt -Demand and kilowatt -hour usage profile.

6. Primary Voltage Discount

Where delivery is made at the same voltage as that of the line from which the Service is supplied, a discount of 2 1/2 percent for available line voltages above 2 kilovolts will be offered, but the City is not required to supply Service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the Customer's electrical requirements , as determined in the City’s sole discretion. The City retains the right to change its line voltage at any time after providing reasonable advance notice to any C ustomer receiving the discount in this section . The Customer then has the option to change his system so as to receive Service at the new line voltage or to accept Service (without voltage discount) through transformers to be supplied by the City subject to a maximum kilovolt-ampere size limitation.

7. Standby Charge

a. Applicability: The standby charge, subject to the exemptions in subsection D(7)(e), applies to Customers that have a non -utility generation source interconnected on the Customer’s side of the City’s revenue meter and that occasionally require backup power from the City due to non- operation of the non- utility generation source.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
77 Packet Pg. 648 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-4 Sheet No E-4-4
dated 7-1-202219 Effective 7-1-20223

b. Standby Charges:

Commodity Distribution Total
Standby Charge (per kW of
Reserved Capacity)
Summer Period $0.69 $15.23 $15.92
Winter Period $0.63 $9.04 $9.67

c. Meters. A separate Meter is required for each non-utility generation source.

d. Calculation of Maximum Demand Credit.

(1) In the event the Customer’s Maximum Demand (as defined in Section D.3) occurs when one or more of the non- utility generators on the Customer’s side of the City’s revenue meter are not operating, the Maximum Demand will be reduced by the sum of the Maximum Generation of those non- utility generators, but in no event shall the Customer’s Maximum Demand be reduced below zero.

(2) If the non -utility generation source does not operate for an entire billing cycle, the standby charge does not apply and the Customer shall not re ceive the Maximum Demand credit described in this Section.

e. Exemptions.

(1) The standby charge shall not apply to backup generators designed to operate only in the event of an interruption in utility Service and which are not used to offset Customer electricity purchases.

(2) The standby charge shall not apply if the Customer meets the definition of an “Eligible Customer- generator” as defined in California Public Utilities Code Section 2827(b)(4), as amended.

(3) The applicability of these e xemptions shall be determined at the discretion of the Utilities Director.

{End}
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
78 Packet Pg. 649 of 853

MEDIUM NON-RESIDENTIAL GREEN POWER ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-G-1 Sheet No E-4-G-1
dated 7-1-20221 Effective 7-1-20223
A. APPLICABILITY:

This Rate Schedule applies to Demand metered Secondary Electric Service for Customers with a maximum Demand below 1,000 kilowatts (kW) who receive power under the Palo Alto Green Program. This Rate S chedule applies to three -phase Electric Service and may include Service to Master-metered multi-family facilities or other facilities requiring Demand metered Service, as determined by the City.

B. TERRITORY:

The rate schedule applies everywhere the City of Palo Alto provides Electric Service.

C. UNBUNDLED RATES:

1. 100% Renewable Option:

Commodity Distribution
Public
Benefits
Palo Alto
Green
Charge Total
Summer Period
Demand Charge (per kW)

$ 5.284.52

$ 31.5425.84

36.8230.3
6 Energy Charge (per kWh)

0.131570.10
960

0.026380.020
61 0.005680.
00469 0.0075

0.171130.
14240
Winter Period
Demand Charge (per kW)

$ 3.292.82

$ 20.8717.10

24.1619.9
2 Energy Charge (per kWh)

0.094610.07
913

0.026380.020
61 0.005680.
00469 0.0075

0.134170.
11193
Minimum Bill ($/day) 22.001218.1379

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
79 Packet Pg. 650 of 853

MEDIUM NON-RESIDENTIAL GREEN POWER ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-G-2 Sheet No E-4-G-2
dated 7-1-20221 Effective 7-1-20223

2. 1000 kWh Block Purchase Option:

Commodity Distribution
Public
Benefits Total
Summer Period
Demand Charge (per kW) $ 5.284.52 $ 31.5425.84
$

36.8230.3
6 Energy Charge (per kWh)

0.131570.10
960

0.026380.020
61 0.005680.
00469

0.163630.
13490
Palo Alto Green Charge (per 1000 kWh block) $7.50
Winter Period
Demand Charge (per kW) $ 3.292.82 $ 20.8717.10
$

24.1619.9
2 Energy Charge (per kWh)

0.094610.07
913

0.026380.020
61 0.005680.
00469

0.126670.
10443
Palo Alto Green Charge (per 1000 kWh block) $7.50
Minimum Bill ($/day) 22.001218.1379

D. SPECIAL NOTES:

1. Calculation of Cost Components

The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges, and/or taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

2. Seasonal Rate Changes

The Summer Period is effective May 1 to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period includes use both in the Summer and the Winter Periods, the usage will b e prorated based on the number of days in each seasonal period, and the charges b ased on the applicable rates therein. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.

3. Maximum Demand Meter

Whenever the monthly use of energy has exceeded 8,000 kilowatt -hours for three consecutive months, a Maximum Demand Meter will be installed as promptly as is practicable and thereafter continued in Service until the monthly use of energy has Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
80 Packet Pg. 651 of 853

MEDIUM NON-RESIDENTIAL GREEN POWER ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-G-3 Sheet No E-4-G-3
dated 7-1-20221 Effective 7-1-20223
dropped below 6,000 kilowatt -hours for twelve consecutive months, whereupon, at the option of the City, it may be removed.

The Maximum Demand in any month will be the maximum average power in kilowatts taken during any 15-minute interval in the month, provided that if the Customer’s load is intermittent or subject to fluctuations, the City may use a 5 -minute interval. A thermal-type Demand Meter, which does not reset after a definite time interval, may be used at the City's option.

4. Power Factor

For new or existing Customers whose Demand is expected to exceed or has exceeded 300 kilowatts for three consecutive months, the City has the option of installing applica ble Metering to calculate a Power Factor. The City may remove such Metering from the Service of a Customer whose Demand has dropped below 200 kilowatts for four consecutive months.

When such Metering is installed, the monthly Electric bill will include a “Power Factor Adjustment”, if applicable. The adjustment will be applied to a Customer’s bill prior to the computation of any primary voltage discount. The Power Factor Adjustment is applied by increasing the total energy and Demand charges for any month by 0.25 percent or (1/4) for each one percent (1%) that the monthly Power Factor of the Customer’s load was less than 95%.

The monthly Power Factor is the average Power Factor based on the ratio of kilowatt - hours to kilovolt -ampere hours consumed during the month. Where time -of-day Metering is installed, the monthly Power Factor shall be the Power Factor coincident with the Customer's Maximum Demand.

5. Changing Rate Schedules

Customers may request a rate schedule change at any time to any applicabl e full-service rate schedule as is applicable to their kilowatt-Demand and kilowatt-hour usage profile.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
81 Packet Pg. 652 of 853

MEDIUM NON-RESIDENTIAL GREEN POWER ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-G-4 Sheet No E-4-G-4
dated 7-1-20221 Effective 7-1-20223

6. Palo Alto Green Program Description and Participation

Palo Alto Green provides for either the purchase of enough renewable energy credits (RECs) to match 100% of the energy usage at the facility every month, or for the purchase of 1000 kilowatt -hour (kWh) blocks. T hese REC purchases support the production of renewable energy, increase the financial value of power from renewal sources, and creates a transparent and sustainable market that encourages new development of wind and solar.

7. Primary Voltage Discount

Where delivery is mad e at the same voltage as that of the line from which the Service is supplied, a discount of 2.5 percent for available line voltages above 2 kilovolts will be offered, but the City is not required to supply Service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the Customer's electrical requirements , as determined in the City’s sole discretion. The City retains the right to change its line voltage at any time after providing reasonable advance notice to any Customer receiving the discount in this section . The Customer then has the option to change the system so as to receive Service at the new line voltage or to accept Service (without voltage discount) through transf ormers to be supplied by the City subject to a maximum kilovolt-ampere size limitation.

8. Standby Charge

a. Applicability: The standby charge, subject to the exemptions in subsection D(8)(e), applies to Customers that have a non -utility generation s ource interconnected on the Customer’s side of the City’s revenue Meter and that occasionally require backup power from the City due to non- operation of the non- utility generation source.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
82 Packet Pg. 653 of 853

MEDIUM NON-RESIDENTIAL GREEN POWER ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-4-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-G-5 Sheet No E-4-G-5
dated 7-1-20221 Effective 7-1-20223
b. Standby Charges:

Commodity Distribution Total
Standby Charge (per kW of
Reserved Capacity)
Summer Period $0.69 $15.23 $15.92
Winter Period $0.63 $9.04 $9.67

c. Meters: A separate Meter is required for each non-utility generation source.

d. Calculation of Maximum Demand Credit:

(1) In the event the Customer’s Maximum Demand (as defined in Section D.3) occurs when one or more of the non- utility generators on the Customer’s side of the City’s revenue Meter are not operating, the Maximum Demand will be reduced by the sum of the Maximum Generation of those non- utility generators, but in no event shall the Customer’s Maximum Demand be reduced below zero.

(2) If the non -utility generation source does not operate for an entire billing cycle, the standby charge does not apply and the Cust omer shall not receive the Maximum Demand credit described in this Section.

e. Exemptions:

(2) The standby charge shall not apply if the Customer meets the definition of an “Eligible Customer- generator” as defined in California Public Utilities Code Section 2827(b)(4), as amended.

(3) The applicability of these exemptions shall be determined at the discretion of the Utilities Director.
{End}
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
83 Packet Pg. 654 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC TIME OF USE SERVICE

UTILITY RATE SCHEDULE E-4 TOU

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-TOU-1 Sheet No E-4-TOU-1
dated 7-1-202219 Effective 7-1-20232
A. APPLICABILITY:

This voluntary Rate Schedule applies to Demand metered S econdary Electric Service for Customers with Demand between 500 and 1,000 kilowatts per month and who have sustained this level of usage for at least three consecutive months during the most recent 12 month period.

This Rate Schedule applies to three -phase Electric Service and may incl ude Service to Master- Metered multi -family facilities or other facilities requiring Demand -metered Service, as determined by the City. In addition, this R ate Schedule is applicable for C ustomers who did not pay power factor adjustments during the last 12 months.

B. TERRITORY:

This rate schedule applies everywhere the City of Palo Alto provides Electric Service.

C. UNBUNDLED RATES:

Rates per kilowatt (kW) and kilowatt-hour (kWh):

Commodity Distribution Public Benefits Total
Summer Period
Demand Charge (per kW)
Peak $ 3.222.71 $ 10.858.89 $ 14.0711.60
Mid-Peak 1.110.97 10.858.89 11.969.86
Off-Peak 1.110.97 10.858.89 11.969.86
Energy Charge (per kWh)
Peak
$

0.120200.10
022 $ 0.026360.02060
$

0.005680.00469
$

0.152240.12551
Mid-Peak

0.152040.12
647 0.026360.02060 0.005680.00469 0.184080.15176
Off-Peak

0.092290.07
721 0.026360.02060 0.005680.00469 0.124330.10250
Winter Period
Demand Charge (per kW)
Peak $ 1.831.57 $ 11.639.53 $ 13.4611.10
Off-Peak 1.831.57 11.639.53 13.4611.10
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
84 Packet Pg. 655 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC TIME OF USE SERVICE

UTILITY RATE SCHEDULE E-4 TOU

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-TOU-2 Sheet No E-4-TOU-2
dated 7-1-202219 Effective 7-1-20232
Commodity Distribution Public Benefits Total
Energy Charge (per kWh)
Peak
$

0.147440.12
268 $ 0.026360.02060
$

0.005680.00469
$

0.179480.14797
Off-Peak

0.126190.10
516 0.026360.02060
$

0.005680.00469 0.158230.13045
Minimum Bill ($/day) 22.001218.1379

D. SPECIAL NOTES:

1. Calculation of Cost Components

The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

2. Definition of Time Periods

SUMMER PERIOD (Service from May 1 to October 31):

Peak: 12:00 noon to 6:00 p.m. Monday through Friday (except holidays)

Mid Peak: 8:00 a.m. to 12:00 noon Monday through Friday (except holidays) 6:00 p.m. to 9:00 p.m.

Off-Peak: 9:00 p.m. to 8:00 a.m. Monday through Friday (except holidays) All day Saturday, Sunday, and holidays

WINTER PERIOD (Service from November 1 to April 30):

Peak: 8:00 a.m. to 9:00 p.m. Monday through Friday (except holidays)

Off-Peak: 9:00 p.m. to 8:00 a.m. Monday through Friday (except holidays) All day Saturday, Sunday, and holidays

SEASONAL RATE CHANGES: When the billing period includes use in both the Summer and the Winter periods, the usage will be prorated based on the number of days in each seasonal period, and the charges based on the applicable rates therein. For further Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
85 Packet Pg. 656 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC TIME OF USE SERVICE

UTILITY RATE SCHEDULE E-4 TOU

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-TOU-3 Sheet No E-4-TOU-3
dated 7-1-202219 Effective 7-1-20232
discussion of bill calculation and proration, refer to Rule and Regulation 11.

3. Demand Meter
Whenever the monthly use of energy has exceeded 8,000 kilowatt-hours for three consecutive months, a Demand Meter will be installed as promptly as is practicable and thereafter continued in Service until the monthly use of energy has fallen below 6,000 kilowatt-hours for twelve consecutive months, whereupon, at the option of the City, it may be removed.

The Billing Demand
to be used in computing charge s under this schedule will be the actual Maximum Demand in kilowatts taken during any 15- minute interval in each of the designated time periods as defined under Section D.2.

4. Power Factor Adjustment

Time of Use Customers must not have had a power factor adjustment assessed on their Service for at least 12 months. Power factor is calculated based on the ratio of kilowatt hours to kilovolt-ampere hours consumed during the month, and must not have fallen below 95% to avoid the power factor adjustment.

Should the City of Palo Alto Utilities Department find that the Customer’s Service should be subject to power factor adjustments, the Customer will be removed from the E-4-TOU rate schedule and placed on another applicable rate schedule as is suitable to their kilowatt Demand and kilowatt-hour usage.

5. Changing Rate Schedules

Customers electing to be served under E-4 TOU must remain on said Rate Schedule for a minimum of 12 months. Should the Customer so wish, at the end of 12 months, the Customer may request a Rate Schedule change to any applicable City of Palo Alto full- service Rate Schedule as is suitable to their kilowatt Demand and kilowatt-hour usage.

6. Primary Voltage Discount

Item 15: Staff Report
Pg.
86 Packet Pg. 657 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC TIME OF USE SERVICE

UTILITY RATE SCHEDULE E-4 TOU

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-TOU-4 Sheet No E-4-TOU-4
dated 7-1-202219 Effective 7-1-20232
discretion. The City retains the right to change its line voltage at any time after providing reasonable advance notice to any Customer receiving the discount in this section. The Customer then has the option to change his system so as to receive Service at the new line voltage or to accept Service (without voltage discount) through transformers to be supplied by the City subject to a maximum kilovolt-ampere size limitation.

7. Standby Charge

a. Applicability: The standby charge, subject to the exemptions in subsection D(7)(e), applies to Customers that have a n on-utility generation source interconnected on the Customer’s side of the City’s revenue Meter and that occasionally require backup power from the City due to non- operation of the non- utility generation source.

b. Standby Charges:

Commodity Distribution Total
Standby Charge (per kW of
Reserved Capacity)
Summer Period $0.69 $15.23 $15.92
Winter Period $0.63 $9.04 $9.67

c. Meters. A separate Meter is required for each non-utility generation source.

d. Calculation of Maximum Demand Credit.

(1) In the event the Customer’s Maximum Demand occurs when one or more of the non- utility generators on the Customer’s side of the City’s revenue M eter are not operating, the Maximum Demand will be reduced by the sum of the Maximum Generation o f those non- utility generators, but in no event shall the Customer’s Maximum Demand be reduced below zero.

(2) If the non -utility generation source does not operate for an entire billing cycle, the standby charge does not apply and the Customer shall not receive the Maximum Demand credit described in this Section.

e. Exemptions.

(1) The standby charge shall not apply to backup generators designed to operate only in the event of an interruption in utility Service and which are not used to Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
87 Packet Pg. 658 of 853

MEDIUM NON-RESIDENTIAL ELECTRIC TIME OF USE SERVICE

UTILITY RATE SCHEDULE E-4 TOU

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-4-TOU-5 Sheet No E-4-TOU-5
dated 7-1-202219 Effective 7-1-20232
offset Customer electricity purchases.

(2) The standby charge shall not apply if the Cus tomer meets the definition of an “Eligible Customer- generator” as defined in California Public Utilities Code Section 2827(b)(4), as amended.

(3) The applicability of these exemptions shall be determined at the discretion of the Utilities Director.
{End}
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
88 Packet Pg. 659 of 853

LARGE NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-7

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-7-1 Sheet No E-7-1
dated 7-1-202219 Effective 7-1-20232

A. APPLICABILITY:

This Rate S chedule applies to Demand Metered Service for large non-residential Customers with a Maximum Demand of at least 1,000KW per month per site, who have sustained this Demand level at least 3 consecutive months during the last twelve months.

B. TERRITORY:

This rate schedule applies everywhere the City of Palo Alto provides Electric Service.

C. RATES:

Rates per kilowatt (kW) and kilowatt-hour (kWh):

Commodity Distribution
Public
Benefits Total
Summer Period
Demand Charge (kW) $ 6.035.16 $ 33.0527.06 $ 39.0832.22 Energy Charge (kWh)

0.139170.11
476 0.000750.00059 0.005680.00469 0.145600.12004
Winter Period
Demand Charge (kW) $ 3.462.96 $ 18.2514.94 $ 21.7117.90 Energy Charge (kWh)

0.092120.07
597 0.000750.00059 0.005680.00469 0.098550.08125
Minimum Bill ($/day) 62.553951.5696

D. SPECIAL NOTES:

1. Calculation of Charges

The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
89 Packet Pg. 660 of 853

LARGE NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-7

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-7-2 Sheet No E-7-2
dated 7-1-202219 Effective 7-1-20232

2. Seasonal Rate Changes

The Summer Period is effective May 1 to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period includes use both in the summer and in the winter periods, the usage will be prorated based on the number of days in each seasonal period, and the charges based on the applicable rates therein. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.

3. Request for Service

Qualifying Customers may request Service under this schedule for more than one Account or one Meter if the Accounts are on one site. A site, for the purposes of this Rate Schedule, consists of one or more Accounts which cover contiguous parcels of land with no intervening public right -of-ways (e.g. streets) and which have a common billing address.

4. Maximum Demand Meter

The Maximum Demand
in any month will be the maximum average power in kilowatts taken during any 15- minute interval in the month provided that if the Customer’s load is intermittent or subject to fluctuations, the City may use a 5 -minute interval. A thermal - type Demand Meter which does not reset after a definite time interval may be used at the City's option.

The Billing Demand
to be used in computing charges under this schedule will be the actual Maximum Demand in kilowatts for the current month. An exception is that the Billing Demand for Customers with Thermal Energy Storage (TES) will be based upon the actual Maximum Demand of such Customers between the hours of noon and 6 pm on weekdays.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
90 Packet Pg. 661 of 853

LARGE NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-7

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-7-3 Sheet No E-7-3
dated 7-1-202219 Effective 7-1-20232

5. Power Factor

For new or existing Customers whose Demand is expected to exceed or has exceeded 300 kilowatts for three consecutive months, the City has the option to install applicable Metering to calculate a Power Factor. The City may remove such M etering from the Service of a Customer whose Demand has been below 200 kilowatts for four consecutive months.

When such metering is installed, the monthly Electric bill shall include a “Power Factor Adjustment”, if applicable. The adjustment shall be applied to a Customer’s bill prior to the computation of any primary voltage discount. The power factor adjustment is applied by increasing the total energy and Demand charges for any month by 0.25 percent (0.25%) for each one percent (1%) that the monthly Power Factor of the C ustomer’s load was less than 95%.

6. Changing Rate Schedules

Customers may request a rate schedule change at any time to any applicable full service rate schedule as is applicable to their kilowatt-Demand and kilowatt-hour usage profile.

7. Primary Voltage Discount

Where delivery is made at the same voltage as that of the line from which the Service is supplied, a discount of 2 1/2 percent for available line voltages above 2 kilovolts will be offered, but the City is not required to supply Service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the Customer's electrical requirements, as determined in the City’s sole discretion. The City retains the right to change its line voltage at any time after providing reasonable advance notice to any Customer receiving the discount in this section . The Customer then has the option to change his system so as to receive Service at the new line voltage or to accept Service (without voltage discount) through transformers to be supplied by the City subject to a maximum kVA size limitation.

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
91 Packet Pg. 662 of 853

LARGE NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-7

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-7-4 Sheet No E-7-4
dated 7-1-202219 Effective 7-1-20232

8. Standby Charge

a. Applicability: The standby charge, subject to the exemptions in subsection D(8)(e), applies to Customers that have a non -utility generation source interconnected on the Customer’s side of the City’s revenue M eter and that occasionally require backup power from the City due to non-operation of the non- utility generation source.

b. Standby Charges:

Commodity Distribution Total
Standby Charge (per kW of
Reserved Capacity)
Summer Period $0.84 $12.55 $13.39
Winter Period $0.72 $6.04 $6.76

c. Meters. A separate Meter is required for each non-utility generation source.

d. Calculation of Maximum Demand Credit.

(1) In the event the Customer’s Maximum Demand (as defined in Section D.4) occurs when one or more of the non- utility generators on the Customer’s side of the City’s revenue Meter are not operating, the Maximum Demand will be reduced by the sum of the Maximum Generation of those non- utility generators, but in no event shall the Customer’s Maximum Demand be reduced below zero.

(2) If the non- utility generation source does not operate for an entire billing cycle, the standby charge does not apply and the Customer shall not receive the Maximum Demand credit described in this Section.

e. Exemptions.

(2) The standby charge shall not apply if the Customer meets the definition of an “Eligible Customer- generator” as defined in California Public Utilities Code Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
92 Packet Pg. 663 of 853

LARGE NON-RESIDENTIAL ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-7

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-7-5 Sheet No E-7-5
dated 7-1-202219 Effective 7-1-20232

Section 2827(b)(4) , as amended.

(3) The applicability of these exemptions shall be determined at the discretion of the Utilities Director.
{End}
Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
93 Packet Pg. 664 of 853

LARGE NON-RESIDENTIAL GREEN POWER ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-7-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-7-G-1 Sheet No E-7-G-1
dated 7-1-20221 Effective 7-1-20232

A. APPLICABILITY:

This Rate Schedule applies to Demand metered Service for large non-residential Customers who choose Service under the Palo Alto Green Program. A Customer may qualify for this R ate Schedule if the Customer’s Maximum Demand is at least 1,000KW per month per site, who have sustained this Demand level at least 3 consecutive months during the last twelve months.

B. TERRITORY:

The rate schedule applies everywhere the City of Palo Alto provides Electric Service.

C. UNBUNDLED RATES:

1. 100% Renewable Option:

Commodity Distribution
Public
Benefits
Palo Alto
Green
Charge Total
Summer Period
Demand Charge ( per kW) $ 6.035.16 $ 33.0527.06
$

39.0832.
22 Energy Charge (per kWh)

0.139170.11
476

0.000750.00
059

0.005680.
00469 0.0075

0.15310

0.12754
Winter Period
Demand Charge (per kW) $ 3.462.96 $ 18.2514.94
$

21.7117.
90 Energy Charge (per kWh)

0.092120.07
597

0.000750.00
059

0.005680.
00469 0.0075

0.10605

0.08875
Minimum Bill ($/day) 62.553951.5696

Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
94 Packet Pg. 665 of 853

LARGE NON-RESIDENTIAL GREEN POWER ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-7-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-7-G-2 Sheet No E-7-G-2
dated 7-1-20221 Effective 7-1-20232

2. 1000 kWh Block Purchase Option:

Commodity Distribution Public Benefits Total
Summer Period
Demand Charge (per kW) $ 6.035.16 $ 33.0527.06
$

39.0832.
22 Energy Charge (per kWh)

0.139170.11
476

0.000750.00
059 0.005680.00469

0.14560

0.12004
Palo Alto Green Charge (per 1000 kWh block) $7.50
Winter Period
Demand Charge (per kW) $ 3.462.96 $ 18.2514.94
$

21.7117.
90 Energy Charge (per kWh)

0.092120.07
597

0.000750.00
059 0.005680.00469

0.09855

0.08125
Palo Alto Green Charge (per 1000 kWh block) $7.50
Minimum Bill ($/day) 62.553951.5696

D. SPECIAL NOTES:

1. Calculation of Charges

The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C.

2. Seasonal Rate Changes

The Summer Period is effective May 1 to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period includes use both in the Summer and the Winter Periods, the usage will be prorated based on the number of days in each seasonal period , and the charges based on the applicable rates therein. For further discussion of bill calculation and proration, refer to Rule and Regulation 11.

3. Maximum Demand Meter

Whenever the monthly use of energy has exceeded 8,000 kilowatt -hours for three Item 15
Attachment C - Rate
Schedules Combined

Item 15: Staff Report
Pg.
95 Packet Pg. 666 of 853

LARGE NON-RESIDENTIAL GREEN POWER ELECTRIC SERVICE

UTILITY RATE SCHEDULE E-7-G

CITY OF PALO ALTO UTILITIES
Issued by the City Council

Supersedes Sheet No E-7-G-3 Sheet No E-7-G-3
dated 7-1-20221 Effective 7-1-20232

consecutive months, a Maximum Demand Meter will be installed as promptly as is practicable and thereafter continued in Service until the monthly use of energy has dropped below 6,000 kilowatt -hours for twelve consecutive months, whereupon, at the option of the City, it may be removed.

The Maximum Demand
in any month will be the maximum average power in kilowatts taken during any 15-minute interval in the month, provided that if the Customer’s load is intermittent or subject to fluctuations, the City may use a 5 -minute interval. A thermal-type Demand Meter which does not reset after a definite time interval may be used at the City's option.

Palo Alto City CouncilApril 17, 2023

Palo Alto City Council
April 17, 2023