June 16, 2025 www.PaloAlto.gov
FY 2026 Utility
Financial Forecasts and
Rate Proposals
City Council
2 Utilities Rate Proposals for Fiscal Year 2026
2 Overall Rate Change Proposals
• Infrastructure maintenance
and replacement
• Operating costs
for labor, materials, supply
purchases
• Regulatory compliance
• Replenish Utilities financial
reserves
Reasons for Rate Increases
Electric 5.1%
Gas 5%
Water 10%
Wastewater 20%
Refuse 0%
Stormwater 2%
Fiber Optics New Rates
3 Utilities Rate Review Timeline & Outreach
3 December 3 & 4:
Finance Committee - Preliminary Financial Forecast & Rate Projections Utilities Advisory Commission (UAC) – Preliminary Financial Forecast & Rate Projections
March 5: UAC – Water & Wastewater Collection
April 1, 2, & 15:
Finance Committee – Water & Wastewater Collection
UAC – Gas & Electric
Finance Committee – Gas & Electric
May 7: Finance Committee - Gas (continued from April 15) and UAC – Fiber Rates & Packages
June 3 & 16: Finance Committee – Fiber Rates & Packages City Council – Final Rate Proposals
Additional Outreach
• Residential and Business Customer Meetings
• Community Blog, Utility Bill Inserts, Website, Media, Staff Education 4 Residential Median Bill Projections (Bill $ and % change from prior year) 1) FY 2025 incorporates results of cost-of-service analysis; 2) Gas rate in FY 2026 based on General Fund transfer of 18% of gross revenue in FY 2024; changes shown with commodity rates held constant; actual gas commodity rates vary monthly; 3) Storm water management fees increase by CPI index annually per approved 2017 ballot measure (2.6% in FY 2025 and 2.4% in FY 2026); 4) Based on projected FY 2025 monthly residential bill of $404. 5 Median Residential Bill Comparison to Neighboring Cities Utility Service Palo Alto Menlo Park Redwood City Mountain View Electric $83.94 $167.95 $167.95 $167.95
Gas $70.27 $84.06 $84.06 $84.06
Water $113.47 $101.68 $120.15 $96.31
Wastewater $55.93 $114.25 $97.74 $54.60
Refuse $50.07 $58.64 $52.86 $46.55
Stormwater $17.20 N/A N/A N/A
Total $390.88 $526.58 $522.76 $449.47
Note: Bill comparison table does not include Utility Users Tax (UUT); calculated based on rates effective 3/1/2025 at Palo Alto median usage levels. 6 Public Hearing
Water and Wastewater Rate Changes
per
Proposition 218
6 7
Water Rate Proposal
10% rate increase, approximately $11.40/month for the median residential customers Drivers
• Revenue below cost; used $25 million in reserves over past 3 years • Water sales reductions in recent years; drought, pandemic Updates from April 1, 2025 Finance Committee
• Increased SFPUC water purchase costs from $5.79 to $5.80/CCF for FY 2026
• Increased water purchase costs FY 2027-2030 (SFPUC forecast) • Increased deferred water main replacements in FY 2028 from $2.5 million to $2.8 million
7 Total: 10% Rate Increase
4% 3% 1% 0% 0%
5% 5%
9.5%
10% 10%
10%
10%
10%
0 10
20 30
40 50
60 70
80 90
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Projection
$ Millions
Fiscal Year
Capital*
Operations
Water Supply
Debt Service
Revenue
Rate % Changes
2026
8 Water Cost and Revenue Projections
* Includes changes due to
commitments/reappropriations
and funds transferred to the CIP
Reserve
9 Single-Family Residential Water Bill Comparisons
($/Month)
Palo Alto water bills
are near the average
among agencies
with 100% SFPUC
supply
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Agencies with 100% SFPUC
SupplyProjected 2025 single-family residential water bills based on historical averages, at 10 units of water usage. 10 Wastewater Collection Rate Proposal
20% rate increase, approximately $11.20/month for the median residential customers
Rate Increase
• Collection operating expenses
• Replenish reserves for collection and treatment costs • Regional treatment plant rebuild cost (~$19M for Palo Alto over 5 years)
• Deferred wastewater system collection capital improvements Updates from April 1, 2025 Finance Committee
• Reduced rate trajectory by 1% in FY 2027 and an
additional 1% in FY 2028 due to refinements in treatment capital, grant reimbursement and operating reserve
replenishments.
Total: 20% Rate Increase
0% 11% 7% 0%
3% 3%
9%
15%
20%
16%
14%
5% 5%
0 5
10 15
20 25
30 35
40 45
50 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Projection
$ Millions
Fiscal Year
Collection Debt
Collection Capital *
Collection Operations *
Treatment Capital & Debt
Treatment Operations
Revenue
2026
Rate % Changes
Co llection: Debt F ree
as of end of FY24
11 Wastewater Collection Cost and Revenue Projections
*FY25 Commitments and Reappropriations
reserves balances for Operations and
Capital Investment are anticipated to be
utilized in FY26 and FY27
12 Monthly Single Family Residential Wastewater Rate Comparison Palo
Alto
Chart courtesy of Silicon Valley Clean
Water, based on FY 2024 rates
13 Public Comment
Water and Wastewater Rate
Changes
per
Proposition 218
8 Recommendation
The Finance Committee recommends that the City Council
adopt the Water resolution approving:
• The FY 2026 Water Utility Financial Forecast and
Reserves Management Practices;
• The transfer of up to $3 million from the Rate Stabilization Reserve to the Operations Reserve in FY 2025;
• Amending the Water Utility Rate Schedules Effective July 1, 2025.
9 Recommendation
The Finance Committee recommends that the City Council
adopt the Wastewater Collection resolution approving:
• The FY 2026 Wastewater Collection Utility Financial
Forecast and Reserves Management Practices;
• Amending the Wastewater Collection Utility Rate
Schedules Effective July 1, 2025;
• Repealing the Wastewater Collection Utility Rate
Schedules, S-3 and S-4, Effective July 1, 2025.
16 16
5% overall rate increase*, approximately $3.70/month for the median residential customers;
individual customer rate increases vary depending on usage level • Reserve replenishment
• Operating Expenses
• Federal grant of $16.5 million expected to fund CIP work including main replacement
Finance Committee voted unanimously to recommend Council:
1) Revise proposed FY 2026 rates to retain the current FY 2025 rate structure, with rate increases to meet the revenue requirement for FY 2026; 2) In FY 2026 only, apply a combination of climate credit (using Cap and Trade auction revenues) and interest income to G-2 customers (small and medium meter capacities) in the total amount of $1.1 million** and 3) Refer staff to return to the Utilities Advisory Commission (UAC) to further review the FY 2025 Cost of Service Study (COSA) assumptions and principles.
Gas Rate Proposal
*Note: excludes supply-related rate changes
**Sufficient to provide one-time credit of $820.17 and $201.92 per month to small and medium capacity G-2 customers, respectively, in December 2025.
Total: 5% Rate Increase
17 Gas Cost and Revenue Projections
17 18
5.1% overall rate increase, approximately $5/month for the median residential customers • Investment in grid modernization ($300M total, ~$228M though FY 2030) funded by revenues and bond financing;
• Replenish reserves from 2020-2022 drawdown
• Meet increased State Renewable Portfolio Standard requirements (44% to 60% by 2030) • Longer-term transmission access charges (~7% annually) Update from April 15, 2025 Finance Committee
• Deferred $2.9 million in FY 2027 for the Municipal Services Center remodel • Updated Public Benefits, Low Carbon Fuel Standard, and Cap & Trade spending to reflect the latest budget estimates
Electric Rate Proposal
14% 6% 8% 0%
0%
35%
5.1% 6% 8%
8% 6%
0 50
100
150
200
250
300
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Projection
$ Millions
Fiscal Year
Capital Investment
Electric Commodity
Operations
Transfers
Grid Modernization Debt
Debt Service
Revenue
-5%
-6% to 9%
Rate % Changes
2026
19 Electric Cost and Revenue Projections
20 Electric Bill Comparisons
California Municipal Utilities
Association, 2024 California
IOU Rate Forecast and Bill
Comparison, prepared by Bell
Burnett & Associates
Palo Alto
21 Amending the Dark Fiber Optic Utility Rate Schedules EDF-1 and EDF-2 Effective July 1, 2025, consistent with the applicable Consumer Price Index;
Approving the new Palo Alto Fiber Broadband Internet Rate Schedule for broadband internet services.
Fiber Rate Proposal
Residential Service Plan Pricing Additional Equipment Pricing 500 Mbps - Rate Assistance Up to $30 Calix GigaSpire Up to $5 500 Mbps Up to $75 Calix Blast Mesh Extender Up to $5
1 Gbps Up to $95 Calix Gig Wan Port Up to $600
2 Gbps Up to $175
5 Gbps Up to $265 Other Service Offerings Pricing
Fixed Wireless - 100 Mbps Up to $75/Month
Commercial Internet Service Plan Pricing Protect IQ Up to $10/Month 500 Mbps Up to $125 Experience IQ Up to $10/Month
1 Gbps Up to $185 Smart Home - Calix Up to $10/Month
2 Gbps Up to $195 Smart Biz - Calix Up to $30/Month
5 Gbps Up to $295 Smart MDU - Calix Up to $10/Month per subscriber Commercial Dedicated 1 Gbps
Internet Access (DIA) Up to $1,500/Month
Other Contract Terms
Commercial Dedicated 10 Gbps
Internet Access (DIA) Up to $7,500/Month
Data Allowance - Unlimited
Month to month contract term
22 What the City is Doing to Keep Costs Down
Contracts Management and Operational Changes:
• Selling surplus energy supplies (resource adequacy) and renewable energy credits to generate $10+ million per year
• Negotiating better hydroelectric resource contracts to save $2 million annually • Negotiating new long-term supply contracts to cut costs.
Construction Management and Partnering to Save Costs:
• Scheduling large construction projects every other year to save $50,000 per project through better planning and lower costs
• Grouping gas main replacements to reduce contractor costs to save $5,000-$10,000 per project.
• Partnering with other agencies to advocate for lower electric, gas, and water system costs.
23 Resources From the City to Keep Bill Costs Low
• Low-income rate programs (20-25% discount) and
financial assistance for help with utility bill costs
• Free efficiency assessments for homes,
multifamily properties, and businesses
• Free energy and water efficiency devices and tools
to monitor energy and water usage
• Rebates on appliances and systems,
electrification, and electric vehicle programs
• www.paloalto.gov/utilitiesassistance
• www.paloalto.gov/waystosave
24 Recommendation
The Finance Committee recommends that the City Council adopt resolutions approving the following:
Gas
• The FY 2026 Gas Utility Financial Forecast and Reserves Management Practices;
• The transfer of up to $1.5 million from the Gas Utility Operations Reserve to the Distribution Rate
Stabilization Reserve in FY 2025;
• Transferring up to 18% of gas utility gross revenues
received during FY 2024 to the General Fund in FY 2026; • The utilization of all available FY 2025 gas utility interest income and up to $1.1 million from the Cap and Trade
Reserve to provide a one-time Climate Credit of
$820.17 and $201.92 to Small and Medium Capacity G-
2 customers, respectively, in December 2025;
• Amending the Gas Utility Rate Schedules Effective July 1, 2025.
Electric
• The FY 2026 Electric Utility Financial Forecast and
Reserves Management Practices;
• The transfer of up to $5 million from the Electric Utility Supply Operations Reserve to the Distribution
Operations Reserve in FY 2025;
• Amending the Electric Utility Rate Schedules Effective July 1, 2025.
Fiber Optics
• Amending the Fiber Optic Utility Rate Schedules
Effective July 1, 2025, consistent with the applicable
Consumer Price Index;
• Approving the new Palo Alto Fiber Broadband Internet
Rate Schedule for broadband internet services.
Stormwater Management
• Amending the Storm Water Management Fee Rate Schedule Effective July 1, 2025, consistent with the applicable Consumer Price Index.