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Resolution No. _
Resolution of the Council of the City of Palo Alto Approving the Fiscal Year 2027 Electric Utility Financial Forecast and Reserve Transfer, Amending the Electric Utility Reserves Management Practices and Utility Rate Schedules E-1 (Residential Electric Service), E-1 TOU (Residential Time of Use 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 Electric Time of Use Service), E-7 (Large Non Residential Electric Service), E-7-G (Large Non- Residential Green Power Electric Service), E-7 TOU (Large Non-Residential Electric Time of Use Service), E-14 (Street Lights), E-16 (Unmetered Electric Service), E-EEC-1 (Export Electricity Compensation), and E-NSE-1 (Net Metering Surplus Electricity Compensation), and Directing the Use of Up To $225 ,000 in Renewable Energy Certificate Exchange Net Revenues in Fiscal Year 2027 to Reduce Electric Customers’ Photovoltaic Generation and Energy Storage System Installation Costs
R E C I T A L S
A. Each year the City of Palo Alto (“City”) 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 Forecasts or 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 ( Attachment D, Exhibit 3) and Electric Utility Financial Details (Attachment D, Exhibit 2) attached to this resolution and made a part of the staff report presented to the City Council.
C. On April 7, 2026, the Finance Committee directed staff 1 to develop financial offsets for building permits related to electrification, photovoltaic (PV) generation, energy storage systems (ESS), HVAC systems, and electric panel upgrades less than 400amps.
D. After review of possible funding sources, which include revenues from the REC
1 April 7, 2026 Action Minutes for item 2:
https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=18557&compileOutputType=1
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Exchange Program 2, public benefits funds, and Cap- and-Invest program revenues, staff recommend using REC Exchange Program revenues for PV and ESS building permit fees, and using existing efficiency electrification incentive programs to offset the related costs of HVAC systems, including panel upgrades, service upgrades, and building permit fees.
E. The use of REC Exchange Program revenues for local decarbonization requires an offsetting reduction in the allocation of Cap-and-Invest auction revenues to the City’s Cap-and- Invest Reserve.
F. 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.
G. On June 15, 2026, the City Council heard and approved the proposed rate increase at a noticed public hearing.
The Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. The Council hereby approves the fiscal year (“FY”) 2027 Amended Electric Utility Reserve Management Practices (Attachment D, Exhibit 3) and Electric Utility Financial Details (Attachment D, Exhibit 2) presented to the City Council on June 15, 2026, which are attached to this resolution and made a part of the staff report presented to the City Council;
SECTION 2. The Council hereby approves the transfer of up to $5 million from the Electric Utility Distribution Operations Reserve to the Electric Utility Capital Reserve in FY 2026, as described in the FY 2027 Electric Utility Financial Forecast (Attachment D, Exhibit 2);
SECTION 3. 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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-1, as amended, shall become effective July 1, 2026;
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-1 TOU (Residential Time of Use Electric Service) is hereby amended to read as shown in Attachment D, Exhibit 1. Utility Rate Schedule E-1 TOU, as amended, shall become
2 On August 24, 2020, the City Council adopted Resolution 9913, amending the Electric Utility’s Carbon Neutral Plan to permit the exchange of Bucket 1 RECs for Bucket 3 RECS (the REC Exchange Program); Staff report 11556, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86875&dbid=0&repo=PaloAlto&cr=1. In 2022 and 2025 Council directed staff via minute order to allocate an amount equivalent to all of the revenues earned from the REC Exchange Program from the City’s Cap and Trade Reserve to local decarbonization efforts. Staff Report 14735, 12/12/2022, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82045; Staff Report 2510-5281, 12/15/25, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84126
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effective July 1, 2026;
SECTION 5. 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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-2, as amended, shall become effective July 1, 2026;
SECTION 6. 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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-2-G, as amended, shall become effective July 1, 2026;
SECTION 7. 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 shown in Attachment D, Exhibit 1 . Utility Rate Schedule E-4, as amended, shall become effective July 1, 2026;
SECTION 8. 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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-4-G, as amended, shall become effective July 1, 2026;
SECTION 9. 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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-4 TOU, as amended, shall become effective July 1, 2026; and
SECTION 10. 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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-7, as amended, shall become effective July 1, 2026;
SECTION 11. 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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-7-G, as amended, shall become effective July 1, 2026;
SECTION 12. 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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-7 TOU, as amended, shall become effective July 1, 2026;
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SECTION 13. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-14 (Street Lights) is hereby amended to read shown in Attachment D, Exhibit
1. Utility Rate Schedule E-14, as amended, shall become effective July 1, 2026;
SECTION 14. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-16 (Unmetered Electric Service) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E-16, as amended, shall become effective July 1, 2026;
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 shown in Attachment D, Exhibit 1. Utility Rate Schedule E-EEC-1, as amended, shall become effective July 1, 2026;
SECTION 16. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-NSE-1 (Net Surplus Electricity Compensation Rate) is hereby amended to read shown in Attachment D, Exhibit 1. Utility Rate Schedule E -NSE-1, as amended, shall become effective July 1, 2026;
SECTION 17. The Council finds that 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, consistent with any limitations imposed by Article XIII C and Article XIII D of the California Constitution.
SECTION 18. 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.
SECTION 19. The Council directs the use of up to $225,000 in REC Exchange net revenues in FY 2027 to reduce electric customer costs related to photovoltaic generation and energy storage system installations, as local decarbonization efforts, and directs staff to take the following actions:
a. change the funding mechanism for the Cap-and-Invest Reserve to allocate up to $225,000 less in Cap-and-Invest auction revenues in FY 2027 to the City’s Cap- and-Invest Reserve and instead allocate these funds for other local decarbonization efforts; and
b. review existing HVAC incentive levels including consideration of financial offsets to lower the cost of related work including panel upgrades, electric utility service upgrades, or the cost of building permit fees; and c. return to Council within Fiscal Year 2027 to review the Electric Supply Portfolio Carbon Neutral Plan and use of revenues derived from the REC Exchange Program.
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SECTION 20. The Council finds that approving the Electric Reserves Management Practices, Electric Financial Forecast, Electric Reserve transfer and Directing the Use of Up To $225,000 in Renewable Energy Certificate Exchange Net Revenues in Fiscal Year 2027 to Reduce Electric Customers’ P hotovoltaic Generation and Energy Storage System Installation Costs 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 each 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