June 15, 2026 PaloAlto.gov
FY 2027 Utility
Financial Forecasts and
Rate Proposals
City Council
Presenter: Lisa Bilir, Assistant Director of
Utilities, Resource Management
2 Palo Alto Utilities: Reliability, Safety, and Sustainability Pole removal for undergrounding
electric service in Foothills for
wildfire mitigation
Reliable, Essential Services
• Delivering 900GWh of electricity, 23.7M therms of natural gas and 3.4 billion gallons of drinking water annually with strong system reliability, advanced metering, and proactive maintenance.
Infrastructure Renewal and Safety
• Electric, gas, water, and wastewater collection system replacements, modernizing the electric grid, undergrounding, leak reduction, and storm-damage repairs, plus Palo Alto’s share of wastewater treatment plant rebuilding.
Resilience and Climate Leadership
• ~60% renewable, 100% carbon-neutral electricity, electrification programs, and wildfire-mitigation investments.
Financial Stewardship
• Managing $500M+ in annual budgets, ensuring fair cost recovery, stable operations, and long-term capital planning.
3 Resources to Help Customers Save on Utility Bills
• Rate Assistance
• Expanded eligibility for income-qualified customers.
• Discounts on utility bills - electric increase from 25–35%, gas discount 25%, water rate assistance from Valley Water. • Residential Energy Assistance Program (REAP)
• Home upgrades and weatherization for income-qualified residents.
• Efficiency Measures and Electrification Support
• Free customer surveys, efficiency devices, rebates.
• AMI and Leak Detection
• Advanced Metering Infrastructure (AMI) energy and water usage data, automated leak alerts with WaterSmart.
4 Water, Wastewater Collection, and Refuse Rate Proposals Water - 8% Rate Increase
• Finance Committee reduced proposed FY 2027 rate increase from 10% to 8% and reduced projected rate increases for subsequent years.
• Key driver: San Francisco Public Utilities Commission (SFPUC) wholesale rate increase of 7.4%.
Wastewater Collection - 16% Rate Increase
• Regional treatment plant rebuild and increased operating costs. • Large wastewater main replacements, collection system improvements, lift station replacement, 5-mile main replacement scheduled for FY 2028.
Refuse Collection - 3% Rate Increase
• Recover collection and processing costs of solid waste materials.
4 5
Residential Median Monthly Bill Projections
Proposed
2026 2027 2028 2029 2030 2031
$5.00 $4.00 $6.10 $7.10 $7.40 $7.10
6% 4.50% 7% 7% 7% 6%
$8.60 $7.30 $6.10 $5.60 $6.00 $6.50
12% 9% 7% 6% 6% 6%
$11.40 $10.00 $12.10 $13.20 $11.20 $10.30
10% 8% 9% 9% 7% 6%
$11.20 $10.70 $10.90 $5.30 $5.60 $6.00
20% 16% 14% 6% 6% 6%
$0.40 $0.50 $0.50 $0.60 $0.60 $0.60
2% 3% 3% 3% 3% 3%
$0.00 $1.50 $1.60 $1.60 $1.60 $1.70
0% 3% 3% 3% 3% 3%
Monthly Bill Amount $441.50 $476.70 $515.20 $549.90 $583.70 $617.10 $37.80 $35.20 $38.50 $34.70 $33.80 $33.40
9% 8% 8% 7% 6% 6%
Stormwater (2)
Refuse
Monthly Bill Change
Fiscal Year Projections
Electric
Gas (1)
Water
Wastewater Collection
1) FY 2026 includes results of cost-of-service analysis; changes shown with commodity rates held constant; actual gas commodity rates vary monthly 2) Storm water management fees increase by CPI index annually per approved 2017 ballot measure (2.4% in FY 2026) 6 Recommendation
The Finance Committee recommends that Council adopt resolutions approving/amending:
Wastewater Collection
• The FY 2027 Wastewater Collection Utility Financial Forecast and Reserves Management Practices; and
• Wastewater Collection Utility Rate Schedules effective July 1, 2026.
Water
• The FY 2027 Water Utility Financial Forecast and Reserves Management Practices; and • The transfer of up to $5.5 million from the Operations Reserve to the CIP Reserve in FY 2026; and
• Water Utility Rate Schedules effective July 1, 2026.
Refuse
• Refuse Utility Rate Schedules effective July 1, 2026.
Proposal
• 4.5% overall rate increase in FY 2027 (Finance Committee voted unanimously to recommend reducing the proposed FY 2027 rate increase from 6% to 4.5%).
Rate Increase Drivers
• Investment in electric grid modernization funded by revenues and bond financing; first bond issuance in FY 2027 (estimated $85 million). • Rising long-term costs for grid upgrades, increased mandates for renewable energy targets, increasing requirements for power reliability.
Building Permit Fees: Directing the use of up to $225,000 in FY 2027 of non-rate revenues to reduce electric customers’ Photovoltaic Generation and Energy Storage System installation costs as local decarbonization efforts.
Electric Utility Rate Proposal
7 Palo Alto’s electric bills are about 44% lower than PG&E for commercial and residential customers. 8 Gas Utility Rate Proposal
Proposal:
• 9% overall rate increase in FY 2027.
• UAC voted 4-3 to recommend keeping the FY 2027 rate increase at or below 7% by reducing the General Fund Transfer or possibly using reserves (March 31, 2026). • Finance Committee voted 2-1 to recommend a 9% overall rate increase; discussed but did not recommend slowing the gas price spike mitigation reserve recovery to 32 months (~1% gas bill reduction) (April 21, 2026).
Rate Increase Drivers
• Lower sales revenue from lower gas usage due to mild weather. • Capital Improvement Projects (CIP) gas main replacement cost increases (for non- grant-funded project).
9 Recommendation (1 of 2)
The Finance Committee recommends that Council adopt resolutions approving/amending:
Electric
• The FY 2027 Electric Utility Financial Forecast, and amended Electric Utility Reserve Management Practices; and
• The transfer of up to $5 million from the Electric Utility Distribution Operations Reserve to the Electric CIP Reserve in FY 2026; and
• Electric Utility Rate Schedules Effective July 1, 2026; and • Directing the use of up to $225,000 in Renewable Energy Certificate Exchange net revenues in FY 2027 to reduce electric customers’ photovoltaic generation and energy storage system installation costs, with an offsetting reduction in the allocation of Cap-and-Invest auction revenues to the City’s Cap-and-Invest reserve. 10 Recommendation (2 of 2)
The Finance Committee recommends that City Council adopt resolutions approving:
Gas
• The FY 2027 Gas Utility Financial Forecast, including Amending the Gas Utility Reserve Management Practices; and
• The transfer of up to $1.5 million from the Gas Utility Operations Reserve to the Distribution Rate Stabilization Reserve in FY 2026; and
• Transferring up to 18% of gas utility gross revenues received during FY 2025 to the General Fund in FY 2027; and
• Amending the Gas Utility Rate Schedules Effective July 1, 2026.
Fiber Optics
• Amending the Fiber Optic Utility Rate Schedules Effective July 1, 2026, consistent with the applicable Consumer Price Index.
Storm Water Management
• Amending the Storm Water Management Fee RateSchedule Effective July 1, 2026, consistent with the applicable Consumer Price Index.
Questions