Palo Alto committee recommends council approve updated utilities connection fees, effective Jan. 1, 2026

The Palo Alto Finance Committee on Sept. 16 voted unanimously to recommend that the City Council adopt a resolution updating connection fees and service charges for electric, water, gas, wastewater and miscellaneous utility services, with the new schedules proposed to take effect Jan. 1, 2026.

Alan Curatori, Director of Utilities, introduced the item and said staff had revised fee templates that the department last updated in 2019. Anna Varon, senior business analyst, told the committee the updates reflect current labor‑hour estimates, materials and disposal costs and the addition of certain equipment and inspection fees. "These fees are cost recovery for work that's performed by the city staff, for customer connections at their request," Varon said.

Staff said the update includes standardization of several service categories to improve permitting and processing efficiency. For electric services, staff proposed several new standardized fee categories (including 400‑amp overhead and underground standard fees) and increases in some existing categories; staff said the 200‑amp underground category shows a large percentage increase in the proposed table because prior templates undercounted staff time and related costs and because the standard fee set represents a small portion of total electric connection revenue. Staff said the set of standardized electric fees comprises roughly 8% of electric connection revenues and compared proposed electric fees to neighboring jurisdictions as a reasonability check.

For water, gas and sewer, staff said there are many more fee line items (dozens per schedule) and that increases reflect updated time‑and‑material estimates plus additional disposal and construction costs. The packet shows roughly 40 gas fee categories, about 40 water categories and about 20 sewer categories; staff proposed new fees for certain demolition and relocation work for gas and added cross‑connection (backflow) inspection and testing fees for water.

On backflow devices, Denise Rodriguez of Water, Gas & Wastewater explained that the state regulatory framework requires testing and that the city has about 4,700 devices on record; staff reported about 402 devices currently listed as noncompliant (not certified). Rodriguez said the laboratory testing standard for devices supports annual testing: "They're tested in a laboratory setting to only function properly for 12 months at a time," and said the city will enforce testing and offer a city testing option for customers who prefer not to hire a third‑party tester. Staff said a late fee and a city test fee are proposed to improve compliance.

To reduce future large increases for customers, staff proposed indexing annual adjustments to the California Construction Cost Index (CCCI) rather than the Consumer Price Index and moving the fee schedules into the municipal fee schedule subject to annual review during the budget process. Staff showed the CCCI rose about 40% from 2019 through 2024 and about 45% when including a 2025 estimate; staff said that historical rise is part of why some fees now appear substantially higher than the 2019 templates.

Committee members asked for supporting detail and comparables. Staff said they would provide additional supporting worksheets on request and noted that large percentage increases in a handful of standard electric categories reflect prior undercounting of staff hours and that overall the electric standard fees represent a small slice of total connection revenues. Staff also confirmed the proposed C1 hourly rate for certain permitting tasks would move from $152 in 2019 to a proposed $207.

Action and vote: A committee motion to recommend that the Council adopt a resolution amending utilities connection fees and service charges and approving corresponding budget appropriation revisions for FY26 passed unanimously. Staff said the proposed fee schedules would be forwarded to the full council for consideration and that the effective date in the draft would be Jan. 1, 2026.

Ending: Staff said they will provide additional documentation and comparisons on request and will bring annual adjustments forward under the municipal fee schedule as part of the normal budget process.