Palo Alto finance committee backs voluntary residential time-of-use electricity rates

The Palo Alto City Council Finance Committee voted unanimously Sept. 2 to recommend that the full City Council adopt a voluntary residential time-of-use (TOU) electric rate for customers on the E‑1 residential rate schedule, with an effective date of Jan. 1, 2026.

City utilities staff said the opt-in TOU schedule charges different prices depending on when electricity is used: a super off‑peak window during daytime solar production (9 a.m.–3 p.m.), an off‑peak band for other lower‑cost hours, and a peak period from 4 p.m. to 9 p.m. Staff described the schedule as revenue‑neutral relative to existing E‑1 tiered rates if customers do not change their usage patterns, while giving customers an opportunity to lower bills and greenhouse‑gas intensity by shifting discretionary uses to lower‑carbon hours.

The TOU proposal was introduced by Alan Curatorio, director of utilities, and presented by Lisa Belair, senior resource planner, with Carla Daly, assistant director of resources for utilities, answering implementation questions. Staff told the committee the rate would require customers to have an advanced metering infrastructure (AMI) meter to enroll and would initially be closed to certain net energy metering (NEM) solar customers while billing changes are made. Staff said NEM‑2 customers may be eligible later; NEM‑1 customers are not expected to be eligible under current billing constraints.

Staff outlined a cautious rollout that begins with a small, hand‑selected pilot to validate billing, customer portal displays and enrollment logistics. The pilot would be capped at about 10 customers per month at the outset (staff mentioned 10 per month for an initial period, possibly expanding later to larger monthly cohorts such as 50 per month) with a planned full customer rollout by roughly July 2026 if implementation proceeds as expected. Staff also said they will provide early participants with a 12‑month “look back” showing how switching to TOU would have affected their bills.

Committee members raised questions about adverse selection (whether customers who save will opt in while peak users remain on the flat rate), how quickly staff could adjust rates if adoption patterns change, and the size of the initial pilot. Staff and the consultant said the proposed TOU schedule was developed from a supplement to the electric cost‑of‑service study and is aligned with the marginal cost of energy throughout the day and with Proposition 26 requirements. Staff said they will monitor adoption and usage changes, update assumptions annually, and can adjust rates more than once a year if necessary.

Several members asked about equity and impacts on lower‑income households. Staff said Palo Alto already offers reduced rates for income‑qualified customers (about 25% less than standard rates) and that the city has programs to reduce up‑front costs for eligible residents who adopt energy efficiency or enabling technologies. Staff also noted not all customers yet have AMI meters; staff reported ongoing AMI rollout and said roughly 5,000 electric meters are currently live, with a target to complete electric metering by the end of the year assuming staffing remains stable.

Committee members also asked about interactions with utility‑scale batteries and grid planning; staff said utility‑scale battery projects are being pursued primarily for resource adequacy and grid benefits rather than as a direct retail arbitrage opportunity for TOU customers. Staff indicated commodity and distribution cost differences between super off‑peak and peak hours are substantial and that reducing peaks can lower the need for higher‑cost purchases and future capacity investments.

After discussion, a committee member moved the staff recommendation; the motion was seconded and passed unanimously.

Staff next steps identified during the meeting include: finalizing bill and billing‑system configurations, running a small pilot to validate customer experience, developing enrollment and communication materials, refining metrics for program success and returning detailed implementation and communications plans to the Utilities Advisory Commission for an October report‑out.