Palo Alto council adopts water, wastewater, electric and gas rate increases; delays permanent gas rebate

The Palo Alto City Council on June 16 adopted a package of utility rate and financial-plan resolutions that will raise residential utility bills overall and set a timetable for follow-up work on rate design and an internally proposed gas rebate.

The council approved a 10% increase in water rates and a 20% increase in wastewater collection rates after public hearings required under Proposition 218. The council also approved rate adjustments for the city’s electric, gas, fiber and stormwater programs (electric +5.1%, gas +5%, fiber pricing range approved for pilot offers, and a CPI-tied stormwater increase). Council voted separately to remove a staff-recommended $1.1 million one-time gas “climate credit” drawn from cap-and-trade funds and to remand that question back to the Utilities Advisory Commission for further study and policy review.

Why it matters: The increases come after multi-year revenue shortfalls and reserve drawdowns, and follow intense public comment focused on regional water planning and the San Francisco Public Utilities Commission (SFPUC) planning assumptions. The decisions raise customer bills this year while directing staff and advisory bodies to return with more detailed cost-of-service analyses, equity alternatives and policy options for cap-and-trade funds.

Most important facts - Water: Council adopted a 10% rate increase (listed by staff as roughly $11.40/month for the median residential customer). Written protests: 8. Customers subject: 19,441 (majority protest threshold 9,721). Outcome: Council adopted the water collection rate by majority vote (motion carried; recorded 6–0–1; one councilmember absent). Staff noted revenues have been below costs in recent years and reserves were used to cover shortfalls. - Wastewater collection: Council adopted a 20% rate increase (about $11.20/month for the median residential customer). Written protests: 8. Customers subject: 22,246 (majority protest threshold 11,124). Outcome: Adopted by council (motion carried; recorded 6–0–1; one councilmember absent). - Other utilities: Council adopted proposed gas (5%) and electric (5.1%) financial plans and the city’s fiber pilot pricing framework and stormwater CPI increase (votes recorded: electric/fiber/stormwater package carried after committee changes; recorded 6–0–1). - Gas rebate remand: The council removed a staff/finance-committee proposal to provide up to $1,100,000 in one-time credits funded by interest income and cap-and-trade proceeds (staff estimated ~$200k of interest income and the balance from the city’s cap-and-trade reserve), and instead remanded the question of any onetime credit to the Utilities Advisory Commission and asked staff to return with a full cost-of-service study and equity review. The motion to remove that credit passed (recorded 5–1–1; one no vote noted and one absence).

Public hearing and comments The hearing drew a dozen speakers on water supply and SFPUC planning. Speakers pressed the council to seek additional drought-risk data from SFPUC and to avoid overbuilding alternative supplies that would drive up wholesale costs. Several speakers — including members of the city’s Utilities Advisory Commission and regional advocates — argued SFPUC’s “design drought” assumptions are more severe than other Bay Area planning documents and that transparent risk data is needed before locking in expensive supply projects. Staff and multiple UAC members said there are no large alternative-supply projects included in the city’s current rate proposals; a limited amount of study funding is included.

Council discussion and directions Council asked staff to return with a fuller cost-of-service and rate-design study (including evaluation of additional tiers or progressive rate structures), and to bring the city’s 1‑Water plan to the SCAP committee (tentatively scheduled for September). On the gas rebate, council required the UAC to review the use of cap-and-trade funds and policy criteria before any onetime credit proceeds.

Clarifying numbers and details included in the record - Water customers subject to the Proposition 218 proceeding: 19,441; written protests received: 8 (far short of a majority protest threshold of 9,721). - Wastewater customers subject to the proceeding: 22,246; written protests received: 8 (majority threshold 11,124). - Staff-presented median-bill impacts: water ~+$11.40/month; wastewater ~+$11.20/month; electric ~+$5/month. - Cap-and-trade reserve (staff estimate): about $11.2 million projected end-of-year balance; staff proposed using up to ~$1.1M to provide one-time credits (staff estimated interest income roughly $200k and remainder from cap-and-trade funds). - Staff estimated the proposed one-time credit would cover roughly 40% of an annual small commercial gas account’s bill (staff example) and roughly 2% for medium commercial metered accounts; council remanded further study to UAC.

What the council decided (formal actions) - Adopted water collection financial plan and rates (Prop 218 hearing concluded; no majority protest; motion carried; recorded 6–0–1). - Adopted wastewater collection financial plan and rates (no majority protest; motion carried; recorded 6–0–1). - Adopted gas, electric, fiber pilot framework and stormwater rate action, with direction to return to UAC for further COSA review; council removed the proposed one-time $1.1M gas cap‑and‑trade credit and remanded the policy question to UAC (motion to remove carried 5–1–1).

Where to look next Staff will return with a detailed cost-of-service/rate-design study (to implement by January 2026 under staff’s timeline) and a follow-up UAC review of cap-and-trade use and any targeted credits. The city also plans to present Palo Alto’s 1‑Water plan to the SCAP committee in September for more policy review.

Ending note Council members and several commissioners emphasized the need for better wholesale-provider transparency (SFPUC) and clearer modeling of drought risk before committing to major alternative supply investments that would raise long-term bills.