City council approves amendments to SFPUC wholesale water agreement after regional negotiations

Palo Alto City Council voted 6–0 (one absence) on Aug. 11 to approve two resolutions amending the city’s wholesale water supply contract with the San Francisco Public Utilities Commission and to adopt a revised methodology for allocating wholesale‑system shortages among Bay Area agencies.

Staff described the package as a three‑part agreement negotiated among the Bay Area wholesale customers (the Bay Area Water Supply and Conservation Agency, BOSCA, member agencies) and San Francisco. Carla Daley, assistant director of utilities, told council the amendments reset minimum purchase obligations for four wholesale agencies that had been obligated to buy fixed minimum volumes, establish a transitional mechanism that eases those obligations following drought years, and create a “family plan” so that penalties apply at the collective level rather than automatically to an individual agency if the group meets its combined minimums.

Daley said the change recognizes that conservation measures and local supply projects have reduced demand since the contract quantities were set and that the amendment includes a 10‑year review to revisit the minimums.

The package also includes a tier‑1 amendment that says wholesale agencies will not face excess use penalties from San Francisco if the wholesale group as a whole remains below the wholesale allocation during a mandatory cutback. Finally, BOSCA member agencies negotiated and staff recommended council adopt a revised tier‑2 sequential allocation formula — the methodology used to divide the wholesale group’s allocation among the 26 wholesale customers during shortages. Staff said the new tier‑2 approach prioritizes basic indoor needs, aims to minimize economic harm and provides greater predictability compared with the formula used in a recent shortage year.

City staff projected fiscal impacts from the change in penalties would be small for Palo Alto (an estimated maximum rate effect of well under 1 percent in the highest modeled case), while noting the financial effect is a function of regional purchases and how other agencies behave.

The package had mixed reception among advisory groups and members of the public. The Utilities Advisory Commission did not deliver a formal recommendation to council after a split vote; individual commissioners and public commentators urged caution and requested additional data from SFPUC about the agency’s drought modeling and the assumptions behind a “design drought” used in regional planning. Several speakers, including Mountain View Mayor Pat Showalter and BOSCA general manager Tom Smagel, urged passage and lauded lengthy interagency negotiations that resulted in the agreement.

Commissioner Chris Tooker and others urged the council to press SFPUC for more transparent demand and drought projections before approving investments in large alternative supplies. Utsav Gupta, a UAC member, asked council to defer action until SFPUC provides updated drought forecasts and sensitivity analyses; he warned of the risk of shifting fixed system costs to remaining purchasers if many wholesale agencies reduce purchases by building local supplies.

Council members said they were sympathetic to calls for more SFPUC transparency and urged continued work with BOSCA and other cities, but several members also said the package before council addresses immediate fairness concerns over long‑standing minimum purchase penalties and offers a predictable, improved drought allocation method compared with the system used in 2021–22. Council member Stone moved the staff recommendation; Council member Burke seconded. The motion carried 6–0‑1.

Ending: Council approved the amendments and directed staff to continue engagement with BOSCA and SFPUC on drought scenario modeling, transparency and regional long‑term supply planning while implementing the agreed contract changes.