Palo Alto utilities staff recommend FY2026 gas rate increases; commission backs one‑time climate credit amid dispute over cost‑allocation study

Palo Alto — Utilities staff on Wednesday recommended the City Council adopt the FY2026 gas utility financial forecast, approve a new cost‑of‑service rate schedule and implement rate schedule changes that collectively raise system revenues by about 5% beginning July 2025. The Utilities Advisory Commission voted 5–2 to recommend council adoption after agreeing to a separate recommendation to use cap‑and‑trade reserve funds for a one‑time residential credit.

The staff presentation, led by Lisa Blair, senior resource planner, showed the updated cost‑of‑service study pushes a larger share of delivered costs onto residential (G1) customers at the median usage level. Blair said the study “is the result of a detailed analysis balancing what our costs are against the safety of the system, the long‑term maintenance risks” and other drivers, and that residential median bills could rise substantially under the new allocations.

Why it matters: The study’s allocation choices matter because state law (cited in staff presentation as Proposition 26) requires rates to reflect cost of service; changes in allocation can shift large sums between customer classes even when overall revenue needs are unchanged. Commissioners flagged that the consultant’s updated allocators and a change in how the general‑fund transfer is allocated increased the residential share of costs relative to the prior study.

What staff proposed and what the commission recommended: Staff proposed a 5% system average rate increase for the gas utility in FY2026 and presented an optional, one‑time climate credit of $73.20 per residential customer funded from the gas cap‑and‑trade…