Finance committee backs electric rate proposal to fund grid modernization; staff recommends $300M program, bond planned in FY26

The Palo Alto City Council Finance Committee on April 15 recommended adopting the FY26 electric utility financial forecast and rate adjustments that staff said are needed to support a multi‑year grid modernization program and restore utility reserves.

Staff presented an overall electrical rate adjustment described in the packet as a roughly 5.1% increase for FY26, with larger percentage changes in distribution charges and smaller changes in supply-related charges. Lisa Belier, senior resource planner, told the committee the proposal reflects near‑term spending on grid modernization, a new warehouse and laydown yard, replacement emergency generators and other capital work; staff expects to issue the first bonds later in fiscal year 2026 to help finance the program.

The forecast also incorporates a large $24,000,000 refund received in 2023 from a successful litigation against the U.S. Bureau of Reclamation, which temporarily boosted supply reserves that year, staff said. Committee members were shown comparative rate data indicating Palo Alto’s electric rates remain markedly lower than Pacific Gas & Electric (PG&E) — staff cited a figure “around 50 to 60% lower” for Palo Alto residential customers compared with PG&E — while noting Palo Alto’s rates are higher than those for the City of Santa Clara.

Why it matters: the plan funds both near‑term replacement of aging infrastructure and additional capacity needed to support anticipated electrification and new large loads while attempting to maintain healthy reserve levels. Staff said properly sized reserves are important to secure economical debt financing for the bond program and to manage risks from commodity and transmission cost volatility.

Most important details - Staff recommended an overall FY26 electric rate increase of about 5.1% (presented as the FY26 proposal); staff said the increase reflects an 11% rise in distribution rates paired with a small increase in supply rates as modeled in the cost forecast. - Grid modernization spending: staff told the committee the program’s full lifecycle estimate is about $300 million, with approximately $229 million shown in the FY26–FY30 forecast and an $186 million debt issuance anticipated; staff said roughly $120 million of the program replaces existing infrastructure that is near the end of its useful life, leaving about $150–180 million of additional investment associated with modernization and capacity expansion. - Reserves and refunds: a $24,000,000 refund in 2023 from litigation with the Bureau of Reclamation increased supply reserves that year; staff modeled reserve levels and said the FY26 proposal would restore reserves toward the utility’s guideline band (90 days operating reserve target, plus a 30‑day band). - Customer bill impacts vary by usage: staff showed median residential bills rising by smaller dollar amounts than headline percentages imply; staff also noted that customers with very low usage can see larger percentage increases because of a fixed monthly service charge. - Net metering and feed‑in tariff: staff said the net metering credit used in the bill model fell from about 14¢/kWh to about 10¢/kWh after a methodology update to an hourly valuation; the utility’s feed‑in tariff still has about 60 kW of capacity remaining at the higher 16–16.5¢ rate before the program steps down to an avoided‑cost rate (~8–9¢/kWh). - Storage and generation procurement: staff said the utility is pursuing one or two remote battery storage projects and evaluating potential utility‑sited storage at substations as part of the grid modernization and resiliency plan; staff also said the city sells excess resource adequacy (RA) capacity after meeting CAISO obligations.

Discussion highlights Committee members pressed staff for clearer estimates of how grid modernization would improve reliability and how the program’s cost would be amortized across decades. Staff said the new equipment would likely have a 50–75 year life and that grid modernization should reduce outage sizes and restoration times by enabling feeder rebalancing and remote switching. Staff also reiterated that transmission and in‑state renewable portfolio requirements are tightening in the coming years, which affects long‑term supply costs.

Catherine Albert, utilities communications manager, described a multi‑channel outreach plan — bill inserts, email, city blog and other public messaging — to explain the drivers behind any rate changes and the city’s low‑rate comparative position relative to PG&E and community choice aggregators.

Committee action and next steps Committee members unanimously moved and seconded the staff recommendation on the electric financial forecast and rates; the committee approved the recommendation by voice vote. Staff said the first bond issuance for grid modernization is expected later in FY26 and that the department will continue outreach and return with additional implementation details.

Sources and attribution Direct quotes and figures in this article come from the April 15, 2025 Palo Alto Finance Committee meeting presentation and staff remarks by Lisa Belier (senior resource planner), Catherine Albert (utilities communications manager) and Alan (utilities chief operating officer) as recorded in the meeting transcript.