Council authorizes three-year amendment with Veolia to keep city water operations running while long-term options are studied

The East Palo Alto City Council voted June 9 to authorize the city manager to negotiate and execute a three-year amendment and restatement of the city's water lease with Veolia Water, extending Veolia's operation of the system to provide the city time to assess long-term governance options.

Assistant City Manager Sherry Klima told the council the agreement is intended as a bridge while staff completes a water rate study and a governance review. "This 3-year amendment and restatement...gives us the time to really survey what we want to do long term with our water system," Klima said during the presentation.

Under the proposed terms presented to council, Veolia would continue to operate customer service, billing and system monitoring, conduct water quality testing and regulatory reporting, and perform routine maintenance; the contract structure preserves a guaranteed contractual return and sets updated financial and liability terms. Klima described provisions that update insurance amounts, add cybersecurity requirements, clarify hazardous substance definitions to include PFAS, and require Veolia to return system data prior to term end.

Key financial terms described by staff included an 8% contractual return tied to gross revenues, an annual lease payment of 6% of gross revenues from Veolia, and a 5% annual franchise fee. Klima said city finance staff and Veolia have negotiated a revised annual true-up process to reconcile revenues and costs and that current estimates show an outstanding deficit the city must address as part of true-ups.

Council members thanked staff for the negotiations and discussed long-term options, including bringing water operations in-house or issuing an RFP for another operator. Council Member Romero expressed concern about the financial terms and potential impacts on ratepayers, noting the guaranteed return. Following a motion and second, the council voted to authorize the city manager to execute the amendment; the motion passed.

Next steps: staff will complete the negotiation, finalize the agreement in form approved by the city attorney, conduct a water rate study, and return with recommendations in early 2027 about long-term governance and any rate adjustments.

(Quotations and attributions drawn from the June 9, 2026 meeting transcript.)