In the 1890s, a bold plan was born to create publicly owned utilities that would return profit to the people.
It all began with water, or lack of it. Some residents had wells but others obtained water from a horse-drawn tank wagon that wandered the future town's unpaved streets. When rains made the streets muddy, the wagon made irregular deliveries.
Enter Stanford engineering professors Charles David (Daddy) Marx and Charles Wing, biology professor W.W. Thoburn, and psychology professor Frank Angell.
The four maintained a water well and tank house (the structure is still behind Angell's property on Lincoln Avenue) to meet their neighborhood's needs, with questionable reliability, especially as the town grew.
The quest for dependable water and other services inspired residents to organize and become a "general law city" on April 9, 1894. Within two years of incorporation, voters approved a $40,000 plan to develop a central water supply that Marx championed and Wing designed. The then-weekly Palo Alto Times expanded to a daily newspaper for four months prior to the election to report on the campaign for the bond.
Only two years later, voters approved a second Marx-inspired $40,000 bond to build a Wing-designed sewer system. The engineers completed the sewers for only $28,000.
Marx, who became chairman of the newly formed Board of Public Works, turned his attention to electric power. Redwood City's Peninsula Lighting (later to become PG&E) lit the incandescent lights lining the two-block Palo Alto business district.
But Marx and Wing considered the 20-cents per kilowatt hour to be "exorbitant." Momentum from the success of the water and sewer systems inspired them to propose city-owned power.
Purchasing a steam engine and creating a generating plant at Embarcadero and Newell roads cost only $12,000 -- coincidentally the amount remaining from the 1898 sewer bond. By Jan. 16, 1900, Palo Alto's own generator was powering the town from dusk to midnight for 10 cents per kilowatt hour, or half Peninsula Lighting's price, with a minimum payment of $1 a month.
It was "a modest nucleus," according to an Aug. 4, 1918, San Francisco Examiner story on the history of the Palo Alto system.
"Rates are high enough to pay all expenses of operation and leave a comfortable balance," the Examiner reported -- referring to profits the three utilities already were transferring to the city's general fund.
As the town grew, the desire to improve utilities sparked more government modifications. A charter was adopted in July 1909 that placed water, power and sewage under the Public Works Board, along with parks, streets, public buildings and rate setting.
Board Chairman Marx pushed acquisition of Palo Alto's first diesel engine in 1914, replacing its more expensive steam engine. Broader powers allowed the board to take over local private gas companies by 1917, bringing water, light, power, gas, refuse (or "garbage destructing" as it was called in 1913) and sewers under Palo Alto's purview.
The system was a success and was showing clear profits -- by the time the Great Depression hit the community in 1929.
One of the more unusual uses of utilities revenues was $91,500 spent to aid unemployed citizens during Depression years.
World War II returned prosperity and a post-war boom, and Palo Alto began expanding through both population and annexations, increasing the demand for power needed to support new housing developments.
The city shifted from a commissioner form of government to a council-manager government in 1952, laying the groundwork for a period of explosive growth in the 1950s. City utilities were challenged to provide enough capacity to be a reliable power source for the fledgling Stanford Industrial (now Research) Park. During peak growth periods, power needs increased by 10 percent for research, experimentation and manufacturing. A decline in direct manufacturing in the park has decreased the power demand, but reliable utilities remain a challenge during droughts and brown-outs.
Palo Alto officials, eyeing tax revenues, helped keep the park afloat in its early years.
"I believe most people would say, next to Wing and Marx, City Manager Jerry Keithley was the most influential person in our city's power story," said Randy Baldschun, retired Assistant Utilities Director and unofficial "institutional memory" for the departmnt.
"Keithley masterminded Palo Alto's work with Stanford to get the park going, and he freed us from PG&E power dependence by investing in the Central Valley Project in 1964."
The multi-agency project's string of hydroelectric dams along the Sacramento River was a good source of reliable power, Baldschun said. But the contract appeared "foolhardy" to many because "the coal-fueled power plants could produce cheap electricity, but word was nuclear energy was so cheap you couldn't even meter it." The coal-fueled plants have shifted to natural gas.
Time proved Keithley's plan the wiser as hydroelectric power remains relatively cheap compared to other power sources. The city joined with 10 cities to form the Northern California Power Agency (NCPA) in 1968 and build a hydroelectric plant on the Calaveras River in the mid-1980s.
Between the Central Valley contract and NCPA's Calaveras project, the city has been free from PG&E power since 1964.
Palo Alto Utilities made another quantum leap in the 1960s when underground cables started carrying electricity under a long-term project originally estimated at 40 years -- still underway.
In the early 1990s, the Internet surfaced in Palo Alto after lurking about Stanford University for a decade.
Discussions about higher-speed, broader-bandwidth services also began. Palo Alto built a fiber-based telecommunications loop, providing a multitude of Internet, video, phone and other high-performance communication services at less cost than private providers'. Its positive return is seen as vindication of the city's $1 million cost.
Deregulation of "Investor Owned Utilities" in 1996 was optional to Palo Alto's municipally owned utilities.
In their forefathers' spirit of pursuing new ventures, the city unbundled its electric rates and let its 60 largest customers choose their energy providers. Not one switched, providing more vindication of the city's utilities.
Today, Palo Alto is the only city west of the Mississippi operating its own gas and electric utilities. Users pay some of the lowest utility rates in the state, historically averaging 55 percent lower than PG&E.
Yet city utilities still reap a profit. Due to a $36.7 million settlement from legal judgments, Palo Altans didn't pay for utilities during two months of 1993. In 2005, utilities provided $13.7 million in financial support to community services such as libraries, parks, police and fire protection. (See Web feature on Palo Alto's "Golden Goose" at www.PaloAltoOnline.com.)
"Palo Alto is lucky our forefathers bravely set us up with these regular and reliable contributions to the community not occurring in areas served by private power companies," Assistant Utilities Director Tom Auzenne said.