When Palo Alto officials launched last year an ambitious, $300 million effort to upgrade the city's electric infrastructure, their plan was to start in residential neighborhoods with overhead wires and then move on to underground districts.

Now, however, it looks like the first beneficiaries of the city's upgrade won't be the neighborhoods that meet this profile — areas like University South and East Meadow Circle — but the corporations of Stanford Research Park, where Tesla is hoping to launch its new engineering headquarters this spring at the former HP property at 1501 Page Mill Road.

To meet this timeline, Tesla has proposed a partnership with the city to rebuild a substation at 3350 Hanover St. near its Page Mill Road campus. Under this proposed deal, which the City Council will consider on Jan. 16, Tesla would design and install the new equipment based on its expected power needs. The company would split the cost of the $24 million with the city, with each side contributing $12 million, according to a report from Tomm Marshall, assistant director for engineering at the Utilities Department.

The upgraded substation would be available to serve other customers as well, according to the Utilities Department. The city will, however, need to spend an additional $3 million to transfer the feeders that do not serve Tesla to the newly installed transformers, bringing the city's share to $15 million.

Even though Tesla is driving this project, utility officials argue that it will benefit other customers in the area as well. Marshall's report says the existing transformers are "undersized relative to the needs of customers in the Stanford Research Park, require a higher-than-normal level of maintenance, and are nearing or past their useful lives of 50 years."

Vaibhav Taneja, chief financial officer of Tesla, has already signed the proposed agreement. If the council approves the proposed public-private partnership and authorizes City Manager Ed Shikada to sign the deal, Tesla's contractors would replace the two existing 4 kilovolt (kV) transformers at the substation with two 12 kV transformers. The project also includes installing three substation breakers, a power distribution center and two 12 kV feeders.

The Tesla project represents a stark departure from Palo Alto's notoriously methodical approach to infrastructure projects. While the citywide grid upgrade is expected to take seven years and cost between $300 million and $350 million to complete, a significant component of the Stanford Research Park project could be completed in just a few months.

Marshall noted that it typically takes three to four years to upgrade a substation. Tesla, however, is looking to finish all construction and energize its new building by April 2024.

"The City cannot meet this timeline under normal City processes due to insufficient staffing to coordinate the design and construction of all facilities and the time required to complete the City public procurement process," the report states.

The report notes that Tesla is not only chipping in for the cost of the replacement but also paying extra to have the project expedited. Even though the City Council has yet to discuss — much less approve — the deal, Tesla has already gone out to bid on the project, and it has already selected a contractor to undertake the upgrade.

The substation improvement agreement is also highly unusual in that Tesla is explicitly authorized to "take the lead in design and construction" of the upgrade, which upon completion, would be transferred to the city's ownership. The company will be required to submit written progress reports and to meet with city officials once a month.

Both parties in the proposed partnership are expecting to reap long-term benefits from the deal. Tesla will pay a monthly fee to the city in exchange for having up to 11,200 kVA of capacity reserved for its needs. The city, for its part, would get help with both funding and implementing a utility project from Tesla, a company that famously moved its headquarters from Palo Alto to Austin, Texas, in late 2021 but that has only expanded its local footprint since then.

"These upgrades will serve Tesla, accommodate customers in the Stanford Research Park, replace outdated infrastructure, and modernize and reorganize the substation for greater efficiency," the Utilities Department report states.

The company announced its takeover of the former HP site nearly a year ago when its CEO Elon Musk and Gov. Gavin Newsom held a press conference last year announcing Tesla's plans to expand in Palo Alto.

"This is a poetic transition from the company that founded Silicon Valley to Tesla," Musk said at the Feb. 22 event. "And we're very excited to make this our global engineering headquarters in California."

As Tesla races to get its new engineering headquarters running, Palo Alto is inching ahead with its broad upgrade to the electric grid, a project that city officials say is necessary to accommodate its goal of switching people away from natural gas to clean electricity. During an October presentation, Utilities Director Dean Batchelor said he expects the grid upgrade to stretch from 2024 to 2032.

The Utilities Department plans to start with the reconstruction of the overhead system, which makes up 70% of the city's grid. This component is expected to be completed by the end of 2027. The city would move on to the underground system, Batchelor said.

The project will include converting 4 kV lines to 12 kV to accommodate a growing demand for electric appliances and electric vehicles, Batchelor said at an Oct. 19 seminar sponsored by the League of Women Voters. The average peak demand in the current system is between 3 and 3.5 kVA (kilovolt amps), he said. The upgrade would support between 6 and 8 kVA.

"Once we get to (that) point, we can start thinking about having 100% electrification, which also includes EVs," Batchelor said. n