BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: Title
Conduct a Public Hearing on the February 2025 Annual Report on the Protection and Augmentation of Water Supplies and Recommended Increases in Groundwater Production Charges, Surface Water Charges, and Recycled Water Charges for Fiscal Year 2025-26.
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RECOMMENDATION: Recommendation
A. Open and Conduct a Public Hearing pursuant to Section 26.6 of the District Act to consider Valley Water’s Fiscal Year (FY) 2025-26 Annual Report on the Protection and Augmentation of Water Supplies and recommended increases to groundwater production charges (between 7.9% to 11.2%), surface water charges (between 8.1% to 11.1%) and recycled water charges (between 4.6% to 7.9%);
B. Hear public comments from groundwater producers and any interested persons regarding the Report and recommendations;
C. Consider any written protests to proposed surface water rate increases;
D. Consider staff’s recommendation to set the State Water Project tax in an amount sufficient to pay next year’s State Water Project costs (excluding Delta Conveyance Project costs) to avoid severe water rate impacts and keep rates feasible;
E. Direct staff to review such Report with, and solicit comments from, Valley Water’s advisory committees; and
F. Continue the Public Hearing regarding this Report to the April 25, 2025, Special meeting at the Morgan Hill Council Chamber Building, 17555 Peak Ave, Morgan Hill, California at 7:00 pm, pending Board approval.
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SUMMARY:
Section 26.5 of Valley Water’s District Act requires that Valley Water annually prepare a “written report upon the District's activities in the protection and augmentation of the water supplies of the District.” Section 26.6 of the District Act requires Valley Water to hold a Public Hearing regarding this annual “Protection and Augmentation of Water Supplies” report on or before the fourth Tuesday of April. This Public Hearing is conducted to inform the community of the activities performed by Valley Water to ensure a reliable water supply and staff’s recommended groundwater production charges and other water charges needed to pay for those activities. The Hearing provides opportunity for any interested person to submit comments to the Board. This year’s groundwater production charge setting process is being conducted consistent with the District Act and Board Resolution 99-21. The raw surface water charge setting process includes a formal protest procedure consistent with Board Resolution 12-10 (See attachment 3). If written protests are filed by a majority of surface water operators, the surface water charge cannot be increased.
The Protection and Augmentation of Water Supplies (PAWS) Report can be found at www.valleywater.org <http://www.valleywater.org>.
Need for Water Charges and State Water Project Tax
Groundwater production charges are necessary to pay for ongoing operations and maintenance of the existing water utility system, investments in water supply infrastructure rehabilitation and upgrades, and new water supply reliability investments. Investing in key rehabilitation and upgrade projects and securing new water supply has resulted in a multi-year era of investment for the water utility. Investing now remains the prudent path to ensure that our water utility projects continue to do their job of providing safe, clean, and reliable water to all of Santa Clara County.
The proposed maximum groundwater production charges for FY 2025-26 are necessary to (1) advance the Anderson Dam Seismic Retrofit, which will improve public safety and restore operational capacity; (2) to fund key baseline projects such as the Rinconada Water Treatment Plant reliability improvement and the 10-year Pipeline Rehabilitation Program; (3) to participate in the B.F. Sisk Dam Raise project, which would provide additional water storage capacity and conduct planning work related to the Pacheco Reservoir Expansion; and, (4) to pay for general inflation.
Groundwater Production and Treated Water Charge Recommendations
Staff proposes a 9.9% increase in the North County Zone W-2 Municipal and Industrial (M&I) groundwater production charge, from $2,229.00 per acre foot (AF) to $2,450.00/AF. Staff recommends maintaining the treated water surcharge on treated water delivered under the contracts with retail agencies at $115.00/AF, and maintaining the non-contract treated water surcharge at $200.00/AF. The proposal equates to a monthly bill increase for the average household of $7.60 or about 25 cents a day.
In the South County Zone W-5, staff proposes a 7.9% increase in the M&I groundwater production charge from $579.00/AF to $624.50/AF. The proposal equates to a monthly bill increase for the average household of $1.58 or about 5 cents per day.
In the South County Zone W-7, staff proposes an 11.2% increase in the M&I groundwater production charge from $750.50/AF to $834.50/AF. The proposal equates to a monthly bill increase for the average household of $2.89 or about 10 cents per day.
In the South County Zone W-8, staff proposes an 8% increase in the M&I groundwater production charge from $430.00/AF to $464.00/AF. The proposal equates to a monthly bill increase for the average household of $1.18 or about 4 cents per day.
Customers in both areas of North and South County may also experience additional charge increases enacted by their retail water providers.
For agricultural groundwater users, staff proposes an increase of 8 percent from the prior year, which equates to setting the agricultural groundwater charge at 9.25 percent of the lowest M&I rate (Zone W-8). The proposed agricultural groundwater production charge in any groundwater benefit zone would change from $39.80/AF to $43.00/AF, or roughly a $0.53 increase per month per acre, assuming two acre-feet of water usage per acre per year.
Surface Water and Recycled Water Charge Recommendations
Staff recommends a 9.9% increase to the surface water master charge from $61.00/AF to $67.00/AF to align revenues with costs related to managing, operating and billing for surface water diversions. This increase results in a proposed 9.9% increase to the North County (Zone W-2) M&I surface water charge, to $2,517.00/AF. For South County zones, staff proposes the following M&I surface water charge increases: for Zone W-5, an 8 percent increase to $691.50/AF; for Zone W-7, a 11.1 percent increase to $901.50/AF; for Zone W-8, an 8.1 percent increase to $531.00/AF. Staff recommends that the total agricultural surface water charge be increased 9.1 percent in all zones, to $110.00/AF.
For recycled water (Zone W-5), staff recommends increasing the M&I charge by 7.9 percent, to $604.50/AF, and increasing the agricultural charge by 4.6 percent, to $73.35/AF. The increase maximizes cost recovery while concurrently providing an economic incentive to use recycled water. This pricing is consistent with the provisions of the “Wholesale-Retailer Agreement for Supply of Recycled Water Between Santa Clara Valley Water District and City of Gilroy.”
Other Water Utility Costs
Staff also recommends setting the State Water Project (SWP) Tax at $28 million for FY 2025-26 to pay all anticipated FY 2025-2026 SWP costs other than Delta Conveyance Project costs. This translates to a property tax bill for the average single-family residence of roughly $42.00 per year. A SWP tax in this amount is necessary to avoid severe increases to Valley Water’s water rates and rate payors, keeping them feasible. If the recommended FY 2025-26 State Water Project Tax is not approved, the impact translates to a needed increase in the M&I groundwater production charge of an additional $162/AF in North County Zone W-2 and in South County an additional $31/AF in Zone W-5, $50/AF in Zone W-7 and $31/AF in Zone W-8 in South County. The open space credit would increase by roughly $689,316.
Valley Water’s 54th Annual Report on the Protection and Augmentation of Water Supplies, among other information, contains a financial analysis of the Valley Water’s water utility system and additional details about the above recommendations. This report can be found at www.valleywater.org <http://www.valleywater.org>.
ENVIRONMENTAL JUSTICE AND EQUITY IMPACT:
There are no Environmental Justice impacts associated with this item.
FINANCIAL IMPACT:
If the Board approves the recommended groundwater production and other water charges, the Water Utility should have sufficient funding for planned operations and capital improvement projects for FY 2025-26.
CEQA:
The establishment of groundwater production charges and other water charges is not a project under CEQA Guidelines Section 15273(a) (CEQA does not apply to establishment or modification of charges by public agencies which the public agency finds are for the purpose of meeting operating expenses; purchasing or leasing supplies, equipment and materials; meeting financial reserve needs/requirements; and obtaining funds for capital projects needed to maintain service within existing service areas).
ATTACHMENTS:
Attachment 1: Staff Report
Attachment 2: PowerPoint
Attachment 3: SCVWD Resolution No. 12-10
Attachment 4: Notice of Public Hearing
UNCLASSIFIED MANAGER: Manager
Aaron Baker, 408-630-2135