BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT:
Title
Receive an Overview of the Fiscal Year 2025-26 Groundwater Production Charge, Treated Surface Water Charge, Raw Surface Water Charge, and Recycled Water Charge Rate Setting Processes; Review Assumptions for the 10-Year Water Rate Projection and Potential State Water Project Tax Levy; and Provide Feedback.
End
RECOMMENDATION:
Recommendation
A. Receive an overview of the Fiscal Year 2025-26 rate-setting processes for groundwater production charges, treated surface water charges, raw surface water charges, and recycled water charges;
B. Review assumptions for the 10-year water rate projection and potential State Water Project tax levy; and
C. Provide feedback to staff.
Body
SUMMARY:
This agenda item presents the Fiscal Year (FY) 2025-26 rate-setting process for Santa Clara Valley Water District’s (Valley Water) groundwater production charges and other water charges (treated surface water, raw surface water, and recycled water). It provides an update on key issues that pertain to setting the charges that will take effect on July 1, 2025 (Attachment 1).
Each year, the Board establishes groundwater production charges for four zones of benefit (Zone W-2 in the North County and Zones W-5, W-7, and W-8 in the South County) in accordance with Section 26 of the District Act. Although not specified under the District Act, the Board also sets surface water charges, recycled water charges, treated water surcharges, and the amount of the State Water Project cost to be recouped through the State Water Project tax within the framework of the groundwater charge setting process.
The Water Utility taxing and pricing policy, Resolution 99-21 (Attachment 2), and legal requirements guide staff in the development of the overall structure for these charges.
The FY 2025-26 surface water charge-setting process will be conducted consistent with Proposition 218’s requirements for property-related fees for water services as detailed in Board Resolution 12-10 (Attachment 3).
Proposition 26 applies to Valley Water’s groundwater charges. For a groundwater charge to qualify as a nontax fee under Proposition 26, it must satisfy both of the following requirements:
1. It must be no more than necessary to cover the reasonable costs of the government activity, and
2. The manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the government activity.
The FY 2025-26 groundwater production charge setting process will be conducted consistent with Proposition 26 requirements. Consistent with the District Act, procedural requirements for property related fees and charges, like holding a public hearing and noticing well owners, are followed.
Under the District Act, Section 26.6, an annual report referred to as the Report on Protection and Augmentation of Water Supplies (PAWS) is to be filed with the Clerk of the Board on or before the first Tuesday in April. A public hearing must be held on or before the fourth Tuesday in April and it must be noticed to the public in a newspaper of general circulation at least 10 days in advance. In addition, all well owners and well operators on record are notified of proposed groundwater production increases in writing, and of the public hearing at least 45 days in advance. Groundwater production charges must be determined for the ensuing fiscal year prior to July 1 of the ensuing fiscal year. For each zone of benefit, groundwater production charges must be fixed and uniform per acre-foot for agricultural water and fixed and uniform per acre-foot for all water other than agricultural water.
Under the District Act, Section 26.3, groundwater production charges are to be used for the following purposes:
1. Pay for construction, operation, and maintenance of imported water facilities;
2. Pay for imported water purchases;
3. Pay for constructing, maintaining, and operating facilities which will conserve or distribute water including facilities for groundwater recharge, surface distribution, and purification and treatment; or
4. Pay for debt incurred for purposes 1, 2, and 3.
The Board has established groundwater benefit zones in accordance with the District Act. The objective of establishing different groundwater benefit zones is to recover only those costs for benefits resulting from District activities within that zone. The benefits and costs which are apportioned to zones by customer class are presented in the annual PAWS report.
The groundwater production charge reflects the benefit of District activities to protect and augment groundwater supplies and is applied to water extracted from the groundwater basin in Zones W-2, W-5, W-7, and W-8. Zone W-2 encompasses the Santa Clara groundwater subbasin north of Metcalf Road or the North County. Zone W-5 overlays the Llagas subbasin from northern Morgan Hill south to the Pajaro River. Zone W-7 overlays the Coyote Valley south of Metcalf Road to northern Morgan Hill, and W-8 encompasses the area below Uvas and Chesbro Reservoirs.
Valley Water protects and augments water supplies for the health, welfare, and safety of the community. County-wide, groundwater replenished by the District makes up, on average, two-thirds of the groundwater used by residents, retailers, and businesses. The District replenishes the groundwater basins with local water and purchased water imported from the Sierra Nevada mountains and conveyed thru the San Francisco Bay Delta Estuary. The activities undertaken by the District to acquire, monitor, recharge, and protect the water supply are funded, in part, through groundwater production charges.
Water Usage Trend
The estimated actual District managed water use for FY 2023-24 is approximately 206,000 acre-feet (AF), which is very close to budgeted water use, and represents some rebound following the recent drought.
Consistent with prior years long-term projections, adopted budget FY 2024-25 water use reflects ongoing conservation efforts combined with ongoing rebound from the drought, with total water use estimated at 222,000 AF. Based on trends from the last drought (2014-2017), annual water use was previously projected to return to about 238,000 AF by FY 2025-26. Staff is also preparing to analyze the impacts of lower long-term water use than previously projected. The water usage forecast may be modified as necessary during the upcoming rate setting process.
In 2024, Valley Water staff engaged Raftelis Financial Consultants, along with Hazen and Sawyer as co-consultants, on a new Study for Water Use Projections, Water Demand Elasticity and Customer Affordability (Study) which kicked off May 2024. The Study will address each of these three topics as separate analyses. The intent is for Water Use Projections analyses to inform the upcoming FY 2025-26 groundwater charge setting process.
FY 26 Planning Scenario Ideas
Staff anticipates the need to provide several groundwater charge projection scenarios for Board consideration during this rate-setting cycle. Staff would appreciate Board feedback on the following assumptions and scenario ideas:
Baseline assumptions:
• District-managed water use projection which assumes moderate, yet continued, rebound similar to last drought (2014-2017)
• Anderson Dam Seismic Retrofit with WIFIA loan
• Pacheco Reservoir Expansion Project with WIFIA loan and 35% Partnership Participation
• San Jose Purified Water Program (Phase 1 Demonstration Facility & placeholder for Phase 2 Full-Scale Facility)
• Los Vaqueros (Transfer Bethany Pipeline), including up to 20KAF storage (depending on Contra Costa Water District decisions that may terminate the project)
• State Water Project (SWP) Tax (excluding Delta Conveyance Project costs) may be needed to pay for all, most, or some SWP costs
• Water rates will fund 3.23% of Delta Conveyance Project planning costs
• Agricultural rates remain set at 10% of lowest groundwater charge zone Municipal & Industrial rate
Scenario Ideas:
1. Baseline as described above
2. Baseline as described above with lower water use projection
3. Baseline as described above with various Water Supply Master Plan portfolios
Based on Board feedback, various groundwater charge projection scenarios will be provided for Board consideration in early January 2025.
Planned Groundwater Charge Setting Schedule
Below are the key dates for the groundwater charge setting process as tentatively scheduled. The schedule calls for adopting the budget and groundwater production charges on May 13, 2025.
Jan 6: Agricultural Advisory Committee Meeting (Preliminary Groundwater Production Charge Analysis)
Jan 14: Board Meeting (Preliminary Groundwater Production [GWP] Charge Analysis), CIP Work Study Session
Jan 15: Water Retailers Meeting (Preliminary GWP Charge Analysis)
Jan 22: Water Commission Meeting (Preliminary GWP Charge Analysis)
Jan 28: Board Meeting (Budget development update)
Feb 28: File “Report on Protection & Augmentation of Water Supplies” (PAWS) with District Clerk of the Board & mail well owners and surface water users notice
Mar 11: Board Meeting - Budget development update (2nd Pass)
Mar 19: Water Retailers Meeting (GWP Charge recommendation)
Mar 25: Long Range Financial Forecast Review (all funds)
Apr 7: Agricultural Advisory Committee Meeting (GWP Charge recommendation)
Apr 8: Board Meeting (Open Public Hearing on GWP Charges)
Apr 9: Water Commission Meeting (GWP Charge recommendation)
Apr 10: Board Meeting (Continue Public Hearing on GWP Charges in South County)
Apr 22: Board Meeting (Continue and Conclude Public Hearing on GWP Charges)
Apr 23-24: Board Meetings (Budget Work Study Sessions)
May 13: Board Meeting (Adopt Groundwater Production Charges, Budget & CIP)
ENVIRONMENTAL JUSTICE AND EQUITY IMPACT:
The annual Groundwater Production Charge setting process addresses water supply equity by ensuring a cost-effective, high-quality supply is available for all of Santa Clara County, including disadvantaged communities.
FINANCIAL IMPACT:
Depending on the direction provided by the Board, there could be a future financial impact to the Water Utility.
CEQA:
The recommended action does not constitute a project under CEQA because it does not have the potential for resulting in direct or reasonably foreseeable indirect physical change in the environment.
ATTACHMENTS:
Attachment 1: PowerPoint
Attachment 2: SCVWD Resolution No. 99-21
Attachment 3: SCVWD Resolution No. 12-10
UNCLASSIFIED MANAGER:
Manager
Darin Taylor, 408-630-3068