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 2027-28 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.
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RECOMMENDATION: Recommendation
A. Receive an overview of the Fiscal Year 2027-28 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) 2027-28 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, 2027 (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 2027-28 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 2027-28 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. These charges are paid by owners and operators of groundwater wells (Well Users) based on the amount of water they pump. Valley Water charges only those Well Users in areas that benefit from Valley Water activities.
Water Usage Trend
The estimated actual District managed water use for FY 2025-26 is approximately 206,000 acre-feet (AF), which is about 13,000 AF lower than budgeted water use, primarily due to the West Pipeline project shutdown for inspection and renewal work, and a cooler summer than experienced in the prior fiscal year.
The adopted budget FY 2026-27 water use is 221,500 AF, which assumes slight water use growth relative to FY 2024-25 actuals of 219,000 AF. The water usage forecast may be modified as necessary during the upcoming rate setting process.
FY 2027-28 Planning Assumptions
The assumptions below outline the baseline assumptions for the upcoming FY 2027-28 groundwater charge setting process. Staff would appreciate Board feedback, if any, on the following assumptions:
Baseline assumptions:
• District-managed water use projection based on recent actual trends and learnings from the recent consultant study on water use forecasting and demand elasticity
• Projects included in the adopted FY 27-31 CIP 5-Year Plan
o Anderson Dam Seismic Retrofit with WIFIA loan
o Rinconada Water Treatment Plant
o Pure Water Silicon Valley (Phase 1 Demonstration Facility & Phase 2 Full-Scale Direct Potable Reuse (DPR) Facility)
o Dam Safety Program: Almaden, Calero, Coyote & Guadalupe (updated timing of projects)
• Water rates will fund 3.23% of Delta Conveyance Project planning costs
• State Water Project (SWP) Tax is necessary to pay for SWP costs (Not feasible to pay for SWP costs with water charges)
• Master Plan Project placeholders: SCADA, Water Treatment Plants & Distribution System
• Agricultural rates remain at 10% or less of lowest groundwater charge zone Municipal & Industrial rate
Based on Board feedback, groundwater charge projection scenarios can be provided for Board consideration in January 2027.
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 11, 2027.
Jan 12 or 19: Board Meeting (Preliminary Groundwater Production [GWP] Charge Analysis), CIP Work Study Session
Jan 20: Water Retailers Meeting (Preliminary GWP Charge Analysis)
Jan 25: Agricultural Advisory Committee Meeting (Preliminary GWP Charge Analysis)
Jan 26: Board Meeting (Budget development update)
Jan 27: Water Commission Meeting (Preliminary GWP Charge Analysis)
Feb 26: File “Report on Protection & Augmentation of Water Supplies” (PAWS) with District Clerk of the Board & mail well owners and surface water users notice
Mar 9: Board Meeting - Budget development update (2nd Pass)
Mar 17: Water Retailers Meeting (GWP Charge recommendation)
Apr 5: Agricultural Advisory Committee Meeting (GWP Charge recommendation)
Apr 7: Water Commission Meeting (GWP Charge recommendation)
Apr 13: Board Meeting (Open Public Hearing on GWP Charges)
Apr 15: Board Meeting (Continue Public Hearing on GWP Charges in South County)
Apr 27: Board Meeting (Continue and Conclude Public Hearing on GWP Charges)
Apr 28-29: Board Meetings (Budget Work Study Sessions)
May 11: Board Meeting (Adopt Groundwater Production Charges, Budget & CIP)
ENVIRONMENTAL JUSTICE 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