COMMITTEE AGENDA MEMORANDUM
Agricultural Water Advisory Committee
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: title
Review Proposed Fiscal Year 2026-27 Groundwater Production Charges and Receive Committee Feedback.
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RECOMMENDATION: Recommendation
Review Proposed Fiscal Year 2026-27 Groundwater Production Charges and Receive Committee Feedback.
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SUMMARY:
Summary of Groundwater Production Charge Analysis
The proposed groundwater production charges 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. The discussion in this memo will focus on the three South County zones given that the agricultural groundwater charge projection is linked to the Municipal and Industrial (M&I) charges in South County.
The groundwater production charge recommendations are detailed in the Annual Report on the Protection and Augmentation of Water Supplies that was filed with the Clerk of the Board on February 27, 2026. The public hearing on groundwater production charges is scheduled to open on April 14, 2026 and continue on April 22, 2026 with a focus on South County, concluding April 28, 2026. It is anticipated that the Board would set the FY 2026-27 groundwater production charges by May 12, 2026, with an effective date of July 1, 2026.
The FY 2026-27 groundwater production charge and surface water charge setting process will be conducted consistent with the District Act, and Board resolutions 99-21 and 12-10.
Open Space Credit
The Valley Water Board has historically recognized that agriculture brings value to Santa Clara County in the form of open space and local produce. According to Section 26.1 of the District Act, agricultural water is “water primarily used in the commercial production of agricultural crops or livestock.” In an effort to help preserve this value, the District Act limits the agricultural charge to be no more than 25% of the M&I charge. Furthermore, the Board’s Pricing Policy limits the agricultural groundwater production charge to 10% of the M&I Charge. Currently the zone with the lowest M&I charge is used to set the agricultural groundwater production charge (Zone W-8).
The agricultural community benefits from low groundwater charges, currently set at $43.00/AF, or 9.25% of the Zone W-8 M&I charge of $464.00/AF.
The credit to agricultural water users has become known as an “Open Space Credit.” It is paid for by fungible, non-rate related revenue. To offset lost revenue that results from the difference between the adopted agricultural groundwater production charge and the agricultural charge that would have resulted at the full cost of service, Valley Water redirects a portion of the 1% ad valorem property taxes generated in the Water Utility, General and Watershed Stream Stewardship Funds.
Groundwater Production and Treated Water Charge Recommendations
Staff proposes a 9.1% increase in the North County Zone W-2 Municipal and Industrial (M&I) groundwater production charge, from $2,450.00 per acre foot (AF) to $2,673/AF. Staff recommends maintaining the treated water surcharge on treated water delivered under the contracts with retail agencies at $115/AF, and maintaining the non-contract treated water surcharge at $200/AF. The proposal equates to a monthly bill increase for the average household of $5.63 or about 19 cents a day.
In the South County Zone W-5, staff proposes a 6.6% increase in the M&I groundwater production charge from $624.50/AF to $665.50/AF. The proposal equates to a monthly bill increase for the average household of $1.04 or about 3 cents per day.
In the South County Zone W-7, staff proposes a 9.4% increase in the M&I groundwater production charge from $834.50/AF to $913.00/AF. The proposal equates to a monthly bill increase for the average household of $1.98 or about 7 cents per day.
In the South County Zone W-8, staff proposes an 8% increase in the M&I groundwater production charge from $464.00/AF to $501.00/AF. The proposal equates to a monthly bill increase for the average household of $0.93 or about 3 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 $43.00/AF to $46.50/AF, or roughly a $0.58 increase per month per acre, assuming two acre-feet of water usage per acre per year.
Surface Water, Recycled Water, and Other Charges Recommendations
Staff recommends a 9.1% increase to the surface water master charge from $67.00/AF to $73.00/AF to align revenues with costs related to managing, operating and billing for surface water diversions. This increase results in a proposed 9.1% increase to the North County (Zone W-2) M&I surface water charge, to $2,746.00/AF. For South County zones, staff proposes the following M&I surface water charge increases: for Zone W-5, a 6.8 percent increase to $738.50/AF; for Zone W-7, a 9.4 percent increase to $986.00/AF; for Zone W-8, an 8.1 percent increase to $574.00/AF. Staff recommends that the total agricultural surface water charge be increased 8.6 percent in all zones, to $119.50/AF.
For recycled water (Zone W-5), staff recommends increasing the M&I charge by 6.8 percent, to $645.50/AF, and increasing the agricultural charge by 4.8 percent, to $76.85/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.”
Need for Charges - Water Utility Costs
The proposed maximum groundwater production charges for FY 2026-27 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) participate in the B.F. Sisk Dam Raise and Sites Reservoir projects, which would provide additional water storage capacity; and, (4) to pay for general inflation.
Valley Water’s 55th 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>.
Staff is seeking the Committee’s feedback, or input, with regard to these proposed groundwater production charges for FY 2026-27.
A PowerPoint presentation will be provided at the meeting.
ENVIRONMENTAL JUSTICE IMPACT:
There are no Environmental Justice impacts associated with this item.
ATTACHMENTS:
Attachment 1: PowerPoint
UNCLASSIFIED MANAGER:
Manager
Darin Taylor, 408-630-30678