A Report from the City Auditor
Issued February 2026
http://www.sanjoseca.gov/auditor
Presenters: Joe Rois, City Auditor
Alison Pauly, Supervising Auditor
Ebelechukwu Obi, Senior Program Performance Auditor
Hiwad Haider, Program Performance Auditor II
Transportation and Environment Committee
Agenda Item (d) 4 1
Sewer Rates:
Reviewing Rate Model Assumptions and Developing Reserve Policies Would Improve the Rate-Setting Process
Background
2 • The City sets sewer rates to recover the costs of
providing sanitary sewer and wastewater treatment
services to residents and businesses. • ESD sets rates based on the volume of a customer’s wastewater and the concentration of pollutants
within the wastewater. • All customers pay the same unit rate for each wastewater component. • How a customer is billed depends on the type of residence or business and the assumed or actual
volume and strength of their wastewater.
Finding I: ESD Should Review Assumptions Within Its Rate Model
3 • In 2014, the state determined that the City’s
rate model complied with Clean Water State
Revolving Fund requirements. • A 2015 consultant study found that the strength of wastewater reaching the RWF did not match
what was assumed in the rate model. • The study determined that the City should continue with the current strength parameters
until field sampling occurs.
Recommendations: To ensure its
rate model assumptions reflect current
conditions, ESD should:
Study assumptions in the rate
model and update them as
necessary.
Update procedures around when
assumptions should be reviewed.
Consider implementing a software
solution for rate calculations.
4 Finding 2: ESD Should Develop Formal Reserve Policies Recommendation: To enhance risk
management and planning for future
needs, ESD should:
Develop a formal policy for sewer
fund reserves that defines
their intended use and target levels.
• The amount of funds held in reserves and
unrestricted fund balance for the Sewer Service
and Use Charge Fund has fluctuated over time. • ESD does not have a formal policy that defines the intended purpose or sets target levels for
reserves for the fund. • Formal reserve policies or practices are common among other wastewater utilities.
5 • Consolidating procedures on the frequency
of wastewater sampling would improve
transparency for how bills are calculated for
industrial users. • ESD's sewer rate web page could be
enhanced with clearer explanations of how
rates are set.
Finding 3: ESD Can Improve Transparency Around the
Rate-Setting Process
Recommendations: To improve
transparency, ESD should:
Document procedures for sampling
decisions and notify users of
changes as appropriate.
Update the sewer rate web page
and add clear rate setting
explanations.
Conclusion
The report has six recommendations to improve the Environmental Services Department’s sewer rate-setting process.
We would like to thank the Environmental Services Department for their time and insight during the audit process.
The audit report is available at www.sanjoseca.gov/auditor Audit staff: Alison Pauly, Ebelechukwu Obi, Hiwad Haider 6