Santa Clara Valley Water District
File No.: 22-0214 Agenda Date: 2/15/2022
Item No.: 2.5.
BOARD AGENDA MEMORANDUM
SUBJECT:..Title
Receive Information on Preliminary Groundwater and Treated Water Rates for Fiscal Year 2022 - 2023.
RECOMMENDATION:..Recommendation
Receive Information on Preliminary Groundwater and Treated Water Rates for Fiscal Year 2022 - 2023.
SUMMARY:
Summary of Preliminary Groundwater Production Charge Analysis:
Staff prepared the preliminary FY 2022-23 groundwater production charge analysis, which includes several scenarios for Board review to seek Board input on the preliminary analysis to incorporate into the development of the groundwater production charge recommendation.
The groundwater production charge pays for 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 groundwater production charge recommendation will be detailed in the Annual Report on the Protection and Augmentation of Water Supplies that is planned to be filed with the Clerk of the Board on February 25, 2022. The public hearing on groundwater production charges is scheduled to open on April 12, 2022. It is anticipated that the Board would adopt the FY 2022-23 groundwater production charges by May 10, 2022, that would become effective on July 1, 2022.
The FY 2022-23 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.
Water Usage Trend
Valley Water’s managed water use for the fiscal year ended last June 30, 2021 (FY 2020-21) is Santa Clara Valley Water District Printed on 2/10/2022Page 1 of 4 powered by Legistar™
File No.:22-0214 Agenda Date:2/15/2022
Item No.:2.5.
estimated to be approximately 246,500 acre-feet (AF), roughly 16,000 AF higher than was budgeted due to a dry winter and dry spring. For current FY 2021-22, due to drought conditions and the Board’s call for 15% mandatory conservation compared to 2019, if drought conditions continue and conservation goals are achieved, there could be a reduction of approximately 32,000 AF in water usage versus the budgeted amount of 232,000 AF. This could translate to upwards of $50 million in reduced revenue this fiscal year. Water use projections for FY 2022-23 and beyond have been adjusted due to the current drought and mandatory calls for conservation. Based on trends from the last drought (2014-2017) returning to “normal” water use is projected by FY 2025-26.
Staff are carefully monitoring monthly water use actuals and working closely with the water retailers during the drought and will continue to do so during the upcoming rate setting process, modifying the water usage forecast as necessary.
Groundwater Production Charge Projection Scenarios
Staff has prepared a preliminary baseline groundwater production charge projection scenario for Board review, with additional scenarios based on various levels of conservation and projected water use. The ongoing drought has significantly impacted near-term rate projections.
For the baseline scenario, the increase in the North County Zone W-2 Municipal and Industrial (M&I) groundwater production charge is 15.0% for FY 2022-23. The overall impact of the preliminary analysis baseline scenario for FY 2022-23 to the average household would be an estimated increase of $7.75 per month in North County.
Staff proposes to set the Contract Treated Water Surcharge at $115/AF to maintain alignment with the cost that retailers would incur to pump water from their wells. Based on information gathered from retailers, staff believes that setting the Contract Treated Water Surcharge at $115/AF would be close to the point of neutrality where a retailer would be indifferent in the short term as to whether to pump water from the ground or take treated water.
Staff has prepared the following scenarios for Board consideration:
Scenario 1) Baseline with Return to Prior Projection Water Use by FY26:
This scenario includes the following projects and assumptions:
· Conservation: 15% achieved by FY 2022-23, returning to prior projections of around 236kAF by FY 2025-26
· Anderson Reservoir leveraging WIFIA loans (up to 49% of total project cost (TPC)) · Pacheco Reservoir Expansion Project (PREP) with $496 Proposition 1 grants, WIFIA loans (up to 49% of TPC) and Partnership Participation at 35% of TPC · Purified Water Expansion operational by FY28, assumes 100% debt financed by P3 entity · Los Vaqueros (Transfer Bethany Pipeline)
· Delta Conveyance SWP portion at 3.23%
· Master Plan Project Placeholder - Assumes $369M in anticipated costs from FY 2022-23 to FY 2031-32 for new pipelines, pipeline rehabilitations, treatment plant upgrades and SCADA Santa Clara Valley Water District Printed on 2/10/2022Page 2 of 4 powered by Legistar™
File No.:22-0214 Agenda Date:2/15/2022
Item No.:2.5.
implementation projects.
· New, additional emergency water supply purchases in FY 2022-23, FY 2023-24, and FY 2024- 25 ($67.7M total)
· Transfer $39M near-term surplus funds from PREP to rate stabilization reserve in FY 2021-22; future PREP cost projection has been adjusted such that TPC is unchanged · Leverage existing Drought Contingency, Supplemental Water and Rate Stabilization Reserves ($25M plus $39M PREP for a total of $64M used in FY 2022-23 and FY 2023-24) Scenario 2) Baseline with Return to Prior Projection Water Use by FY32:
Includes the same projects and assumptions as Scenario 1 except water use projections have a slower rebound, returning to prior projections of around 236kAF by FY 2031-32.
Scenario 3) Baseline with 10% and No Return to Prior Projection Water Use:
Includes the same projects and assumptions as Scenario 1 except 10% conservation is achieved (around 201kAF projected water use in FY 2022-23), with future water use projections having minimal rebound, growing to 211kAF by FY 2031-32.
Scenario 4) Baseline with 15% and No Return to Prior Projection Water Use:
Includes the same projects and assumptions as Scenario 1 except 15% conservation is achieved (around 190kAF projected water use in FY 2022-23), with future water use projections having minimal rebound, growing to 199kAF by FY 2031-32.
Scenario 5) Baseline with 20% and No Return to Prior Projection Water Use:
Includes the same projects and assumptions as Scenario 1 except 20% conservation is achieved (around 179kAF projected water use in FY 2022-23), with future water use projections having minimal rebound, growing to 187kAF by FY 2031-32.
Staff can model additional scenarios for the Board as needed.
Other Assumptions
All scenarios assume the continued practice of relying on the State Water Project (SWP) Tax to pay for 100% of the SWP contractual obligations. Pursuant to Water Code Section 11652, Valley Water, whenever necessary, is required to levy on all property in its jurisdiction not exempt from taxation, a tax sufficient to provide for all payments under its SWP contract with the California Department of Water Resources (DWR). All scenarios assume an increase in the SWP Tax for FY 2022-23, setting it at $27M. The SWP Tax for the average household in Santa Clara would increase to about $41 per year.
A Drought Reserve was established in FY 2015-16 and was budgeted at $10M for FY 2021-22. The purpose of this reserve is to help minimize future rate impacts and complements the Supplemental Water Supply Reserve. The preliminary groundwater production charge analysis includes full use of the reserve in FY 2022-23, with reserve levels building back up over subsequent years.
All scenarios assume Water Utility operations cost of $265.6M in FY 2022-23 versus the FY 2021-22 Santa Clara Valley Water District Printed on 2/10/2022Page 3 of 4 powered by Legistar™
File No.:22-0214 Agenda Date:2/15/2022
Item No.:2.5.
adopted budget of $247.2M.
ENVIRONMENTAL JUSTICE IMPACT:
There are no Environmental Justice impacts associated with this item.
FINANCIAL IMPACT:
The preliminary analysis of the groundwater production charges does not have any immediate financial impact however, the adopted groundwater production charges will affect the future finances of the Water Utility Enterprise.
CEQA:
Establishment of groundwater production 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: PowerPoint
UNCLASSIFIED MANAGER:..Manager
Darin Taylor, 408-630-3068
Santa Clara Valley Water District Printed on 2/10/2022Page 4 of 4 powered by Legistar™
PRELIMINARY FISCAL YEAR 2022 - 23
Groundwater Production Charge Analysis
Presented by
Darin Taylor, Chief Financial Officer
February 15, 2022
Attachment 1
Topics
1. Background & System Infrastructure
2. Drought Impact on Preliminary Analysis
3. Water Usage
4. Water Utility Cost Projection
5. Scenario Assumptions
6. Preliminary Groundwater Charge Forecast Scenarios
7. Other Information
8. Schedule
9. Summary
Attachment 1
A comprehensive, flexible water system
SERVING OVER 2.0 MILLION PEOPLE
10 Reservoirs
393 acres of recharge ponds
142 miles of pipelines
3 water treatment plants
1 water purification center
3 pump stations
Attachment 1
Valley Water Groundwater Charge Zones of Benefit
SERVING OVER 2.0 MILLION PEOPLE
Board Pricing Policy Summary
• Groundwater charges are levied within a
z
one for benefits received
• Modified zones shown became effective
o
n 7/1/2020
• All water sources and water facilities
c
ontribute to common benefit within a
zone regardless of cost, known as
“pooling” concept
• Helps maximize effective use of available
r
esources
• Agricultural water charge shall not exceed
10%
of M&I water charge
Attachment 1
Drought Emergency Cost increases
• Emergency Water Purchases projected to be $67.7M from FY23 to FY25 • Emergency Conservation activities projected to be $19.8M from FY23 to FY25 W
ater Usage down
• Mandatory 15% call for conservation compared to 2019 (achieved by FY23) • Results in lower revenue to pay for highly fixed cost structure Drought has significant impact on preliminary analysis
COSTS WATER
USAGE
WATER
RATES
DROUGHT IMPACT PUTS PRESSURE ON WATER RATES:
Attachment 1
202kAF
190kAF
278kAF 285kAF
237kAF
200kAF
215kAF
233kAF
216kAF
231kAF
247kAF
232kAF 234kAF 234kAF 235kAF 236kAF 237kAF
0 50
100
150
200
250
300
350
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 27 Acre-feet (1,000s)
Actuals FY 22 Budget Prior Projection Prelim Baseline Projection Treated Water
Historic Drought
Wet Spring Current Drought
Water Usage (District Managed)
Attachment 1
FY23 Water User Scenarios & Water Usage (District Managed) 246.50
232.30 233.53 234.44 235.35 236.40 237.45 238.50 239.56 241.63 242.78 243.94 190.13
236.40
178.94
187.33
201.72
211.07
198.96
201.71
190.13
170
175
180
185
190
195
200
205
210
215
220
225
230
235
240
245
250
255
260
2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 Acre Feet (AF)
Fiscal Year
FY2022-23 Water Use Scenarios (AF) with Various Conservation Levels & Rebounds FY22 Budget & Prior Projections 15% conservation in FY22 15% conservation by FY23 with low future rebound (Scenario 2) 20% conservation by FY23 with no future rebound (Scenario 5) 10% conservation by FY23 with no future rebound (Scenario 3) 15% conservation by FY23 with no future rebound (Scenario 4) 15% conservation by FY23 with future rebound (Baseline Scenario 1) Attachment 1
Preliminary Cost Projection
Attachment 1
Infrastructure Repair and Water Supply Investments
Drive Water Rates
Smart infrastructure investments needed today:
• Critical to providing safe, clean water to Santa Clara County • Investing now is most cost-e fficient way to get critical multi-year projects done Priority infrastructure investments needed include:
• Fixing Anderson Dam
• Address public health and safety concerns and relieve operational restrictions • Upgrading Rinconada Water Treatment Plant
• Extend service life of plant for next 50 years and expand plant capacity • Building local storage with Pacheco Reservoir Expansion Project • Add water storage to help face extended droughts
• Expanding Purified Water Project
• Provide incremental drought proof water supply
Attachment 1
Rate setting strategy for FY 2022-23
WATER RATE IMPACT MINIMIZATION STRATEGIES:
1. Transfer $39M unspent funds from PREP to Rate Stabilization R
eserve in FY 22; future PREP cost projection adjusted such that Total Project Cost (TPC) is unchanged
2. Leverage available reserves: draw down $64M total in FY 23 & FY 24 (
including $39M from PREP unspent funds)
3. One-t ime transfer of $25M from WSS Fund to Water Utility in FY 23 Attachment 1
Rate setting strategy for FY 2022-23, continued
FY 23 BASELINE CASE ASSUMPTIONS:
• Baseline Projects*
• SWP Tax pays for 100% of SWP costs (excludes SWP portion of Delta Conveyance) • Delta Conveyance SWP portion at 3.23%
• Los Vaqueros (Transfer Bethany Pipeline)
• Anderson Dam Seismic Retrofit with WIFIA loans (up to 49% of TPC) • Purified Water Expansion via P3 with operations beginning in FY28 • Assumes 100% debt financing through P3 entity
• Pacheco Reservoir Expansion Project (PREP) with $496M Proposition 1 grants, WIFIA loans (up to 49% of TPC) and P
artnership Participation at 35% of TPC
• Master Plan Projects Placeholder**: Assumes $369M from FY23-FY 32, mainly after 5 Year CIP * Includes but not limited to dam seismic retrofits, Rinconada WTP reliability improvement, 10-year pipeline rehabilitation program ** Master Plan Project Placeholder includes anticipated costs for new pipelines, pipeline rehabilitations, treatment plant upgrades & SCADA implementation projects TPC: Total Project Cost
Attachment 1
Preliminary Groundwater Charge Increase Scenarios
North County Zone W-2 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 Baseline Scenario #1
15% in FY23 returning to prior projection by FY26 15% 15% 15% 9.1% 9.1% 9.1% 9.1% 5% 5% 5% Scenario #2
15% in FY23 with lower future rebound 15% 15% 15% 9.8% 9.8% 9.8% 9.8% 5.6% 5.6% 5.6% Scenario #3
10% in FY23 and no future rebound 17% 16.3% 15.3% 13% 13% 13% 13% 5.5% 5.5% 5.5% Scenario #4
15% in FY23 and no future rebound 21% 21% 16% 12% 12% 12% 12% 6% 6% 6% Scenario #5
20% in FY23 and no future rebound 22.5% 22.5% 18.5% 12% 12% 12% 12% 6.2% 6.2% 6.2% M&I Groundwater Charge Year to Year Growth %
Attachment 1
Preliminary Monthly Impact to Average Household Scenarios M&I Groundwater Charge – Monthly impact to Average Household North County Zone W-2 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 Baseline Scenario #1
15% in FY23 returning to prior projection by FY26 $7.75 $8.91 $10.24 $7.15 $7.80 $8.51 $9.28 $5.56 $5.84 $6.13 Scenario #2
15% in FY23 with lower future rebound $7.75 $8.91 $10.24 $7.70 $8.45 $9.28 $10.19 $6.39 $6.75 $7.13 Scenario #3
10% in FY23 and no future rebound $8.78 $9.85 $10.75 $10.53 $11.90 $13.45 $15.19 $7.26 $7.66 $8.09 Scenario #4
15% in FY23 and no future rebound $10.85 $13.12 $12.09 $10.52 $11.79 $13.20 $14.78 $8.28 $8.78 $9.30 Scenario #5
20% in FY23 and no future rebound $11.61 $14.23 $14.33 $11.01 $12.34 $13.82 $15.47 $8.95 $9.51 $10.10 Note: Does not include any increase that a retailer would layer on top Attachment 1
Other Charges, Taxes, Reserves Information
FY 2022 FY 2023 FY 2024
Other Charges Budget Projection Projection
Contract TW Surcharge ($/AF) $115.00 $115.00 $115.00
Non-contract TW Surcharge ($/AF) $200.00 $200.00 $200.00 Surface Water Master Charge ($/AF) $40.90 $46.70 $53.30 Agricultural Groundwater Charge ($/AF) $34.15 $36.85 $39.80 SWP Tax
Revenue $26M $27M $28M
Cost per average household $40/Yr $41/ Yr $42/Yr
Reserves
Supplemental Water Reserve $7.9M $5.3M $2.7M
Drought Reserve $10.0M $0M $0M
Rate Stabilization Reserve $55.5M $42.5M $7.5M
Operating and Capital Reserve $60.6M $53.7M $62.7M
Attachment 1
Jan 3 Ag Water Advisory Committee
Jan 11 Board Meeting: Preliminary Groundwater Charge Analysis Jan 19 Water Retailers Meeting: Preliminary Groundwater Charge Analysis Jan 26 Water Commission Meeting: Preliminary Groundwater Charge Analysis Feb 8 Board Meeting: Set time & place of Public Hearing Feb 25 Mail notice of public hearing and file PAWS report Mar 8 Board Meeting: Budget development update
Mar 16 Water Retailers Meeting: FY 23 Groundwater Charge Recommendation Mar TBD Landscape Committee Meeting
Apr 4 Ag Water Advisory Committee
Apr TBD Water Commission Meeting
Apr 12 Open Public Hearing
Apr 14 Continue Public Hearing in South County
Apr 26 Conclude Public Hearing
Apr 27-28 Board Meeting: Budget work study session
May 10 Adopt budget & groundwater production and other water charges 2022 Schedule
Attachment 1
Summary
Key Drivers for Water Rate Increases:
• Emergency water purchases to ensure water supply for Silicon Valley and preparing for ongoing d
rought over next 2 years
• Smart infrastructure investments needed today:
• Investing now is most cost-e fficient way to get critical multi-year projects done Valley Water is leveraging all available tools to minimize rate impacts now • Continue to reassess drought status & recovery for future year rate impacts Seeking Board direction on following issues to be incorporated into Report on Protection and Augmentation of Water Supplies (PAWS) scheduled for February 25, 2022 • Rate Impact Minimization Strategies
• Water Use projection scenarios
Attachment 1