Draft Updated 2022 Water and Sewer Rate Study — City Council and Authorities Concurrent, June 21, 2022

DRAFT
UPDATED 2022 WATER AND SEWER

RATE STUDY

B&V PROJECT NO. 410918.0100

PREPARED FOR
City of Santa Clara
JUNE 21, 2022

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Table of Contents i
Table of Contents
Table of Contents ...................................................................................................................................................... i List of Tables ........................................................................................................................................................... iv Table of Figures ........................................................................................................................................................ v Acronyms ................................................................................................................................................................ vii Disclaimer ................................................................................................................................................................... i 1 Executive Summary ....................................................................................................................................... 1

1.1 Water System....................................................................................................................................... 1

1.2 Recycled Water System ....................................................................................................................... 1

1.3 Sewer System ....................................................................................................................................... 1

1.4 Financial Plan ....................................................................................................................................... 2

1.4.1 Water Utility .......................................................................................................................... 2

1.4.2 Recycled Water Utility ........................................................................................................... 3

1.4.3 Sewer Utility .......................................................................................................................... 4

1.5 Adequacy of Existing Rates to Meet Costs of Service .......................................................................... 5

1.6 Cost-of-Service Analysis ....................................................................................................................... 6

1.7 Rate Design .......................................................................................................................................... 6

1.7.1 Water and Recycled Water Utilities ...................................................................................... 6

1.7.2 Sewer Utility .......................................................................................................................... 9 Water and Recycled Water Rate Study ............................................................................................................. 11 2 Revenue and Revenue Requirements ...................................................................................................... 11

2.1 Customer and Water Consumption Projections ................................................................................11

2.1.1 Customer Classes ................................................................................................................11

2.1.2 Minimum Bills .....................................................................................................................11

2.1.3 Water Consumption ............................................................................................................12

2.2 Revenue Under Existing Rates ...........................................................................................................13

2.3 Other Revenue ...................................................................................................................................15

2.4 Operating and Maintenance Expenses ..............................................................................................15

2.5 Capital Improvement Program ..........................................................................................................16

2.5.1 Capital Improvement Financing Plan ..................................................................................17

2.6 Transfers ............................................................................................................................................18

2.7 Reserves .............................................................................................................................................18

2.8 Projected Operating Results ..............................................................................................................19 3 Cost of Service Analysis ............................................................................................................................... 25

3.1 Functional Cost Components .............................................................................................................26 Updated 2022 Water and Sewer Rate Study | City of Santa Clara

ii B&V PROJECT NO. 410918.0100 | JUNE 15, 2022

3.2 Allocation to Cost Components .........................................................................................................27

3.2.1 System Base, Max Day, and Max Hour Allocations .............................................................27

3.2.2 Allocation of Operating and Maintenance Expenses ..........................................................28

3.2.3 Allocation of Capital Investments .......................................................................................29

3.3 Units of Service ..................................................................................................................................30

3.4 Cost of Service Allocations .................................................................................................................30

3.4.1 Units Costs of Service ..........................................................................................................31

3.4.2 Distribution of Costs of Service to Customer Classes .........................................................31 4 Rate Design .................................................................................................................................................... 34

4.1 Existing Rates .....................................................................................................................................34

4.2 Proposed Rates ..................................................................................................................................34

4.2.1 Monthly Service Charge ......................................................................................................34

4.2.2 Fire Service ..........................................................................................................................36

4.2.3 Cross Connection ................................................................................................................37

4.2.4 Consumption Charge ...........................................................................................................38

4.3 Drought Conditions ............................................................................................................................38

4.3.1 Water Shortage Contingency Plan ......................................................................................38

4.3.2 Drought Surcharges .............................................................................................................39

4.4 Typical Monthly Costs Under Proposed Charges ...............................................................................39

4.5 Neighboring Water Utilities ...............................................................................................................40 Sewer Rate Study .................................................................................................................................................. 42 5 Revenue and Revenue Requirements ...................................................................................................... 42

5.1 Customer and Water Consumption Projections ................................................................................42

5.1.1 Customer Classes ................................................................................................................42

5.1.2 Equivalent Dwelling Units ...................................................................................................42

5.1.3 Minimum Bills .....................................................................................................................43

5.1.4 Contributed Sewage Flow ...................................................................................................44

5.1.5 Major Users .........................................................................................................................44

5.2 Revenue Under Existing Rates ...........................................................................................................45

5.3 Other Revenue ...................................................................................................................................47

5.4 Operating and Maintenance Expenses ..............................................................................................47

5.5 Debt Service Requirements ...............................................................................................................48

5.6 Capital Improvement Program ..........................................................................................................48

5.6.1 Capital Improvement Financing Plan ..................................................................................49

5.7 Transfers ............................................................................................................................................50

5.8 Reserves .............................................................................................................................................50 City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Table of Contents iii

5.9 Projected Operating Results ..............................................................................................................51 6 Cost of Service Analysis ............................................................................................................................... 55

6.1 Functional Cost Components .............................................................................................................55

6.2 Allocation to Cost Components .........................................................................................................56

6.2.1 Volume and Strength Allocations .......................................................................................56

6.2.2 Allocation of Operating and Maintenance Expenses ..........................................................56

6.2.3 Allocation of Capital Investments .......................................................................................57

6.3 Units of Service ..................................................................................................................................58

6.4 Cost of Service Allocations .................................................................................................................58

6.4.1 Units Costs of Service ..........................................................................................................58

6.4.2 Distribution of Costs of Service to Customer Classes .........................................................58 7 Rate Design .................................................................................................................................................... 63

7.1 Existing Rates .....................................................................................................................................63

7.2 Proposed Rates ..................................................................................................................................63

7.2.1 Monthly Service Charge ......................................................................................................63

7.2.2 Consumption Charge ...........................................................................................................64

7.2.3 Major Users .........................................................................................................................64

7.3 Typical Monthly Costs Under Proposed Charges ...............................................................................65

7.4 Neighboring Sewer Utilities ...............................................................................................................65 Appendix A – Ten-Year Financial Plan ............................................................................................................... 67 Water Utility ...............................................................................................................................................68 Recycled Water Utility ...............................................................................................................................69 Sewer Utility ...............................................................................................................................................70

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

iv B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 List of Tables
Table 1-1 Proposed Revenue Adjustment ....................................................................................... 6 Table 1-2 Proposed Three-Year Water Rate Schedule .................................................................... 8 Table 1-3 Proposed Three-Year Recycled Water Rate Schedule ..................................................... 9 Table 1-4 Proposed Three-Year Sewer Rate Schedules ................................................................. 10 Table 2-1 Minimum Bills ................................................................................................................ 12 Table 2-2 Billed Water Consumption ............................................................................................. 13 Table 2-3 Existing Water and Recycled Water Rates ..................................................................... 14 Table 2-4 Projected Revenue under Existing Rates ....................................................................... 15 Table 2-5 O&M Expenses ............................................................................................................... 16 Table 2-6 Capital Improvement Projects ....................................................................................... 17 Table 2-7 Construction Fund Financing Plan (Water) .................................................................... 17 Table 2-8 Construction Fund Financing Plan (Recycled Water) ..................................................... 18 Table 2-9 Operating Fund (Water) ................................................................................................. 22 Table 2-10 Operating Fund (Recycled Water) ................................................................................ 23 Table 3-1 Cost of Service Revenue from Rates (Water) ................................................................. 25 Table 3-2 Cost of Service Revenue from Rates (Recycled Water) ................................................. 26 Table 3-3 Allocation of O&M Expenditures (Water) ...................................................................... 28 Table 3-4 Allocation of O&M Expenditures (Recycled Water) ....................................................... 29 Table 3-5 Allocation of Capital Costs (Water) ................................................................................ 29 Table 3-6 Allocation of Capital Costs (Recycled Water) ................................................................. 30 Table 3-7 Units of Service (Water and Recycled Water) ................................................................ 32 Table 3-8 Units Cost of Service (Water) ......................................................................................... 33 Table 3-9 Distribution of Costs to Customer Classes (Water) ........................................................ 33 Table 3-10 Units Cost of Service (Recycled Water) ........................................................................ 33 Table 3-11 Distribution of Costs to Customer Classes (Recycled Water) ...................................... 33 Table 4-1 Costs within the Minimum Monthly Service Charge for FY 2023 (Water) ..................... 35 Table 4-2 Proposed Minimum Monthly Service Charge (Water) ................................................... 35 Table 4-3 Costs within the Minimum Monthly Service Charge for FY 2023 (Recycled Water) ..... 35 Table 4-4 Proposed Minimum Monthly Service Charge (Recycled Water) ................................... 36 Table 4-5 Costs within the Fire Service Charge for FY 2023 .......................................................... 36 Table 4-6 Proposed Fire Service Charge ........................................................................................ 37 Table 4-7 Costs within the Cross-Connection Charge for FY 2023................................................. 37 Table 4-8 Proposed Cross Connection Charge ............................................................................... 37 Table 4-9 Proposed Consumption Charges .................................................................................... 38 Table 4-10 Stages of Water Shortages Contingency Plan .............................................................. 38 City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Table of Contents v
Table 4-11 Proposed First Year Drought Charges, FY 2023 ........................................................... 39 Table 4-12 Proposed Three-Year Drought Charges ....................................................................... 39 Table 4-13 Typical Monthly Bill (Water) ........................................................................................ 40 Table 4-14 Typical Monthly Bill (Recycled Water) ......................................................................... 40 Table 5-1 EDUs ............................................................................................................................... 43 Table 5-2 Minimum Monthly Service Bills ..................................................................................... 43 Table 5-3 Contributed Sewage Flow .............................................................................................. 44 Table 5-4 Major Users .................................................................................................................... 45 Table 5-5 Existing Sewer Rates ...................................................................................................... 46 Table 5-6 Projected Revenue under Existing Rates ....................................................................... 47 Table 5-7 O&M Expenses ............................................................................................................... 48 Table 5-8 Long-Term Debt Service ................................................................................................. 48 Table 5-9 Capital Improvement Projects ....................................................................................... 49 Table 5-10 Construction Fund Financing Plan ............................................................................... 50 Table 5-11 Operating Fund ............................................................................................................ 53 Table 6-1 Cost of Service Revenue from Rates .............................................................................. 55 Table 6-2 Allocation of O&M Expenditures ................................................................................... 57 Table 6-3 Allocation of Capital Costs ............................................................................................. 57 Table 6-4 Units of Service .............................................................................................................. 60 Table 6-5 Units Cost of Service ...................................................................................................... 61 Table 6-6 Distribution of Costs to Customer Classes ..................................................................... 61 Table 7-1 Proposed Monthly Service Charge ................................................................................. 64 Table 7-2 Proposed Consumption Charges .................................................................................... 64 Table 7-3 Proposed Major User Charges ....................................................................................... 65 Table 7-4 Typical Monthly Bill ........................................................................................................ 65 Table of Figures
Figure 1-1 Water Operating Cash Flow ............................................................................................ 3 Figure 1-2 Recycled Water Operating Cash Flow ............................................................................. 4 Figure 1-3 Sewer Operating Cash Flow ............................................................................................ 5 Figure 2-1 Water Sales ................................................................................................................... 13 Figure 2-2 Status Quo Operating Cash Flow (Water) ..................................................................... 19 Figure 2-3 Status Quo Operating Cash Flow (Recycled Water) ..................................................... 20 Figure 2-4 Water Operating Cash Flow .......................................................................................... 24 Figure 2-5 Recycled Water Operating Cash Flow ........................................................................... 24 Figure 4-1 Comparison to Neighboring Water Utilities ................................................................. 41 Updated 2022 Water and Sewer Rate Study | City of Santa Clara

vi B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Figure 5-1 Status Quo Operating Cash Flow .................................................................................. 51 Figure 5-2 Operating Cash Flow ..................................................................................................... 54 Figure 7-1 Comparison to Neighboring Sewer Utilities ................................................................. 66

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Table of Contents vii
Acronyms
ADD Average Daily Demand
AWWA American Water Works Association
Black & Veatch Black & Veatch Management Consulting LLC BOD Biochemical Oxygen Demand
CIP Capital Improvement Program
City City of Santa Clara
CIS Customer Information System
EDU Equivalent Dwelling Unit
FY Fiscal Year (July 1 to June 30)
gpcd gallons per capita per day
HCF Hundred Cubic Feet
M Million
M1 Principles of Water Rates, Fees, and Charges
Max Day Maximum Day
Max Hour Maximum Hour
NH3 Ammonia
O&M Operation and Maintenance
RWF San Jose-Santa Clara Regional Wastewater Facility
SBx7-7 Senate Bill X7-7 (State of California in the Water Conservation Act of 2009) SFPUC San Francisco Public Utilities Commission
Study Water and Sewer Rate Study
TSS Total Suspended Solids
TY Test Year
Valley Water Santa Clara Valley Water District
WEF Water Environment Federation

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Table of Contents i
Disclaimer
Black & Veatch has prepared this report for the City, and it is based on information not within the control of Black & Veatch. The City has not requested Black & Veatch to make an independent analysis, verify the information provided to us, or render an independent judgment of the validity of the information provided by others. Because of this, Black & Veatch cannot, and does not, guarantee the accuracy thereof to the extent that such information, data, or opinions were based on information provided by others.

In conducting these analyses and in forming an opinion of the projection of future financial operations summarized in this report, Black & Veatch made certain assumptions on the conditions, events, and circumstances that may occur in the future. The methodology utilized in performing the analyses follows generally accepted practices for such projections. Such assumptions and methodologies are reasonable and appropriate for the purpose for which they are used. While we believe the assumptions are reasonable and the projection methodology valid, actual results may differ materially from those projected, as influenced by the conditions, events, and circumstances that occur. Such factors may include the utilities’ ability to execute the capital improvement program as scheduled and within budget, regional climate and weather conditions affecting the demand for water, discharge of sewage flow, and adverse legislative, regulatory, or legal decisions (including environmental laws and regulations) affecting the utilities’ ability to manage the system and meet water quality requirements.

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Executive Summary 1
1 Executive Summary
The City of Santa Clara (City) commissioned Black & Veatch Management Consulting, LLC (Black & Veatch) to perform an update of the Water and Sewer Rate Study (Study) for its Water, Recycled Water, and Sewer Utilities. The Study included the development of a three-year financial plan, a cost-of-service analysis, and the design of rates. In addition, a ten-year financial plan was developed to provide the City with a high-level view of each utility’s operations. The specific objectives of the Study were to:
 Evaluate the adequacy of projected revenues under existing rates to meet projected revenue requirements.
 Develop sound financial plans for the utilities covering a three and ten-year period for both ongoing operations and planned capital improvements.
 Allocate the utilities’ projected revenue requirements to the various customer classes in accordance with their respective service requirements.
 Develop a suitable rate schedule that produces revenues adequate to meet financial needs while recognizing customer costs of service and regulatory considerations such as Proposition 218 and applicable judicial decisions.

1.1 WATER SYSTEM
The Water Utility provides water services to approximately 26,000 residential, commercial, irrigation, and educational customers. The City obtains potable water from three primary sources: local groundwater, surface water from the Santa Clara Valley Water District (Valley Water), and imported water from the Hetch Hetchy watershed through the San Francisco Public Utilities Commission (SFPUC).

The water system infrastructure consists of 335 miles of transmission and distribution mains, 7 storage tanks totaling 28.8 million gallons of storage capacity, 21 wells, and 3 booster pump stations. The City has a target of obtaining 68% of the 5.8 billion gallons of water that flows to its customers each year from the City’s wells.

1.2 RECYCLED WATER SYSTEM
The Recycled Water Utility, operating since 1989, provides recycled water services to over 280 commercial, irrigation, and industrial customers. The City obtains recycled water from South Bay Water Recycling. The recycled water comes from the San Jose-Santa Clara Regional Wastewater Facility (RWF), an advanced tertiary treatment facility located in San Jose, of which the City is a co-owner. The recycled water infrastructure within the City limit boundary mainly consists of 34 miles of recycled water pipelines. A portion of the recycled water from the RWF supplies the Valley Water’s Silicon Valley Advanced Water Purification Center for advanced treatment (microfiltration, reverse osmosis, and advanced oxidation) to create a mix of high-quality recycled water that is blended back into the recycled water system.

1.3 SEWER SYSTEM
The Sewer Utility provides sewer services to approximately 26,000 residential, commercial, industrial, and municipal customers. Services include the construction and maintenance of the sewer Updated 2022 Water and Sewer Rate Study | City of Santa Clara

2 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 system and installing sewer lateral clean-outs at the property line. Sanitary sewer flows in the City are collected and transported through more than 288 miles of sewer main by way of six pumping stations to the San Jose-Santa Clara Regional Wastewater Facility. The RWF is a regional treatment facility that receives wastewater from seven agencies in Santa Clara County and can treat 167 million gallons a day (MGD) wastewater.

1.4 FINANCIAL PLAN
The City operates the utilities as individual self-supporting enterprises. Therefore, the utilities must develop financial plans that provide sufficient revenues to meet all operation and maintenance expenses, water purchases, wastewater treatment, debt service requirements, capital improvements funded from current revenues, and other expenditures.

The Study develops financial plans that project operating revenue, expenses, and capital financing costs for the utilities over a ten-year planning period beginning July 1, 2022, and ending June 30, 2032.

This report will focus on a three-year planning period for discussion, beginning July 1, 2022 and ending June 30, 2025. The full ten-year financial plans can be found in Appendix A.

The financial plans project future rate revenues under existing rates, operations and maintenance (O&M) expenses, principal and interest expense on debt, transfers, and capital improvement program (CIP) requirements. In the projection of rate revenues, annual projections of customers and water consumption rely upon the City’s historical data and estimates of growth. In addition, the Water Utility’s forecast incorporates efforts to continue to meet the conservation goals as established by the State Senate Bill 7x-7 (SB7x-7) and the City’s Water Shortage Contingency Plan.

On July 12, 2021, the City moved into Stage 2 of the Water Shortage Contingency Plan. It amended the City’s Water Use Rules and Regulations, calling for an ongoing voluntary 20% reduction based on 2013 water usage. The City took this action as of result of Valley Water’s action on June 9, 2021, which called for a mandatory 15% reduction in water usage countywide. 1 With water conservation
restrictions in place and despite the growth projections, the Water Utility will continue to be under the conservation levels set forth by SB7x-7.

1.4.1 Water Utility
The Water Utility’s revenue requirements are summarized below:
 Operation and Maintenance Expenses: The Water Utility anticipates O&M expenses to increase from $52.7M in FY 202 3 to $63.6M in FY 2025. Water production and water purchases account for most of this increase, representing approximately 65% of O&M expenses.  Debt Service: The Water Utility has no existing debt service, and no future debt is planned.

1 On March 28, 2022, Governor Newsom called on local water suppliers to move to level 2 of th eir Water Shortage Contingency Plans. Valley Water had implemented level 2 in June of 2021; therefore, the water projections already incorporate a level of conservation. Any further restrictions are not part of the baseline analysis.

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Executive Summary 3
 Capital Improvements: The Water Utility plans to execute an average of $5.2M per year in capital projects from FY 2023 to FY 2025.
 Reserves: The Water Utility plans to con tinue funding the operating fund reserve, construction fund reserve, rate stabilization fund reserve, and pension stabilization reserve. • The operating fund reserve is to help cover fluctuations in day-to-day expenses. The scheduled target is 90 days of O&M expenses.
• The construction fund reserve is to help maintain enough funds on hand to help mitigate unexpected capital costs. The scheduled target is 12-months of the following year’s CIP. • The rate stabilization fund reserve is to help mitigate future increases in drought-stricken years. The scheduled target is 10% of the prior year’s rate revenues. • The pension fund reserve is to pay for the unfunded pension liabilities and the increase in the City’s share of pension costs due to factors such as higher CalPERS rates and negotiated pay increases.

The Water Utility is proposing revenue adjustments to allow it to operate the enterprise on a revenue-neutral basis and meet reserve targets, as shown in Figure 1-1.

Figure 1-1 Water Operating Cash Flow

1.4.2 Recycled Water Utility
The Recycled Water Utility’s revenue requirements are summarized below:
 Operation and Maintenance Expenses: The Recycled Water Utility anticipates O&M expenses to increase from $6.8M in FY 2023 to $9.1M in FY 2025. Recycled water purchase costs constitute most of the increase, averaging 86% of O&M expenses.
 Debt Service: The Recycled Water Utility has no existing debt service, and no future debt is planned.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

4 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022  Capital Improvements: The Recycled Water Utility plans to execute an average of $50k per year in capital projects from FY 2023 to FY 2025.
 Reserves: The City plans to continue funding the operating fund reserve, construction fund reserve, rate stabilization fund reserve, and pension stabilization reserve. • The operating fund reserve is to help cover fluctuations in day-to-day expenses. The scheduled target is 90 days of O&M expenses.
• The construction fund reserve is to help maintain enough funds on hand to help mitigate unexpected capital costs. The scheduled target is 12-months of the following year’s CIP. • The rate stabilization fund reserve is to help mitigate future increases in drought-stricken years. The scheduled target is 10% of the prior year’s rate revenues. • The pension fund reserve is to pay for the unfunded pension liabilities and the increase in the City’s share of pension costs due to factors such as higher CalPERS rates and negotiated pay increases
The Recycled Water Utility is proposing revenue adjustments and drawing down on reserves to allow it to operate the enterprise on a revenue-neutral basis and meet reserve targets, as shown in Figure 1-2.

Figure 1-2 Recycled Water Operating Cash Flow

1.4.3 Sewer Utility
The Sewer Utility’s revenue requirements are summarized below:
 Operation and Maintenance Expenses: The Sewer Utility anticipates O&M expenses to increase from $31.1M in FY 2023 to $33.1M in FY 2025. RWF-related costs represent 66% of O&M expenses.

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Executive Summary 5
 Debt Service: The Sewer Utility anticipates an average debt service payment of $2.8M per year from FY 2023 to FY 2025 associated with existing and proposed debt issuances. The City anticipates a net debt issuance of $0.4M in FY 2023 and $15.0M in FY 2024.  Capital Improvements: The Sewer Utility plans to execute an average of $20.5M per year in capital projects from FY 2023 to FY 2025.
 Reserves: The Sewer Utility plans to continue funding the operating fund reserve, construction fund reserve, rate stabilization fund reserve, and pension stabilization reserve. • The operating fund reserve is to help cover fluctuations in day-to-day expenses. The scheduled target is 90 days of O&M expenses.
• The construction fund reserve is to help maintain enough funds on hand to help mitigate unexpected capital costs. The scheduled target is 12-months of the following year’s City CIP and 6-months of the following year’s RWF CIP.
• The rate stabilization fund reserve is to help mitigate future increases in drought-stricken years. The scheduled target is 10% of the prior year’s rate revenues. • The pension fund reserve is to pay for the unfunded pension liabilities and the increase in the City’s share of pension costs due to factors such as higher CalPERS rates and negotiated pay increases
The Sewer Utility is proposing revenue adjustments and drawing down on reserves to allow it to operate the enterprise on a revenue-neutral basis and meet reserve targets, as shown in Figure 1-3.

Figure 1-3 Sewer Operating Cash Flow

1.5 ADEQUACY OF EXISTING RATES TO MEET COSTS OF SERVICE Based on the financial plans, Black & Veatch recommends the revenue adjustments shown in Table 1-1 to meet the projected revenue requirements for FY 2023 to FY 2025. These do not represent

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

6 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 proposed rate increases to customers. Rather, these represent the overall revenue increases the utilities need to meet their overall obligations and maintain current service levels.

Table 1-1 Proposed Revenue Adjustments

1.6 COST-OF-SERVICE ANALYSIS
The cost-of-service analysis allocates the costs to the various customer classes of service in a fair and equitable manner. The methodologies used in the Study are specific to the respective utility operations. The following is a brief description of the methodologies.

The water and recycled water cost-of-service allocation performed in this Study uses the Base- Extra Capacity Method endorsed by the American Water Works Association (AWWA) Principles of Water Rates, Fees, and Charges, M1 (M1) manual. Under cost-of-service principles, costs are allocated to the different customer classes in proportion to their water system use. As recommended by AWWA, Black & Veatch distributed functional costs to the base (average load conditions), extra capacity (peaking), and customer-related parameters. This allocation methodology produces unit costs for allocation to individual customer classes based on the projected customer service requirements.

The sewer cost-of-service allocation performed in this Study follows the Functional Cost Allocation Method endorsed by the Water Environment Federation (WEF) Financing and Charges for Wastewater Systems, Manual of Practice 27 (MoP27) manual. Like the methodology used for water systems, the sewer cost of service analysis allocates costs to the different customer classes in proportion to their use of the sewer system. As recommended by WEF, Black & Veatch distributed functional costs to volume, strength, and customer-related parameters. This allocation methodology produces unit costs for allocation to individual customer classes based on the projected customer service requirements.

1.7 RATE DESIGN
The Right to Vote on Taxes Act, also known as Proposition 218, was passed by California voters in 1996 and added Article XIIIC and Article XIIID to the California Constitution. These articles provide the regulatory framework that guides and informs the rate-setting process. The cost-of-service analyses provide the cost nexus for the proposed rate structures. The regulatory framework helps ensure cost recovery is proportionate to the cost of providing the service.

1.7.1 Water and Recycled Water Utilities
To minimize impacts, retain simplicity, and ensure the reasonable stability of revenue, Black & Veatch recommends the following rate structure.
 Monthly Service Charge: The Water and Recycled Water Utilities should retain the minimum monthly service charge based on meter sizes for all customer classes. The minimum monthly service charge includes a minimum consumption allowance and recovers portions of fixed cost elements such as operating and capital components, meter maintenance and services, meter reading, issuing FY 2023 July 8.80% 10.00% 3.00%
FY 2024 July 8.80% 10.00% 3.50%
FY 2025 July 8.80% 10.00% 3.50%
Recycled
Water
Sewer
UtilityFiscal Year
Water
Utility
Effective
Month
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Executive Summary 7
bills, and maintenance and capacity costs associated with public fire protection. The minimum consumption allowance accommodates water considered essential for health and safety.  Consumption Charge: The Water and Recycled Water Utilities should maintain the uniform consumption charge for all customer classes. The consumption charge recovers costs associated with the base and extra capacity demands.
 Fire Service Charge: The Water Utility should continue to utilize the fire service charge based on meter size for private fire service connections. The fire service charge will recover maintenance and capacity costs associated with private fire protection costs.  Cross Connection Charge: The Water Utility should continue to utilize the cross-connection charge based on meter size for backflow connections. The cross-connection charge will recover the costs of maintenance associated with backflow devices.

Table 1-2 summarizes the recommended three-year rate schedules for all Water Utility components.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

8 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 1-2 Proposed Three-Year Water Rate Schedule

Table 1-3 summarizes the recommended three-year rate schedules for all Recycled Water Utility components.

Proposed
Customer Class FY 2023 FY 2024 FY 2025
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 20.54 22.25 24.09 1" 32.00 34.84 37.86
1-1/2" 60.65 66.31 72.28
2" 95.03 104.08 113.58
3" 186.71 204.79 223.73
4" 289.85 318.09 347.65
6" 576.36 632.81 691.86
8" 920.17 1,010.48 1,104.92
10" 1,378.58 1,514.04 1,655.66
12" 1,937.26 2,127.75 2,326.88
Fire Service ($/Month) $/month $/month $/month
2" 2.87 2.95 3.07
4" 16.25 16.72 17.41
6" 47.80 49.19 51.20
8" 101.82 104.77 109.06
10" 183.09 188.39 196.11
12" 295.91 304.48 316.95
Cross Connection ($/Month) $/month $/month $/month
1" 7.33 7.47 7.70
2" 11.73 11.95 12.32
3" 23.47 23.91 24.64
4" 36.67 37.35 38.50
6" 73.33 74.71 76.99
8" 117.33 119.53 123.19
10" 175.99 179.30 184.79
Consumption Charges ($/HCF)
General Customer 7.33 7.99 8.71 City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Executive Summary 9
Table 1-3 Proposed Three-Year Recycled Water Rate Schedule

1.7.2 Sewer Utility
To minimize impacts, retain simplicity, and ensure the reasonable stability of revenue, Black & Veatch recommends the following rate structure.
 Monthly Service Charge: The Sewer Utility should retain the monthly service charge based on equivalent dwelling units (EDUs) for all residential customer classes. In addition, the monthly service charge serves as the base amount, or minimum, for all non-residential customer classes.

Beginning in FY 2023, multi-family residential and single family residential will become separate customer classes. As part of the process to better align rates and charges to its customers, the City verified EDU information for the multi-family customers, which enabled the analysis of the different demands placed on the system by the different residential customers. The analysis showed that while multi-family customers use less water, they discharge more wastewater to the system as a class. It also revealed that the demands exerted on the system by multi-family customers was spread across a larger customer base. Therefore, the rate, determined by the cost-of-service analysis, would be less.  Consumption Charge: The Sewer Utility should retain its uniform consumption charges for each non-residential customer class. The recommended rate structure should be based on customer class.
 Major Commercial and Industrial Users: The Sewer Utility should retain the major commercial and industrial user charge for customers with high discharge quantities and/or high strength loadings.

Table 1-4 summarizes the recommended three-year rate schedules for all Sewer Utility components.

10 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 1-4 Proposed Three-Year Sewer Rate Schedules

Line Proposed
No. Customer Class FY 2023 FY 2024 FY 2025
Monthly Service Charge ($/EDU) $/month $/month $/month
1 Single Fam ily 46.82 48.50 50.28
2 Multi-Fam ily 44.69 46.32 48.05
Minimum Commercial Bill Charge ($/Month) $/month $/month $/month 3 A ll Custom e rs 46.82 48.50 50.28
Commodity Charge ($/HCF) $/HCF $/HCF $/HCF
1 Amusement Parks 5.67 5.82 5.99
2 Auto Deal ers & Servi ce Stati on 6.17 6.37 6.57
3 Churches 5.15 5.28 5.42
4 Com/Ind/Misc 5.41 5.56 5.71
5 Electric & Electronic Equip. 5.11 5.22 5.33
6 Food and Kindred Products 12.60 13.28 13.93
7 Hospi tal s & Conval escent Homes 6.21 6.41 6.60
8 Industrial Chemical 9.29 9.69 10.08
9 Laundries 5.57 5.74 5.89
10 Machinery Manufacturers 7.57 7.87 8.17
11 Me tal Plating 4.14 4.20 4.29
12 Motel s & Hotel s 6.59 6.82 7.05
13 Paper 12.94 13.65 14.31
14 Repair Shops & Car Washes 4.77 4.95 5.10
15 Restaurants 12.83 13.54 14.20
16 Schools & Colleges 6.00 6.15 6.32
Major Commercial and Industrial Users
Operating and Maintenance Cost Recovery
1 Vol ume ($/MG) 2,993.84 3,000.08 3,068.71
2 BOD ($/1,000 lbs) 497.33 497.47 508.29
3 SS ($/1,000 lbs) 628.54 628.75 642.43
4 NH3 ($/1,000 lbs) 5,159.79 5,161.10 5,274.31
Annual Capital Cost Recovery
5 Vol ume ($/MGD) 1,087,371 1,124,455 1,140,228
6 BOD ($/1,000 lbs/day) 75,537 97,560 113,092
7 SS ($/1,000 lbs/day) 52,105 67,304 78,018
8 NH3 ($/1,000 lbs/day) 178,596 230,700 267,439
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 11 Water and Recycled Water Rate Study
2 Revenue and Revenue Requirements
To meet the costs associated with providing water services to its customers, the Water and Recycled Water Utilities derive revenue from a variety of sources, including water user charges (rates), developer contributions, solar water heating, interest earned from the investment of available funds, engineering fees, and other miscellaneous revenues. Both utilities are constantly looking for other sources of revenue, such as grants, to fund infrastructure investments. Black & Veatch has projected the level of future revenue generated in the Study through an analysis of historical and future system growth in terms of the number of bills and water consumption. This section also projects the expenses, or revenue requirements, necessary to operate and maintain the system, invest in capital improvements, make debt service payments, and cover other water and recycled water systems expenses.

2.1 CUSTOMER AND WATER CONSUMPTION PROJECTIONS

2.1.1 Customer Classes
The Water Utility’s customer base includes both residential and non-residential accounts. The City has three distinct customer classes: General Customer, Fire Service, and Cross Connection.

The Recycled Water Utility’s customers are mainly non-residential. The City has two distinct customer classes: General Customer and Industrial Process. The City is working on transitioning Industrial Process to General Customer.

2.1.2 Minimum Bills
The City provides potable water services to approximately 26,000 customers and recycled water services to over 280 customers. All customers connected to the water and recycled water systems do so through metered connections. The City bills customers based on water consumption, but several bills do not meet the consumption allowance identified by meter size. Therefore, the City refers to these bills as minimum monthly service bills. Since the City bills customers based on minimum bills generated, the analysis included a review of historical bill patterns for customers and anticipated growth within the City. The projected total number of bills is expected to increase by 0.3% per year for the Water Utility and 1.4% for the Recycled Water Utility over the Study period.

Table 2-1 summarizes the projected number of minimum bills for the Water and Recycled Water Utilities.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

12 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 2-1 Minimum Bills

2.1.3 Water Consumption
Table 2-2 shows the projected water and recycled water consumption for the Study period. In determining the projected water and recycled water consumption, Black & Veatch analyzed historical water consumption patterns in conjunction with future water conservation requirements set by the City’s Water Shortage Contingency Plan and the continual requirement of SB 7x-7. In 2017, the State of California formally lifted the water restrictions as it declared the drought over. Unfortunately, in 2022 after another three years of dry weather, Governor Newsom called for local water suppliers to move to Level 2 of their Water Shortage Contingency Plans to drive water conservation. The City has been operating in Level 2 since June 2021 when Valley Water moved to Level 2. The State of California and Governor continue to monitor drought conditions which can lead to further water cutbacks and conservation measures for water consumption.

Many factors have contributed to the City’s steady decline in consumption. The City’s primary conservation goals can be found in the Water Shortage Contingency Plan, and Santa Clara’s Council codified the continuing goal to conserve in July of 2017. The City offers a rain barrel rebate program and works with the Valley Water on other outreach and rebate programs for water conservation. Expanding the use of recycled water to existing and new customers is important for the City in supplementing the use of potable water. Overall, customers have done well to increase efficiency in the use of water resources.

Figure 2-1 below represents the population growth and a decline in water consumption.

Fiscal Year Ending June 30,
FY 2023 F Y 2024 FY 2025
(Bills) (Bills) (Bills)
Water Utility
1 General Customers 39,364 39,463 39,562 2 Total 39,364 39,463 39,562
Recycled Water Utility
3 General Customers 535 545 550 4 Total 535 545 550
Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 13 Figure 2-1 Water Sales

Recognizing that the City has met SB 7x-7 requirements and water consumption was at historic lows, the City anticipates an average rebound of 0.4% per year for the Water Utility and 1.5% per year for the Recycled Water Utility over the Study period. The City currently bills water consumption in hundred cubic feet (HCF) and only charges for consumption more than the allowance.

Table 2-2 Billed Water Consumption

2.2 REVENUE UNDER EXISTING RATES
Water and recycled water user rates serve as the primary source of revenue for the Water and Recycled Water Utilities. Therefore, the level of future rate revenue is important in developing a long- range financial plan. To determine rate revenue, the projected system growth in terms of the number of Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
(HCF) (HCF) (HCF)
Water Utility
1 General Customers 7,021,637 7,056,745 7,074,387 2 Total Usage (HCF) 7,021,637 7,056,745 7,074,387 3 Total Usage (AF) 16,119 16,200 16,241 Recycled Water Utility
4 General Customers 1,550,341 1,581,348 1,597,161 5 Total 1,550,341 1,581,348 1,597,161
6 Total Usage (AF) 3,559 3,630 3,667 Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

14 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 minimum bills and billed water consumption is multiplied by the applicable rates to determine water and recycled water rate revenue.

Table 2-3 shows the current Water and Recycled Water Utilities rate schedules. It is important to note that the minimum monthly service charge applies to customers that do not exceed the consumption allowance within the meter sizes. Therefore, the minimum monthly service charge serves as a baseline cost that the City needs to recover.

Table 2-3 Existing Water and Recycled Water Rates

Table 2-4 summarizes projected water and recycled water rate revenue under existing rates. As shown, the revenue generated is projected to increase over the Study period in conjunction with the increase in the number of minimum bills and water consumption. The projected Water Utility revenues increase from $50.7M in FY 2023 to $51.1M in FY 2025, representing an overall increase of 0.7% over the three-year study period. The projected Recycled Water Utility revenue increases from $5.9M in FY 2023 to $6.0M in FY 2025, reflecting an overall increase of 3.0% over the three-year Study period.

All City All City
FY 2022 FY 2022
Water Utility Water Utility
Minimum Monthly Meter Rates ($/mo) Fire Service Charges ($/mo) 5/8" x 3/4" 19.81 2" 2.87
1" 30.67 4" 16.26
1-1/2" 57.84 6" 47.83
2" 90.45 8" 101.88
3" 177.40 10" 183.20
4" 275.21 12" 296.09
6" 546.93
8" 872.98 Cross Connection Charges ($/mo)
10" 1,307.72 1" 8.06
12" 1,837.56 2" 12.90
3" 25.80
Recycled Water Utility 4" 40.31
Minimum Monthly Meter Rates ($/mo) 6" 80.62
5/8" x 3/4" 18.90 8" 129.00
1" 29.36 10" 193.49
1-1/2" 55.51
2" 86.89 Consumption Charges
3" 170.57 Water Utility ($/HCF)
4" 264.71 General Customers 6.69
6" 526.21
8" 840.01 Recycled Water Utility ($/HCF)
10" 1,258.41 General Customers 3.74
12" 1,768.34 Industrial Process 3.74
DescriptionDescription
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 15 Table 2-4 Projected Revenue under Existing Rates

2.3 OTHER REVENUE
Other sources of operating revenue include charges for hydrant flow tests, meter tests, engineering plan review, water installation and relocation, interest on investments, and other miscellaneous revenues. In total, other operating revenues represent less than 1.8% of the Water Utility’s total revenue and 6.5% of the Recycled Water Utility’s total revenue. The City anticipates that these revenues will remain relatively constant for the duration of the Study period.

2.4 OPERATING AND MAINTENANCE EXPENSES
Table 2-5 summarizes the Water and Recycled Water Utilities’ projected O&M expense for the Study period. These expenses include costs related to salaries and benefits, materials and supplies, contract and professional services, water supply costs, indirect and direct costs, and routine capital outlay. The City anticipates that all O&M expenditures, excluding water supply costs, will increase on average by 3.6% annually for the Water Utility and 4.5% annually for the Recycled Water Utility from the FY 2021.

Water supply costs include water production and purchased water costs. In the case of the Water Utility, the City has three main sources of water: 1) groundwater pumped from City-owned wells; 2) surface water from the Valley Water and; 3) imported water from the Hetch Hetchy watershed from SFPUC. The City operates 26 groundwater wells that tap the underground aquifers, which make up a targeted amount of approximately 59% of the City's water supply. The City imports the remainder of its water supplies from the two wholesale water agencies. Based on estimates of groundwater and wholesale rates provided by Valley Water and SFPUC, the City expects water production and purchased water costs to increase by at least 28.3% over the Study period.

Recycled water is a reliable drought-proof source of water that helps offset the use of potable sources, especially in drought-prone years in California. In the case of the Recycled Water Utility, the City has one main source of recycled water: The San Jose-Santa Clara Regional Wastewater Facility. This facility produces highly treated water delivered through separate pipelines. Based on estimates from the facility, the City expects purchased recycled water costs to increase by at least 38.4% over the Study period.

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
Water Utility
1 General Customers 48,531,700 48,770,500 48,892,400 2 Fi re Servi ce 978,600 979,600 980,600 3 Cross Connection 1,190,800 1,192,200 1,193,500 4 Total 50,701,100$ 50,942,300$ 51,066,500$
Recycled Water Utility
5 General Customers 5,862,000 5,979,000 6,038,500 6 Total 5,862,000$ 5,979,000$ 6,038,500$
Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

16 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 2-5 O&M Expenses

As shown in Table 2-5, the Water Utility’s O&M expenses increase from $52.7M in FY 2023 to $63.6M in FY 2025, while the Recycled Water Utility’s O&M expenses increase from $6.8M in FY 2023 to $9.1M in FY 2025.

2.5 CAPITAL IMPROVEMENT PROGRAM
The Water and Recycled Water Utilities develop five-year Capital Improvement Plans annually to identify water and recycled water system needs, including assessments, inspections, maintenance, and rehabilitation and replacement requirements.

Table 2-6 summarizes the Water and Recycled Water Utilities CIP for FY 2023 through FY 2025.

The Water Utility is projecting $15.7M in CIP, and the Recycled Water Utility is projecting $150k in CIP over the Study period, which includes both capital and replacement projects. The City has posted the CIP Budget on its website for complete details associated with each CIP project.2

2 The City of Santa Clara. Finance Department. < http://santaclaraca.gov/government/departments/finance> Fiscal Year Ending June 30,
FY 2023 F Y 2024 FY 2025
($) ($) ($)
Water Utility
1 Salaries 6,031,000 6,326,500 6,567,000
2 Benefi ts 3,418,400 3,592,500 3,775,000
3 Mate rials/Se rvice s/Supplie s 2,532,200 2,582,700 2,634,200 4 Interfund Services 7,584,700 7,784,300 8,022,000 5 Resource & Production 33,178,000 38,057,900 42,557,200 6 Capital Outlay 0 0 0 7 Total 52,744,300$ 58,343,900$ 63,555,400$
Recycled Water Utility
8 Salaries 403,400 425,200 442,700
9 Benefi ts 232,500 244,400 256,900
10 Mate rials/Se rvice s/Supplie s 46,000 46,900 47,800 11 Interfund Services 373,100 388,100 404,200 12 Resource & Production 5,761,600 6,815,600 7,974,000 13 Capital Outlay 0 0 0 14 Total 6,816,600$ 7,920,200$ 9,125,600$
Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 17 Table 2-6 Capital Improvement Projects

2.5.1 Capital Improvement Financing Plan
The City funds annual expenditures for the CIP from a combination of available funds on hand, connection charges, developer contributions, and revenues derived from user rates. As shown in Table 2-7 and Table 2-8, the average annual CIP expenditure is $5.2M for the Water Utility and $50k for the Recycled Water Utility. There is no planned annual CIP contribution from the Water Utility Operating Fund and Recycled Water Utility over the Study period. The CIP will be funded through funds on hand.

Table 2-7 Construction Fund Financing Plan (Water)

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
Water Utility
1 7005 Buildings and Grounds 865,000 1,515,000 735,000 2 7054 Distribution System
Repl acement/Restorati on 2,000,000 2,000,000 2,000,000 3 7057 Asset Management Program 200,000 150,000 150,000 4 7058 SCADA Improvements 500,000 500,000 500,000 5 7059 New and Repl acement Wel l s 3,100,000 1,000,000 500,000 6 Total 6,665,000$ 5,165,000$ 3,885,000$
Recycled Water Utility
7 7505 Recycl ed Water System Mai ns and
Servi ces 50,000 50,000 50,000
8 Total 50,000$ 50,000$ 50,000$
Line No. Description
Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
Source of Funds
1 Intra Transfer In - Debt Financing 0 0 0 2 Intra Transfer In - Customer Service Charge 0 0 0 3 Connection Charges 0 0 0 4 Developer Contributions 0 0 0 5 Total Sources 0$ 0$ 0$ Use of Funds
6 Improvements Projects 6,665,000 5,165,000 3,885,000 7 Total Uses 6,665,000$ 5,165,000$ 3,885,000$
8 Net Annual Cash Balance (6,665,000) (5,165,000) (3,885,000) 9 Beginning Unrestricted Fund Balance 22,750,200 16,585,200 11,420,200 10 Net Cumulative Fund Balance 16,085,200$ 11,420,200$ 7,535,200$ 11 Minimum Construction Reserves 5,165,000$ 3,885,000$ 3,435,000$ Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

18 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 2-8 Construction Fund Financing Plan (Recycled Water)

2.6 TRANSFERS
The Water and Recycled Water Utilities will each conduct transfers from their respective Operating Funds and other funds over the Study period. Table 2-9, Lines 18 to 20 for the Water Utility and Table 2-10, Lines 15 to 17 for Recycled Water Utility summarize these associated amounts, respectively. The other funds consist of the Rate Stabilization Fund, Pension Stabilization Fund, and Construction Fund. See Section 2.7 for further explanation on Rate Stabilization and Pension Stabilization Funds. The Construction Fund transfers represent money to cover planned CIP project expenditures. These transfers do not represent direct operating expenses for either enterprise; therefore, Black & Veatch includes these costs as “below-the-line” cash flow items and does not include them as O&M expenses.

2.7 RESERVES
A utility typically establishes reserves for several reasons, such as covering shortfalls in operating revenues, maintaining strong bond ratings, covering day-to-day operating costs, and easing the burden on ratepayers associated with large rate increases. Per the reserve level recommendations, the Water and Recycled Water Utilities will maintain the following four reserves:
 Operating Reserve represents working capital maintained by the Operating Fund to cover day- to-day expenses and maintain enough funds to cover accounts receivables if there are supplier issues, periods of lower-than-expected water sales, or unforeseen cost increases. The reserve will maintain a minimum balance of 90 days of operating expenses once fully funded  Construction Reserve represents funds used for unforeseen and unbudgeted capital costs. Once fully funded, this reserve will maintain a minimum balance of 12-months of the following year’s planned CIP.

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
Source of Funds
1 Intra Transfer In - Debt Financing 0 0 0 2 Intra Transfer In - Customer Service Charge 0 0 0 3 Connection Charges 0 0 0 4 Developer Contributions 0 0 0 5 Total Sources 0$ 0$ 0$ Use of Funds
6 Improvements Projects 50,000 50,000 50,000 7 Total Uses 50,000$ 50,000$ 50,000$
8 Net Annual Cash Balance (50,000) (50,000) (50,000) 9 Beginning Unrestricted Fund Balance 1,926,400 1,626,400 1,326,400 10 Net Cumulative Fund Balance 1,876,400$ 1,576,400$ 1,276,400$ 11 Minimum Construction Reserves 50,000$ 50,000$ 50,000$ Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 19  Rate Stabilization Reserve represents funds used to absorb revenue shortfall due to short-term decreases in water sales. This reserve stabilizes water and recycled water rate revenue and is an effort to avoid wide swings in rates charged to customers over time. The reserve will maintain a minimum balance of 10% of water and recycled water sales revenue when fully funded.  Pension Stabilization Reserve represents funds used to pay for the unfunded pension liabilities and the increase in the City’s share of pension costs due to factors such as higher CalPERS rates and negotiated pay increases. The reserve target is $3.0M for the Water Utility and $150,000 for the Recycled Water Utility by FY 2030.

Appropriate reserve levels help the Water and Recycled Water Utilities with liquidity, provide operational flexibility, and demonstrate fiscal responsibility to the rating agencies, which allows the City to access lower-cost funds.

2.8 PROJECTED OPERATING RESULTS
The revenue requirements of the Water and Recycled Water Utilities consist of O&M expenses, debt service, capital expenditures, and reserve requirements.

To fully understand the current condition of the Water and Recycled Water Utilities, it is important to examine the cash flow projections under the status quo scenario. As shown in Figure 2-2 and Figure 2-3, the status quo conditions would project that both utilities would operate from an annual deficit position, thus requiring the use of reserves to keep operating. In this scenario, the Water and Recycled Water Utilities would not impose any revenue increases over the Study Period and continue to incur O&M expenses, pay for the execution of the planned CIP, and transfer to reserves.

Figure 2-2 Status Quo Operating Cash Flow (Water)

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

20 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Figure 2-3 Status Quo Operating Cash Flow (Recycled Water)

The analyses performed for the Study indicate that the City should implement the proposed revenue increases shown in Table 2-9 and Table 2-10 if it wishes to keep the Water and Recycled Water Utilities in a balance financial condition. The revenue increases represent the overall total revenue adjustment needed to meet revenue requirements. The revenue adjustment does not represent adjustments to the individual rates but reflects the overall level of revenue needed to meet the Water and Recycled Water Utilities’ obligations.

The suggested revenue increases help the Water and Recycled Water Utilities meet the following goals:
 Meet budgeted operating obligations in the three FYs.  Meet planned capital investments in the three FYs.
 Maintain an operating reserve of 90 days of operating expenses.  Maintain construction reserve of 12-months of next year’s CIP.  Continue transfers for the rate stabilization reserve to meet the goal of 10% of rate revenues.  Continue transfers for the pension stabilization reserve to meet the FY 2030 goal.

Table 2-9 and Table 2-10 summarize proposed Operating Funds for the Study Period. The Operating Funds consist of 1) Revenue and 2) Revenue Requirements.

Revenue
 Line 1 is the revenue under existing rates.
 Lines 2 through 4 are the additional revenues generated from the required annual revenue increases. The additional revenue generated is a direct reflection of the number of months the increase is effective for, and therefore amount might calculate at less than that stated amount.  Line 6 is the total revenue generated from user charges.

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 21  Line 14 for the Water Utility and Line 9 for the Recycled Water Utility represent other operating revenues.
 Line 11 for the Recycled Water Utility represents transfers into operating.  Line 15 for the Water Utility and Line 12 for the Recycled Water Utility represent total revenues for the enterprises.

Revenue Requirements
 Line 17 for the Water Utility and Line 14 for the Recycled Water Utility represent O&M expenses. The O&M expenses include water production and water purchase.  Line 21 for the Water Utility and Line 18 for the Recycled Water Utility represent transfers. The transfers include money to the Rate Stabilization Fund, Pension Fund, and Construction Fund.  Line 22 for the Water Utility and Line 19 for the Recycled Water Utility represent total revenue requirements for the enterprises.

Line 25 for the Water Utility and Line 22 for the Recycled Water Utility represent the net cumulative cash balance within the Operating Funds. The net cumulative cash balance intends to match, to the extent possible, Line 26 for the Water Utility and Line 23 for the Recycled Water Utility. The cash balance reserve is required to ensure the Operation Fund can continue in the event of a supplier interruption, market price fluctuations of critical equipment or supplies, or an abrupt drop in account receivables. The reserve target minimum is 90 days of O&M expenses.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

22 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 2-9 Operating Fund (Water)

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 51,024,600 51,267,300 51,392,300 Year Months Effective Rate Adj
2 FY 2023 12 8.80% 4,490,200 4,511,500 4,522,500 3 FY 2024 12 8.80% 4,908,500 4,920,500
4 FY 2025 12 8.80% 5,353,500
5 Increased Revenue Due to Adjustments 4,490,200 9,420,000 14,796,500 6 Subtotal Rate Revenue 55,514,800$ 60,687,300$ 66,188,800$ Other Operating Revenue
7 Solar System Maintenance 77,800 77,800 77,800 8 Water System Mai ntenance 43,600 43,600 43,600 9 Water Construction 0 0 0 10 Water System Operati ons 0 0 0 11 A dm inistration De sign 882,200 888,900 895,800 12 Water Quality 0 0 0 13 Water Resources 74,700 74,700 74,700 14 Subtotal Other Operating Revenue 1,078,300$ 1,085,000$ 1,091,900$ 15 Total Revenue 56,593,100$ 61,772,300$ 67,280,700$
Revenue Requirements
Operating & Maintenance
16 O&M Expenses 52,744,300 58,343,900 63,555,400
17 Subtotal O&M 52,744,300$ 58,343,900$ 63,555,400$
Transfers
18 Transfer to Rate Stabilization Fund 0 0 2,000,000 19 Transfer to Pensiotn Stabilization Fund 199,400 199,400 199,400 20 Transfer to Water Construction Fund 0 0 0 21 Total Transfers 199,400$ 199,400$ 2,199,400$ 22 Total Revenue Requirements 52,943,700$ 58,543,300$ 65,754,800$ 23 Net Annual Cash Balance 3,649,400 3,229,000 1,525,900 24 Beginning Fund Balance 7,336,200 10,985,600 14,214,600 25 Net Cumulative Fund Balance 10,985,600$ 14,214,600$ 15,740,500$ 26 Mi ni mum Operati ng Reserves (90 Days) 13,005,400$ 14,386,200$ 15,671,200$ Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 23 Table 2-10 Operating Fund (Recycled Water)

Figure 2-4 presents the proposed Water Utility Operating Fund, and Figure 2-5 presents the Recycled Water Utility Operating Fund.

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 5,862,000 5,979,000 6,038,500 Year Months Effective Rate Adj
2 FY 2023 12 10.00% 586,200 597,900 603,900 3 FY 2024 12 10.00% 657,700 664,200
4 FY 2025 12 10.00% 730,700
5 Increased Revenue Due to Adjustments 586,200 1,255,600 1,998,800 6 Subtotal Rate Revenue 6,448,200$ 7,234,600$ 8,037,300$ Other Operating Revenue
7 System Maintenance 92,000 93,800 95,700 8 South Bay Water Recycling System Maintenan 413,700 413,700 413,700 9 Subtotal Other Operating Revenue 505,700$ 507,500$ 509,400$ Transfers From
10 RW Capital Fund 0 250,000 250,000 11 Subtotal Transfers From -$ 250,000$ 250,000$ 12 Total Revenue 6,953,900$ 7,992,100$ 8,796,700$ Revenue Requirements
Operating & Maintenance
13 O&M Expenses 6,816,600 7,920,200 9,125,600 14 Subtotal O&M 6,816,600 7,920,200 9,125,600 Transfers
15 Transfer to Rate Stabilization Fund 0 0 0 16 Transfer to Pensiotn Stabilization Fund 9,800 9,800 9,800 17 Transfer to Recycled Water Const Fund 0 0 0 18 Total Transfers 9,800 9,800 9,800 19 Total Revenue Requirements 6,826,400$ 7,930,000$ 9,135,400$ 20 Net Annual Cash Balance 127,500 62,100 (338,700) 21 Beginning Fund Balance 4,469,600 4,597,100 4,659,200 22 Net Cumulative Fund Balance 4,597,100$ 4,659,200$ 4,320,500$ 23 Mi ni mum Operati ng Reserves (90 Days) 1,680,800$ 1,952,900$ 2,250,100$ Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

24 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Figure 2-4 Water Operating Cash Flow

Figure 2-5 Recycled Water Operating Cash Flow

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Cost of Service Analysis 25 3 Cost of Service Analysis
The cost-of-service analysis requires recovery of the City’s needed revenues from water and recycled water service rates, allocated to customer classes according to the service rendered. An equitable rate structure allocates the capture of revenue requirements to customer classes based on the quantity of water consumed, peak flows, the number of customer connections, and other relevant factors.

In analyzing the Water and Recycled Water Utilities’ cost of service for allocation to its customer classes, Black & Veatch selected the annual revenue requirements for FY 2023 as the Test Year (TY) requirements to demonstrate the development of cost-of-service water and recycled water rates. Table 3-1 summarizes the total costs of service that need to be recovered from water user rates. Table 3-2 summarizes the total costs of service that need to be recovered from recycled water user rates. Both tables represent TY 2023.

Table 3-1 Cost of Service Revenue from Rates (Water)

Operating Capital Total
Expense Cost Cost
($) ($) ($)
Revenue Requirements
1 O&M Expenses 52,744,300 0 52,744,300 2 Debt Servi ce 0 0 0 3 Transfers 199,400 0 199,400 4 Subtotal 52,943,700 0 52,943,700
Less Revenue Requirements Met from Other Sources
5 Solar System Maintenance 77,800 0 77,800 6 Water System Mai ntenance 43,600 0 43,600 7 Water Construction 0 0 0 8 Water System Operati ons 0 0 0 9 A dm inistration De sign 882,200 0 882,200 10 Water Quality 0 0 0 11 Water Resources 74,700 0 74,700 12 Subtotal 1,078,300 0 1,078,300
Adjustments
13 Adjustment for Annual Cash Balance (3,649,400) 0 (3,649,400) 14 Subtotal (3,649,400) 0 (3,649,400)
15 Cost of Servi ce to be Recovered from Rates 55,514,800$ 0$ 55,514,800$ Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

26 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 3-2 Cost of Service Revenue from Rates (Recycled Water)

The total revenue requirement is shown in Table 3-1, Line 4, which corresponds with Table 2-9, Line 22, and Table 2-10, Line 19. As shown in Line 12 for the Water Utility and Line 7 for the Recycled Water Utility, we deduct revenues from other sources to derive the net revenue requirement recovered through rates, which correspond with Table 2-9, Line 14 and Table 2-10, Lines 9 and 10, respectively.

Line 13 for the Water Utility and Line 8 for the Recycled Water Utility represent the net annual cash balance during the TY. If the enterprise is drawing down funds already in the Operating Fund, this number is positive. The number will be negative if the enterprise is replacing funds. In the case of the Water Utility, the $3.7M figure indicates that the forecast is projecting a positive cash balance for the year. In the case of the Recycled Water Utility, the $127k figure indicates that the forecast is projecting a positive cash balance for the year.

3.1 FUNCTIONAL COST COMPONENTS
The first step in conducting a cost-of-service analysis involves analyzing the cost of providing water and recycled water service by system function to properly allocate the costs to the various customer classes and, subsequently, design rates. As a basis for allocating costs of service among customer classes, the study separates costs into the following four basic functional cost components: (1) Base; (2) Extra Capacity; (3) Customer; and (4) Direct Assignment, described as follows:
 Base costs represent operating and capital costs of the system associated with service to customers to the extent required under constant or average annual load conditions without the elements necessary to meet water consumption variations or peak demands.  Extra Capacity costs represent those operating and capital costs incurred in meeting peaking demands. Peaking demands represent water consumption in excess of the average rate of use.

Operating Capital Total
Expense Cost Cost
($) ($) ($)
Revenue Requirements
1 O&M Expenses 6,816,600 0 6,816,600 2 Debt Servi ce 0 0 0 3 Transfers 9,800 0 9,800 4 Subtotal 6,826,400 0 6,826,400
Less Revenue Requirements Met from Other Sources
5 System Maintenance 92,000 0 92,000 6 South Bay Water Recycl i ng System Mai nten 413,700 0 413,700 7 Subtotal 505,700 0 505,700
Adjustments
8 Adjustment for Annual Cash Balance (127,500) 0 (127,500) 9 Subtotal (127,500) 0 (127,500)
10 Cost of Servi ce to be Recovered from Rates 6,448,200$ 0$ 6,448,200$ Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Cost of Service Analysis 27  Customer costs are those expenditures that tend to vary in proportion to the number of customers connected to the system. These include meter reading, billing, collecting, accounting, maintenance, and capital costs associated with meters and services.  Directly assigned costs are specifically identified as those incurred to serve specific customers.

These costs include fire protection and cross-connections for the Water Utility. The Recycled Water Utility has no direct assigned categories.

3.2 ALLOCATION TO COST COMPONENTS
The next step of the cost-of-service process involves allocating each cost element to functional cost components based on the parameter or parameters having the most significant influence on the magnitude of that cost element. O&M expenses are allocated directly to appropriate cost components.

A detailed allocation of related capital investment is used as a proxy for allocating capital and replacement costs. The separation of costs into functional components provides a means for distributing such costs to the various classes of customers based on their respective responsibilities for each type of service.

3.2.1 System Base, Max Day, and Max Hour Allocations
The water and recycled water systems consist of various facilities designed and operated to fulfill a given function. For the systems to provide adequate service to its customers, it must be capable of meeting the annual volume requirements and the maximum demand rates placed on the system.

Because not all customers and types of customers exert maximum demand at the same time, the capacities of the various facilities must meet the maximum coincidental demand of all classes of customers. Each water and recycled water service facility within the systems has an underlying average demand exerted by the customers for whom the base cost component applies. For those facilities designed solely to meet average day demand, 100% of the costs go to the base cost component. Extra capacity requirements associated with coincidental demands in excess of average use consist of maximum daily and maximum hourly demand subcomponents.

The first step in determining the allocation percentages for volume-related cost allocations is to assign system peaking factors. The base element is equal to the average daily demand (ADD) and assigned a value of 1.0. Based on the City’s 2002 Water Master Plan, the Water Utility’s maximum day (max day) demand is 1.5 times the ADD. The maximum hourly (max hour) demand is 1.8 times the ADD.

Based on the City’s 2014 Strategic and Master Planning Report, 2002 Water Master Plan, the Recycled Water Utility’s max day demand is 1.7 times the ADD. The max hour demand is 2.38 times the ADD.

The costs associated with facilities required to meet maximum day demand are allocable to base and maximum day extra capacity as shown below for the Water Utility. Recycled Water Utility would use a similar allocation based on its respective max day and max hour ratios.  Base = (1.0/1.5) x 100 = 66.7%
 Max Day = (1.5 – 1.0)/1.5 x 100 = 33.3%
These calculations indicate that the average or base use requires 66.7% of the capacity of facilities designed and generated to meet maximum day demand, and the remaining 33.3% meets maximum day extra capacity requirements.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

28 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 The costs associated with facilities required to meet maximum hour demand are allocable to base, maximum day extra capacity and maximum hour extra capacity as follows:
 Base = (1.0/1.8) x 100 = 55.6%
 Max Day = (1.5 – 1.0)/1.8 x 100 = 27.7%
 Max Hour = (1.8 – 1.5)/1.8 x 100 = 16.7%

3.2.2 Allocation of Operating and Maintenance Expenses
In allocating O&M expenses for TY 2023, costs are directly allocated to the cost components to the extent possible. The Water and Recycled Water Utilities book operating costs by functional categories. Therefore, Black & Veatch used the factors noted in Section 3.1 to allocate the operating expenses to the cost components. The study based the allocation of Administration and Transfer cost elements on the average of all other costs. The direct assignment represents fire protection and cross- connections for the Water Utility. Table 3-3 and Table 3-4 represent the allocation of O&M to the cost components. Next, revenues are subtracted from other sources as shown in Table 3-1, Lines 12 and 15 and Table 3-2, Lines 7 and 10. The analysis deducts any drawdown of available cash balances and normalizes the rate adjustments for a full year to determine the net O&M costs for each utility.

Table 3-3 Allocation of O&M Expenditures (Water)

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($) ($)
Water Utility
Operating Expenses
1532 Solar System Maintenance 270,000 0 0 0 270,000 0 0 0 1 1422 Water System Maintenance
2 Customer Servi ce 326,700 0 0 0 0 326,700 0 0 3 Backfl ow Preventi on 848,200 0 0 0 0 0 0 848,200 4 A ll Othe r 692,000 378,000 191,800 115,300 0 0 6,900 0 1423 Water Construction 3,668,300 2,003,600 1,016,600 611,400 0 0 36,700 0 5 1424 Water System Operations
6 Generation & Pumping 1,048,700 689,400 348,800 0 0 0 10,500 0 7 Custom e r Billing & Me te r Re ading 730,800 0 0 0 0 730,800 0 0 8 Meters 350,800 0 0 0 350,800 0 0 0 Hydrants 1,233,700 0 0 0 0 0 1,233,700 0 9 A ll Othe r 6,128,000 3,347,100 1,698,300 1,021,300 0 0 61,300 0 10 1411 Administration Design 4,440,600 3,047,700 299,300 160,700 603,300 97,200 154,400 78,000 11 1412 Water Quality 280,200 227,000 0 0 50,400 0 2,800 0 12 1413 Water Resources
Water Purchase 32,129,300 26,024,700 0 0 5,783,300 0 321,300 0 13 A ll Othe r 597,000 483,500 0 0 107,500 0 6,000 0 14 Transfers 199,400 136,900 13,400 7,200 27,100 4,400 6,900 3,500 15 Total O&M Expenses 52,943,700$ 36,337,900$ 3,568,200$ 1,915,900$ 7,192,400$ 1,159,100$ 1,840,500$ 929,700$ Less Other Revenue
16 Mi scel l aneous Revenues 1,078,300 740,100 72,700 39,000 146,500 23,600 37,500 18,900 17 Other Adjustments (3,649,400) (2,504,600) (246,000) (132,100) (495,800) (79,900) (126,900) (64,100) 18 Net Operati ng Expenses 55,514,800$ 38,102,400$ 3,741,500$ 2,009,000$ 7,541,700$ 1,215,400$ 1,929,900$ 974,900$ Line No. Description Total Costs
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Cost of Service Analysis 29 Table 3-4 Allocation of O&M Expenditures (Recycled Water)

3.2.3 Allocation of Capital Investments
In allocating the capital investment for TY 2023, the existing fixed assets (which serve as a proxy for the current capital investments) are allocated directly to cost components to the extent possible. The allocation of costs in this manner provides a basis for annual investment in water and recycled water system facilities. Plan capital costs can be allocated using the distribution of total net system investment across the functional cost components. Table 3-5 and Table 3-6 show the total allocation of existing system investment serving water and recycled water customers. The total net system investment of $51.2M shown on Line 11 for the Water Utility and $1.1M on Line 9 for the Recycled Water Utility represents the Test Year original cost less accumulated depreciation of the system in service. The total net system investment reflects the Water and Recycled Water Utilities fixed asset listing ending June 30, 2021. This value represents the original cost (book value) of the assets.

Table 3-5 Allocation of Capital Costs (Water)

Common to All Customers
Base Extra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
Operating Expenses
1 1522 System Maintenance
2 Water Purchase 5,761,600 5,761,600 0 0 0 0 3 Custom e r Billing & Me te r Re ading 3,700 0 0 0 0 3,700 4 Meters 407,400 0 0 0 407,400 0 5 A ll Othe r 294,700 123,800 86,700 84,200 0 0 6 1525 South Bay Water Recycling System 349,200 205,400 143,800 0 0 0 7 Transfers 9,800 8,800 300 100 600 0 8 Total O&M Expenses 6,826,400$ 6,099,600$ 230,800$ 84,300$ 408,000$ 3,700$ Less Other Revenue
9 Mi scel l aneous Revenues 505,700 451,900 17,100 6,200 30,200 300 10 Other Adjustments (127,500) (113,900) (4,300) (1,600) (7,600) (100) 11 Net Operati ng Expenses 6,448,200$ 5,761,600$ 218,000$ 79,700$ 385,400$ 3,500$ Total CostsDescriptionLine No.

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($) ($)
Water Utility
Plant Assets
1 Water Production 12,273,700 9,941,700 0 0 2,209,300 0 122,700 0 2 Pumping 3,354,800 2,205,600 1,115,700 0 0 0 33,500 0 3 Treatment 992,000 652,200 329,900 0 0 0 9,900 0 4 Transm ission & Distribution 25,288,400 13,812,600 7,008,200 4,214,700 0 0 252,900 0 5 Meters & Servi ces 7,077,100 0 0 0 7,077,100 0 0 0 6 Fire Hydrants 648,400 0 0 0 0 0 648,400 0 7 General Pl ant 1,525,900 818,100 259,900 129,600 285,500 0 32,800 0 8 Total Plant Assets 51,160,300$ 27,430,200$ 8,713,700$ 4,344,300$ 9,571,900$ 0$ 1,100,200$ 0$ Less Other Revenue
9 Mi scel l aneous Revenues 0 0 0 0 0 0 0 0 10 Other Adjustments 0 0 0 0 0 0 0 0 11 Net Capi tal Expenses 51,160,300$ 27,430,200$ 8,713,700$ 4,344,300$ 9,571,900$ 0$ 1,100,200$ 0$ Line No. Description Total Costs
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

30 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 3-6 Allocation of Capital Costs (Recycled Water)

3.3 UNITS OF SERVICE
To properly recognize the cost of service, each customer class receives its share of base, maximum day, peak hour, and customer costs. Following the allocation of costs, the total cost responsibility for each customer class is developed using unit costs of service for each cost function and subsequently assigning those costs to the customer classes based on the respective service requirements of each. The number of units of service required by each customer class provides a means for the proportionate distribution of costs previously allocated to respective cost categories.

Table 3-7 summarizes the estimated TY 2023 units of service for the various customers. Base costs vary with the volume of water consumed and distributed to the customers on that basis. Extra Capacity costs are those associated with meeting peak demand rates of water use and distributed to the customers based on the respective class capacity requirements in excess of average rates of use. Black & Veatch followed the capacity factor methodology outlined in Appendix A of the AWWA M1 Manual to derive peak consumption information from the monthly consumption records in the City’s Customer Information System which helps provide the basis for estimating maximum day and peak hour ratios.

The number of bills for each customer serves as the basis for distributing customer billing requirements.

Customer meter requirements are allocated on an equivalent meter’s basis for each customer. The estimated number of equivalent meters for each customer relies on the total number of meters serving respective classes and the hydraulic capacity ratio of the meters to the 5/8 x 3/4-inch meter. The equivalent meter ratios adopted in this analysis are consistent with the AWWA M1 Manual. Private fire- protection costs allocations use equivalent fire hydrants.

3.4 COST OF SERVICE ALLOCATIONS
The Study applies the unit costs of service to each customer class’ respective service requirements to determine the cost of service for each customer class. The total unit costs of service applied to the respective requirements for each customer class results in the total cost of service for each customer class.

Common to All Customers
Base Extra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
Plant Assets
1 Water Production 0 0 0 0 0 0 2 Pumping 0 0 0 0 0 0 3 Treatment 0 0 0 0 0 0 4 Transm ission & Distribution 1,131,400 475,300 332,800 323,300 0 0 5 Meters 0 0 0 0 0 0 6 Total Plant Assets 1,131,400$ 475,300$ 332,800$ 323,300$ 0$ 0$ Less Other Revenue
7 Mi scel l aneous Revenues 0 0 0 0 0 0 8 Other Adjustments 0 0 0 0 0 0 9 Net Capi tal Expenses 1,131,400$ 475,300$ 332,800$ 323,300$ 0$ 0$ Line No. Description Total Costs
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Cost of Service Analysis 31

3.4.1 Units Costs of Service
The TY 2023 unit cost of service for each functional cost component is simply the total cost divided by the applicable units of service, as shown in Table 3-8 and Table 3-10. On Line 4, the total costs represent the cost that rates need to recover, as demonstrated in Table 3-1, Line 16 for the Water Utility, and Table 3-2, Line 11 for the Recycled Water Utility. The net O&M cost includes O&M (including water purchase) less revenue from other sources and adjustments. The total capital cost includes debt service payments and transfers to the Construction Fund. Line 6 represents the unit costs for the entire water and recycled water systems regardless of customer classes. After that, the unit costs are used to allocate the costs to the specific customer classes.

3.4.2 Distribution of Costs of Service to Customer Classes Applying the unit costs to the units for each customer class produces the customer class costs. This process is illustrated in Table 3-9 and Table 3-11, in which unit costs are applied to the customer class units of service for T Y 2023 . The costs attributable to each customer class reflect the functional cost components described in Section 3 .1. Each customer class places a burden on the system in differe nt ways, and thus the allocation of the units is representative of this burden.

An example of the application of unit costs is shown below for illustrative purposes.

Base Component
Uni t Cost (Tabl e 3-5, Li ne 6) 5.39$ per HCF General Customer Consumption (Table 3-6, Line 2) 7,066,384 HCF Total Allocated Cost 38,102,400$
Please note that the numbers within the tables are rounded, yet the calculations are done based on non-rounded values; therefore, results might vary.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara 32 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 3-7 Units of Service (Water and Recycled Water)

Consumption Maximum Day Maximum Day Fire Cross
Annual Avg. Day Factor Total Extra Factor Total Extra Meters Cust/Bills Protection Connection Col umn Reference (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Units of Measure (HCF) (HCF/day) (HCF/day) (HCF/day) (HCF/day) (HCF/day) (EMs) (bills) (EHs) (EMs) Water Utility
1 General Customer 7,066,384 19,360 165% 31,944 12,584 250% 48,400 16,456 45,125 315,558 0 0 2 Subtotal 7,066,384 19,360 31,944 12,584 48,400 16,456 45,125 315,558 Fire Service
3 Public Fire 0 0 552 552 4,418 3,866 0 0 3,248 0 4 Pri vate Fi re 0 0 290 290 2,319 2,030 0 15,079 1,705 0 5 Subtotal 0 0 842 842 6,738 5,896 0 15,079 4,953 0 Cross Connection
6 Cross Connection 32,306 0 7,693 7 Subtotal 0 0 0 0 0 0 0 32,306 0 7,693 8 Total Water System 7,066,384 19,360 32,786 13,426 55,138 22,352 45,125 362,943 4,953 7,693 Recycled Water Utility
9 General Customer 1,550,341 4,248 130% 5,522 1,274 190% 8,070 2,549 2,233 3,150 0 0 10 Subtotal 1,550,341 4,248 5,522 1,274 8,070 2,549 2,233 3,150 0 0 DescriptionLine No.

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Cost of Service Analysis
Table 3-8 Units Cost of Service (Water)

Table 3-9 Distribution of Costs to Customer Classes (Water)

Table 3-10 Units Cost of Service (Recycled Water)

Table 3-11 Distribution of Costs to Customer Classes (Recycled Water)

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($)
Water Utility
1 Net Operati ng Expense 55,514,800 38,102,400 3,741,500 2,009,000 7,541,700 1,215,400 1,929,900 974,900 2 Debt Servi ce 0 0 0 0 0 0 0 0 3 Capital Costs 0 0 0 0 0 0 0 0 4 Total Cost of Service 55,514,800$ 38,102,400$ 3,741,500$ 2,009,000$ 7,541,700$ 1,215,400$ 1,929,900$ 974,900$ 5 Units of Se rvice (Total) 7,066,384 13,426 22,352 45,125 362,943 4,953 7,693 HCF HCF/Day HCF/Day Eq. Meters Bills Eq. Hydrants Eq. Meters 6 Cost per Unit 5.39$ 278.67$ 89.88$ 167.13$ 3.35$ 389.64$ 126.73$ per HCF per HCF/Day per HCF/Day per Eq. Meter pe r Bill per Eq. Hydrant per Eq. Meter Line No. Description Total Costs
Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($)
Water Utility
General Customer
1 Units 7,066,384 12,584 16,456 45,125 315,558 0 0 2 Allocation of costs of service 51,686,700 38,102,400 3,506,800 1,479,100 7,541,700 1,056,700 0 0 Public Fire
3 Units 0 552 3,866 0 0 3,248 0 4 Allocation of costs of service 1,766,900 0 153,900 347,500 0 0 1,265,500 0 Private Fire
5 Units 0 290 2,030 0 15,079 1,705 0 6 Allocation of costs of service 978,100 0 80,800 182,400 0 50,500 664,400 0 Cross Connection
7 Units 0 0 0 0 32,306 0 7,693 8 Allocation of costs of service 1,083,100 0 0 0 0 108,200 0 974,900 7 TOTAL COSTS OF SERVICE 55,514,800$ 38,102,400$ 3,741,500$ 2,009,000$ 7,541,700$ 1,215,400$ 1,929,900$ 974,900$ Line No. Description Total Costs
Common to All Customers
Base Extra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
1 Net Operati ng Expense 5,862,000 5,237,800 198,200 72,400 350,400 3,200 2 Debt Servi ce 0 0 0 0 0 0 3 Capital Costs 0 0 0 0 0 0 4 Total Cost of Service 5,862,000$ 5,237,800$ 198,200$ 72,400$ 350,400$ 3,200$ 5 Units of Se rvice (Total) 1,550,341 1,274 2,549 2,233 3,150 HCF HCF/Day HCF/Day Eq. Meters Bills
6 Cost per Unit 3.38$ 155.54$ 28.41$ 156.94$ 1.02$ per HCF per HCF/Day per HCF/Day per Eq. Meter pe r Bill Total CostsLine No. Description
Common to All Customers
Base Extra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
General Customer
1 Units 1,550,341 1,274 2,549 2,233 3,150 2 Allocation of costs of service 5,862,000 5,237,800 198,200 72,400 350,400 3,200 3 TOTAL COSTS OF SERVICE 5,862,000$ 5,237,800$ 198,200$ 72,400$ 350,400$ 3,200$ Line No. Description Total Costs
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

34 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 4 Rate Design
The initial consideration in the derivation of rate schedules for water and recycled water service is establishing equitable charges to the customers commensurate with the cost of providing that service.

While the cost-of-service allocations to customer classes should not be construed as literal or exact determinations, they offer a guide to the necessity for, and the extent of, rate adjustments. Practical considerations sometimes modify rate adjustments by considering additional factors such as the extent of bill impacts, existing contracts, and historical local policies and practices.

4.1 EXISTING RATES
The existing rates of the Water and Recycled Water Utilities consist of a fixed component in the form of a minimum monthly service charge and a variable component in the form of a consumption charge. The minimum monthly service charge is based on meter size and applied when consumption does not exceed the consumption allowance. The consumption charge is based on units of consumption (1 unit = 1 HCF = 748 gallons). The City has separate fixed charges for fire services and cross- connections. Table 2-3, presented earlier in this report, summarizes the existing water and recycled water rates.

4.2 PROPOSED RATES
The cost-of-service analysis described in the preceding sections of this report provides a basis for the design of water and recycled water rates.

4.2.1 Monthly Service Charge
Black & Veatch used meter ratios based on maximum operating capacities by meter size as shown in AWWA M1, Table B-1, which recognizes that as meter size increases, so does the capacity. For example, customers with a 4” meter expects to be able to use more water (at a higher flow capacity) than customers with a ¾” meter. Consequently, the City’s water system must maintain assets sized accordingly and capable of providing customers the level of service expected from their meter connection when the tap turns on. The minimum monthly service charge recovers a portion of the costs associated with wholesale water purchase, meter maintenance and services, meter reading, bill issuance, and maintenance and capacity costs associated with public fire protection regardless of the level of water consumed.

Table 4-1 demonstrates the water cost elements incorporated into the minimum monthly service charge for FY 2023. Table 4-2 shows the Water Utility three-year fixed service charge rate schedule.

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Rate Design 35
Table 4-1 Costs within the Minimum Monthly Service Charge for FY 2023 (Water)

Table 4-2 Proposed Minimum Monthly Service Charge (Water)

Table 4-3 demonstrates the recycled water cost elements incorporated into the minimum monthly service charge for FY 2023. Table 4-4 shows the Recycled Water Utility three-year fixed service charge rate schedule.

Table 4-3 Costs within the Minimum Monthly Service Charge for FY 2023 (Recycled Water)

Meter & Public Fire Protection Billing
Meter Mtr Unit FP Unit Meter Adjusted Adjusted Total Service Size Cost Cost Ratio Unit Cost Unit Cost Bill Ratio Unit Cost Charge per EM per EM $ pe r Bill $ $/Month
5/8" x 3/4" 13.93 3.26 1.00 17.19 3.35 1.00 3.35 20.54 1" 13.93 3.26 1.67 28.65 3.35 1.00 3.35 32.00 1-1/2" 13.93 3.26 3.33 57.30 3.35 1.00 3.35 60.65 2" 13.93 3.26 5.33 91.68 3.35 1.00 3.35 95.03 3" 13.93 3.26 10.67 183.36 3.35 1.00 3.35 186.71 4" 13.93 3.26 16.67 286.51 3.35 1.00 3.35 289.85 6" 13.93 3.26 33.33 573.01 3.35 1.00 3.35 576.36 8" 13.93 3.26 53.33 916.82 3.35 1.00 3.35 920.17 10" 13.93 3.26 80.00 1,375.23 3.35 1.00 3.35 1,378.58 12" 13.93 3.26 112.50 1,933.91 3.35 1.00 3.35 1,937.26 Proposed
Customer Class FY 2023 FY 2024 FY 2025
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 20.54 22.25 24.09 1" 32.00 34.84 37.86
1-1/2" 60.65 66.31 72.28
2" 95.03 104.08 113.58
3" 186.71 204.79 223.73
4" 289.85 318.09 347.65
6" 576.36 632.81 691.86
8" 920.17 1,010.48 1,104.92
10" 1,378.58 1,514.04 1,655.66
12" 1,937.26 2,127.75 2,326.88
Meter Services Billing
Meter Mtr Unit Meter Adjusted Adjusted Total Service
Size Cost Ratio Unit Cost Unit Cost Bill Ratio Unit Cost Charge per EM $ pe r Bill $ $/Month
5/8" x 3/4" 14.38 1.00 14.38 1.11 1.00 1.11 15.50 1" 14.38 1.67 23.97 1.11 1.00 1.11 25.09 1-1/2" 14.38 3.33 47.95 1.11 1.00 1.11 49.06 2" 14.38 5.33 76.72 1.11 1.00 1.11 77.83 3" 14.38 10.67 153.44 1.11 1.00 1.11 154.55 4" 14.38 16.67 239.74 1.11 1.00 1.11 240.85 6" 14.38 33.33 479.48 1.11 1.00 1.11 480.60 8" 14.38 53.33 767.18 1.11 1.00 1.11 768.29 10" 14.38 80.00 1,150.76 1.11 1.00 1.11 1,151.87 12" 14.38 112.50 1,618.26 1.11 1.00 1.11 1,619.37 Updated 2022 Water and Sewer Rate Study | City of Santa Clara

36 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 4-4 Proposed Minimum Monthly Service Charge (Recycled Water)

4.2.2 Fire Service
The fire service charge includes costs of issuing bills and maintenance and capacity costs associated with private fire protection. The fire service charge increases as pipeline diameter size increases. The Water Utility provides fire service to approximately 1,255 private fire service accounts.

These customers have a water line connection to the water system specifically for fire protection. The Water Utility must design, operate, and maintain a water system that can meet peak fire demand requirements to meet fire protection demands. The Water Utility charges these accounts a fire service charge based on the diameter of the line that connects their fire protection system to the water system.

Table 4-5 demonstrates the costs incorporated into the fire service charge, and Table 4-6 shows the three-year rate schedule based on unit costs in future years.

Table 4-5 Costs within the Fire Service Charge for FY 2023

Proposed
Customer Class FY 2023 FY 2024 FY 2025
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 15.50 16.94 18.63 1" 25.09 27.55 30.35
1-1/2" 49.06 54.07 59.65
2" 77.83 85.90 94.80
3" 154.55 170.77 188.56
4" 240.85 266.24 294.04
6" 480.60 531.46 587.02
8" 768.29 849.72 938.61
10" 1,151.87 1,274.06 1,407.39
12" 1,619.37 1,791.24 1,978.72
Private Fire Protection Total
Meter Unit Meter Adjusted Service
Size Cost Ratio Unit Cost Charge
per EH $/Month
2" 47.80 0.06 2.87 2.87 4" 47.80 0.34 16.25 16.25 6" 47.80 1.00 47.80 47.80 8" 47.80 2.13 101.82 101.82 10" 47.80 3.83 183.09 183.09 12" 47.80 6.19 295.91 295.91 City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Rate Design 37
Table 4-6 Proposed Fire Service Charge

4.2.3 Cross Connection
The cross-connection charge includes costs of issuing bills and maintenance and replacement costs associated with backflow devices. The cross-connection charge increases as pipeline diameter size increases. The Water Utility provides backflow services to approximately 2,689 accounts. These customers have a backflow device that prevents possible contaminated water from entering the water system. The Water Utility maintains and replaces the devices accordingly to ensure that the devices are working properly. The Water Utility charges the accounts a cross-connection charge based on the diameter of the line that connects their service to the water system. Table 4-7 demonstrates the costs incorporated into the cross-connection charge, and Table 4-8 shows the three-year rate schedule.

Table 4-7 Costs within the Cross-Connection Charge for FY 2023

Table 4-8 Proposed Cross Connection Charge

Proposed
Customer Class FY 2023 FY 2024 FY 2025
Fire Service ($/Month) $/month $/month $/month
2" 2.87 2.95 3.07
4" 16.25 16.72 17.41
6" 47.80 49.19 51.20
8" 101.82 104.77 109.06
10" 183.09 188.39 196.11
12" 295.91 304.48 316.95
Cross Connection Total
Meter Unit Meter Adjusted Service
Size Cost Ratio Unit Cost Charge
per EM $/Month
1" 11.73 0.63 7.33 7.33 2" 11.73 1.00 11.73 11.73 3" 11.73 2.00 23.47 23.47 4" 11.73 3.13 36.67 36.67 6" 11.73 6.25 73.33 73.33 8" 11.73 10.00 117.33 117.33 10" 11.73 15.00 175.99 175.99 Proposed
Customer Class FY 2023 FY 2024 FY 2025
Cross Connection ($/Month) $/month $/month $/month
1" 7.33 7.47 7.70
2" 11.73 11.95 12.32
3" 23.47 23.91 24.64
4" 36.67 37.35 38.50
6" 73.33 74.71 76.99
8" 117.33 119.53 123.19
10" 175.99 179.30 184.79
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

38 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022

4.2.4 Consumption Charge
This consumption charge is designed to recover costs associated with the base and extra capacity demands. These costs include fixed and variable costs incurred by the water and recycled water system while providing the average annual usage and peaking demands. While most of the costs are fixed, such as personnel and direct and indirect charges, variable costs represent most of the costs through water production and water purchase. Table 4-9 shows the three-year rate schedule for both the Water and Recycled Water Utilities. For the Recycled Water Utility, the industrial process is part of general customers.

Table 4-9 Proposed Consumption Charges

4.3 DROUGHT CONDITIONS

4.3.1 Water Shortage Contingency Plan
The City d eveloped a six-stage Water Shortage Contingency Plan in the 20 20 Urban Water Management Plan that complies with the SWRCB’s regulations. Table 4-10 shows that the plan includes the percent supply reduction and water supply condition for the different stages within the plan.

Table 4-10 Stages of Water Shortages Contingency Plan
STAGES

PERCENT
SUPPLY

REDUCTION

WATER SHORTAGE

CONDITION SHORTAGE RESPONSE ACTION
1 ≤10% Advisory/Voluntary Voluntary conservation
Increase public information campaigning
Increase educational programs
2 11-20% Mandatory Water use restrictions
Allocations and mandatory conservation
Required reductions
Drought surcharges and increased rates
Increase production monitoring
Increase use of non-potable water
Reduce system flushing
3 21-30%
4 31-40%
5 41-50%
6 >50% Emergency Curtailment Water use for decorative water features prohibited Prohibit landscape irrigation
Increase use of non-potable water
Source: 2020 Urban Water Management Plan, Table 8-11: WSCP Levels Proposed
Customer Class FY 2023 FY 2024 FY 2025
$/HCF $/HCF $/HCF
Consumption Charges ($/HCF)
Water Utility
General Customer 7.33 7.99 8.71 Recycled Water Utility
General Customers 4.12 4.53 4.99 City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Rate Design 39

4.3.2 Drought Surcharges
Table 4-11 shows the drought surcharges that have been developed for each 10 percent supply reduction associated with transitioning through the stages in the Water Shortage Contingency Plan.

These charges are not proposed to be included in the rates at this time, but should drought conditions continue to worsen, City staff may return to Council at a later date for consideration of these surcharges. For this Study's purposes, current conditions represent the projected baseline consumption for each fiscal year. The projected baseline provides an expected revenue for the fiscal year. Under drought conditions, consumption decreases, and thus additional revenue is required for recovery from a drought surcharge. The drought surcharge is calculated by dividing the revenue loss by the reduced usage after accounting for the reduction in water supply costs associated with Valley Water and SFPUC water purchases.

Table 4-11 Proposed First Year Drought Charges, FY 2023

Using the same methodology per fiscal year, Table 4-12 shows the proposed three-year drought surcharges for each additional percentage of savings.

Table 4-12 Proposed Three-Year Drought Charges

4.4 TYPICAL MONTHLY COSTS UNDER PROPOSED CHARGES
Table 4-13 and Table 4-14 compare typical monthly costs under existing rates and the proposed schedule of water and recycled water user rates derived in this study.

Additional Conservation compared to Baseline
Description Baseline 10% 20% 30% 40% 50%
Greater than
50%
Projected Consumption (HCF) 7,390,708 7,390,708 7,390,708 7,390,708 7,390,708 7,390,708 7,390,708 Reduction in Consumption (HCF) (739,071) (1,478,142) (2,217,212) (2,956,283) (3,695,354) (4,434,425) Net Consumption (CCF) 7,390,708 6,651,637 5,912,566 5,173,496 4,434,425 3,695,354 2,956,283 Projected Consumption Rates ($/HCF) $7.33 $7.33 $7.33 $7.33 $7.33 $7.33 $7.33 Projected Consumption Revenue $54,177,866 $48,760,078 $43,342,290 $37,924,509 $32,506,720 $27,088,932 $21,671,144 Total Revenue $54,177,866 $48,760,078 $43,342,290 $37,924,509 $32,506,720 $27,088,932 $21,671,144 Revenue Lost $5,417,788 $10,835,577 $16,253,358 $21,671,146 $27,088,934 $32,506,723 Reduced Water Sol d + Water Loss 776,025 1,552,049 2,328,073 3,104,097 3,880,122 4,656,146 Bl ended Whol esal e Water Costs $3.76 $3.76 $3.76 $3.76 $3.76 $3.76 Reduced Cost of Whol esal e Water ($2,921,600) ($5,843,300) ($8,764,900) ($11,686,500) ($14,608,200) ($17,529,800) Revenue Lost due to Reducti on $5,417,788 $10,835,577 $16,253,358 $21,671,146 $27,088,934 $32,506,723 Less Reducti on of Water Whol esal e Costs ($2,921,600) ($5,843,300) ($8,764,900) ($11,686,500) ($14,608,200) ($17,529,800) Revenue to be recovered by drought surcharges $2,496,188 $4,992,277 $7,488,458 $9,984,646 $12,480,734 $14,976,923 Drought Surcharge on Consumption ($/HCF) $0.38 $0.84 $1.45 $2.25 $3.38 $5.07 Additional Conservation compared to Baseline
Description 10% 20% 30% 40% 50%
Greater than
50%1
FY 2023 $0.38 $0.84 $1.45 $2.25 $3.38 $5.07
FY 2024 $0.38 $0.86 $1.48 $2.30 $3.45 $5.17
FY 2025 $0.39 $0.88 $1.50 $2.33 $3.50 $5.25

1. Greater than 50% represents surcharge up to 60%. Anything larger will need to be calculated.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

40 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 4-13 Typical Monthly Bill (Water)

Table 4-14 Typical Monthly Bill (Recycled Water)

4.5 NEIGHBORING WATER UTILITIES
Presented in Figure 4-1 are the proposed rates compared to rates of neighboring cities for a single-family residential customer with a 5/8” x ¾” meter consuming 12 units of water. Based on the comparison, the City is currently one of the lowest water providers in the area. With the proposed rate increases, the City remains the lowest water provider of the surveyed communities. All surveyed community rates are current as of May 2022.

Typical FY 2022 FY 2023
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Water Utility
General Customer 0 $19.81 $20.54
3 $19.81 $20.54
5 $33.45 $36.65
10 $66.90 $73.31
12 $80.28 $87.97
20 $133.80 $146.61
30 $200.70 $219.92
40 $267.60 $293.22
50 $334.50 $366.53
Typical FY 2022 FY 2023
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Recycled Water Utility
General Customer 0 $18.90 $15.50
3 $18.90 $15.50
5 $18.70 $20.61
10 $37.40 $41.22
12 $44.88 $49.47
20 $74.80 $82.44
30 $112.20 $123.66
40 $149.60 $164.89
50 $187.00 $206.11
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Rate Design 41
Figure 4-1 Comparison to Neighboring Water Utilities

Santa
Clara
Current
Santa
Clara
Proposed
San Jose
Proposed
Sunnyvale
Proposed SJWC
Mountain
View
Proposed
Milpitas Palo Alto
Proposed
WATER RATE 12 HCF $80.28 $87.96 $104.43 $78.71 $157.52 $106.99 $110.41 $152.04 SEWER RATE $44.53 $46.82 $45.49 $55.52 $45.49 $50.10 $62.07 $44.62 COMBINED $124.81 $134.78 $149.92 $134.23 $203.01 $157.09 $172.48 $196.66 $0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Monthly Bill
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

42 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Sewer Rate Study
5 Revenue and Revenue Requirements
To meet the costs associated with providing sewer services to its customers, the Sewer Utility derives revenue from a variety of sources, including sewer user charges (rates), outlet charges, conveyance fees, connection charges, interest earned from the investment of available funds, engineering fees, and other miscellaneous revenues. The Sewer Utility is constantly looking for other sources of revenue, such as loans, bonds, and grants. Black & Veatch has projected the level of future revenue generated in the Study through an analysis of historical and future system growth in terms of the number of EDUs, bills, and contributed sewage flow. This section also projects the expenses, or revenue requirements, necessary to operate and maintain the system, invest in capital improvements, make debt service payments, and cover other sewer system expenses.

5.1 CUSTOMER AND WATER CONSUMPTION PROJECTIONS

5.1.1 Customer Classes
The Sewer Utility’s customers include both residential and non-residential customers. The City has the following customer classes:
 Residential: Single-family and multi-family residential are separate classes  Non-Residential: Amusement Parks; Auto Dealers & Service Stations; Churches; Electric & Electronic Equipment; Food & Kindred Products; Hospitals & Convalescent Homes; Industrial Chemical; Industrial Water Treatment; Laundries; Machinery Manufacturers; Metal Plating; Motels & Hotels; Paper; Repair Shops & Car Washes; Restaurants; Schools & Colleges; and Commercial/Industrial/Miscellaneous (catch-all for remainder of non-residential customers).  Major Users: Major Users customer class is composed of major commercial and industrial users who are identified based on the following3:
• Have a sewage discharge of at least 25,000 gallons per day; or • Have a daily discharge that is intermittent or irregular in strength, amount, or nature.

5.1.2 Equivalent Dwelling Units
The City provides sewer services to over 26,000 customers. All customers generating sewage flow connect to the sewer system. Since the City bills residential customers based on EDUs, a review of historical EDUs patterns for customers, and anticipated growth within the City, the projected total number of EDUs is expected to grow at 0.1% annually over the Study period. An EDU represents a single-

3 City Website, Schedule S-16 Monthly Sewer Service Charges, <http://www.santaclaraca.gov/government/departments/water-sewer-utilities/water-sewer-and-recycled-water- rates/sewer-rates>
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 43 family residential customer equivalent with a flow of 245 gallons per day and strengths of 250 mg/L of Biological Oxygen Demand (BOD), 250 mg/L of Total Suspended Solids (TSS), and 35 mg/L of Ammonia (NH3).

Table 5-1 summarizes the projected number of EDUs for the Sewer Utility.

Table 5-1 EDUs

5.1.3 Minimum Bills
The City bills non-residential customers primarily on contributed sewage flow and imposes a minimum bill on those whose flow charges do not exceed the included volume allowance within the monthly service charge. The City refers to these bills as minimum monthly service bills. Therefore, a review of historical minimum bills patterns for non-residential customers and anticipated growth within the City, the projected total number of minimum bills are expected to grow 0.5% annually over the Study period.

Table 5-2 summarizes the projected number of minimum monthly service bills for the Sewer Utility.

Table 5-2 Minimum Monthly Service Bills

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
(EDUs) (EDUs) (EDUs)
1 Single Fam ily 256,722 256,979 257,236 2 Multi Fam ily 303,033 303,336 303,639 3 Total 559,755 560,315 560,875
Line No. Description
Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
(Bills) (Bills) (Bills)
1 Amusement Parks 122 123 124 2 Auto Deal ers & Servi ce Stati on 376 378 380 3 Churches 243 244 245 4 Com m e rcial/Industrial/Misce llane ous 9,929 9,979 10,029 5 Electric & Electronic Equip. 392 394 396 6 Food and Kindred Products 23 23 23 7 Hospi tal s & Conval escent Homes 309 311 313 8 Industrial Chemical 52 52 52 9 Laundries 117 118 119 10 Machinery Manufacturers 681 684 687 11 Me tal Plating 94 94 94 12 Motel s & Hotel s 42 42 42 13 Paper 13 13 13 14 Repair Shops & Car Washes 478 480 482 15 Restaurants 245 246 247 16 Schools & Colleges 512 515 518 17 Total 13,628 13,696 13,764
Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

44 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022

5.1.4 Contributed Sewage Flow
The City charges all its non-residential customers based on contributed sewage flow, which is determined by multiplying water consumption by a return factor. In determining the projected sewage flow, Black & Veatch analyzed historical sewage flow patterns in conjunction with a projected estimate of future water consumption. Since 2016, water consumption has slowly increased from historic lows experienced during mandated drought restrictions. Despite the increase, the City’s Water Shortage Contingency Plan remains in effect, and customers have made conservation a way of life. The Water Utility, therefore, expects consumption to continue to rebound slowly. Past experience would indicate that after strict water conservation measures are lifted, the rebound in consumption is usually associated with discretionary water such as irrigation. Much of this water does not make it to the sewer system; therefore, the City projects that sewage flow will grow by 0.5% annually over the Study period.

Table 5-3 shows the projected sewage flow generated for the Study period. The City contributed sewage flow in units of HCF for non-residential customers.

Table 5-3 Contributed Sewage Flow

5.1.5 Major Users
The City charges major commercial and industrial sewer customers based on contributed sewage flow and strength loadings. Major users are identified individually, as each customer places different burdens on the sewer system. The City had one identified Major User customer.

Table 5-4 shows the flow and loadings associated with this customer over the Study period.

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
(HCF) (HCF) (HCF)
1 Amusement Parks 67,228 67,564 67,902 2 Auto Deal ers & Servi ce Stati on 22,013 22,123 22,234 3 Churches 17,778 17,867 17,956
4 Com m e rcial/Industrial/Misce llane ous 1,293,400 1,299,867 1,306,366 5 Electric & Electronic Equip. 496,422 498,904 501,399 6 Food and Kindred Products 19,040 19,135 19,230 7 Hospi tal s & Conval escent Homes 94,511 94,984 95,459 8 Industrial Chemical 13,903 13,973 14,043 9 Laundries 25,892 26,021 26,151
10 Machinery Manufacturers 39,414 39,611 39,809 11 Me tal Plating 7,009 7,044 7,079 12 Motel s & Hotel s 116,133 116,714 117,298 13 Paper 149,741 150,490 151,242
14 Repair Shops & Car Washes 12,231 12,292 12,353 15 Restaurants 80,611 81,014 81,419 16 Schools & Colleges 43,584 43,802 44,021 17 Total (HCF) 2,498,910 2,511,405 2,523,961
18 Total (AF) 5,737 5,765 5,794 Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 45 Table 5-4 Major Users

5.2 REVENUE UNDER EXISTING RATES
Sewer user rates serve as the primary source of revenue for the Sewer Utility. Therefore, the level of future rate revenue is important in developing a long-range financial plan. Rate revenue is determined by multiplying the projected system growth in terms of the number of EDUs, minimum monthly service bills, contributed sewage flow, and major user flow and loadings by the applicable rates to determine sewer rate revenue.

Table 5-5 shows the Sewer Utility’s current schedule of charges. It is important to note that the minimum monthly service charge applies to non-residential customers that do not exceed the base amount. Therefore, the minimum monthly service charge serves as a baseline cost that the City needs to recover. The City maintains a separate schedule of rates based on the customer classes identified in Section 5.1.

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
Major Users
Operating and Maintenance Cost Recovery
1 Vol ume (MG) 99 99 99 2 BOD (1,000 lbs) 1,027 1,027 1,027 3 SS (1,000 lbs) 460 460 460 4 NH3 (1,000 lbs) 8 8 8 Annual Capital Cost Recovery
5 Vol ume (MGD) 0.27 0.27 0.27 6 BOD (1,000 lbs/day) 2.81 2.81 2.81 7 SS (1,000 lbs/day) 1.26 1.26 1.26 8 NH3 (1,000 lbs/day) 0.02 0.02 0.02 Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

46 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 5-5 Existing Sewer Rates

Table 5-6 summarizes projected sewer rate revenue under existing rates. As shown, the revenue generated stays relatively flat over the Study period in conjunction with the number of EDUs, minimum bills, billed sewage flow, and major user volume and loadings. The projected Sewer Utility revenues increase from $40.4M in FY 2023 to $40.7M in FY 2025.

Existing Existing
FY 2022 FY 2022
Residential ($/EDU) Major Commercial and Industrial Users Single Fam ily 44.53 Annual Capital Cost Recovery Multi-Fam ily 44.53 Vol ume (per MGD) 1,087,067 BOD [2] (per 1,000 lbs/day) 121,093
Non-Residential [1] ($/HCF) SS [3] (per 1,000 lbs/day) 54,616 Amusement Parks 5.79 NH3 [4] (per 1,000 lbs/day) 411,021 Auto Deal ers & Servi ce Stati on 6.10
Churches 5.00 Operating and Maintenance Cost Recovery Com/Ind/Misc 5.29 Vol ume (per MG) 2,667.35 Electric & Electronic Equip. 5.02 BOD [2] (per 1,000 lbs) 425.59 Food and Kindred Products 14.45 SS [3] (per 1,000 lbs) 578.32 Hospi tal s & Conval escent Homes 6.55 NH3 [4] (per 1,000 lbs) 4,902.37 Industrial Chemical 9.60
Laundries 5.76
Machinery Manufacturers 7.52
Me tal Plating 3.31
Motel s & Hotel s 7.04
Paper 11.05
Repair Shops & Car Washes 4.64
Restaurants 15.09
Schools & Colleges 5.62

1. In no case shall the minimum charge be less than $44.53 per month.

Description Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 47 Table 5-6 Projected Revenue under Existing Rates

5.3 OTHER REVENUE
Other operating sources include charges for revenue from other agencies served by Santa Clara, sewer lateral video inspections, sewer clean-out installations, interest on investments, and other miscellaneous revenues. In total, other operating revenues represent 2.5% of the Sewer Utility’s total revenue. The City anticipates that these revenues will remain relatively constant for the duration of the Study period.

5.4 OPERATING AND MAINTENANCE EXPENSES
Table 5-7 summarizes the Sewer Utility’s projected O&M expenses for the Study Period. These expenses include costs related to salaries and benefits, materials and supplies, contract and professional services, RWF costs, indirect and direct costs, and routine capital outlay. The City anticipates that all O&M expenditures, excluding Water Pollution Control Plant costs, will increase on average by 3.5% annually from the FY 2023.

The Sewer Utility receives treatment services from the RWF operated and maintained by the City of San Jose. While the City has an ownership stake in the RWF, the City must still pay for O&M associated with operating the facility. Based on the City of San Jose estimates, the City expects RWF O&M costs to increase by approximately 3.0% annually over the Study period.

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
1 Single Fam ily 11,431,800 11,443,300 11,454,700 2 Multi-Fam ily 13,494,100 13,507,600 13,521,000
3 Amusement Parks 394,700 396,700 398,700 4 Auto Deal ers & Servi ce Stati on 151,000 151,800 152,500 5 Churches 99,700 100,200 100,700
6 Com/Ind/Misc 7,284,200 7,320,700 7,357,300
7 Electric & Electronic Equip. 2,509,500 2,522,000 2,534,600 8 Food and Kindred Products 204,700 205,700 206,800 9 Hospi tal s & Conval escent Homes 632,800 635,900 639,200 10 Industrial Chemical 67,800 68,200 68,600 11 Laundries 154,300 155,200 155,900
12 Machinery Manufacturers 326,700 328,400 330,000 13 Me tal Plating 27,400 27,500 27,600 14 Motel s & Hotel s 819,500 823,600 827,700 15 Paper 1,271,000 1,277,400 1,283,800
16 Repair Shops & Car Washes 78,100 78,400 78,800 17 Restaurants 1,227,300 1,233,500 1,239,600
18 Schools & Colleges 267,700 269,100 270,500 19 Major Users - Customer 1 0 0 0 20 Major Users - Customer 2 0 0 0 21 Total 40,442,300$ 40,545,200$ 40,648,000$
Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

48 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 5-7 O&M Expenses

As shown in Table 5-7, the Sewer Utility’s O&M expenses increase from $31.1M in FY 2023 to $33.1M in FY 2025.

5.5 DEBT SERVICE REQUIREMENTS
Table 5-8 represents the Sewer Utility’s existing and proposed debt service obligations. This table shows the combined principal and interest requirements on the existing debt over the Study period. It is common practice for utilities to debt finance large capital improvement projects, such as in the case of Trimble Road sewer trunk line replacement in Santa Clara. By financing the cost of the projects, the City can fund large projects immediately and spread the payment over a specified time frame, thereby helping to offset the impact on ratepayers.

Table 5-8 Long-Term Debt Service

5.6 CAPITAL IMPROVEMENT PROGRAM
The Sewer Utility annually develops a five-year Capital Improvement Plan to identify sewer system needs, including ongoing assessments, maintenance, and renewal and replacement requirements.

Table 5-9 summarizes the Sewer Utility’s CIP for FY 2023 through FY 2025. The Sewer Utility is projecting $61.5M in CIP over the Study period, including capital and replacement projects. The City has posted the CIP Budget on its website for complete details associated with each CIP project.4

4 The City of Santa Clara. Finance Department. < http://santaclaraca.gov/government/departments/finance> Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
1 Salaries 3,022,300 3,161,300 3,275,100
2 Benefi ts 1,661,700 1,743,000 1,830,000
3 Mate rials/Se rvice s/Supplie s 1,593,800 1,625,600 1,658,100 4 Interfund Services 4,429,400 4,558,400 4,712,800 5 Resource & Production 20,416,600 21,029,100 21,660,000 6 Capital Outlay 0 0 0 7 Total 31,123,800$ 32,117,400$ 33,136,000$
Line No. Description
Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
1 Existing Short and Long-Term Loan 1,287,400 1,287,400 937,400 2 Proposed Short-Term and Rev Bonds 220,800 1,642,400 2,910,100 3 Total 1,508,200$ 2,929,800$ 3,847,500$
Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 49 Table 5-9 Capital Improvement Projects

5.6.1 Capital Improvement Financing Plan
The City funds annual expenditures for the CIP from a combination of available funds on hand, outlet charges, conveyance fees, debt financing, connection charges, developer contributions, and revenues derived from user rates. As shown in Table 5-10, the average annual CIP expenditure is $20.5M for the Sewer Utility. The planned average annual CIP contribution from the Sewer Utility Operating Fund is $14.0M per year over the Study period. Due to the large costs associated with the RWF, the City plans to issue short-term loans of $0.4M in FY 2023 and $15.0M in FY 2024. The City expects to refinance the short-term loans with long-term revenues bonds in FY 2024 and FY 2025 based on updated financials and their financial advisor's advice.

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
($) ($) ($)
1907 Devel opment Extensi ons 0 0 0 1 1908 SJ-SC Re gional Waste wate r Facility 13,815,500 14,968,200 24,184,200 2 1911 Sanitary Sewer System Condition
A ssessment 1,500,000 500,000 500,000
3 1912 Sani tary Sewer System Improvements 2,000,000 2,000,000 2,000,000 4 1919 Sanitary Sewer Hydraulic Modeling As
Needed Support 1,140,000 0 0
5 1920 Sanitary Sewer Master Plan Update 500,000 0 0 6 1979 Engi neeri ng Management Servi ces
Sewer 828,900 1,018,900 1,050,700
7 Total 19,784,400$ 18,487,100$ 27,734,900$
Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

50 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 5-10 Construction Fund Financing Plan

5.7 TRANSFERS
The Sewer Utility will perform transfers over the Study period from the Operating Fund and other funds. The other funds consist of the Rate Stabilization Fund, Pension Stabilization Fund, and Construction Fund. See Section 5.8 for further explanation on Rate Stabilization and Pension Stabilization Funds. The Construction Fund transfers represent money to cover planned CIP project expenditures. All these transfers do not represent direct operating expenses for the enterprise.

Therefore Black & Veatch includes these costs as “below-the-line” cash flow items and not included as O&M expenses. Table 5-11, Lines 19 to 21 for the Sewer Utility reflect these associated amounts.

5.8 RESERVES
A utility typically establishes reserves for several reasons, such as covering shortfalls in operating revenues, maintaining strong bond ratings, covering day-to-day operating costs, and easing the burden on ratepayers associated with large rate increases. Per the reserve policy, the Sewer Utility will maintain the following four reserves:
 Operating Reserve represents working capital maintained by the Operating Fund to cover day- to-day expenses and maintain enough funds to cover accounts receivables if there are supplier issues, periods of lower-than-expected sewer revenues, or unforeseen cost increases. The reserve will maintain a minimum balance of 90 days of operating expenses once fully funded  Construction Reserve represents funds used for unforeseen and unbudgeted capital costs. Once fully funded, this reserve will maintain a minimum balance of 12-months of the following year’s planned City CIP and 6-months of the following year’s planned RWF CIP.  Rate Stabilization Reserve represents funds used to absorb revenue shortfalls due to short-term decreases in sewer sales. This reserve is designed to stabilize sewer rate revenue and avoid wide Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
Source of Funds
1 Sanitary Outlet Charge 0 0 0 2 Sewer Conveyance Fee 3,500,000 3,500,000 3,500,000 3 Intra Transfer In - Debt Financing 411,784 15,000,000 0 4 Intra Transfer In - Customer Service Charge 14,000,000 14,000,000 14,000,000 5 Refund from San Jose/Cupertino 0 0 0 6 Total Sources 17,911,784$ 32,500,000$ 17,500,000$
Use of Funds
7 Improvements Projects 5,968,900 3,518,900 3,550,700 8 Total Uses 5,968,900$ 3,518,900$ 3,550,700$
9 Net Annual Cash Balance 11,942,884 28,981,100 13,949,300 10 Beginning Unrestricted Fund Balance 10,549,116 8,676,500 22,689,400 11 Net Cumulative Fund Balance 22,492,000$ 37,657,600$ 36,638,700$ 12 Minimum Construction Reserves 11,003,000$ 15,642,800$ 11,814,500$ Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 51 swings in rates charged to customers over time. The reserve will maintain a minimum balance of 10% of sewer rate revenue when fully funded.
 Pension Stabilization Reserve represents funds used to pay for the unfunded pension liabilities and the increase in the City’s share of pension costs due to factors such as higher CalPERS rates and negotiated pay increases. The reserve target is $1.2M for the Sewer Utility by FY 2030.

Appropriate reserve levels help the Sewer Utility maintain liquidity and demonstrate to the rating agencies that the City’s financial policies and practices are focused on maintaining a balanced financial position.

5.9 PROJECTED OPERATING RESULTS
The revenue requirements of the Sewer Utility consist of O&M expenses, debt service, capital expenditures, and reserve requirements.

It is important to examine the cash flow projections under the status quo scenario to fully understand the current condition of the Sewer Utility and the need for revenue adjustments. As shown in Figure 5-1, the status quo conditions would project that the Sewer Utility would operate from an annual deficit position, thus tapping into its reserves. In this scenario, the Sewer Utility would not impose any revenue increases over the Study Period and continue to incur O&M expenses, pay for the execution of the planned CIP, and transfer to reserves.

Figure 5-1 Status Quo Operating Cash Flow

The Sewer Utility will fall into a deficit position if the City does not implement the revenue increases, as shown in Table 5-10. The revenue increases represent the overall total revenue adjustment needed to meet revenue requirements. The revenue adjustment does not represent adjustments to the individual rates but reflects the overall level of revenue needed to meet the Sewer Utility’s obligations.

The suggested revenue increases help the Sewer Utility meet the following goals:
 Meet budgeted operating obligations in the three FYs.  Meet planned capital investments in the three FYs.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

52 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022  Maintain an operating reserve of 90 days of operating expenses.  Maintain construction reserve of 12-months of next year’s CIP for City projects and 6-months of next year’s CIP for the RWF.
 Continue to fund the rate stabilization reserve to reach its goal of 10% of rate revenues.  Continue transfers for the pension stabilization reserve to meet the FY 2030 goal.

Shown in Table 5-11 is a summary of the proposed Operating Fund for the Study Period. The Operating Fund consists of 1) Revenue and 2) Revenue Requirements.

Revenue
 Line 1 is the revenue under existing rates.
 Lines 2 through 4 are the additional revenue generated from the required annual revenue increases. The additional revenue generated is a direct reflection of the number of months the increase is effective for, and therefore amount might calculate at less than that stated amount.  Line 6 is the total revenue generated from user charges.  Line 12 represents other operating revenues.
 Line 13 represents total revenues for the enterprises.

Revenue Requirements
 Line 15 represents O&M expenses. The O&M expenses include RWF costs.  Line 18 represents debt service payments.
 Line 22 represents transfers. The transfers include money to the Rate Stabilization Fund, Other Fund, Pension Fund, and Construction Fund.
 Line 23 represents total revenue requirements.

Line 26 represents the net cumulative cash balance within the Operating Funds. The net cumulative cash balance intends to match, to the extent possible, Line 27. The cash balance reserve is required to ensure the Operation Fund can continue in the event of a supplier interruption, market price fluctuations of critical equipment or supplies or an abrupt drop in account receivables. The reserve target minimum is 90 days of O&M expenses. Line 28 represents the debt service coverage. Currently, the City does not have debt coverage requirements for the short-term loans, but the operating cash flow is set up to achieve a debt service coverage of 1.25x requirement is met in all years. The requirement will come into effect when long-term debt is used to refinance the short-term loans. The lending financial institution sets the debt service coverage ratio via a rate covenant that will also obligate the City to increase revenues as needed to meet the minimum debt service coverage requirement City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Revenue and Revenue Requirements 53 Table 5-11 Operating Fund

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 40,607,500 40,710,600 40,813,600 Year
Months
Effective Rate Adj
2 2023 12 3.00% 1,218,200 1,221,300 1,224,400 3 2024 12 3.50% 1,467,600 1,471,300
4 2025 12 3.50% 1,522,800
5 Increased Revenue Due to Adjustments 1,218,200 2,688,900 4,218,500 6 Subtotal Rate Revenue 41,825,700$ 43,399,500$ 45,032,100$ Other Operating Revenue
7 System Administration (Interest Income) 622,300 633,800 645,600 8 System Maintenance 95,500 95,500 95,500 9 Operations 350,000 350,000 350,000
10 SJ SC Wate r Pollution Control Plant 0 0 0 11 Storm Pump Maintenance 0 0 0 12 Subtotal Other Operating Revenue 1,067,800$ 1,079,300$ 1,091,100$ 13 Total Revenue 42,893,500$ 44,478,800$ 46,123,200$
Revenue Requirements
Operating & Maintenance
14 O&M Expenses 31,123,800 32,117,400 33,136,000
15 Subtotal O&M 31,123,800$ 32,117,400$ 33,136,000$
Debt Servi ce
16 Existing Loans/Bonds 1,287,400 1,287,400 937,400 17 Proposed Loans/Bonds 220,800 1,642,400 2,910,100 18 Total Debt Servi ce 1,508,200$ 2,929,800$ 3,847,500$ Transfers
19 Transfer to Rate Stabilization Fund 250,000 500,000 750,000 20 Transfer to Pension Stabilization Fund 78,200 78,200 78,200 21 Transfer to Sewer Construction Fund 14,000,000 14,000,000 14,000,000 22 Total Transfers 14,328,200$ 14,578,200$ 14,828,200$ 23 Total Revenue Requirements 46,960,200$ 49,625,400$ 51,811,700$ 24 Net Annual Cash Balance (4,066,700) (5,146,600) (5,688,500) 25 Beginning Fund Balance 28,382,500 24,315,800 19,169,200 26 Net Cumulative Fund Balance 24,315,800$ 19,169,200$ 13,480,700$ 27 Mi ni mum Operati ng Reserves (90 Days) 7,674,400$ 7,919,400$ 8,170,500$ 28 Debt Servi ce Coverage (Mi n 1.25) 7.80 4.22 3.38 Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

54 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Figure 5-2 presents the proposed Operating Fund.

Figure 5-2 Operating Cash Flow

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Cost of Service Analysis 55 6 Cost of Service Analysis
The cost-of-service analysis requires that the utility recover needed revenues from rates for sewer service, which are allocated to customer classes according to the service rendered. An equitable rate structure allocates the capture of revenue requirements to customer classes based on contributed sewage volume, strengths, number of customer connections, and other relevant factors.

In analyzing the Sewer Utility’s cost of service for allocation to its customer classes, Black & Veatch selected the annual revenue requirements for FY 2023 as the Test Year requirements to demonstrate the development of cost-of-service sewer rates. Table 6-1 summarizes the total costs of service that need to be recovered from sewer user rates. The table represents TY 2023.

Table 6-1 Cost of Service Revenue from Rates

To derive the net revenue requirement recovered through rates, it is necessary to deduct revenues from other sources as shown in Line 10 which corresponds with Table 5-11, Line 12. Shown in Line 4 is the total revenue requirement that corresponds with Table 5-11, Line 23. Line 11 represents the net annual cash balance during the TY. If the enterprise is drawing down funds already in the Operating Fund, this number is positive. The number will be negative if the enterprise is replacing funds. In the case of the Sewer Utility, the $4.1M figure indicates that the forecast is projecting a negative cash balance for the year.

6.1 FUNCTIONAL COST COMPONENTS
The first step in conducting a cost-of-service analysis involves analyzing the cost of providing sewer service by system function to properly allocate the costs to the various customer classes and, Operating Capital Total
Expense Cost Cost
($) ($) ($)
Revenue Requi rements
1 O&M Expense 31,123,800 0 31,123,800 2 Debt Servi ce Requi rements 0 1,508,200 1,508,200 3 Transfers 328,200 14,000,000 14,328,200
4 Subtotal 31,452,000$ 15,508,200$ 46,960,200$
Less Revenue Requi rements Met from Other Sources
5 System Administration 622,300 0 622,300 6 System Maintenance 95,500 0 95,500 7 Operations 350,000 0 350,000 8 SJ SC Wate r Pollution Control Plant 0 0 0 9 Storm Pump Maintenance 0 0 0 10 Subtotal 1,067,800$ 0$ 1,067,800$ Adjustments
11 Adjustment for Annual Cash Balance 4,066,700 0 4,066,700 12 Subtotal 4,066,700$ 0$ 4,066,700$ 13 Cost of Servi ce to be Recovered from Rates 26,317,500$ 15,508,200$ 41,825,700$ Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

56 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 subsequently, design rates. As a basis for allocating costs of service among customer classes, costs are separated into the following four basic functional cost components: (1) Base; (2) Strength; (3) Customer; and (4) Direct Assignment, described as follows:
 Base costs represent operating and capital costs of the system associated with collection. The collection costs vary directly with the quantity of sewage flow.  Strength costs represent those operating and capital costs associated with treatment. The treatment costs are specifically related to strength parameters such as Biological Oxygen Demand, Total Suspended Solids, and Ammonia.
 Customer costs are those expenditures that tend to vary in proportion to the number of customers connected to the system. These include meter reading, billing, collecting, accounting, maintenance, and capital costs associated with meters and services.  Directly assigned costs are specifically identified as those incurred to serve specific customers.

The Sewer Utility has no directly assigned categories.

6.2 ALLOCATION TO COST COMPONENTS
The next step of the cost-of-service process involves allocating each cost element to functional cost components based on the parameter or parameters having the most significant influence on the magnitude of that element of cost. O&M expense items are allocated directly to appropriate cost components. A detailed allocation of related capital investment is used as a proxy for allocating capital and replacement costs. The separation of costs into functional components provides a means for distributing such costs to the various classes of customers based on their respective responsibilities for each type of service.

6.2.1 Volume and Strength Allocations
The sewer system consists of various facilities designed and operated to fulfill a given function.

For the system to provide adequate service to its customers, it must be capable of meeting not only the annual volume requirements but also the strength loading demands placed on the system. Because not all customers and types of customers exert volume and strength loading demands similarly, the capacities of the various facilities must be designed to accommodate the demands of all classes of customers. Each sewer service facility within the system has an underlying volume demand exerted by all customers for whom the base cost component applies. For those facilities designed solely to meet volume demand, 100% of the costs go to the base cost component. For facilities designed to meet strength loading demands, the percentage of the costs is allocated to the different strength cost components based on their specific function.

6.2.2 Allocation of Operating and Maintenance Expenses
The Sewer Utility books operating costs by functional categories. Therefore, Black & Veatch used the factors noted in Section 5.1 to allocate the operating expenses to the cost components. In allocating O&M expenses for TY 2023, the costs are directly allocated to the cost components to the extent possible. The allocation of Administration and Transfer cost elements is based on the average of all other costs. Table 6-2 represents the allocation of O&M to the cost components. Revenues are subtracted from other sources as shown in Table 6-1, Lines 10, and any drawdown of the cash balance is City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Cost of Service Analysis 57 deducted and normalized for partial rate adjustments as shown in Line 13 to determine the net O&M costs.

Table 6-2 Allocation of O&M Expenditures

6.2.3 Allocation of Capital Investments
In allocating the capital investment for TY 2023, the existing fixed assets (which serve as a proxy for the current capital investments) are allocated directly to cost components to the extent possible.

Plan capital costs can be allocated using the distribution of total net system investment across the functional cost components. The allocation of costs in this manner provides a basis for annual investment in sewer system facilities. Table 6-3 shows the total allocation of existing system investment serving sewer customers for the TY 2023. The total net system investment of $39.4M shown on Line 7 represents the Test Year original cost less accumulated depreciation of the system in service. The total net system investment reflects the Sewer Utility’s fixed asset listing ending June 30, 2021. This value represents the original cost (book value) of the assets.

Table 6-3 Allocation of Capital Costs

Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
($) ($) ($) ($) ($) ($)
Operation & Maintenance
1 1511 System Administration 5,162,400 2,372,000 825,400 841,300 856,400 66,300 2 1512 System Maintenance 2,563,900 2,563,900 0 0 0 0 3 1514 Operations 1,462,700 1,462,700 0 0 0 0 4 1515 SJ SC Wate r Pollution Control Plant
5 Treatment 19,300,000 6,611,900 4,150,700 4,230,800 4,306,600 0 6 Custom e r Billing & Me te r Re ading 333,400 0 0 0 0 333,400 7 A ll Othe r 1,111,200 1,111,200 0 0 0 0 8 1516 Storm Pump Maintenance 179,200 179,200 0 0 0 0 9 Transfers 328,200 150,800 52,500 53,500 54,400 4,200 10 Total O&M Expenses 30,441,000$ 14,451,700$ 5,028,600$ 5,125,600$ 5,217,400$ 403,900$ Less Other Revenue
11 Mi scel l aneous Revenues 1,067,800 490,700 170,700 174,000 177,100 13,700 12 Other Adjustments 4,066,700 1,868,600 650,200 662,700 674,600 52,200 13 Net Operati ng Expenses 25,306,500$ 12,092,400$ 4,207,700$ 4,288,900$ 4,365,700$ 338,000$ Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
($) ($) ($) ($) ($) ($)
Plant Assets
1 Colle ction 34,069,400 34,069,400 0 0 0 0 2 Lift Station 5,294,900 5,294,900 0 0 0 0 3 General Pl ant 14,900 14,900 0 0 0 0 4 Total Plant Assets 39,379,200$ 39,379,200$ 0$ 0$ 0$ 0$ Less Other Revenue
5 Mi scel l aneous Revenues 0 0 0 0 0 0 6 Other Adjustments 0 0 0 0 0 0 7 Net Operati ng Expenses 39,379,200$ 39,379,200$ 0$ 0$ 0$ 0$ Updated 2022 Water and Sewer Rate Study | City of Santa Clara

58 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022

6.3 UNITS OF SERVICE
To properly recognize the cost of service, each customer class receives its share of base, strength, and customer costs. Following the allocation of costs, the total cost responsibility for each customer class is developed using unit costs of service for each cost function and subsequently assigning those costs to the customer classes based on the respective service requirements of each. The number of units of service required by each customer class provides a means for the proportionate distribution of costs previously allocated to respective cost categories.

Table 6-4 summarizes the estimated Test Year units of service for the various customer classes.

Base costs vary with the volume of sewage flow produced and distributed to customer classes on that basis. Black & Veatch derived sewage flow information from the monthly water consumption records in the City’s CIS multiplied by a return factor. Strength costs are those associated with pollutant characteristics, and the Study allocated these costs to customer classes based on loadings. The pollutant loadings for each customer class come from recommendations of the State Water Resources Control Board, Revenue Program Guidelines, Appendix G, and the City of San Jose. The City’s commercial and industrial class consists of 17 distinct types of businesses such as retail, offices, restaurants, and hospitals. Since sampling is not an immediate possibility, the City has relied on industry standards used by the State of California. The number of bills for each customer class serves as the basis for distributing customer billing requirements.

6.4 COST OF SERVICE ALLOCATIONS
Unit costs of service are applied to each customer class’ respective service requirements to determine the cost of service for each customer class. The total unit costs of service applied to the respective requirements for each customer class results in the total cost of service for each customer class.

6.4.1 Units Costs of Service
The TY 2023 unit cost of service for each functional cost component is simply the total cost divided by the applicable units of service, as shown in Table 6-5. The capital costs on Line 3 and 4 are associated with City projects and RWF projects. These costs have been separated to determine the collection and treatment costs independently. On Line 5, the total costs represent the cost that rates need to recover, as demonstrated in Table 6-1, Line 14. The net O&M cost includes O&M (including the RWF) less revenue from other sources and adjustments. The total capital cost includes debt service payments and transfers to the Construction Fund. Line 6 represents the unit costs for the entire sewer system regardless of customer classes. After that, these unit costs are applied in allocating the costs to the specific customer classes.

6.4.2 Distribution of Costs of Service to Customer Classes Applying the unit costs to the units for each customer class produces the customer class costs.

This process is illustrated in Table 6-6, in which the study applies the unit costs to the customer class units of service. The costs attributable to each customer class are based on the functional cost components described in Section 6.1. Each customer class places a burden on the system in different ways, and thus the allocation of the units is representative of this burden.

City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Cost of Service Analysis 59 An example of the application of unit costs is shown below for illustrative purposes.

Vol Component
Uni t Cost (Tabl e 6-5, Li ne 7) 4.38$ per HCF General Customer Consumption (Table 6-6, Line 5) 67,228 HCF Total Allocated Cost 294,400$
Please note that the numbers within the tables are rounded, yet the calculations are done based on non-rounded values; therefore, results might vary.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara 60 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 6-4 Units of Service

Line Contributed Contributed BOD Loadings TSS Loadings NH3 Loadings No. Description Units Volume Factor Loading Factor Loading Factor Loading Bills Units of Measure (EDUs/M Bills) (HCF) (mg/L) (lbs) (mg/L) (lbs) (mg/L) (lbs) (bills) 1 Single Fam ily 260,421 1,419,298 250 2,213,700 250 2,213,700 35 309,900 248,197 2 Multi-Fam ily 303,045 1,632,217 250 2,545,700 250 2,545,700 35 356,400 27,674 3 Amusement Parks 122 67,228 130 54,500 80 33,600 11 4,600 295 4 Auto Deal ers & Servi ce Stati on 376 22,013 180 24,700 280 38,500 11 1,500 730 5 Churches 243 17,778 130 14,400 80 8,900 11 1,200 605 6 Com/Ind/Misc 9,929 1,293,400 130 1,049,000 80 645,500 11 88,800 21,302 7 Electric & Electronic Equip. 392 496,422 30 92,900 15 46,500 15 46,500 1,596 8 Food and Kindred Products 23 19,040 1,120 133,000 690 82,000 0 0 166 9 Hospi tal s & Conval escent Homes 309 94,511 230 135,600 85 50,100 15 8,800 799 10 Industrial Chemical 52 13,903 360 31,200 720 62,500 0 0 113 11 Laundries 117 25,892 150 24,200 110 17,800 5 800 352 12 Machinery Manufacturers 681 39,414 290 71,300 550 135,200 0 0 1,703 13 Me tal Plating 94 7,009 10 400 60 2,600 1 0 201 14 Motel s & Hotel s 42 116,133 310 224,600 121 87,700 7 5,100 528 15 Paper 13 149,741 1,250 1,167,700 560 523,100 10 9,300 51 16 Repair Shops & Car Washes 478 12,231 180 13,700 280 21,400 0 0 695 17 Restaurants 245 80,611 1,250 628,600 560 281,600 10 5,000 2,121 18 Schools & Colleges 512 43,584 130 35,300 100 27,200 30 8,200 1,072 19 Major Users - Customer 1 0 0 0 0 0 20 Total 5,550,425 8,460,500 6,823,600 846,100 308,200 City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Rate Design 61
Table 6-5 Units Cost of Service

Table 6-6 Distribution of Costs to Customer Classes

Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
1 Net Operati ng Expense 26,317,500 12,092,400 4,207,700 4,288,900 4,365,700 338,000 2 Debt Servi ce 1,287,400 1,287,400 0 0 0 0 3 Capital Costs (City) 4,223,800 4,223,800 0 0 0 0 4 Capital Costs (SJSC) 9,776,200 6,706,500 1,712,200 952,600 404,900 0 5 Total Cost of Service 41,604,900$ 24,310,100$ 5,919,900$ 5,241,500$ 4,770,600$ 338,000$ 6 Uni ts of Servi ce 5,550,425 8,460,500 6,823,600 846,100 308,200 HCF lbs lbs lbs bills
7 Cost per Unit 4.38$ 0.70$ 0.77$ 5.64$ 1.10$ per HCF per lbs per lbs per lbs per bill
Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
1 Cost per Unit 4.38$ 0.70$ 0.77$ 5.64$ 1.10$ per HCF per lbs per lbs per lbs per bill
Single Fam ily
2 Units 1,419,298 2,213,700 2,213,700 309,900 248,197 3 Allocation of costs of service 12,021,000 6,255,100 1,559,100 1,707,400 1,750,800 272,000 Multi-Fam ily
4 Units 1,632,217 2,545,700 2,545,700 356,400 27,674 5 Allocation of costs of service 13,541,600 7,193,400 1,792,900 1,963,500 2,013,300 30,300 Amusement Parks
6 Units 67,228 54,500 33,600 4,600 295 7 Allocation of costs of service 386,900 296,300 38,400 25,900 26,000 300 Auto Deal ers & Servi ce Stati on
8 Units 22,013 24,700 38,500 1,500 730 9 Allocation of costs of service 153,400 97,000 17,400 29,700 8,500 800 Churches
10 Units 17,778 14,400 8,900 1,200 605 11 Allocation of costs of service 102,900 78,400 10,100 6,900 6,800 700 Com/Ind/Misc
12 Units 1,293,400 1,049,000 645,500 88,800 21,302 13 Allocation of costs of service 7,461,900 5,700,200 738,800 497,900 501,600 23,400 Electric & Electronic Equip.
14 Units 496,422 92,900 46,500 46,500 1,596 15 Allocation of costs of service 2,553,600 2,187,800 65,400 35,900 262,700 1,800 Food and Kindred Products
16 Units 19,040 133,000 82,000 0 166 17 Allocation of costs of service 241,000 83,900 93,700 63,200 0 200 Hospi tal s & Conval escent Homes
18 Units 94,511 135,600 50,100 8,800 799 19 Allocation of costs of service 601,200 416,500 95,500 38,600 49,700 900 Industrial Chemical
20 Units 13,903 31,200 62,500 0 113 21 Allocation of costs of service 131,600 61,300 22,000 48,200 0 100 Updated 2022 Water and Sewer Rate Study | City of Santa Clara

62 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022

Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
1 Cost per Unit 4.38$ 0.70$ 0.77$ 5.64$ 1.10$ per HCF per lbs per lbs per lbs per bill
Laundries
22 Units 25,892 24,200 17,800 800 352 23 Allocation of costs of service 149,700 114,100 17,000 13,700 4,500 400 Machinery Manufacturers
24 Units 39,414 71,300 135,200 0 1,703 25 Allocation of costs of service 330,100 173,700 50,200 104,300 0 1,900 Me tal Plating
26 Units 7,009 400 2,600 0 201 27 Allocation of costs of service 33,400 30,900 300 2,000 0 200 Motel s & Hotel s
28 Units 116,133 224,600 87,700 5,100 528 29 Allocation of costs of service 767,000 511,800 158,200 67,600 28,800 600 Repair Shops & Car Washes
30 Units 12,231 13,700 21,400 0 695 31 Allocation of costs of service 80,800 53,900 9,600 16,500 0 800 Restaurants
32 Units 80,611 628,600 281,600 5,000 2,121 33 Allocation of costs of service 1,045,700 355,300 442,700 217,200 28,200 2,300 Schools & Colleges
34 Units 43,584 35,300 27,200 8,200 1,072 35 Allocation of costs of service 285,500 192,100 24,900 21,000 46,300 1,200 36 TOTAL COSTS OF SERVICE 41,825,700$ 24,461,600$ 5,958,600$ 5,263,000$ 4,779,700$ 338,000$ City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Rate Design 63
7 Rate Design
The initial consideration in the derivation of rate schedules for sewer service is establishing equitable charges to the customers commensurate with the cost of providing that service. While the cost-of-service allocations to customer classes should not be construed as literal or exact determinations, they offer a guide to the necessity for, and the extent of, rate adjustments. Practical considerations sometimes modify rate adjustments by considering additional factors such as the extent of bill impacts, existing contracts, and historical local policies and practices.

7.1 EXISTING RATES
The Sewer Utility’s existing rates consist of a fixed component in the form of a monthly service charge and a variable component in the form of a consumption charge. The monthly service charge is a flat fee based on EDUs and is applied to residential customers. The monthly service charge also is a minimum for non-residential customers and applies when the consumption charge is less than the monthly service charge. Non-residential customers also have a consumption charge based on units of water consumption (1 unit = 1 HCF = 748 gallons) multiplied by a return factor. The City has separate charges for major users consisting of O&M and capital components. Table 5-5, presented earlier in this report, summarizes the current sewer rates.

7.2 PROPOSED RATES
The costs of service analysis described in the preceding sections of this report provide a basis for designing sewer rates.

7.2.1 Monthly Service Charge
The monthly service charge is designed to recover residential costs associated with contributed sewage flow, strength loadings, billing, collecting, accounting, and maintenance and capital costs. The charge is a flat monthly fee based on EDUs. An EDU is defined in Section 5.1. In FY 2023, the multi-family rate was separated from single-family and became a stand-alone customer class. In FY 2022, the City obtained and verified EDU information for the multi-family customers, enabling a separation of the customer classes.

The monthly service charge also serves as the minimum monthly service charge for non- residential customers. The minimum service charge will recover non-residential costs associated with volume, strength, meter reading, billing, collecting, accounting, and maintenance and capital costs. The minimum monthly service charge incorporates an allowance for sewage flow. Once a customer exceeds the allowance, the minimum monthly service charge goes away.

Table 7-1 shows the forecasted proposed three-year monthly service charge rate schedule.

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

64 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Table 7-1 Proposed Monthly Service Charge

7.2.2 Consumption Charge
The consumption charges are designed to recover the remainder of the cost component costs not recovered through the monthly service charge for non-residential customers. Table 7-2 shows the forecasted proposed three-year rate schedule for the Sewer Utility.

Table 7-2 Proposed Consumption Charges

7.2.3 Major Users
The major commercial and industrial user charge is designed to recover the costs associated with O&M and capital for major users. Major users are classified based on requirements in Section 5.1.

These customers are monitored monthly for volume and strength loadings. Major users are charged the unit charges identified in Table 6-5, Line 7. Note that the major user charges are specifically identified O&M and capital components. Charges for all other customers incorporate these charges, but the City has combined them into a single rate for simplicity. Table 7-3 shows the three-year rate schedule based on unit costs in future years.

Line Proposed
No. Customer Class FY 2023 FY 2024 FY 2025
Monthly Service Charge ($/EDU) $/month $/month $/month
1 Single Fam ily 46.82 48.50 50.28
2 Multi-Fam ily 44.69 46.32 48.05
Minimum Commercial Bill Charge ($/Month) $/month $/month $/month 3 A ll Custom e rs 46.82 48.50 50.28
Line Proposed
No. Customer Class FY 2023 FY 2024 FY 2025
Commodity Charge ($/HCF) $/HCF $/HCF $/HCF
1 Amusement Parks 5.67 5.82 5.99
2 Auto Deal ers & Servi ce Stati on 6.17 6.37 6.57
3 Churches 5.15 5.28 5.42
4 Com/Ind/Misc 5.41 5.56 5.71
5 Electric & Electronic Equip. 5.11 5.22 5.33
6 Food and Kindred Products 12.60 13.28 13.93
7 Hospi tal s & Conval escent Homes 6.21 6.41 6.60
8 Industrial Chemical 9.29 9.69 10.08
9 Laundries 5.57 5.74 5.89
10 Machinery Manufacturers 7.57 7.87 8.17
11 Me tal Plating 4.14 4.20 4.29
12 Motel s & Hotel s 6.59 6.82 7.05
13 Paper 12.94 13.65 14.31
14 Repair Shops & Car Washes 4.77 4.95 5.10
15 Restaurants 12.83 13.54 14.20
16 Schools & Colleges 6.00 6.15 6.32
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Rate Design 65
Table 7-3 Proposed Major User Charges

7.3 TYPICAL MONTHLY COSTS UNDER PROPOSED CHARGES
Table 7-4 compares typical monthly costs under existing rates and the proposed schedule of sewer user rates derived in this study for residential and non-residential customers.

Table 7-4 Typical Monthly Bill

7.4 NEIGHBORING SEWER UTILITIES
All surveyed community rates are best estimates as of May 2022. Presented in Figure 7-1 is the proposed rates compared to rates of neighboring jurisdictions, for a single-family residential customer.

Based on the comparison, the City is currently a higher cost sewer provider in the area. With the proposed rate increases, the City remains one of the higher sewer providers of the surveyed communities.

Line Proposed
No. Customer Class FY 2023 FY 2024 FY 2025
Major Commercial and Industrial Users
Operating and Maintenance Cost Recovery
1 Vol ume (per MG) 2,993.84 3,000.08 3,068.71
2 BOD [2] (per 1,000 lbs) 497.33 497.47 508.29
3 SS [3] (per 1,000 lbs) 628.54 628.75 642.43
4 NH3 [4] (per 1,000 lbs) 5,159.79 5,161.10 5,274.31
Annual Capital Cost Recovery
5 Vol ume (per MGD) 1,087,371 1,124,455 1,140,228
6 BOD [2] (per 1,000 lbs/day) 75,537 97,560 113,092
7 SS [3] (per 1,000 lbs/day) 52,105 67,304 78,018
8 NH3 [4] (per 1,000 lbs/day) 178,596 230,700 267,439
Typical FY 2022 FY 2023
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Single Fam ily Re side ntial $44.53 $46.82
Multi-Fam ily Re side ntial $44.53 $44.69
Non-Residential 0 $44.53 $46.82
10 $62.09 $65.08
20 $124.19 $130.16
30 $186.28 $195.24
40 $248.37 $260.32
50 $310.46 $325.40
100 $620.93 $650.81
250 $1,552.32 $1,627.02
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

66 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022 Figure 7-1 Comparison to Neighboring Sewer Utilities

Santa
Clara
Current
Santa
Clara
Proposed
San Jose
Proposed
Sunnyvale
Proposed SJWC
Mountain
View
Proposed
Milpitas Palo Alto
Proposed
WATER RATE 12 HCF $80.28 $87.96 $104.43 $78.71 $157.52 $106.99 $110.41 $152.04 SEWER RATE $44.53 $46.82 $45.49 $55.52 $45.49 $50.10 $62.07 $44.62 COMBINED $124.81 $134.78 $149.92 $134.23 $203.01 $157.09 $172.48 $196.66 $0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Monthly Bill
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Appendix A – Ten-Year Financial Plan

67 Appendix A – Ten-Year Financial Plan

Updated 2022 Water and Sewer Rate Study | City of Santa Clara

68 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022

WATER UTILITY

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 51,024,600 51,267,300 51,392,300 51,517,700 51,643,200 51,769,200 51,895,300 52,021,900 52,148,700 52,275,800 2 Increased Revenue Due to Adjustments 4,490,200 9,420,000 14,796,500 20,306,600 26,115,800 28,518,200 31,002,200 32,739,800 34,518,800 36,340,700 3 Subtotal Rate Revenue 55,514,800$ 60,687,300$ 66,188,800$ 71,824,300$ 77,759,000$ 80,287,400$ 82,897,500$ 84,761,700$ 86,667,500$ 88,616,500$ Other Operating Revenue
4 Solar System Maintenance 77,800 77,800 77,800 77,800 77,800 77,800 77,800 77,800 77,800 77,800 5 Water System Mai ntenance 43,600 43,600 43,600 43,600 43,600 43,600 43,600 43,600 43,600 43,600 6 Water Construction 0 0 0 0 0 0 0 0 0 0 7 Water System Operati ons 0 0 0 0 0 0 0 0 0 0 8 A dm inistration De sign 882,200 888,900 895,800 902,800 909,900 917,200 924,600 932,200 939,900 947,800 9 Water Quality 0 0 0 0 0 0 0 0 0 0 10 Water Resources 74,700 74,700 74,700 74,700 74,700 74,700 74,700 74,700 74,700 74,700 11 Subtotal Other Operating Revenue 1,078,300$ 1,085,000$ 1,091,900$ 1,098,900$ 1,106,000$ 1,113,300$ 1,120,700$ 1,128,300$ 1,136,000$ 1,143,900$ 12 Total Revenue 56,593,100$ 61,772,300$ 67,280,700$ 72,923,200$ 78,865,000$ 81,400,700$ 84,018,200$ 85,890,000$ 87,803,500$ 89,760,400$ Revenue Requirements
Operating & Maintenance
13 O&M Expenses 52,744,300 58,343,900 63,555,400 67,653,400 72,074,700 74,353,500 76,707,800 79,139,900 81,652,600 84,248,300 14 Subtotal O&M 52,744,300$ 58,343,900$ 63,555,400$ 67,653,400$ 72,074,700$ 74,353,500$ 76,707,800$ 79,139,900$ 81,652,600$ 84,248,300$ Debt Servi ce
15 Existing Loans/Bonds 0 0 0 0 0 0 0 0 0 0 16 Proposed Loans/Bonds 0 0 0 0 0 0 0 0 0 0 17 Total Debt Servi ce -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Transfers
18 Transfer to Rate Stabilization Fund 0 0 2,000,000 2,000,000 2,250,000 500,000 500,000 500,000 0 0 19 Transfer to Pensiotn Stabilization Fund 199,400 199,400 199,400 199,400 199,400 199,400 199,400 199,400 199,400 199,400 20 Transfer to Water Construction Fund 0 0 0 2,000,000 2,500,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 21 Total Transfers 199,400$ 199,400$ 2,199,400$ 4,199,400$ 4,949,400$ 5,699,400$ 5,699,400$ 5,699,400$ 5,199,400$ 5,199,400$ 22 Total Revenue Requirements 52,943,700$ 58,543,300$ 65,754,800$ 71,852,800$ 77,024,100$ 80,052,900$ 82,407,200$ 84,839,300$ 86,852,000$ 89,447,700$ 23 Net Annual Cash Balance 3,649,400 3,229,000 1,525,900 1,070,400 1,840,900 1,347,800 1,611,000 1,050,700 951,500 312,700 24 Beginning Fund Balance 7,336,200 10,985,600 14,214,600 15,740,500 16,810,900 18,651,800 19,999,600 21,610,600 22,661,300 23,612,800 25 Net Cumulative Fund Balance 10,985,600$ 14,214,600$ 15,740,500$ 16,810,900$ 18,651,800$ 19,999,600$ 21,610,600$ 22,661,300$ 23,612,800$ 23,925,500$ 26 Mi ni mum Operati ng Reserves (90 Days) 13,005,400$ 14,386,200$ 15,671,200$ 16,681,700$ 17,771,800$ 18,333,700$ 18,914,300$ 19,513,900$ 20,133,500$ 20,773,600$ Line No. Description
City of Santa Clara | UPDATED 2022 WATER AND SEWER Rate Study

BLACK & VEATCH CORPORATION | Appendix A – Ten-Year Financial Plan

69 RECYCLED WATER UTILITY

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 5,862,000 5,979,000 6,038,500 6,098,700 6,159,500 6,220,700 6,282,600 6,345,200 6,408,400 6,472,200 2 Increased Revenue Due to Adjustments 586,200 1,255,600 1,998,800 2,830,600 3,760,500 4,799,800 5,403,900 6,048,100 6,483,600 6,938,600 3 Subtotal Rate Revenue 6,448,200$ 7,234,600$ 8,037,300$ 8,929,300$ 9,920,000$ 11,020,500$ 11,686,500$ 12,393,300$ 12,892,000$ 13,410,800$ Other Operating Revenue
4 System Maintenance 92,000 93,800 95,700 97,600 99,600 101,600 103,600 105,700 107,800 110,000 5 South Bay Water Recycling System Maintena 413,700 413,700 413,700 413,700 413,700 413,700 413,700 413,700 413,700 413,700 6 Subtotal Other Operating Revenue 505,700$ 507,500$ 509,400$ 511,300$ 513,300$ 515,300$ 517,300$ 519,400$ 521,500$ 523,700$ Transfers From
7 RW Capital Fund 0 250,000 250,000 0 0 0 0 0 0 0 8 Subtotal Transfers From -$ 250,000$ 250,000$ -$ -$ -$ -$ -$ -$ -$ 9 Total Revenue 6,953,900$ 7,992,100$ 8,796,700$ 9,440,600$ 10,433,300$ 11,535,800$ 12,203,800$ 12,912,700$ 13,413,500$ 13,934,500$ Revenue Requirements
Operating & Maintenance
10 O&M Expenses 6,816,600 7,920,200 9,125,600 10,058,000 11,086,900 11,540,000 12,011,500 12,502,000 13,012,200 13,543,200 11 Subtotal O&M 6,816,600 7,920,200 9,125,600 10,058,000 11,086,900 11,540,000 12,011,500 12,502,000 13,012,200 13,543,200 Debt Servi ce
12 Existing Loans/Bonds 0 0 0 0 0 0 0 0 0 0 13 Proposed Loans/Bonds 0 0 0 0 0 0 0 0 0 0 14 Total Debt Servi ce 0 0 0 0 0 0 0 0 0 0 Transfers
15 Transfer to Rate Stabilization Fund 0 0 0 0 0 50,000 50,000 50,000 75,000 75,000 16 Transfer to Pensiotn Stabilization Fund 9,800 9,800 9,800 9,800 9,800 9,800 9,800 9,800 9,800 9,800 17 Transfer to Recycled Water Const Fund 0 0 0 50,000 50,000 50,000 100,000 100,000 100,000 200,000 18 Total Transfers 9,800 9,800 9,800 59,800 59,800 109,800 159,800 159,800 184,800 284,800 19 Total Revenue Requirements 6,826,400$ 7,930,000$ 9,135,400$ 10,117,800$ 11,146,700$ 11,649,800$ 12,171,300$ 12,661,800$ 13,197,000$ 13,828,000$ 20 Net Annual Cash Balance 127,500 62,100 (338,700) (677,200) (713,400) (114,000) 32,500 250,900 216,500 106,500 21 Beginning Fund Balance 4,469,600 4,597,100 4,659,200 4,320,500 3,643,300 2,929,900 2,815,900 2,848,400 3,099,300 3,315,800 22 Net Cumulative Fund Balance 4,597,100$ 4,659,200$ 4,320,500$ 3,643,300$ 2,929,900$ 2,815,900$ 2,848,400$ 3,099,300$ 3,315,800$ 3,422,300$ 23 Mi ni mum Operati ng Reserves (90 Days) 1,680,800$ 1,952,900$ 2,250,100$ 2,480,100$ 2,733,800$ 2,845,500$ 2,961,700$ 3,082,700$ 3,208,500$ 3,339,400$ Line No. Description
Updated 2022 Water and Sewer Rate Study | City of Santa Clara

70 B&V PROJECT NO. 410918.0100 | JUNE 15, 2022

SEWER UTILITY

Fiscal Year Ending June 30,
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 40,607,500 40,710,600 40,813,600 40,917,000 41,020,800 41,125,200 41,230,100 41,335,000 41,440,600 41,546,700 2 Increased Revenue Due to Adjustments 1,218,200 2,688,900 4,218,500 5,809,400 7,346,600 8,941,300 10,595,300 10,622,400 10,649,200 10,676,700 3 Subtotal Rate Revenue 41,825,700$ 43,399,500$ 45,032,100$ 46,726,400$ 48,367,400$ 50,066,500$ 51,825,400$ 51,957,400$ 52,089,800$ 52,223,400$ Other Operating Revenue
4 System Administration (Interest Income) 622,300 633,800 645,600 657,600 669,800 682,300 695,000 708,000 721,200 734,700 5 System Maintenance 95,500 95,500 95,500 95,500 95,500 95,500 95,500 95,500 95,500 95,500 6 Operations 350,000 350,000 350,000 350,000 350,000 350,000 350,000 350,000 350,000 350,000 7 SJ SC Wate r Pollution Control Plant 0 0 0 0 0 0 0 0 0 0 8 Storm Pump Maintenance 0 0 0 0 0 0 0 0 0 0 9 Subtotal Other Operating Revenue 1,067,800$ 1,079,300$ 1,091,100$ 1,103,100$ 1,115,300$ 1,127,800$ 1,140,500$ 1,153,500$ 1,166,700$ 1,180,200$ 10 Total Revenue 42,893,500$ 44,478,800$ 46,123,200$ 47,829,500$ 49,482,700$ 51,194,300$ 52,965,900$ 53,110,900$ 53,256,500$ 53,403,600$ Revenue Requirements
Operating & Maintenance
11 O&M Expenses 31,123,800 32,117,400 33,136,000 34,163,000 35,219,400 36,422,000 37,667,000 38,956,000 40,290,100 41,671,800 12 Subtotal O&M 31,123,800$ 32,117,400$ 33,136,000$ 34,163,000$ 35,219,400$ 36,422,000$ 37,667,000$ 38,956,000$ 40,290,100$ 41,671,800$ Debt Servi ce
13 Existing Loans/Bonds 1,287,400 1,287,400 937,400 937,400 937,400 937,400 937,400 937,400 937,400 0 14 Proposed Loans/Bonds 220,800 1,642,400 2,910,100 3,379,500 3,379,500 3,379,500 3,379,500 3,379,500 3,379,500 3,379,500 15 Total Debt Servi ce 1,508,200$ 2,929,800$ 3,847,500$ 4,316,900$ 4,316,900$ 4,316,900$ 4,316,900$ 4,316,900$ 4,316,900$ 3,379,500$ Transfers
16 Transfer to Rate Stabilization Fund 250,000 500,000 750,000 1,250,000 1,250,000 200,000 100,000 0 0 0 17 Transfer to Pension Stabilization Fund 78,200 78,200 78,200 78,200 78,200 78,200 78,200 78,200 78,200 78,200 18 Transfer to Sewer Construction Fund 14,000,000 14,000,000 14,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 8,000,000 8,000,000 19 Total Transfers 14,328,200$ 14,578,200$ 14,828,200$ 11,328,200$ 11,328,200$ 10,278,200$ 10,178,200$ 10,078,200$ 8,078,200$ 8,078,200$ 20 Total Revenue Requirements 46,960,200$ 49,625,400$ 51,811,700$ 49,808,100$ 50,864,500$ 51,017,100$ 52,162,100$ 53,351,100$ 52,685,200$ 53,129,500$ 21 Net Annual Cash Balance (4,066,700) (5,146,600) (5,688,500) (1,978,600) (1,381,800) 177,200 803,800 (240,200) 571,300 274,100 22 Beginning Fund Balance 28,382,500 24,315,800 19,169,200 13,480,700 11,502,100 10,120,300 10,297,500 11,101,300 10,861,100 11,432,400 23 Net Cumulative Fund Balance 24,315,800$ 19,169,200$ 13,480,700$ 11,502,100$ 10,120,300$ 10,297,500$ 11,101,300$ 10,861,100$ 11,432,400$ 11,706,500$ 24 Mi ni mum Operati ng Reserves (90 Days) 7,674,400 7,919,400 8,170,500 8,423,800 8,684,200 8,980,800 9,287,800 9,605,600 9,934,500 10,275,200 25 Debt Servi ce Coverage (Mi n 1.25) 7.80 4.22 3.38 3.17 3.30 3.42 3.54 3.28 3.00 3.47 Line No. Description

City Council and Authorities ConcurrentJune 21, 2022

City Council and Authorities Concurrent
June 21, 2022