Draft 2023 Water and Sewer Rate Study Report by Black & Veatch Management Consulting, LLC — City Council and Authorities Concurrent, June 6, 2023

DRAFT

WATER AND SEWER RATE STUDY

BLACK & VEATCH PROJECT NO. 410918

PREPARED FOR

City of Santa Clara, CA
6 JUNE 2023

~ . BLACK&VEATCH
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents i

Table of Contents
Legal Notice ............................................................................................................................................ 1

1.0 Executive Summary ................................................................................................................. 1-1

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

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

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

1.4 Financial Plan ........................................................................................................................ 1-2

1.4.1 Water Utility ........................................................................................................... 1-2

1.4.2 Recycle Water Utility ............................................................................................. 1-3

1.4.3 Sewer Utility ........................................................................................................... 1-4

1.5 Adequacy of Existing Rates to Meet Costs of Service ........................................................ 1-5

1.6 Cost of Service Analysis ....................................................................................................... 1-5

1.7 Rate Design ............................................................................................................................ 1-6

1.7.1 Water and Recycled Water Utilities ...................................................................... 1-6

1.7.2 Sewer Utility ........................................................................................................... 1-8 Water and Recycled Water Utilities ....................................................................................................... 1-1

2.0 Revenue and Revenue Requirements ....................................................................................... 2-1

2.1 Customer and Water Consumption ...................................................................................... 2-1

2.1.1 Customer Classes ................................................................................................. 2-1

2.1.2 Minimum Bills ........................................................................................................ 2-1

2.1.3 Water Consumption .............................................................................................. 2-2

2.2 Revenue under Existing Rates .............................................................................................. 2-3

2.3 Other Revenue ....................................................................................................................... 2-5

2.4 Operating and Maintenance Expenses ................................................................................ 2-5

2.5 Capital Improvement Program ............................................................................................. 2-6

2.5.1 Capital Improvement Financing Plan ................................................................... 2-7

2.6 Transfers ................................................................................................................................ 2-8

2.7 Reserves ................................................................................................................................. 2-8

2.8 Projected Operating Results ................................................................................................. 2-9

3.0 Cost of Service Analysis .......................................................................................................... 3-1

3.1 Functional Cost Components ............................................................................................... 3-2

3.2 Allocation to Cost Components ........................................................................................... 3-3

3.2.1 System Base, Max Day, and Max Hour Allocations ............................................ 3-3

3.2.2 Allocation of Operating and Maintenance Expenses .......................................... 3-4

3.2.3 Allocation of Capital Investments ........................................................................ 3-5

3.3 Units of Service ...................................................................................................................... 3-5

3.4 Cost of Service Allocations ................................................................................................... 3-6

3.4.1 Units Costs of Service ........................................................................................... 3-6

3.4.2 Distribution of Costs of Service to Customer Classes ....................................... 3-6 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents ii

4.0 Rate Design ............................................................................................................................. 4-1

4.1 Existing Rates ........................................................................................................................ 4-1

4.2 Proposed Rates ..................................................................................................................... 4-1

4.2.1 Monthly Service Charge ........................................................................................ 4-1

4.2.2 Fire Service ............................................................................................................ 4-3

4.2.3 Cross Connection .................................................................................................. 4-3

4.2.4 Consumption Charge ............................................................................................ 4-4

4.3 Typical Monthly Costs under Proposed Charges ................................................................ 4-5

4.4 Neighboring Water Utilities ................................................................................................... 4-5 Sewer Utility ......................................................................................................................................... 4-1

5.0 Revenue and Revenue Requirements ....................................................................................... 5-1

5.1 CUSTOMER AND WATER CONSUMPTION PROJECTIONS ................................................ 5-1

5.1.1 Customer Classes ................................................................................................. 5-1

5.1.2 Equivalent Dwelling Units ..................................................................................... 5-1

5.1.3 Minimum Bills ........................................................................................................ 5-2

5.1.4 Contributed Sewage Flow ..................................................................................... 5-2

5.1.5 Major Users ........................................................................................................... 5-3

5.2 Revenue under Existing Rates .............................................................................................. 5-4

5.3 Other Revenue ....................................................................................................................... 5-6

5.4 Operating and Maintenance Expenses ................................................................................ 5-6

5.5 Debt Service Requirements................................................................................................... 5-7

5.6 Capital Improvement Program ............................................................................................. 5-7

5.6.1 Capital Improvement Financing Plan ................................................................... 5-8

5.7 Transfers ................................................................................................................................ 5-8

5.8 Reserves ................................................................................................................................. 5-9

5.9 Projected Operating Results ................................................................................................. 5-9

6.0 Cost of Service Analysis .......................................................................................................... 6-1

6.1 Functional Cost Components ............................................................................................... 6-1

6.2 Allocation to Cost Components ........................................................................................... 6-2

6.2.1 Volume and Strength Allocations ........................................................................ 6-2

6.2.2 Allocation of Operating and Maintenance Expenses .......................................... 6-2

6.2.3 Allocation of Capital Investments ........................................................................ 6-3

6.3 Units of Service ...................................................................................................................... 6-3

6.4 Cost of Service Allocations ................................................................................................... 6-4

6.4.1 Units Costs of Service ........................................................................................... 6-4

6.4.2 Distribution of Costs of Service to Customer Classes ....................................... 6-4

7.0 Rate Design ............................................................................................................................. 7-1

7.1 Existing Rates ........................................................................................................................ 7-1

7.2 Proposed Rates ..................................................................................................................... 7-1

7.2.1 Monthly Service Charge ........................................................................................ 7-1 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents iii

7.2.2 Consumption Charge ............................................................................................ 7-2

7.2.3 Major Users ........................................................................................................... 7-2

7.3 Typical Monthly Costs under Proposed Charges ................................................................ 7-3

7.4 Neighboring Sewer Utilities ................................................................................................... 7-3 Appendix A – Ten-Year Financial Plan ................................................................................................. 7-1 Water Utility ......................................................................................................................................... 7-1 Recycled Water Utility ......................................................................................................................... 7-2 Sewer Utility ......................................................................................................................................... 7-3

LIST OF TABLES
Table 1-1 Proposed Revenue Adjustments ......................................................................................... 1-5 Table 1-2 Proposed Three-Year Water Rate Schedule ........................................................................ 1-7 Table 1-3 Proposed Three-Year Recycled Water Rate Schedule........................................................ 1-8 Table 1-4 Proposed Three-Year Sewer Rate Schedules ..................................................................... 1-9 Table 2-1 Minimum Bills ....................................................................................................................... 2-1 Table 2-2 Billed Water Consumption ................................................................................................... 2-3 Table 2-3 Existing Water and Recycled Water Rates .......................................................................... 2-4 Table 2-4 Projected Revenue under Existing Rates ............................................................................ 2-5 Table 2-5 O&M Expenses ...................................................................................................................... 2-6 Table 2-6 Capital Improvement Projects ............................................................................................. 2-7 Table 2-7 Construction Fund Financing Plan (Water) ......................................................................... 2-7 Table 2-8 Construction Fund Financing Plan (Recycled Water) .......................................................... 2-8 Table 2-9 Operating Fund (Water) ...................................................................................................... 2-12 Table 2-10 Operating Fund (Recycled Water) ...................................................................................... 2-13 Table 3-1 Cost of Service Revenue from Rates (Water) ..................................................................... 3-1 Table 3-2 Cost of Service Revenue from Rates (Recycled Water) ..................................................... 3-2 Table 3-3 Allocation of O&M Expenditures (Water) ............................................................................ 3-4 Table 3-4 Allocation of O&M Expenditures (Recycled Water) ............................................................ 3-4 Table 3-5 Allocation of Capital Costs (Water) ..................................................................................... 3-5 Table 3-6 Allocation of Capital Costs (Recycled Water) ..................................................................... 3-5 Table 3-7 Units of Service (Water and Recycled Water) ..................................................................... 3-1 Table 3-8 Units Cost of Service (Water) .............................................................................................. 3-1 Table 3-9 Distribution of Costs to Customer Classes (Water) ........................................................... 3-2 Table 3-10 Units Cost of Service (Recycled Water) .............................................................................. 3-3 Table 3-11 Distribution of Costs to Customer Classes (Recycled Water) ........................................... 3-3 Table 4-1 Costs within the Minimum Monthly Service Charge for FY 2024 (Water) ........................ 4-1 Table 4-2 Proposed Minimum Monthly Service Charge (Water) ........................................................ 4-2 Table 4-3 Costs within the Minimum Monthly Service Charge for FY 2024 (Recycled Water) ..................................................................................................................................... 4-2 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents iv

Table 4-4 Proposed Minimum Monthly Service Charge (Recycled Water)......................................... 4-2 Table 4-5 Costs within the Fire Service Charge for FY 2024 .............................................................. 4-3 Table 4-6 Proposed Fire Service Charge .............................................................................................. 4-3 Table 4-7 Costs within the Cross-Connection Charge for FY 2024 ................................................... 4-4 Table 4-8 Proposed Cross Connection Charge ................................................................................... 4-4 Table 4-9 Proposed Consumption Charges ......................................................................................... 4-4 Table 4-10 Typical Monthly Bill (Water) .................................................................................................. 4-5 Table 4-11 Typical Monthly Bill (Recycled Water) .................................................................................. 4-5 Table 5-1 EDUs ...................................................................................................................................... 5-2 Table 5-2 Minimum Monthly Service Bills ........................................................................................... 5-2 Table 5-3 Contributed Sewage Flow .................................................................................................... 5-3 Table 5-4 Major Users ............................................................................................................................ 5-4 Table 5-5 Existing Sewer Rates ............................................................................................................. 5-5 Table 5-6 Projected Revenue under Existing Rates ............................................................................. 5-6 Table 5-7 O&M Expenses ....................................................................................................................... 5-7 Table 5-8 Long-Term Debt Service ........................................................................................................ 5-7 Table 5-9 Capital Improvement Projects .............................................................................................. 5-8 Table 5-10 Construction Fund Financing Plan ....................................................................................... 5-8 Table 5-11 Operating Fund (Sewer) ...................................................................................................... 5-12 Table 6-1 Cost of Service Revenue from Rates .................................................................................... 6-1 Table 6-2 Allocation of O&M Expenditures ........................................................................................... 6-3 Table 6-3 Allocation of Capital Costs ................................................................................................... 6-3 Table 6-4 Units of Service ...................................................................................................................... 6-1 Table 6-5 Units Cost of Service ............................................................................................................. 6-1 Table 6-6 Distribution of Costs to Customer Classes ......................................................................... 6-1 Table 7-1 Proposed Monthly Service Charge ....................................................................................... 7-1 Table 7-2 Proposed Consumption Charges ......................................................................................... 7-2 Table 7-3 Proposed Major User Charges.............................................................................................. 7-3 Table 7-4 Typical Monthly Bill ............................................................................................................... 7-3

LIST OF FIGURES
Figure 1-1 Water Operating Cashflow .................................................................................................... 1-3 Figure 1-2 Recycled Water Operating Cash Flow ................................................................................. 1-4 Figure 1-3 Sewer Operating Cash Flow .................................................................................................. 1-5 Figure 2-1 Water Sales ........................................................................................................................... 2-2 Figure 2-2 Status Quo Operating Cash Flow (Water) ........................................................................... 2-9 Figure 2-3 Status Quo Operating Cash Flow (Recycled Water) ......................................................... 2-10 Figure 2-4 Water Operating Cash Flow ............................................................................................... 2-14 Figure 2-5 Recycled Water Operating Cash Flow ............................................................................... 2-14 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents v

Figure 4-1 Comparison to Neighboring Water Utilities ......................................................................... 4-6 Figure 5-1 Status Quo Operating Cash Flow ....................................................................................... 5-10 Figure 5-2 Sewer Operating Cash Flow ................................................................................................ 5-13 Figure 7-1 Comparison to Neighboring Sewer Utilities ......................................................................... 7-4

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Legal Notice LN-1

Legal Notice
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 fi nancial 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, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-1

1.0 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, educational, and agricultural 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, 19 active wells, and 3 booster pump stations.

1.2 Recycled Water System
The Recycled Water Utility, operating since 1989, provides recycled water services to ove r 361 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 33miles 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 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 waste from seven agencies in Santa Clara County and can treat 167 million gallons a day (MGD) of liquid waste.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-2

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, 2023 and ending June 30, 2033. This report will focus on a three-year planning period for discussion, beginning July 1, 2023 and ending June 30, 2026. 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 declared a Drought Emergency and 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. On May 9, 2023, the City Council took action to terminate the Drought Emergency that had been declared, but also took action to remain in Stage 2 of the Water Shortage Contingency Plan to align with state actions and to encourage water conservation as a way of life in Santa Clara. Council also took action to call for a 15% voluntary reduction in water usage to align with Valley Water.

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 $56.2M in FY 2024 to $64.6M in FY 2026. Water production and water purchases account for most of this increase, representing an average of 64.4% of O&M expenses.  Debt Service: The Water Utility has no existing debt service, and no future debt is planned.  Capital Improvements: The Water Utility plans to execute an average of $ 4.5M per year in capital projects from FY 2024 to FY 2026.
 Reserves: The Water 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.

1 On March 28, 2022, Governor Newsom called on local water suppliers to move to level 2 of their 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, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-3

● 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 Cashflow

1.4.2 Recycle 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 $7.9M in FY 2024 to $10.1M in FY 2026. Recycled water purchase costs constitute most of the increase, averaging 86.2% of O&M expenses.
 Debt Service: The Recycled Water Utility has no existing debt service, and no future debt is planned.
 Capital Improvements: The Recycled Water Utility plans to execute an average of $5 3.9k per year in capital projects from FY 2024 to FY 2026.
 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. $80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
so
- O&M
--- ReJenue
Water Utility - Ope rating fund
20 24 2025 2026
- Debt Service - Capit al Projects - R ci:e St abl ilci:ion -e-- Cash Balance -e, Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-4

● 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 $30.1M in FY 2024 to $32.1M in FY 2026. RWF-related costs represent an average of 63.0% of O&M expenses.
 Debt Service: The Sewer Utility anticipates an average debt service payment of $2.8M per year from FY 2024 to FY 2026 associated with existing and proposed debt issuances. The City anticipates no debt issuances from FY 2024 to FY 2026.
 Capital Improvements: The Sewer Utility plans to execute an average of $ 17.0M per year in capital projects from FY 2024 to FY 2026.
 Reserves: The Sewer Utility plans to continue funding the operating fund re serve, 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 SJSCRWF CIP.
$12.,000,000
$10,000,000
SS,000,000
$6,000,000
$4,000,000
$2.,000,000
so
- O&M
--- Re.ienue
Recycled Water Utility - Operating Fund
--

2.02.4 2.025 2.02.6
- Debt Service - Capital Projects - Ra:e Stcb ilil.a:ion -.-- Cash Balance ....,.. Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-5

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 2024 to FY 2026. These do not represent 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.

FY 2024 July 8.35% 10.00% 6.25%
FY 2025 July 9.00% 11.00% 9.00%
FY 2026 July 9.00% 11.00% 9.00%
Recycled
Water
Sewer
UtilityFiscal Year
Water
Utility
Effective
Month
$60,000,000
$50,000,000
.$40,000,000
$30,000,000
$20,000,000
$10,000,000
so
- O&M
--- Re.ienue
Sewer Utility - Operating Fund
---
2024 2025, 2026
- Debt Service - Capital Projects - R ci:e St ibililci:ion -.-- Cash Balance ....,.. Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-6

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) Prin ciples 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 use d 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 revenu e, 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 bills, and maintenance and capacity costs associated with public fire prote ction.

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.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-7

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.

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.  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.

Proposed
Customer Class F Y 2024 FY 2025 FY 2026
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 16.64 18.28 20.23 1" 27.03 29.78 33.02
1-1/2" 53.02 58.53 64.99
2" 84.21 93.03 103.36
3" 167.37 185.04 205.69
4" 260.93 288.55 320.80
6" 520.82 576.08 640.55
8" 832.68 921.11 1,024.26
10" 1,248.50 1,381.16 1,535.87
12" 1,755.27 1,941.83 2,159.39
Consumption Charges ($/HCF)
General Customers 4.53 5.03 5.58 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-9

Table 1-4 Proposed Three-Year Sewer Rate Schedules

Line Proposed
No. Customer Class FY 2024 FY 2025 FY 2026
Monthly Service Charge ($/EDU) $/month $/month $/month
1 Single Family 48.28 53.06 57.82
2 Multi-Family 45.88 50.38 54.90
Minimum Commercial Bill Charge ($/Month $/month $/month $/month 3 All Customers 48.28 53.06 57.82
Commodity Charge ($/HCF) $/HCF $/HCF $/HCF
1 Amusement Parks 6.15 6.53 7.15
2 Auto Dealers & Service Station 6.76 7.30 7.96
3 Churches 5.55 5.87 6.44
4 Com/Ind/Misc 5.87 6.22 6.82
5 Electric & Electronic Equip. 5.55 5.80 6.40
6 Food and Kindred Products 13.45 15.27 16.31
7 Hospitals & Convalescent Homes 6.72 7.22 7.87
8 Industrial Chemical 10.02 11.14 12.00
9 Laundries 6.02 6.39 7.00
10 Machinery Manufacturers 8.16 8.99 9.72
11 Metal Plating 4.50 4.63 5.13
12 Motels & Hotels 7.09 7.66 8.33
13 Paper 13.82 15.70 16.77
14 Repair Shops & Car Washes 5.15 5.52 6.01
15 Restaurants 13.70 15.57 16.63
16 Schools & Colleges 6.54 7.02 7.66
Major Commercial and Industrial Users
Operating and Maintenance Cost Recovery
1 Volume ($/MG) 3,314.83 3,810.64 4,219.49
2 BOD ($/1,000 lbs) 501.88 575.41 635.86
3 SS ($/1,000 lbs) 625.18 716.78 792.12
4 NH3 ($/1,000 lbs) 5,124.55 5,875.81 6,493.18
Annual Capital Cost Recovery
5 Volume ($/MGD) 1,147,617 1,029,684 1,145,855
6 BOD ($/1,000 lbs/day) 85,145 113,507 105,097
7 SS ($/1,000 lbs/day) 77,042 97,947 91,665
8 NH3 ($/1,000 lbs/day) 466,740 556,410 528,615
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Water and Recycled 2-1

Water and Recycled Water Utilities

2.0 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 ot her 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

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. All Recycled Water customers are in the General Customer class.

2.1.2 Minimum Bills
The City provides potable water services to approximately 26,000 customers and recycled water services to 361 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 an average of 0.3% per year for the Water Utility and an average of 1.6% for the Recycled Water Utility.

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

Table 2-1 Minimum Bills

Fiscal Year Ending June 30,
FY 2024 F Y 2025 FY 2026
(Bills) (Bills) (Bills)
Water Utility
1 General Customers 47,758 47,878 47,998 2 Total 47,758 47,878 47,998
Recycled Water Utility
3 General Customers 601 613 620 4 Total 601 613 620
Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-2

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 year 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 th e 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.

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 a steady increase of 0.4% per year for the Water Utility and 1. 1% 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. 135 ,CX>O -----------------------------------------------------~ 11.0CX)

10.0CX>
9,000
g
l. 110 ,ex> o +----- ----11--- -l----------------- -""'~ ----'llf-- ~ ~ -'l. ~-------------------- ---l ~
8,000 i
j
i
7 .000 ::::ii,;
6,000
5 ,000
Lowest VVater- Use Dur-ing
es.ooo +----------------------------------------- _._ ___ 1_4_-_1_7_D_rn_u...cgc.h_t __ _, 4 .000 ~###~##~##~##~~$~~#~~##~~~~~~~~~#~~~#~
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-3

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 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.

Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026
(HCF) (HCF) (HCF)
Water Utility
1 General Customers 6,643,364 6,676,580 6,693,272 2 Total Usage (HCF) 6,643,364 6,676,580 6,693,272 3 Total Usage (AF) 15,251 15,327 15,366 Recycled Water Utility
4 General Customers 1,570,538 1,588,899 1,604,788 5 Total 1,570,538 1,588,899 1,604,788
6 Total Usage (AF) 3,605 3,648 3,684 Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-4

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 $52.7M in FY 2024 to $53.1M in FY 2026, representing an overall increase of 0.7% over the three-year study period. The projected Recycled Water Utility revenue increases from $ 6.5M in FY 2024 to $6.7M in FY 2026, reflecting an overall increase of 2.2% over the three-year Study period.

All City All City
FY 2023 FY 2023
Minimum Monthly Meter Rates ($/mo) Co nsumption Charges 5/8" x 3/4" 20.54 Water Utility ($/HCF)
1" 32.00 General Customers 7.33
1-1/2" 60.65
2" 95.03 Recycled Water Utility ($/HCF)
3" 186.71 General Customers 4.12
4" 289.85 Industrial Process 4.12
6" 576.36
8" 920.17
10" 1,378.58
12" 1,937.26
Fire Service Charges ($/mo)
2" 2.87
4" 16.25
6" 47.80
8" 101.82
10" 183.09
12" 295.91
Cross Connection Charges ($/mo)
1" 7.33
2" 11.73
3" 23.47
4" 36.67
6" 73.33
8" 117.33
10" 175.99
DescriptionDescription -I
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-5

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 3.3% of the Water Utility’s total revenue and 6.2% 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. 3% annually for the Water Utility and an average of 4.5% annually for the Recycled Water Utility from the FY 2024.

Water supply costs include water produced and water purchased 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 19.8% 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 30.1% over the Study period.

Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026
($) ($) ($)
Water Utility
1 General Customers 50,593,500 50,841,700 50,968,800 2 Fi re Servi ce 1,003,600 1,004,500 1,005,500 3 Cross Connection 1,140,700 1,141,900 1,143,200 4 Total 52,737,800$ 52,988,100$ 53,117,500$
Recycled Water Utility
5 General Customers 6,533,500 6,610,300 6,676,400 6 Total 6,533,500$ 6,610,300$ 6,676,400$
Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-6

Table 2-5 O&M Expenses

As shown in Table 2-5, the Water Utility’s O&M expenses increase from $56.2M in FY 2024 to $64.6M in FY 2026, while the Recycled Water Utility’s O&M expenses increase from $7.9M in FY 2024 to $10.1M in FY 2026.

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 2024 through FY 2026. The Water Utility is projecting $13.4M in CIP, and the Recycled Water Utility is projecting $161.7k 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.

Fiscal Year Ending June 30,
FY 2024 F Y 2025 FY 2026
($) ($) ($)
Water Utility
1 Salaries 6,134,300 6,318,300 6,507,600
2 Benefi ts 3,540,600 3,720,300 3,909,300
3 Mate rials/Se rvice s/Supplie s 3,205,700 3,269,600 3,335,000 4 Interfund Services 7,905,910 8,306,610 8,436,460 5 Resource & Production 35,426,000 39,377,500 42,439,200 6 Capital Outlay 0 0 0 7 Total 56,212,510$ 60,992,310$ 64,627,560$
Recycled Water Utility
8 Salaries 410,800 433,000 450,800
9 Benefi ts 236,500 248,700 261,500
10 Mate rials/Se rvice s/Supplie s 39,300 40,000 40,700 11 Interfund Services 493,430 525,005 535,723 12 Resource & Production 6,738,500 7,861,400 8,764,300 13 Capital Outlay 0 0 0 14 Total 7,918,530$ 9,108,105$ 10,053,023$
Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-7

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 $4.5M for the Water Utility and $53.9k 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 2024 F Y 2025 FY 2026
($) ($) ($)
Water Utility
1 7005 Buildings and Grounds 1,572,300 791,700 318,600 2 7054 Distribution System
Repl acement/Restorati on 2,075,700 2 ,154,200 2,235,700 3 7057 Asset Management Program 155,700 161,600 167,700 4 7058 SCADA Improvements 518,900 538,600 558,900 5 7059 New and Repl acement Wel l s 1,037,800 538,600 558,900 6 Total 5 ,360,400$ 4,184,700$ 3,839,800$
Recycled Water Utility
7 7505 Recycl ed Water System Mai ns and
Servi ces 51,900 5 3,900 55,900
8 Total 51,900$ 53,900$ 55,900$
Line No. Description
Fiscal Year Ending June 30,
FY 2024 F Y 2025 FY 2026
($) ($) ($)
Source of Funds
1 Intra Transfer In - Debt Financing 0 0 0 2 Intra Transfer In - Customer Service Charge 0 0 0 3 Connection Charges 0 0 0 4 Developer Contributions 0 0 0 5 Total Sources 0$ 0$ 0$ Use of Funds
6 Improvements Projects 5,360,400 4,184,700 3,839,800 7 Total Uses 5,360,400$ 4,184,700$ 3,839,800$
8 Net Annual Cash Balance (5,360,400) (4,184,700) (3,839,800) 9 Beginning Unrestricted Fund Balance 17,146,900 11,786,500 7,601,800 10 Net Cumulative Fund Balance 11,786,500$ 7,601,800$ 3,762,000$ 11 Minimum Construction Reserves 4,184,700$ 3,839,800$ 3,985,100$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-8

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 co sts 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.
 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 Fiscal Year Ending June 30,
FY 2024 F Y 2025 FY 2026
($) ($) ($)
Source of Funds
1 Intra Transfer In - Debt Financing 0 0 0 2 Intra Transfer In - Customer Service Charge 0 0 0 3 Connection Charges 0 0 0 4 Developer Contributions 0 0 0 5 Total Sources 0$ 0$ 0$ Use of Funds
6 Improvements Projects 51,900 53,900 55,900 7 Total Uses 51,900$ 53,900$ 55,900$
8 Net Annual Cash Balance (51,900) (53,900) (55,900) 9 Beginning Unrestricted Fund Balance 1,922,900 1,871,000 1,817,100 10 Net Cumulative Fund Balance 1,871,000$ 1,817,100$ 1,761,200$ 11 Minimum Construction Reserves 53,900$ 55,900$ 58,000$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-9

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)

SS0,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$.30,000,000
$20,000,000
$10,000,000
so
-$10,000,000
-$20,000,000
- O&M
~ Re.-enue
Water Utility - Opera ting f und
- Debt Service
~ Cash Balance
- Capit al Projects
- Target Co6h Balance
- R a:e St cbiliza: ion
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-10

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 annu al 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 14 for the Water Utility and Line 9 for the Recycled Water Utility represent other operating revenues.
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
so
-$2,000,000
- O&M
-e- ReJenue
Recycled Water Utility - Operating i=und
--
20 24
- Debt Service - Capita l Projects - R ci:e St abl ilci:ion -e-- Cash Balance -., Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-11

 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 represen t 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.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-12

Table 2-9 Operating Fund (Water)

Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026
($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 53,104,700 53,356,800 53,487,100 Year Months Effective Rate Adj
2 FY 2024 12 8.35% 4,434,200 4,455,300 4,466,200 3 FY 2025 12 9.00% 5,203,100 5,215,800
4 FY 2026 12 9.00% 5,685,200
5 Increased Revenue Due to Adjustments 4,434,200 9,658,400 15,367,200 6 Subtotal Rate Revenue 57,538,900$ 63,015,200$ 68,854,300$ Other Operating Revenue
7 Solar System Maintenance 80,100 80,100 80,100 8 Water System Mai ntenance 1,070,500 1,070,500 1,070,500 9 Water Construction 0 0 0 10 Water System Operati ons 0 0 0 11 A dm inistration De sign 905,400 912,300 919,300 12 Water Quality 0 0 0 13 Water Resources 76,900 76,900 76,900 14 Subtotal Other Operating Revenue 2,132,900$ 2,139,800$ 2,146,800$ 15 Total Revenue 59,671,800$ 65,155,000$ 71,001,100$
Revenue Requirements
Operating & Maintenance
16 O&M Expenses 56,212,500 60,992,300 64,627,600
17 Subtotal O&M 56,212,500$ 60,992,300$ 64,627,600$
Transfers
18 Transfer to Rate Stabilization Fund 0 0 2,250,000 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$ 2,449,400$ 22 Total Revenue Requirements 56,411,900$ 61,191,700$ 67,077,000$ 23 Net Annual Cash Balance 3,259,900 3,963,300 3,924,100 24 Beginning Fund Balance 9,386,600 12,367,600 16,052,000 25 Net Cumulative Fund Balance 12,646,500$ 16,330,900$ 19,976,100$ 26 Mi ni mum Operati ng Reserves (90 Days) 13,860,600$ 15,039,200$ 15,935,600$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-13

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 2024 F Y 2025 FY 2026
($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 6,533,500 6 ,610,300 6,676,400 Year Months Effective Rate Adj
2 F Y 2024 12 10.00% 653,400 661,000 667,600 3 FY 2025 12 11.00% 799,800 807,800
4 FY 2026 12 11.00% 896,700
5 Increased Revenue Due to Adjustments 653,400 1,460,800 2,372,100 6 Subtotal Rate Revenue 7,186,900$ 8,071,100$ 9,048,500$ Other Operating Revenue
7 System Maintenance 94,700 96,600 98,500 8 South Bay Water Recycling System Maintenan 421,500 4 38,400 453,900 9 Subtotal Other Operating Revenue 516,200$ 535,000$ 552,400$ Transfers From
10 RW Capital Fund 0 0 0 11 Subtotal Transfers From -$ -$ -$ 12 Total Revenue 7,703,100$ 8,606,100$ 9,600,900$ Revenue Requirements
Operating & Maintenance
13 O&M Expenses 7,918,500 9,108,100 10,053,000 14 Subtotal O&M 7,918,500 9,108,100 10,053,000 Transfers
15 Transfer to Rate Stabilization Fund 0 0 0 16 Transfer to Pensiotn Stabilization Fund 0 0 9,800 17 Transfer to Recycled Water Const Fund 0 0 0 18 Total Transfers 0 0 9,800 19 Total Revenue Requirements 7,918,500$ 9,108,100$ 10,062,800$ 20 Net Annual Cash Balance (215,400) (502,000) (461,900) 21 Beginning Fund Balance 4,980,400 4,765,000 4,263,000 22 Net Cumulative Fund Balance 4,765,000$ 4,263,000$ 3,801,100$ 23 Mi ni mum Operati ng Reserves (90 Days) 1,952,500$ 2,245,800$ 2,478,800$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 2-14

Figure 2-4 Water Operating Cash Flow

Figure 2-5 Recycled Water Operating Cash Flow
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
so
- O&M
-e- ReJenue
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
52,000,000
so
- O&M
-e- ReJenue
Water Utility - Operating i=und
2024 2025 2026
- Debt Service - Capita l Projects - R ci:e St abl ilci:ion -e-- Cash Balance -e, Target Cash Balance
Recycled Water Utility - Operating i=und
2024 2025, 2026
- Debt Service - Capita l Projects - R ci:e St abl ilci:ion -e-- Cash Balance -.,. Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-1

3.0 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 202 4 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 202 4.

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

Operating Capital Total
Expense Cost Cost
($) ($) ($)
Revenue Requirements
1 O&M Expenses 56,212,500 0 56,212,500 2 Debt Servi ce 0 0 0 3 Transfers 478,300 0 478,300 4 Subtotal 56,690,800 0 56,690,800
Less Revenue Requirements Met from Other Sources
5 Solar System Maintenance 80,100 0 80,100 6 Water System Mai ntenance 1,070,500 0 1,070,500 7 Water Construction 0 0 0 8 Water System Operati ons 0 0 0 9 A dm inistration De sign 905,400 0 905,400 10 Water Quality 0 0 0 11 Water Resources 76,900 0 76,900 12 Subtotal 2,132,900 0 2,132,900
Adjustments
13 Adjustment for Annual Cash Balance (2,981,000) 0 (2,981,000) 14 Subtotal (2,981,000) 0 (2,981,000)
15 Cost of Servi ce to be Recovered from Rates 57,538,900$ 0$ 57,538,900$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-2

Table 3-2 Cost of Service Revenue from Rates (Recycled Water)

The total revenue requirement is shown in 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 $3.0M figure indicates that the forecast is projecting a positive cash balance for the year. In the case of the Recycled Water Utility, the $215.4k figure indicates that the forecast is projecting a negative 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 more than the average rate of use.  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.

Operating Capital To tal
Expense Cost Cost
($) ($) ($)
Revenue Requirements
1 O&M Expenses 7,918,500 0 7,918,500 2 Debt Servi ce 0 0 0 3 Transfers 0 0 0 4 Subtotal 7,918,500 0 7,918,500
Less Revenue Requirements Met from Other Sources
5 System Maintenance 94,700 0 94,700 6 South Bay Water Recycl i ng System Mai nten 421,500 0 421,500 7 Subtotal 516,200 0 516,200
Adjustments
8 Adjustment for Annual Cash Balance 215,400 0 215,400 9 Subtotal 215,400 0 215,400
10 Cost of Servi ce to be Recovered from Rates 7,186,900$ 0$ 7,186,900$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-3

 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 more than 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.

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%
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-4

3.2.2 Allocation of Operating and Maintenance Expenses
In allocating O&M expenses for TY 2024, 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)

Table 3-4 Allocation of O&M Expenditures (Recycled 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 283,900 0 0 0 283,900 0 0 0 1 1422 Water System Maintenance
2 Customer Servi ce 325,500 0 0 0 0 325,500 0 0 3 Backfl ow Preventi on 845,000 0 0 0 0 0 0 845,000 4 A ll Othe r 689,300 376,500 191,000 114,900 0 0 6,900 0 1423 Water Construction 3,806,500 2,079,100 1,054,900 634,400 0 0 38,100 0 5 1424 Water System Operations
6 Generation & Pumping 1,153,200 758,200 383,500 0 0 0 11,500 0 7 Custom e r Billing & Me te r Re ading 745,400 0 0 0 0 745,400 0 0 8 Meters 357,700 0 0 0 357,700 0 0 0 Hydrants 1,385,400 0 0 0 0 0 1,385,400 0 9 A ll Othe r 7,017,100 3,832,700 1,944,700 1,169,500 0 0 70,200 0 10 1411 Administration Design 4,459,200 3,029,600 308,000 165,300 630,600 92,300 160,600 72,800 11 1412 Water Quality 270,800 216,600 0 0 51,500 0 2,700 0 12 1413 Water Resources
Water Purchase 34,272,800 27,418,300 0 0 6,511,800 0 342,700 0 13 A ll Othe r 600,700 480,600 0 0 114,100 0 6,000 0 14 Transfers 478,300 325,100 33,000 17,700 67,600 9,900 17,200 7,800 15 Total O&M Expenses 56,690,800$ 38,516,700$ 3,915,100$ 2,101,800$ 8,017,200$ 1,173,100$ 2,041,300$ 925,600$ Less Other Revenue
16 Mi scel l aneous Revenues 2,132,900 1,449,200 147,300 79,100 301,600 44,100 76,800 34,800 17 Other Adjustments (2,981,000) (2,025,300) (205,900) (110,500) (421,600) (61,700) (107,300) (48,700) 18 Net Operati ng Expenses 57,538,900$ 39,092,800$ 3,973,700$ 2,133,200$ 8,137,200$ 1,190,700$ 2,071,800$ 939,500$ Line No. Description Total Costs
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 6,738,500 6,738,500 0 0 0 0 3 Custom e r Billing & Me te r Re ading 3,700 0 0 0 0 3,700 4 Meters 477,200 0 0 0 477,200 0 5 A ll Othe r 343,200 144,200 100,900 98,100 0 0 6 1525 South Bay Water Recycling System 355,900 209,400 146,500 0 0 0 7 Transfers 0 0 0 0 0 0 8 Total O&M Expenses 7,918,500$ 7,092,100$ 247,400$ 98,100$ 477,200$ 3,700$ Less Other Revenue
9 Mi scel l aneous Revenues 516,200 462,400 16,100 6,400 31,100 200 10 Other Adjustments 215,400 192,900 6,700 2,700 13,000 100 11 Net Operati ng Expenses 7,186,900$ 6,436,800$ 224,600$ 89,000$ 433,100$ 3,400$ Total CostsDescriptionLine No.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-5

3.2.3 Allocation of Capital Investments
In allocating the capital investment for TY 2024, 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 w ater 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 $61.8M 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 fixe d asset listing ending June 30, 2022. This value represents the original cost (book value) of the assets.

Table 3-5 Allocation of Capital Costs (Water)

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 Common to All Customers
Base Extra Capacity C ustomer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($) ($)
Water Utility
Plant Assets
1 Water Production 20,088,400 16,070,700 0 0 3,816,800 0 200,900 0 2 Pumping 3,262,100 2,144,700 1,084,800 0 0 0 32,600 0 3 Treatment 1,870,500 1,229,700 622,100 0 0 0 18,700 0 4 Transmission & Distribution 27,476,400 15,007,600 7,614,600 4,579,400 0 0 274,800 0 5 Meters & Services 6,993,600 0 0 0 6,993,600 0 0 0 6 Fire Hydrants 563,600 0 0 0 0 0 563,600 0 7 General Plant 1,584,500 906,000 245,100 120,400 284,300 0 28,700 0 8 Total Plant Assets 61,839,100$ 35,358,700$ 9,566,600$ 4,699,800$ 11,094,700$ 0$ 1,119,300$ 0$ Less Other Revenue
9 Miscellaneous Revenues 0 0 0 0 0 0 0 0 10 Other Adjustments 0 0 0 0 0 0 0 0 11 Net Capital Expenses 61,839,100$ 35,358,700$ 9,566,600$ 4,699,800$ 11,094,700$ 0$ 1,119,300$ 0$ Line No. Description Total Costs
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 Transmission & Distribution 1,097,700 461,200 322,900 313,600 0 0 5 Meters 0 0 0 0 0 0 6 Total Plant Assets 1,097,700$ 461,200$ 322,900$ 313,600$ 0$ 0$ Less Other Revenue
7 Miscellaneous Revenues 0 0 0 0 0 0 8 Other Adjustments 0 0 0 0 0 0 9 Net Capital Expenses 1,097,700$ 461,200$ 322,900$ 313,600$ 0$ 0$ Line No. Description Total Costs
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-6

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 2024 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 more than 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’s 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.

3.4.1 Units Costs of Service
The TY 2024 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 TY 2024. 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 different 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) 5.83$ per HCF General Customer Consumption (Table 3-6, Line 2) 6,704,673 HCF Total Allocated Cost 39,092,800$
Please note that the numbers within the tables are rounded, yet the calculations are done based on non-rounded values; therefore, results might vary.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-1

Table 3-7 Units of Service (Water and Recycled Water)

Table 3-8 Units Cost of Service (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) (H CF/day) (HCF/day) (HCF/day) (HCF/day) (EMs) (bills) (EHs) (EMs) Water Utility
1 General Customer 6,704,673 18,369 168% 30,860 12,491 252% 46,290 15,430 45,924 321,646 0 0 2 Subtotal 6,704,673 18,369 30,860 12,491 46,290 15,430 45,924 321,646 Fire Service
3 Public Fire 0 0 558 558 4,465 3,907 0 0 3,437 0 4 Pri vate Fi re 0 0 284 284 2,273 1,989 0 15,354 1,750 0 5 Subtotal 0 0 842 842 6,738 5,896 0 15,354 5,187 0 Cross Connection
6 Cross Connection 33,665 0 8,102 7 Subtotal 0 0 0 0 0 0 0 33,665 0 8,102 8 Total Water System 6,704,673 18,369 31,702 13,333 53,028 21,326 45,924 370,665 5,187 8,102 Recycled Water Utility
9 General Customer 1,570,538 4,303 133% 5,723 1,420 200% 8,606 2,883 2,315 3,257 0 0 10 Subtotal 1,570,538 4,303 5,723 1,420 8,606 2,883 2,315 3,257 0 0 DescriptionLine No.

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($)
Water Utility
1 Net Operati ng Expense 57,538,900 39,092,800 3,973,700 2,133,200 8,137,200 1,190,700 2,071,800 939,500 2 Debt Servi ce 0 0 0 0 0 0 0 0 3 Capital Costs 0 0 0 0 0 0 0 0 4 Total Cost of Service 57,538,900$ 39,092,800$ 3,973,700$ 2,133,200$ 8,137,200$ 1,190,700$ 2,071,800$ 939,500$ 5 Units of Se rvice (Total) 6,704,673 13,333 21,326 45,924 370,665 5,187 8,102 HCF HCF/Day HCF/Day Eq. Meters Bills Eq. Hydrants Eq. Meters 6 Cost per Unit 5.83$ 298.03$ 100.03$ 177.19$ 3.21$ 399.46$ 115.96$ per HCF per HCF/Day per HCF/Day per Eq. Meter pe r Bill per Eq. Hydrant per Eq. Meter Total CostsLine No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-2

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

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($)
Water Utility
General Customer
1 Units 6,704,673 12,491 15,430 45,924 321,646 0 0 2 Allocation of costs of service 53,529,500 39,092,800 3,722,700 1,543,500 8,137,200 1,033,300 0 0 Public Fire
3 Units 0 558 3,907 0 0 3,437 0 4 Allocation of costs of service 1,930,000 0 166,300 390,800 0 0 1,372,900 0 Private Fire
5 Units 0 284 1,989 0 15,354 1,750 0 6 Allocation of costs of service 1,031,800 0 84,700 198,900 0 49,300 698,900 0 Cross Connection
7 Units 0 0 0 0 33,665 0 8,102 8 Allocation of costs of service 1,047,600 0 0 0 0 108,100 0 939,500 7 TOTAL COSTS OF SERVICE 57,538,900$ 39,092,800$ 3,973,700$ 2,133,200$ 8,137,200$ 1,190,700$ 2,071,800$ 939,500$ Line No. Description Total Costs
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 3-3

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 Ex tra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
1 Net Operati ng Expense 7,186,900 6,436,800 224,600 89,000 433,100 3,400 2 Debt Servi ce 0 0 0 0 0 0 3 Capital Costs 0 0 0 0 0 0 4 Total Cost of Service 7,186,900$ 6,436,800$ 224,600$ 89,000$ 433,100$ 3,400$ 5 Units of Se rvice (Total) 1,570,538 1,420 2,883 2,315 3,257 HCF HCF/Day HCF/Day Eq. Meters Bills
6 Cost per Unit 4.10$ 158.18$ 30.87$ 187.12$ 1.04$ per HCF per HCF/Day per HCF/Day per Eq. Meter pe r Bill Line No. Description Total Costs
Common to All Customers
Base Extra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
General Customer
1 Units 1,570,538 1,420 2,883 2,315 3,257 2 Allocation of costs of service 7,186,900 6,436,800 224,600 89,000 433,100 3,400 3 TOTAL COSTS OF SERVICE 7,186,900$ 6,436,800$ 224,600$ 89,000$ 433,100$ 3,400$ Line No. Description Total Costs
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-1

4.0 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 2024. Table 4-2 shows the Water Utility three-year fixed service charge rate schedule.

Table 4-1 Costs within the Minimum Monthly Service Charge for FY 2024 (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" 14.77 3.50 1.00 18.27 3.21 1.00 3.21 21.48 1" 14.77 3.50 1.67 30.45 3.21 1.00 3.21 33.66 1-1/2" 14.77 3.50 3.33 60.89 3.21 1.00 3.21 64.10 2" 14.77 3.50 5.33 97.43 3.21 1.00 3.21 100.64 3" 14.77 3.50 10.67 194.86 3.21 1.00 3.21 198.07 4" 14.77 3.50 16.67 304.46 3.21 1.00 3.21 307.67 6" 14.77 3.50 33.33 608.92 3.21 1.00 3.21 612.14 8" 14.77 3.50 53.33 974.28 3.21 1.00 3.21 977.49 10" 14.77 3.50 80.00 1,461.41 3.21 1.00 3.21 1,464.63 12" 14.77 3.50 112.50 2,055.11 3.21 1.00 3.21 2,058.33 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-2

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 2024. 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 2024 (Recycled Water)

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

Proposed
Customer Class FY 2024 FY 2025 FY 2026
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 21.48 23.36 25.42 1" 33.66 36.73 40.05
1-1/2" 64.10 70.16 76.63
2" 100.64 110.28 120.53
3" 198.07 217.27 237.60
4" 307.67 337.63 369.29
6" 612.14 671.96 735.12
8" 977.49 1,073.16 1,174.12
10" 1,464.63 1,608.10 1,759.44
12" 2,058.33 2,260.05 2,472.81
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 $ $/Month
5/8" x 3/4" 15.59 1.00 15.59 1.04 1.00 1.04 16.64 1" 15.59 1.67 25.99 1.04 1.00 1.04 27.03 1-1/2" 15.59 3.33 51.98 1.04 1.00 1.04 53.02 2" 15.59 5.33 83.16 1.04 1.00 1.04 84.21 3" 15.59 10.67 166.33 1.04 1.00 1.04 167.37 4" 15.59 16.67 259.89 1.04 1.00 1.04 260.93 6" 15.59 33.33 519.77 1.04 1.00 1.04 520.82 8" 15.59 53.33 831.64 1.04 1.00 1.04 832.68 10" 15.59 80.00 1,247.45 1.04 1.00 1.04 1,248.50 12" 15.59 112.50 1,754.23 1.04 1.00 1.04 1,755.27 Proposed
Customer Class FY 2024 FY 2025 FY 2026
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 16.64 18.28 20.23 1" 27.03 29.78 33.02
1-1/2" 53.02 58.53 64.99
2" 84.21 93.03 103.36
3" 167.37 185.04 205.69
4" 260.93 288.55 320.80
6" 520.82 576.08 640.55
8" 832.68 921.11 1,024.26
10" 1,248.50 1,381.16 1,535.87
12" 1,755.27 1,941.83 2,159.39
I
--
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-3

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 1,280 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 2024

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, 805 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.

Private Fire Protection Total
Met
er Unit Meter Adjusted Service
Size Cost Ratio Unit Cost Charge
per EH $/Month
2" 49.15 0.06 2.95 2.95 4" 49.15 0.34 16.71 16.71 6" 49.15 1.00 49.15 49.15 8" 49.15 2.13 104.68 104.68 10" 49.15 3.83 188.23 188.23 12" 49.15 6.19 304.21 304.21 Proposed
Customer Class FY 2024 FY 2025 FY 2026
Fire Service ($/Month) $/month $/month $/month
2" 2.95 3.12 3.29
4" 16.71 17.66 18.67
6" 49.15 51.93 54.91
8" 104.68 110.61 116.97
10" 188.23 198.89 210.32
12" 304.21 321.45 339.92
---
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-4

Table 4-7 Costs within the Cross-Connection Charge for FY 2024

Table 4-8 Proposed Cross Connection Charge

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

Cross Connection Total
Met
er Unit Meter Adjusted Service
Size Cost Ratio Unit Cost Charge
per EM $/Month
1" 10.78 0.63 6.73 6.73 2" 10.78 1.00 10.78 10.78 3" 10.78 2.00 21.55 21.55 4" 10.78 3.13 33.67 33.67 6" 10.78 6.25 67.34 67.34 8" 10.78 10.00 107.75 107.75 10" 10.78 15.00 161.63 161.63 Proposed
Customer Class FY 2024 FY 2025 FY 2026
Cross Connection ($/Month) $/month $/month $/month
1" 6.73 6.97 7.39
2" 10.78 11.15 11.82
3" 21.55 22.29 23.64
4" 33.67 34.83 36.94
6" 67.34 69.67 73.88
8" 107.75 111.47 118.21
10" 161.63 167.20 177.32
Proposed
Customer Class FY 2024 FY 2025 FY 2026
$/HCF $/HCF $/HCF
Consumption Charges ($/HCF)
Water Utility
General Customer 7.97 8.70 9.49 Recycled Water Utility
General Customers 4.53 5.03 5.58 I
--
I
--
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-5

4.3 Typical Monthly Costs under Proposed Charges
Table 4-10 and Table 4-11 compare typical monthly costs under existing rates and the proposed schedule of water and recycled water user rates derived in this study.

Table 4-10 Typical Monthly Bill (Water)

Table 4-11 Typical Monthly Bill (Recycled Water)

4.4 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 June 1, 2023.

Typical FY 2023 F Y 2024
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Water Utility
General Customer 0 $20.54 $21.48
3 $20.54 $21.48
5 $36.65 $39.84
10 $73.30 $79.67
12 $87.96 $95.61
20 $146.60 $159.34
30 $219.90 $239.02
40 $293.20 $318.69
50 $366.50 $398.36
Typical FY 2023 F Y 2024
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Recycled Water Utility
General Customer 0 $15.50 $16.64
3 $15.50 $16.64
5 $20.60 $22.66
10 $41.20 $45.33
12 $49.44 $54.39
20 $82.40 $90.65
30 $123.60 $135.98
40 $164.80 $181.31
50 $206.00 $226.64
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-6

Figure 4-1 Comparison to Neighboring Water Utilities

$200.00
$180.00
$160.00
$140.00
a5 $120.00
> ::c $100.00 ....

C
0 $80.00 2
$60.00
$40.00
$20.00
$0.00
Santa Clara Sunnyvale Santa Clara San Jose View SJWC Milp itas Palo Alto Current Proposed Proposed Proposed Proposed Proposed Proposed Proposed ■ WATER RATE 12 HCF $87.96 $78.48 $9S.64 $118.21 $115.55 $126.62 $117.65 $138.30 ■ SEWER RATE $46.82 $62.34 $48.28 $45.49 $53.11 $45.49 $64.22 $48.64 ■ COMBINED $134.78 $140.82 $143.92 $163.70 $168.66 $172.11 $181.87 $186.94 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Sewer Utility 5-1

Sewer Utility

5.0 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), o utlet 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 residential and multi-family residential.  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 following:
2 ● 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 approximately 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 -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.

2 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, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-2

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 th e 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

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 sewag e 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. Experience would indicate that after strict water Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026
(EDUs) (EDUs) (EDUs)
1 Single Fam ily 247,975 248,223 248,471 2 Multi Fam ily 297,188 297,485 297,782 3 Total 545,163 545,708 546,253
Line No. Description
Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026
(Bills) (Bills) (Bills)
1 Amusement Parks 111 112 113 2 Auto Deal ers & Servi ce Stati on 370 372 374 3 Churches 238 239 240 4 Com m e rcial/Industrial/Misce llane ous 9,710 9,759 9,808 5 Electric & Electronic Equip. 396 398 400 6 Food and Kindred Products 24 24 24 7 Hospi tal s & Conval escent Homes 299 300 302 8 Industrial Chemical 47 47 47 9 Laundries 121 122 123 10 Machinery Manufacturers 671 674 677 11 Me tal Plating 91 91 91 12 Motel s & Hotel s 43 43 43 13 Paper 13 13 13 14 Repair Shops & Car Washes 462 464 466 15 Restaurants 234 235 236 16 Schools & Colleges 500 503 506 17 Total 13,330 13,396 13,463
Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-3

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 2024 FY 2025 FY 2026
(HCF) (HCF) (HCF)
1 Amusement Parks 67,971 68,311 68,653 2 Auto Deal ers & Servi ce Stati on 23,321 23,438 23,555 3 Churches 16,517 16,600 16,683
4 Com m e rcial/Industrial/Misce llane ous 1,251,602 1,257,860 1,264,149 5 Electric & Electronic Equip. 462,397 464,709 467,033 6 Food and Kindred Products 17,978 18,067 18,158 7 Hospi tal s & Conval escent Homes 91,140 91,596 92,054 8 Industrial Chemical 13,642 13,711 13,780 9 Laundries 24,340 24,462 24,584
10 Machinery Manufacturers 37,858 38,047 38,237 11 Me tal Plating 6,682 6,715 6,749 12 Motel s & Hotel s 107,455 107,992 108,532 13 Paper 140,821 141,525 142,233
14 Repair Shops & Car Washes 11,309 11,366 11,423 15 Restaurants 75,560 75,938 76,318 16 Schools & Colleges 42,427 42,639 42,852 17 Total (HCF) 2,391,020 2,402,976 2,414,993
18 Total (AF) 5,489 5,516 5,544 Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-4

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 2024 FY 2025 FY 2026
Major Users
Operating and Maintenance Cost Recovery
1 Vol ume (MG) 95 95 95 2 BOD (1,000 lbs) 989 989 989 3 SS (1,000 lbs) 443 443 443 4 NH3 (1,000 lbs) 8 8 8 Annual Capital Cost Recovery
5 Vol ume (MGD) 0.26 0.26 0.26 6 BOD (1,000 lbs/day) 2.71 2.71 2.71 7 SS (1,000 lbs/day) 1.21 1.21 1.21 8 NH3 (1,000 lbs/day) 0.02 0.02 0.02 Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-5

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 $39.8M in FY 2024 to $40.0M in FY 2026.

Existing Existing
F
Y 2023 FY 2023
Residential ($/EDU) Major Commercial and Industrial Users Single Fam ily 46.82 Annual Capital Cost Recovery Multi-Fam ily 44.69 Vol ume (per MGD) 1,087,371 BOD [2] (per 1,000 lbs/day) 75,537
Non-Residential [1] ($/HCF) SS [3] (per 1,000 lbs/day) 52,105 Amusement Parks 5.67 NH3 [4] (per 1,000 lbs/day) 178,596 Auto Deal ers & Servi ce Stati on 6.17
Churches 5.15 Operating and Maintenance Cost Recovery Com/Ind/Misc 5.41 Vol ume (per MG) 2,993.84 Electric & Electronic Equip. 5.11 BOD [2] (per 1,000 lbs) 497.33 Food and Kindred Products 12.60 SS [3] (per 1,000 lbs) 628.54 Hospi tal s & Conval escent Homes 6.21 NH3 [4] (per 1,000 lbs) 5,159.79 Industrial Chemical 9.29
Laundries 5.57
Machinery Manufacturers 7.57
Me tal Plating 4.14
Motel s & Hotel s 6.59
Paper 12.94
Repair Shops & Car Washes 4.77
Restaurants 12.83
Schools & Colleges 6.00

1. In no case shall the minimum charge be less than $46.82 per month.

Description Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-6

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 5-7summarizes 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 4.1 % annually from the FY 2024.

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 2024 FY 2025 FY 2026
($) ($) ($)
1 Single Fam ily 11,735,700 11,747,400 11,759,200 2 Multi-Fam ily 13,281,700 13,295,000 13,308,300
3 Amusement Parks 390,600 392,500 394,600 4 Auto Deal ers & Servi ce Stati on 161,200 162,000 162,800 5 Churches 96,200 96,700 97,100
6 Com/Ind/Misc 7,225,800 7,261,900 7,298,200
7 Electric & Electronic Equip. 2,381,300 2,393,300 2,405,200 8 Food and Kindred Products 178,000 179,000 179,800 9 Hospi tal s & Conval escent Homes 580,000 582,800 585,800 10 Industrial Chemical 67,200 67,500 67,900 11 Laundries 141,300 142,000 142,700
12 Machinery Manufacturers 318,000 319,600 321,200 13 Me tal Plating 32,000 32,100 32,200 14 Motel s & Hotel s 710,100 713,700 717,200 15 Paper 1,213,100 1,219,200 1,225,300
16 Repair Shops & Car Washes 75,500 75,900 76,300 17 Restaurants 980,400 985,300 990,200 18 Schools & Colleges 278,000 279,400 280,800 19 Major Users - Customer 1 0 0 0 20 Total 39,846,100$ 39,945,300$ 40,044,800$
Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-7

Table 5-7 O&M Expenses

As shown in Table 5-7, the Sewer Utility’s O&M expenses increase from $30.1M in FY 2024 to $32.1M in FY 2026.

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 2024 through FY 2026. The Sewer Utility is projecting $51.5M 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.

Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026
($) ($) ($)
1 Salaries 3,151,900 3,296,900 3,415,600
2 Benefi ts 1,756,500 1,842,300 1,934,200
3 Mate rials/Se rvice s/Supplie s 589,000 600,800 612,800 4 Interfund Services 3,404,925 3,532,405 3,685,255 5 Resource & Production 19,912,900 20,510,300 21,125,600 6 Capital Outlay 1,248,000 1,297,900 1,349,800 7 Total 30,063,225$ 31,080,605$ 32,123,255$
Line No. Description
Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026
($) ($) ($)
1 Existing Short and Long-Term Loan 2,842,600 2,842,900 2,843,400 2 Proposed Short-Term and Rev Bonds 0 0 0 3 Total 2,842,600$ 2,842,900$ 2,843,400$
Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-8

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 $17.1 for the Sewer Utility. The planned average annual CIP contribution from the Sewer Utility Operating Fund is $11.3M per year over the Study period.

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 Fiscal Year Ending June 30,
FY 2024 F Y 2025 FY 2026
($) ($) ($)
1 1908 SJ-SC Re gional Waste wate r Facility 12,886,300 15,614,300 11,342,900 2 1909 Sanitary Sewer Capacity
Improvements 217,400 2 25,600 234,200 3 1911 Sanitary Sewer System Condition
A ssessment 518,900 5 38,600 0
4 1912 Sani tary Sewer System Improvements 6,746,000 0 2,235,700 5 1919 Sanitary Sewer Hydraulic Modeling As
Needed Support 124,500 1 29,300 335,400 6 Total 20,493,100$ 16,507,800$ 14,148,200$
Line No. Description
Fiscal Year Ending June 30,
FY 2024 F Y 2025 FY 2026
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 0 0 0 4 Intra Transfer In - Customer Service Charge 14,000,000 14,000,000 15,000,000 5 Refund from San Jose/Cupertino 0 0 0 6 Total Sources 17,500,000$ 17,500,000$ 18,500,000$
Use of Funds
7 Improvements Projects 7,389,400 667,900 2,571,100 8 Total Uses 7,389,400$ 667,900$ 2,571,100$
9 Net Annual Cash Balance 10,110,600 16,832,100 15,928,900 10 Beginning Unrestricted Fund Balance 12,097,062 9,321,362 10,539,162 11 Net Cumulative Fund Balance 22,207,662$ 26,153,462$ 26,468,062$ 12 Minimum Construction Reserves 8,475,050$ 8,242,550$ 17,316,300$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-9

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 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.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-10

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 Figure 5-1. 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.
 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 Opera ting 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. $60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
Sl0,000,000
so
-$10,000,000
-$20,000,000
- O&M
-e- ReJenue
Sewer Utility - Operating Fund
-
2024 2025 -------~~6
- Debt Service - Capital P roj etts - R i:i:e St abili2i:i:ion -e- Cash Balance -., Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-11

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 C ity to increase revenues as needed to meet the minimum debt service coverage requirement .

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-12

Table 5-11 Operating Fund (Sewer)

Fiscal Year Ending June 30,
FY 2024 F Y 2025 FY 2026
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 39,888,000 39,987,300 40,086,800 Year
Months
Effective Rate Adj
2 2 024 12 6.25% 2,493,000 2,499,200 2,505,400 3 2025 12 9.00% 3,823,800 3,833,300
4 2026 12 9.00% 4,178,300
5 Increased Revenue Due to Adjustments 2,493,000 6,323,000 10,517,000 6 Subtotal Rate Revenue 42,381,000$ 46,310,300$ 50,603,800$ Other Operating Revenue
7 System Administration (Interest Income) 622,300 633,800 645,600 8 System Maintenance 98,300 98,300 98,300 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 1,070,600$ 1,082,100$ 1,093,900$ 13 Total Revenue 43,451,600$ 47,392,400$ 51,697,700$
Revenue Requirements
Operating & Maintenance
14 O&M Expenses 31,491,500 32,537,500 33,609,300
15 Subtotal O&M 31,491,500$ 32,537,500$ 33,609,300$
Debt Servi ce
16 Existing Loans/Bonds 2,842,600 2,842,900 2,843,400 17 Proposed Loans/Bonds 0 0 0 18 Total Debt Servi ce 2,842,600$ 2,842,900$ 2,843,400$ 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 15,000,000 22 Total Transfers 14,328,200$ 14,578,200$ 15,828,200$ 23 Total Revenue Requirements 48,662,300$ 49,958,600$ 52,280,900$ 24 Net Annual Cash Balance (5,210,700) (2,566,200) (583,200) 25 Beginning Fund Balance 17,925,987 12,715,287 10,149,087 26 Net Cumulative Fund Balance 12,715,287$ 10,149,087$ 9,565,887$ 27 Mi ni mum Operati ng Reserves (90 Days) 7,765,000$ 8,022,900$ 8,287,200$ 28 Debt Servi ce Coverage (Mi n 1.25) 4.21 5.23 6.36 Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 5-13

Figure 5-2 presents the proposed Operating Fund.

Figure 5-2 Sewer Operating Cash Flow

$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
Sl0,000 ,000
so
- O&M
~ Re.-enue
Sewer Utility - Operating Fund
2024
- Debt Service
~ Cash Balance
- --
2025 2026
- Capital Projects. - Rcf:eSt:abiliz.cf:ion
-e- Target CcSh Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 6-1

6.0 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 b ased 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 2024 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 202 4.

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 $5.2M 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, subsequently, design rates. As a basis for allocating costs of service among customer classes, costs are Operating Capital To tal
Expense Cost Cost
($) ($) ($)
Revenue Requi rements
1 O&M Expense 31,491,500 0 31,491,500 2 Debt Servi ce Requi rements 0 2,842,600 2,842,600 3 Transfers 328,200 14,000,000 14,328,200
4 Subtotal 31,819,700$ 16,842,600$ 48,662,300$
Less Revenue Requi rements Met from Other Sources
5 System Administration 622,300 0 622,300 6 System Maintenance 98,300 0 98,300 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 1,070,600$ 0$ 1,070,600$ Adjustments
11 Adjustment for Annual Cash Balance 5,210,700 0 5,210,700 12 Subtotal 5,210,700$ 0$ 5,210,700$ 13 Cost of Servi ce to be Recovered from Rates 25,538,400$ 16,842,600$ 42,381,000$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 6-2

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, accoun ting, 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 2024, 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 deducted and normalized for partial rate adjustments as shown in Line 13 to determine the net O&M costs.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 6-3

Table 6-2 Allocation of O&M Expenditures

6.2.3 Allocation of Capital Investments
In allocating the capital investment for TY 2024, 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 c apital 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 2024. The total net system investment of $1.3M 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, 202 2. This value represents the original cost (book value) of the assets.

Table 6-3 Allocation of Capital Costs

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.

Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
($) ($) ($) ($) ($) ($)
Operation & Maintenance
1 1511 System Administration 5,119,600 2,582,400 814,700 821,000 835,500 66,000 2 1512 System Maintenance 3,914,100 3,914,100 0 0 0 0 3 1514 Operations 1,437,900 1,437,900 0 0 0 0 4 1515 SJ SC Wate r Pollution Control Plant
5 Treatment 19,359,500 6,629,800 4,196,800 4,229,100 4,303,800 0 6 Custom e r Billing & Me te r Re ading 340,100 0 0 0 0 340,100 7 A ll Othe r 1,135,500 1,135,500 0 0 0 0 8 1516 Storm Pump Maintenance 184,800 184,800 0 0 0 0 9 Transfers 328,200 165,600 52,200 52,600 53,600 4,200 10 Total O&M Expenses 31,819,700$ 16,050,100$ 5,063,700$ 5,102,700$ 5,192,900$ 410,300$ Less Other Revenue
11 Mi scel l aneous Revenues 1,070,600 540,000 170,400 171,700 174,700 13,800 12 Other Adjustments 5,210,700 2,628,300 829,200 835,600 850,400 67,200 13 Net Operati ng Expenses 25,538,400$ 12,881,800$ 4,064,100$ 4,095,400$ 4,167,800$ 329,300$ Line Total Co mmon to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
($) ($) ($) ($) ($) ($)
Plant Assets
1 Colle ction 956,600 956,600 0 0 0 0 2 Lift Station 275,800 275,800 0 0 0 0 3 General Pl ant 101,100 101,100 0 0 0 0 4 Total Plant Assets 1,333,500$ 1,333,500$ 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 1,333,500$ 1,333,500$ 0$ 0$ 0$ 0$ --------
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 6-4

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’s 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 2024 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.

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) 4.77$ per HCF General Customer Consumption (Table 6-6, Line 5) 67,971 HCF Total Allocated Cost 324,200$
Please note that the numbers within the tables are rounded, yet the calculations are done based on non-rounded values; therefore, results might vary.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 6-1

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 251,549 1,358,265 250 2,118,500 250 2,118,500 35 296,600 248,070 2 Multi-Fam ily 297,200 1,578,510 250 2,462,000 250 2,462,000 35 344,700 27,589 3 Amusement Parks 111 67,971 130 55,100 80 33,900 11 4,700 284 4 Auto Deal ers & Servi ce Stati on 370 23,321 180 26,200 280 40,700 11 1,600 727 5 Churches 238 16,517 130 13,400 80 8,200 11 1,100 599 6 Com/Ind/Misc 9,710 1,251,602 130 1,015,100 80 624,700 11 85,900 21,251 7 Electric & Electronic Equip. 396 462,397 30 86,500 15 43,300 15 43,300 1,583 8 Food and Kindred Products 24 17,978 1,120 125,600 690 77,400 0 0 166 9 Hospi tal s & Conval escent Homes 299 91,140 230 130,800 85 48,300 15 8,500 795 10 Industrial Chemical 47 13,642 360 30,600 720 61,300 0 0 112 11 Laundries 121 24,340 150 22,800 110 16,700 5 800 352 12 Machinery Manufacturers 671 37,858 290 68,500 550 129,900 0 0 1,694 13 Me tal Plating 91 6,682 10 400 60 2,500 1 0 199 14 Motel s & Hotel s 43 107,455 310 207,800 121 81,100 7 4,700 523 15 Paper 13 140,821 1,250 1,098,200 560 492,000 10 8,800 48 16 Repair Shops & Car Washes 462 11,309 180 12,700 280 19,800 0 0 687 17 Restaurants 234 75,560 1,250 589,200 560 264,000 10 4,700 2,094 18 Schools & Colleges 500 42,427 130 34,400 100 26,500 30 7,900 1,074 19 Major Users - Customer 1 0 0 0 0 0 20 Total 5,327,795 8,097,800 6,550,800 813,300 307,847 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 6-1

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 25,538,400 12,881,800 4,064,100 4,095,400 4,167,800 329,300 2 Debt Servi ce 2,842,600 973,500 616,200 621,000 631,900 0 3 Capital Costs (City) 5,196,600 5,196,600 0 0 0 0 4 Capital Costs (SJSC) 8,803,400 6,360,800 1,272,800 761,700 408,100 0 5 Total Cost of Service 42,381,000$ 25,412,700$ 5,953,100$ 5,478,100$ 5,207,800$ 329,300$ 6 Uni ts of Servi ce 5,327,795 8,097,800 6,550,800 813,300 307,847 HCF lbs lbs lbs bills
7 Cost per Unit 4.77$ 0.74$ 0.84$ 6.40$ 1.07$ 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 4.77$ 0.74$ 0.84$ 6.40$ 1.07$ per HCF per lbs per lbs per lbs per bill
Single Fam ily
2 Units 1,358,265 2,118,500 2,118,500 296,600 248,070 3 Allocation of costs of service 11,972,300 6,478,700 1,557,200 1,771,600 1,899,400 265,400 Multi-Fam ily
4 Units 1,578,510 2,462,000 2,462,000 344,700 27,589 5 Allocation of costs of service 13,634,600 7,529,200 1,809,900 2,058,800 2,207,200 29,500 Amusement Parks
6 Units 67,971 55,100 33,900 4,700 284 7 Allocation of costs of service 423,400 324,200 40,500 28,300 30,100 300 Auto Deal ers & Servi ce Stati on
8 Units 23,321 26,200 40,700 1,600 727 9 Allocation of costs of service 175,500 111,200 19,300 34,000 10,200 800 Churches
10 Units 16,517 13,400 8,200 1,100 599 11 Allocation of costs of service 103,200 78,800 9,900 6,900 7,000 600 Com/Ind/Misc
12 Units 1,251,602 1,015,100 624,700 85,900 21,251 13 Allocation of costs of service 7,811,300 5,969,900 746,300 522,400 550,000 22,700 Electric & Electronic Equip.
14 Units 462,397 86,500 43,300 43,300 1,583 15 Allocation of costs of service 2,584,400 2,205,600 63,600 36,200 277,300 1,700 Food and Kindred Products
16 Units 17,978 125,600 77,400 0 166 17 Allocation of costs of service 243,000 85,800 92,300 64,700 0 200 Hospi tal s & Conval escent Homes
18 Units 91,140 130,800 48,300 8,500 795 19 Allocation of costs of service 626,600 434,700 96,200 40,400 54,400 900 - --------
------
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Ana 6-2

Table 6-6 Distribution of Costs to Customer Classes (Con’t)

Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
1 Cost per Unit 4.77$ 0.74$ 0.84$ 6.40$ 1.07$ per HCF per lbs per lbs per lbs per bill
Industrial Chemical
20 Units 13,642 30,600 61,300 0 112 21 Allocation of costs of service 139,000 65,100 22,500 51,300 0 100 Laundries
22 Units 24,340 22,800 16,700 800 352 23 Allocation of costs of service 152,400 116,100 16,800 14,000 5,100 400 Machinery Manufacturers
24 Units 37,858 68,500 129,900 0 1,694 25 Allocation of costs of service 341,400 180,600 50,400 108,600 0 1,800 Me tal Plating
26 Units 6,682 400 2,500 0 199 27 Allocation of costs of service 34,500 31,900 300 2,100 0 200 Motel s & Hotel s
28 Units 107,455 207,800 81,100 4,700 523 29 Allocation of costs of service 763,800 512,500 152,800 67,800 30,100 600 Repair Shops & Car Washes
30 Units 11,309 12,700 19,800 0 687 31 Allocation of costs of service 80,500 53,900 9,300 16,600 0 700 Restaurants
32 Units 75,560 589,200 264,000 4,700 2,094 33 Allocation of costs of service 1,046,700 360,400 433,200 220,800 30,100 2,200 Schools & Colleges
34 Units 42,427 34,400 26,500 7,900 1,074 35 Allocation of costs of service 301,600 202,400 25,300 22,200 50,600 1,100 36 TOTAL COSTS OF SERVICE 42,381,000$ 25,412,700$ 5,953,100$ 5,478,100$ 5,207,800$ 329,300$ City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 7-1

7.0 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 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.

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 2024 FY 2025 FY 2026
Commodity Charge ($/HCF) $/HCF $/HCF $/HCF
1 Amusement Parks 6.15 6.53 7.15
2 Auto Dealers & Service Station 6.76 7.30 7.96
3 Churches 5.55 5.87 6.44
4 Com/Ind/Misc 5.87 6.22 6.82
5 Electric & Electronic Equip. 5.55 5.80 6.40
6 Food and Kindred Products 13.45 15.27 16.31
7 Hospitals & Convalescent Homes 6.72 7.22 7.87
8 Industrial Chemical 10.02 11.14 12.00
9 Laundries 6.02 6.39 7.00
10 Machinery Manufacturers 8.16 8.99 9.72
11 Metal Plating 4.50 4.63 5.13
12 Motels & Hotels 7.09 7.66 8.33
13 Paper 13.82 15.70 16.77
14 Repair Shops & Car Washes 5.15 5.52 6.01
15 Restaurants 13.70 15.57 16.63
16 Schools & Colleges 6.54 7.02 7.66
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 7-3

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
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. All surveyed community rates are best estimates as of June 1, 2023.

Line Proposed
No. Customer Class FY 2024 FY 2025 FY 2026
Major Commercial and Industrial Users
Operating and Maintenance Cost Recovery
1 Volume ($/MG) 3,314.83 3,810.64 4,219.49
2 BOD ($/1,000 lbs) 501.88 575.41 635.86
3 SS ($/1,000 lbs) 625.18 716.78 792.12
4 NH3 ($/1,000 lbs) 5,124.55 5,875.81 6,493.18
Annual Capital Cost Recovery
5 Volume ($/MGD) 1,147,617 1,029,684 1,145,855
6 BOD ($/1,000 lbs/day) 85,145 113,507 105,097
7 SS ($/1,000 lbs/day) 77,042 97,947 91,665
8 NH3 ($/1,000 lbs/day) 466,740 556,410 528,615
Typical FY 2023 FY 2024
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Residential $46.82 $48.28
Non-Residential 0 $46.82 $48.28
10 $62.02 $70.15
20 $124.04 $140.31
30 $186.05 $210.46
40 $248.07 $280.62
50 $310.09 $350.77
100 $620.18 $701.55
250 $1,550.46 $1,753.86
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 7-4

Figure 7-1 Comparison to Neighboring Sewer Utilities

$200.00
$180.00
$160.00
$140.00
iii $120.00
> :l: $100.00 ....

C
I
0 $80 .00 :;;:
$60.00
$40.00
$20 .00
$0.00
Santa Clara Sunnyvale Santa Clara San Jose View SJWC Milpitas Pa lo Alto Current Proposed Proposed Proposed Proposed Proposed Proposed Proposed ■ WATER RATE 12 HCF $87.96 $78 .48 $95 .64 $118.21 $115.55 $126.62 $117.65 $138.30 ■ SEWER RATE $46.82 $62 .34 $48 .28 $45.49 $53.11 $45.49 $64 .22 $48 .64 ■ COMBINED $134.78 $140.82 $143.92 $163.70 $168.66 $172.11 $181.87 $186.94 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Ye 7-1

Appendix A – Ten-Year Financial Plan
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Ye 7-1

Water Utility

Fiscal Year Ending June 30,
FY 2024 FY 2025 F Y 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 53,104,700 53,356,800 53,487,100 53,617,500 53,748,200 53,879,600 54,011,000 54,142,900 54,274,900 54,407,300 2 Increased Revenue Due to Adjustments 4,434,200 9,658,400 15,367,200 20,581,400 26,210,100 31,884,800 37,121,000 41,779,200 46,689,000 49,839,100 3 Subtotal Rate Revenue 57,538,900$ 63,015,200$ 68,854,300$ 74,198,900$ 79,958,300$ 85,764,400$ 91,132,000$ 95,922,100$ 100,963,900$ 104,246,400$ Other Operating Revenue
4 Solar System Maintenance 80,100 80 ,100 80,100 80,100 80,100 80,100 80,100 80,100 80,100 80,100 5 Water System Mai ntenance 1,070,500 1, 070,500 1,070,500 1,070,500 1,070,500 1,070,500 1,070,500 1,070,500 1,070,500 1,070,500 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 905,400 912,300 919,300 926,400 933,700 941,100 948,700 956,400 964,300 972,300 9 Water Quality 0 0 0 0 0 0 0 0 0 0 10 Water Resources 76,900 76,900 76,900 76,900 76,900 76,900 76,900 76,900 76,900 76,900 11 Subtotal Other Operating Revenue 2,132,900$ 2,139,800$ 2,146,800$ 2,153,900$ 2,161,200$ 2,168,600$ 2,176,200$ 2,183,900$ 2,191,800$ 2,199,800$ 12 Total Revenue 59,671,800$ 65,155,000$ 71,001,100$ 76,352,800$ 82,119,500$ 87,933,000$ 93,308,200$ 98,106,000$ 103,155,700$ 106,446,200$ Revenue Requirements
Operating & Maintenance
13 O&M Expenses 56,212,500 60,992,300 64,627,600 68,777,000 73,639,900 78,822,800 84,464,400 88,866,800 93,529,700 98,194,100 14 Subtotal O&M 56,212,500$ 60,992,300$ 64,627,600$ 68,777,000$ 73,639,900$ 78,822,800$ 84,464,400$ 88,866,800$ 93,529,700$ 98,194,100$ 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 2,250,000 2,250,000 2,250,000 500,000 500,000 500,000 500,000 500,000 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 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 7,000,000 7,000,000 21 Total Transfers 199,400$ 199,400$ 2,449,400$ 8,449,400$ 8,449,400$ 6,699,400$ 6,699,400$ 6,699,400$ 7,699,400$ 7,699,400$ 22 Total Revenue Requirements 56,411,900$ 61,191,700$ 67,077,000$ 77,226,400$ 82,089,300$ 85,522,200$ 91,163,800$ 95,566,200$ 101,229,100$ 105,893,500$ 23 Net Annual Cash Balance 3,259,900 3,963,300 3,924,100 (873,600) 30,200 2,410,800 2,144,400 2,539,800 1,926,600 552,700 24 Beginning Fund Balance 9,386,600 12,367,600 16,052,000 19,697,200 18,544,700 18,296,000 20,427,900 22,293,400 24,554,300 26,202,000 25 Net Cumulative Fund Balance 12,646,500$ 16,330,900$ 19,976,100$ 18,823,600$ 18,574,900$ 20,706,800$ 22,572,300$ 24,833,200$ 26,480,900$ 26,754,700$ 26 Mi ni mum Operati ng Reserves (90 Days) 13,860,600$ 15,039,200$ 15,935,600$ 16,958,700$ 18,157,800$ 19,435,800$ 20,826,800$ 21,912,400$ 23,062,100$ 24,212,200$ Line No. Description
I _______________ ,
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Ye 7-2

Recycled Water Utility

Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 6,533,500 6,610,300 6,676,400 6,743,200 6,810,800 6,879,000 6,947,800 7,017,400 7,087,600 7,158,400 2 Increased Revenue Due to Adjustments 653,400 1,460,800 2,372,100 3,446,900 4,665,100 6,102,800 7,737,200 9,594,300 10,529,300 11,524,100 3 Subtotal Rate Revenue 7,186,900$ 8,071,100$ 9,048,500$ 10,190,100$ 11,475,900$ 12,981,800$ 14,685,000$ 16,611,700$ 17,616,900$ 18,682,500$ Other Operating Revenue
4 System Maintenance 94,700 96,600 98,500 100,500 102,500 104,600 106,700 108,800 111,000 113,200 5 South Bay Water Recycling System Maintena 421,500 438,400 453,900 466,800 479,800 493,100 506,800 520,800 535,400 550,400 6 Subtotal Other Operating Revenue 516,200$ 535,000$ 552,400$ 567,300$ 582,300$ 597,700$ 613,500$ 629,600$ 646,400$ 663,600$ Transfers From
7 RW Capital Fund 0 0 0 0 0 0 0 0 0 0 8 Subtotal Transfers From -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 9 Total Revenue 7,703,100$ 8,606,100$ 9,600,900$ 10,757,400$ 12,058,200$ 13,579,500$ 15,298,500$ 17,241,300$ 18,263,300$ 19,346,100$ Revenue Requirements
Operating & Maintenance
10 O&M Expenses 7,918,500 9,108,100 10,053,000 11,092,200 12,242,600 13,516,900 14,928,700 15,987,600 17,123,000 18,340,400 11 Subtotal O&M 7,918,500 9,108,100 10,053,000 11,092,200 12,242,600 13,516,900 14,928,700 15,987,600 17,123,000 18,340,400 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 0 100,000 100,000 100,000 100,000 100,000 150,000 16 Transfer to Pensiotn Stabilization Fund 0 0 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 0 100,000 100,000 100,000 100,000 100,000 100,000 18 Total Transfers 0 0 9,800 9,800 209,800 209,800 209,800 209,800 209,800 259,800 19 Total Revenue Requirements 7,918,500$ 9,108,100$ 10,062,800$ 11,102,000$ 12,452,400$ 13,726,700$ 15,138,500$ 16,197,400$ 17,332,800$ 18,600,200$ 20 Net Annual Cash Balance (215,400) (502,000) (461,900) (344,600) (394,200) (147,200) 160,000 1,043,900 930,500 745,900 21 Beginning Fund Balance 4,980,400 4,765,000 4,263,000 3,801,100 3,456,500 3,062,300 2,915,100 3,075,100 4,119,000 5,049,500 22 Net Cumulative Fund Balance 4,765,000$ 4,263,000$ 3,801,100$ 3,456,500$ 3,062,300$ 2,915,100$ 3,075,100$ 4,119,000$ 5,049,500$ 5,795,400$ 23 Mi ni mum Operati ng Reserves (90 Days) 1,952,500$ 2,245,800$ 2,478,800$ 2,735,100$ 3,018,700$ 3,332,900$ 3,681,000$ 3,942,100$ 4,222,100$ 4,522,300$ Line No. Description
I 1--------------- 1
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Ye 7-3

Sewer Utility

Fiscal Year Ending June 30,
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 39,888,000 39,987,300 40,086,800 40,186,800 40,287,600 40,388,000 40,489,400 40,591,000 40,692,800 40,795,200 2 Increased Revenue Due to Adjustments 2,493,000 6,323,000 10,517,000 14,094,400 17,938,900 19,151,100 20,393,000 20,444,000 20,495,300 20,546,900 3 Subtotal Rate Revenue 42,381,000$ 46,310,300$ 50,603,800$ 54,281,200$ 58,226,500$ 59,539,100$ 60,882,400$ 61,035,000$ 61,188,100$ 61,342,100$ 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 98,300 98,300 98,300 98,300 98,300 98,300 98,300 98,300 98,300 98,300 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 1,070,600$ 1,082,100$ 1,093,900$ 1,105,900$ 1,118,100$ 1,130,600$ 1,143,300$ 1,156,300$ 1,169,500$ 1,183,000$ 10 Total Revenue 43,451,600$ 47,392,400$ 51,697,700$ 55,387,100$ 59,344,600$ 60,669,700$ 62,025,700$ 62,191,300$ 62,357,600$ 62,525,100$ Revenue Requirements
Operating & Maintenance
11 O&M Expenses 31,491,500 32,537,500 33,609,300 34,692,000 35,806,900 37,068,400 38,376,000 39,730,900 41,135,300 42,481,900 12 Subtotal O&M 31,491,500$ 32,537,500$ 33,609,300$ 34,692,000$ 35,806,900$ 37,068,400$ 38,376,000$ 39,730,900$ 41,135,300$ 42,481,900$ Debt Servi ce
13 E
xisting Loans/Bonds 2,842,600 2,842,900 2,843,400 2,842,400 2,844,900 2,845,700 2,844,700 2,846,900 1,904,800 1,908,300 14 Proposed Loans/Bonds 0 0 0 1,314,300 2,253,000 2,253,000 2,253,000 2,253,000 2,253,000 2,253,000 15 Total Debt Servi ce 2,842,600$ 2,842,900$ 2,843,400$ 4,156,700$ 5,097,900$ 5,098,700$ 5,097,700$ 5,099,900$ 4,157,800$ 4,161,300$ Transfers
16 Transfer to Rate Stabilization Fund 250,000 500,000 750,000 750,000 500,000 300,000 300,000 100,000 100,000 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 15,000,000 15,000,000 20,000,000 15,000,000 20,000,000 15,000,000 10,000,000 10,000,000 19 Total Transfers 14,328,200$ 14,578,200$ 15,828,200$ 15,828,200$ 20,578,200$ 15,378,200$ 20,378,200$ 15,178,200$ 10,178,200$ 10,078,200$ 20 Total Revenue Requirements 48,662,300$ 49,958,600$ 52,280,900$ 54,676,900$ 61,483,000$ 57,545,300$ 63,851,900$ 60,009,000$ 55,471,300$ 56,721,400$ 21 Net Annual Cash Balance (5,210,700) (2,566,200) (583,200) 710,200 (2,138,400) 3,124,400 (1,826,200) 2,182,300 6,886,300 5,803,700 22 Beginning Fund Balance 17,925,987 12,715,287 10,149,087 9,565,887 10,276,087 8,137,687 11,262,087 9,435,887 11,618,187 18,504,487 23 Net Cumulative Fund Balance 12,715,287$ 10,149,087$ 9,565,887$ 10,276,087$ 8,137,687$ 11,262,087$ 9,435,887$ 11,618,187$ 18,504,487$ 24,308,187$ 24 Mi ni mum Operati ng Reserves (90 Days) 7,765,000 8,022,900 8,287,200 8,554,200 8,829,100 9,140,200 9,462,600 9,796,700 10,143,000 10,475,000 25 Debt Servi ce Coverage (Mi n 1.25) 4.21 5.23 6.36 4.98 4.62 4 .63 4.64 4.40 5.10 4.82 Line No. Description
---1 -------------

City Council and Authorities ConcurrentJune 6, 2023

City Council and Authorities Concurrent
June 6, 2023