Draft 2024 Water and Sewer Rate Study Report by Black & Veatch Management Consulting, LLC — City Council and Authorities Concurrent, May 28, 2024

DRAFT

WATER AND SEWER RATE STUDY
BLACK & VEATCH PROJECT NO. 410918

PREPARED FOR
City of Santa Clara, CA
28 MAY 2024
~ -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 ...................................................................................................... 1-5

1.5 Adequacy of Existing Rates to Meet Costs of Service ..................................................... 1-6

1.6 Cost of Service Analysis .................................................................................................. 1-7

1.7 Rate Design ..................................................................................................................... 1-7

1.7.1 Water and Recycled Water Utilities .................................................................. 1-7

1.7.2 Sewer Utility .................................................................................................... 1-10 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

4.0 Rate Design ................................................................................................................................. 4-1 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents ii

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 ............................................................ 4-4

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 ........................................................................................ 5-3

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

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

5.5 Debt Service Requirements ............................................................................................. 5-6

5.6 Capital Improvement Program ......................................................................................... 5-6

5.6.1 Capital Improvement Financing Plan ............................................................... 5-7

5.7 Transfers .......................................................................................................................... 5-7

5.8 Reserves .......................................................................................................................... 5-8

5.9 Projected Operating Results ............................................................................................ 5-8

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

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

7.2.3 Major Users ...................................................................................................... 7-2 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents iii

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

7.4 Neighboring Sewer Utilities .............................................................................................. 7-4 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 ..................................................................................... 1-7 Table 1-2 Proposed Three-Year Water Rate Schedule ................................................................... 1-9 Table 1-3 Proposed Three-Year Recycled Water Rate Schedule ................................................. 1-10 Table 1-4 Proposed Three-Year Sewer Rate Schedules ............................................................... 1-11 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 2025 (Water) ....................... 4-1 Table 4-2 Proposed Minimum Monthly Service Charge (Water) ..................................................... 4-1 Table 4-3 Costs within the Minimum Monthly Service Charge for FY 2025 (Recycled Water) .............................................................................................................................. 4-2 Table 4-4 Proposed Minimum Monthly Service Charge (Recycled Water) ..................................... 4-2 Table 4-5 Costs within the Fire Service Charge for FY 2025 ........................................................... 4-3 Table 4-6 Proposed Fire Service Charge ......................................................................................... 4-3 Table 4-7 Costs within the Cross-Connection Charge for FY 2025 ................................................. 4-4 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents iv

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 ................................................................................................................................ 5-1 Table 5-2 Minimum Monthly Service Bills ........................................................................................ 5-2 Table 5-3 Contributed Sewage Flow ................................................................................................ 5-3 Table 5-4 Existing Sewer Rates ....................................................................................................... 5-4 Table 5-5 Projected Revenue under Existing Rates ........................................................................ 5-5 Table 5-6 O&M Expenses ................................................................................................................ 5-6 Table 5-7 Long-Term Debt Service .................................................................................................. 5-6 Table 5-8 Capital Improvement Projects .......................................................................................... 5-7 Table 5-9 Construction Fund Financing Plan ................................................................................... 5-7 Table 5-10 Operating Fund (Sewer) ................................................................................................ 5-11 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 Water Reserves ............................................................................................................... 1-3 Figure 1-3 Recycled Water Operating Cash Flow ............................................................................. 1-4 Figure 1-4 Recycled Water Reserves ............................................................................................... 1-5 Figure 1-5 Sewer Operating Cash Flow ............................................................................................ 1-6 Figure 1-6 Sewer Reserves ............................................................................................................... 1-6 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 Figure 4-1 Comparison to Neighboring Water Utilities ...................................................................... 4-6 Figure 5-1 Status Quo Operating Cash Flow .................................................................................... 5-9 Figure 5-2 Sewer Operating Cash Flow .......................................................................................... 5-12 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 over 26,415 residential, commercial, irrigation, schools, 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, 21 wells, and 3 booster pump stations. The City has a target of obtaining 68% of the 5.8 billion gallons of water that flows to its customers each year from the City’s wells.

1.2 Recycled Water System
The Recycled Water Utility, operating since 1989, provides recycled water services to over 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 34 miles of recycled water pipelines. A portion of the recycled water from the RWF supplies the Valley Water’s Silicon Valley Advanced Water Purification Center for advanced treatment (microfiltration, reverse osmosis, and advanced oxidation) to create a mix of high-quality recycled water that is blended back into the recycled water system.

1.3 Sewer System
The Sewer Utility provides sewer services to over 25,547 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, 2024 and ending June 30, 2034. This report will focus on a three-year planning period for discussion, beginning July 1, 2024 and ending June 30, 2027. 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 encourage conservation measures of maintaining a 15% voluntary water use reduction and the City’s Water Shortage Contingency Plan.

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 $59.0M in FY 2025 to $68.5M in FY 2027. Water production and water purchases account for most of this increase, representing an average of 65% 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 $6.1M per year in capital projects from FY 2025 to FY 2027.
 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.
● The infrastructure 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 by FY 2027, as shown in Figure 1-1 and Figure 1-2.

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-3

Figure 1-1 Water Operating Cashflow

Figure 1-2 Water Reserves

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 $9.2M in FY 2025 to $11.7M in FY 2027. Recycled water purchase costs constitute most of the increase, averaging 84% 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 $ 174.6k per year in capital projects from FY 2025 to FY 2027.
$9{),000,000
$80,000,000
$70,000,000
$60,000,000
SS0,000,000
$40,000,000
$30,000,000
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so
2025
Water Utility - Ope rating fu nd
-
2026 2027
- O&M - Debt Service - Capit al Projects - Rate St abililct:ion -a- Re.1enue -e-- Cash Balance - Target Cash Balance
$40,000,000
$35,000,000
$30,000,000
$25,000,000
s20,ooo,ooo
$15,000 ,000
Sl0,000,000
SS,000,000
so
Water Utility - Reserves
-- -_-... -...- ...
2025 2026
- Operat ions and Maintenance REHve - Infrastructure Reserve - Rct:eStabililct:ion Reserve - Pension Stabilil atbn Reserve - ,.,... Target Cc6h Balance
2027
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-4

 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 infrastructure fund reserve is to help maintain enough funds on hand to help mitigate unexpected capital costs. The scheduled target is 12-months of the following year’s CIP. ● The rate stabilization fund reserve is to help mitigate future increases in drought-stricken years. The scheduled target is 10% of the prior year’s rate revenues. ● The pension fund reserve is to pay for the unfunded pension liabilities and the increase in the City’s share of pension costs due to factors such as higher CalPERS rates and negotiated pay increases.

The Recycled Water Utility is proposing revenue adjustments and drawing down on reserves to allow it to operate the enterprise on a revenue-neutral basis and meet reserve targets, as shown in Figure 1-3 and Figure 1-4.

Figure 1-3 Recycled Water Operating Cash Flow

$14,000,000
$12,000,000
$10,000,000
SS,000,000
$6,000,000
$4,000,000
$2,000,000
so
- O&M
-e- Re.-enue
Recycled Water Utility - Operating fund
- -
2025
- Debt Service
~ Cash Balance
2026 2027
- Capital Projects - R i:i:e St abilili:i: ion
-e- Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-5

Figure 1-4 Recycled Water Reserves

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 2025 to $32.3M in FY 2027. RWF-related costs represent an average of 69% of O&M expenses.
 Debt Service: The Sewer Utility anticipates an average debt service payment of $ 3.6M per year from FY 2025 to FY 2027 associated with existing and proposed debt issuances. The City anticipates a new revenue bond for $18.0M to be issued in 2027.  Capital Improvements: The Sewer Utility plans to execute an average of $13.9M per year in capital projects from FY 2025 to FY 2027.
 Reserves: The Sewer Utility plans to continue funding the operating fund reserve, construction fund reserve, rate stabilization fund reserve, and pension stabilization reserve. ● The operating fund reserve is to help cover fluctuations in day-to-day expenses. The scheduled target is 90 days of O&M expenses.
● The infrastructure 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.
● The rate stabilization fund reserve is to help mitigate future increases in drought-stricken years. The scheduled target is 10% of the prior year’s rate revenues. ● The pension fund reserve is to pay for the unfunded pension liabilities and the increase in the City’s share of pension costs due to factors such as higher CalPERS rates and negotiated pay increases.

The Sewer Utility is proposing revenue adjustments and drawing down on reserves to allow it to operate the enterprise on a revenue-neutral basis and meet reserve targets, as shown in Figure 1-5 and Figure 1-6.

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$4,000 ,000
$3,000,000
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Sl,000,000
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Recycled Water Utility - Reserves
2025 2026 2027
- 0 perat ions and Maintenance Reserve - lnfrastructu re Reserve - Rat:eStcbili2at:ion Reserve - Pension Stabiiz.atb n Reserve - ,e- Target Ca;h Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-6

Figure 1-5 Sewer Operating Cash Flow

Figure 1-6 Sewer Reserves

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 2025 to FY 2027. 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.

$70,000,000
S60,ooo,ooo
sso,000,000
$40,000,000
$30,000,000
s20,ooo,ooo
Sl0,000,000
so
2025
Sewer Utility - Ope rating Fund
2026 2027
- O&M - Debt Service - Capital fl roj ects - Rat:eStabilizat:ion -a- Re.1enue -a- Cash Balance -., Target Cash Balance
$60,000,000
sso,000,000
$40,000,000
$30,000,000
s20,ooo,ooo
Sl0,000,000
so
Sewer Utility - !Reserves
----
2025 2026
- Operat ion.sand Maintenance R EEr ve - lnl'rastructu re Reserve - Rat:eStabiliz.at:ion Reserve - flension Stabiilatb n Reserve -.- Target Cash Balance
2027
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-7

Table 1-1 Proposed Revenue Adjustments

1.6 Cost of Service Analysis
The cost-of-service analysis allocates the costs to the various customer classes of service in a fair and equitable manner. The methodologies used in the Study are specific to the respective utility operations.

The following is a brief description of the methodologies.

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

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

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

1.7.1 Water and Recycled Water Utilities
To minimize impacts, retain simplicity, and ensure the reasonable stability of revenue, Black & Veatch recommends the following rate structure.
 Monthly Service Charge: The Water and Recycled Water Utilities should retain the minimum monthly service charge based on meter sizes for all customer classes. The minimum monthly service charge includes a minimum consumption allowance and recovers portions of fixed cost elements such as operating and capital components, meter maintenance and services, meter reading, issuing bills, and maintenance and capacity costs associated with public fire protection.

The minimum consumption allowance accommodates water considered essential for health and safety.
 Consumption Charge: The Water and Recycled Water Utilities should maintain the uniform consumption charge for all customer classes. The consumption charge recovers costs associated with the base and extra capacity demands.

FY 2025 July 15.30% 15.00% 12.15%
FY 2026 July 15.30% 15.00% 12.15%
FY 2027 July 15.30% 15.00% 12.15%
Recycled
Water
Sewer
UtilityFiscal Year
Water
Utility
Effective
Month
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-8

 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 1-9

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.

Mrrn'i1m1m M'ontihliy M'et e r Ra1tes ,[$./M'on tihl $/ mont h $/ mont h $/ month 5/ 8 '"x. 3/ 4" 23 .42 25.89 30 .90
1" 36 .. 57 4 2.2 48 .66
1-1/ 2'" 69.78 80.51 93 .0 6
2" 109 .51 1 25.55 14533
3 " 215.46 2 9 . 3 2&8 . .41
4 " 33 4.65 387 .55 448 .24
611 665 .77 7 71.25 892 .22
8 " 1,0 6,3.0 9' 1,23 1.59 1;425.0 0
10"' 1,592.85 1,84 5.60 2,13 537
1 2"' 2,238 .52 2,593BO 3,001. 13
Fiire Servfoe 1($/M'or11t:h1l1 $/ mont h $/ mont h $/ month 2" 3 .15 3 .55 .3.9 5
4 " 17.84 20.0 9' 22 3 9
6" 52.48 59 .0 9' 6,5,86,
8 " 111 .78 1 25.85 140.28
10"' 201 .0 0 2253 1 252.23
1 2"' 32 4.85 355.75 407.66
Cr,oS-s uo-rn.1iediion 1($/Mom1thl $/ mont h $/ mont h .$/ month 1" 8 .60 9 .45 10.4 2
2" 13.76 1 5. 1 15.68
3 " 27 .53 3336
4 " · 3.01 52.12
611 .S6 .0 2 104.25
,gn 137 .53 165 .79
10"' 206 .44 225 .7 1 250 .19
uom.~m;nptir.on 10h,a1riges ,($,/HCFt
General Custo mer 8 ,90 10 .27 11.87
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-10

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.

Mrrn'i1m1m M'ontihliy M'eter Ra1tes ,[$./M'ontihl $/ mont h $/ mont h $/ mont h 5/ .S'"x. 3/ 4" 17 .44 20.0 5 23 .11
1" 2.S,43 32 .77 37'8.3
1-1/ 2'" 55 :91 64.57 74.6,3
2" 88B8 102.72 U S.79
3 " 17 6BO 20 7 235.55
4 " 275 .71 318 .93 36,9 .04
611 550 .46 535 .89 737 .0 5
8 " 880 .16, 1,0 18 .4 1,178.66
10"' 1,3 19 .76 1,527 .17 1,76,7 . .47
1 2"' 1,855 .53 2,147.18 2,485 .0 9
Consumptir.on ,CJh.,a1riges 1($,/HCF'.t
General Custo mers 5.0 6 5,82 5.59
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-11

Table 1-4 Proposed Three-Year Sewer Rate Schedules

Customer Class
M omtllrliy Service 10lilil1rge 1($/EOU I· $/ mont h $/ mont h $/ mont h 1 Single Fam ily 52 .37 59.79 66.30
2 M ult i-Fam ily 9 a31 56.09 62 a30
Mimim11111110ommeroiia1I Biilll Oha1rge 1($,/Mont lt.J, $/ mont h $/ mont h $/ mont h 3 Al I Custome rs 52 .37 59.79 65a30
Commodirty 1Charge 1($/HCFI· $/ HCF $/ HCF $/ HCF
1 Amus,ement Par ks 6.93 7 .. 6, 8 .59
2 Auto Dealers & Serv i,ce St at io n 7,80 .S.70 9.81
3 Chu r,ches 6.12 6-54 7.56
0om/ lnd/ M is.c 5.51 7.11 .S.19
5 Electr i,c ,& Electro n i,c Eiq u i p. 6.1.S 5.48 7.59 5 Fiood and Kind red Pro du cts. 15.7 1.S.89 20a38
7 Hos.pit a ls. & Conv alesce nt Homes 7.60 .S.35 9 .50 8 Indu str i al Chemka l 11.58 13..53 14.63
9 Laund r ies 5.,80 7.32 8 .43
10 Mac hinery Ma n ufa ct u rer.s 9.33 10.73 11 .S8
11 Meta I Pl at i ng 5.0 5 5.12 6.12
12 Mot els & Hote ls 8 .0 9 8 :96, 10.1
13 Paper 5.67 6.67
14 Ftepai r Shops ,& Car W ashes. 5.47 7a37
15 Resta urants. 15.0 1 1 9 .27 20.75
16 Schools & Colleges. 7.3 1 .8.05 9 .16
Maj:or 1Commerdi a'II amd ltm.d111.stri11II U.siers
Operat ing and Ma i ntenance Cost Fteoovery
1 Volume ($/ MG ) 3,671 .11 4,020.89 ,192. 10
2 BOD 1$/ 1,000 lbs) 551.2.S 773.87 ,807 .45
3 ss ($/ 1,000 I b,s) 65 1'81 8:98.59 937 .67
NH3 ($/ 1,000 l bs) ,980.00 6,86522 7,164.09
Annu al Capita l Co.st Ftecovery
5 Volume ($/ MGD ) 1,305,599 1,212 ,316 1,573 ,838
5 BOD ($/ 1,000 lbs/ ,day ) 124,.262 144,032 14 ,561
7 ss (.$/ 1,000 l b,s/day ) 114,SS.O 131,16,2 131,597
8 NH3 ($/ 1,000 l bs/ day) 538,0 93 585 ,442 586,786
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Water and Recycled Water Utilities 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 other sources of revenue, such as grants, to fund infrastructure investments. Black & Veatch has projected the level of future revenue generated in the Study through an analysis of historical and future system growth in terms of the number of bills and water consumption. This section also projects the expenses, or revenue requirements, necessary to operate and maintain the system, invest in capital improvements, make debt service payments, and cover other water and recycled water systems expenses.

2.1 Customer and Water Consumption

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

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

2.1.2 Minimum Bills
The City provides potable water services to 26,804 customers and recycled water services to 272 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 remain constant each year for the Water Utility and increase by an average of 1.0% 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

Wait er utiitity
1 Gener al Cust om ers. 5 ,607 54,607 5 ,607
2 T,ot al 5 ,607 54,607 5 ,607
Recyded Wait er Utirlity
3 Gener al Cust om ers 913 9 22
Tot al 913 9 22
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 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. 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 then moved to Level 2 in conjunction with Valley Water. In July 2023, after increased rainfall, the City rescinded Level 2 and have returned to normal. Despite this, the City and Valley Water work together to maintain a 15% voluntary water use reduction.

Figure 2-1 below represents the population growth and a decline in water consumption. Many factors have contributed to the City’s steady decline in consumption despite the increase in population. 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 has also been important for the City in supplementing the use of potable water. Overall, customers have done well to increase efficiency in the use of water resources.

Figure 2-1 Water Sales

Recognizing that the City’s water conservation goals, the City anticipates flat consumption for the Water Utility and 1.0% 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.

City Water Demand 2023
130,0XI
125,0XI
85J
Lowest Water Use
-l-..- ==-----------------1 During, 14-17 Drought
~ ~
11,000
10,000
-9,000 C)
~
-en
8,000 z
g
..J
er:
7,000 C)
z
0 ~ ..J
6,000 ~
5,000
4,000
~ - - Populalion
'),(;)/ - w f)C$Q _
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 2-3

Table 2-2 Billed Water Consumption

2.2 R evenue 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.

(Section left intentionally blank)

Wait er Utiility
1 Gener al Cust ome rs. 6,,300,1 68 6,300,1 68 5,300,1 &8 2 Tot a I Usage ( H CF) 6,,300,1 68 6,30 0,1 68 5,300,1 &8 3 Tot a I Usage !AF) 14, 63 14,46,3 1 ,463
11:ecyd!ed Wat er Utiility
Gener al Cust ome rs 1,56:5,33 5 1,581,998 1,597 ,.Sl .S 5 Tot al 1,56:5,33 5 1,581,998 1,597 ,81.S
6 Tot a I Us age !AF) 3,596 3,632 3,6&8
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 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 for recycled water over the Study period in conjunction with the increase in the number of minimum bills and water consumption. The projected Water Utility revenues will remain constant at $53.0M from FY 2025 to FY 2027, while the projected Recycled Water Utility revenue increases from $7.0M in FY 2025 to $7.1M in FY 2027, reflecting an overall increase of

2.0% over the three-year Study period.

De~ri tion --------
Mrrn'i1m1m Montih'I¥ M et e r Ra,tes
5/ ,8'" x.3 / 4"
1"
1-1/ 2'"
2"
3 "
4"
,811
10"'
1 2"
Fiire Servfoe Charges
2"
4"
6,"
10 "'
1 2"
Cr,os.-s uo-iirn.ectii'on Cha rges
1"
2"
3"
4"
,Sn
10"'
All City I
21 .48
33 .. 66

64.10 100.64
198.07
307 .67
612.14
977 .49
1,464.63
2,058.33
(.$/ mo)
2:95

16.71 49 .15
10 4.68

1.S8.23
304-21
(.$/ mo)

6.73 10.7,8
21 .55
33 .67

67.3 4
107 .75
16,1 .63
I
All City
Des.cri tion
Corn,S'l!lmptfon Cha,rges
Water UJtiit irty
General Cust omers
Recyded Water UJt itl'ity
General Cust omers
1$/ HCFl

7.97 1$/ HCF)
4 .53
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 2-5

Table 2-4 Projected Revenue under Existing Rates

2.3 O ther 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 3.5% of the Water Utility’s total revenue and 8.4% 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 O perating 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

3.9% annually for the Water Utility and an average of 6.1% annually for the Recycled Water Utility from the FY 2025.

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 60% 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 21.0% 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 30.2% over the Study period.

(.$) 1$) (.$)
Wait er Utiility
1 Gener al Cust ome rs. 50,893 , 0 50,893 ,400 50,893 , 0 2 f ireServ k e 1,000,700 1,001,600 1,002 ,600
.3 Cr,oss. Oon ne.ctio n 1,0 58,.200 1,0 59,300 1,0 60 ,500 Tot al $ 52,952 ,300 $ 52;95 4,300 $ 52,956,500
Recyd!ed Waiter Utiility
5 Gener al Cust ome rs 6,990,,300 7,060,200 7,1 30,700
6 Tot al $ 6,990,300 $ 7,060 ,200 $ 7,130,700
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 2-6

Table 2-5 O&M Expenses

As shown in Table 2-5, the Water Utility’s O&M expenses increase from $59.0M in FY 2025 to $68.5M in FY 2027, while the Recycled Water Utility’s O&M expenses increase from $9.2 M in FY 2025 to $11.7M in FY 2027.

2.5 C apital 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 2025 through FY 2027. The Water Utility is projecting $18.4M in CIP, and the Recycled Water Utility is projecting $523.8k 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.

(.$) 1$) (.$)
Wait er Utii I ity
1 Salaries 6,119,600 6,42 5,700 6,727 ,700
2 Benefits 3,519,,800 3,674,100 3 ,67 ,100
3 M at eri a ls} Servk e.s/ Su ppl ies .3,76B,,300 3,8 43,600 3;920,400 4 I nt erfu n d Servioe.s 8,206,.000 8,661,460 9,0 30,1,80 5 Re.sou me & Produ ct io n 37,359,400 40;910,200 45,187,.500 6 Cap it al Out lay 0 0 0
7 Tot al $ 58,973 ,100 $ 63,51 5,0 60 $ 68,539,880
Recyded Water Utirlity
8 Salaries 614,0 00 643,400 67 4,900
9 Benefit s 353 ,300 36B,300 36B,300
10 M at eri a ls} Servi,cesf Suppl ie.s 39,100 39,9 00 40,.700 11 I nterfu n d Servk ,e.s 522 ,300 577 ,0 50 637 ,380
12 Resour,c,e & Produ ctio n 7,636,2 00 8,716,200 9,9 42,,800 13 Ca pit a I Out lay 0 0 0
14 Tot al $ 9,1 64;900 $ 10,344 ,850 $ 11,66 4,0 80
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 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 $6.1M for the Water Utility and $174.6k 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)

(.$) 1$ ) (.$)
Wait er Utii I ity
1 7005 Buil,dings. and Gro und s 1,0 68,100 2, 16,100 55,600 70 54 Distri but io n System
2 Rep I a c,em ent/Re.st,orat ion .3,419,600 3r22 1,400 3,338,.200 3 70 57 Asset M anagement Progr am 0 0 0
70 58 SCADA Improvem ents 253;900 349,000 38 9,.500
5 70 59 N,ew and Replacement W ells 1r243 ,500 644,300 2,002 ,9 00 6 Tot al $ 6,005,100 $ 6,630,80 0 $ 5,7,86 ,.200
Recyd eel Wat er Utirlity
7 50 5 Recycle d W ater Syst em M ai ns a nd
7 Servi,ce.s 414,50 0 53,70 0 55,600
,8 Tot al $ 414,50 0 $ 53,70 0 $ 55,.600
Fi~II Year Ending June 30, I
Line No. _ Des.cr[S?tion ___ _
f$) (.$) 1$ )
[email protected] of F11.m ells
1 lntr.a Transfer In - Debt Financing 0 0 0
2 lntr.a Transfer In - Custom er Servi,ce Charge 4,550,000 5,750,0 00 5,750,000 3 Oon nectio n Ch a rge.s 0 0 0
Develop er Oontri butiions 0 0 0
5 Tot al Sour,c,e.s $ 4,.550,000 $ 5,750,000 $ 5,750,000 Use of Ftm ells
6 lmp,rovement.s Projects 6,0 0 5,100 6,630,,800 5,7.S,6r20 0 7 Tot al Uses $ 6,005,100 $ 6,.630,800 $ 5,7.S,6r20 0
,8 Net Annu al Cash Bal ance 11,455,100) I.S80 ,.aoo 1 (36r200 ) 9 Begi nn ing Unre.strid ed Fund Bal ance 8r258,818 6,803,718 5,922 ,9 18 10 Net Cumulat ive Fund Balance $ 6,B03,718 $ 5;922,9 18 $ 5,666,718 11 M i nimum Oonstru ct io n Re.s,erve.s $ 6,630,80 0 $ 5,7.SSr20 0 $ 5,68i0,70 0 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 2-8

Table 2-8 Construction Fund Financing Plan (Recycled Water)

2.6 T ransfers
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 21 for the Water Utility and Table 2-10, Lines 13 to 15 for Recycled Water Utility summarize these associated amounts, respectively. The other funds consist of the Rate Stabilization Fund, Pension Stabilization Fund, and Construction Fund. See Section 2.7 for further explanation on Rate Stabilization and Pension Stabilization Funds. The Construction Fund transfers represent money to cover planned CIP project expenditures. These transfers do not represent direct operating expenses for either enterprise; therefore, Black & Veatch includes these costs as “below-the-line” cash flow items and does not include them as O&M expenses.

2.7 R eserves
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 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 . (.$) f$) l$ l
Sm.1 roe of Fimulis
1 Intra Transfer In - Debt Financing 0 0 0
2 Int ra Transfer In - Cust,omer Servk e Charge 0 0 0
3 Oon nectiion Ch a rge.s 0 0 0
4 Develo p er Cont ribut io ns 0 0 0
5 Total Sour,ces $ 0 $ 0 $ 0
U:se of Fiu Iii.dis
6 lmp,rovements Projects 414,500 53,700 55,600
7 Total Uses $ 14,50 0 $ 53,700 $ 55,600
,8 Net Annu al Cash Ela l ance 1414,50 0) (53,700 ) (55,600) 9 Begi nn ing Unre.strk ted Fund B,al ance 587,400 172,900 119,200 10 Net Cumulat iv,e Fund Balance $ 172;900 $ 119,200 $ 63,60 0 11 M i nimum Oonst ru ct io n Re.serves $ 53,70 0 $ 55,600 $ 57,70 0 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 2-9

 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 P rojected 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)

$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
so
-$20,000,000
-$40,000,000
-$60,000,000
- O&M
--e- R e.1 enue
Water Utility - Operating fu nd
- - - -
2025 2027
- Debt Service - Capita l Projects - Ri'i:eStabilili'i: ion -e- Cash Balance -., Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 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 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 14 for the Water Utility and Line 9 for the Recycled Water Utility represent other operating revenues.
$14,000,000
s12,ooo,ooo
Sl0,000 ,000
SS,000,000
$6,000 ,000
$4,000,000
s2,ooo,ooo
so
-s2,ooo,ooo
-$4,000,000
-$6,000,000
- O&M
-a- Re.1enue
Recycled Wat er Utility - Opera ting i= und
- - -
2025 2027
- Debt Service - Capita l Projects - Rate St abililct: ion -e-- Cash Balance -., Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 2-11

 Line 15 for the Water Utility and Line 10 for the Recycled Water Utility represent total revenues for the enterprises.

Revenue Requirements
 Line 17 for the Water Utility and Line 12 for the Recycled Water Utility represent O&M expenses.

The O&M expenses include water production and water purchase.  Line 22 for the Water Utility and Line 16 for the Recycled Water Utility represent transfers. The transfers include money to the Rate Stabilization Fund, Pension Fund, and Construction Fund.  Line 23 for the Water Utility and Line 17 for the Recycled Water Utility represent total revenue requirements for the enterprises.

Line 26 for the Water Utility and Line 20 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 27 for the Water Utility and Line 21 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.

(Section left intentionally blank)

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

Table 2-9 Operating Fund (Water)

(.$) f$) l$l
Revem,ue
Rate Revenue
1 Revenue fro m Existi ng Rate.s 53,326,400 53,328,400 53,330,600 Ye,ar M ont hs E e.ctive Rate Adj
2 FY 2025 1 2 1 5.30% 8,1 58;900 8,159,200 8, 59,600
3 FY 2026 2 1 5.30% 9,.407 ,.600 9,408,000
FY 2027 1 2 1 5.30% 10,847 ,400
5 lncre,as,e.d Revenue Due to Adj ustments. 8,1 58;9 00 17,566,,800 28,41 5,000 6 Su b,t ota I Rate Revenue $ 61, 85,300 $ 70,895 ,200 $ 8 1,745 ,600 Other Operat ing Reve nue
7 Sol ar System M aint enance 85,000 85,000 85,000
8 W ater Syst em M ai ntenance 1,102,500 1,102,.500 1, 02,500 9 W ater 0onst r u ctio n 0 0 0
10 W ater System Op erati<ons 0 0 0
11 Adm in istratiion De.sign 1,3 96,200 1,403 ,.200 1,410 ,300 12 W at,er 1Quality 0 0 0
13 W ater Re:s.ou r,ce.s 0 0 0
14 Su b,t ota I Ot her Ope rat i ng Reve nue $ 2,.583 ,700 $ 2,59 0,700 $ 2,597 ,800 15 T otal l Revem:ILll e $, 64,1069 ,10@0 $ 73,4 8.5,'9@0 $, ,8.4,343,400 Revem1 e Req ILll irem elilts
Operat ing & M aint enance
16 O&M Expense.s 58,973 ,100 6,3,51 5,100 6-8,539,900
17 Su b,t ota I O&M $ 58,973,100 $ 6,3,51 5,100 $ 68,539,900 Transfers
18 Tr ansfer to O t her Fund s 27.8;900 278,900 278,900 19 Tr ansfer to Rate Sta bili zat io n Fund 0 0 6,350,000 20 Tr ansfer to Pens i,otn St abili zat io n Fund 199,400 199,400 199,400 21 Tr ansfer t,o W ater 0onstruct io n Fund 4,550,000 5,750,000 5,750,000 22 Tota l Transfers $ 5,028,300 $ 6,228,300 $ 1 2,578,300 23 Tot.rl l Reve,m e Resq11'ir,emem,ts $ 64,10@1,.40(1) $69,743,400 $ .S.1,.118,200 24 Net Annu al Cas h Bal ance 67,600 3,742 ,.500 3,225 ,200 25 Beginn ing Fund Bal ance 9,891,6·00 9,959,.200 13,701,700 26 Net Cumul,at iv,e Fund Bal ance $ 9;959,200 $ 13,701,700 $ 1 6,,92 6,900 27 M i nimum Operat ing Re.serves (90 Days) $ 14,541,300 $ 1 5,66,1,300 $ 1 6,900,200 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 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.
(.$) f$) l$l
Rev em,u e
Rate Revenue
1 Revenue from Exist i ng Rate.s 6;990,30 0 7,0 60 ,200 7,130,70 0 Ye,ar M ont hs E e.ctive Rat e Adj
2 FY 202 5 1 2 1 5.00% 1,0 48,500 ,0 59,000 1,069,600
3 FY 202 6 2 1 5.00% ,217,9 00 1,230,000
FY 202 7 1 2 1 5.00% 1, 14,500
5 lncre,as,e.d Revenue Due to Adj ust ments. 1,0 48,500 2,27 6,9 00 3,7 14,100 6 Su b,t ot a I Rate Revenue $ 8,0 38,800 $ 9,337,100 $ 10,8 44,800 Other Operat ing Revenue
7 System M aint enance 97,600 99,600 0 1,600
8 Sout h Bay W ater Recycl ing Sy.stem M ai nten an 728,400 760,200 78 2,800 9 Su b,t ot a I Other Operat i ng Revenue $ 8 26,000 $ 859,,800 $ 8 84,400 10 Tota'II Revemme $ s;Bi64,;&@o $ 10,196,:900 $, 11,729.200 Revem,ue Req111 iremelilt:s
Operat ing ,&. M aint enance
11 O&.M Expen.se.s 9,1 64;9 00 10,344,9 00 11,664 , 0 0 12 Su b,t ot a I O& M 9,1 64 ,9 00 10,34 ,9 00 11,664 , 00 Transfers
13 Tr an.sfer t o Rate St abili zat io n Fund 0 0 0
14 Tr an.sfer t o Pensiot n St abili zat ion Fund 0 9,800 9,800 15 Tr an.sfer t o Recycl ed W at er Const Fund 0 0 0
16 Tot al Transfers 0 9,800 9,800
17 Totall Reverm e Requ'ir,em ent:s $, 9,1'64~900 $ 10,.3,54,700 $ U ,i673;9oo 18 Net Annu al Cash Balanc,e (300,100) (157,800) 55,300 19 Beginn ing Fund Balance 3,295,300 2,995 ,200 2,837 ,400 20 Net Cumulat ive Fund Bala nce $ 2;995,200 $ 2,8 37,400 $ 2,89 2,70 0 21 M i nimum Operat ing Reserve.s (9 0 Days) $ 2,259,800 $ 2,.550,800 $ 2,87 6,100 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 2-14

Figure 2-4 Water Operating Cash Flow

Figure 2-5 Recycled Water Operating Cash Flow
$9{),000,000
$80,000,000
$70,000 ,000
$60,000,000
SS0,000,000
$40,000,000
$30,000,000
s20,ooo,ooo
Sl0,000,000
so
- O&M
-a- Re.1enue
$14,000,000
S12,ooo,ooo
Sl0,000,000
SS,000,000
$6,000,000
$4,000,000
S.2,000,000
so
- O&M
-a- Re.1enue
Water Utility - Ope rating fu nd
-
2025 2026 2027
- Debt Service - Capit al Projects - Rate St abililation -e-- Cash Balance - Target Cash Balance
Recycled Water Utility - Operating fund
- -
2025 2026 2027
- Debt Service - Capita l Projects - Rate St abililation -e-- Cash Balance -., Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 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 2025 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 2025.

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

Line No. De~cri tion
Reve1i111e ReqlLll'iiriemeat:s
1 O&M Expense.s.
2 Debt Servke
3 Tr ansfers
Sub,t ota l
Operating
Expense
(.$)
58,973 ,100
0 478,,300
59,451,400
Less Reven11e Req11iir,emelil 1t s M et from Ot:li er Souroe .s 5 Solar Syst em Ma i ntenance 85,000
5 W ater System Ma int enance 1,102,500
7 W ater Constructio n 0
,8 W ater System Ope r at io ns 0
9 Admi nistrat ion Design 1,3 95,.200
10 W ater Quality 0
11 W at er Re.s.ou r,ce.s. 0
12 Sub,t ota l 2,58.3,700
Adj:11J1&tm ent.'S
13 Adj ustm ent for Annu al Cash Balance (57,600 )
14 Subtot al (57,600 )
15 Cost of Servi,ce t o be Recovere d from Rate.s. $ 55,935 ,300 $ Capital
Cost
l$l
0 0
,550,000
4,550,000
0 0
0 0
0 0
0 0
0 0
4,
550,000
Total
Cost
(.$)
58,973 ,100
0 5,028,300
64,00 ,400
85,0 00
1,102,.50 0
0 0
,395,200
0 0
2,58.3,700
(6,7,600 )
(67,600 )
$ 6, ,485,300
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 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 23, and Table 2-10, Line 17. 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, Line 9, 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 $67.6k figure indicates that the forecast is projecting a positive cash balance for the year. In the case of the Recycled Water Utility, the $300.1k figure indicates that the forecast is projecting a negative cash balance for the year.

3.1 F unctional 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.

Line No. Descri tion
Reve,rn e Req 1J11ir,em eililt:S
1 O&M Expense.s.
2 Debt Servke
3 Tr ansfers
Sub,t otal
Operating
Expense
(.$)
9,1 6 4;900
0 0
9,1 6 ;900
Less Revenue Requiir,em ent:s M et from Otli er Souroe.s 5 System M aintenance 97,600
6 Sout h Bay W ater Recyd i ng Syst em M ai nte 728, 0
7 Sub,t otal 826,000
Adj:1J1&t:m ents
8 Adj ust ment for Annu al Cash Balance 300,100
9 Sub,t otal 300,100
10 Oost of Servi,ce to be Recovered from Rate.s. $ 8,0 38,,800 $ Capital
Cost
l$l
0 0
0 0
0 0
0 0
0 0 $
Total
Co,st
(.$)
9,.1 6 ,9 00
0 0
9,1 6 ,900
97,600
728,400
826,000
300,100
300,100
8,0 38,,800
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 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 fac ilities 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 Analysis 3-4

3.2.2 Allocation of Operating and Maintenance Expenses
In allocating O&M expenses for TY 2025, 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 14 and Table 3-2, Lines 7 and 9. 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)

Descri tion

IS) IS) IS) IS) IS) IS) IS)
Wat er Uti lity
Operating Expenses
153 2 Solar System M aintenance 274,500 0 0 0 2 74,500 0 0 0 1422 W ater System M aintenance
Custom er Service 470,900 0 0 0 0 4 70,900 0 0
3 Backfl ow Prevention 1,22 2,500 0 0 0 0 0 0 1,222,500 4 All othe r 99 7,400 544,800 276,400 1 66,200 0 0 10,000 0 1423 W ater Construct ion 3,938,100 2,150,900 1,09 1,400 656,400 0 0 39,400 0 1424 W ater System Operations
6 Generation & Pumping 1,268,500 83 3,900 4 21,900 0 0 0 1 2,700 0 Custom er Billi ng & M eter Reading 79 2,800 0 0 0 0 792 ,800 0 0 8 M eters 37 1,700 0 0 0 37 1,700 0 0 0
Hydrants 1,424,300 0 0 0 0 0 1,424,300 0
9 All othe r 7,100,800 3,878,400 1,96 7,900 1,1 83,500 0 0 7 1,000 0 10 1411 Administration Design 3,9 46,800 2,663,900 269 ,500 143,900 55 2,800 90,600 138,400 87,700 11 141 2 W ate r Qua lity 579,600 463,700 0 0 110,100 0 5,800 0 1 2 141 3 W ater Re.s ources
W ater Purchase 36,090,900 28,872,700 0 0 6,85 7,300 0 3 60,900 0 13 All othe r 49 4,300 395 ,500 0 0 93,900 0 4,900 0
14 Transfers 478,300 322,800 3 2,700 1 7,400 67,000 11,000 1 6,800 10,600 1 5 Total O& M Expenses S 59,451,400 S 40,1 26,600 4,0 59,800 s 2,1 67,400 s 8,327,300 1,365 ,300 s 2,0 84,200 1,320,800 Less Other Revenue
16 M iscell aneous Revenues 2,58 3,700 1,743,900 1 76,400 9 4,200 361,900 59,300 90,600 57,400 17 Other Adj ustments 167,600) 145,500) 1 4,600) 12,500) 19,500) 1 1,600) 12,400 ) 11,500) 18 Net Operating Expenses S 56,935 ,300 $ 38,42 8,200 3,888,000 s 2,07 5,700 7,9 74,900 1,30 7,600 s 1,996,000 1,264,900 ($) ($) ($) ($)
Recyd ed Wat er Ut ility
Operat ing Ex penses
1 1522 Syste m Ma int ena nce
2 W ater Purchase 7,636,200 7,636 ,200 0 0 0 0
3 Custome r Billi ng & Mete r Rea ding 3,600 0 0 0 0 3,600 4 Meters 533 ,600 0 0 0 533 ,600 0
5 A ll other 283 ,100 11 8,900 83,300 80,900 0 0
6 152 5 Sout h Bay W ater Recycl ing Syste m 70 8,400 416,700 291,700 0 0 0 7 Tra nsfers 0 0 0 0 0 0
8 Tot a l O&M Ex pens es $ 9,164,900 $ 8,171,800 $ 375 ,000 $ 80,900 $ 533 ,600 $ 3,600 Les s Othe r Revenu e
9 Mis ce lla neous Reve nu es 826,000 736 ,500 33,800 7,300 48,1 00 300 10 Ot her Adj ustm ents 300,100 267,600 1 2,300 2,600 17,500 100 11 Net Operat ing Ex penses $ 8,0 38,800 $ 7,167,700 s 328,900 s 71,000 s 468,000 s 3,200 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 3-5

3.2.3 Allocation of Capital Investments
In allocating the capital investment for TY 2025, the existing fixed assets (which serve as a proxy for the current capital investments) are allocated directly to cost components to the extent possible. The allocation of costs in this manner provides a basis for annual investment in water and recycled water system facilities. Plan capital costs can be allocated using the distribution of total net system investment across the functional cost components. Table 3-5 and Table 3-6 show the total allocation of existing system investment serving water and recycled water customers. The total net system investment of $61.2M shown on Line 11 for the Water Utility and $1.1M on Line 9 for the Recycled Water Utility represents the Test Year original cost less accumulated depreciation of the system in service. The total net system investment reflects the Water and Recycled Water Utilities fixed asset listing ending June 30, 2023. 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 U nits of Service
To properly recognize the cost of service, each customer class receives its share of base, maximum day, peak hour, and customer costs. Following the allocation of costs, the total cost responsibility for each customer class is developed using unit costs of service for each cost function and subsequently assigning those costs to the customer classes based on the respective service requirements of each. The number of units of service required by each customer class provides a means for the proportionate distribution of costs previously allocated to respective cost categories.

L N I D . t · I T t I C t

IS) I S) I S) I S) I S) I S) I S) I S)
Wate r Utility
Plant Assets
W ater Production 19,000,900 1 5,200,700 0 0 3,6 10,200 0 190,000 0 2 Pumping 2,891,300 1,900,900 961,500 0 0 0 28,900 0
3 Treatment 1,790,700 1,177,300 595 ,500 0 0 0 1 7,900 0 4 Transmission & Distribution 28,759,500 1 5,708,400 7,9 70,200 4,79 3,300 0 0 2 87,600 0 M eters & Services 6,60 4,100 0 0 0 6,60 4,100 0 0 0
6 Fire Hydrants 589,900 0 0 0 0 0 589,900 0
General Plant 1,542,700 879,200 246,500 1 24,000 264,200 0 28,800 0 8 Total Plant Assets S 61,1 79,100 S 34,866,500 9,77 3,700 s 4,9 1 7,300 S 10,478,500 0 s 1,143,100 0 Less Other Revenue
9 M iscell aneous Revenues 0 0 0 0 0 0 0 0
10 Other Adj ustm ents 0 0 0 0 0 0 0 0
11 Net Capital Ex penses S 61,1 79,100 S 34,86 6,500 9,77 3,700 s 4,9 1 7,300 S 10,478,500 0 s 1,143,100 0 Line No. Description Ba.se Max.Day Max. Hour Meters Cust/B ill . ($) ($) ($) ($) ($) ($)
Recycled Wat er Utility
Plant Assets
1 W ater Produ ct i on 0 0 0 0 0 0
2 Pumping 0 0 0 0 0 0
3 Treatm ent 0 0 0 0 0 0
4 Transmission & Distri but i on 1,0 72,600 450,600 315,500 30 6,500 0 0 5 Meters 0 0 0 0 0 0
6 Tot al Plant Assets s 1,0 72,600 s 450,600 s 315,500 $ 30 6,500 $ 0 $ 0 Less Other Revenue
7 M iscell aneous Revenues 0 0 0 0 0 0
8 Ot her Adj ustm ents 0 0 0 0 0 0
g Net Ca pit al Expenses s 1,0 72,600 s 450,600 $ 315,500 $ 306 ,500 $ 0 $ 0 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 3-6

Table 3-7 summarizes the estimated TY 2025 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 c osts 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 C ost 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 t he 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 2025 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 2025. 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) 6.45$ per HCF General Customer Consumption (Table 3-6, Line 2) 6,358,416 HCF Total Allocated Cost 41,021,300$
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 Analysis 3-1

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

Table 3-8 Units Cost of Service (Water)

.. Fire
Annual Avg. Day Factor Total Extra Factor Total Extra Cust/811ls Protection Column Reference (1) (2) (3) (4) (5) (6) (7) (8) (9 ) (10) (11) (1 2) Units of M eas ure (HCF) (HCF/ day) (HCF/ day) (HCF/ day) (HCF/ da y) (HCF/ da y) (EMs ) (b ill s ) (EHs ) (EMs ) Wat er Uti lity
1 General Cust omer 6,358,41 6 17,420 166% 28,9 18 11,497 249% 43,377 14,459 45,352 316,985 0 0 Subtotal 6,358,41 6 17,420 28,9 18 11,497 43,377 14,459 45,352 316,985 Fire Service
Public Fire 0 0 558 558 4,468 3,909 0 0 3,437 0
4 Private Fire 0 0 284 284 2,270 1,987 0 1 5,285 1,747 0 Subtota l 0 0 842 842 6,738 5,896 0 1 5,285 5,184 0
Cross Connect ion
6 Cross Connect ion 35,556 0 8,424
Subt ota l 0 0 0 0 0 0 0 35,556 0 8,424
8 Tota l W ater System 6,358,41 6 17,420 29,760 1 2,340 50,11 5 20,355 45,352 367 ,826 5,184 8,424 Recycled W at er Ut ility
9 General Custo mer 1,566,335 4,29 1 1 30% 5,579 1,287 195% 8,368 2,789 2,366 3,341 0 0 10 Subt ota l 1,566,335 4,29 1 5,579 1,287 8,368 2,789 2,36 6 3,341 0 0 ($) ($) ($) ($) ($) ($)
W at er Ut:ility
1 Net O perat i ng Expense 56;935 ,300 38,4 28,200 3,888,000 2,075 ,700 7,97 4;900 1,30 7,600 1,996,000 1,264,900 2 Debt Servi ce 0 0 0 0 0 0 0 0
3 Cap ita l Costs 4,550,000 2,593,100 726,9 00 365 ,70 0 779,300 0 85,0 00 0 4 Tot al Cost of Servi ce $ 61,485 ,300 $ 41,0 21,300 $ 4,6 14,900 $ 2,4 41,400 $ 8,75 4,200 $ 1,30 7,600 $ 2,0 8 1,000 $ 1,264,9 00 5 Units of Servi ce (Tota l ) 6,358,41 6 12,340 20,35 5 4 5,352 367 ,826 5,1 84 ,8,4 24 HCF HCF/ Day HCF/ Day Eq. M eters Bill s Eq. Hydr ants Eq. M eters 6 Cost per Unit $ 6.45 $ 373 .99 $ 119 :94 $ 193 .03 $ 3.55 $ 401.4 6 $ 1 50.1 5 per HCF per HCF/ Day per HCF/ Day per Eq. M eter per Bill per Eq. Hydr ant per Eq. M eter City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 3-2

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

($ ) ($) ($) ($) ($) ($ )
W at er Ut:i'lity
General Customer
1 Units 5,358,41 5 11,497 14,4 59 4 5,352 31 5,985 0 0
2 All ocat ion ,of costs of service 55;935,500 41,0 21,300 4,299,900 1,73 4,20 0 8,75 4,200 1,1 25,90 0 0 0 Publ i,c Fi re
3 Units 0 558 3;9 09 0 0 3,437 0
4 All ocat ion of c,osts of service 2,0 57,600 0 208;900 4 58,9 00 0 0 1,379,800 0 Private Fi re
5 Units 0 284 1;987 0 1 5,285 1,747 0
5 All ocat ion ,of costs of service 1,0 99,900 0 105,100 238,30 0 0 54,30 0 701,200 0 Cross Connect i on
7 Units 0 0 0 0 35,555 0 .8,4 24
8 All ocat ion ,of costs of service 1,391,300 0 0 0 0 1 25,400 0 1,254,9 00 7 TOTAL COSTS OF SERVICE $ 51,485,300 $ 41,0 21,300 $ 4,614,900 $ 2,441 ,400 $ 8,75 4,200 $ 1,30 7,60 0 $ 2,0 81,000 $ 1,264,900 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 3-3

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

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

(.$) !$) ($1 !$) ($)
Recyded W ait er Utirtity
1 Net Oper ati ng Ex.pens,e 8,038,.SOO 7,1 67,700 328,900 71,000 468,000 3,200 2 Debit Servi,ce 0 0 0 0 0 0
3 Ca pit a I Oosts 0 0 0 0 0 0
4 Tota I Oost of Servi,ce $ 8,0 38,800 $ 7,1 67,700 $ 328;900 $ 71,000 $ 468,000 $ 3,200 5 Un its of Servi,ce IT ot a I I 1,566,335 1,287 2,78:9 2,366 3,341 HCF HCF/ Day HCF/ Day 6q. Mete rs Bill s
6 Oost per Unit $ 4 ..58 $ 255 .48 $ 25 . 5 $ 197.82 $ 0 .95 per HCF per HCF/ Day per HCF/ Day per 6q. Mete r per Bill Une .J j Total Co,,,
Common to All Customers
Base Extra Capacity Cusiomer
Des-cript1on
!$) ($) !$1 (.$) !$)
Re,cyd ed Water Utility
General Custom er
1 Units 1,566,335 1,287 2,789 2,366, 3,341
2 Alloca t io n of ,costs of servke 8,03 8,8:00 7,1 67,700 328,900 71,0 00 468p oo 3,20 0 3 TOTAL OOSTS OF SERVICE $ 8,038,8:00 $ 7,1 67,700 $ 328,900 .$ 71,000 $ 68,0 00 $ 3,200 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 E xisting 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 P roposed 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 2025. 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 2025 (Water)

Table 4-2 Proposed Minimum Monthly Service Charge (Water) Meter & Public Fire Protection
Mt r l'Jnit FP l'Jnit Mete r Adjust ed Adjusted
Cost Co.st Rat io l'Jnit Co.st l'Jnit Cost Bill Rat io l'Jnit Cost per EM per EM s per Bill s $/ M ont h
5/ 8" X 3/4" 1 6.09 3.78 1.00 19B7 3.55 LOO 3.55 23 .42 1" 1 6.09 3.78 1.67 33 .11 3.55 1 .00 3.55 36.67
1-1/ 2" 1 6.09 3.78 3 .33 66.22 3.55 1 .00 3.55 69 .78
2" 1 6.09 3.78 5.33 10 5.:95 3.5 5 LOO 3.55 10 95 1
3" 1 6.09 3.78 10 .67 21 L 91 3.55 1.00 3.55 21 5.46
4" 1 6.09 3.78 16 .67 33 1.11 3.55 1 .00 3.55 334 .66
6," 1 6.09 3.78 33 .33 662 .21 3.55 1 .00 3.55 665 .77
8" 1 6.09 3.78 53.33 1,0 59.5 4 3.55 LOO 3.55 1,063 .0 9 10 " 1 6,09 3.78 80 .00 1,589 .31 3.55 1 .00 3.55 1,59 2.86 1 2" 1 6.09 3.78 11 2 .50 2,234 .:96 3.55 1 .00 3.55 2,.238.52 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-2

Table 4-3 demonstrates the recycled water cost elements incorporated into the minimum monthly service charge for FY 2025. 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 2025 (Recycled Water)

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

FY 202.5
4Ll•t•it4•~
FY20 26 ~
Mlrn'inn1m M'o ntililiy M'et e r Ra1tes 1($./M'omtihl' $/ mont h $/ mont h $/ month 5/ 8 " x 3 / 4" 23 _42 26,89 30 _90
1" .36_67 4 2.2 48-66
1-1/ 2'" 69_78 ,80_61 93 .0 6
2" 109,_51 1 26_65 146$ 3
3 " 21 5 _46 2 9 _43 288 . .41
4 11 33 4_66 387 -56 448.24
66,5:77 77 1.26 892 _22
8 " l ,0 6,::L09 1,23 1.69 1,425 _0 0
10"' 1,592,86 1,84 5 _60 2,13 537
1 2"' 2,238 _52 2,593'8.0 3,0 01 _13
Mtr UJ n iit M et er Adj.usted Adj,u.sted
Co.>t Rait:i'o UJ n iit Co.>t Unit Co.st Bill Rait:io Unirt Co.st per EM s per Bill $ $/ Mont h
5/ 8"' X 3/ 4"' 1 5_49 1 _0 0 1 6 .49 0 :9 6 1.00 0 _95 1 7-44 1" 1 5_49 1 _57 27 .48 o_95 1.00 o_95 28-43
1-1 / 2" 1 5_49 3.33 54:95 0 :9 6 1.00 0 _95 55 _9 1
2"' 1 5_49 533 87 :92 0 :9 6 1.0 0 0 :96 &8.88
3 " 1 5_49 10_57 1 7 5.84 0 :9 6 1.00 0 :96 1 76.80
4" 1 5_49 1 6-67 27 4.75 0 :9 6 1.00 0 :96 275 .71
6,'• 1 5_49 3333 549 .50 0 :96 1 .. 00 0 _95 550-4 6
8" 1 5_49 53.33 879 _20 o_95 1.00 o_95 880_1 6
10" 1 5_49 .so_oo 1,318 .,81 0 :9 6 1.00 0 :96 1,319 . .76 12" 1 5_49 11 2_50 1,854_57 0 :9 6 1.0 0 0 :96 1,8 55-53 Proposed I
Customer Class -
MTrn.lm1.1m M'o ntih'liy M'et e r Railes 1($./M'o mtih) $/ mont h $/ mont h $/ mont h 5/ 8 " x 3 / 4" 17 _44 201) 6 23 _11
1" 28,43 32 _77 37,83
1-1/ 2"' 55 :91 54_57 74_63
2" .S8B 8 102_72 11.8_79
.3" 176,80 204A 7 236 ..55
4 " 27 5 _71 3 18 _93 3519 _04
fill 550 _ 6 535 _,a:9 737 .0 5
,gn 880 _16 1,018 _44 1,178_6:6,
10"' 1,3 19 _76 1,527 _17 1,76,7 . .47
1 2"' 1,B55 _53 2,147 _18 2,485 _0 9
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 1,274 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 2025

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 2,963 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.

UJnut:Co.st
per EH $/ Mont h
2" 52 .48 0 .0 5 3.15 3 .1 5
4" 52.48 0 ,3 17.84 1 7.84
Gill 52.48 1.00 52.48 52.48
a'· 52.48 2.13 111 .7.S 11 .7.S
10"' 52.48 3B3 201 .00 201 .00
1 2" 52.48 5.19 32 4.85 324.8 5
Proposed I
Fiire Se rvfoe 1($,/M olilthl· $/ mont h $/ month $/ mont h 2" 3 .15 3 .55 3 _9 5
4 11 1 7.84 20.09 2239
6i" 52.4 8 59.09 6,5.86 ,
,8" 111 .7.S 12 5.85 140.2.8
10'" 201 .00 225 .3 1 252 .23
1 2'" 32 4.85 355.75 407 .. 66
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 2025

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

4.3 T ypical 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.

Cost Rartfo UJnit Cost
per EM $/ Mont h
1" 1 3.76 0 .63 8 .60 8 .60
2" 1 3.76 1.00 13.76, 13 .76
,3" 1 3.76 2.0 0 27 . .53 27 .53
4" 1 3.76 3.13 43.0 1 4 3.01
fill 1 3.76 6.25 .&6.0 2 ,8,6,.02
a" 1 3.76 10 .0 0 137$3 1 37 .63
10"' 1 3.76 1 5.0 0 206 .44 20 6.

Proposed I
~-
Cr,o.s.s uolil1itectfo111 1($/M'orn,tlhJ $/ mont h $/ mont h $/ mont h 1" a.5o 9 . 5 10.42
2" 1 3.76 1 5.11 16.68
,3" 27 .53 30.23 3336
4 " 43 .01 4 7.23 52 .12
Gill ,86.0 2 9 6 104.25
g," 13 7.63 1 51.14 166.79
10"' 20 6.44 226 .71 250.1 9
I Proposed I
--$/ HCF $/ HCF $/ HCF
u oMump tir.on 10ha11"1ges 1($,/HCH
W a,t er UJtillity
General Custo mer 8 .9 0 10.27 11 .87
Recyded W art,er Utility
General Custom ers 5.0 6 5.82 6.69
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-5

Table 4-10 Typical Monthly Bill (Water)

Table 4-11 Typical Monthly Bill (Recycled Water)

4.4 N eighboring 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 April 2024.

Typical
Monthly
Customer Class Usage
Genera l Customer
Recyd ed W aile r Utiility
Genera l Customer
(HCF)
0 3
5 10
12 20
30 40
50 Typical
Monthly
Usage
(HCF)
0 3
5 10
12 20
30 40
50 FY 2024
Existing
Rates
(.$)
.$2 1. 8
$2 1. 8
$39.8 5
$79 .70
.$95.6
$1 59 .40
$239 .10
$3 18 ,80
$398 .50
I '
.$90 .60
$13 5.90
$ 18 1 .20
$226 .50
FY 2025
Proposed
Rates
!$)
$23 .4 2
$23 .42
$44.48
$&8 :97
$106.76,
$177 .9 4
$2 66.9 1
$3 55 .88
$444 ,B.5
-!Sl
$17.44
$2 53 1
$ 50 .6,3
$60 .7 5
$10 1.25
$1 51 .88
$202 .50
$ 253.13
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-6

Figure 4-1 Comparison to Neighboring Water Utilities

$250 .00
$200 .00
$1 50 .00
$1 00 .00
$50 .00
$0.00
Water Rate 12 HCF
Sewer Rate
Combined
Sunn yvale
$86 .50
$67.95
$1 54.45
~ nta Clara SJWC
$106.80 $125.44
$52.37 $49.59
$159.17 $175.03
I I
Mountain View San Jose (Muni) Milpitas Palo Alto
$122.86 $132.25 $116.72 $152. 19
$54.60 $49.59 $66.79 $55.93
$1 77.46 $181.84 $183.51 $208.12
*All rates are proposed for FY24-25
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), outlet charges, conveyance fees, connection charges, interest earned from the investment of available funds, engineering fees, and other miscellaneous revenues. The Sewer Utility is constantly looking for other sources of revenue, such as loans, bonds, and grants. Black & Veatch has projected the level of future revenue generated in the Study through an analysis of historical and future system growth in terms of the number of EDUs, bil ls, 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 Plati ng; 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:
1 ● Have a sewage discharge of at least 25,000 gallons per day; or ● Have a daily discharge that is intermittent or irregular in strength, amount, or nature.

5.1.2 Equivalent Dwelling Units
The City provides sewer services to over 25,547 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 0.2% 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.

Table 5-1 EDUs

1 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 Requirements 5-2

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 his torical minimum bills patterns for non-residential customers and anticipated growth within the City, the projected total number of minimum bills is expected to remain constant over the Study period.

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

Table 5-2 Minimum Monthly Service Bills

5.1.4 Contributed Sewage Flow
The City charges all its non-residential customers based on contributed sewage flow, which is determined by multiplying water consumption by a return factor. In determining the projected sewage flow, Black & Veatch analyzed historical sewage flow patterns in conjunction with a projected estimate of future water consumption. In conjunction with water consumption, contributed sewage flow has fluctuated based on drought conditions in the state. In addition, the City’s Water Shortage Contingency Plan remains in effect, and customers have made conservation a way of life. Therefore, the City projects that sewage flow will remain flat over the Study period.
(EDUls)
1 Single Family 255,9 44 257 ,5&5 258,230
2 M ult i Family 318, 49 3 19,245 320,04 3
3 T,ot al 575,393 576,S3 1 578,273
(Bill s)
1 Amusement Parks 1 5 11 5 11 5
2 Auto Dealers & Servk e St at io n 3&5 38,6, 3&5
3 Chu r,ches 268 268 268
Oomme r,ci al/ lndustrial/ M isc,ell aneous 10,.262 10,262 10,262 5 Electri,c & Electro n i,c 6q u i p. 425 4 25 425
5 Fiood and Kindred Products 29 29 29
7 Hospita ls. & Convalesce nt Homes 31 5 316, 3 1 6
8 Ind ust ri.a I Chem i,c a I 3 43 43
9 Laun dries 138 13 8 13 8
10 M achinery M anufa cturers 72 1 72 1 72 1
11 Metal Plat i ng 93 93 93
12 Mot els & Hotels 53 53 53
13 Paper 13 1 3
14 Repai r Shops& . Ca r W ashes 459 469
15 RJest a u rants 26 4 26 4
15 Schools & Co lleges 533 533 533
17 Tot al 14,1 28 14,1 28 14,.1 28
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-3

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. In the 2023, the City’s last major user customer left the City, therefore there are no major users for the duration of the Study period.

5.2 R evenue 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 5-4 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. 1 Amus,ement Parks 67,629 67,6,29 67,629
2 Auto Dealers & Servi,ce St at io n 27,029 27,029 27,029 3 Chu r,ches 14;991 14r99'1 1 ,991
Oom mer,c i a 1/ 1 n d ustri a 1/ M isc,el I a neous 1,273 ,399 l r273,399 1,273 ,399 5 Elect ri,c & Elect r,on i,c 6q u i p. 454,347 454,347 45 ,347 6 Fiood and Kind red Pro du cts 16,57 1 16,,57 1 1 6,571 7 Hos.pit a ls & Convalescent Homes 90,459 '90, 59
8 Indu st rial Chem i,cal 14,7 8 14,718
9 Laund ries 24,247
10 M achinery M anufac t urers 36,85 4
11 Met al Pl at i ng 6,441
12 Mote ls & Hotels 101 ,779 101,779 101 ,.779
13 Paper 45 4 5 45
14 Repai r Sh ops &. Ca r W ash es 11,0 76 11,07 6 11,0 76 15 Rest aurants 72,265 72r265 72,265
16 Schools & Colleges 44,6-83 44,68.3 4 ,683
17 Tot al !HCF) 2,256,533 2,256,,533 2,256,533
18 Tot al !AF) 5,1.80 5,180 5,1.80
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-4

Table 5-4 Existing Sewer Rates

Table 5-5 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 $41.0M in FY 2025 to $41.1M in FY 2027.

(Section left intentionally blank)

Existing
______ Description _____ _
Resident:1a'II (-S/ EDU)
Si ngle Family 48.28
Mu lt i-Family 45.88
Nonr-Resident:tlil'II [1] (-S/ HCF)
Amus,ement Parks 6.15
Auto Dealers & Service St at io n 6.76
Chu rches 5.55
Com/ Ind/ M isc 5.87
Elect ri c &. Elect ronic Equ i p. 5.55
foo d and Ki nd red Produ cts 13.45
H ospit a Is -&. Convalesce nt Hom es 6.72
Industria l Chemica l 10.0 2
Laund ries 6.0 2
M achi nery M anufact urers 8 .16
Met a I Pl at i ng .50
M otels & Hote ls 7.0 9
Paper 13.82
Repair Shops &Ca r W ashes 5.15
Resta urants 13.70
Schools & Col l,eges 6.54
L
Existing
Des.cription
MaJor Comm ercia II a n.d ll'nd u:stnia II llse rs
Annu al Capit al Cost Recovery
Volume (per MG D)
BOD [2] (per 1,000 l hs/ ,day)
SS [3] (per 1,000 lhsj,day)
NH3 [4] (per 1,000 l hs/,day)
Oper at i ng a nd M ai ntenance Cost Recovery
Volume (per MG)
BO D [2] (per 1,000 l hs)
SS [3] (per 1,000 lhs.)
NH3 [4] (per 1,000 l hs)
1,147 ,617
85,145
77,042
466,740
3,315.00
502 .00
625 .00
5,125 .00

1. In n o ,case s hall t he mi nimum c harg;e be less t han $ 8.28 per month .

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

Table 5-5 Projected Revenue under Existing Rates

5.3 O ther 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 2.9% 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 O perating and Maintenance Expenses
Table 5-6 summarizes the Sewer Utility’s projected O&M expenses for the Study Period. These expenses include costs related to salaries and benefits, materials and supplies, contract and professional services, RWF costs, indirect and direct costs, and routine capital outlay. The City anticipates that all O&M expenditures, excluding Water Pollution Control Plant costs, will increase on average by 5.1% annually from the FY 2025.

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.

(.$) 1$) (.$)
1 Single Family 1 2r270r9 00 1 2,301,600
2 M ult i-Family 14¥297,700 14,333 ,400
3 Amus,ement Parks 11,400 411 ,400
4 Auto Dealers & Servi,ce St at i,on 196,600 196,600 196,600 5 Chu r,ch,es 93,.800 93,.800 93,.800
6 Oom/ lnd/ M isc 7,7,80,000 7,780,000 7,7,80,000
7 Electrk & Electro n k 6q u i p. 2,48 1,400 2, 8 1,400 2,481,400 8 Fiood and Kind red Pro du cts 19 1,500 19 1,500 19 1,.500 9 Hos.pit a ls & Convales cent Homes 608,300 60 8,300 60 8,300 10 Indu strial Chem i,cal 104,600 104,600 10 ,600
11 Laund ries 1 9,000 149,000 149,000
12 M achinery M anufa ct urers 327 ,500 327 ,500 327 ,500 13 Met al Pl at i ng 32,700 32,700 32,700
14 Motels & Hotels 706;900 706¥9 00 706,900
15 Paper 1,200 1r200 1,200
16 Repai r Shops&. Ca r W ash es 77,,800 77,.800 77,.800 17 Rest aurants 978,,800 978,.800 978,.800
18 Schools &. Colleges 3 0,400 310,400 310,400
19 M ajor Users - Cust omer l 0 0 0
20 Total $ 40¥95 4,300 $ 41,020,500 $ 41,0 &6;900
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-6

Table 5-6 O&M Expenses

As shown in Table 5-6, the Sewer Utility’s O&M expenses increase from $30.1M in FY 2025 to $32.3M in FY 2027.

5.5 D ebt Service Requirements
Table 5-7 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 5-7 Long-Term Debt Service

5.6 C apital 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 5-8 summarizes the Sewer Utility’s CIP for FY 2025 through FY 2027. The Sewer Utility is projecting $41.6M 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.

(.$) 1$) (.$)
1 Salaries 3,1 29,.SOO 3,29 2,700 3,467,.300
2 Benefits 1,790 ,500 1,876,100 1,S81,5 00
3 M at eri a lsf Servk e.sf Su p,pl ie.s 60 3,700 61 5,700 62 7,9 00 4 I nt erfu n d Servi,ce.s 3,525,965 3,817,140 4,0 7,030 5 R,e.sou r,ce & Pro du ct io n 21,0 24,700 21,655 ,500 22,305,000 6 Capit al Out lay 0 0 0
7 Tot al $ .30,07 ,665 $ 3 1,257,140 $ 32,298,730
1$) 1$) (.$)
1 Existi ng Short and Lo ng-Term Loa n 3,298,500 3,296,800 3,298,300 2 Pro pos,ed Short-T,erm and Rev Bonds 0 0 9 72,300
3 Tot al $ 3,298,500 $ 3,296,800 $ 4,270,600
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-7

Table 5-8 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 5-9, the average annual CIP expenditure is $13.9M for the Sewer Utility. The planned average annual CIP contribution from the Sewer Utility Operating Fund is $17.4M per year over the Study period.

Table 5-9 Construction Fund Financing Plan

5.7 T ransfers
The Sewer Utility will perform transfers over the Study period from the Operating Fund and other funds.

The other funds consist of the Rate Stabilization Fund, Pension Stabilization Fund, and Construction Fund. See Section 5.8 for further explanation on Rate Stabilization and Pension Stabilization Funds. The (.$) 1$) (.$)
1 1908 SJ-SC Regio nal W astewat er Facili ty 9,290,500 13;918,400 6,.296,.500 1909 Sanit ary Sewer Capac ity
2 I mpr,oveme nts 0 0 0
19 11 Sanit ary Sewer System Oon d it io n
3 As,sessme nt 1,036,200 1,073 ,800 ,11 2,700
191 2 Sanit ary Sei.v.er System Improveme nts .3,21 2,400 1,18 1,200 2,.225 ,.500 19 19 Sanit ary Sewer Hydraul k Mode li ng As
5 Neede d Su p,p ort 1 27,600 322 ,100 137 ,000
6 Tot al $ 1 ,183,20 0 $ 17,052 ,9 00 $ 10,365 ,200
Scn1 roe of Fiu Iii.dis
1 Sanit ary Out let Ch a rge 0 0 0
2 Sewer Oonv,eya n c,e fiee 0 0 0
3 Intra Transfer In - Debt Financing 0 0 18,000,000
4 Intra Transfer In - Custome r Servi,ce Charge 1 6,250,000 1 6,000,000 20,000 ,000 5 Rcefun d fro m San Jos,e/ Cupertino 0 0 0
6 Tot al Sour,ces $ 1 6,250,000 $ 1 5,000,000 $ 38,000,000 U~e ,of Fiu Iii.dis
7 lmpr,ovements Projects 14,I.s3 ,.200 1 7,0 52,900 10,365 ,200 8 Tot al Uses $ 14,183,.200 $ 1 7,0 52,900 $ 10,36,5,200 9 Net Annu al Cash 6al ance 2,066,800 (1,0 52,9 00) 27,534,800 10 Begi nn ing Unrestrided Fund 6al ance 8,1'90,,827 10,257 ,627 9,.204,727 11 Net Cumulat ive Fund Bal ance $ 10,.257 ,.627 $ 9,204,727 $ 36,839,527 12 M i nimum Oonstru ctiion Res,erves $ 10,09.3,700 $ 7,21 6,,950 $ 23 ,6,7 5,000 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-8

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 5-10, Lines 19 to 23 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.  Infrastructure 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 CalPE RS 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 Requirements 5-9

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 5-10 is a summary of the proposed Operating Fund for the Study Period. The Operating Fund consists of 1) Revenue and 2) Revenue Requirements.

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

$80,000,000
$60,000,000
$40,000,000
$20,000,000
so
-$20,000,000
-$40,000,000
- O&M
-a- Re.1enue
Sewer Utility - Operating Fund
- --
202.5 2027
- Debt Service - Capita l fl roj ects - Rat:eStab ililat: ion -a- Cash Balance -., Target Cash Balance
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-10

Revenue Requirements
 Line 15 represents O&M expenses. The O&M expenses include RWF costs.  Line 18 represents debt service payments.
 Line 24 represents transfers. The transfers include money to the Rate Stabilization Fund, Other Fund, Pension Fund, and Construction Fund.
 Line 25 represents total revenue requirements.

Line 28 represents the net cumulative cash balance within the Operating Funds. The net cumulative cash balance intends to match, to the extent possible, Line 29. 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 30 represents the debt service coverage. Currently, the City does not have debt coverage requirements for the short-term loans, but the operating cash flow is set up to achieve a debt service coverage of 1.25x requirement is met in all years. The requirement will come into effect when long-term debt is used to refinance the short-term loans. The lending financial institution sets the debt service coverage ratio via a rate covenant that will also obligate the City to increase revenues as needed to meet the minimum debt service coverage requirement.

(Section left intentionally blank)

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-11

Table 5-10 Operating Fund (Sewer)

Des-cri tion Rf 202.5 Rf 2026 FY 2027
Revem.ue
Rate Revenue
1 Revenue fro m Exist i ng Rates 40,95 4,30 0 41,0 20,500 41,0 S6,,9 00 M ont hs
Ye,ar Effect iv,e Rat e Adj
2 2 0 25 12 12.1 5% 4;975 ,900 4,984,000 4,992 ,100
3 202 6, 12 12.1 5% 5,58:9,500 5,.598,600
20 27 12 12.1 5% 6,278,800
5 lncre.as,e.d Revenue Due to Adj ustme nts. 4,975 ,90 0 10,573 ,500 16,S619•,50 0 6 Su b,t ota I Rate Revenue $ 45;930,200 $ 51,594,000 $ 57,956,400 Other Ope rating Revenue
7 Syste m Administrat io n !Interest Income) 636,70 0 6 8,500 660 ,600 8 System M aint enance 20,000 2 0,000 20,000
9 Oper at io ns 1,750,000 375 ,000 375 ,0 00
10 SJ SC W ater Paoll utiion Contro l Pl.ant 0 0 0
11 Storm Pump M ai ntenance 0 0 0
12 Su b,t ota I Other Ope r at i ng Revenue $ 2,406,700 $ 1,043,500 $ 1,0 55,600 13 Tot.all Reve1u1e $ 48,33 6,:900 $, .52J63,7,500 $, .5·9,[email protected])(}(])0 Revem.ue Req Ill iirem ents
Ope rat ing & M aintenance
1 O&M Expenses 31,605 ,200 32,8 18,200 33,891,000
15 Su b,t ota I O & M $ 3 1,605,20 0 $ 32,8 18,200 $ 33,891,000 Debit Servi,ce
16 Exist ing Loa ns/ Bonds 3,298,500 3,296,800 3,298,300 17 Prop osed Loa ns/ Bonds 0 0 972 ,30 0
18 Tota I Debit Servk e $ 3,298,5 0 0 $ 3,296,800 $ 4,270,600 Transfers
19 Trans er t o Other Fund 50,300 50,30 0 50,30 0
20 Transfer t o Sett lement Re.serve 3,0 00,000 0 0
21 Transfer t o Rate St abili zat io n Fund 2,000,000 500,000 500,000 22 Transfer to Pens io n St abili zat io n Fund 78,20 0 78,200 78,200 23 Transfer to Sewer Construct io n Fund 1 6,.2 50,0 00 1 6,000,000 20,000,000 24 Tota l Transfers $ 21,378,5 0 0 $ 1 6,628,500 $ 20,628,50 0 25 Tota'II Reverme Requ'ir,emem,ts $ 56,.2.82,.20(]) $, 5.2,. 743,.500 $ 5:8,79 0,10(]) 26 Net Annu al Cas h Bal ance P ,9 45,300) (106,,000 ) 22 1;900 27 Beginn ing Fun d Bal ance 1 6,233 ,478 8,288,1 78 8,182,178 28 Net Cumul at ive Fund Bal ance $ 8,2.S8,178 $ 8,182,1 78 $ 8,404,0 78 29 M i nimum Ope rat ing Reserv,e.s (90 Days) .$ 7,793 ,100 $ 8,092,200 $ 8,356,70 0 30 Debit Servi,ce Coverage IM i n 1.2 5) 5.0 7 6.0 1 5,88 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-12

Figure 5-2 presents the proposed Operating Fund.

Figure 5-2 Sewer Operating Cash Flow

$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
- O&M
~ Revenue
Sewer Utility- Operating Fund
2025
- Debt Service
~ Cash Balance
2026
- Capital Projects
~ Target Cash Balance
2027
- Rate Stabilization
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 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 based on contributed sewage volume, strengths, number of customer connections, and other relevant factors.

In analyzing the Sewer Utility’s cost of service for allocation to its customer classes, Black & Veatch selected the annual revenue requirements for FY 2025 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 2025.

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 25. 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 $7.9M figure indicates that the forecast is projecting a negative cash balance for the year.

6.1 F unctional 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 separated into the following four basic functional cost components: (1) Base; (2) Strength; (3) Customer; and (4) Direct Assignment, described as follows:
1 2
3 5
6 7
,8
9 10
11 12
Descrip,tion
R,even ue R,eq u i rem ents
O&M Expense
Debt Servioe Requirement s
Transfers
Sub,t ota l
Operating
Expense
31,605 ,200
0 5,12.8,500
$ 36',733 ,700
Less Revenue Requ irements Met from Other Sour,ces
System Administrat io n 636,700
System M aint enance 20,000
Ope r at ions 1,750,000
SJ SC W ate r Pioll ut io n Contro l Plant 0
Storm Pump Ma i ntenance 0
Sub,t ota l $ 2,406,700
Adj ustm ents
Adj ustm ent for Annu al Cas h Balance 7,9 5,300
Sub,t ot al $ 7,9 5,300
·• I ·•
!Sl
0 3,298,500
1 6,250,000
$ 19,548,500
0 0
0 0
0 $ 0
0 $ 0
Total
Co,st
31,60 5,200
3,298,500
2 ,37.8,500
$ 56,282 ,200
636,700
20,000
,750,000
0 0
s 2,406,700
7,945 ,300
s 7;9145,300
13 Oost of Servioe to be Recovered rom Rates .$ 26,381,700 $ 19,548,500 S 45,930 ,.200 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 6-2

 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 treat ment. The treatment costs are specifically related to strength parameters such as Biological Oxygen Demand, Total Suspended Solids, and Ammonia.
 Customer costs are those expenditures that tend to vary in proportion to the number of customers connected to the system. These include meter reading, billing, collecting, accounting, maintenance, and capital costs associated with meters and services.  Directly assigned costs are specifically identified as those incurred to serve specific customers.

The Sewer Utility has no directly assigned categories.

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

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

6.2.2 Allocation of Operating and Maintenance Expenses
The Sewer Utility books operating costs by functional categories. Therefore, Black & Veatch used the factors noted in Section 5.1 to allocate the operating expenses to the cost components. In allocating O&M expenses for TY 2025, 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 Analysis 6-3

Table 6-2 Allocation of O&M Expenditures

6.2.3 Allocation of Capital Investments
In allocating the capital investment for TY 2025, the existing fixed assets (which serve as a proxy for the current capital investments) are allocated directly to cost components to the extent possible. Plan capital costs can be allocated using the distribution of total net system investment across the functional cost components. The allocation of costs in this manner provides a basis for annual investment in sewer system facilities. Table 6-3 shows the total allocation of existing system investment serving sewer customers for the TY 2025. 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, 2023. This value represents the original cost (book value) of the assets.

Table 6-3 Allocation of Capital Costs

6.3 U nits 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 cos ts previously allocated to respective cost categories.

Table 6-4 summarizes the estimated Test Year units of service for the various customer classes. Base costs vary with the volume of sewage flow produced and distributed to customer classes on that basis.

Volume BOD TSS NH3 Cu,st ome r
($) ($) ($) ($) ($) ($)
Ope ration & Ma intena nce
1 1511 System Administr at ion 5,41 6,900 2,553 ,500 9 17,600 926,500 9 42,100 77,200 2 151 2 System Ma int ena nce 2,201,200 2,201,200 0 0 0 0 3 1514 Ope rat ions 1,737 ,400 1,737 ,400 0 0 0 0
4 1515 SJ SC Wate r Pollut ion Cont ro l Pla nt
5 Trea t ment 20,482,100 7,0 11,900 4,436,200 4,4 79,400 4,55 4,600 0 6 Cust omer Billi ng & Meter Rea ding 373 ,0 00 0 0 0 0 373 ,000 7 A ll other 1,206,700 1,206,700 0 0 0 0
8 1516 St orm Pump Ma intena nce 187,900 187,900 0 0 0 0 9 Tra nsfers 2,078,200 979 ,700 352 ,000 355 ,500 36 1,400 29, 600 10 Tot a l O&M Expenses $ 33,683 ,400 $ 15,878,300 s 5,705 ,800 $ 5,761,400 $ 5,858,100 $ 479,800 Less Ot he r Revenu e
11 Misce lla neous Revenues 2,406,700 1,134,400 407,700 411 ,700 41 8,600 34,300 12 Ot her Adjustme nts 7,945,300 3,745,400 1,345,900 1,359 ,000 1,38 1,800 11 3,200 13 Net Ope rat ing Expenses $ 23,33 1,400 $ 10,998,500 s 3,952 ,200 $ 3,990,700 s 4,057 ,700 s 332 ,300 ($) ($) ($) ($) ($) ($)
Pla nt Assets
1 Collect ion 956,600 956,600 0 0 0 0
2 Lift Statio n 275 ,800 275 ,800 0 0 0 0
3 Genera l Pla nt 10 1,100 101 ,100 0 0 0 0
4 Tot a l Pla nt Assets $ 1,333 ,500 $ 1,333 ,500 s 0 $ 0 $ 0 $ 0 Less Ot he r Revenu e
5 Misce lla neous Revenu es 0 0 0 0 0 0
6 Ot her Adjustme nts 0 0 0 0 0 0
7 Net Ope rat ing Ex penses $ 1,333 ,500 $ 1,333 ,500 $ 0 $ 0 s 0 $ 0 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 6-4

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 C ost 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 2025 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) 5.36$ per HCF General Customer Consumption (Table 6-6, Line 5) 67,629 HCF Total Allocated Cost 362,500$
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 Analysis 6-1

Table 6-4 Units of Service

Line iiffl\MM\t¥iiiffl\MM0¥1
_ No. Description ___________ _ Unit .s Volume Fa.ctor Loading Factor Loading Factor Units of Measure (EDUs/M Bill s) (HCF) (mg/L) (lbs) (mg/L) ( lbs) (mg/L) (lbs) (bill s) 1 Single Family 260,659 1,361 ,.851 250 2,124,100 250 2,1 24,100 35 297,400 247 ,203 2 M ulti-Family 318,461 1 ,61 8,390 250 2,52 4,200 250 2,52 4,200 35 353,400 27,543 3 Amusement Parks 11 5 67,629 130 54,800 80 33,800 11 4,600 271 4 Auto Dealers & Servi ce St ati on 386 27,02 9 180 30,400 280 47,200 11 1,900 719 5 Churches 268 14,.99 1 130 12,200 80 7,500 11 1,000 590 6 Com/ Ind/ M isc 10,262 1,273 ,399 130 1,032 ,.800 80 635 ,600 11 87,400 21,03 8 7 Electr i c & Electro ni c Equip. 42 5 454,347 30 85,000 1 5 42,500 1 5 42,500 1,553 8 Food and Kindred Products 29 1 6,571 1,120 11 5,800 690 71,300 0 0 165 9 Hospit als & Convalescent Homes 316 9 0,459 230 129,800 85 48,000 1 5 8 ,500 787 10 Indu st ri al Chemi cal 43 14,71 8 360 33,100 720 66,100 0 0 111 11 Laund ries 1 38 24,2 47 150 22,700 110 16,600 5 800 353 1 2 M achinery M anufa ct urers 72 1 36,85 4 290 66,700 550 1 26,500 0 0 1,667 1 3 Met al Pl ating 93 6,441 10 400 60 2,400 1 0 194
14 Motels & Hotels 53 10 1,779 310 196,800 121 76,800 7 4,400 514 1 5 Paper 12 45 1,250 400 560 200 10 0 14
1 6 Repair Shops & Car W ashes 469 11,07 6 180 12,400 280 19,300 0 0 659 1 7 Resta urants 264 72,265 1,250 563 ,600 560 252 ,500 10 4,500 2,0 50 1 8 Schools & Colleges 533 44,683 130 36 ,200 100 27,.900 30 8,400 1,08 1 19 M aj or Users - Customer 1 0 0 0 0 0
20 Tot al 5,23 6,77 4 7,0 41,400 6,1 22,500 814,800 30 6,51 2 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 6-1

Table 6-5 Units Cost of Service

Table 6-6 Distribution of Costs to Customer Classes

Volume BOD TSS NH3 Customer
1 Net Operat ing Expens,e 26,381,700 14,048,800 3,952 ,200 3,990,700 4,0 57,700 332 ,300 2 Debt Service 3,298,500 1,129,200 714,400 72 1,400 733 ,500 0 3 Ca pit al Costs (City) 5,605 ,700 5,60 5,700 0 0 0 0
4 Ca pit a I Costs (SJSC) 10,644,300 7,28S,200 1,6S2 ,800 1,205,600 467,700 0 5 Tot al Cost of Servi ce $ 4 5,930,200 $2 8,071 ,900 s 6,349,400 s 5,9 17,700 s 5,258,900 s 332 ,300 6 Units of Serv ice 5,236,77 4 7,041 ,400 6,1 22,500 814,800 30 6,541 HCF lbs lbs lbs bill s
7 Cost p er Unit s 5 .. 36 s 0 _90 s 0 _97 s 6.45 s 1.08 per HCF per l bs per lbs per lbs per bi ll
Description Volume BOD TSS NH3 Custome r
1 Cost per Unit s 5a36 s 0 _90 s 0 _97 s 6.45 s 1.0 8
per HCF per lbs per lbs per lbs per bill
Single Family
2 Units 1,361,85 1 2,124,100 2,124,100 297,400 247 ,203 3 Allocat ion of costs of service 13,456,100 7,300,300 1,9 15,500 2,0 53,000 1,919,400 267 ,900 M ult i-Family
4 Units 1,618,390 2,524,200 2,524,200 353 ,400 27, 543
5 Allocat ion of costs of service 15,702,100 8,675 ,400 2,276 ,100 2,439,800 2,280,900 29,9 00 Amusement Parks
6 Units 67 ,629 54,800 33,800 4,600 271
7 Allocat i on of costs of service 474,600 362 ,500 49,400 32,700 29,700 300 Aut o Dealers & Serv ice Stat ion
8 Units 27,02 9 30,400 47,200 1,900 71 9
9 Allocat i on of costs of service 23 1,000 144,900 27,400 45,600 1 2,300 800 Chu rches
10 Units 14,99 1 12,200 7,500 1,000 590
11 Allocat i on of costs of service 105,700 80,400 11,000 7,200 6,500 600 Com/Ind/ M isc
12 Units 1,273 ,399 1,0 32,800 635 ,600 87,400 21,03 8
13 Allocat i on of costs of service 8,958,600 6,826 ,100 9 31,300 614,300 564,100 22, 800 Electric & Elect ronic Equ i p.
14 Units 454,347 85,000 42,500 42,500 1,553
15 All ocat i on of costs of service 2,829 ,200 2,43 5,500 76,600 41 ,100 27 4,300 1,700 Food and Ki ndred Prod ucts
16 Units 16,57 1 11 5,800 71,300 0 165
17 All ocat i on of costs of service 262 ,300 88,800 104,400 68,900 0 200 Hospit als & Convalescent Homes
18 Units 90,4 59 1 29,800 48,000 8,500 787
19 All ocat ion of costs of service 704,100 484 ,9 00 11 7,000 46,400 54,900 900 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 6-2

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

Line I I Total ~
____1110._J____ De.crip!_io~ ost __ ~
1 Cost p er Unit s 5.36 s 0 .90 s 0 .9 7 s 6.4 5 s 1.08 per HCF per l bs per lbs per lbs per bill
Indu st rial Chemi cal
20 Units 14,71 8 33,100 66,100 0 111
21 Allocat i on of costs of service 172,700 78,9 00 29,800 63,900 0 100 Laund ries
22 Units 24,24 7 22 ,700 1 6,600 800 353
23 Allocat ion of costs of service 172,100 130,000 20,500 1 6,000 5,200 400 M achi nery M anufa ct urers
24 Units 36,85 4 66,700 12 6,500 0 1,66 7
25 Allocat ion of costs of service 381,800 19 7,600 60,100 1 22 ,300 0 1,800 M et al Plat ing
26 Units 6,441 400 2,400 0 194
27 Allocat i on of costs of service 37,400 34,500 400 2,300 0 200 Motels & Hotels
28 Units 101,77 9 196,800 76,800 4,400 514
29 Alloc at ion of costs of service 826,300 545,600 1 77 ,500 74,200 28,400 600 Rep.ai r Shops & Car W ashes
30 Units 11,076 1 2,400 19,300 0 659
31 Allocat i on of costs of service 90,000 59,400 11,200 1 8,700 0 700 Restaurants
32 Units 72,265 563,600 252,500 4,500 2,0 50
33 Allocat i on of costs of service 1,170,900 387,400 50 8,200 244,100 29,000 2,200 Schools & Colleges
34 Units 44,683 36,200 27 ,900 8,400 1,0 81
35 All ocat i on of costs of service 35 4,500 23 9,500 32,600 27 ,000 54,200 1,200 36 TOTAL COSTS OF SERVICE $ 4 5,930,200 $ 28,0 71,900 $ 6,3 49,400 $ 5,9 1 7,700 $ 5,258,900 $ 332 ,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 E xisting 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 P roposed 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.

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

Customer Class
Molilt:h iY Se rwfoe Oha1rge ($/EiDUJ, $/ month $/ mont h $/ month 1 Single Fa mily 52.37 59.79 66.3 0
2 Mult i-Fa mily 49.3 1 56.0 9 62 a30
Mi'1i1'im11m Comm erd a'll 6ill 1Charge 1($/Mo lilthJ, $/ month $/ mont h $/ month 3 All Cust omers 52.37 59.79 6:6.30
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 7-2

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. The City does not have any major users left within the City; therefore, these rates will be for any future customer.

Commoo irty ,oti:arge ,($/HCF} $/ HCF $/ HCF $/ HCF
1 Amusement Parks 5.93 7.46 8 .59
2 Auto Dealers & Servk e Stat io n 7..SO .S.70 9 .8 1
3 Chu r,ches 5.1 2 5..54 7.56
Oom/ 1 n d/ M isc 5.51 7.11 8 .19
5 Electri,c & Electro n i,c 6q u i p. 5.48 7.59
5 Fiood and Kind red Pro du ct s. 18B9 20 .38
7 Hospit als. & Convalesce nt Homes 7.60 8.35 9 .50
8 Ind ustri.a I Chem i,c a I 11. 58 13 .53 1 B3
9 Laund ries 5,8_0 7.32 8 . .43
10 M achinery M anufact urers 9.33 10.73 11 ..SS
11 Meta l Plat i ng 5.0 5 5.12 6.1 2
12 M ot els & Hote ls 8 .0 9 8 . .96 10.14
13 Paper 5.67 6,.67
14 Rcepa i r Sh ops &. Ca r W ashes 6 . .47 7a37
15 Rcesta u rants 15.01 19 . .27 20.75
15 Schools & Co lleges 7.31 .8_0 5 9 .16
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 T ypical 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

Customer Class
Maj,or Comm erdal a ml ltnd 11,striia'II U,s;ers
Ope r at i ng and Ma intenance Oost Recovery
1 Vol ume ($ / MG )
2 BOD (.$/ 1,000 I b,s)
3 ss (.$/ 1,000 lhsl
4 NH3 (.$/ 1,000 lhs)
Ann u a I Ca pit a I Oost Rec,overy
5 V,ol ume (.$/ MGD)
6, BOD ($/ 1,000 l hs/ d ay)
7 SS (.$/ 1,000 lbis/ ,day)
8 NH3 ($/ 1,000 Ibis/ d ay)
I •
(HCF)
Rcesiden t i a I
N on-Resident i a I 0
10 20
30 40
50 100
250
3,67 1.11
56128
651'81
;980 .00
1,306,.599
1 24,26,2
114,880
538,093
FY 2024
Existing
Rates.
(.$)
$ 8.28
$48.28
$64 .0
$1 28.09
$192 .13
$2 56.18
$320 .22
$640 . 5
$1,601.12
4,020,89 4,192 .10

77.3,3 7 807 . 5
898 .69 937 .67
6,-8,6622 7,1 64.09
1,21 2,,31 6 1,673 ,,8.38
144,032 144,561
13 ,1 62 13 1,597
585,442 586,786
-($ )
$ 52.37
$52.37
$74.33
$148.65
$222 .98
$297 .31
$37 1.6,3
$743 .27
$ 1,.8 58.17
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 7-4

7.4 N eighboring 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 April 2024.

Figure 7-1 Comparison to Neighboring Sewer Utilities

$250 .00
$200 .00
$150 .00
$100 .00
$50 .00
$0 .00
Wate r Rate 12 HCF
Sewer Rate
Combined
Sunn yvale
$86 .50
$67 .95
$1 54.45
Santa Clara SJWC
$106.80 $125.44
$52.37 $49 .59
$159.17 $175.03
I I
Mounta in View San Jose (Muni) Milpitas Palo Alto
$122.86 $132 .25 $116 .72 $152 .19
$54 .60 $49 .59 $66 .79 $55 .93
$1 77.46 $181.84 $1 83.51 $208.12
* All rates are proposed for FY24 -25
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Year Financial Plan 7-1

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

Water Utility

FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY2034 (S) (Sl ( Sl (S) (Sl ( Sl (S) (Sl (Sl (Sl
Revenue
Ra te Reve nu e
1 Reve nu e from Exist ing Rates 53,32 6,400 53,328,400 53,330,600 53,460,600 53,59 1,100 53,72 1,600 53,85 2,800 53,984,300 54,11 5,900 54,247,900 2 Increase d Reve nu e Due to Adjust ments 8,158,9 00 17,566,800 28,41 5,000 32,171,800 3 5,683,900 39,350,600 43,178,600 47,1 74,700 51,345,900 55,700,000 3 S ubtot a l Rat e Reve nu e S 61,485,300 S 70,895 ,200 S 81,745,600 S 85,632,400 S 89,27 5,000 S 9 3,072 ,200 S 97,03 1,400 S 10 1,1 59,000 S 10 5,461,800 S 10 9,.947 ,900 Othe r Ope rat ing Reve nu e
4 So la r Syst em Ma inte na nce 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 5 W ate r Syst em Ma inte na nce 1,102,500 1,102,500 1,102,500 1,102,500 1,102,500 1,1 02,500 1,102,500 1,102,500 1,10 2,500 1,1 02,500 6 W ate r Construct io n 0 0 0 0 0 0 0 0 0 0
7 W ate r Syst em Operat ions 0 0 0 0 0 0 0 0 0 0
8 A dministration Des ign 1,396,200 1,403,200 1,410,300 1,41 7,600 1,425,000 1,432,600 1,440,300 1,448,200 1,456,200 1,464,400 9 Wate r Qua lity 0 0 0 0 0 0 0 0 0 0
10 W ater Resources 0 0 0 0 0 0 0 0 0 0
11 Subt ota l othe r Ope rating Reve nu e s 2, 58 3,700 s 2,59 0,700 s 2,59 7,800 s 2,60 5,100 s 2,61 2,500 s 2,620,100 s 2,627,800 s 2,635 ,700 s 2,64 3,700 s 2,65 1,900 1 2 Total Revenue $ 64,069,000 $ 73,485,900 $ 84,343,400 $ 88,237 ,500 $ 91,887,500 $ 95,692,300 $ 99,659 ,200 $ 103,794,700 $ 108,105 ,500 $ 112,599,800 Revenue Requiremen t s.

Ope rat ing & Ma inte na nce
13 O &M Expenses 58,97 3,100 63,51 5,100 68,539 ,900 74,474,200 80,770,600 87,518,300 9 2,310, 800 97,40 7,700 10 1,676,200 10 6,1 47,500 14 Su bt ota I o & M S 58,973,100 S 63,51 5,100 S 68,539 ,900 S 74,474,.200 S 80,770,600 S 87,518,300 S 92,310,800 s 97,407,700 S 10 1,676,200 S 10 6,147,500 De bt Service
15 Exist ing Loa ns/ Bond s 0 0 0 0 0 0 0 0 0 0
16 Propose d Loa ns/ Bond s 0 0 0 0 0 0 0 0 0 0
17 Tot a l De bt Se rvice s s s s s s s s s s
Tra nsfe rs
1 8 Tra nsfe r to Rate Sta bil izat ion Fund 0 0 6,350,000 1,000,000 500,000 500,000 500,000 500,000 500,000 600,000 19 Tra nsfe r to Pe ns iotn Sta bil izat io n Fund 199,400 199,400 199,400 199,400 199,400 199,400 199,400 199,400 199,400 199,400 20 Tra nsfe r t o W ater Construct ion Fund 4,550,000 5,7 50,000 5,750,000 5,000,000 5,000,000 5,500,000 6,000,000 6,500,000 6,500,000 6,500,000 21 Tot a l Tra nsfe rs s 4,749,400 s 5,9 49,400 S 1 2,299,400 s 6,199,400 s 5,699,400 s 6,199,400 s 6,699 ,400 s 7,199,400 s 7,199,400 s 7,299 ,400 22 Total Revenue Requi remen t s $ 63,722 ,500 $ 69,464,.500 $ 80,839,300 $ 80,673,600 $ 86,470,000 $ 93,717,700 $ 99,010,200 $ 104,607,100 $ 108,875 ,600 $ 113,446,900 23 Net Annu a l Cas h Bala nce 346,500 4,021,400 3,50 4,100 7,563 ,900 5,41 7,500 1,9 74,600 649,000 (81 2,400 ) ( 770,100) ( 847,100) 24 Beginn ing Fund Ba la nce 9,89 1,600 9,959,200 1 3,70 1,700 1 6,9 26,900 24,211,900 29,3 50,500 31,0 46,200 31,41 6,300 30,325,000 29,27 6,000 25 Net Cumulat ive Fund Bala nce $ 10,238,100 $ 13,980,600 $ 1 7,20 5,800 $ 24,490,800 $ 29,62 9,400 $ 31,3 25,100 $ 31,695 ,200 s 30,603,900 s 29,55 4,900 s 28,4 28,900 26 Minimum Operat ing Rese rves (90 Days ) $ 14, 541,300 $ 1 5,66 1,300 $ 1 6,9 00,200 $ 18,363,500 $ 19,91 6,000 $ 21,579,900 $ 22, 761,600 s 24,0 1 8,300 s 25,070,800 s 26,1 73,400 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Year Financial Plan 7-2

Recycled Water Utility

FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY203 4 (Sl (Sl (Sl (Sl (Sl (Sl (Sl (Sl (Sl (Sl
Revenue
Ra te Reve nue
1 Reve nue fr om Exist ing Rates 6,990,300 7,0 60,200 7,130,700 7,201,900 7,273,900 7,346,500 7,41 9,700 7,49 3,9 00 7,568,700 7,644,200 2 Increase d Reve nu e Due t o Adjustm ents 1,048,500 2,27 6,900 3,714,100 5,421,700 7,420,400 9,497,900 10,44 3,100 11,449,500 12,520,300 13,253,9 00 3 Subtot a l Rat e Reve nue s 8,03 8,800 s 9,337,100 S 10,844,800 S 1 2,623,600 S 14,694,300 S 16,844,400 S 17,862,800 s 18,9 43,400 s 20,0 89,000 s 20,898,100 Othe r Ope rat ing Reve nu e
4 System M a int ena nce 9 7,600 99,600 10 1,600 103,600 10 5,700 10 7,800 110,000 11 2,200 114,400 116,700 5 Sout h Bay Wate r Recycl ing Syste m Ma inten, 72 8,400 760,200 78 2,800 81 2,600 84 6,800 87 3,900 90 1,800 9 30,600 96 0,300 99 1,100 6 Subtot a l Othe r Ope rat ing Reve nue s 826,000 s 859,800 s 88 4,400 s 9 16,200 s 95 2,500 s 98 1,700 s 1,0 11,800 s 1,0 42,800 s 1,0 74,700 s 1,10 7,800 Transfers From
7 RW Ca pit a l Fund 0 0 0 0 0 0 0 0 0 0
8 Subt ot a l Tra nsfe rs From s s s s s s s s s s
9 Tot al Revenue $ 8,864 ,800 $ 10,196,900 $ 11,729,200 $ 13,.539 ,800 $ 15,646,800 $17,826 ,100 $ 18,874,600 $ 19,986 ,200 $ 21,163,700 $ 22,005,900 Revenue Requiremen t s.

Ope rating & Ma inte na nce
10 O&M Expens es 9,164,9 00 10,344,900 11,66 4,100 13,167,600 14,877 ,700 16,748,500 18,041,300 19,435,500 20,58 2,900 21,798,400 11 Su btot a I o & M 9,164,.900 10,344,900 11,66 4,100 13,167,600 14,877 ,700 16,748,500 18,041,300 19,43 5,500 20,58 2,900 21,798,400 Debt Servic e
12 Existing Loa ns/ Bond s 0 0 0 0 0 0 0 0 0 0
13 Proposed Loa ns/ Bond s 0 0 0 0 0 0 0 0 0 0
14 Tot a l De bt Se rvice 0 0 0 0 0 0 0 0 0 0
Tra nsfe rs
15 Tra nsfe r to Rate Sta bilizat ion Fund 0 0 0 0 0 0 0 0 0 0 16 Tra ns fe r to Pens iotn Sta bili zat ion Fund 0 9,800 9,800 9,800 9,800 9,800 9,800 9,800 9,800 9,800 17 Tra nsfe r to Recycl ed Wate r Const Fund 0 0 0 100,000 200,000 200,000 200,000 200,000 200,000 200,000 18 Tot a l Tra nsfe rs 0 9,800 9,800 109,800 209,800 209,800 209,800 209 ,800 209,800 209 ,800 19 Tota.I Revenue Requiremen t s $ 9,164 ,900 $ 10,354,700 $ 11,673,900 $ 13,277,400 $ 15,087,.500 $ 16,958,300 $ 18,2.51,100 $ 19,645,300 $ 20,792,700 $ 22,008,200 20 Net Annu a l Cas h Bala nce (300,100) (157,800) 55,300 262,400 559,300 86 7,800 623,500 340,900 371 ,000 (2,.300) 21 Beginn ing Fund Ba la nce 3,295,300 2,995,200 2,837 ,400 2,89 2,700 3,155,100 3,714,400 4,58 2,200 5,205,700 5,546,600 5,917,600 22 Net Cumulat ive Fund Ba la nce s 2,995 ,200 s 2,837,400 s 2,89 2,700 s 3,155,100 s 3,71 4,400 s 4,582,200 s 5,205,700 s 5,546,600 s 5,917,600 s 5,.915,300 23 Minimum Operat ing Rese rves (90 Days ) s 2,2 59,800 s 2,550,800 $ 2,87 6,100 $ 3,246,800 $ 3,668,500 $ 4,129,800 $ 4,448,500 $ 4,79 2,300 $ 5,07 5,200 $ 5,37 4,.900 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Year Financial Plan 7-3

Sewer Utility

-
Revenue
Rate Revenue
Descri t,on
1 Revenu e fr om Exist ing Rates
2 Increased Revenue Due to Adj ust ments
3 Subt ot al Rate Revenue
Ot her Oper at ing Revenue
4 System Adm i nistrati on (Interest Income)
5 System M aintenance
6 O per ati ons
7 S J SC W ater Poll ut i on Cont r ol Pl ant
8 S tor m Pump M aintenance
9 Subtota l Ot her Operating Revenu e
10 Total Revenue
Revenue Requirements
Oper at ing & M aint enance
11 O& M Expenses
1 2 Subt ot al O&M
Debt Servi ce
13 Existing Loans/ Bonds
14 Pr oposed Loans/ Bonds
1 5 Tot al Debt Servi ce
Transfers
16 Tr ansfer t o Rate Stab ili zati on Fund
17 Transfer t o Pensi on Stab ili zat ion Fun d
18 Transfer t o Sewer Constructi on Fun d
19 Total Transfers
20 Tota l Revenue Requi r ements
21 Net Annu al Cash Balance
22 Beginn ing Fun d Balance
23 Net Cumulative Fun d Ba lance
24 M inimum Operat ing Reserves (90 Days)
2 5 Debt Servi ce Cover age (M in 1.25)
FY 2025
40,95 4,300
4,975 ,900
$ 45,930,200
636 ,700
20,000
1,750,000
0 0
$ 2,406,700
$ 48,336,900
31,605 ,200
$ 31,60 5,200
3,298,500
0 s 3,298,500
2,000,000
78,200
16,2 50,000
$ 18,328,200
$ 53,231 ,900
(4,89 5,000 )
16,233 ,478
$ 11,338,4 78
7,79 3,100

5.07 FY 2026 FY 2027 FY 2028
41,020, 500 41,0 86,9 00 41,189,500
10,573, 500 16,869 ,500 19,23 5,600
$ 51,59 4,000 $ 57,.956,400 $ 60,42 5,100
648, 500 660,600 672 ,900
20,000 20,000 20,000
37 5,000 37 5,000 375 ,000
0 0 0
0 0 0
s 1,0 43, 500 s 1,0 55,600 $ 1,067,900
$ 52,637,.500 $ 59,012 ,000 $ 61,4 93,000
32,818,200 33,89 1,000 35,043 ,100
$ 32,818,200 $ 33,89 1,000 $ 35,043 ,100
3,296,800 3,2 98,300 3,297 ,800
0 972 ,300 1,3 51,800
s 3,296,800 s 4,270,600 s 4,649,600
500,000 500,000 500,000
78,200 78,200 78,200
16,000,000 20,000,000 20,000,000
$ 16,578,200 $ 20,578,200 $ 20,578,200
$ 52,693,200 $ 58,739,800 $ 60,270,900
(55,700) 272 ,200 1,222 ,100
8,28 8,178 8,182,178 8,404,07 8
$ 8,232 ,478 s 8,4 54,378 $ 9,626,178
8,092 ,200 8,356,700 8,640,800
6 .01 5.88 5.69
I
FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034
41,292 , 500 41,395 ,900 41,499,100 41,602 ,800 41,706,700 41,8 10,900 19,283 ,700 19,332 ,000 19,380,200 19,428,700 19,477,200 19, 525,800 $ 60,576,200 $ 60,727 ,900 $ 60,879 ,300 $ 61,03 1, 500 $ 61,183,900 $ 61,336,700 685 ,400 698,200 711,200 72 4, 500 73 8,100 7 51,900
20,000 20,000 20,000 20,000 20,000 20,000
37 5,000 37 5,000 37 5,000 375,000 375 ,000 37 5,000
0 0 0 0 0 0
0 0 0 0 0 0
s 1,080,400 s 1,0 93,200 s 1,10 6,200 $ 1,11 9, 500 s 1,133,100 s 1,14 6,900 $ 61,656,600 $ 61,821 .,100 $ 61,985 ,.500 $ 62,151,000 $ 62,317 ,000 $ 62,483,600 3 6,23 1, 500 37,49 3,700 38,800,800 40,155,300 41,558,500 43,01 2,400 $ 36,23 1, 500 $ 37,493,700 $ 38,800,800 $ 40,155,300 $ 41,558,500 $ 43,012 ,400 3,300,300 3,300,500 3,298,500 2,36 1,800 2,360,100 2,360,800 1,351,800 1,35 1,800 1,3 51,800 1,351,8 00 1,35 1,800 1,3 51,800 $ 4,652 ,100 s 4,652 ,300 s 4,650,300 $ 3,713,600 s 3,711 ,900 s 3,71 2,600 250,000 0 0 0 0 0
78,200 78,200 78,200 78,200 78,200 78,200
20,000,000 12,500,000 10,000,000 10,000,000 10,000,000 10,000,000 $ 20,328,200 $ 12,578,200 $ 10,078,200 $ 10,078,200 $ 10,0 78,200 $ 10,07 8,200 $ 61,211,800 $ 54,724,200 $ 53,529,300 $ 53,94 7,100 $ 55,348 ,600 $ 56,803 ,200 444,800 7,0 96,900 8,4 56,200 8,203,900 6,968,400 5,680,400 9,575 ,878 9,.9 70,378 17,01 6,9 78 25,422,87 8 33,576,478 40,49 4,578 $ 10,020,678 $ 17,0 67,278 $ 25,473,178 $ 33,626,778 $ 40,544,878 $ 46,174,978 8,.933 ,800 9,245 ,000 9, 567 ,300 9,901,300 10,247,300 10,60 5,800

5.47 5 .23 4.99 5.9 2 5 .59 5.24

City Council and Authorities ConcurrentMay 28, 2024

City Council and Authorities Concurrent
May 28, 2024