Draft 2025 Water and Sewer Rate Study Report by Black & Veatch Management Consulting, LLC — City Council and Authorities Concurrent, June 10, 2025

DRAFT FINAL

WATER AND SEWER RATE STUDY

BLACK & VEATCH PROJECT NO. 410918

PREPARED FOR

City of Santa Clara, CA
10 JUNE 2025

~ . 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 ....................................................................................................... 1-6

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

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

1.7.2 Sewer Utility ........................................................................................................... 1-9 Water and Recycled Water Utilities ....................................................................................................... 1-1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 ................................................................................................................................ 5-8

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

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

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

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

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

LIST OF TABLES
Table 1-1 Proposed Revenue Adjustments .......................................................................................... 1-6 Table 1-2 Proposed Three-Year Water Rate Schedule ......................................................................... 1-8 Table 1-3 Proposed Three-Year Recycled Water Rate Schedule ........................................................ 1-9 Table 1-4 Proposed Three-Year Sewer Rate Schedules .................................................................... 1-10 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 2026 (Water) ......................... 4-1 Table 4-2 Proposed Minimum Monthly Service Charge (Water) ......................................................... 4-2 Table 4-3 Costs within the Minimum Monthly Service Charge for FY 2025 (Recycled Water) ..................................................................................................................................... 4-2 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents iv

Table 4-4 Proposed Minimum Monthly Service Charge (Recycled Water)......................................... 4-2 Table 4-5 Costs within the Fire Service Charge for FY 2026 ............................................................... 4-3 Table 4-6 Proposed Fire Service Charge .............................................................................................. 4-3 Table 4-7 Costs within the Cross-Connection Charge for FY 2026 .................................................... 4-4 Table 4-8 Proposed Cross Connection Charge .................................................................................... 4-4 Table 4-9 Proposed Consumption Charges ......................................................................................... 4-4 Table 4-10 Typical Monthly Bill (Water) .................................................................................................. 4-5 Table 4-11 Typical Monthly Bill (Recycled Water) .................................................................................. 4-5 Table 5-1 EDUs ....................................................................................................................................... 5-2 Table 5-2 Minimum Monthly Service Bills ............................................................................................ 5-2 Table 5-3 Contributed Sewage Flow ..................................................................................................... 5-3 Table 5-4 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 ...................................................................................................... 1-4 Figure 1-5 Sewer Operating Cash Flow .................................................................................................. 1-5 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 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Table of Contents v

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 Corporation (Black & Veatch) has prepared this report for the City of Santa Clara (City), and it is based on information not within the control of Black & Veatch. The City has not requested Black & Veatch to make an independent analysis, verify the information provided to us, or render an independent judgment of the validity of the information provided by others. Because of this, Black & Veatch cannot, and does not, guarantee the accuracy thereof to the extent that such information, data, or opinions were based on information provided by others.

In conducting these analyses and in forming an opinion of the projection of future financial operations summarized in this report, Black & Veatch made certain assumptions on the conditions, events, and circumstances that may occur in the future. The methodology utilized in performing the analyses follows generally accepted practices for such projections. Such assumptions and methodologies are reasonable and appropriate for the purpose for which they are used. While we believe the assumptions are reasonable and the projection methodology valid, actual results may differ materially from those projected, as influenced by the conditions, events, and circumstances that occur. Such factors may include the utilities’ ability to execute the capital improvement progr am 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 commissioned Black & Veatch Corporation 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 26,306 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, 26 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 ove r 292 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 pipelin es.

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 26,785 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, 2025 and ending June 30, 2035. This report will focus on a three-year planning period for discussion, beginning July 1, 2025 and ending June 30, 2028. 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 $66.4M in FY 2026 to $78M in FY 2028. Water production and water purchases account for most of this increase, representing an average of 67% 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 $6.7M annually in capital projects from FY 2026 to FY 2028.
 Reserves: The Water Utility plans to continue funding the operating reserve, construction fund, and rate stabilization reserve.
● The operating fund reserve is to help cover fluctuations in day-to-day expenses. The scheduled target is 90 days of O&M expenses.
● The construction fund reserve is to help maintain enough funds on hand to help mitigate unexpected capital costs. The scheduled target is the average of the following two -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 Water Utility is proposing revenue adjustments to allow it to operate the enterprise on a revenue - neutral basis and meet reserve targets, as shown in Figure 1-1.

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 $10.9M in FY 2026 to $13.3M in FY 2028. Recycled water purchase costs constitute most of the increase, averaging 83% 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 $53.6k annually in capital projects from FY 2026 to FY 2028.
 Reserves: The City plans to continue funding the operating reserve, construction fund reserve, and rate stabilization reserve.
$100,000,000
$90,000 ,000
$80,000,000
$70,000,000
$60,000 ,000
$50,000,000
$40,000,000
$30,000 ,000
$20,000,000
$10,000,000
$0
2026
Water Utility- Operating Fund
2027 2028
- o&M - Debt Service - Capital Projects - Rate Stabilization ~ Revenue ~ Cash Balance $45,000,000
$40,000,000
$.35,000,000
$.30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
so
Water Utility - Reserves
2026 2027 20 28
■ 0 perat ing ■ Capital ■ R a:e St cbiliza:ion ■ Pension Stabiiz .ati:m City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-4

● The operating reserve is to help cover fluctuations in day-to-day expenses. The scheduled target is 90 days of O&M expenses.
● The construction fund is to help maintain enough funds on hand to help mitigate unexpected capital costs. The scheduled target is the average of the following two -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 Recycled Water Utility is proposing revenue adjustments and drawing down on reserves to allow it to operate the enterprise on a revenue-neutral basis and meet reserve targets, as shown in Figure 1-2.

Figure 1-3 Recycled Water Operating Cash Flow

Figure 1-4 Recycled Water Reserves

$16,000,000
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
Recycled Water Utility- Operating Fund
2026 2027 2028
- o&M - Debt Service - capital Projects - Rate Stabilization ~ Revenue ~ Cash Balance $6,000,000
$5,000,000
$4,000,000
S-3,000,000
$2,000,000
$1,000,000
so
Recycled Wate r Utility - Reserves
2026 20 27 20 28
■ Operat ing ■ Capit a l ■ Ra:e Stcb iliz.a:ion ■ Pension Stabiiz atb n City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-5

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 $40.3M in FY 2026 to $43.1M in FY 2028. RWF-related costs represent an average of 70% of O&M expenses.
 Debt Service: The Sewer Utility anticipates an average debt service payment of $ 3.9M annually from FY 2026 to FY 2028 associated with existing and proposed debt issuances. The City anticipates a new revenue bond for $15M to be issued in 2027.  Capital Improvements: The Sewer Utility plans to execute an average of $ 18.6M annually in capital projects from FY 2026 to FY 2028.
 Reserves: The Sewer Utility plans to continue funding the operating reserve, construction fund, rate stabilization fund reserve, and pension stabilization reserve. ● The operating reserve is to help cover fluctuations in day-to-day expenses. The scheduled target is 90 days of O&M expenses.
● The construction fund is to help maintain enough funds on hand to help mitigate unexpected capital costs. The scheduled target is the average of the following two -year’s City CIP and 6-months of the following year’s San Jose Santa Clara Regional Wastewater Facility CIP.
● The rate stabilization 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 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.

Figure 1-5 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
2026
Sewer Utility- Operating Fund
2027 2028
- O&M - Debt Service - Capital Projects - Rate Stabilization ~ Revenue ~ Cash Balance City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-6

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 2026 to FY 2028. These do not represent proposed rate increases to customers. Rather, these represent the overall revenue increases the utilities need to meet their overall obligations and maintain current service levels.

Table 1-1 Proposed Revenue Adjustments

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

The following is a brief description of the methodologies.

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 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 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 FY 2026 July 11.00% 11.00% 8.00%
FY 2027 July 6.00% 15.00% 10.50%
FY 2028 July 6.00% 15.00% 10.00%
Recycled
Water
Sewer
UtilityFiscal Year
Water
Utility
Effective
Month
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
so
20 26
Sewer Utility - Reserves
20 27 2028
■ Operat ing ■ C apit a l ■ Repla:ement and Improvement ■ Ra::eSt:ci>ilila::ion ■ Pension Stabiilatb n ■ Litigation City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-7

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 fixe d 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.
 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 1-8

Table 1-2 Proposed Three-Year Water Rate Schedule

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

Table 1-3 Proposed Three-Year Recycled Water Rate Schedule

1.7.2 Sewer Utility
To minimize impacts, retain simplicity, and ensure the reasonable stability of revenue, Black & Veatch recommends the following rate structure.
 Monthly Service Charge: The Sewer Utility should retain the monthly service charge based on equivalent dwelling units (EDUs) for all residential customer classes. In addition, the monthly service charge serves as the base amount, or minimum, for all non-residential customer classes.  Consumption Charge: The Sewer Utility should retain its uniform consumption charges for each non-residential customer class. The recommended rate structure should be based on customer class.
 Major Commercial and Industrial Users: The Sewer Utility should retain the major commercial and industrial user charge for customers with high discharge quantities and/or high strength loadings.

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

Proposed
Customer Class F Y 2026 FY 2027 FY 2028
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 17.80 20.42 23.57 1" 29.07 33.41 38.62
1-1/2" 57.26 65.89 76.23
2" 91.08 104.87 121.37
3" 181.27 208.80 241.72
4" 282.74 325.72 377.13
6" 564.59 650.51 753.24
8" 902.82 1,040.26 1,204.58
10" 1,353.78 1,559.93 1,806.37
12" 1,903.40 2,193.27 2,539.80
Consumption Charges ($/HCF)
General Customers 5.43 6.24 7.18 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Executive Summary 1-10

Table 1-4 Proposed Three-Year Sewer Rate Schedules

Proposed
Customer Class FY 2026 FY 2027 FY 2028
Monthly Service Charge ($/EDU) $/month $/month $/month
Single Fam ily 57.56 64.49 71.88
Multi-Fam ily 53.15 59.51 66.28
Minimum Commercial Bill Charge ($/Month) $/month $/month $/month A ll Custom e rs 57.56 64.49 71.88
Commodity Charge ($/HCF) $/HCF $/HCF $/HCF
Amusement Parks 7.22 7.76 8.31
Auto Deal ers & Servi ce Stati on 8.38 9.08 9.82
Churches 6.12 6.56 6.96
Com/Ind/Misc 6.85 7.35 7.85
Electric & Electronic Equip. 6.33 6.74 7.15
Food and Kindred Products 17.53 19.53 21.62
Hospi tal s & Conval escent Homes 8.00 8.65 9.33
Industrial Chemical 12.69 14.00 15.36
Laundries 7.01 7.52 8.04
Machinery Manufacturers 9.98 10.93 11.91
Me tal Plating 4.92 5.19 5.39
Motel s & Hotel s 8.56 9.28 10.04
Paper 0.00 0.00 0.00
Repair Shops & Car Washes 6.47 6.96 7.44
Restaurants 17.88 19.93 22.07
Schools & Colleges 7.71 8.32 8.97
Major Commercial and Industrial Users
Operating and Maintenance Cost Recovery
Vol ume ($/MG) 3,982.86 4,256.22 4,821.20
BOD ($/1,000 lbs) 751.02 869.93 986.80
SS ($/1,000 lbs) 869.45 1,007.10 1,142.39
NH3 ($/1,000 lbs) 6,630.54 7,680.17 8,710.77
Annual Capital Cost Recovery
Vol ume ($/MGD) 1,175,044 1,210,456 1,143,407
BOD ($/1,000 lbs/day) 112,855 124,559 139,957
SS ($/1,000 lbs/day) 98,598 106,931 118,008
NH3 ($/1,000 lbs/day) 516,337 541,495 576,299
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 26,306 customers and recycled water services to 292 customers. All customers connected to the water and recycled water systems do so through metered connections. The City bills customers based on water consumption, but several bills do not meet the consumption allowance identified by meter size. Therefore, the City refers to these bills as minimum monthly service bills. Since the City bills customers based on minimum bills generated, the analysis included a review of historical bill patterns for customers and anticipated growth within the City. The projected total number of bills is expected to increase by average of 0.2% 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

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
(Bills) (Bills) (Bills)
Water Utility
1 General Customers 53,363 53,496 53,629 2 Total 53,363 53,496 53,629
Recycled Water Utility
3 General Customers 801 809 817 4 Total 801 809 817
Line No. Description
I
---
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 r equirements 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 consumption to increase by

2.5% annually for the Water Utility and 1.0% annually 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.
2024 City Water Demand
135,000 ---------------------------~
C:
:8 115,000 +------- ~--....~~~=-<~~~::_ _________ ~
ns
::::s
g- 105,000 +------------: ::::;;;;;ao~'---------- ~--o,:::_~ --:___~ ___ ~J \ a.

Lowest Waler Use
During 14-17 Drought
85,000 ~-------------:===;:====:::=:;:==----------~
~2>~
Year ~~
~~ ~
r65 r65
~ ~ ~
~ ~ ~ & ~
-Population - Water Demand
10,000
-9,000 C)
~
-8,000 II)
C:
0 7,000 ns
C)
6,000 C:
.2
5,000 ~
4,000
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 Revenue under Existing Rates
Water and recycled water user rates serve as the primary source of revenue for the Water and Recycled Water Utilities. Therefore, the level of future rate revenue is important in developing a long -range financial plan. To determine rate revenue, the projected system growth in terms of the number of minimum bills and billed water consumption is multiplied by the applicable rates to determine water and recycled water rate revenue.

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

(Section left intentionally blank)

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
(HCF) (HCF) (HCF)
Water Utility
1 General Customers 6,806,680 6,976,847 7,151,268 2 Total Usage (HCF) 6,806,680 6,976,847 7,151,268 3 Total Usage (AF) 15,626 16,017 16,417 Recycled Water Utility
4 General Customers 1,665,011 1,681,661 1,698,478 5 Total Usage (HCF) 1,665,011 1,681,661 1,698,478 6 Total Usage (AF) 3,822 3,861 3,899 Line No. Description
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 increase from $65.9M from FY 2026 to $69M in FY 2028, while the projected Recycled Water Utility revenue increases from $8.2M in FY 2026 to $8.4M in FY 2028, reflecting an overall increase of 4.7% and 2% over the three-year Study period, respectively.

All City All City A ll City
FY 2025 FY 2025 F Y 2025
Water Recycl ed Water
M
inimum Monthly Meter Rates ($/mo) ($/mo) Consumption Charges 5/8" x 3/4" 23.42 17.44 Water Utility ($/HCF) 1" 36.67 28.43 General Customers 8.90 1-1/2" 69.78 55.91
2" 109.51 88.88 Recycled Water Utility ($/HCF) 3" 215.46 176.80 General Customers 5.06 4" 334.66 275.71
6" 665.77 550.46
8" 1,063.09 880.16
10" 1,592.86 1,319.76
12" 2,238.52 1,855.53
Fire Service Charges ($/mo)
2" 3.15
4" 17.84
6" 52.48
8" 111.78
10" 201.00
12" 324.85
Cross Connection Charges ($/mo)
1" 8.60
2" 13.76
3" 27.53
4" 43.01
6" 86.02
8" 137.63
10" 206.44
DescriptionDescription
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 Other Revenue
Other sources of operating revenue include charges for hydrant flow tests, meter tests, engineering plan review, water installation and relocation, interest on investments, and other miscellaneous revenues. In total, other operating revenues represent an average of 3.3% of the Water Utility’s total revenue and an average of 10% of the Recycled Water Utility’s total revenue. The City anticipates that these revenues will remain relatively constant for the duration of the Study period.

2.4 Operating and Maintenance Expenses
Table 2-5 summarizes the Water and Recycled Water Utilities’ projected O&M expense for the Study period. These expenses include costs related to salaries and benefits, materials and supplies, contract and professional services, water supply costs, indirect and direct costs, and routine capital outlay. The City anticipates that all O&M expenditures, excluding water supply costs, will increase on average by 3.8 % annually for the Water Utility and an average of 5.9% annually for the Recycled Water Utility from the FY 2026.

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 22.4% 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 24.2 % over the Study period.

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
($) ($) ($)
Water Utility
1 General Customers 63,229,900 64,757,200 66,322,800 2 Fi re Servi ce 1,113,800 1,114,800 1,115,900 3 Cross Connection 1,588,300 1,590,000 1,591,600 4 Total 65,932,000$ 67,462,000$ 69,030,300$
Recycled Water Utility
5 General Customers 8,234,300 8,316,700 8,399,700 6 Total 8,234,300$ 8,316,700$ 8,399,700$
Line No. Description
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 $66.4M in FY 2026 to $78M in FY 2028, while the Recycled Water Utility’s O&M expenses increase from $10.9M in FY 2026 to $13.3M in FY 2028.

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

Table 2-6 summarizes the Water and Recycled Water Utilities CIP for FY 2026 through FY 2028. The Water Utility is projecting $20.2M in CIP, and the Recycled Water Utility is projecting $160.9k in CIP over the Study period, which includes both capital and replacement projects. The City has posted the CIP Budget on its website for complete details associated with each CIP project.

Fiscal Year Ending June 30,
FY 2026 F Y 2027 FY 2028
($) ($) ($)
Water Utility
1 Salaries 6,071,500 6,460,100 6,679,600
2 Benefi ts 3,703,200 3,758,400 3,908,700
3 Mate rials/Se rvice s/Supplie s 4,173,600 4,248,800 4,325,000 4 Interfund Services 8,699,100 9,081,000 9,488,600 5 Resource & Production 43,629,500 48,269,100 53,422,900 6 Capital Outlay 153,000 156,100 159,200 7 Total 66,429,900$ 71,973,500$ 77,984,000$
Recycled Water Utility
8 Salaries 818,100 864,700 899,300
9 Benefi ts 499,400 504,800 523,500
10 Mate rials/Se rvice s/Supplie s 39,900 40,700 41,500 11 Interfund Services 567,300 627,300 694,600 12 Resource & Production 8,962,100 9,988,000 11,127,100 13 Capital Outlay 0 0 0 14 Total 10,886,800$ 12,025,500$ 13,286,000$
Line No. Description
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 $6.7M for the Water Utility and $53.6k 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)

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
($) ($) ($)
Water Utility
1 7005 Buildings and Grounds 2,847,200 53,600 55,500 2 7054 Distribution System
Repl acement/Restorati on 4,659,100 3,215,900 3,329,600 3 7057 Asset Management Program 0 0 0 4 7058 SCADA Improvements 336,500 375,200 277,500 5 7059 New and Repl acement Wel l s 621,200 1,929,600 1,997,800 6 PW Paving Project Support 517,700 0 0 7 Total 8,981,700$ 5,574,300$ 5,660,400$
Recycled Water Utility
8 7505 Recycl ed Water System Mai ns and
Servi ces 51,800 53,600 55,500
9 Total 51,800$ 53,600$ 55,500$
Line No. Description
Fiscal Year Ending June 30,
FY 2026 F Y 2027 FY 2028
($) ($) ($)
Source of Funds
1 Intra Transfer In - Debt Financing 0 0 0 2 Intra Transfer In - Customer Service Charge 5,000,000 7,000,000 7,000,000 3 Connection Charges 0 0 0 4 Developer Contributions 0 0 0 5 Total Sources 5,000,000$ 7,000,000$ 7,000,000$
Use of Funds
6 Improvements Projects 8,981,700 5,574,300 5,660,400 7 Infrastructure Reserve 6,249,200 (1,660,650) (804,900) 8 Total Uses 15,230,900$ 5,574,300$ 5,660,400$
9 Net Annual Cash Balance (10,230,900) 1,425,700 1,339,600 10 Beginning Unrestricted Fund Balance 6,604,600 (3,626,300) (539,950) 11 Net Cumulative Fund Balance (3,626,300)$ (2,200,600)$ 799,650$ 12 Construction + Infrastructure Reserves 3,651,700$ 3,416,750$ 5,612,100$ 13 Mi ni mum Reserves 7,278,000$ 5,617,350$ 4,812,450$ Line No. Description
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 Transfers
The Water and Recycled Water Utilities will each conduct transfers from their respective Operating Funds and other funds and reserves 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 Operating Reserve, Rate Stabilization Reserve, and Construction Fund. See Section 2.7 for further explanation on Rate Stabilization Reserve. The Construction Fund transfers represent money to cover planned CIP project expenditures. These transfers do not represent direct operating expenses for either enterprise; therefore, Black & Veatch includes these costs as “below -the- line” cash flow items and does not include them as O&M expenses.

2.7 Reserves
A utility typically establishes reserves for several reasons, such as covering shortfalls in operating revenues, maintaining strong bond ratings, covering day-to-day operating costs, and easing the burden on ratepayers associated with large rate increases. Per the reserve level recommendations, the Water and Recycled Water Utilities will maintain the following three 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 the average of the following two - year’s planned CIP.

Fiscal Year Ending June 30,
FY 2026 F Y 2027 FY 2028
($) ($) ($)
Source of Funds
1 Intra Transfer In - Debt Financing 0 0 0 2 Intra Transfer In - Customer Service Charge 50,000 100,000 100,000 3 Connection Charges 0 0 0 4 Developer Contributions 0 0 0 5 Total Sources 50,000$ 100,000$ 100,000$ Use of Funds
6 Improvements Projects 51,800 53,600 55,500 7 Infrastructure Reserve 1,200 1,850 1,950 8 Total Uses 53,000$ 55,450$ 57,450$
9 Net Annual Cash Balance (3,000) 44,550 42,550 10 Beginning Unrestricted Fund Balance 41,100 38,100 82,650 11 Net Cumulative Fund Balance 38,100$ 82,650$ 125,200$ 12 Construction + Infrastructure Reserves 90,800$ 137,200$ 181,700$ 13 Mi ni mum Reserves 52,700$ 54,550$ 56,500$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 2-9

 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.

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

2.8 Projected Operating Results
The revenue requirements of the Water and Recycled Water Utilities consist of O&M expenses, debt service, capital expenditures, and reserve requirements.

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

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

$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
so
-$20,000,000
-$40,000,000
2026
Water Utility - Operating Fund
2027 2028
- o&M - DebtServ ice - capita l Projects - RcteStcb i ilction -e- Re.ienue ~ 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 t o 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.  Increase combined construction and infrastructure reserve to the average of the next two-year’s CIP.
 Continue transfers for the rate stabilization reserve to meet the goal of 10% of rate revenues.

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.
$15,000,000
Sl0,000,000
$5,000,000
so
-$5,,000,000
-$10,000,000
Recycled Water Utility - Operating i=und
2026 2027 2028
l - O&M - DebtServ ice - Capital Projects - Rat:eStab ililat:ion ~ Re,,enue ~ 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, Operating Reserve , 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 27 for the Water Utility and Line 21 for the Recycled Water Utility represent the net cumulative cash balance (unrestricted) within the Operating Funds. The net unrestricted plus operating reserve intends to match, to the extent possible, Line 28 for the Water Utility and Line 29 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)

Fiscal Year Ending June 30,
FY 2026 F Y 2027 FY 2028
($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 65,932,000 67,462,000 69,030,300 Year Months Effective Rate Adj
2 FY 2026 12 11.00% 7,252,500 7,420,800 7,593,300 3 FY 2027 12 6.00% 4,493,000 4,597,400
4 FY 2028 12 6.00% 4,873,300
5 Increased Revenue Due to Adjustments 7,252,500 11,913,800 17,064,000 6 Subtotal Rate Revenue 73,184,500$ 79,375,800$ 86,094,300$ Other Operating Revenue
7 Solar System Maintenance 88,000 88,000 88,000 8 Water System Mai ntenance 1,135,600 1,135,600 1,135,600 9 Water Construction 0 0 0 10 Water System Operati ons 0 0 0 11 A dm inistration De sign 1,484,000 1,492,200 1,500,500 12 Water Quality 0 0 0 13 Water Resources 0 0 0 14 Subtotal Other Operating Revenue 2,707,600$ 2,715,800$ 2,724,100$ 15 Total Revenue 75,892,100$ 82,091,600$ 88,818,400$
Revenue Requirements
Operating & Maintenance
16 O&M Expenses 66,429,900 71,973,500 77,984,000
17 Subtotal O&M 66,429,900$ 71,973,500$ 77,984,000$
Transfers
18 Transfer to Other Funds 346,500 154,500 292,400 19 Transfer to Rate Stabi l i zati on Reserve 0 351,100 888,700 20 Transfer to Operati ng Reserve 8,944,400 1,366,900 1,482,000 21 Transfer to Water Construction Fund 5,000,000 7,000,000 7,000,000 22 Total Transfers 14,290,900$ 8,872,500$ 9,663,100$ 23 Total Revenue Requirements 80,720,800$ 80,846,000$ 87,647,100$ 24 Net Annual Cash Balance (4,828,700) 1,245,600 1,171,300 25 Beginning Fund Balance 4,933,700 105,000 1,350,600 26 Net Cumulative Fund Balance 105,000$ 1,350,600$ 2,521,900$ 27 Unrestri cted + Operati ng Reserve 16,485,000$ 19,097,500$ 21,750,800$ 28 Mi ni mum Operati ng Reserves (90 Days) 16,380,000$ 17,746,900$ 19,228,900$ Line No. Description
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.

Fiscal Year Ending June 30,
FY 2026 F Y 2027 FY 2028
($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 8,234,300 8,316,700 8,399,700 Year Months Effective Rate Adj
2 FY 2026 12 11.00% 905,800 914,800 924,000 3 FY 2027 12 15.00% 1,384,700 1,398,600
4 FY 2028 12 15.00% 1,608,300
5 Increased Revenue Due to Adjustments 905,800 2,299,500 3,930,900 6 Subtotal Rate Revenue 9,140,100$ 10,616,200$ 12,330,600$ Other Operating Revenue
7 System Maintenance 100,500 102,500 104,600 8 South Bay Water Recycling System Maintenance 1,034,600 1,073,800 1,114,100 9 Subtotal Other Operating Revenue 1,135,100$ 1,176,300$ 1,218,700$ 10 Total Revenue 10,275,200$ 11,792,500$ 13,549,300$
Revenue Requirements
Operating & Maintenance
11 O&M Expenses 10,886,800 12,025,500 13,286,000
12 Subtotal O&M 10,886,800 12,025,500 13,286,000
Transfers
13 Transfer to Rate Stabi l i zati on Reserve 0 0 0 14 Transfer to Operati ng Reserve (115,600) 280,800 310,800 15 Transfer to Recycled Water Const Fund 50,000 100,000 100,000 16 Total Transfers (65,600) 380,800 410,800 17 Total Revenue Requirements 10,821,200$ 12,406,300$ 13,696,800$ 18 Net Annual Cash Balance (546,000) (613,800) (147,500) 19 Beginning Fund Balance 1,590,200 1,044,200 430,400 20 Net Cumulative Fund Balance 1,044,200$ 430,400$ 282,900$ 21 Unrestri cted + Operati ng Reserve 3,728,600$ 3,395,600$ 3,558,900$ 22 Mi ni mum Operati ng Reserves (90 Days) 2,684,400$ 2,965,200$ 3,276,000$ Line No. Description
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

$100,000,000
$90,000,000
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
2026
Water Utility- Operating Fund
2027 2028
- O&M - Debt Service - Capital Projects - Rate Stabilization ~ Revenue ~ Cash Balance $16,000,000
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
Recycled Water Utility- Operating Fund
$0
L
2026 2027 2028
- O&M - Debt Service - Capital Projects - Rate Stabilization ~ Revenue ~ 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 202 6 as the Test Year (TY) requirements to demonstrate the development of cost-of-service water and recycled water rates. Table 3-1 summarizes the total costs of service that need to be recovered from water user rates. Table 3-2 summarizes the total costs of service that need to be recovered from recycled water user rates. Both tables represent TY 202 6.

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

Operating Capital Total
Expense Cost Cost
($) ($) ($)
Revenue Requirements
1 O&M Expenses 66,429,900 0 66,429,900 2 Debt Servi ce 0 0 0 3 Transfers 9,290,900 5,000,000 14,290,900
4 Subtotal 75,720,800 5,000,000 80,720,800
Less Revenue Requirements Met from Other Sources
5 Solar System Maintenance 88,000 0 88,000 6 Water System Mai ntenance 1,135,600 0 1,135,600 7 Water Construction 0 0 0 8 Water System Operati ons 0 0 0 9 A dm inistration De sign 1,484,000 0 1,484,000 10 Water Quality 0 0 0 11 Water Resources 0 0 0 12 Subtotal 2,707,600 0 2,707,600
Adjustments
13 Adjustment for Annual Cash Balance 4,828,700 0 4,828,700 14 Subtotal 4,828,700 0 4,828,700
15 Cost of Servi ce to be Recovered from Rates 68,184,500$ 5,000,000$ 73,184,500$ Line No. Description
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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 $4.8M figure indicates that the forecast is projecting a negative cash balance for the year. In the case of the Recycled Water Utility, the $546.0k figure indicates that the forecast is projecting a negative cash balance for the year.

3.1 Functional Cost Components
The first step in conducting a cost-of-service analysis involves analyzing the cost of providing water and recycled water service by system function to properly allocate the costs to the various customer classes and, subsequently, design rates. As a basis for allocating costs of service among customer classes, the study separates costs into the following four basic functional cost components: (1) Base; (2) Extra Capacity; (3) Customer; and (4) Direct Assignment, described as follows:
 Base costs represent operating and capital costs of the system associated with service to customers to the extent required under constant or average annual load conditions without the elements necessary to meet water consumption variations or peak demands.  Extra Capacity costs represent those operating and capital costs incurred in meeting peaking demands. Peaking demands represent water consumption more than the average rate of use.  Customer costs are those expenditures that tend to vary in proportion to the number of customers connected to the system. These include meter reading, billing, collecting, accounting, maintenance, and capital costs associated with meters and services.

Operating Capital To tal
Expense Cost Cost
($) ($) ($)
Revenue Requirements
1 O&M Expenses 10,886,800 0 10,886,800 2 Debt Servi ce 0 0 0 3 Transfers (115,600) 50,000 (65,600) 4 Subtotal 10,771,200 50,000 10,821,200
Less Revenue Requirements Met from Other Sources
5 System Maintenance 100,500 0 100,500 6 South Bay Water Recycling System Maintenance 1,034,600 0 1,034,600 7 Subtotal 1,135,100 0 1,135,100
Adjustments
8 Adjustment for Annual Cash Balance 546,000 0 546,000 9 Subtotal 546,000 0 546,000
10 Cost of Servi ce to be Recovered from Rates 9,090,100$ 50,000$ 9,140,100$ Line No. Description
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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 compone nt. Extra capacity requirements associated with coincidental demands more than average use consist of maximum daily and maximum hourly demand subcomponents.

The first step in determining the allocation percentages for volume-related cost allocations is to assign system peaking factors. The base element is equal to the average daily demand (ADD) and assigned a value of 1.0. Based on the City’s 2002 Water Master Plan, the Water Utility’s maximum day (max day) demand is 1.5 times the ADD. The maximum hourly (max hour) demand is 1.8 times the ADD. Based on the City’s 2014 Strategic and Master Planning Report, 2002 Water Master Plan, the Recycled Water Utility’s max day demand is 1.7 times the ADD. The max hour demand is 2.38 times the ADD.

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

The costs associated with facilities required to meet maximum hour demand are allocable to base, maximum day extra capacity and maximum hour extra capacity as follows:
 Base = (1.0/1.8) x 100 = 55.6%
 Max Day = (1.5 – 1.0)/1.8 x 100 = 27.7%
 Max Hour = (1.8 – 1.5)/1.8 x 100 = 16.7%
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 3-4

3.2.2 Allocation of Operating and Maintenance Expenses
In allocating O&M expenses for TY 2026, 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)

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($) ($)
Water Utility
Operating Expenses
1532 Solar System Maintenance 287,300 0 0 0 287,300 0 0 0 1 1422 Water System Maintenance
2 Customer Servi ce 394,100 0 0 0 0 394,100 0 0 3 Backfl ow Preventi on 1,023,300 0 0 0 0 0 0 1,023,300 4 A ll Othe r 834,800 456,100 231,300 139,100 0 0 8,300 0 1423 Water Construction 4,192,400 2,290,000 1,161,800 698,700 0 0 41,900 0 5 1424 Water System Operations
6 Generation & Pumping 1,395,400 917,300 464,100 0 0 0 14,000 0 7 Custom e r Billing & Me te r Re ading 811,200 0 0 0 0 811,200 0 0 8 Meters 381,700 0 0 0 381,700 0 0 0 Hydrants 1,529,400 0 0 0 0 0 1,529,400 0 9 A ll Othe r 7,649,100 4,177,900 2,119,800 1,274,900 0 0 76,500 0 10 1411 Administration Design 4,412,900 3,066,200 283,000 150,300 605,000 85,800 149,800 72,800 11 1412 Water Quality 659,100 533,900 0 0 118,600 0 6,600 0 12 1413 Water Resources
Water Purchase 42,234,100 34,209,700 0 0 7,602,100 0 422,300 0 13 A ll Othe r 625,100 506,300 0 0 112,500 0 6,300 0 14 Transfers 9,290,900 6,455,600 595,800 316,500 1,273,700 180,600 315,400 153,300 15 Total O&M Expenses 75,720,800$ 52,613,000$ 4,855,800$ 2,579,500$ 10,380,900$ 1,471,700$ 2,570,500$ 1,249,400$ Less Other Revenue
16 Mi scel l aneous Revenues 2,707,600 1,881,400 173,600 92,200 371,200 52,600 91,900 44,700 17 Other Adjustments 4,828,700 3,355,100 309,700 164,500 662,000 93,800 163,900 79,700 18 Net Operati ng Expenses 68,184,500$ 47,376,500$ 4,372,500$ 2,322,800$ 9,347,700$ 1,325,300$ 2,314,700$ 1,125,000$ Line No. Description Total Costs
Common to All Customers
Base E xtra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
Operating Expenses
1 1522 System Maintenance
2 Water Purchase 8,962,100 8,962,100 0 0 0 0 3 Custom e r Billing & Me te r Re ading 3,700 0 0 0 0 3,700 4 Meters 623,000 0 0 0 623,000 0 5 A ll Othe r 283,400 119,000 83,400 81,000 0 0 6 1525 South Bay Water Recycling System 1,014,600 596,800 417,800 0 0 0 7 Transfers (115,600) (102,800) (5,300) (900) (6,600) 0 8 Total O&M Expenses 10,771,200$ 9,575,100$ 495,900$ 80,100$ 616,400$ 3,700$ Less Other Revenue
9 Mi scel l aneous Revenues 1,135,100 1,009,000 52,300 8,400 65,000 400 10 Other Adjustments 546,000 485,400 25,100 4,100 31,200 200 11 Net Operati ng Expenses 9,090,100$ 8,080,700$ 418,500$ 67,600$ 520,200$ 3,100$ Total CostsDescriptionLine No.

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 2026, the existing fixed assets (which serve as a proxy for the current capital investments) are allocated directly to cost components to the extent possible. The allocation of costs in this manner provides a basis for annual investment in water and recycled w ater system facilities. Plan capital costs can be allocated using the distribution of total net system investment across the functional cost components. Table 3-5 and Table 3-6 show the total allocation of existing system investment serving water and recycled water customers. The total net system investment of $59.5 M 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, 2024. This value represents the original cost (book value) of the assets.

Table 3-5 Allocation of Capital Costs (Water)

Table 3-6 Allocation of Capital Costs (Recycled Water)

3.3 Units of Service
To properly recognize the cost of service, each customer class receives its share of base, maximum day, peak hour, and customer costs. Following the allocation of costs, the total cost responsibility for each customer class is developed using unit costs of service for each cost function and subsequently assigning those costs to the customer classes based on the respective service requirements of each. The 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.

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($) ($)
Water Utility
Plant Assets
1 Water Production 18,406,300 14,909,100 0 0 3,313,100 0 184,100 0 2 Pumping 2,705,900 1,778,900 899,900 0 0 0 27,100 0 3 Treatment 1,745,100 1,147,300 580,300 0 0 0 17,500 0 4 Transm ission & Distribution 27,911,800 15,245,500 7,735,200 4,652,000 0 0 279,100 0 5 Meters & Servi ces 6,409,400 0 0 0 6,409,400 0 0 0 6 Fire Hydrants 572,500 0 0 0 0 0 572,500 0 7 General Pl ant 1,727,300 989,500 275,600 139,100 290,800 0 32,300 0 8 Total Plant Assets 59,478,300$ 34,070,300$ 9,491,000$ 4,791,100$ 10,013,300$ 0$ 1,112,600$ 0$ Less Other Revenue
9 Mi scel l aneous Revenues 0 0 0 0 0 0 0 0 10 Other Adjustments 0 0 0 0 0 0 0 0 11 Net Capi tal Expenses 59,478,300$ 34,070,300$ 9,491,000$ 4,791,100$ 10,013,300$ 0$ 1,112,600$ 0$ Line No. Description Total Costs
Common to All Customers
Base Extra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
Plant Assets
1 Water Production 0 0 0 0 0 0 2 Pumping 0 0 0 0 0 0 3 Treatment 0 0 0 0 0 0 4 Transm ission & Distribution 1,047,400 440,000 308,100 299,300 0 0 5 Meters 0 0 0 0 0 0 6 Total Plant Assets 1,047,400$ 440,000$ 308,100$ 299,300$ 0$ 0$ Less Other Revenue
7 Mi scel l aneous Revenues 0 0 0 0 0 0 8 Other Adjustments 0 0 0 0 0 0 9 Net Capi tal Expenses 1,047,400$ 440,000$ 308,100$ 299,300$ 0$ 0$ Line No. Description Total Costs
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 2026 units of service for the various customers. Base costs vary with the volume of water consumed and distributed to the customers on that basis. Extra Capacity costs are those associated with meeting peak demand rates of water use and distributed to the cust omers based on the respective class capacity requirements more than average rates of use. Black & Veatch followed the capacity factor methodology outlined in Appendix A of the AWWA M1 Manual to derive peak consumption information from the monthly consumption records in the City’s Customer Information System which helps provide the basis for estimating maximum day and peak hour ratios. The number of bills for each customer serves as the basis for distributing customer billing requirements. Customer meter requirements are allocated on an equivalent meter’s basis for each customer. The estimated number of equivalent meters for each customer relies on the total number of meters serving respective classes and the hydraulic capacity ratio of the meters to the 5/8 x 3/4-inch meter. The equivalent meter ratios adopted in this analysis are consistent with the AWWA M1 Manual. Private fire -protection costs allocations use equivalent fire hydrants.

3.4 Cost of Service Allocations
The Study applies the unit costs of service to each customer class’s respective service requirements to determine the cost of service for each customer class. The total unit costs of service applied to the respective requirements for each customer class results in the total cost of service for each customer class.

3.4.1 Units Costs of Service
The TY 2026 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 2026. 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 3-8, Li ne 6) 7.31$ per HCF General Customer Consumption (Table 3-9, Line 1) 6,871,457 HCF Total Allocated Cost 50,240,500$
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 3-1

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

Table 3-8 Units Cost of Service (Water)

Consumption Maximum Day Maximum Day Fire Cross
Annual Avg. Day Factor Total Extra Factor Total Extra Meters Cust/Bills Protection Connection Col umn Reference (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Units of Measure (HCF) (HCF/day) (HCF/day) (HCF/day) (HCF/day) (HCF/day) (EMs) (bills) (EHs) (EMs) Water Utility
1 General Customer 6,871,457 18,826 166% 31,251 12,425 249% 46,877 15,626 45,530 315,666 0 0 2 Subtotal 6,871,457 18,826 31,251 12,425 46,877 15,626 45,530 315,666 Fire Service
3 Public Fire 0 0 556 556 4,445 3,890 0 0 3,437 0 4 Pri vate Fi re 0 0 287 287 2,293 2,006 0 15,445 1,773 0 5 Subtotal 0 0 842 842 6,738 5,896 0 15,445 5,210 0 Cross Connection
6 Cross Connection 36,446 0 8,765 7 Subtotal 0 0 0 0 0 0 0 36,446 0 8,765 8 Total Water System 6,871,457 18,826 32,093 13,267 53,614 21,521 45,530 367,557 5,210 8,765 Recycled Water Utility
9 General Customer 1,665,011 4,562 130% 5,930 1,369 195% 8,895 2,965 2,563 3,503 0 0 10 Subtotal 1,665,011 4,562 5,930 1,369 8,895 2,965 2,563 3,503 0 0 DescriptionLine No.

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($)
Water Utility
1 Net Operati ng Expense 68,184,500 47,376,500 4,372,500 2,322,800 9,347,700 1,325,300 2,314,700 1,125,000 2 Debt Servi ce 0 0 0 0 0 0 0 0 3 Capital Costs 5,000,000 2,864,000 797,900 402,800 841,800 0 93,500 0 4 Total Cost of Service 73,184,500$ 50,240,500$ 5,170,400$ 2,725,600$ 10,189,500$ 1,325,300$ 2,408,200$ 1,125,000$ 5 Units of Se rvice (Total) 6,871,457 13,267 21,521 45,530 367,557 5,210 8,765 HCF HCF/Day HCF/Day Eq. Meters Bills Eq. Hydrants Eq. Meters 6 Cost per Unit 7.31$ 389.71$ 126.65$ 223.80$ 3.61$ 462.25$ 128.36$ per HCF per HCF/Day per HCF/Day per Eq. Meter pe r Bill per Eq. Hydrant per Eq. Meter Total CostsLine No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 3-2

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

Common to All Customers
Base Extra Capacity Customer Fire Cross
Base Max. Day Max. Hour Meters Cust/Bill. Protection Connection ($) ($) ($) ($) ($) ($) ($)
Water Utility
General Customer
1 Units 6,871,457 12,425 15,626 45,530 315,666 0 0 2 Allocation of costs of service 68,389,300 50,240,500 4,842,200 1,978,900 10,189,500 1,138,200 0 0 Public Fire
3 Units 0 556 3,890 0 0 3,437 0 4 Allocation of costs of service 2,297,900 0 216,500 492,600 0 0 1,588,800 0 Private Fire
5 Units 0 287 2,006 0 15,445 1,773 0 6 Allocation of costs of service 1,240,900 0 111,700 254,100 0 55,700 819,400 0 Cross Connection
7 Units 0 0 0 0 36,446 0 8,765 8 Allocation of costs of service 1,256,400 0 0 0 0 131,400 0 1,125,000 7 TOTAL COSTS OF SERVICE 73,184,500$ 50,240,500$ 5,170,400$ 2,725,600$ 10,189,500$ 1,325,300$ 2,408,200$ 1,125,000$ Line No. Description Total Costs
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)

Common to All Customers
Base E xtra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
1 Net Operati ng Expense 9,090,100 8,080,700 418,500 67,600 520,200 3,100 2 Debt Servi ce 0 0 0 0 0 0 3 Capital Costs 50,000 21,000 14,700 14,300 0 0 4 Total Cost of Service 9,140,100$ 8,101,700$ 433,200$ 81,900$ 520,200$ 3,100$ 5 Units of Se rvice (Total) 1,665,011 1,369 2,965 2,563 3,503 HCF HCF/Day HCF/Day Eq. Meters Bills
6 Cost per Unit 4.87$ 316.55$ 27.62$ 202.93$ 0.88$ per HCF per HCF/Day per HCF/Day per Eq. Meter pe r Bill Line No. Description Total Costs
Common to All Customers
Base Extra Capacity Customer
Base Max. Day Max. Hour Meters Cust/Bill.
($) ($) ($) ($) ($) ($)
Recycled Water Utility
General Customer
1 Units 1,665,011 1,369 2,965 2,563 3,503 2 Allocation of costs of service 9,140,100 8,101,700 433,200 81,900 520,200 3,100 3 TOTAL COSTS OF SERVICE 9,140,100$ 8,101,700$ 433,200$ 81,900$ 520,200$ 3,100$ Line No. Description Total Costs
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-1

4.0 Rate Design
The initial consideration in the derivation of rate schedules for water and recycled water service is establishing equitable charges to the customers commensurate with the cost of providing that service.

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

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

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

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

Table 4-1 demonstrates the water cost elements incorporated into the minimum monthly service charge for FY 2026. 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 2026 (Water)

Meter & Public Fire Protection Billing
M
eter Mtr Unit FP Unit Meter Adjusted Adjusted Total Service Size Cost Cost Ratio Unit Cost Unit Cost Bill Ratio Unit Cost Charge per EM per EM $ pe r Bill $ $/Month
5/8" x 3/4" 18.65 4.21 1.00 22.86 3.61 1.00 3.61 26.46 1" 18.65 4.21 1.67 38.09 3.61 1.00 3.61 41.70 1-1/2" 18.65 4.21 3.33 76.19 3.61 1.00 3.61 79.79 2" 18.65 4.21 5.33 121.90 3.61 1.00 3.61 125.50 3" 18.65 4.21 10.67 243.79 3.61 1.00 3.61 247.40 4" 18.65 4.21 16.67 380.93 3.61 1.00 3.61 384.53 6" 18.65 4.21 33.33 761.86 3.61 1.00 3.61 765.46 8" 18.65 4.21 53.33 1,218.97 3.61 1.00 3.61 1,222.58 10" 18.65 4.21 80.00 1,828.46 3.61 1.00 3.61 1,832.07 12" 18.65 4.21 112.50 2,571.27 3.61 1.00 3.61 2,574.88 City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 4-2

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

Table 4-3 demonstrates the recycled water cost elements incorporated into the minimum monthly service charge for FY 2026. 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)

Proposed
Customer Class F Y 2026 FY 2027 FY 2028
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 26.46 28.50 29.60 1" 41.70 45.10 46.87
1-1/2" 79.79 86.61 90.05
2" 125.50 136.42 141.87
3" 247.40 269.23 280.05
4" 384.53 418.65 435.49
6" 765.46 833.71 867.30
8" 1,222.58 1,331.77 1,385.46
10" 1,832.07 1,995.86 2,076.34
12" 2,574.88 2,805.22 2,918.35
Meter Services Billing
M
eter Mtr Unit Meter Adjusted Adjusted Total Service
Size Cost Ratio Unit Cost Unit Cost Bill Ratio Unit Cost Charge per EM $ pe r Bill $ $/Month
5/8" x 3/4" 16.91 1.00 16.91 0.88 1.00 0.88 17.80 1" 16.91 1.67 28.19 0.88 1.00 0.88 29.07 1-1/2" 16.91 3.33 56.37 0.88 1.00 0.88 57.26 2" 16.91 5.33 90.19 0.88 1.00 0.88 91.08 3" 16.91 10.67 180.39 0.88 1.00 0.88 181.27 4" 16.91 16.67 281.85 0.88 1.00 0.88 282.74 6" 16.91 33.33 563.71 0.88 1.00 0.88 564.59 8" 16.91 53.33 901.93 0.88 1.00 0.88 902.82 10" 16.91 80.00 1,352.90 0.88 1.00 0.88 1,353.78 12" 16.91 112.50 1,902.51 0.88 1.00 0.88 1,903.40 Proposed
Customer Class F Y 2026 FY 2027 FY 2028
Minimum Monthly Meter Rates ($/Month) $/month $/month $/month 5/8" x 3/4" 17.80 20.42 23.57 1" 29.07 33.41 38.62
1-1/2" 57.26 65.89 76.23
2" 91.08 104.87 121.37
3" 181.27 208.80 241.72
4" 282.74 325.72 377.13
6" 564.59 650.51 753.24
8" 902.82 1,040.26 1,204.58
10" 1,353.78 1,559.93 1,806.37
12" 1,903.40 2,193.27 2,539.80
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 1,287 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 2026

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 3,037 accounts. These customers have a backflow device that prevents possible contaminated water from entering the water system. The Water Utility maintains and replaces the devices accordingly to ensure that the devices are working properly. The Water Utility charges the accounts a cross-connection charge based on the diameter of the line that connects their service to the water system. Table 4-7 demonstrates the costs incorporated into the cross-connection charge, and Table 4-8 shows the three-year rate schedule.

Private Fire Protection Total
Meter Unit Meter Adjusted Service
Size Cost Ratio Unit Cost Charge
per EH $/Month
2" 58.33 0.06 3.50 3.50 4" 58.33 0.34 19.83 19.83 6" 58.33 1.00 58.33 58.33 8" 58.33 2.13 124.25 124.25 10" 58.33 3.83 223.42 223.42 12" 58.33 6.19 361.08 361.08 Proposed
Customer Class FY 2026 FY 2027 FY 2028
Fire Service ($/Month) $/month $/month $/month
2" 3.50 3.65 3.81
4" 19.83 20.70 21.57
6" 58.33 60.89 63.45
8" 124.25 129.70 135.15
10" 223.42 233.23 243.02
12" 361.08 376.94 392.76
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 2026

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

Cross Connection Total
M
eter Unit Meter Adjusted Service
Size Cost Ratio Unit Cost Charge
per EM $/Month
1" 11.95 0.63 7.47 7.47 2" 11.95 1.00 11.95 11.95 3" 11.95 2.00 23.89 23.89 4" 11.95 3.13 37.33 37.33 6" 11.95 6.25 74.66 74.66 8" 11.95 10.00 119.46 119.46 10" 11.95 15.00 179.19 179.19 Proposed
Customer Class F Y 2026 FY 2027 FY 2028
Cross Connection ($/Month) $/month $/month $/month
1" 7.47 7.52 7.76
2" 11.95 12.03 12.42
3" 23.89 24.06 24.83
4" 37.33 37.59 38.80
6" 74.66 75.17 77.60
8" 119.46 120.28 124.16
10" 179.19 180.41 186.24
Proposed
Customer Class FY 2026 FY 2027 FY 2028
Consumption Charges ($/HCF)
General Customer 9.89 10.49 11.13 Recycled Water Utility
General Customers 5.43 6.24 7.18 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 Neighboring Water Utilities
Presented in Figure 4-1 are the proposed rates compared to rates of neighboring cities for a single-family residential customer with a 5/8” x ¾” meter consuming 12 units of water. Based on the comparison, the City is currently one of the lowest water providers in the area. With the proposed rate increases, the City remains the lowest water provider of the surveyed communities. All surveyed community rates are current as of May 2025.

Typical FY 2025 F Y 2026
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Water Utility
General Customer 0 $23.42 $26.46
3 $23.42 $26.46
5 $44.50 $49.46
10 $89.00 $98.93
12 $106.80 $118.71
20 $178.00 $197.86
30 $267.00 $296.78
40 $356.00 $395.71
50 $445.00 $494.64
Typical FY 2025 F Y 2026
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Recycled Water Utility
General Customer 0 $17.44 $17.80
3 $17.44 $17.80
5 $25.30 $27.14
10 $50.60 $54.28
12 $60.72 $65.13
20 $101.20 $108.56
30 $151.80 $162.84
40 $202.40 $217.12
50 $253.00 $271.39
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
■ Water Rate ■ Sewer Rate ■ Combined
$200.00
$150.00
$100.00
II 11 I. 1.
$50.00
I I I $0.00
Santa SJWC Mountain View San Jose Milpitas Palo Alto Sunnyvale Clara (Mu ni) Water Rate 12 $91 .69 $118.68 $136.31 $129.0 1 $145.73 $139. 14 $166.89 HCF Sewer Rate $72.70 $57.55 $50.42 $57 75 $50.42 $69.46 $67.11 Combined $164.39 $176.23 $186 .73 $186.76 $196 .15 $208.90 $234 .00 ' All rates are proposed for FY25-26
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 num ber of EDUs, bills, and contributed sewage flow. This section also projects the expenses, or revenue requirements, necessary to operate and maintain the system, invest in capital improvements, make debt service payments, and cover other sewer system expenses.

5.1 Customer and Water Consumption Projections

5.1.1 Customer Classes
The Sewer Utility’s customers include both residential and non-residential customers. The City has the following customer classes:
 Residential: Single-family residential and multi-family residential.  Non-Residential: Amusement Parks; Auto Dealers & Service Stations; Churches; Electric & Electronic Equipment; Food & Kindred Products; Hospitals & Convalescent Homes; Industrial Chemical; Industrial Water Treatment; Laundries; Machinery Manufacturers; Metal Plating; Motels & Hotels; Paper; Repair Shops & Car Washes; Restaurants; Schools & Colleges; and Commercial/Industrial/Miscellaneous (catch-all for remainder of non-residential customers).  Major Users: Major Users customer class is composed of major commercial and industrial users who are identified based on the following:
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 26,785 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.

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

Table 5-1 EDUs

5.1.3 Minimum Bills
The City bills non-residential customers primarily on contributed sewage flow and imposes a minimum bill on those whose flow charges do not exceed the included volume allowance within the monthly service charge. The City refers to these bills as minimum monthly service bills. Therefore, a review of historical minimum bills patterns for non-residential customers and anticipated growth within the City, the projected total number of minimum bills is expected to increase 2.5% annually over the Study period.

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

Table 5-2 Minimum Monthly Service Bills

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 increase 2.5% annually over the Study period.

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
(EDUs) (EDUs) (EDUs)
1 Single Fam ily 261,459 262,113 262,768 2 Multi Fam ily 336,890 337,732 338,576 3 Total 598,349 599,845 601,344
Line No. Description
Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
(Bills) (Bills) (Bills)
1 Amusement Parks 116 119 122 2 Auto Deal ers & Servi ce Stati on 409 419 429 3 Churches 292 299 306 4 Com m e rcial/Industrial/Misce llane ous 10,969 11,243 11,524 5 Electric & Electronic Equip. 473 485 497 6 Food and Kindred Products 36 37 38 7 Hospi tal s & Conval escent Homes 347 356 365 8 Industrial Chemical 40 41 42 9 Laundries 155 159 163 10 Machinery Manufacturers 791 811 831 11 Me tal Plating 99 101 104 12 Motel s & Hotel s 66 68 70 13 Paper 13 13 13 14 Repair Shops & Car Washes 491 503 516 15 Restaurants 282 289 296 16 Schools & Colleges 580 595 610 17 Total 15,159 15,538 15,926
Line No. Description
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 Revenue under Existing Rates
Sewer user rates serve as the primary source of revenue for the Sewer Utility. Therefore, the level of future rate revenue is important in developing a long-range financial plan. Rate revenue is determined by multiplying the projected system growth in terms of the number of EDUs, minimum monthly service bills, contributed sewage flow, and major user flow and loadings by the applicable rates to determine sewer rate revenue.

Table 5-4 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.

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
(HCF) (HCF) (HCF)
1 Amusement Parks 74,820 76,691 78,608 2 Auto Deal ers & Servi ce Stati on 32,816 33,636 34,477 3 Churches 13,777 14,121 14,474
4 Com m e rcial/Industrial/Misce llane ous 1,342,064 1,375,616 1,410,006 5 Electric & Electronic Equip. 450,931 462,204 473,759 6 Food and Kindred Products 17,656 18,097 18,550 7 Hospi tal s & Conval escent Homes 95,334 97,717 100,160 8 Industrial Chemical 15,943 16,341 16,749 9 Laundries 24,552 25,166 25,795
10 Machinery Manufacturers 37,081 38,008 38,958 11 Me tal Plating 6,204 6,359 6,518 12 Motel s & Hotel s 99,626 102,117 104,670 13 Paper 27 28 29 14 Repair Shops & Car Washes 13,556 13,895 14,242 15 Restaurants 70,062 71,814 73,609 16 Schools & Colleges 46,602 47,767 48,961 17 Total (HCF) 2,341,051 2,399,577 2,459,565
18 Total (AF) 5,374 5,509 5,646 Line No. Description
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 $47.4M in FY 2026 to $48.4M in FY 2028.

(Section left intentionally blank)

Existing Existing
F
Y 2025 FY 2025
Residential ($/EDU) Major Commercial and Industrial Users Single Fam ily 52.37 Annual Capital Cost Recovery Multi-Fam ily 49.31 Vol ume (per MGD) 1,306,599 BOD [2] (per 1,000 lbs/day) 124,262
Non-Residential* ($/HCF) SS [3] (per 1,000 lbs/day) 114,880 Amusement Parks 6.93 NH3 [4] (per 1,000 lbs/day) 538,093 Auto Deal ers & Servi ce Stati on 7.80
Churches 6.12 Operating and Maintenance Cost Recovery Com/Ind/Misc 6.61 Vol ume (per MG) 3,671.11 Electric & Electronic Equip. 6.18 BOD [2] (per 1,000 lbs) 561.28 Food and Kindred Products 15.74 SS [3] (per 1,000 lbs) 651.81 Hospi tal s & Conval escent Homes 7.60 NH3 [4] (per 1,000 lbs) 4,980.00 Industrial Chemical 11.58
Laundries 6.80
Machinery Manufacturers 9.33
Me tal Plating 5.05
Motel s & Hotel s 8.09
Paper 4.44
Repair Shops & Car Washes 5.90
Restaurants 16.01
Schools & Colleges 7.31
*In no case shall the minimum charge be less than $52.37 per month.

Description Description
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 Other Revenue
Other operating sources include charges for revenue from other agencies served by Santa Clara, sewer lateral video inspections, sewer clean-out installations, interest on investments, and other miscellaneous revenues. In total, other operating revenues represent an average of 2.1% of the Sewer Utility’s total revenue. The City anticipates that these revenues will remain relatively constant for the duration of the Study period.

5.4 Operating and Maintenance Expenses
Table 5-6 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 4. 2% annually from the FY 2026.

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% annually over the Study period.

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
($) ($) ($)
1 Single Fam ily 13,706,500 13,740,800 13,775,100 2 Multi-Fam ily 16,454,000 16,495,100 16,536,300
3 Amusement Parks 519,600 532,600 545,900 4 Auto Deal ers & Servi ce Stati on 274,700 281,600 288,700 5 Churches 98,600 101,100 103,600
6 Com/Ind/Misc 9,355,400 9,589,300 9,829,000
7 Electric & Electronic Equip. 2,784,700 2,854,400 2,925,700 8 Food and Kindred Products 277,200 284,100 291,200 9 Hospi tal s & Conval escent Homes 735,600 754,100 772,900 10 Industrial Chemical 184,900 189,500 194,300 11 Laundries 173,400 177,700 182,200
12 Machinery Manufacturers 383,700 393,300 403,100 13 Me tal Plating 36,100 37,000 38,000 14 Motel s & Hotel s 801,700 821,700 842,300 15 Paper 800 800 800
16 Repair Shops & Car Washes 104,700 107,300 110,000 17 Restaurants 1,125,600 1,153,800 1,182,600
18 Schools & Colleges 367,500 376,700 386,100 19 Major Users - Customer 1 0 0 0 20 Total 47,384,700$ 47,890,900$ 48,407,800$
Line No. Description
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 $40.3M in FY 2026 to $43.1M in FY 2028.

5.5 Debt 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 Capital Improvement Program
The Sewer Utility annually develops a five-year Capital Improvement Plan to identify sewer system needs, including ongoing assessments, maintenance, and renewal and replacement requirements.

Table 5-8 summarizes the Sewer Utility’s CIP for FY 2026 through FY 2028. The Sewer Utility is projecting $55.9M in CIP over the Study period, including capital and replacement projects. The City has posted the CIP Budget on its website for complete details associated with each CIP project.

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
($) ($) ($)
1 Salaries 3,444,500 3,651,100 3,786,100
2 Benefi ts 2,101,200 2,132,400 2,223,700
3 Mate rials/Se rvice s/Supplie s 615,800 628,000 640,400 4 Interfund Services 5,725,600 5,984,700 6,261,600 5 Resource & Production 28,459,146 29,312,800 30,192,200 6 Capital Outlay 0 0 0 7 Total 40,346,246$ 41,709,000$ 43,104,000$
Line No. Description
Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
($) ($) ($)
1 Existing Short and Long-Term Loan 3,296,800 3,298,300 3,297,800 2 Proposed Short-Term and Rev Bonds 0 810,300 1,126,500 3 Total 3,296,800$ 4,108,600$ 4,424,300$
Line No. Description
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 $18.6M for the Sewer Utility. The planned average annual CIP contribution from the Sewer Utility Operating Fund is $15.3M annually over the Study period.

Table 5-9 Construction Fund Financing Plan

Fiscal Year Ending June 30,
FY 2026 F Y 2027 FY 2028
($) ($) ($)
1 1908 SJ-SC Re gional Waste wate r Facility 8,289,300 9,615,000 27,269,200 2 1909 Sanitary Sewer Capacity
Improvements 0 0 0 3 1911 Sanitary Sewer System Condition
A ssessment 1,035,400 1 ,072,000 1,109,900
4 1912 Sani tary Sewer System Improvements 2,070,700 2,143,900 2,219,800 5 1919 Sanitary Sewer Hydraulic Modeling As
Needed Support 160,100 1 69,600 179,600 6 PW Paving Project Support 517,700 0 0 7 Total 1 2,073,200$ 13,000,500$ 30,778,500$
Line No. Description
Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
Source of Funds
1 Sanitary Outlet Charge 0 0 0 2 Sewer Conveyance Fee 0 0 0 3 Intra Transfer In - Debt Financing 0 15,000,000 0 4 Intra Transfer In - Customer Service Charge 15,000,000 15,500,000 15,500,000 5 Refund from San Jose/Cupertino 0 0 0 6 Total Sources 15,000,000$ 30,500,000$ 15,500,000$
Use of Funds
7 Improvements Projects 12,073,200 13,000,500 30,778,500 8 Infrastructure Reserve 1,475,225 4,676,325 (790,750) 9 Total Uses 13,548,425$ 17,676,825$ 29,987,750$
10 Net Annual Cash Balance 1,451,575 12,823,175 (14,487,750) 11 Beginning Unrestricted Fund Balance 5,842,709 7,294,284 20,117,459 12 Net Cumulative Fund Balance 7,294,284$ 20,117,459$ 5,629,709$ 13 Construction + Infrastructure Reserves 13,562,709$ 31,062,209$ 15,783,709$ 14 Mi ni mum Reserves 6,268,425$ 10,944,750$ 10,154,000$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue Requirements 5-8

5.7 Transfers
The Sewer Utility will perform transfers over the Study period from the Operating Fund and other funds and reserves. The other funds consist of the Operating Reserve, Rate Stabilization Reserve, Pension Stabilization Reserve and Construction Fund. See Section 5.8 for further explanation on Rate Stabilization Reserve. The Construction Fund transfers represent money to cover planned CIP project expenditures. All these transfers do not represent direct operating expenses for the enterprise. Therefore Black & Veatch includes these costs as “below-the-line” cash flow items and not included as O&M expenses. Table 5-10, 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.  Construction Reserve represents funds used for unforeseen and unbudgeted capital costs. Once fully funded, this reserve will maintain a minimum balance of 12-months of the following year’s planned City CIP and 6-months of the following year’s planned RWF CIP.  Rate Stabilization Reserve represents funds used to absorb revenue shortfalls due to short- term decreases in sewer sales. This reserve is designed to stabilize sewer rate revenue and avoid wide swings in rates charged to customers over time. The reserve will maintain a minimum balance of 10% of sewer rate revenue when fully funded.
 Pension Stabilization Reserve represents funds used to pay for the unfunded pension liabilities and the increase in the City’s share of pension costs due to factors such as higher CalPERS rates and negotiated pay increases. The reserve target is $1.2M for the Sewer Utility by FY 2030.

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

5.9 Projected Operating Results
The revenue requirements of the Sewer Utility consist of O&M expenses, debt service, capital expenditures, and reserve requirements.

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

City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Revenue and Revenue 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 and infrastructure reserve to the average of the next two-year’s CIP for City and RWF projects.
 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. $70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
Sl0,000,000
so
-$10,000,000
-s20,ooo,ooo
-$30,000,000
-$40,000,000
2026
Sewer Utility - Opera ting Fund
2027 2028
- O&M - Debt Service - Capital Projects - Rat:eStabililat:ion ~ Re1enue -.- 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 reserves and other funds.  Line 25 represents total revenue requirements.

Line 28 represents the net cumulative cash balance (unrestricted) within the Operating Fund. The net unrestricted cash balance plus the operating reserve intends to match, to the extent possible, Line 30.

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 31 represents the debt service coverage. The operating cash flow is set up to achieve a debt service coverage of 1.25x requirement in all years. 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)

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 47,384,700 47,890,900 48,407,800 Year
Months
Effective Rate Adj
2 2026 12 8.00% 3,790,800 3,831,300 3,872,600 3 2027 12 10.50% 5,430,800 5,489,400
4 2028 12 10.00% 5,777,000
5 Increased Revenue Due to Adjustments 3,790,800 9,262,100 15,139,000 6 Subtotal Rate Revenue 51,175,500$ 57,153,000$ 63,546,800$ Other Operating Revenue
7 System Administration (Interest Income) 651,500 663,600 676,000 8 System Maintenance 20,000 20,000 20,000 9 Operations 560,000 560,000 560,000
10 SJ SC Wate r Pollution Control Plant 0 0 0 11 Storm Pump Maintenance 0 0 0 12 Subtotal Other Operating Revenue 1,231,500$ 1,243,600$ 1,256,000$ 13 Total Revenue 52,407,000$ 58,396,600$ 64,802,800$
Revenue Requirements
Operating & Maintenance
14 O&M Expenses 40,346,200 41,709,000 43,104,000
15 Subtotal O&M 40,346,200$ 41,709,000$ 43,104,000$
Debt Servi ce
16 Existing Loans/Bonds 3,296,800 3,298,300 3,297,800 17 Proposed Loans/Bonds 0 810,300 1,126,500 18 Total Debt Servi ce 3,296,800$ 4,108,600$ 4,424,300$ Transfers
19 Transfer to Other Fund 6,900 47,100 47,100 20 Transfer to Rate Stabi l i zati on Reserve 602,400 600,100 0 21 Transfer to Pension Stabilization Reserve 78,200 78,200 78,200 22 Transfer to Operati ng Reserve 1,600,100 336,000 344,000 23 Transfer to Sewer Construction Fund 15,000,000 15,500,000 15,500,000 24 Total Transfers 17,287,600$ 16,561,400$ 15,969,300$ 25 Total Revenue Requirements 60,930,600$ 62,379,000$ 63,497,600$ 26 Net Annual Cash Balance (8,523,600) (3,982,400) 1,305,200 27 Beginning Fund Balance 12,700,928 4,177,328 194,928 28 Net Cumulative Fund Balance 4,177,328$ 194,928$ 1,500,128$ 29 Unrestri cted + Operati ng Reserve 14,125,728$ 10,479,328$ 12,128,528$ 30 Mi ni mum Operati ng Reserves (90 Days) 9,948,400$ 10,284,400$ 10,628,400$ 31 Debt Servi ce Coverage (Mi n 1.25) 3.66 4.06 4.90 Line No. Description
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

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 2026 as the Test Year requirements to demonstrate the development of cost-of-service sewer rates. Table 6-1 summarizes the total costs of service that need to be recovered from sewer user rates. The table represents TY 202 6.

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 $8.5M figure indicates that the forecast is projecting a negative cash balance for the year.

6.1 Functional Cost Components
The first step in conducting a cost-of-service analysis involves analyzing the cost of providing sewer service by system function to properly allocate the costs to the various customer classes and, subsequently, design rates. As a basis for allocating costs of service among customer classes, costs are Operating Capital Tot al
Expense Cost Cost
($) ($) ($)
Revenue Requi rements
1 O&M Expense 40,346,200 0 40,346,200 2 Debt Servi ce Requi rements 0 3,296,800 3,296,800 3 Transfers 2,287,600 15,000,000 17,287,600
4 Subtotal 42,633,800$ 18,296,800$ 60,930,600$
Less Revenue Requi rements Met from Other Sources
5 System Administration 651,500 0 651,500 6 System Maintenance 20,000 0 20,000 7 Operations 560,000 0 560,000 8 SJ SC Wate r Pollution Control Plant 0 0 0 9 Storm Pump Maintenance 0 0 0 10 Subtotal 1,231,500$ 0$ 1,231,500$ Adjustments
11 Adjustment for Annual Cash Balance 8,523,600 0 8,523,600 12 Subtotal 8,523,600$ 0$ 8,523,600$ 13 Cost of Servi ce to be Recovered from Rates 32,878,700$ 18,296,800$ 51,175,500$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 6-2

separated into the following four basic functional cost components: (1) Base; (2) Strength; (3) Customer; and (4) Direct Assignment, described as follows:
 Base costs represent operating and capital costs of the system associated with collection. The collection costs vary directly with the quantity of sewage flow.  Strength costs represent those operating and capital costs associated with treatment. The treatment costs are specifically related to strength parameters such as Biological Oxygen Demand, Total Suspended Solids, and Ammonia.
 Customer costs are those expenditures that tend to vary in proportion to the number of customers connected to the system. These include meter reading, billing, collecting, 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 2026, 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 2026, 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 2026. The total net system investment of $1.3M shown on Line 7 represents the Test Year original cost less accumulated depreciation of the system in service. The total net system investment reflects the Sewer Utility’s fixed asset listing ending June 30, 202 4. This value represents the original cost (book value) of the assets.

Table 6-3 Allocation of Capital Costs

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

Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
($) ($) ($) ($) ($) ($)
Operation & Maintenance
1 1511 System Administration 5,893,300 2,691,000 1,033,800 1,044,500 1,059,600 64,400 2 1512 System Maintenance 2,613,100 2,613,100 0 0 0 0 3 1514 Operations 2,107,900 2,107,900 0 0 0 0 4 1515 SJ SC Wate r Pollution Control Plant
5 Treatment 27,901,000 9,556,400 6,043,600 6,106,400 6,194,600 0 6 Custom e r Billing & Me te r Re ading 376,300 0 0 0 0 376,300 7 A ll Othe r 1,271,100 1,271,100 0 0 0 0 8 1516 Storm Pump Maintenance 183,500 183,500 0 0 0 0 9 Transfers 680,600 310,800 119,400 120,600 122,400 7,400 10 Total O&M Expenses 41,026,800$ 18,733,800$ 7,196,800$ 7,271,500$ 7,376,600$ 448,100$ Less Other Revenue
11 Mi scel l aneous Revenues 1,231,500 562,300 216,000 218,300 221,400 13,500 12 Other Adjustments 8,523,600 3,892,100 1,495,200 1,510,700 1,532,500 93,100 13 Net Operati ng Expenses 31,271,700$ 14,279,400$ 5,485,600$ 5,542,500$ 5,622,700$ 341,500$ Line Total Com mon to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
($) ($) ($) ($) ($) ($)
Plant Assets
1 Colle ction 956,600 956,600 0 0 0 0 2 Lift Station 275,800 275,800 0 0 0 0 3 General Pl ant 101,100 101,100 0 0 0 0 4 Total Plant Assets 1,333,500$ 1,333,500$ 0$ 0$ 0$ 0$ Less Other Revenue
5 Mi scel l aneous Revenues 0 0 0 0 0 0 6 Other Adjustments 0 0 0 0 0 0 7 Net Operati ng Expenses 1,333,500$ 1,333,500$ 0$ 0$ 0$ 0$ --------
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Cost of Service Analysis 6-4

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

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

6.4 Cost of Service Allocations
Unit costs of service are applied to each customer class’s respective service requirements to determine the cost of service for each customer class. The total unit costs of service applied to the respective requirements for each customer class results in the total cost of service for each customer class.

6.4.1 Units Costs of Service
The TY 2026 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) 5.32$ per HCF Amusement Park Consumption (Table 6-6, Line 6) 74,820 HCF Total Allocated Cost 398,400$
Please note that the numbers within the tables are rounded, yet the calculations are done based on non-rounded values; therefore, results might vary.

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 Contributed Contributed BOD Loadings TSS Loadings NH3 Loadings No. Description Units Volume Factor Loading Factor Loading Factor Loading Bills Units of Measure (EDUs/M Bills) (HCF) (mg/L) (lbs) (mg/L) (lbs) (mg/L) (lbs) (bills) 1 Single Fam ily 265,174 1,405,334 250 2,191,900 250 2,191,900 35 306,900 259,125 2 Multi-Fam ily 336,902 1,700,349 250 2,652,000 250 2,652,000 35 371,300 29,011 3 Amusement Parks 116 74,820 130 60,700 80 37,300 11 5,100 275 4 Auto Deal ers & Servi ce Stati on 409 32,816 180 36,900 280 57,300 11 2,300 752 5 Churches 292 13,777 130 11,200 80 6,900 11 900 616 6 Com/Ind/Misc 10,982 1,342,091 130 1,088,500 80 669,800 11 92,100 22,061 7 Electric & Electronic Equip. 473 450,931 30 84,400 15 42,200 15 42,200 1,603 8 Food and Kindred Products 36 17,656 1,120 123,400 690 76,000 0 0 174 9 Hospi tal s & Conval escent Homes 347 95,334 230 136,800 85 50,600 15 8,900 828 10 Industrial Chemical 40 15,943 360 35,800 720 71,600 0 0 114 11 Laundries 155 24,552 150 23,000 110 16,800 5 800 371 12 Machinery Manufacturers 791 37,081 290 67,100 550 127,200 0 0 1,741 13 Me tal Plating 99 6,204 10 400 60 2,300 1 0 203 14 Motel s & Hotel s 66 99,626 310 192,700 121 75,200 7 4,400 538 15 Paper 0 0 1,250 0 560 0 10 0 40 16 Repair Shops & Car Washes 491 13,556 180 15,200 280 23,700 0 0 683 17 Restaurants 282 70,062 1,250 546,400 560 244,800 10 4,400 2,118 18 Schools & Colleges 580 46,602 130 37,800 100 29,100 30 8,700 1,147 19 Major Users - Customer 1 0 0 0 0 0 20 Total 5,446,734 7,304,200 6,374,700 848,000 321,400 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

Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
1 Net Operati ng Expense 32,878,700 15,886,400 5,485,600 5,542,500 5,622,700 341,500 2 Debt Servi ce 3,296,800 1,129,200 714,100 721,500 732,000 0 3 Capital Costs (City) 4,701,200 4,701,200 0 0 0 0 4 Capital Costs (SJSC) 10,298,800 7,286,400 1,544,300 1,000,500 467,600 0 5 Total Cost of Service 51,175,500$ 29,003,200$ 7,744,000$ 7,264,500$ 6,822,300$ 341,500$ 6 Uni ts of Servi ce 5,446,734 7,304,200 6,374,700 848,000 321,400 HCF lbs lbs lbs bills
7 Cost per Unit 5.32$ 1.06$ 1.14$ 8.05$ 1.06$ per HCF per lbs per lbs per lbs per bill
Line Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
1 Cost per Unit 5.32$ 1.06$ 1.14$ 8.05$ 1.06$ per HCF per lbs per lbs per lbs per bill
Single Fam ily
2 Units 1,405,334 2,191,900 2,191,900 306,900 259,125 3 Allocation of costs of service 15,049,200 7,483,100 2,323,900 2,497,700 2,469,100 275,400 Multi-Fam ily
4 Units 1,700,349 2,652,000 2,652,000 371,300 29,011 5 Allocation of costs of service 17,906,100 9,054,200 2,811,700 3,022,200 2,987,200 30,800 Amusement Parks
6 Units 74,820 60,700 37,300 5,100 275 7 Allocation of costs of service 546,600 398,400 64,400 42,500 41,000 300 Auto Deal ers & Servi ce Stati on
8 Units 32,816 36,900 57,300 2,300 752 9 Allocation of costs of service 298,400 174,700 39,100 65,300 18,500 800 Churches
10 Units 13,777 11,200 6,900 900 616 11 Allocation of costs of service 101,100 73,400 11,900 7,900 7,200 700 Com/Ind/Misc
12 Units 1,342,091 1,088,500 669,800 92,100 22,061 13 Allocation of costs of service 9,828,200 7,146,500 1,154,000 763,300 741,000 23,400 Electric & Electronic Equip.
14 Units 450,931 84,400 42,200 42,200 1,603 15 Allocation of costs of service 2,880,000 2,401,200 89,500 48,100 339,500 1,700 Food and Kindred Products
16 Units 17,656 123,400 76,000 0 174 17 Allocation of costs of service 311,600 94,000 130,800 86,600 0 200 Hospi tal s & Conval escent Homes
18 Units 95,334 136,800 50,600 8,900 828 19 Allocation of costs of service 782,800 507,600 145,000 57,700 71,600 900 - - --------
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 Total Common to All Customers
No. Description Cost Volume BOD TSS NH3 Customer
1 Cost per Unit 5.32$ 1.06$ 1.14$ 8.05$ 1.06$ per HCF per lbs per lbs per lbs per bill
Industrial Chemical
20 Units 15,943 35,800 71,600 0 114 21 Allocation of costs of service 204,600 84,900 38,000 81,600 0 100 Laundries
22 Units 24,552 23,000 16,800 800 371 23 Allocation of costs of service 181,000 130,700 24,400 19,100 6,400 400 Machinery Manufacturers
24 Units 37,081 67,100 127,200 0 1,741 25 Allocation of costs of service 415,400 197,500 71,100 145,000 0 1,800 Me tal Plating
26 Units 6,204 400 2,300 0 203 27 Allocation of costs of service 36,200 33,000 400 2,600 0 200 Motel s & Hotel s
28 Units 99,626 192,700 75,200 4,400 538 29 Allocation of costs of service 856,500 530,500 204,300 85,700 35,400 600 Repair Shops & Car Washes
30 Units 13,556 15,200 23,700 0 683 31 Allocation of costs of service 116,000 72,200 16,100 27,000 0 700 Restaurants
32 Units 70,062 546,400 244,800 4,400 2,118 33 Allocation of costs of service 1,269,100 373,100 579,300 279,000 35,400 2,300 Schools & Colleges
34 Units 46,602 37,800 29,100 8,700 1,147 35 Allocation of costs of service 392,700 248,200 40,100 33,200 70,000 1,200 36 TOTAL COSTS OF SERVICE 51,175,500$ 29,003,200$ 7,744,000$ 7,264,500$ 6,822,300$ 341,500$ ---------
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 7-1

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

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

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

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

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

Line Proposed
N
o. Customer Class FY 2026 FY 2027 FY 2028
Monthly Service Charge ($/EDU) $/month $/month $/month
1 Single Fam ily 57.56 64.49 71.88
2 Multi-Fam ily 53.15 59.51 66.28
Minimum Commercial Bill Charge ($/Month) $/month $/month $/month 3 A ll Custom e rs 57.56 64.49 71.88
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. Starting FY 2026, the Paper category is being removed. All customers that were classified as Paper are now under Commercial/Industrial/Misc.

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.

Line Proposed
No
. Customer Class FY 2026 FY 2027 FY 2028
Commodity Charge ($/HCF) $/HCF $/HCF $/HCF
1 Amusement Parks 7.22 7.76 8.31
2 Auto Deal ers & Servi ce Stati on 8.38 9.08 9.82
3 Churches 6.12 6.56 6.96
4 Com/Ind/Misc 6.85 7.35 7.85
5 Electric & Electronic Equip. 6.33 6.74 7.15
6 Food and Kindred Products 17.53 19.53 21.62
7 Hospi tal s & Conval escent Homes 8.00 8.65 9.33
8 Industrial Chemical 12.69 14.00 15.36
9 Laundries 7.01 7.52 8.04
10 Machinery Manufacturers 9.98 10.93 11.91
11 Me tal Plating 4.92 5.19 5.39
12 Motel s & Hotel s 8.56 9.28 10.04
Paper 0.00 0.00 0.00
13 Repair Shops & Car Washes 6.47 6.96 7.44
14 Restaurants 17.88 19.93 22.07
15 Schools & Colleges 7.71 8.32 8.97
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 7-3

Table 7-3 Proposed Major User Charges

7.3 Typical Monthly Costs under Proposed Charges
Table 7-4 compares typical monthly costs under existing rates and the proposed schedule of sewer user rates derived in this study for residential and non-residential customers.

Table 7-4 Typical Monthly Bill

7.4 Neighboring Sewer Utilities
Presented in Figure 7-1 is the proposed rates compared to rates of neighboring jurisdictions, for a single - family residential customer. Based on the comparison, the City is currently a medium cost sewer provider in the area. With the proposed rate increases, the City remains one of the medium sewer providers of the surveyed communities. All surveyed community rates are best estimates as of May 2025.

Line Proposed
No. Customer Class FY 2026 FY 2027 FY 2028
Major Commercial and Industrial Users
Operating and Maintenance Cost Recovery
1 Vol ume ($/MG) 3,982.86 4,256.22 4,821.20
2 BOD ($/1,000 lbs) 751.02 869.93 986.80
3 SS ($/1,000 lbs) 869.45 1,007.10 1,142.39
4 NH3 ($/1,000 lbs) 6,630.54 7,680.17 8,710.77
Annual Capital Cost Recovery
5 Vol ume ($/MGD) 1,175,044 1,210,456 1,143,407
6 BOD ($/1,000 lbs/day) 112,855 124,559 139,957
7 SS ($/1,000 lbs/day) 98,598 106,931 118,008
8 NH3 ($/1,000 lbs/day) 516,337 541,495 576,299
Typical FY 2025 F Y 2026
Monthly Existing Proposed
Customer Class Usage Rates Rates
(HCF) ($) ($)
Resi denti al $52.37 $57.56
Commerci al 0 $52.37 $57.56
10 $73.57 $77.83
20 $147.15 $155.66
30 $220.72 $233.49
40 $294.30 $311.32
50 $367.87 $389.15
100 $735.75 $778.29
250 $1,839.37 $1,945.73
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Rate Design 7-4

Figure 7-1 Comparison to Neighboring Sewer Utilities

$250.00
■ Water Rate ■ Sewer Rate ■ Combined
$200.00
$150.00
$100.00
II 11 I. 1.
$50.00
I I I $0.00
Santa SJWC Mountain View San Jose Milpitas Palo Alto Sunnyvale Clara (Muni) Water Rate 12 $91 .69 $118.68 $136.31 $129 .01 $145.73 $139 .14 $166.89 HCF Sewer Rate $72.70 $5755 $5042 $57 75 $5042 $6946 $671 1 Combined $164.39 $176.23 $186.73 $186.76 $196.15 $208.90 $234.00 •An rates are proposed for FY25-26
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

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 65,932,000 67,462,000 69,030,300 69,198,400 69,367,200 69,536,400 69,705,900 69,875,800 70,046,100 70,217,100 2 Increased Revenue Due to Adjustments 7,252,500 11,913,800 17,064,000 21,852,200 27,382,100 33,267,800 39,532,200 46,198,800 53,293,200 60,841,600 3 Subtotal Rate Revenue 73,184,500$ 79,375,800$ 86,094,300$ 91,050,600$ 96,749,300$ 102,804,200$ 109,238,100$ 116,074,600$ 123,339,300$ 131,058,700$ Other Operating Revenue
4 Solar System Maintenance 88,000 88,000 88,000 88,000 88,000 88,000 88,000 88,000 88,000 88,000 5 Water System Mai ntenance 1,135,600 1,135,600 1,135,600 1,135,600 1,135,600 1,135,600 1,135,600 1,135,600 1,135,600 1,135,600 6 Water Construction 0 0 0 0 0 0 0 0 0 0 7 Water System Operati ons 0 0 0 0 0 0 0 0 0 0 8 A dm inistration De sign 1,484,000 1,492,200 1,500,500 1,509,000 1,517,700 1,526,500 1,535,500 1,544,700 1,554,100 1,563,700 9 Water Quality 0 0 0 0 0 0 0 0 0 0 10 Water Resources 0 0 0 0 0 0 0 0 0 0 11 Subtotal Other Operating Revenue 2,707,600$ 2,715,800$ 2,724,100$ 2,732,600$ 2,741,300$ 2,750,100$ 2,759,100$ 2,768,300$ 2,777,700$ 2,787,300$ 12 Total Revenue 75,892,100$ 82,091,600$ 88,818,400$ 93,783,200$ 99,490,600$ 105,554,300$ 111,997,200$ 118,842,900$ 126,117,000$ 133,846,000$ Revenue Requirements
Operating & Maintenance
13 O&M Expenses 66,429,900 71,973,500 77,984,000 83,506,400 89,369,500 95,719,000 102,551,100 110,037,600 118,001,300 124,538,900 14 Subtotal O&M 66,429,900$ 71,973,500$ 77,984,000$ 83,506,400$ 89,369,500$ 95,719,000$ 102,551,100$ 110,037,600$ 118,001,300$ 124,538,900$ Debt Servi ce
15 Existing Loans/Bonds 0 0 0 0 0 0 0 0 0 0 16 Proposed Loans/Bonds 0 0 0 0 0 0 0 0 0 0 17 Total Debt Servi ce -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Transfers
18 Transfer to Other Funds 346,500 154,500 292,400 154,200 154,200 154,200 154,200 154,200 154,200 154,200 19 Transfer to Rate Stabi l i zati on Reserve 0 351,100 888,700 564,300 520,800 500,000 800,000 600,000 600,000 600,000 21 Transfer to Operati ng Reserve 8,944,400 1,366,900 1,482,000 1,361,700 1,445,700 1,565,600 1,684,700 1,846,000 1,963,600 1,612,000 22 Transfer to Water Construction Fund 5,000,000 7,000,000 7,000,000 5,000,000 5,000,000 5,000,000 6,000,000 6,000,000 6,000,000 6,000,000 23 Total Transfers 14,290,900$ 8,872,500$ 9,663,100$ 7,080,200$ 7,120,700$ 7,219,800$ 8,638,900$ 8,600,200$ 8,717,800$ 8,366,200$ 24 Total Revenue Requirements 80,720,800$ 80,846,000$ 87,647,100$ 90,586,600$ 96,490,200$ 102,938,800$ 111,190,000$ 118,637,800$ 126,719,100$ 132,905,100$ 25 Net Annual Cash Balance (4,828,700) 1,245,600 1,171,300 3,196,600 3,000,400 2,615,500 807,200 205,100 (602,100) 940,900 26 Beginning Fund Balance 4,933,700 105,000 1,350,600 2,521,900 5,718,500 8,718,900 11,334,400 12,141,600 12,346,700 11,744,600 27 Net Cumulative Fund Balance 105,000$ 1,350,600$ 2,521,900$ 5,718,500$ 8,718,900$ 11,334,400$ 12,141,600$ 12,346,700$ 11,744,600$ 12,685,500$ 28 Unrestri cted + Operati ng Reserve 16,485,000$ 19,097,500$ 21,750,800$ 26,309,100$ 30,755,200$ 34,936,300$ 37,428,200$ 39,479,300$ 40,840,800$ 43,393,700$ 29 Mi ni mum Operati ng Reserves (90 Days) 16,380,000$ 17,746,900$ 19,228,900$ 20,590,600$ 22,036,300$ 23,601,900$ 25,286,600$ 27,132,600$ 29,096,200$ 30,708,200$ Line No. Description
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Year Financial Plan 7-2

Recycled Water Utility

Fiscal Year Ending June 30,
FY 2026 FY 2027 F Y 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)
Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 8,234,300 8,316,700 8,399,700 8,483,600 8,568,400 8,653,900 8,740,500 8,827,900 8,916,100 9,005,200 2 Increased Revenue Due to Adjustments 905,800 2,299,500 3,930,900 5,589,100 7,492,600 9,676,300 11,439,400 12,572,900 13,779,100 15,063,000 3 Subtotal Rate Revenue 9,140,100$ 10,616,200$ 12,330,600$ 14,072,700$ 16,061,000$ 18,330,200$ 20,179,900$ 21,400,800$ 22,695,200$ 24,068,200$ Other Operating Revenue
4 System Maintenance 100,500 102,500 104,600 106,700 108,800 111,000 113,200 115,500 117,800 120,200 5 South Bay Water Recycling System Maintena 1,034,600 1,073,800 1,114,100 1,163,600 1,202,900 1,243,700 1,274,100 1,320,400 1,355,500 1,394,000 6 Subtotal Other Operating Revenue 1,135,100$ 1,176,300$ 1,218,700$ 1,270,300$ 1,311,700$ 1,354,700$ 1,387,300$ 1,435,900$ 1,473,300$ 1,514,200$ Transfers From
7 RW Capital Fund 0 0 0 0 0 0 0 0 0 0 8 Subtotal Transfers From -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 9 Total Revenue 10,275,200$ 11,792,500$ 13,549,300$ 15,343,000$ 17,372,700$ 19,684,900$ 21,567,200$ 22,836,700$ 24,168,500$ 25,582,400$ Revenue Requirements
Operating & Maintenance
10 O&M Expenses 10,886,800 12,025,500 13,286,000 14,696,100 16,241,600 17,955,400 19,781,000 21,821,600 24,024,300 25,835,000 11 Subtotal O&M 10,886,800 12,025,500 13,286,000 14,696,100 16,241,600 17,955,400 19,781,000 21,821,600 24,024,300 25,835,000 Debt Servi ce
12 Existing Loans/Bonds 0 0 0 0 0 0 0 0 0 0 13 Proposed Loans/Bonds 0 0 0 0 0 0 0 0 0 0 14 Total Debt Servi ce 0 0 0 0 0 0 0 0 0 0 Transfers
15 Transfer to Rate Stabilization Fund 0 0 0 0 681,200 194,900 101,700 200,000 200,000 200,000 16 Transfer to Operati ng Reserve Fund (115,600) 280,800 310,800 347,700 381,100 422,600 450,100 503,200 543,100 446,500 17 Transfer to Recycled Water Const Fund 50,000 100,000 100,000 100,000 20 0,000 200,000 200,000 200,000 200,000 200,000 18 Total Transfers (65,600) 380,800 410,800 447,700 1,262,300 817,500 751,800 903,200 943,100 846,500 19 Total Revenue Requirements 10,821,200$ 12,406,300$ 13,696,800$ 15,143,800$ 17,503,900$ 18,772,900$ 20,532,800$ 22,724,800$ 24,967,400$ 26,681,500$ 20 Net Annual Cash Balance (546,000) (613,800) (147,500) 199,200 (131,200) 912,000 1,034,400 111,900 (798,900) (1,099,100) 21 Beginning Fund Balance 1,590,200 1,044,200 430,400 282,900 482,100 350,900 1,262,900 2,297,300 2,409,200 1,610,300 22 Net Cumulative Fund Balance 1,044,200$ 430,400$ 282,900$ 482,100$ 350,900$ 1,262,900$ 2,297,300$ 2,409,200$ 1,610,300$ 511,200$ 23 Unrestri cted + Operati ng Reserve 3,728,600$ 3,395,600$ 3,558,900$ 4,105,800$ 4,355,700$ 5,690,300$ 7,174,800$ 7,789,900$ 7,534,100$ 6,881,500$ 24 Mi ni mum Operati ng Reserves (90 Days) 2,684,400$ 2,965,200$ 3,276,000$ 3,623,700$ 4,004,800$ 4,427,400$ 4,877,500$ 5,380,700$ 5,923,800$ 6,370,300$ Line No. Description
I I ______________ ,
City of Santa Clara, CA | Water and Sewer Rate Study
BLACK & VEATCH | Appendix A – Ten-Year Financial Plan 7-3

Sewer Utility

Fiscal Year Ending June 30,
FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 Revenue
Rate Revenue
1 Revenue from Exi sti ng Rates 47,384,700 47,890,900 48,407,800 48,528,600 48,649,900 48,771,400 48,893,300 49,015,300 49,138,100 49,260,500 2 Increased Revenue Due to Adjustments 3,790,800 9,262,100 15,139,000 17,088,000 19,104,100 19,151,800 19,199,700 19,247,500 19,295,800 19,343,800 3 Subtotal Rate Revenue 51,175,500$ 57,153,000$ 63,546,800$ 65,616,600$ 67,754,000$ 67,923,200$ 68,093,000$ 68,262,800$ 68,433,900$ 68,604,300$ Other Operating Revenue
4 System Administration (Interest Income) 651,500 663,600 676,000 688,600 701,500 714,600 728,000 741,600 755,500 769,700 5 System Maintenance 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 6 Operations 560,000 560,000 560,000 560,000 560,000 560,000 560,000 560,000 560,000 560,000 7 SJ SC Wate r Pollution Control Plant 0 0 0 0 0 0 0 0 0 0 8 Storm Pump Maintenance 0 0 0 0 0 0 0 0 0 0 9 Subtotal Other Operating Revenue 1,231,500$ 1,243,600$ 1,256,000$ 1,268,600$ 1,281,500$ 1,294,600$ 1,308,000$ 1,321,600$ 1,335,500$ 1,349,700$ 10 Total Revenue 52,407,000$ 58,396,600$ 64,802,800$ 66,885,200$ 69,035,500$ 69,217,800$ 69,401,000$ 69,584,400$ 69,769,400$ 69,954,000$ Revenue Requirements
Operating & Maintenance
11 O&M Expenses 40,346,200 41,709,000 43,104,000 44,612,700 46,095,800 47,574,400 49,051,000 50,651,900 52,285,000 53,992,400 12 Subtotal O&M 40,346,200$ 41,709,000$ 43,104,000$ 44,612,700$ 46,095,800$ 47,574,400$ 49,051,000$ 50,651,900$ 52,285,000$ 53,992,400$ Debt Servi ce
13 E
xisting Loans/Bonds 3,296,800 3,298,300 3,297,800 3,300,300 3,300,500 3,298,500 2,361,800 2,360,100 2,360,800 2,358,800 14 Proposed Loans/Bonds 0 810,300 1,126,500 2,002,700 2,628,500 2,628,500 2,628,500 2,628,500 2,628,500 2,628,500 15 Total Debt Servi ce 3,296,800$ 4,108,600$ 4,424,300$ 5,303,000$ 5,929,000$ 5,927,000$ 4,990,300$ 4,988,600$ 4,989,300$ 4,987,300$ Transfers
16 Transfer to Other Fund 6,900 47,100 47,100 47,100 47,100 47,100 47,100 47,100 47,100 47,100 17 Transfer to Rate Stabi l i zati on Reserve 602,400 600,100 0 500,000 500,000 500,000 0 0 0 0 18 Transfer to Pension Stabilization Reserve 78,200 78,200 78,200 78,200 78,200 78,200 78,200 78,200 78,200 78,200 19 Transfer to Operati ng Reserve 1,600,100 336,000 344,000 372,000 365,700 364,600 364,100 394,700 402,700 421,000 20 Transfer to Sewer Construction Fund 15,000,000 15,500,000 15,500,000 15,500,000 15,500,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 21 Total Transfers 17,287,600$ 16,561,400$ 15,969,300$ 16,497,300$ 16,491,000$ 9,989,900$ 9,489,400$ 9,520,000$ 9,528,000$ 9,546,300$ 22 Total Revenue Requirements 60,930,600$ 62,379,000$ 63,497,600$ 66,413,000$ 68,515,800$ 63,491,300$ 63,530,700$ 65,160,500$ 66,802,300$ 68,526,000$ 23 Net Annual Cash Balance (8,523,600) (3,982,400) 1,305,200 472,200 519,700 5,726,500 5,870,300 4,423,900 2,967,100 1,428,000 24 Beginning Fund Balance 12,700,928 4,177,328 194,928 1,500,128 1,972,328 2,492,028 8,218,528 14,088,828 18,512,728 21,479,828 25 Net Cumulative Fund Balance 4,177,328$ 194,928$ 1,500,128$ 1,972,328$ 2,492,028$ 8 ,218,528$ 14,088,828$ 18,512,728$ 21,479,828$ 22,907,828$ 26 Unrestri cted + Operati ng Reserve 14,125,728 10,479,328 12,128,528 12,972,728 13,858,128 19,949,228 26,183,628 31,002,228 34,372,028 36,221,028 27 Mi ni mum Operati ng Reserves (90 Days) 9,948,400 10,284,400 10,628,400 11,000,400 11,366,100 11,730,700 12,094,800 12,489,500 12,892,200 13,313,200 28 Debt Servi ce Coverage (Mi n 1.25) 3.66 4.06 4.90 4.20 3.87 3.65 4.08 3.80 3.50 3.20 Line No. Description
__ ! _______________ _

City Council and Authorities ConcurrentJune 10, 2025

City Council and Authorities Concurrent
June 10, 2025