Notice mailed week of 11/4/19 

1997 Lease Agreement

Amended and Restated Lease Agreement

Water Service Area Map

FAQs

At the Council meeting on December 17, 2019, at 6:45 p.m. or as soon thereafter as may be heard, the Cupertino City Council will conduct a public hearing regarding changes to the Cupertino Municipal Water System lease terms between the City of Cupertino (City) and San Jose Water Company (SJWC). The lease amendments will require SJWC to make certain capital investments in the Cupertino Municipal Water System and simplify the procedure for SJWC to set water rates. As proposed, SJWC will be able to independently adjust rates as long as they do not exceed the rates authorized by the CPUC and in effect on SJWC’s own water system within Cupertino. If the proposed changes to the lease are approved, SJWC is expected to increase water rates that will result in a bill increase of approximately 13.8% for a typical residential customer consuming 11 units of water per month beginning December 18, 2019 with no retroactive collection.

Reason for the Proposed Changes to Lease Terms between the City and San Jose Water Company

In October 1997, the City and SJWC entered in to a 25-year lease agreement (Agreement). Under the Agreement, SJWC is responsible for operating and maintaining the water system. This includes distributing water, complying with all water quality standards, billing, and maintaining the system to industry standards. In early 2016, the City completed an inspection of the water system and notified SJWC that additional capital improvements were needed to maintain the system to industry standards. Negotiations regarding the dollar amount of improvements to be completed within the Agreement term have recently been concluded. The proposed changes to the Agreement require SJWC to expend $5 million in water system improvements before the end of the agreement in October 2022.

SJWC, as the lessee of the Cupertino Municipal Water System, imposes the rates and charges for water service. These rates and charges apply to residential, commercial, institutional, and industrial customers. Currently the City has a regulatory role in the rate setting process. It must approve certain reasonable requests by SJWC to change water rates to customers served by the leased water system. In determining reasonableness, the City considers all relevant information, including the California Public Utility Commission (CPUC) approved rates on privately-owned water systems and the rates of nearby municipal water agencies. Pass-through rate adjustments for changes in wholesale costs – such as changes due to increases or decreases in water and power (as well as certain unanticipated changes in volumes) - can be automatically imposed without prior City approval, so long as it is done in a manner substantially similar to that permitted by the CPUC.

Since the beginning of lease term in 1997 through 2016, the water rates charged to customers of the Cupertino Municipal Water System with service provided by SJWC were equal to the water rates authorized by the CPUC for SJWC’s privately-owned system in Cupertino. Additionally, these rates were found to be similar to the rates of nearby municipal water agencies. Because SJWC has committed to expending the needed dollars on the Cupertino Municipal Water System and there has been a long history of a comprehensive CPUC review process that has resulted in water rates being similar to nearby municipal agencies, the amended Agreement will no longer require the City Council to independently regulate rates. Instead, the Council will use the CPUC review process as a proxy for its own review and allow the rates authorized by the CPUC on SJWC’s own system in Cupertino to establish a regulatory cap or maximum that SJWC can charge to customers connected to the Cupertino Municipal Water System. This change simplifies the procedure for SJWC to set rates while still ensuring that the water rates imposed by SJWC remain just, reasonable, and nondiscriminatory. As a result, SJWC customers in Cupertino can expect to pay the same amount whether they are connected to SJWC’s system or the Cupertino Municipal Water System.

Reason for the Expected Rate Increase for Water Service Fees

By voting to amend the Agreement, the City Council will not be authorizing any particular water rate changes. Instead they will be establishing a regulatory cap on the rates that SJWC may charge. City public works staff has been advised that if the Agreement is amended, SJWC expects to increase water rates to an equivalent billing impact of approximately 13.8% for a typical residential customer beginning December 18, 2019. These changes would be effective going forward from this date and would not be imposed retroactively.

Water rate service fees are typically set at a level to generate enough revenue to cover the costs of operating and maintaining this system. To cover critical water system capital improvements and achieve revenue stability, SJWC, like many other water purveyors, has restructured its water rates to ensure that sufficient funds are collected even when customers are conserving water (such as in times of drought). As a result, the proposed rates would increase the fixed charge (based on meter size) and would decrease the volumetric charge (based on water use) for the first tier of water use.

The last rate increase authorized by the City was in September 2016. Since January 2017, customers of the Cupertino Municipal Water System with service provided by SJWC have had a lower cost of water compared to the SJWC-owned and operated water system. The expected increase in water service rates will bring the water rates of customers of the Cupertino Municipal Water System to parity with the customers of the water system both owned and operated by SJWC. The expected increase in rates will not be retroactive and customers of the Cupertino Municipal Water System will not be asked to return the savings that have been realized since 2017 due to the lower cost of water as compared to the customers of the water system owned and operated by SJWC.

Billing Impacts

The potential increase in cost of service for water is shown on Tables 1 and 2 below. If the City Council votes to amend the lease, SJWC has stated that it will increase water rates to an amount equal to other SJWC customers in Cupertino. The impact to your bill can be calculated using the proposed meter rates and quantity charges as shown in the sample calculations below. Please note that your actual bill will vary depending on meter size and quantity consumed and if there are additional rate changes as of the date of this letter. Specific questions can be directed to San Jose Water by calling 408-279-7900 or visiting www.sjwater.com. 

Sample Water Bill Calculations Comparing Current and Proposed Rates

Water Bill Amount = Meter Charge + (Quantity x Rate per HCF) + Surcharges⁽¹⁾

HCF = hundred cubic feet; 1 HCF = 748 gallons

Residential Example (using Tables 1 and 2):

Residential charges use a three-tiered rate structure, with a higher rate applying as water use exceeds tier breakpoints of 3 HCF and 18 HCF.  In the example below, a resident using 11 HCF will need to calculate the sample bill using two of the tiered rates:

Monthly Usage:  11 HCF

Meter Size:  3/4-inch

Current Rate: $23.98 + (3 HCF x $4.0581) + (8 HCF x $4.5090) + 11.83 = $84.06  

Proposed Rate: $39.57 + (3 HCF x $3.2036) + (8 HCF x $4.8059) + $7.99 = $95.62

For a typical residential customer with a 3/4-inch meter using 11 HCF, their monthly bill will increase by about 13.8%.

Non-Residential Example (using Tables 1 and 3):

Monthly Usage:  100 HCF

Meter Size:  2-inch

Current Rate: $127.87 + (100 HCF x $4.5090) + $95.36 = $674.13

Proposed Rate: $211.04+ (100 HCF x $4.8059) + 60.45 = $752.08

For a typical non-residential customer with a 2-inch meter using 100 HCF, their monthly bill will increase by about 11.6%.

 ⁽¹⁾ Surcharges are not all calculated the same. Refer to sample rate calculations for more information.

Table 1: All Customers Monthly Meter Charge

 

MONTHLY METER CHARGE (based on meter size)
Meter Size	Current Charges	Proposed Charges
5/8-inch	$23.98	$39.57
3/4-inch	$23.98	$39.57
1-inch	$39.94	$65.94
1.5-inch	$79.91	$131.90
2-inch	$127.87	$211.04
3-inch	$239.75	$395.70
4-inch	$399.58	$659.49
6-inch	$799.15	$1318.99
8-inch	$1278.65	$2110.39
10-inch	$1838.07	$3033.67

 

Table 2:  Residential Monthly Quantity Charge

Tier	Current Charges per HCF	Proposed Charges per HCF
Tier 1: 0 to 3 HCF	$4.0581	$3.2036
Tier 2: 3+ to 18 HCF	$4.5090	$4.8059
Tier 3: >18 HCF	$4.9599	$6.4077

 

Table 3:  Non-Residential Monthly Quantity Charge

	Current Charges per HCF	Proposed Charges per HCF
Quantity Rates	$4.5090	$4.8059

 

Refunds

In January 2019, customers of the Cupertino Municipal Water System with service provided by SJWC received a refund for overbilling that occurred by SJWC for the time period of June 2011 to December 2016. An additional refund to customers for overbilling that occurred during the time period of November 1997 to May 2011 will be made by SJWC. The timing and amount for this second refund are not known at this time. The amount of the first refund for the typical residential customer was $3.77. 

Other Resources

SJWC Rate Information

SJWC Rate Schedules

SJWC CPUC filings