Valley Water projects 9% rate hikes to fund revised 'Lower Cost' supply strategy

Valley Water projects 9% rate hikes to fund revised 'Lower Cost' supply strategyPreliminary groundwater charges reflect a capital pivot toward Pure Water Silicon Valley and external storage participation, while Commissioners flag data center demand as an emerging risk to long-term planning.

Preliminary FY 2026-27 groundwater production charges are projected to rise 9.1% in North County and between 6.4% and 8.6% in South County zones.

The rate structure supports the 'Lower Cost' investment strategy, prioritizing Pure Water Silicon Valley, Anderson Dam seismic retrofits, and the Delta Conveyance Project.

Staff confirmed that the suspension of the Pacheco Reservoir expansion has lowered long-term rate projections compared to the prior year's outlook.

The Commission voted to add a review of AI and data center water usage to their work plan after members warned current demand forecasts may be underestimated.

Valley Water is currently analyzing options to increase its participation in the Sites Reservoir project.

Staff at the Santa Clara Valley Water District (Valley Water) presented preliminary fiscal year 2026-2027 groundwater production charges to the Water Commission on January 28, 2026, outlining significant rate increases to fund a revised capital improvement strategy. Following the Board of Directors' August decision to suspend the Pacheco Reservoir expansion, the agency is proceeding with a "Lower Cost" investment strategy that prioritizes the Pure Water Silicon Valley direct potable reuse project, the Anderson Dam seismic retrofit, and participation in the external Sites Reservoir and Delta Conveyance projects. Carmen Narayanan, Financial Planning and Revenue Manager, projected a 9.1% rate increase for North County (Zone W2) and increases ranging from 6.4% to 8.6% for South County zones (W5, W7, W8). Narayanan noted that funding needs for capital investments are expected to peak in FY 2032-33 due to the combined impact of the Anderson Dam seismic retrofit conclusion and the ramp-up of the Pure Water Silicon Valley full-scale facility. However, she emphasized that the long-term rate trajectory is lower than previous projections due to the removal of the Pacheco project costs. Assistant Officer for the Water Supply Division Kirsten Struve detailed the "Lower Cost" portfolio, which serves as the baseline for the Water Supply Master Plan 2050. The plan relies on adaptive management, and Struve noted that the agency is currently analyzing options to increase participation in the Sites Reservoir project. In response to questions from Commissioner Rob Rennie regarding the reliability and cost of Sites, staff indicated that while capital costs per acre-foot might be lower than reuse, the project faces conveyance variables across the Delta during droughts. Despite the adoption of the Master Plan, Commissioners expressed concern regarding demand assumptions, specifically regarding artificial intelligence (AI) and data centers. Commissioner Pete Daily argued that the current forecast might underestimate the rapid growth of data center water usage, noting that a single facility could demand 5 to 10 million gallons daily. While average hyperscale facilities typically consume closer to 550,000 gallons per day, the region hosts over 55 operational centers, and specific consumption figures remain largely undisclosed. Struve acknowledged that while the plan's "high demand" scenario accounts for significant unmitigated growth, specific AI impacts are difficult to model due to this lack of data transparency from retailers. Consequently, the Commission voted to add an informational review of AI and data center impacts to their 2026 work plan to better understand future infrastructure requirements.