REPORT TO COUNCIL
SUBJECT
Title
Public Hearing: Action on Adoption of a Resolution Amending Rate Schedules for Electric Services for All Classes of Customers to Increase Electric Rates and Charges in Each Rate Schedule by 4.0% and Make Other Modifications, Effective January 1, 2026
Report
BACKGROUND
Like other electric utilities in California, the City of Santa Clara’s Electric Utility, Silicon Valley Power (SVP), evaluates the need for rate increases in the context of ensuring reliable low-cost service to the community. Many utilities in California are seeing operating pressures driven by the need to replace aging infrastructure, increasing risks such as wildfires, increasing regulatory mandates, and other unanticipated challenges. SVP is no different and is also experiencing unprecedented load growth, having already seen the highest growth among publicly owned electric utilities in California. This growth is a significant source of new revenue that helps offset some of the other costs, but it also is a driver for SVP’s large capital program.
The proposed 4% increase takes into account the revenue needed to continue to operate and meet the needs of SVP’s customers, and is in line with historic rate increases as detailed below:
Table 1: 5-year rate increase history
|
Year |
Rate increase |
Drivers |
|
2021 |
3% |
Routine Cost Drivers as described in RTC |
|
2022 |
3% |
Routine Cost Drivers as described in RTC |
|
2023 |
|
|
|
January 1 |
8% |
Natural Gas Crisis, Increased |
|
July 1 |
5% |
Cost of Materials, |
|
2024 |
10% |
Natural Gas Crisis, Increased Cost of Materials |
|
2025 |
5% |
Routine Cost Drivers |
|
2026 |
4% |
Proposed/Drivers discussed below |
Overall, SVP is in a strong financial position with projections showing increased revenue growth and reserves increasing steadily over time.
DISCUSSION
The proposed 4% rate increase is needed to cover the cost of generating and delivering power to all SVP customers and to help ensure the long-term reliability and stability of the system. Other key rate increase drivers are further described below. When the updated FY 2025/26 Budget was approved, staff forecasted a 2% rate increase. This forecast was based on the best information available at the time; however, recent changes and unforeseen events necessitate a 4% increase instead.
Key Rate Increase Drivers
1. Capital and Operating Needs:
The cost of labor, equipment, materials, and construction continue to rise for both new projects and the maintenance of existing electric utility infrastructure. These escalating costs directly impact SVP’s capital projects as well as ongoing operations and maintenance activities. SVP continues to increase preventative maintenance on aging infrastructures, especially power plants, substations, and transmission and distribution infrastructures. Additional operating expenditures have also contributed to higher costs for SVP. A summary of the main drivers for these increased costs include:
• Additional staffing and contractual support are needed to maintain operations and for project delivery.
• Continuing investment in security for substations in anticipation of large events and for long-term operational system reliability.
• Planning for repayment of future debt issuance for large capital projects.
2. Reserves:
The proposed rate increase maintains existing reserves at or above the minimum target of approved ranges and ensures sufficient reserve balance prior to future debt issuances. Below is a summary of the anticipated reserve levels:
• The Rate Stabilization Reserve is anticipated to be at the minimum target of 10% of sales revenue by June 30, 2026.
• The Operation and Maintenance Reserve is anticipated to be above the target range of 90 - 180 days of operating expenses by June 30, 2026.
• The infrastructure reserve is anticipated to be within its approved range for SVP by June 30, 2026. The range is based on analysis of critical infrastructure, the likelihood of replacement, and the estimated replacement costs.
It is important to note that operating an electric utility in California has inherent risks and those risks are increasing. While staff has established metrics for reserves to mitigate those risks, future revenue projections assume an increase to reserves and the potential establishment of additional reserves to ensure potential liabilities are addressed. For example, wildfire continues to be a challenge in California, especially with the strict inverse condemnation rules that place the wildfire burden on electric utilities.
3. Donald Von Raesfeld Power Plant:
The rate increase is also driven by the need to recover the cost associated with a catastrophic gas-turbine failure at the Donald Von Raesfeld power plant (DVR), including loss of generation revenue, additional transmission costs, turbine rental costs, spare part costs, and additional turbine replacement or backup costs.
In summary, the rate increase is projected to generate an additional $15 million in the current fiscal year's operating budget ($31 million in CY 2026 when including forecasted load growth). These funds will help cover the key rate increase drivers described above.
Rate Increase Amounts
In compliance with Article XIIIC of the California Constitution (Proposition 26), the proposed rate increase will not result in the City’s electric rates exceeding the City’s reasonable cost to provide electric service to its customers. Under Proposition 26, a service rate is not a tax if it is imposed for a specific government service provided directly to a ratepayer and is not imposed on those not receiving the service.
Staff propose that rates and charges for all classes of customers be increased on a uniform percentage basis as the cost increase triggering this rate increase proposal has been incurred on behalf of all classes of SVP’s customers. This approach is proposed for both policy and legal reasons.
The average monthly impact of the 4% rate increases by customer class is shown in Attachment 2.
For residential customers who have difficulty absorbing these increases, SVP provides a rate assistance program for income-qualified customers.
Rate Comparisons
With the proposed increase, SVP’s rates will remain significantly below PG&E’s current average bundled rates (effective 09/01/2025).
Table 2: SVP Recommended Rates Compared to PG&E Rates
|
Rate Type |
% Below Current PG&E Rates |
|
Residential |
57% |
|
Small Commercial |
38% |
|
Large Commercial |
48% |
|
Small Industrial |
43% |
|
Large Industrial |
33% |
|
Very Large Industrial |
40% |
Ministerial Rate Schedule Language Clarification
In addition to the proposed rate increases, SVP is proposing to make a number of clarifying and administrative changes to certain rates:
1. Minor changes to the CB-1 and CB-3 Rate Schedules to remove an outdated meter provision and clarify holiday definitions.
• Outdated Meter Provision: Current schedules allow customers, upon request, to install and pay for recording-type meters to receive demand forgiveness during off-peak periods. This provision was necessary before all commercial and industrial customers had Advanced Metering Infrastructure (AMI) or AMI-capable meters. As this option is no longer applicable, SVP proposes to remove this provision from CB-1 and CB-3.
• Clarification of Holiday Definitions: Holidays used to determine time-of-use (TOU) off-peak periods under CB-1 and CB-3 are those recognized by the North American Electric Reliability Corporation (NERC). This holiday list has been in place since NERC established standardized off-peak definitions for electricity markets and reliability planning. The amended schedules will explicitly define these holidays as “NERC Holidays” to ensure consistency and avoid confusion.
2. Define Eligible Customer-Generators in the Net Energy Metering (NEM) rate schedule to extend the service and NEM rate applicability to the customers beyond the twenty-year limit.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to section 15273 of Title 14 of the California Code of Regulations in that the proposed action is a modification of rates which is needed in order to meet operating expenses and maintain adequate cash reserves, and other reasons set forth in this staff report.
FISCAL IMPACT
The proposed 4% rate increase is anticipated to generate approximately $15 million in additional revenue for the six-month period in Fiscal Year 2025/26 and $33 million in additional revenue in Fiscal Year 2026/27 when including forecasted load growth. These revenue amounts were higher than the assumed revenue in the Fiscal Year 2025/26 Adopted Operating Budget. Budgetary adjustments to revenue will be brought forward to the City Council throughout the year if needed.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
In addition, SVP staff have reached out to Key Accounts (large customers), commercial customers, school districts, and numerous individual customers as well as included information in the City’s newsletter, SVP news subscriptions using GovDelivery, and posting in the Santa Clara Weekly. Staff have also disseminated information via social media: Nextdoor, X (formally Twitter), and Facebook.
RECOMMENDATION
Recommendation
Adopt a Resolution amending the City of Santa Clara Rate Schedules for Electric Utility Services for all classes of customers to increase electric rates and charges in each rate schedule by 4.0% and make other modifications, effective January 1, 2026.
Staff
Reviewed by: Nico Procos, Director of Silicon Valley Power
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Resolution with attached Rate Schedules for Electric Services for All Classes of Customers, Effective January 1, 2026
2. 2026 Monthly Bill Impact and Rate Comparison Table - All Rate Schedules