REPORT TO COUNCIL
SUBJECT
Title
Action to Authorize the City Manager to Enter into an Exclusive Negotiating Agreement (ENA) with Valley Water for the Development of the Pure Water Silicon Valley Project (PWSV)
Report
BACKGROUND
The City of San José and City of Santa Clara (“Cities”) and Santa Clara Valley Water District (“Valley Water”) have historically collaborated to expand recycled water and augment the local water supply in the County of Santa Clara. The Cities and Valley Water partnered on the construction of the Silicon Valley Advanced Water Purification Center (“SVAWPC”), more commonly known as the Advanced Water Purification Center, or “AWPC”), an advanced wastewater treatment facility producing up to eight million gallons per day of purified water that is blended with treated effluent from the San José-Santa Clara Water Pollution Control Plant, otherwise known as the Regional Wastewater Facility (“RWF”) to enhance recycled water quality distributed by the South Bay Water Recycling (“SBWR”) Program. The Cities are co-owners of the land surrounding the RWF, and the City of San José serves as the administering agency for the RWF.
In January 2023, Valley Water and the Cities of San José and Santa Clara executed a Letter of Intent for Collaborating on the Expansion of Recycled and Purified Water in Santa Clara County (RTC 23-1053). This collaboration involves leveraging treated wastewater from the RWF for potable reuse. While updating its Water Supply Master Plan 2050, Valley Water determined that investing in potable reuse was an effective way to address projected water supply shortages for the communities in its service area. This is especially true during drought periods, which are becoming more intense and longer in duration due to climate change.
The Cities and Valley Water are partnering on the PWSV to develop a direct potable reuse (“DPR”) project adjacent to the SVAWPC with a goal of producing 24,000 acre-feet per year of purified water to ensure a sustainable future water supply for the communities.
In June 2025, the City Council approved an Option Agreement for an Amendment to the Ground Lease for the PWSV Project, formerly known as the Purified Water Project (RTC 25-572). The Option Agreement included requirements that Valley Water must meet to exercise the Amendment to the Ground Lease, which would update the footprint of Valley Water’s SVAWPC lease to account for the construction and operations of the DPR demonstration facility. Requirements of the Option Agreement include, in part, completion of environmental and approval of CEQA determinations, execution of proposed amendments to the Operations and Maintenance Agreement and Integration Agreement, and coordination and negotiations with Microsoft regarding their planned improvements. In 2017, Microsoft acquired a parcel of land known as APN 015-31-054 from a private entity, located southeast of the RWF buffer lands, and is separate from the RWF buffer lands.
In August 2025, at a joint City of San José City Council and Valley Water Board of Directors meeting, staff presented progress on the PWSV Project, including plans to prepare an Exclusive Negotiations Agreement for the proposed PWSV site.
DISCUSSION
Following the direction of the City of San José City Council and Valley Water Board of Directors from the August 19, 2025, joint meeting, staff from the Cities and Valley Water developed and completed the ENA (Attachment 1) for approval by the City Councils and Valley Water Board and execution by the City Managers and Valley Water’s Chief Executive Officer.
A DPR project, like the PWSV, requires significant study and cost to meet the state’s DPR regulatory requirements, adopted in October 2024, and to be a successful water supply project that protects public health and the environment. The Cities have been actively collaborating with Valley Water, as Valley Water moves forward with significant investments in the PWSV. The ENA provides Valley Water with assurance that the land proposed for the PWSV will be available for at least three years before Valley Water makes significant upfront planning and study investments.
The ENA also protects the Cities and the RWF’s long-term interest in effective use of the land by not reserving the land indefinitely should PWSV not be successful, experience substantial delays, or if desirable alternative uses of the land are identified within the five to 10-year time frame.
In addition to the significant number of studies and costs that Valley Water will incur, a number of agreements need to be negotiated between the Cities, the RWF, and Valley Water for leasing the land, source water supply, and long-term operational agreements, since a full-scale DPR facility and the RWF will be connected yet remain as separate facilities. The ENA will reserve the land while the parties negotiate the agreements required for the PWSV. The following is a summary of the terms of the ENA:
1. Parties: City of San Jose, City of Santa Clara, Valley Water Authority
2. Term: Three years unless earlier terminated for default or extended in the discretion of the San Jose City Manager for up to three additional one-year periods. Valley Water can also terminate if the project proves to be infeasible.
3. Cities’ Obligations: Engage in exclusive, good-faith negotiations during the term for agreements setting forth the terms for the development and operation of the PWSV project on the identified site. Note: The City of San Jose has primary responsibility of negotiations and for implementing all other aspects for the ENA.
4. Valley Water’s Obligations/Costs: Valley Water to bear all of its own costs in negotiations and its efforts to develop the project, including for CEQA analysis.
5. Reservation of Rights: San Jose reserves the right to use the property for RWF operations pending any agreement for the PWSV project. Entering into the ENA and negotiating terms for the project does not commit the Cities to approving any agreement or required entitlements for the project.
Staff will return to the City Council for future updates at major project milestones or if action is required via informational memoranda or other appropriate means.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
There is no fiscal impact associated with this ENA. It is an agreement to negotiate the terms of the future land lease and other required agreements for the PWSV Project. All the PWSV costs referenced in this memorandum, including staff time for City of San José employees, will be paid for or reimbursed by Valley Water.
COORDINATION
This report has been coordinated with the 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 or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Authorize the City Manager or their designee to execute the Exclusive Negotiations Agreement between the City of San José, City of Santa Clara, and Valley Water in substantially the form presented, in a final form approved by the City Attorney
Staff
Reviewed by: John Ramirez, Director, Water and Sewer Utilities
Approved by: Jovan Grogan, City Manager
ATTACHMENTS
1. Exclusive Negotiating Agreement between the City of San José, City of Santa Clara, and Valley Water