What to Know About Our Service Charge

To be clear, no one is happy when rates go up. We understand that bills have increased beyond inflation.  There are many good reasons for this including infrastructure replacement, increasingly stringent water quality standards, and higher water costs. These drivers are affecting utilities throughout the nation including San Jose Water. When a utility starts to skimp, all you need to do is think about Flint, Michigan or Jackson, Mississippi, where water systems have faced disastrous consequences for failing to properly make investments in their infrastructure. 

We know that for those on a fixed income or economically disadvantaged, the impact can be significant. This is why we offer interest-free payment plans through PromisePay, and a special income-qualified program that provides a 15% discount on the total bill.   

Between 2022 and 2024, we also secured nearly $17M in water bill arrearage relief through the Low-Income Household Water Assistance Program and the American Rescue Plan Act, helping thousands of customers who had fallen behind on their bills. We will continue to look for further opportunities to assist our customers. 

How is the service charge calculated, and why is it so large even when I am conserving water?  

The service charge is a monthly readiness-to-serve charge that is applied to all accounts based on the meter size. This fixed charge helps cover some of San Jose Water’s fixed costs.  

San Jose Water, like other water utilities, has both fixed and variable costs to deliver high quality and reliable water service. Fixed costs cover water mains, tanks, wells, personnel, and other expenses. These costs do not vary with the amount of water consumed. Variable costs cover water supply, chemicals and power.  These costs do vary with the amount of water consumed.   

Water utilities have one of the highest fixed costs of any utility, typically around 60% of their total cost of service.  The water supply and other variable costs make up the remaining 40% on average.   

The service charge makes up a different percentage of the bill for customers depending on how much water is used. For customers using less water, the meter charge may make up a large portion of the average bill, depending on the meter size.  

Saving water is a wise thing to due in our region. We know droughts can happen and saving water can reduce the quantity charge you pay. But the service charge is fixed and does not vary based on your water usage. 

Here is how it works.  

The California Public Utilities Commission sets rates that balance just and reasonableness with safe and reliable infrastructure. Rates typically have two components — a fixed charge and a quantity charge (how much water you use).  

The fixed charge recovers a portion of the utility’s fixed costs and is paid through the service charge.  The remaining portion of the fixed costs are recovered through the quantity charge.  The less water you use, the lower the rate. Higher water usage bumps you up to a higher rate tier.  The goal here is to encourage conservation.  However, this also means the utility is potentially bringing in lower revenue to cover fixed costs.  

Because rates are set on a forward-looking basis, it’s hard to accurately predict how much water customers will use.  This is particularly difficult when you have water supply challenges (droughts) that have plagued California over the past 15 years.  When customers do not use what is forecast, utilities cannot recover their full fixed costs — impairing the utility’s ability to deliver high quality water service.  To make sure we can protect public health, public safety, and the environment with a reliable water system, we propose increases to our service charge.  

To this end, the CPUC allows utilities to recover up to 50% of their total cost of service through the fixed charge.  San Jose Water’s recovery started at 30% and is now up to 45% (i.e. we are recovering 45% of our fixed costs via the service charge). This has led to a higher service charge over the years.  

A Water Utility Example

Here’s a simple example that shows the relationship between fixed and variable charges and how they translate to your service charge.  Assume you own and operate a water utility with 10 customers.  You project that you will sell 100 units of water to these 10 customers (or 10 units for each customer) in the coming year.  Your cost of service is $1000 split between $600 in fixed costs and $400 in volume (water) costs.  

Under the old rate schedule, you were only recovering 30% of your total cost of service in the service charge.  This is equal to $300 as shown below so each customer would incur a service charge of $30.  Under the new rates, you are now recovering 45% of your total cost in the service charge resulting in a $45 service charge (a 50% increase).