San Jose updates council on $2.2B regional wastewater program, new nitrogen limits and land-use plans

San Jose city staff on Jan. 31 told the City Council that the long-running capital improvement program (CIP) for the San Jose–Santa Clara Regional Wastewater Facility (RWF) has delivered dozens of projects but faces new regulatory and funding pressures after a toxic algae event in 2022.

The presentation by Laurie Mitchell, acting director of the Environmental Services Department (ESD), Mariana (general manager, RWF), Kapil (deputy director, capital program), and Eric Dunleavy (deputy director, regulatory affairs) summarized more than a decade of work, highlighted industry awards for recent projects, and said staff will return with planning numbers in May to reflect new nutrient requirements and updated project costs.

The update matters because the RWF serves roughly 1.5 million people and multiple tributary agencies, is central to the region’s water and environmental management, and must meet recently reissued Bay Area nutrient permit limits that require substantial, multi‑year investments.

City staff said the RWF has completed 36 capital projects, has 17 active projects and has expended more than $1 billion delivering work since the program scaled up. Major completed projects cited in the session include the new headworks (a design‑build project identified by staff at roughly $140 million) and a $115 million cogeneration facility that converts digester biogas into heat and power. Mariana said the upcoming dewatering facility will replace open drying beds and “reduce the time that it takes for our digested sludge to become dried cake” from about four years to a few hours. Staff said the RWF employs about 326 people, collects roughly 25,000 samples annually and generates about 80% of its energy needs from biogas.

Regulatory shift: nitrogen limits and the 2022 red tide

Eric Dunleavy briefed council on a major shift in regional regulation following a large toxic algal (red tide) event in summer 2022 that caused extensive fish kills. He said that the reissued regional nutrient permit (NPDES‑related regulation under the Clean Water Act) now requires aggregate nitrogen load reductions across wastewater plants in the Bay Area rather than the earlier approach of capping future increases. Dunleavy said the regional cost to upgrade all Bay Area plants is estimated to be on the order of $11 billion.

The city negotiated facility-specific limits for the RWF; staff reported that an initial draft would have imposed interim and final load values that were disproportionately strict for San Jose. After negotiations the RWF’s interim and final limits were reported as 6,400 kilograms per day (interim) and 5,000 kilograms per day (final). Dunleavy said that because the RWF has already implemented large nitrogen‑reducing upgrades (some past changes reduce incoming nitrogen up to about 80%), the plant is better positioned than many regional facilities—but it still faces costly process upgrades, primarily in the biological aeration/secondary treatment systems, to meet the new long‑term limits.

Staff said the nutrient obligations are effectively permanent (a sustained reduction target) and will require further study of treatment upgrades, evaluation of nature‑based solutions where feasible, and continued negotiations with the regional board for planning certainty. Staff expect to present updated planning‑level costs and a financing strategy to council in May.

Capital delivery, costs and financing

Kapil described the program’s project delivery model, the shift from heavy consultant reliance in the program’s early years to a mostly in‑house delivery model, and the city’s use of alternative delivery methods (design‑build) for several large projects to increase cost and schedule certainty. Staff said the city validated and consolidated more than 100 master‑plan projects into roughly 33 packages for delivery, established a program management office, and implemented stage‑gate reviews, third‑party cost validation and value‑engineering when needed.

On financing, staff said the city pursued state revolving fund (SRF) funding in 2015–2016 but was told the program priorities and conditions made SRF funding unlikely for the RWF at that time. The CIP used revenue notes (a $300 million program) and in 2022 the city issued $300 million of green bonds to repay short‑term borrowings and to access green‑market investors; staff also reported an additional roughly $190 million line of credit. Staff noted that they will revisit the financing strategy once planning‑level costs for nutrient compliance are finalized.

Land use, transmission lines and water reuse

Kevin Ice, assistant to the city manager for real estate, summarized the master‑plan land‑use framework for RWF buffer lands and the economic‑development lands south of the plant. He said a staff solicitation for a master developer on 159 acres of economic‑development land is expected in spring 2025 and that TPAC (Treatment Plant Advisory Committee) and Santa Clara will be engaged as the project advances. Ice said buffer lands remain restricted against incompatible uses (for example, residential and hotel uses are prohibited where incompatible with plant operations) as per the 2013 master plan.

Ice also described a regional high‑voltage transmission project being developed by LS Power and approved by CAISO that will cross RWF property. He said LS Power has agreed to an overhead‑to‑underground routing strategy near sensitive habitat and that the company will pay fair market value for required easements. Microsoft’s nearby data center project will also request infrastructure and access easements across RWF property; staff said negotiations are ongoing and that Microsoft has proposed improvements that could benefit Valley Water and the nearby purification center.

On advanced water purification, staff described an existing partnership with Valley Water to develop a small‑scale demonstration facility to treat roughly 0.5 million gallons per day for direct potable reuse testing under recently finalized potable‑reuse regulations (October 2024). Staff said the demonstration and related modifications to existing agreements should be completed this spring or early summer; a full‑scale DPR facility would require separate, more detailed agreements and additional coordination with adjacent projects.

Operations, hazards and community engagement

Staff noted operational constraints that shape project delivery: the plant operates 24/7 on mostly gravity flow, and many unit processes interact continuously, so construction must typically proceed without shutting the plant down. Major on‑site discoveries—such as PCB or lead contamination in older construction joints—have required remediation work, regulatory coordination (including with the EPA), schedule delays and additional cost. Staff gave the example of a temporarily installed bypass and large pumps bought for reuse across projects when a corroded 78‑inch line required an emergency bypass.

Councilmembers asked about chemical safety (staff said the plant no longer uses chlorine gas and now uses sodium hypochlorite; stations have sensors, secondary containment and trained response procedures), truck access for biosolids hauling (staff plan for roughly 3–5 days of biosolids storage capacity if truck access is disrupted), and the timeline for shoreline flood protection by the U.S. Army Corps of Engineers (staff said the Corps’ shoreline levee reaches adjacent to the RWF lack funding and the schedule is undetermined while value engineering continues at the Corps).

Council directions and next steps

Staff identified several near‑term actions: complete and present the technical update to the plant master plan (planning horizon extended and updated project lists/costs) and present a recommended CIP financing approach in May; issue a spring 2025 request for interest for a master developer for the economic‑development lands; complete amended agreements with Valley Water this spring to implement the DPR demonstration; continue engagement with the regional board and Bay Area coalitions on nutrient implementation and with federal/state partners on financing advocacy; and coordinate with LS Power and Microsoft on easements and mitigation to protect operations and habitat.

Quotes and context

Laurie Mitchell, acting ESD director, opened the session saying the RWF is “one of those critical city functions” that is often out of public view but essential to public health and the environment. Eric Dunleavy, the city’s deputy director for regulatory affairs, called the 2022 red tide event “the single most impactful event affecting bay water quality and wildlife” in his 21 years of study and said it changed the course of regional nutrient regulation. Kapil described the program’s approach as deliberately stage‑gated, with independent cost validation and value engineering when necessary.

Community and council members asked for continued public outreach, more regular coordination with first responders on hazardous‑materials response, and a future briefing on physical and cyber security for critical infrastructure.

Staff said they will return to council with updated planning‑level costs and a proposed financing strategy in May, and will continue coordinated work with Santa Clara, TPAC and regional partners as implementation proceeds.

Tapering note

City staff framed the RWF program as a long‑term, multi‑decade effort: the 2013 plant master plan identified roughly $2.2 billion in infrastructure needs, the city has delivered dozens of major projects to date, and new nutrient regulations and cost escalation mean the technical update and financing recommendations due this spring will shape the next phase of work.