Mayor Chuck Reed says the idea could help balance the budget. A sale could bring in $50 million or more -- but also higher water bill for some residents.
The municipal system supplies drinking water to 124,000 people in North San Jose, Alviso, Evergreen and Coyote Valley.
One potential buyer is the private San Jose Water Co., which supplies 1 million people in San Jose and neighboring communities. The company's president sent the mayor a letter of interest in April but noted a sale would mean increasing some water bills -- possibly by 29 percent.
The city's drafting a report on the idea and the City Council could consider it next year.
A sale also would require a public vote.
