Services of the San Francisco Public Utilities Commission Affordability Policy
November 28, 2023
Erin Corvinova, Financial Planning Director
1 Financial Sustainability is a Core Value
2 San Francisco Charter
Section 8B.125 requires the SFPUC to:
• “establish rates, fees and charges at
levels sufficient to improve or maintain
financial condition and bond ratings at or
above levels equivalent to highly rated
utilities of each enterprise under its
jurisdiction, meet requirements and
covenants under all bond resolutions and
indentures… and provide sufficient
resources for the continued financial
health (including appropriate reserves),
operation, maintenance and repair of
each enterprise, consistent with good
utility practice”
• “set retail rates… based on the cost of
service”
Capital Planning Improvement Initiative
Workstream 6: Financial Sustainability
The outputs of this workstream should
provide guidance on the scope, timing, and
magnitude of spending in the capital plan,
suggest plans for capital financing that
minimize the burden of financial plans, and
generally ensure the SFPUC is able to
handle the significant capital costs needed
for its utility systems.
SFPUC Financial Policies
“Strong financial policies demonstrate to
rating agencies, capital markets, and
customers that the agency is well managed
and committed to prudent financial
practices.”
Existing financial policies include:
• Fund Balance Reserve Policy requires
sufficient capacity to bridge shortfalls in
cash flow and cover unanticipated
expenditures.
• Debt Service Coverage Policy
sufficient revenues to pay revenue bond
and loan debt service
• Capital Financing Policy requires a
minimum amount of capital funding from
current revenues vs. debt
• Ratepayer Assurance Policy requires
transparent discussion of priorities and
goals in budgeting, financial planning
and rate-setting
Need for Affordability Metrics and Target
Existing guidance directs the SFPUC to
consider the impact of bills on customers
SFPUC Ratepayer
Assurance Policy
“The Commission will
consider SFPUC service
affordability for all its
customers. Prudent
operating and capital
planning ties annual
spending to system
demand and
intergenerational equity,
enabling financial
engineering and reducing
costly emergency
expenditures. Rate design
should also
consider the
burden imposed by
SFPUC bills on low-
income customers.”
San Francisco Charter
Section 8B.125
“The Commission shall…
Conduct studies of rate-
based conservation
incentives and/or lifeline
rates and similar rate
structures to provide
assistance to low-income
users, and take the results
of such studies into
account when establishing
rates, fees and charges,
in accordance with
applicable state and
federal laws.”
San Franciscans face general
affordability challenges
• San Francisco has the 3rd highest cost of
living of any US urban area1
• A significant portion of San Franciscan’s
income goes to basic necessities
• The median 4-person household in San
Francisco makes $144,1002
• 2 working adults with 2 children need
$161,436 for a “living wage” covering
housing, healthcare, childcare, food,
transportation, and taxes
3 • Some SFPUC customers have trouble
paying their utility bills
• 6,672 single-family water/sewer accounts
and 2,132 Hetch Hetchy Power accounts
have delinquent bills.
3 1) Council for Community & Economic Research Quarter 1 2023 Cost of Living Index 2) SF Mayor’s Office of Housing & Community Development 2023 Area Median Income 3) Massachusetts Institute of Technology 2023 Living Wage Calculator Existing Affordability Metric and Target
4Combined water/sewer bill must be less than 2.5% of Median Household Income $84
$133
$287
$406
$0
$100
$200
$300
$400
$500
$600
Average Monthly Water and Sewer Bill
Water Bill
Sewer Bill
2.5% of Median Household Income
Goals of Affordability Policy
1. Create meaningful measure of affordability – for
customers and our agency
2. Allow flexibility to implement necessary capital
improvements
3. Ground metrics in San Francisco's local economy and
consider racial equity
4. Cover entire agency
• Setting metrics for entire agency
• Setting targets for water/sewer, power expected later 5 Income: Alternatives to the Median
6 • If you lined up all households in
San Francisco by income…
• The median household would
be at the 50th percentile
• The second quintile
household is at the 40th
percentile
• The lowest quintile household
is at the 20th percentile
• San Francisco’s incomes are
very high!
• SF’s median
is 83% higher
than the US
• The median household in
San Francisco makes more
than 80% of US households
(fourth quintile
)
Lowest Quintile Income
(20th Percentile), $38,376
$14,539
Second Quintile Income
(40th Percentile),
$92,915
$41,168
Median Income (50th
Percentile), $126,187
$69,021
Third Quintile Income (60th
Percentile), $161,456
$69,959
Fourth & Highest
Quintiles (80-100th
Percentile) $250,000+
$110,541
$0
$50,000
$100,000
$150,000
$200,000
$250,000
San Francisco Income Distribution US Income Distribution Annual Household Income
Source: US Census Bureau ACS 2021 5-Year estimates
Income: Consider Racial Equity
7 • Black, Indigenous, and
People of Color
households in San
Francisco have lower
median incomes than
white or the City’s overall
median
• Using median as gauge
of affordability does not
account for racial
inequality
$126,187
$156,581
$107,741
$84,992
$44,142 $38,750
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
All
Households
White Asian Hispanic or
Latino origin
(of any race)
Black or
African
American
American
Indian &
Alaska Native
Median Household Income
San Francisco's Median Household Income by Race
Source: US Census Bureau ACS 2021 5-Year estimates
Income: Recommend Two Metrics
8 Typical Household =
40th Percentile Income
• Keeps measure of how rates
impact an average customer
• Lower than median to
account for racial disparities
and high cost of living
Low Income Household =
20th Percentile Income
• Adds focus on customers
who face greatest challenges
from high cost of living and
widening inequality
• Roughly aligns with eligibility
for deepest discounts in CAP
program
• Used by regulators, industry
associations
Target: Recommendation
• Begin with national
standards and industry
practices
• Adjust down to
account for San
Francisco’s local
economic conditions
9 Typical Household
= 40th Percentile
Income
3.0% of
Income Target
for Rates
Low Income
Household = 20th
Percentile Income
7.0% of
Income Target
for Rates
5.0% of Income
Target for
Discounted Bill
Target: What does it mean?
• Overall goal: timely, informed financial decision-
making
• Guidance and Transparency for Planning Period: Capital and operating budgets should be developed based on retail rates that keep residential bills under the affordability targets within a 20-year planning horizon.
• Accountability and Flexibility: If this is not possible, a rationale for exceeding the targets will be provided to the Commission, alongside timely proposed strategies to reduce the need for future rate increases.
10 Water and Sewer Typical and Low-Income
Affordability Metrics & Targets
11 $84
$133
$287
$406
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Average Monthly Water and Sewer Bill
Sewer Bill
Water Bill
3.0% of 40th Percentile Income (Typical
Household Target)
7.0% of 20th Percentile Income (Low-
Income Household Target)
Water and Sewer Low-Income Discounted
Affordability Metric and Target
12 $62
$100
$179
$244
$0
$50
$100
$150
$200
$250
$300
$350
Average Monthly Discounted Water and
Sewer Bill
Discounted Sewer Bill
Discounted Water Bill
5.0% of 20th Percentile Income (Low-Income
Household Discounted Bill Target)
Hetch Hetchy Power Typical and Low-Income
Discounted Affordability Metrics
13 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
$-
$20
$40
$60
$80
$100
$120
$140
$160
FYE
2018
FYE
2019
FYE
2020
FYE
2021
FYE
2022
FYE
2023
FYE
2024
FYE
2025
FYE
2026
FYE
2027
FYE
2028
FYE
2029
FYE
2030
FYE
2031
FYE
2032
FYE
2033
Average Monthly Hetch Hetchy Power
Bills
% of 40th Percentile
% of 20th Percentile
% of 20th Percentile
Power Bill
Discounted Power Bill
CleanPowerSFAffordability Metrics
14 $64
$84 $90
$0
$20
$40
$60
$80
$100
$120
$140
FYE
2016
FYE
2017
FYE
2018
FYE
2019
FYE
2020
FYE
2021
FYE
2022
FYE
2023
FYE
2024
FYE
2025
FYE
2026
FYE
2027
FYE
2028
FYE
2029
FYE
2030
FYE
2031
FYE
2032
FYE
2033
Average Monthly CleanPowerSF Bills
% of 40th Percentile
% of 20th Percentile
PG&E Delivery PCIA/FFS CPSF Generation
Services of the San Francisco Public Utilities Commission Questions & Discussion
Thank You!
15 DEPARTMENT Business Services AGENDA NO. 12
MEETING DATE Novembe r 28, 2023
AGENDA ITEM
Public Utilities Commission
City and County of San Francisco
Calendar: Regular Calendar
Project Manager: Erin Corvinova, Financial Planning Director Adopt Affordability Policy
Summary of
Proposed
Commission
Action:
Adopt affordability metrics for combined residential water and sewer bills (Affordability Policy), with a focus on typical and low-income customers.
Background: The San Francisco Public Utilities Commission (SFPUC) is dedicated to delivering cost-based, equitable, accessible, and affordable utility services to meet the needs of all our customers, regardless of race, income, housing status, or any other factor.
As a self -supporting enterprise department within the City and County of San Francisco, the SFPUC depends on customer rates as its primary source of revenues.
Section 8B.125 of the San Francisco Charter requires the SFPUC to “establish rates, fees and charges at levels sufficient to improve or maintain financial condition and bond ratings at or above levels equivalent to highly rated utilities of each enterprise under its jurisdiction, meet requirements and covenants under all bond resolutions and indentures… and provide sufficient resources for the continued financial health (including appropriate reserves), operation, maintenance and repair of each enterprise, consistent with good utility practice” and to “set retail rates… based on the cost of service.” In addition to Charter requirements, the SFPUC must also set rates that meet state and federal legal requirements and contractual obligations, including contractual covenants with the SFPUC’s wholesale customers.
To guide the SFPUC’s compliance with financial requirements and achievement of its goals, the SFPUC has enacted various financial policies that set performance metrics and targets. These policies are used when adopting budgets and developing financial and capital plans. Transparent capital a nd operating budgeting and planning demonstrates to stakeholders that the SFPUC is well -managed and committed to prudent financial practices. Transparent budgeting and planning by the SFPUC appropriately consider the impacts of bills on our customers using defined, robust metrics.
Rationale for Affordability Focus
Significant capital investments are needed across the SFPUC to maintain and improve existing infrastructure, respond to climate change, and protect public Agenda Title: Adopt Affordability Metrics Policy
Commission Meeting Date: November 28, 2023
health and the environment via compliance with increasing regulatory requirements.
The SFPUC has implemented its Capital Planning Improvement Initiative (CPII), an internal, coordinating approach for capital program and project planning. The initiative consists of twelve Workstreams with dedicated working groups , all focused on improving project planning, budgeting, and problem -solving in furtherance of improved capital project execution. As the first deliverable for the Financial Sustainability Workstream, SFPUC staff proposes the adoption of overall retail affordability metrics for the agency and specific metrics for the combined residential water and sewer bills, as set forth in the proposed Affordability Policy.
San Francisco residents and businesses have struggled to recover from the COVID- 19 pandemic’s lingering financial impacts, and expiring state and federal social aid programs have further exacerbated a slow recovery. Low-income San Francisco households face significant challenges affording the residential rates necessary to meet the SFPUC’s level of service goals, particularly as those goals evolve to match capital investment needs. Under Charter Section 8B.125, the SFPUC must conduct “studies of rate-based conservation incentives and/or lifeline rates and similar rate structures to provide assistance to low -income users, and take the results of such studies into account when establishing rates, fees and charges, in accordance with applicable state and federal laws.” Further, on September 12, 2017, by Resolution No. 17- 0198, this Commission adopted a Ratepayer Assurance Policy directing Staff to “consider SFPUC service affordability… [and] the burden imposed by SFPUC bills on low-income ratepayers.” The SFPUC regularly evaluates non-rate revenue sources for use in the development of customer affordability programs, including support from nonprofits and foundations, and federal and state utility rate relief.
The proposed Affordability Policy sets performance metrics that highlight retail customer affordability and that support the dynamic capital planning needed to ensure reliable utility systems.
Current Affordability Approach
The SFPUC currently considers the average monthly single family residential combined water and sewer bill to be “affordable” for residential retail customers if that amount is less than 2.5 percent of the median household income – denoted in the chart below by the red line. The SFPUC is currently meeting this target, as the average combined water and wastewater monthly bill of $138 for FY 2022-23 was
1.5 percent of median household income.
Agenda Title: Adopt Affordability Metrics Policy
Commission Meeting Date: November 28, 2023
Under the current 10- Year Financial Plan, future rate increases may drive the average combined water and sewer bill close to 2 percent of median household income, which would remain below the 2.5 percent threshold. This said, the SFPUC’s understanding of the economic conditions experienced by its ratepayers has evolved over time, and staff now desires to improve its metric to more accurately reflect the reality for many San Franciscans who receive SFPUC combined bills.
The median household income may presen t an inaccurate gauge of the burden imposed by customer utility bills in San Francisco . The current metric does not consider the extremely high cost of living in San Francisco or widening income inequality. T ypical households fa ce greater financial burdens than their gross income indicates, and low -income households are even more heavily impacted.
Seemingly affordable utility rates , viewed under the median household income alone, may actually be quite challenging for many SFPUC residential ratepayers to afford. Further more, the impact of this reality may be, unacceptably, most significantly felt by Black, Indigenous, and People of Color households in San Francisco, which have a lower median income than the overall city’s median household income.
Improved Affordability Approach
SFPUC staff seeks an improved affordability approach that is based on staff research; considerate of feedback provided directly by our ratepayers; informed by definitions used by regulators, industry thought leaders, and other utilities ; and adapted to fit San Francisco’s local economy and policy priorities.
The proposed Affordability Policy establishes different performance metrics for retail rates for (1) a typical household and (2) a low -income household. Two changes from the existing metric are important to note. First, the typical household is defined as the 40 th percentile income, rather than the 50 th percentile (median) household income, to ensure the typical household being monitored better reflects San Francisco’s high cost of living and the lower incomes of San Francisco’s Black, Indigenous, and People of Color communit ies. Second, the addition of the low - income household metric , define d as the widely used 20th percentile household
Agenda Title: Adopt Affordability Metrics Policy
Commission Meeting Date: November 28, 2023
income, ensures that the new metric focuses on those customers who are most heavily burdened by San Francisco’s high cost of living and widening income inequality. For the low-income household, bills are calculated both at retail rates, and at retail rates after accounting for applicable discount or assistance programs.
For the Water and Wastewater Enterprise, these metrics will have set performance targets, which will guide the agency to consider retail residential bill impacts when developing capital and operating budgets within a 20 -year planning horizon. For the Power Enterprise, work is currently underway to perform the background research and internal policy development needed to set performance targets for the Power Enterprise. We expect to bring a revision to this policy in the next few years to add performance targets for the Power Enterprise once this additional analysis is complete. The percentage threshold
s selected are informed by staff research,
including Census data on San Francisco economic indicators relative to the rest of the country and a 2019 report, “Developing a New Framework for Household Affordability and Financial Capability Assessment in the Water Sector,” which was commissioned by a coalition of water and wastewater industry associations.
The following summarizes the proposed performance metrics and targets:
1. Typical Customer Affordability Metric: The average individually metered residential bill as a percentage of the 40th percentile income (second quintile income)
a. The combined water and sewer bill will target less than 3% of the typical customer’s income.
b. The CleanPowerSF and Hetch Hetchy Power bills will be evaluated under this policy, but the target for power affordability has not been determined. Power affordability targets will be developed and included in a future version of this policy.
2. Low-Income Customer Affordability Metric: The average individually metered residential bill as a percentage of the 20th percentile income (lowest quintile income)
a. The combined water and sewer bill will target less than 7% of the low-income customer’s income using standard rates, and will target less than 5% of the low-income customer’s income after accounting for enrollment in applicable bill discount programs.
b. The CleanPowerSF and Hetch Hetchy Power bills will be evaluated under this policy, but the target for power affordability has not been determined. Power affo
rdability targets will be developed and
included in a future version of this policy.
Projected Compliance with Proposed Metrics
As shown in the charts below, the SFPUC currently meets the proposed affordability targets, and is projected to continue doing s o in the future . These forecasts use the retail water and sewer rate increases for FYE 2024 through FYE Agenda Title: Adopt Affordability Metrics Policy
Commission Meeting Date: November 28, 2023
2026 approved by the Commission in May 2023 pursuant to the 2023 Rate Study , forecasted rates increases from 10 Year Financial Plan and Capital Improvement Plan adopted by the Commission in February 2023, and forecasted sales volumes and long-term retail rate increase forecasts.
The Proposed Affordability Policy
If adopted, the new Affordability Policy would center customer affordability as a foundational priority for SFPUC financial planning, in furtherance of the SFPUC’s ability to meet its legal obligations and policy goals . The new metrics are not designed to pr ompt reductions to existing retail rates or major cuts in capital spending. Instead, the Affordability Policy is intended to prompt consideration of the impact of rate increases on customer bills and drive the development and execution of dynamic strategies if such defined targets might be exceeded. Such strategies might include implementing cost management (operating expenditure cuts, reducing or deferring capital spending), securing alternative revenue sources (grants, federal and state loans, voter-approved taxes, fees for service, and resource recovery initiatives), or developing programs to assist low-income customers. Cost
Agenda Title: Adopt Affordability Metrics Policy
Commission Meeting Date: November 28, 2023
management and other strategies will be consistent with cost of service requirements of the California Constitution and San Francisco Charter.
In any instance where rate increases associated with capital and operating budgets are projected to cause the combined residential water and sewer bills to exceed the affordability, Enterprise representatives will include with their budget proposal to the Commission (1) an identification of the which targets are exceeded, (2) the rationale for exceeding the targets, and (3) proposed strategies to address affordability.
These metrics are not a rate cap or similar restriction. The SFPUC will always set rates that meet its legal, including regulatory, obligations, while at the same protecting the SFPUC’s current bond ratings, its ability to meet all debt covenants, its ability to meet other obligations (
including contractual obligations to its
wholesale customers), and its ability to provide utility services and maintain its infrastructure, all as required by the Charter.
By using these metrics, staff intends to continually improve on the transparency and accuracy of its reporting o n the impact of SFPUC rates on its customers, provide measurable and quantifiable goals for financial planning, and facilitate informed decision-making about the complex implications arising from funding the SFPUC’s critical infrastructure.
Funding and
Costs:
There are no direct costs to adopting this policy. Once in place, the Policy will influence decision -making and prompt consideration of residential retail bill impacts during the operating and capital budget process.
Environmental
Review:
Adoption of the Affordability Policy does not constitute a “project” under the California Environmental Quality Act Guidelines section 15378(a) because there would be no physical change in the environment, and under section 15378(b)(4) because this is a fiscal activity which does not involve a commitment to any specific project.
Attachment: 1. Affordability Policy
PUBLIC UTILITIES COMMISSION
City and County of San Francisco
RESOLUTION NO.
WHEREAS, On September 12, 2017, by Resolution No. 17-0198, this Commission adopted a Ratepayer Assurance Policy requiring that, when setting rates, “The Commission will consider . . . . service affordability for all its customers”; and WHEREAS, On July 14, 2020, by Resolution No. 20-0149, this Commission affirmed that access to water, power, and sewer is a human right and directed the General Manager to prioritize equitable policies accordingly; and
WHEREAS, The San Francisco Public Utilities Commission (SFPUC) retail and wholesale rates are the primary source of revenues for its operating and capital budgets; and WHEREAS, Under San Francisco Charter Section 8B.125 , the SFPUC must conduct “studies of rate- based conservation incentives and/or lifeline rates and similar rate structures to provide assistance to low -income users, and take the results of such studies into account when establishing rates, fees and charges, in accordance with applicable state and federal laws”; and WHEREAS, The Financial Sustainability Workstream of the SFPUC’s Capital Planning Improvement Initiative aims to provide guidance on the allowable scope, timing, and magnitude of spending in the capital plan, suggest plans for capital financing that minimize the burden of financial plans, and generally ensure the SFPUC is able to handle the significant capital costs needed for its utility systems; and
WHEREAS, A metric, calculating a typical and a low -income residential retail bill as a percent of income, would demonstra te to customers and other stakeholders the SFPUC’s commitment to affordable retail bills, while also setting clear guidance to staff for making decisions regarding capital planning; and
WHEREAS, The SFPUC’s current affordability approach, providing that t he average combined retail water and sewer bill should not exceed 2.5% of the San Francisco median household income, does not adequately account for the extremely high cost of living in San Francisco , widening income inequality, or differential impacts of rates upon Black, Indigenous, and People of Color households in San Francisco; and
WHEREAS, Staff have analyzed industry standards for utility retail bill affordability, as well as data on San Francisco’s income distribution, cost of living, and racial inequality, to develop proposed retail affordability metrics and targets that fit local economic conditions and meet the SFPUC’s policy goals, especially those around racial equity; and WHEREAS, Adoption of the Affordability Policy does not constitute a “project” under the California Environmental Quality Act Guidelines section 15378(a) because there would be no physical change in the environment, and under section 15378(b)(4) because this is a fiscal activity which does not involve a commitment to any specific project; now, therefore, be it
RESOLVED, That this Commission hereby adopts the attached Affordability Policy, setting metrics and targets for measuring retail customer affordability for financial planning purposes.
I hereby certify that the foregoing resolution was adopted by the Public Utilities Commission at its meeting of November 28, 2023.
Secretary, Public Utilities Commission
AFFORDABILITY POLICY
Financial Policies Background & Purpose
As the sole water and sewer provider and a primary power provider within San Francisco, and a wholesale water, power, and sewer provider to public and private agencies within five counties in the Bay Area and Sierras, the San Francisco Public Utilities Commission ( SFPUC) has an obligation to take actions to advance and protect the needs of resident s, businesses, and visitors relying on our services. The SFPUC’s utilities are enterprise departments, relying primarily on customer rates to fund their operations.
Prudent and sustainable financial management is critical to the agency’s mission.
Section 8B.125 of the San Francisco Charter requires the SFPUC to “ establish rates, fees and charges at levels sufficient to improve or maintain financial condition and bond ratings at or above levels equivalent to highly rated utilities of each enterprise under its jurisdiction, meet requirements and covenants under all bond resolutions and indentures… and provide sufficient resources for the continued financial health (including appropriate reserves), operation, maintenance and repair of each enterprise, consistent with good utility practice” and to “set retail rates… based on the cost of service.” In addition to Charter requirements, the SFPUC must also set rates that meet state and federal legal requirements and contractual obligations , including contrac tual covenants with the SFPUC’s wholesale customers. A fter these requirements have been met, the SFPUC also considers additional factors in its financial planning, as directed by approved Commission policy goals, other Charter language, and the agency’s mission and values.
To guide the SFPUC’s compliance with financial requirements and achievement of its goals, the SFPUC has enacted various financial policies that set performance metrics and targets. These policies are used when adopting budgets and developing financial and capital plans. Transparent capital and operating budgeting and planning demonstrates to stakeholders that the SFPUC is well-managed and committed to prudent financial practices. This policy sits alongside the SFPUC’s other financial policies and is one part of the comprehensive analysis necessary to inform sound financial decision-making.
Affordability Policy B
ackground & Purpose
The SF PUC is dedicated to delivering cost-based, equitable, accessible, and affordab le utility services for all our customers. This Affordability Policy sets forth the Commission’s understanding of retail customer bill affordability and establish es metrics to assist in evaluating the impact of operating and capital budget increases on future rates. While this policy does not elevate residential rate affordability above other financial planning considerations , it reflects the Commission’s commitment to consider the burden imposed by SFPUC bills on ratepayers, as directed by Charter S ection 8B.125’s directi ve to “conduct studies of rate-based conservation incentives and… rate structures to provide assistance to low-
San Francisco Public Utilities Commission Affordability Policy
2 income users, and take the results of such studies into account when establishing rates, fees and charges, in accordance with applicable state and federal laws .” The Commission understands customer rate affordability to be a foundational priority in achieving all of its C harter and other legal requirements , underlying its credibility with ratepayers and its authority to provide utility services.
US Census and other data indicates that , while San Francisco has a high proportion of residents with incomes above national and California averages, it also has among the highest cost of living and level of income inequality in the country. The SFPUC’S 2020 Resolution Condemning Systemic Racism & Taking Action to Promote Racial Justice requires the promotion of “racial and social equity across all enterprises and bureaus, including performance measures, incorporating a racial and social equity lens in budgeting, personnel, contracting decisions, and in all strategic long -term planning processes.” Census data shows that in San Francisco, Black, Indigenous, and People of Color households have lower median incomes than households gener ally. In light of these facts, these metrics focu s on low-income customers in San Francisco, who are disproportionately burdened by their utility bills . Moreover, traditional metrics focused on the household at the median or 50
th percentile income do not capture the disparate impact of racial inequality. Instead, our metrics will be based upon a “typical” household earning the 40th percentile income, which reflects a more diverse subpopulation of our residential customer base.
This policy will be used to analyze utility bills to support sustainable budgeting and rate-setting.
These metrics are not a rate cap or similar restriction. The SFPUC will always set rates that meet its legal, including regulatory, obligations, while at the same protecting the SFPUC’s current bond ratings, its ability to meet all debt covenants , its ability to meet other obligations (including contractual obligations to its wholesale customers) , and its ability to provide utility services and maintain its infrastructure, all as required by the Charter.
Affordability P olicy
It is the policy of the SFPUC when adopting budgets, developing financial and capital plans, and setting retail rates, to review the following metrics. The SFPUC’s capital and operating budgets should be developed based on retail rates that keep residential bills under the targets within a 20 -year planning horizon. If this is not possible , each impacted Enterprise will include with their budget proposal to the Commission (1) an identification of the which targets are exceeded, (2) the rationale for exceeding the targets, and ( 3) proposed strategies to address affordability . These strategies might include cost management (operating expenditure cuts, reducing or deferring capital spending), securing alternative revenue sources (grants, federal and state loans, voter-approved taxes, fees for service, and resource recovery initiatives ), or developing programs to assist low-income customers. Cost management and other strategies will be consistent with cost of service requirements of the California Constitution and San Francisco Charter.
If it is necessary or prudent to adopt rates exceeding these affordability targets , SFPUC management will provide a rationale accompanying the rate proposal. This rationale will describe the progress toward or infeasibility of implement ing the previously identified strategies to avoid rate increases exceeding the targets, and the reasons staff nonetheless recommends these rate increases.
San Francisco Public Utilities Commission Affordability Policy
3 Both of the below affordability metrics follow the same general calculation:
Average Bill
Income = Affordability Metric
The SFPUC’s rate metrics are as follows:
1. Typical Customer Affordability Metric: The average individually -metered residential bill as a percentage of the 40th percentile income (second quintile income) a. The combined water and sewer bill will target less than 3% of the typical customer ’s income.
b. The CleanPowerSF and Hetch Hetchy Power bills will be evaluated under this policy, but the target for power affordability has not been determined. Power affordability targets will be developed and included in a future version of this policy.
2. Low-Income Customer Affordability Metric: The average individually-metered residential bill as a percentage of the 20th percentile income (lowest quintile income) a. The combined water and sewer bill will target less than 7% of the low-income customer’s income using standard rates, and will target less than 5% of the low-income customer’s income after accounting for enrollment in applicable bill discount programs. b. The CleanPowerSF and Hetch Hetchy Power bills will be evaluated under this policy, but the target for power affordability has not been determined. Power affordability targ ets will be developed and included in a future version of this policy.
Income data will be sourced from the US Census Bureau’s latest available 5 -year American Community Survey estimates for San Francisco, or an equivalent source if this information is no longer available. Bills and incomes will be expressed annually and include all relevant line items of the applicable rates schedules. Average bill calculations will assume the mean utility volumetric usage for all individually- metered residential accounts, fixed service charges based on the most common meter and/or parcel size, and the default residential rate schedule if there is more than one choice.