OUR MISSION: To provide our customers with high-quality, efficient and reliable water, power and sewer services in a manner that values environmental and community interests and sustains the resources entrusted to our care.
525 Golden Gate Avenue, 13th Floor
San Francisco, CA 94102
T 415.554.3155
F 415.554.3161
TTY 415.554.3488
San Francisco Public Utilities Commission
Correspondence Log
April 15, 2024 through April xx, 2024
Date Received From Subject
April 15, 2024 Dave Warner SFPUC CAC: Ratepayers and the City Need You to Make Rates A Priority This Year
April 17, 2024 Peter Drekmeier Earth Day and SFPUC Leadership Dick Allen Proposed 15,000 sq. ft. boathouse (variant)
for the Lake Merced Rowing Community
April 15, 2024
Re: SFPUC CAC: Ratepayers and the City Need You to Make Rates A Priority This Year Dear Citizens Advisory Committee Members,
As you are likely aware, the SFPUC is in the last stages of getting approval for its massive $11.8 billion 10 year capital plan. As it stands, the plan already projects major increases in rates that bump up against the SFPUC’s ratepayer affordability limits for water and wastewater. However, the even bigger issue (that the SFPUC doesn’t appear to understand) is that the assumptions behind the rate projections have a reasonable likelihood of not being achieved, which would push rates well above affordability limits.
The basic issue is that the SFPUC’s water and wastewater enterprises have mostly fixed costs (the water enterprise fixed cost portion of its expenses is in excess of 90%). When overall demand declines, rates have to increase to cover fixed costs and to make up for lower unit sales.
Capital investment increases fixed costs. To exacerbate the situation, the capital investment is funded in large part by issuing debt. Like a home mortgage, debt payments last 30 years. Because of the debt, if several years from now we decide that rates are going up too much, there’s limited flexibility to reduce rates as we can’t reduce debt service costs. For context, with this capital plan the SFPUC is projecting that by 2044 debt service costs alone will exceed the size of the entire SFPUC 2023/24 budget.
The SFPUC has not acknowledged the risk to ratepayers in any significant way and continues to work through the City’s budget approval process without doing so. The good news is that the first two years of the 10 year plan are about the same as what was projected in last year’s $8.8 billion 10 year capital plan ($3 billion less than the present plan). This means that even if this year’s plan is approved, it could be scaled back in next year’s plan, although fewer projects will be available for reworking or reprioritizing.
You might ask, aren’t there other committees that should be leading this charge, such as the SFPUC Rate Fairness Board or the SFPUC Revenue Bond Oversight Committee (RBOC)? It appears the Rate Fairness Board is primarily concerned with fairness in allocating rates between types of customers and fixed and variable costs and that the RBOC is more about overseeing bond management as opposed to the overall financial plan. In any event, neither committee has taken up the rate risk concern.
There’s a lot of interest in the >$1 billion added to the plan for wastewater denitrification and for sewer system improvements. But of the $3 billion increase in the 10 year capital plan from last year, only $1.2 billion is part of wastewater. Another $1.2 billion of the increase goes to the two water enterprise divisions, its biggest one year jump in the last 10 years. It seems like there could be room to reduce/delay some of the water enterprise investments, particularly given that we’ve been investing heavily in the Water System Improvement Program over the last two decades.
Actions you could take this year:
Understand the Scope of the Risk
1) Check the validity of the concerns raised here: Ask the SFPUC to present to you a risk analysis on rate projections. This should NOT be a review of the budget but a review of the underlying assumptions to the rate projections. What are the underlying assumptions for demand, population and housing? How do rates change if those projections are off? How do rates change with project overruns (a common occurrence)? How do rates change if additional investments are needed, such as for alternative water supplies? How do the affordability limits change if household income grows more slowly than projected? The presentation should have charts addressing each of these risks along with how rates are affected if two or more risks materialize.
2) Understand risk mitigation strategies: What actions can be taken if risks start to materialize? What’s the relationship between capital investment and rates? If an additional $1 billion of capital investment is needed (for project overruns or otherwise), how much would rates change? What is the financial impact of each risk mitigation strategy, including exactly how much rates would be offset?
3) Invite an independent financial expert to the meeting: The expert would help evaluate the quality of the materials being presented. An independent financial expert could be the City’s Controller (or someone else who’s not associated with the SFPUC).
Recommend Improvements
4) Provide guidance on how much of a cushion there should be between projected rates and affordability limits: In the past there’s generally been a 40% cushion between rates and affordability limits, much more than the 1% cushion currently projected.
5) Recommend content changes to next year’s financial plan materials presented for approval:
Financial plans submitted for approval should include rate risk analyses, similar to what is being requested in items #1 and #2 above. Without such information, approvers have little understanding of the risks to the plans they are approving.
6) Recommend timing changes: For this year’s budget approval, SFPUC Commissioners didn’t get a sense of the size of the budget and 10 year capital plan until the final version was presented on February 2 nd , only 11 days before the February 13 th approval meeting. Recommend that Commissioners review capital budget targets and their impact on rates early in the budget process so that if there are concerns, they can be addressed long before the plan is finalized.
Bumping up against affordability limits is new for the SFPUC. They don’t appear to understand that the risk to ratepayers is much greater than what they are presenting. Please help them understand by asking questions and making recommendations as a result of what you learn. There needs to be a strong voice, such as that of the CAC, pressing this issue.
It will take persistence. In November Commissioner Ajami asked staff for information on how lower water sales would impact the budget and has repeated the request several times since then, but staff has yet to produce anything.
For reference, below are selected slides that help demonstrate the risk.
Best regards,
Dave Warner
cc: SFPUC Commissioners
SFPUC Staff: Dennis Herrera, General Manager, Nancy Hom, Chief Financial Officer Laura Busch, Deputy Chief Financial Officer, Erin Corvinova, Financial Planning Director SFPUC Rate Fairness Board
SFPUC Revenue Bond Oversight Committee
Laurie Thomas Executive Director, Golden Gate Restaurant Association Amy Cleary, Director of Public Policy and Media Relations, Golden Gate Restaurant Association Alex Bastian, President and CEO, Hotel Council of San Francisco
A Discussion of Selected Slides Highligh/g415ng Ratepayer Risk
1) This slide is taken from the SFPUC January 22 nd budget presenta%gBWjon. It projects that 20 years from now there will be just a 1% cushion between rates and affordability. It is very difficult to project that accurately 20 years out. When there is uncertainty to a projec%gBWjon, a best prac%gBWjce is to increase the cushion/allowable margin of error.
2) This slide shows the SFPUC’s track record of projec%gBWjng water demand. The dashed lines reflect the projec%gBWjons from the Urban Water Management Plans. The do%gBLjed lines reflect more conserva%gBWjve projec%gBWjons from the finance department. The solid black line is actual demand. It is difficult to accurately project demand even 5 years out, much less 20.
3) This slide is derived from a public records act request. It turns out that a primary driver of the affordability calcula%gBWjon is the number of single-family households. The table at the top shows what 2044 rates would be under various assump%gBWjons for the number of single-family households. $436 is the projected monthly bill and $440 is the affordability limit (shown with yellow shading). The table in the lower le%g33L corner shows that from 2010 to 2020 the number of single family households grew only 1% while San Francisco’s popula%gBWjon grew 8%.
In its affordability analysis the SFPUC assumed the number of households will grow by 12% in the next 20 years. Given the recent popula%gBWjon decline and the 2010-2020 1% growth in single family accounts, 12% is risky. If single family housing growth followed the 2010-2020 trend, then the $436 rate 20 years from now would instead be $484, well above the $440 affordability limit. The SFPUC should provide this kind of risk analysis for all the major factors that affect affordability.
This is just one example of mul%gBWjple risks that would likely cause rates to exceed affordability limits. The SFPUC should make such risks transparent to both approvers and its cons%gBWjtuents.
This Message Is From an External Sender
This message came from outside your organization. Report Suspicious From: Peter Drekmeier
To: Commission; Hood, Donna
Subject: Earth Day & SFPUC Leadership
Date: Wednesday, April 17, 2024 9:56:09 AM
Attachments: Top 10 Moments of SFPUC Leadership.pdf
Dear Commissioners:
With Earth Day approaching, I wanted to acknowledge some positive actions the SFPUC has taken for the environment over the 16 years I’ve worked for TRT. Please see the attached “Top 10 Moments of SFPUC Leadership.”
Thank you.
-Peter
-----------------------
Peter Drekmeier
Policy Director
Tuolumne River Trust
[email protected]
Top 10 Moments of SFPUC Leadership
10) Under the leadership of Commissioner Ajami, General Public Comment was returned to the beginning of meeting agendas and remote public comment was reinstated (2023/24).
9) Commissioners Vietor and Maxwell voted no on a Water Supply Assessment because staff kept determining there was enough water for development but not for fish (2020).
8) The SFPUC committed $2 million toward the acquisition of Dos Rios Ranch at the confluence of the Tuolumne and San Joaquin Rivers. The site has been restored, and is now in the process of becoming the newest State Park (2010).
7) At only his second meeting, newly-appointed Commissioner Harrington initiated a series of seven workshops (deep dives) aimed at producing a better understanding of Tuolumne River issues (2020).
6) Despite opposition from GM Herrera, the Commission directed staff to schedule a seventh and final workshop focusing on the Design Drought (2022).
5) Commissioners Ajami and Moran requested a comparison of water demand projections produced by the Water Enterprise for use in the Urban Water Management Plan vs. sales projections produced by the Finance Bureau, resulting in a very informative staff report (2022).
4) Commissioner Moran worked closely with the NGOs to facilitate a water demand workshop that included a number of scenarios that explored how various factors, such as water demand and length of drought planning, influenced water supply needs (2021).
3) After being alerted that SFPUC staff were attempting to use contractual obligations to represent current water demand in the SFPUC’s 2020 Urban Water Management Plan, Commissioner Moran instructed staff to use honest number, which reduced projected water rationing by 15 percentage points (2021).
2) Less than two months into her first term, Commissioner Vietor added two clauses to the resolution approving the Water System Improvement Program (WSIP) – to set aggressive water conservation and recycling goals and to undertake every effort to reduce diversions from the Tuolumne River (2008).
1) On his first day as the SFPUC’s new GM, Ed Harrington contacted the Tuolumne River Trust to propose a compromise on the WSIP that would cap water sales at 265 mgd until at least 2018.
Following a series of negotiation meetings between the SFPUC and NGOs, the “Phased WSIP” sailed through without any legal challenges, and actual water demand in 2018 was 196 mgd (2007/08).
Compiled by Peter Drekmeier, Tuolumne River Trust, April 17, 2024.
This Message Is From an External Sender
This message came from outside your organization.
Report Suspicious
From: Richard B. Allen
To: Ketcham, Dana (REC); Suen, Jackie (REC)
Cc: MelgarStaff (BOS); Commission; [email protected]; Farrah, Michael (BOS); Joel Engardio; Morten; Peder Jones; Frank Noto; Peter Hanson; Tim; Richard B. Allen Subject: Proposed 15,000 sq. ft. boathouse (variant) for the Lake Merced Rowing Community Date: Wednesday, April 17, 2024 11:04:15 AM
4/17/2024
Hi Dana and Jackie,
Is there anything I can do, to help you move along the construction of the proposed 15,000 sq. ft. boathouse, for the Lake Merced rowing community?
A timeline that shows who will be in charge, when construction will begin, and when the new boathouse will be available for the rowing community to occupy would be helpful.
Expensive rowing shells, costing $4,000 to $35,000 each, are still stored outside, unprotected, and paid for by the rowing families, representing over one hundred Jr. high and high school students, plus master rowers.
Rowing at Lake Merced continues to be the most active recreational activity at the Lake with four rowing organizations. One of the many benefits of being a high school rower is the opportunity after graduation from high school, to be accepted at a university, and selected over thousands of applicants. My wife and I were thrilled to have our children accepted by the University of California, because of their high school grades and rowing.
Thank you,
Dick Allen
[email protected]
San Francisco Recreation and Parks
https://sfrecpark.org › Lake-Merced-West (click)
The EIR analyzed the construction of new recreational elements at Lake Merced West (520 John Muir Drive) that will serve park users of all ages, fitness ...