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
June 22, 2024 through August 8, 2024
Date Received From Subject
June 23, 2024 Gregg Dieguez Fiscal UN-Sustainability at SFPUC, and the Implications (with attachment)
June 24, 2024 Ilene Oba Lack of rebates for Hot Pump Water Heater or Heat Pump system
July 2, 2024 Dick Shore Underground water storage
July 9, 2024 Dave Warner
Please include the attached letter in the
correspondence package for the next meeting
(with attachment)
July 22, 2024 Steve Lawrence Our City Our Power
This Message Is From an Untrusted Sender
You have not previously corresponded with this sender.
Report Suspicious
From: Gregg Dieguez
To: Commission
Cc: Herrera, Dennis J; Ritchie, Steve; Hom, Nancy; Busch, Laura; Corvinova, Erin E; Board of Supervisors (BOS); SFPUC Citizens" Advisory Committee; Rate Fairness Board; RBOC, (BOS); Nicole Sandkulla Subject: Fiscal UN-Sustainability at SFPUC, and the Implications Date: Sunday, June 23, 2024 7:20:39 PM
Attachments: SFPUCAuditEmail062324.pdf
The attached document details these highlights of SFPUC's dire financial condition, and recommends solutions, including an immediate audit:
SFPUC Fiscal Sustainability Highlights: – taken from 6/30/23 financials:
1. Has a reserve deficiency of over $6.7 billion.
2. Recent increases in debt service have driven ongoing operations cash flow negative, meaning the agency cannot accumulate the reserves needed to prevent even more costly borrowing.
3. Has assets 35.3% into their life cycle
4. Has replacement costs 77% higher than the original asset costs
5. Has asset replenishment reserves of 11.3% of those necessitated by the age and replacement cost of their assets.
I welcome further dialog on this matter,
Regards,
Gregg A. Dieguez
Midcoast Community Council
Vice Chair (writing as an individual)
Founder: MIT Club of Northern Calif. Energy & Environment Program Recent Articles
P.O. Box 370404
Montara, CA 94037
650-544-0714
Dear SFPUC Commissioners and Interested Parties: 6/23/24 Re: Fiscal UN-Sustainability at SFPUC, and the Implications SFPUC is in dire financial condition, and requires an immediate audit to address the fiscal sustainability of the agency, and the sustainability and affordability of water supplies in the counties to which it provides water. Immediately below are highlights of our findings, followed by a more detailed explanation of the financial analysis leading to this conclusion, and a list of recommendations for immediate action.
SFPUC Fiscal Sustainability Highlights: – taken from 6/30/23 financials:
1. Has a reserve deficiency of over $6.7 billion.
2. Recent increases in debt service have driven ongoing operations cash flow negative, meaning the agency cannot accumulate the reserves needed to prevent even more costly borrowing.
3. Has assets 35.3% into their life cycle
4. Has replacement costs 77% higher than the original asset costs
5. Has asset replenishment reserves of 11.3% of those necessitated by the age and replacement cost of their assets.
Explanation:
The detailed statistics for this analysis are shown in Figure 1 below.
Figure 1
The methodology used herein is described in “The Iceberg of Public Works Deficits". Figure 2 (below) conceptually illustrates that as assets age, they also grow in replacement cost – in this
illustration at a 20 year average of 3.5% annually (recently, even higher). After 40 years at that inflation, the replacement cost is four (4) times the original cost of an asset (red curve). At the same time, the Book Value of the asset declines to zero (orange line), and accumulated depreciation (green line) grows to equal the original (very old) asset cost. SFPUC is at 35.3% of the Asset Life Cycle (x-axis), yet has only 11.3% of the reserves which would be actuarially required for the age of those assets. In fact, SFPUC has less reserves ($863k) than if it had just retained annual depreciation ($4,319k). Of course, with inflation, retaining asset replenishment reserves based on straight line depreciation is woefully inadequate.
Figure 2
These financial reserve concepts are well understood by our federal government1, by condominium and community associations2, and even by realtors3.
1 Physical vs. Economic Life:
https://www.hud.gov/sites/documents/DOC_35335.PDF
2 https://www.reserveadvisors.com/resources/blog/are-your-reserves-fully-funded/ “…leaders in the reserve study industry developed the National Reserve Study Standards in conjunction with Community Associations Institute (CAI). The authors of the standards defined the term fully funded as being “100 percent funded when the actual (or projected) reserve balance is equal to the fully funded balance.” The fully funded balance is the balance that is in direct proportion to the fraction of life “used up” for a given component. “
3 Even realtors get this concept (if missing the inflation part):
https://www.century21.com/glossary/definition/replacement-reserve-fund
A critical byproduct of insufficient reserves is being what the head of the AWWA’s Rates and Charges committee has called: “addicted to debt”. At today’s rates, borrowing adds about 75% to the cost of each asset financed.4 Such debt burden is an Intergenerational Injustice, burdening our descendants with debt because we did not fund the replenishment of the assets we exhausted by our use. To avoid making things worse, as is shown by the SFPUC debt service in 2023 consuming all the operating cash flow, SFPUC must move to a non-borrowing regimen.
Recommendations:
While the analysis in this email is aggregate, I submit that the findings are dire enough to warrant more detailed audits, and then formulation of standards and practices to bring SFPUC into a Fiscally Sustainable condition. Follow-up actions should include:
1. A segregated Fiscal Sustainability Analysis for each operating franchise of SFPUC (e.g. water, sewer, etc.) – thus prioritizing the areas most in need of immediate attention.
2. A more detailed audit of the asset inventory, to calculate replacement costs and remaining lifetimes at a more tangible, granular level, and including inspection reports on high cost assets – followed by a more precise assessment of reserve requirements.
3. Changes to connection charges and/or impact fees so that New Joiners contribute a pro rata share of the replacement cost of the asset foundation serving their property.
4. Institution of a fixed (not volumetric) asset replenishment fee, because whether one uses a drop or a deluge, the same infrastructure is required to service a building.5
5. A Rate Study to include items 3, 4 as well as new water and sewer rates, which will bring SFPUC reserves to the “full funding” level described in footnote 2, and in this analysis.
This must of course include BAWSCA agencies as well.
6. Notes to the annual financial statements for SFPUC (and hopefully BAWSCA and its member agencies) which report “reserve adequacy” comparable to what is done for Unfunded Pension Liabilities.
7. Financial management policy revisions to effect these changes, instill ongoing fiscal sustainability guardrails, and motivate compliance by SFPUC and its partners.
There are of course many related issues regarding the sustainability of SFPUC’s water, the development of alternative water supplies, and other social justice and legal matters. However, without fiscal sustainability, hopes of addressing those concerns are doomed to fail.
I am available to meet with analysts in your organization, and could prepare a slide show to tutor them on the financial concepts underpinning these findings.
I hope you will treat SFPUC’s fiscal sustainability as a Most Urgent Matter.
Most Sincerely,
Gregg A. Dieguez
Midcoast Community Council Vice Chair (writing as an individual) Founder: MIT Club of Northern Calif. Energy & Environment Program Recent Articles
P.O. Box 370404
Montara, CA 94037
650-544-0714
4 But the forthcoming MTC/BAHFA $20B bond contains $48.3B in debt service, wa sting 141.5% on interest, so perhaps 75% is too low an estimate.
5 As we do down here, in Montara, at MWSD.
Mr. Dieguez is Vice Chair of the Midcoast Community Council, but the views expressed here are his, and not those of the Council. His constituency includes residents served by HMB’s CCWD water, thus the supply and cost of water is of proximate interest to him. cc:
Dennis Herrera, SFPUC General Manager
Steven Ritchie, SFPUC Assistant General Manager, Water Enterprise Nancy Hom, SFPUC Chief Financial Officer
Laura Busch, SFPUC Deputy Chief Financial Officer
Erin Corvinova, SFPUC Financial Planning Director
Nicole Sandkulla, BAWSCA Chief Executive Officer and General Manager SF Board of Supervisors
Bay Area Water Stewards
SFPUC Citizen’s Advisory Committee
SFPUC Rate Fairness Board
SFPUC Revenue Bond Oversight Committee
This Message Is From an External Sender
This message came from outside your organization.
Report Suspicious
From: Ilene Oba
To: Commission
Subject: Lack of rebates for Hot Pump Water Heater or Heat Pump system Date: Monday, June 24, 2024 12:30:33 PM
Hello:
My message is for the SFPUC Commission.
I live in the Sunset District. We have been getting quotes for a heat pump water heater and heating heat pump system for our house. I called the SFPUC customer service number, after a 30 minute wait, I was told that the SFPUC does not give any rebates because the SFPCU's only responsibility its to provide the power.
Healdsburg, Lodi and larger cities do. PG+E does not. There is an extensive list of all the California municipalities that do.
Electric cars were a success in California due to rebates.
To ask the homeowner to bear the entire costly expense of upgrading to the new system in a city that is already unbelievably expensive is unrealistic. But oh so San Francisco.
Regards,
Ilene
This Message Is From an Untrusted Sender
You have not previously corresponded with this sender.
Report Suspicious
From: Dick Shore
To: Commission
Subject: Underground water storage
Date: Tuesday, July 2, 2024 9:08:00 AM
One thing about underground water storage, no loss by evaporation.
I understand there are parties looking at such storage in the Sierra foothills and San Joaquin Valley.
I urge you to seriously consider cooperating with them.
I think that would benefit SFMUD.
I am no longer a resident of California, but I was born in Visalia; my grandfather was Ditch Master for the Last Chance Ditch near Lemoore , and I won several FFA speaking contests back in the '50's speaking of the importance of planning for water needs.
Do let me know if there are other things I can do to support your consideration of underground water storage.
Dick Shore
205 Catalpa Rd, Lexington KY
[email protected]
859 268 1323
This Message Is From an External Sender
This message came from outside your organization.
Report Suspicious
From: Dave Warner
To: Commission
Cc: Herrera, Dennis J; Ritchie, Steve; Hom, Nancy; Busch, Laura; Corvinova, Erin E Subject: Please include the attached letter in the correspondence package for the next meeting Date: Tuesday, July 9, 2024 4:31:44 PM
Attachments: The SFPUC"s Significant Financial Risks and Our Rates 2024-07-09.pdf Hi,
Would you include the attached letter in the correspondence package for the next SFPUC meeting (I'm thinking that it is in August) as they are on the cc list? I've included in this email Mr. Herrera, Mr. Ritchie, Ms. Hom, Ms. Busch and Ms. Corvinova on this email as they are all also listed as cc recipients to the letter.
Kind regards,
Dave Warner
July 9, 2024
Re: The SFPUC’s Significant Financial Risks and Our Rates Dear BAWSCA Board Members and CEO Sandkulla,
Thank you for your service!
The SFPUC is facing significant financial risks which puts further upward pressure on our already high water rates. But remarkably SFPUC leadership doesn’t appear to understand the problem (or disregards it) and BAWSCA so far has not given it a)gw.fien)gw1fion. Please consider pressing for correc)gw1five ac)gw1fion. Step one could be reques)gw1fing an opera)gw1fional audit of the SFPUC by an independent third party which should include an assessment of the issues below.
The SFPUC’s financial risks to ratepayers have at least seven components which all contribute to driving up already excep)gw1fionally high water rates:
1) Wholesale rates have already
jumped: Less than 3 years ago
wholesale water rates were
$1,786 per acre foot. Star)gw1fing
July 1 they jumped to $2,470 per
acre foot, an almost 40%
increase. The 2015 rate was
$1,276 per acre foot. Our rates
will have almost doubled in just
10 years. We already have the
highest wholesale water rates of
all the major California water
suppliers.
2) A stunning 10 year capital plan:
Last year’s 10 year capital plan
was massive in itself, at $8.8
billion. This year’s 10 year
capital plan grew by 34%, to
$11.8 billion. The SFPUC argued
that the investments were needed, par)gw1ficularly related to sewer systems (which we don’t pay for), but the biggest component of the increases is related to water systems, not sewer systems. To exacerbate this problem, the 10 year capital plan has no significant investment in Alterna)gw1five Water Supplies (AWS). Even without any significant investment in AWS, the SFPUC projects our wholesale water rates to grow to $3,200 per acre foot in 2034.
3) Projec”gB1Lons based on increasing water demand/sales. For the last 20 years the SFPUC’s Regional Water System (RWS) demand has been in decline, from ~260 mgd in 2003 to 178
mgd in 2023, a 30%+ drop. If water demand doesn’t grow as the SFPUC and BAWSCA currently projects, this will put further upward pressure on rates as selling less volume means that the per unit price has to go up in order to cover costs. While SFPUC staff and the BAWSCA CEO have been pressing for years that water demand is “hardening,” (meaning, will stop going down) demand con)gw1finues to decline. The SFPUC commissioner who’s a water scien)gw1fist expects that we have not reached demand “hardening.” The Pacific Ins)gw1fitute, a respected water resilience think tank, shares this view.
4) The SFPUC says we need to develop 92 mgd of AWS despite demand trends. The SFPUC’s June AWS report projects a 92 mgd shor)gw1wall in supply. Developing 92 mgd of AWS would cost in the range of $17 billion, all incremental to the current 10 year capital plan again causing rates to increase well beyond projec)gw1fions. Worse yet, if the AWS are built and not needed, rates would need to go even higher s)gw1fill. In the context of long term declining demand, it’s hard to imagine that anything close to 92 mgd of AWS will be needed.
The SFPUC’s 2021 Long Term Vulnerability Assessment (LTVA) warned about the impacts of demand and spending on water rates:
“In a situa)gw1fion in which major capital investment is required to add addi)gw1fional supply to the system as a result of new instream flow requirements and/ or decreases in precipita)gw1fion as a result of climate change, demand would need to increase significantly to mi)gw1figate substan)gw1fial increases in the price of water for customers. For example, if annual CAPEX spend were to increase from the 2020 baseline of $350M to $525M under the $500M OPEX spend scenario (right hand side of Figure 5-84), demand would have to increase by 30% in order to maintain exis)gw1fing prices or else rise by ~50% from $10/ccf to $15/ccf. However, results presented above also show that system performance is very sensi)gw1five to even small increases in demand.
Thus,
in considering new capital investments, a trade off must be made between reliability and price.” 1
To put it in today’s context, the LTVA contemplated demand scenarios from 227 mgd to 334 mgd. Last year’s demand was 178 mgd. The LTVA’s referenced 2020 capital spending was $350 million. FY 24/25 capital spending for Water Enterprise and Hetchy Water is $1,045 million and for FY 25/26 is $1,004 million. The projected 10 year average capital spending is $450 million but includes no significant investment in alterna)gw1five water supplies. As compared to 2020, now 4 years later we have already exceeded the LTVA capital spending
1 “Long Term Vulnerability Assessment and Adapta)gw1fion Plan for the San Francisco Public U)gw1fili)gw1fies Commission Water Enterprise - Phase I,” Prepared by: Bap)gw1fiste François, Alexa Bruce, Khanh Nguyen, Dong Kwan Park, and David Rheinheimer University of Massachuse”gBDLs, Amherst Umit Taner University of Massachuse”gBDLs, Amherst ; and Deltares Sungwook Wi and Hassaan Khan University of Massachuse”gBDLs, Amherst Alexis Dufour and David Behar San Francisco Public U”gB1Lli”gB1Les Commission David Yates and Caspar Ammann Na”gB1Lonal Center for Atmospheric Research Marjolijn Haasnoot Deltares Casey Brown University of Massachuse”gBDLs, Amherst, 2021 , page 235. Underlining and red coloring provided by Dave Warner.
projec)gw1fions and have seen demand declining rather than slowly ascending to the lower bounds of their demand projec)gw1fions. The LTVA foresaw the climbing water rates that we’re struggling with today.
5) The capital plan is financed primarily by debt. Funding investments through debt typically doubles or more the cost of a project as debt service costs exceed the cost of the original investment, par)gw1ficularly
with debt repayment
periods of 30 years or
more. Today’s high water
rates are due in part
because the SFPUC
already has a large
amount of debt, before
taking into account this
10 year capital plan.
Half
of our water payments to
the SFPUC go to debt
service
.
6) The SFPUC doesn’t have
any stated infrastructure
replacement cost
reserves. Prudent management/best prac)gw1fices would call for building up reserves for the replacement of aging infrastructure. Not having such reserves means that the SFPUC will likely have to add yet more debt to pay for the replacement cost of aging infrastructure.
The result will be more debt and no relief on excep”gB1Lonally high and growing water rates for genera”gB1Lons.
7) The SFPUC has an unusually conserva”gB1Lve drought planning model, tying up an unneeded 25 mgd or more per year in supply. At the )gw1fime the SFPUC established the model, robust risk analyses weren’t available, but with the availability of watershed tree ring data in the last 10 years and now with the addi)gw1fion of robust sta)gw1fis)gw1fical models, the SFPUC’s drought planning model is es)gw1fimated to occur once in 25,000 years, including when taking into account climate change. 2 If the SFPUC were to make a modest reduc)gw1fion to its drought model to move risk to the range of once in 1,000 years, 25 mgd per year or more of supply would be freed up, offse)gw.:ng poten)gw1fial AWS needs.
2 Ibid. page xxii: “According to climate projec)gw1fions and expert elicita)gw1fions, there is a central tendency of warming of +2°C and +4°C by 2040 and 2070 (Representa)gw1five Concentra)gw1fion Pathway [RCP] 8.5), respec)gw1fively, with no clear direc)gw1fion of change in mean annual precipita)gw1fion over the planning horizon.
$2,071
$2,470
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
San Diego CWA SFPUC
2024-25 Water Rate Comparison
Showing Portion Going to Debt Service
Cost per Acre Foot
Debt service
Operations
Let’s Learn from San Diego’s Mistakes
The San Diego County Water Authority (SDCWA), even with lower water rates and debt service costs, is facing significant financial challenges. Demand has declined below forecasts, they’ve had to scale back the use of their Carlsbad desalina)gw1fion plant, sell water, and see its credit ra)gw1fing drop, and propose an 18% one year jump in water rates.
3 The SFPUC hasn’t Acknowledged the 7 Concerns
Step 1 is problem recogni)gw1fion, which the SFPUC has not acknowledged in any significant way.
There’s been no men)gw1fion of scaling back their 10 year financial plan. The latest Alterna)gw1five Water
3 “VOICE OF SAN DIEGO: San Diego’s water prices face doomsday increase,”Voice of San Diego News June 27, 2024.
Slides taken from San Diego County Water Authority’s June 27, 2024 Board Mee/g415ng
Supply Report emphasized that there’s a 92 mgd supply shor)gw1wall despite the LTVA’s warning.
There’s been no men)gw1fion of any concern with 50% of our rates going to cover debt service and no men)gw1fion of a need to set aside funds for replacing aging infrastructure. And worst of all, there’s been no acknowledgement that the projected large rate increases could be even worse.
Ac”gB1Lons to Consider
Step 1 is problem recogni)gw1fion, which has not yet occurred. Please ask the SFPUC to conduct an opera)gw1fional audit by a reputable third party acceptable to BAWSCA. The opera)gw1fional audit should review, amongst other things, the seven items raised here.
Or at a minimum, as a Board please take steps to be)gw.fier understand the issues raised here. The be)gw.fier the problem is understood and the sooner it is understood, the easier it is to address. We’re not yet where the SDCWA is.
Please band together as a Board and take ac)gw1fion. Your ratepayers depend on you.
Kind regards,
Dave Warner
PS. Apologies that I will not be participating in your July 18 th Board meeting.
cc: SFPUC Commissioners
Dennis Herrera, SFPUC General Manager
Steven Ritchie, SFPUC Assistant General Ma nager, Water Enterprise Nancy Hom, SFPUC Chief Financial Officer
Laura Busch, SFPUC Deputy Chief Financial Officer
Erin Corvinova, SFPUC Financial Planning D irector
This Message Is From an External Sender
This message came from outside your organization.
Report Suspicious
From: Steve Lawrence
To: Commission
Cc: Espinoza II, Cirilo C
Subject: Our City Our Power
Date: Monday, July 22, 2024 3:02:29 PM
Hon. President and fellow Commissioners:
SFPUC has launched a political campaign, one in which it should not be engaged. It's called Our City Our Power. This campaign lays the groundwork for—advocates for—bond authority of perhaps $3 billion to buy PG&E's SF electrical assets.
Rate dollars should not be used by a City department to lobby for extending that department's remit and employment. It's probably illegal once the measure is filed. Here it has yet to be filed, but clearly is expected to be.
SFPUC got 2002 Prop E with some overlooking of the rules of engagement. Let's not make it a practice (to ignore or finesse election law rules).
Kill Our City Our Power, please.
Steve Lawrence