SFPUC Special Hearing:
FY 2026-27 and FY 2027-28 Budget
Priorities, Proposed Budget, Capital Improvement
Plan,10-Year Financial Plan, and Debt Update
SFPUC Financial Strategy Team
January 12, 2026
1 2
Agenda
1. Budget Process and Priorities
2. Rate Proposal Preview
3. How We Got Here: Challenges, Tradeoffs, and Affordability
4. Proposed Operating Budget Overview
5. Proposed Capital Budget and 10-Year Capital Plan Overview
6. 10-Year Financial Plan Overview
7. Debt and Bond Rating Outlook
8. Bureaus Budgets (separate presentations)
3 Budget Process & Timeline
Spring 2025
Financial
forecasting & CPI
process underway
July
Budget
Instructions
issued
September
First drafts of CIPs
and operating
budget
submissions
complete
Sep–Dec
Internal
deliberations,
scenario planning,
and re-balancing
January
Budget
Hearings
Jan–Apr
Public outreach on
rates
February
Budgets due to
Mayor and
Controller
April
Rates proposed at
Commission
May 2026
Board of
Supervisors Budget
Hearings
SFPUC Priorities for this Budget
Financial
Sustainability
Keeping rates
affordable
Sustaining strong
credit ratings
Long-term strategic
planning
Operational
Excellence
Providing responsive
and efficient
services
Meeting complex
regulatory
requirements
Maintaining high
operational and
safety standards
Climate
Leadership
Environmental
stewardship and
sustainability
Advancing the clean
energy transition
Planning for
resilience and
adaptation
People and
Community
Supporting our
workforce
Building on equity
and inclusion
Strengthening the
local economy
5 Balancing Our Priorities
Downward
pressure
on rates
Upward
pressure
on rates
Affordability and
SFPUC’s
affordability
policy
• Other financial policies: fund
balance and reserves, debt
service coverage
• Operational requirements
• System reliability
• Regulatory compliance
• Environmental goals
• Inflationary increases and COLAs
6 Proposed Rates – Water and Wastewater
Water Rate
Change
Wastewater
Rate Change
Combined
Bill
Increase
Last Year’s
Projection
(Feb. 2025
estimate)
FYE 2027* 7.0% 15.0% 10.5% 11.5%
FYE 2028* 7.0% 14.5% 12.5% 12.5%
FYE 2029 7.5% 13.0% 10.7% 11.8%
FYE 2030 7.5% 13.0% 11.3% 11.7%
FYE 2031 7.5% 12.0% 10.4% 9.1%
10-Year Avg (FYE
2027 – FYE 2036) 6.4% 10.1% 8.6% 8.1%
* Rates expected to be adopted in Spring 2026
Proposed budget and
CIP incorporate rate
proposals for next two
budget years and rate
estimates for 10+ years
7 Proposed Rates – Water and Wastewater
$171
$389
$490
$0
$100
$200
$300
$400
$500
$600
Average Monthly Residential Water and Sewer Bill
Water Bill Sewer Bill
Typical Household Affordability Target Low-Income Household Affordability Target Key Affordability
Indicators
Current
Projection
Last Year’s
Projection
FYE 2036 Average
Residential Bill $389 $369
FYE 2046 Average
Residential Bill $490 $492
10-Year Average
Combined Bill Increase 8.6% 8.1%
20-Year Average
Combined Bill Increase 5.4% 5.7%
Outcome of budget & CIP process:
• Slightly lower rates in short term
• Higher rates in medium term
• Lower rates in long term
8 Proposed Rates – Hetch Hetchy Power
Retail Rate
Change
Last Year’s
Projection
FYE 2027* 7.0% 9.5%
FYE 2028 7.0% 9.5%
FYE 2029 6.5% 8.0%
FYE 2030 6.5% 5.0%
FYE 2031 6.5% 5.0%
10-Year Avg (FYE
2027 – FYE 2036) 5.8% 5.8%
$98
$209
$-
$50
$100
$150
$200
$250
Average Monthly Residential Hetch Hetchy
Power Bill
Key Affordability
Indicators
Current
Projection
Last Year’s
Projection
FYE 2036 Average
Residential Bill $209 $214
10-Year Average
Retail Rate
Increase
5.8% 5.8%
* Rates expected to be adopted in Spring 2026
9 Proposed Rates – CleanPowerSF
Key Affordability
Indicators
Current
Projection
FYE 2036 Average
Residential Generation Bill $48
FYE 2036 Average
Residential Total Bill $154
10-Year Average
Generation Rate Increase 1.4% to 2.1%
$104
$122
$0
$20
$40
$60
$80
$100
$120
$140
FYE 2026 FYE 2027 FYE 2028 FYE 2029 FYE 2030 FYE 2031
Average Monthly Residential CleanPowerSF
Power Bill (E-TOU-C)
PG&E Delivery Combined PCIA/FFS Charges CPSF Generation Generation
Rate Increase
Last Year’s
Projection
FYE 2027* -20% to -25% 0.0%
FYE 2028 8.5% 0.0%
FYE 2029 8.0% 0.0%
FYE 2030 5.5% 1.5%
FYE 2031 5.5% 1.5%
10-Year Avg (FYE
2027 – FYE 2036) 1.4% to 2.1% 0.3%
* Rates expected to be adopted in January 2026
and effective March 2026
+FYE 2026 reflects January 2026 existing rates before
proposed March 2026 rate decrease
+
10 How We Got Here...
11 Reminder: Legal Framework for Rate-setting
The San Francisco Charter
The SFPUC must “Establish rates…
• sufficient to meet operation, maintenance
and financial needs of the system…
• sufficient to improve or maintain financial
condition and bond ratings at or above
levels equivalent to highly rated utilities…
• and provide sufficient resources for the
continued financial health (including
appropriate reserves), operation,
maintenance and repair of each enterprise,
consistent with good utility practice. ”
California Prop 218
• Governs water and wastewater rates
• Each customer class (residential,
commercial, industrial, irrigation,
etc.) pays in proportion to the cost of
serving that class
• No cross-subsidies: one customer
class can’t pay more to subsidize
another, resulting in a regressive
structure with limits on discount
programs
• Utility revenues cannot be used for
unrelated government purposes
12 History Lesson: A Century of Declining
Federal Investment in the Water Sector
• Southeast Plant originally constructed in 1952 funded by GO Bonds, EPA and Public Works Grants
• Major investments in treatment and conveyance to modernize system 1940s-1970s
Post-war investment and New
Deal era
• Peak federal support for water infrastructure
• Massive CWA federal construction grants enabled SFPUC to modernize wastewater treatment plants and reduce pollution in San Francisco Bay 1970s-1980s
Clean Water Act and major
federal support
• Transition from grants to State Revolving Fund (SRF) loans; SFPUC finances projects via revenue bonds and ratepayer revenues
• SFPUC Rate Freeze enacted 1998 resulting in multiple years of underinvestment • Deferred maintenance begins to accumulate, assets reaching end of life Mid 1980s-2000s
Shift toward loans and local
responsibility
• WSIP completed, SSIP underway, burden entirely on SF ratepayers • Increasing regulatory obligations and compliance costs, climate change • Limited Federal loans and grants, future even more uncertain under current administration 2000s to Present
Ratepayers are on their own
13 A Nationwide Issue
Source: Bluefield Research 2024
14 14
15 In the Words of the EPA…
“Affordability issues are exacerbated by the fact that water is paid for primarily at the local level; local ratepayers shoulder the burden for about 95% of the nation’s drinking water and wastewater infrastructure as federal spending on water has declined substantially since the 1970s…. affordability is one of the more difficult and multifaceted issues facing EPA and the nation today. ”
- EPA’s “Advancing Water Affordability Nationwide: A Framework for Action, ” January 2025 Source: EFAB Water Affordability Report, 2025
SF Residents Will Still Pay Less Than Other CA Ratepayers 16 $222
$205 $200 $192 $184 $178
$161
$-
$50
$100
$150
$200
$250
Los Angeles
(LADWP & LASAN)
City of Santa Clara City of San Diego
(Projected FY
2027)***
City of Santa Cruz
(Projected FY
2027)**
San Francisco
(Projected FY
2027)*
City of Oakland &
EBMUD (Projected
FY 2027)*
City of San Jose
Water Bill Sewer Bill
Average Single Family Residential Monthly Bill
Projected FY27 and current FY26 costs based on local average water usage 17 What is Causing High Rate Increases in SF Today
• Debt payments due now on recently completed multi-billion $ projects (Headworks, Biosolids Digesters and Biogas)
• Complex regulatory obligations: Nutrients ($1.4B), Folsom & Alemany ($0.5B) • Maintaining and upgrad ing other major assets
Critical upgrades to
our aging sewer system
• San Francisco among most expensive cities in the world for construction • Operating costs also high – multiple years of 9% increases in employee & retiree healthcare rates
Costs are high
• Customer base is not growing at rate that helps spread out costs • Demand lower than prior projections
Demand assumptions
have changed
•L a c k o f f e d e r a l i n v e s t m e n t
• Limits on cross-subsidizing due to Prop 218
All costs borne by San
Francisco Ratepayers
18 Why Our Capital Plan Has Changed
Upward pressure
resulted in an initial
$16 billion plan
Inflation and high construction
costs
More realistic cost estimates
Greater certainty on regulatory
obligations
Changing power sector landscape
Downward pressure
resulted in over $3
billion in reductions
Rigorous prioritization, de-
scoping, and deferrals
Realistic spending plans
and deliverability
19 Construction Cost Challenges
San Francisco is the 2nd most
expensive city in the world to do
construction.
Local construction costs have
increased 24% since 2019, faster
than the national average.
Source: Global construction cost trends - GCMI 2025
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Construction Cost per M2
“San Francisco’s construction sector faces
persistent labor shortages, rising material costs
and regulatory hurdles. The ongoing demand for
office space in the technology sector, intensified
by new demand sources from AI and high-end
residential construction keep the market under
pressure. ”
20 Changing Demand Trends
Updated volume forecasts with
draft data from retail and wholesale
long-term water supply planning
Sales down slightly from prior
projections due to population
trends and water conservation
Modest population growth
estimates help reduce rates in long-
term
Updated demand forecasts
with recent usage trends and
redevelopment schedules
Delayed development requires
slightly higher rate increases in
medium term
Further electrification and
expansion of HHP customer
base will reduce rates
Water & Sewer Power
Incorporating conservatism for financial projections: higher-than-expected sales would reduce future rate increases.
21 Efforts to Limit Cost Growth
• New proposed operating costs
reduced to from $50M to $35M
• CIP went through multiple
scenarios to balance rate
increases with highest priority
projects
• Final budget & rates the result of
rigorous prioritization, re-
prioritization and tradeoffs
Costs based on
critical
operational
needs & cost of
service principle
New cost
proposals
scrutinized
based on
priorities
Rates calculated
to support costs
of service
Rates revised to
meet key
financial targets
Costs re-
prioritized to
align with
financial
policies
Multiple
budget and
rate scenarios
analyzed
22 The Other Bill: Power Rates Holding Steady
• In FY 24-25, 380,000 CleanPowerSF ratepayers saw no rate change.
• A 20-25% decrease in CleanPowerSF rates goes into effect March 1, 2026.
• 6,300 Hetch Hetchy Power ratepayers will continue to pay the lowest electricity rates in San Francisco into next year.
Even with Water and Wastewater rate increases, the average household will only see a 3% increase in their monthly SFPUC utility costs next year, less than CPI.
23 The Other Upsides: Investing in the Local Economy
and the Environment
Creation and sustainment of over 40,000 jobs
over the 10-year period
Water and wastewater projects protect San
Francisco Bay’s and the region’s ecological
health
Power investments accelerate the transition
to renewable energy
Water system improvements ensure drought
resilience through diversified supply
strategies and enhanced storage capacity
24 Our Ongoing Commitments to Ratepayers
Responsible Financial
Management &
Sustainability
Focus on maintaining credit ratings to keep borrowing cost down Strategic debt management, including refinancing
Pursuit of lower cost state and federal loans and grants, advocacy Strengthening financial oversight, literacy, and elevating affordability as an ongoing agency priority
Customer Assistance
Programs
Over $8M available annually from non-ratepayer revenue
Discounts offered on Water & Sewer, Hetch Hetchy Power
and CleanPowerSF bills for low-income customers
Robust outreach in multiple languages
Public Transparency
Ten-Year rate projections published annually, forecasts sent to City departments
Budget Hearings at Commission & Rate Fairness Board
Public outreach and meetings on rates
Budget & CIP approval by Mayor’s Office & Board of Supervisors