San Francisco Public Utilities Commission Meeting - November 23, 2021

The San Francisco Public Utilities Commission (SFPUC) met on Tuesday, November 23, 2021, via teleconference due to the COVID-19 emergency. The commission declared a water shortage emergency, approved federal funds from the American Rescue Plan Act, and authorized several contracts, including a lease for child care services and engineering support for Hetch Hetchy projects. The meeting also included updates on the Bay Area Water Supply and Conservation Agency (BAWSCA), quarterly audit and budget reports, and a public hearing on drought conditions.

Consent Calendar

• Item 10a: Approved the use of earthquake-resistant ductile iron pipe for water infrastructure, with staff noting materials cost about twice that of standard pipe but representing only 5-10% of total contract cost.
• Item 10b: Approved Amendment No. 1 to the Treasure Island Wastewater Treatment Plant engineering services contract with Carollo Engineers, Inc., increasing the amount by $1.2 million (from $4.8 million to $6.0 million) to support a shift from design-bid-build to design-build delivery. The commission discussed cost overruns and the need for improved project tracking; the General Manager committed to reviewing guidelines for contract amendments. Passed 4-0 (Commissioner Maxwell recused? Actually, roll call showed 4 ayes).

Public Comments & Testimony

• General Public Comment: Speakers addressed redistricting, Lake Merced's algae, and the need for environmental metrics in water supply updates. Peter Dreckmeyer (Tuolumne River Trust) urged the commission to direct staff to include environmental indicators and conduct a probability analysis of the design drought. Gina Fromer (Southeast Community Facility Commission) thanked the commission for investment in the 1550 Evans facility and inquired about Hetch Hetchy reservoir levels. David Pilpel suggested revisions to the commission's rules of order, including clearer public hearing notice requirements and consent calendar procedures.
• Item 6 (Communications): Alida Dubris advocated for covering the remaining part of Sunset Reservoir with solar panels, emphasizing clean energy and resilience.
• Item 7 (BAWSCA Update): Peter Dreckmeyer criticized the Tuolumne River Voluntary Agreement, stating it would produce little additional water and that the 50% rationing scenario is based on unlikely assumptions. He urged the commission to modify the design drought analysis.
• Item 10b: A caller commented on change orders in public projects, citing the Central Subway and Water System Improvement Program as examples of cost overruns. David Pilpel urged limiting outside engineering staff augmentation and increasing in-house staff.
• Item 11 (Water Shortage Emergency): Multiple callers spoke. Nicole Sandkulla (BAWSCA CEO) expressed support for the staff recommendation, noting member agencies are already using record low water. Peter Dreckmeyer argued that the SFPUC has enough water storage (1,048,000 acre-feet as of November 12, 2021) to last 4.5 years and claimed staff is manufacturing a crisis; he questioned the urgency and asked about negotiations with irrigation districts. David Pilpel supported the declaration, commending staff for planning efforts.
• Item 12 (ARPA Funds): David Pilpel noted a typo in the staff report and suggested the funds stay at the PUC to defray arrearages. He thanked staff for their work.
• Item 13 (Wu Yee Lease): A caller questioned the choice of zip code 94124 for preference and asked about environmental concerns at the site. America Sanchez (Southeast Community Facility Commission vice chair) expressed support for the lease, emphasizing the priority for local children.

Discussion Items

• Item 7: Bay Area Water Supply and Conservation Agency Update: BAWSCA CEO Nicole Sandkulla reported that the governor's secretaries indicated the proposed voluntary actions for the San Joaquin River tributaries do not meet state board requirements. She warned that failure to reach a voluntary agreement could lead to a reduction of 90 million gallons per day during drought years, requiring up to 50% use reduction. She called on the commission to act boldly. Vice President Jami acknowledged the challenge and expressed commitment to finding a path forward. Commissioner Harrington noted that the state's uncertainty forces more conservative planning.
• Item 8a: Quarterly Audit and Performance Review Report: Charles Pearl presented the first quarter FY2022 audit update. Of 24 planned audits, three were completed: the 2020 post-audit (highlighted strengths and areas for improvement in accounting), the FY2020 wholesale revenue requirement audit (found $230,000 in cost allocation errors, about 0.1% of the $260 million requirement), and the sales/use tax audit (allocated $24,000 to the SFPUC). There are currently no open audit recommendations. Public integrity audits, including one related to the former general manager, are underway and expected in the third quarter. Commissioner Harrington requested direct copies of finalized public integrity audits. Commissioner Maxwell asked for concrete process improvements; staff noted that management responses to findings are tracked by the controller's office.
• Item 8b: Quarterly Budget Status Report: Laura Bush presented the first quarter FY2022 budget variance. Water and wastewater revenues are down significantly due to drought conservation measures and slower COVID-19 recovery, offset partly by a 5% drought surcharge beginning April 2022. Water is projected at a negative $31.6 million, wastewater at negative $25.7 million. Power (Hetch Hetchy) is positive due to higher wholesale energy prices, but clean power SF shows a slight shortfall. All policy targets for coverages and reserves are still met. Salary savings from vacancies helped offset some deficits.
• Item 11: Water Shortage Emergency Declaration: Assistant General Manager Steve Richie presented the drought situation. Hetch Hetchy storage is at 267,000 acre-feet, total system storage at 72.7% of normal (below the 80% typical for this time of year). State curtailments have eliminated access to the 340,000 acre-foot water bank in Don Pedro Reservoir. The proposed declaration sets a baseline of 197.4 million gallons per day (MGD) from FY2019-20 and calls for a 10% voluntary reduction, targeting 177.7 MGD system-wide. Under the Water Shortage Allocation Plan, wholesale customers would need a 13.7% reduction (113.7 MGD share) and retail customers 2% reduction. The declaration also triggers a retail drought surcharge of up to 5% on volumetric water and wastewater rates beginning April 2022, and a likely wholesale rate increase in July 2022. Commissioners discussed the uncertainty from curtailments, the need to rethink water bank management, and the importance of developing less weather-dependent water supplies (e.g., recycling). The declaration passed unanimously (5-0).
• Item 12: Accept and Expend Federal Funds from the American Rescue Plan Act: Aaron Franks presented two state programs (water/wastewater and power) to pay off customer arrearages from March 2020 to June 2021. The water program is expected to fully cover eligible debts, including discount programs; the power programs (Hetch Hetchy and CleanPowerSF) will receive only about half of requested amounts due to high demand. Staff proposed an amendment to add $500,000 to the authorized amount to capture additional water funding. The commission approved the resolution with that amendment, also correcting a typo. The collections moratorium is expected to be extended until all state funds are disbursed, with a comprehensive restart plan to come. Passed 5-0.
• Item 13: Lease with Wu Yee Children's Services: The commission approved a 5-year lease (with a 3-year option) at $1 per year for 1550 Evans Avenue, to provide child care for up to 70 infants, toddlers, and preschoolers, with preference for residents of zip code 94124. The lease includes $124,000 in scholarships for low-income families. Wu Yee, a federally selected Head Start provider, will relocate from 1800 Oakdale. The Southeast Community Facility Commission recommended approval. Passed 5-0.
• Item 14: Engineering Services Contracts for Hetch Hetchy: The commission approved the selection of four firms (Kennedy/Jenks-Terra JV, Kleinfelder/Lee JV, Stantec, and Mott MacDonald) for up to $5 million each (total $20 million) over five years for renewal and replacement projects under $5 million. Discussion focused on the balance between using outside consultants and building in-house capacity. General Manager Herrera acknowledged citywide hiring challenges and is working with other departments to improve recruitment. Passed 5-0.

Key Outcomes

• Water Shortage Emergency Declared: The commission unanimously approved a resolution declaring a water shortage emergency, setting a 10% voluntary water use reduction target, activating the Water Shortage Allocation Plan, and authorizing a drought surcharge (up to 5% on retail rates) beginning April 2022. Wholesale water rates will likely increase July 2022.
• ARP Funds Accepted: Authorized acceptance and expenditure of up to $6.5 million (amended from $6 million) from state programs funded by the American Rescue Plan Act to pay off customer utility arrearages. The collections moratorium will be extended until all funds are disbursed.
• Contracts Approved:
  • Amendment to Treasure Island wastewater contract (Carollo Engineers) for $1.2 million, passed 4-0.
  • Lease with Wu Yee Children's Services, passed 5-0.
  • Four engineering services agreements for Hetch Hetchy (up to $20 million total), passed 5-0.
• Remote Meetings Extended: Renewed findings to allow remote meetings for another 30 days, passed 4-0.
• Closed Session: No reportable action taken; commission voted not to disclose discussions.