Special SFPUC Budget Hearing: Power Enterprise & Unfunded Capital Discussion (Jan 20, 2022)
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Special San Francisco Public Utilities Commission Budget Hearing – January 20, 2022
This special meeting of the San Francisco Public Utilities Commission (SFPUC) focused on the third budget hearing for fiscal years 2022-23 and 2023-24. The meeting opened with the unexpected resignation of Commissioner Harrington due to a conflict of interest arising from a PG&E bankruptcy claim. The commission then received a detailed presentation on the summary of budget hearing questions from the previous meeting, covering the 0% rate change for water and wastewater, the capital plan’s unfunded portion, and financial plan details. The second half of the meeting was devoted to the Hetch Hetchy Power Enterprise and CleanPowerSF budget proposals, including operating and capital plans, staffing challenges, and grid acquisition strategies. No consent calendar items were considered.
Public Comments & Testimony
- David Pilpel (public comment on item 3): Expressed shock at Commissioner Harrington’s resignation and praised his service. Requested the PowerPoint from the September 28, 2021 meeting regarding the rate freeze, and asked for a clear calculation of the fiscal impact of the 0% rate increase combined with lower water/wastewater usage assumptions. He also noted a humorous past incident where his name appeared on a commissioner tracking chart.
- Nicole Tank Kulaboska (public comment on item 3): Representing the Bay Area Water Supply and Conservation Agency (BAWSCA), she appreciated the additional detail on the unfunded capital plan but criticized the continued use of financial team-only water sales projections, stating they do not reflect the Urban Water Management Plans or other adopted plans. She also expressed sadness at Commissioner Harrington’s resignation.
- David Pilpel (public comment on item 5): Praised the Power team, supported moving Hetch Hetchy power under the power enterprise, advocated for solar generation at the Fun Fet Reservoir South Basin, a new power line from Newark to San Francisco, and a proportional approach to intervening facilities. He supported increasing general use rates to achieve cost of service and default time-of-use rates, and noted a spelling error on page 157.
Discussion Items
Item 3: Summary of Budget Hearing Questions
- Charles Pearl and Laura Bush (Finance staff) presented responses to commissioners’ questions from the previous budget hearings. Key points:
- 0% Rate Change for Water/Wastewater: The decision was made last summer to pause rate increases for fiscal 2023, with a projected 5–6% increase in fiscal 2024 to partially catch up. The rationale balanced agency needs, ratepayer affordability, and new General Manager Herrera’s orientation.
- Capital Plan Development: The 10-year capital plan totals ~$9.9 billion, with 13% unfunded (~$1.3 billion), mostly in wastewater ($975 million). The unfunded portion reflects an imbalance between available sources and uses beyond fiscal 2023. The agency highlighted challenges: deliverability (some years have 50% more proposed spending than staffing capacity), cost increases (10% due to inflation and scope), and prioritization difficulties.
- Financial Plan Details: The 10-year financial plans were presented for water, wastewater, power, and CleanPowerSF. Key metrics: fund balance as a percentage of operating expenses, debt service coverage ratios, and rate increase projections. For water, a 0% retail increase in fiscal 2023, followed by 5–6% increases; wholesale rates projected at ~16% increase for fiscal 2023. For wastewater, 0% in fiscal 2023, then 8% in fiscal 2024, averaging 5.8% over 10 years. If the unfunded wastewater portion were funded, additional 5% rate increases over 10 years would be needed.
- Affordability: The combined water/wastewater bill is currently 1.6% of median household income, well below the 2.5% goal, but projected to rise to 2% over 20 years. The average monthly bill is expected to increase from $147 (2022) to $212 by 2032, a 45% increase (30% due to inflation, 15% due to capital investments).
- Commissioner Questions and Discussion:
- Commissioner Maxwell asked about the impact of reducing the biosolids program scope and the difficulties in prioritizing projects. Staff acknowledged that better tools for risk management and criticality assessment are needed.
- Commissioner Moran praised the transparency but urged that maintaining infrastructure must remain top priority, and that constraints (like deliverability) should be challenged.
- General Manager Herrera reiterated commitment to transparency and rising to the challenge of balancing ratepayer affordability with infrastructure needs.
- Commissioner Ajami encouraged cross-enterprise strategic planning, forward-looking risk assessment that incorporates future risks (e.g., demand changes), and a focus on the utility of the future.
Item 5: Hetch Hetchy Power Enterprise, including CleanPowerSF
- Barbara Hale (AGM for Power) presented the power enterprise budget, highlighting challenges and proposed solutions.
- Context: Power serves ~385,000 retail electric accounts (70% of San Francisco electricity). Hetch Hetchy (HH) budget ~$140M, CleanPowerSF (CPSF) ~$230M. Combined power share of PUC operating budget is 27% ($435M of $1.6B). Purchase of power is 78% of power costs.
- Challenges:
- Staffing Vacancies: 45% vacancy rate in power, due to nationwide shortage of electrical workers/engineers, competition from PG&E, and temporary positions that hinder retention. Proposals include converting temporary to permanent positions and a staff augmentation contract ($3M).
- Cost of Power: Driven by market conditions, PG&E distribution tariffs, and state mandates. Mitigation includes regulatory advocacy and grid acquisition.
- Wholesale Distribution Costs: PG&E controls the distribution grid, creating risk for HH customers. The solution is to own the grid through the proposed grid acquisition project and strategic distribution investments.
- Rate Setting: A cost-of-service rate study is underway, aiming to set rates for HH and CPSF that are competitive and equitable. CPSF rates are currently set with a discount to PG&E, but the study will divorce from PG&E’s PCIA component.
- Build Imperative: Investment in distribution grid is needed to retain and acquire customers, securing HH’s financial stability. Criteria for investments: functional relevance, economic justification, technical viability, and social responsibility.
- Capital Plan: HH 10-year capital plan includes $1.2B in proposed projects. Key items: distribution services retail (grid investments), renewable generation, and the alternative transmission project (grid acquisition). Unfunded portion for power is ~$105M. Candidate projects (unfunded) include SF Port substation, Oakland Port 25 kV line, and electrification projects.
- Operating Proposals: Requests for additional positions (predominantly conversions), $1.8M for services of other departments, $700K for increased insurance costs, $900K for vehicle replacement, and $1M for potential utility field services yard relocation.
- Commissioner Questions:
- Commissioner Paulson asked about temporary vs. permanent positions. Hale explained that temporary positions are appropriate for finite projects, but persistent workloads like grid acquisition justify conversion. Obstacles to filling permanent positions include market capacity, compensation competitiveness with PG&E, and slow city hiring processes.
- Commissioner Maxwell asked about CPSF enrollment (99% of eligible customers enrolled) and the impact of losing unmetered load (street lights, traffic signals) to PG&E. The net revenue loss is minimal, but the general fund would lose ~$4-5M if those customers move to PG&E rates. The unmetered load is at risk due to a PG&E request to FERC to terminate service.
- Commissioner Maxwell also asked about integrating racial equity into recruitment. Hale described efforts to recruit from historically black colleges, use employee networks, and improve inclusion through engagement surveys and buddy systems. Cross-enterprise collaboration on racial equity plans is ongoing.
- Commissioner Ajami asked about distributed energy resources and avoiding transmission costs. Hale noted challenges with PG&E’s rules limiting solar exports on non-owned grid, but mentioned CPSF’s community solar program and partnerships with city facilities. Commissioner Ajami encouraged forward-looking alternative financing and rate design.
Key Outcomes
- Resignation: Commissioner Harrington resigned immediately due to a conflict of interest from a PG&E bankruptcy claim payment. The commission expressed gratitude and regret.
- No Formal Votes: No votes were taken; the meeting was informational and a continuation of budget hearings. The budget is scheduled for review and potential approval on February 8, 2022.
- Next Steps:
- Staff will continue to address unfunded capital plan and deliverability issues, with a goal to present a balanced 10-year plan by the next budget cycle (fiscal 2024).
- The cost-of-service rate study for power will be presented in spring 2022, with rate implementation by July 2022.
- The commission will receive a detailed financial plan narrative on February 8, 2022.
- No meeting continuation was needed; the meeting adjourned without further action.
Meeting Transcript
To the third uh budget hearing. Um Madam Secretary, please call the role. President Ren. Here. Vice President Johnny. Here. Commissioner Maxwell. Here. Commissioner Paulson. Here. Madam Chair, we have a quorum. Great. Before we start, Mr. Harrington has an announcement to make a question. Thank you, Chair Ajami. Good morning, Commissioners and staff. I have some sad news this morning. I want to let you know that I'm resigning from the PUC immediately because of a conflict that just arose. I wanted to take a moment to tell you about it and to say goodbye. As some of you know, I have property in Sonoma County, and that property incurred significant damage in the 2017 tubbs fire, including losing a house. After hearing little to nothing about the claim for the last three years, this week I received a preliminary payment award on the claim. I'm told that even though the decision to award the claim is from a bankruptcy trustee, since the funds originated with PGE, I now have a conflict on any matters related to the PG ⁇ E. Since our activities related to PG ⁇ E and Clean Power or SF Power are so intertwined with PGE, this would mean that I would have to recuse myself from a major part of the PUC activities, including even this budget hearing. Obviously, the PUC Power Enterprise and Clean Power Project have continuing and difficult decisions to make related to PGE. And even though I would not allow any bankruptcy distribution to cloud my opinion, if I had to recuse myself from all discussions related to PGE, it would be hard to be a worthwhile commissioner. Also, to stay on the commission with the potential for conflict might provide PGE with a reason to challenge future decisions and would not be in our best interest. So I'm reluctantly resigning. I wanted to tell you how much I've enjoyed working with all of you on the commission. I've really appreciated getting to work with the PUC staff again. They're a great group of people. And I've been impressed by the quality and thoughtfulness of our constituents and the environmental community and others who continually push us to do better. We're very lucky to have such people to work with and rely on. And so I wish you and the PUC the best. It's been a joy to work with you. Thank you. Thank you so much, Mr. Harrington. This is definitely a sad day and sad to see you go. And I really personally want to thank you for your person for your service and all the wisdom that you provided to this commission. Since this is an announcement and not a discussion item, unfortunately, we can have a broader discussion about this, but you'll be dearly missed. Thank you so much. Madam Secretary, could you please read the next item? Due to the ongoing COVID-19 health emergency and given public health recommendations issued by the San Francisco Department of Public Health and the emergency orders of the governor and mayor concerning social distancing and lifting restrictions on teleconference. This meeting is being held via teleconference and is being televised by SFGTV. I would like to extend our thanks to SFGTV staff and SFPUCIT staff for their assistance during this meeting. If you wish to make public comment on an item, Dell 1, 415 65501, meeting ID 24802345422 pound pound. To raise your hand to speak, press star three. Since this is a special meeting of the SFPUC, there will be no general public comment period. Public comment will be called to the conclusion of the items on the agenda. Please note that you must limit your comments to the topic of the agenda item being discussed and to remind you if you do not stay on the topic, the chair can interrupt and ask you to limit your comment to the agenda item.
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