the San Francisco Public Utilities Commission will now come to order.

Ms. Lanier, can we have roll call, please?

President Arce?

Here.

Vice President Leveroni?

Here.

Commissioner Jamdar?

Here.

Commissioner Stacey is excused.

Commissioner Thurlow?

Here.

You have a quorum.

Thank you, Ms. Lanier.

Before calling the first item, I'd like to announce that the San Francisco Public Utilities

Commission acknowledges that it owns and are stewards of the unceded lands located within

the ethno-historic territory of the Muekma Ohlone tribe and other familial descendants

of the historic, federally recognized Mission San Jose, Verona Band of Alameda County.

The SFPUC also recognizes that every citizen residing within the greater Bay Area has and

continues to benefit from the use and occupation of the Muekma Ohlone tribe's aboriginal lands

since before and after the San Francisco Public Utilities Commission's founding in 1932.

It is vitally important that we not only recognize the history of the tribal lands on which we reside,

but also we acknowledge and honor the fact that the Mwekma Ohlone people have established a working partnership

with the SFPUC and are productive and flourishing members within the many greater San Francisco Bay Area communities today.

General public comment.

Members of the public may address the commission on matters that are within the commission's jurisdiction and are not on today's agenda.

Thank you, Ms. Lanier.

and the commission values civic engagement and encourages respectful communication on the public meeting.

We ask that all public comment be made in a civil and courteous manner

and that you refrain from the use of profanity. Thank you.

Remote callers, please raise your hand if you wish to provide comment.

Are there any members of the public present who wish to comment on this item?

Anne Schneider?

Happy New Year.

Hope everybody had a good and safe Happy New Year.

My name is Ann Schneider.

I'm the former mayor of the city of Milbrae.

I am the Bosco representative for Milbrae,

and I've also spent nine years serving on San Francisco Community Roundtable.

My comments, as we're diving into the relationship that you're aware of,

I started looking around your website and another city website

that lists all the property that SFPUC owns.

If you go to that website, the only property you will find in Millbrae

is the site on El Camino Real, when in reality, you are a major landowner

and you own some of our valleys, you own some of our hillsides,

you own some of the tops of the hillsides, you own a lot more land on that.

So it doesn't help you all understand the situation that SFPUC puts into Millbrae.

And keep in mind that all of those properties that you own do not pay property taxes.

and analysis of the properties in San Mateo County show that if you add just the public regional agencies that own property,

28% of Millbrae is owned by those that do not pay property tax.

That puts us uniquely at a financial disadvantage.

That's the environment that we're under right now.

The other thing that I found, I couldn't quite understand it.

I'm also searching for information that's not your Ballywick.

It's the hotel at the airport.

But it turns out that every time San Francisco wants to build on things that are either next to or in Millbrae, you do not have to come to us as a community.

And yet, in your very documents today, you do work with other communities.

I really hope that in the future, we create a much better relationship of working within the communities that you are impacting.

Thank you.

Thank you.

Moderator, are there any colleges that have their hand raised?

Miss Lanier, there is one caller with her hands raised.

Thank you.

Caller, your line has been unmuted.

You have two minutes.

Am I on?

Yes, you are.

Okay, I'm sorry.

I just called in and I was unmuted.

So I have questions.

this is Martin Gothberg and I have comments regarding the budget is this

the appropriate time or is this the beginning of the meeting this is general

public comment would you like to make a comment or later I can do it later all

right thank you thank you caller there are two more colors with their hands

raised thank you caller your loan has been unmuted you have two minutes hello

this is me yes I can hello here we can hear you please continue oh okay I can

speak right hello we can hear you please continue okay yes hi this is Patricia

around from Millbury and I I myself and the residents of Millbury and the

surroundings vicinity actually to please do not convert the location at outdoor

supply hardware and contact red chicken and W restaurants and Millbury to a

a storage workshop for San Francisco Public Utility.

This conversion will not only cost SFPUC $250 million plus, but it's going to have a tremendous

effect on the working class livelihood in the area and the surrounding communities where

these two commercial businesses are located.

There are 50 hardworking and customer-friendly people work at OSH, KFC, and ANW, and they're

going to lose their job when the store and the restaurant are closed.

And I urge you to please, these are working-class people.

They work hard.

And also, there's limited commercial land in Millbury.

It's mostly residential community.

And we have 278 units of apartments across the street with 26 affordable units being built.

and two blocks away there's 97 units of affordable apartments being built right

now and we have a lot more coming in the pipeline and we need these commercial

lands for current and future businesses to serve the community we will lose

sales property tax revenue that are necessary to support the people so

please please look at other locations for storage and workshop for SFPUC

please use non-commercial locations that would be great because it wouldn't have

have an effect on livelihoods of working class people.

Thank you.

Thank you, Caller, for your comment.

Caller, your line has been unmuted.

You have two minutes.

Hi, thank you.

I'm going to discuss the budget, which may be item three,

but I'll jump in anyway at this point since I'm here.

My name is Jason Foster, resident living

in the Outer Richmond.

I'm grateful to have the right and privilege

to participate in this forum.

Thank you to the citizens and government of San Francisco

for enabling the participation.

The general budget, the general message the budget conveys

is bills are skyrocketing,

debt service payments are expected to skyrocket,

and the SFPUC doesn't feel empowered to address this.

Over the next five years, combined water bills

are going to increase five to six times

the target inflation rates set by the Federal Reserve,

according to slide six.

Further, it's plausible that bills will increase even more

if demand is over-forecasted.

Pages three and five of the 10-year financial plan

appear to suggest demand overestimation if possible.

Debt service payments are expected to skyrocket.

New debt service payments will dwarf current debt service

payments under the capital plan accompanying this budget.

On the debt outlook slides, page nine and 10.

Sorry to interrupt, but some of the matters

You're speaking to her on the agenda later.

If you can speak to items that aren't on the agenda, apologies to interrupt, and we can give you a few more seconds.

No worries.

I'm happy to wait.

I was surprised that I'm muted here, so I apologize for the interjection, and I'm happy to speak when the time is right.

Thank you.

Thank you so much.

Thank you, Paula, for your comment.

Ms. Lanier, there are no more callers in the queue.

Thank you.

The next item is item three, public hearing and discussion.

This meeting is convened to discuss the SFPUC's proposed budget and budget priorities pursuant to Section 3.3B of the Administrative Code of the City and County of San Francisco.

Thank you, Ms. Lanier.

Mr. President, commissioners, good afternoon.

Today is the first in a series of hearings about the upcoming budget, capital plan, and 10-year financial plan.

We hold these hearings every two years when we do a full update to the budget and capital plan.

Today, you'll hear first from our financial strategy team, who has led this budget process

and will continue to shepherd the budget through the mayor's office and board of supervisors this spring.

You'll then hear from each of our bureaus about proposed changes to their budgets.

We'll gather again on Friday, January 23rd, to hear from the power enterprise,

then in the following weeks from the water and wastewater.

All before we come back to you in February for the proposed formal adoption of the budget.

I can tell you firsthand that what you're going to learn about today has been the result of a long,

rigorous, and very challenging process to balance competing needs.

We had four overarching priorities when it came to designing this budget.

Financial sustainability, including keeping rates as affordable as possible.

Second, operational excellence, like meeting new regulations.

Third, climate leadership, including environmental stewardship.

And finally, people and community, such as strengthening the local economy.

Now for some context.

Many parts of our water system are about 100 years old.

The oldest parts of our sewer system date back to the gold rush.

It's critical to maintain and upgrade these aging systems that people rely on every day

while we also look ahead and make the kind of investments that will power San Francisco's

clean energy future.

Additionally, we must meet increasingly complex regulatory requirements, all while keeping

rates affordable and ensuring long-term financial sustainability.

Seeing those commitments through comes at a very real cost, which is not lost on us.

Every step of the way in this budget process, I instructed staff to take every possible measure to keep rates down,

but not to compromise the reliability and quality of the services that we deliver.

I'm confident that the proposals before you today and in the coming weeks strike that very difficult balance.

San Francisco is far from alone in facing the challenges of rising utility costs.

Nationally and around the globe, utility bills are going up, sometimes precipitously.

Here, though, we are ahead of the curve, thanks to careful planning and hard work.

As you will see, even with the potential rate increases to support this budget,

the average San Francisco resident will still pay less for their water and wastewater services

than other California ratepayers, including in Los Angeles, San Diego, Santa Cruz, and Santa Clara.

On the power side, we plan to lower our Clean Power SF rates by more than 20% for the vast majority of our customers, including all residential customers.

The proposal is scheduled to be before you on January the 27th.

I'm incredibly proud of the level of detail, sophistication, and deliberation that has gone into our budget process so far.

We certainly have challenges ahead of us, and I look forward to this discussion.

Now, I'll pass it over to our financial strategy team and Laura Bush, our deputy CFO.

Laura.

Hello.

Thank you, Dennis.

Thank you, Dennis, and thank you to Ron and the entire executive team for your support

and leadership through this entire process.

Good afternoon, everybody.

My name is Laura Bush, deputy CFO, and it's my pleasure to welcome you to budget season.

We have been working on this budget for the better part of the last year, and we're proud to kick off these special public hearings to share our recommended budget and explain how we got here.

Before we get going, I must say thank you to my team of exceptional public servants who got us here.

The entire SFPC financial strategy team played an important role.

The budget process was led by Anna Dooning, the budget director, Eric Wong, Trey Hunter, Sue Tern, Alasne Daniels, Annalisa Federighi.

The financial planning team, Aaron Corvinova, Matthew Freiberg, Yvonne Collins, Savisa Ashura, Mark Chen, John Chen, Molly West, and Clarissa Wan,

developed the financial plan and provided ongoing rates analysis that underpins the entire process.

The capital finance team supported us in developing our debt profile and continued to strategically manage our debt to save us money, which, as you know, is one of the most significant factors in shaping how our capital plans impact rates.

Thank you to Nikolai Sklarov, Edward Kwong, Dan Fuchs, Eric Kwok, and Earl Donovan.

The SIC team also, who have been integral in this rigorous capital planning process we undertook this year, Trisha Yang, Luke Fuller, and Jason Charminard.

Lastly, I wanted to say thank you to the hundreds of folks throughout PUC who had a hand in developing this budget.

This is truly the most significant cross-agency collaboration that we do,

and I'm grateful for everybody's hard work, integrity, and commitment to responsible management and stewardship.

Okay, so let's get into the slides.

So first, we're quickly going to go over the budget process, timeline, and priorities before getting straight into the outcome of the process on rates.

Then I'll hand over to Budget Director Anna Dooning to take you through how we got there, the challenges, trade-offs, and decisions, affordability considerations that shaped every decision.

We'll give you an overview of what's in the proposed operating and capital budgets.

Erin Korvenova, Financial Planning Director

will then go over the 10-year financial plan

before handing over to Nikolai Sklarov

our Capital Finance Director

who will give you debt and bond rating outlook

just warning you, the presentation is very long

but we have a lot of important things to convey

so thank you for listening

after that we'll take questions

before getting into separate presentations

about each of the Bureau's budgets

so as I mentioned

we've been working on this budget

for the better part of a year.

Anna came on board almost exactly a year ago,

and she got straight into planning for this budget process,

which began in the spring with financial forecasting

and kicking off the CIP process many months earlier

than in previous years.

This led us to issuing budget instructions in July

with initial capital and operating proposals

ready for review in September.

The fall was a very busy time.

We held weekly steering committee meetings,

which comprised of leadership from throughout the agency

to go through the budget proposals in detail,

look at the numerous different iterations of the capital plan

and rate scenarios, and ultimately rebalance the budgets.

The outcome of that internal deliberation process

is what we're presenting to you now.

After this budget goes through the commission,

it will then be sent to the mayor's office on February 21.

It will then go to the board on May 1 before adoption in the summer.

In parallel, we have the rates adoption process.

All four of our enterprises will be adopting rates this spring,

considering those rates has been inextricable from the budget process.

Over the coming months, we will be doing public outreach on our rates

before a planned late April rate adoption by the Commission.

So the budget and the rates, while adopted on slightly different timelines

with different processes, go hand in hand.

Priorities are important in the budget process

because they guide how limited resources are allocated to best achieve our goals.

A budget is not just a financial document.

It's a statement of values and strategy.

We have shown this slide to you several times before, but it's worth starting here again.

Financial sustainability emphasizes responsible financial stewardship,

rate affordability, and sustaining our credit rating to ensure long-term financial health.

Operational excellence prioritizes work that maintains and enhances the reliability,

safety, quality, and efficiency of our utility operations.

Also, a big theme here has been meeting increasingly complex regulatory requirements.

Climate leadership focuses on projects that enhance system resilience to climate impact,

advance the city's transition to clean energy and protect environmental quality,

and people and community emphasizes supporting the PUC's workforce, equitable service delivery,

community benefits, environmental justice, and investing in the local economy.

A budget process, at its core, is about balancing priorities.

There is so much upward pressure on our budget that obviously impacts rates.

Vast operational needs, increased regulatory compliance, inflation, very high construction costs,

labor cost increases, just to name a few,

as well as making sure we meet our financial sustainability targets and sustain our credit rating.

On the other side of this balance is SFPUC's affordability commitments,

and our commission adopted affordability policy,

which, as you know, sets targets for customer bills as a percentage of household income.

This slide represents the tensions, the difficult conversations, competing priorities,

trade-off and affordability considerations that shaped every decision throughout this process.

I can't tell you that striking the right balance here was easy. It was not. Many difficult choices

had to be made. Billions of dollars were cut from our CIPs. Many scenarios were considered,

and the outcome was a balance of managing all of these challenges that the agency faces.

And what we're presenting to you today is the outcome of this process.

So we wanted to show you the rate impacts of our proposal right up front, because that's what it all comes down to.

Water and wastewater rates are going to rise deeply in the short term.

This is unavoidable for reasons we'll explain in detail later in this presentation.

This is largely driven by capital investment needs and unavoidable cost increases in our budget.

However, we have managed to improve the outlook versus the last version of our financial plan, which was adopted by this commission about a year ago.

This slide shows that the short-term rate increases,

which as you can see from comparing the last two columns on the right,

have improved despite still being high.

Affordability was on our minds throughout the process.

So here you can see the 20-year rate outlook

plotted against our water and wastewater affordability targets.

In the short-term, rate increases are lower than we previously projected.

However, in the medium terms, rate increases are a little bit higher

and are projected to just exceed our affordability targets by a few dollars in FY2035,

coming back under those targets in FY2044.

In the long term, so right at the end of this chart, this picture has gotten better.

In 2046, the average bill will be under the affordability target

and nearly 5% lower than we previously projected.

The story here is that in the short term, we're looking a little better,

a little worse in the medium term, but ultimately better in the long term.

I also wanted to point out that there was a slight error in the materials

that were provided to you on this slide, which I've corrected here.

In FY46, the bill was actually $512 in the prior projection versus $490 today.

So it's a bigger improvement than what is shown in your materials.

I want to also add that providing this type of 20-year rate outlook and having a formal affordability policy to guide our decision-making is very rare in the utility industry.

And it's something that we're extremely proud of transparently showing here today, despite the fact that it's obviously telling a very difficult story.

So moving on to Hetchy Power, the picture is more positive.

Short-term rates are substantially lower than they were previously projected.

And there's little change in the long-term outlook.

This is despite vast changes in the energy markets.

8,000 Hetch Hetchy power customers will continue to pay the lowest electricity rates in the city.

And then in Clean Power SF, there's even better news.

As Zen is mentioned, on January 27th, the commission will consider a 20% to 25% reduction in Clean Power SF generation rates.

Assuming this is adopted, this significant reduction will go into effect on March 1,

benefiting over 380,000 Clean Power SF customers in the city.

Am I running out of time?

Keep going.

Because we've got a lot to get through.

This reduction is possible because we've built up enough reserves in the enterprise to be able to cut rates and remain competitive with PG&E.

So putting all this together, we know that the rate increases for water and wastewater are high, and we've done everything we can to mitigate this.

We'll go into this in detail.

However, taken together with the Clean Power SEP rate decrease,

we are proposing that the average customer who gets their water, sewer, and power services from us

will actually only see just shy of a 3% increase in their overall utility cost next year.

This is actually slightly below projected CPI inflation.

So this is a piece of good news when utility bills and affordability

are so front of mind in the nation's discourse right now.

Okay, so now that we know this outcome on the rates,

we need to take you through how we got to this point

and the balance of the challenges and priorities that I described.

So first I want to reorient you to the key legal frameworks

that influence how we put our budget together

and ultimately set rates.

San Francisco's charter lays out in specific terms

that rates are intended to support the operations,

maintenance and financial needs of the system, and specifically to maintain a high credit rating,

all things you'll be hearing about today and in the coming weeks. Additionally, Prop 218 dictates

how we apportion costs and rates across our customer base. The core idea is that as a customer,

you pay for what it costs to serve you and nothing more. Importantly, one customer class can't pay

more to subsidize another, and this means that we are quite limited in the ways that we can offer

discounts to low-income customers, although we do that, and we'll touch on that later.

Next, I think it's worth considering the time we're at in history, particularly for wastewater,

is a point in history that represents decades of converging pressures in the utility sector.

Most major utility systems serving San Francisco were constructed 40 to 100 years ago, in some

cases even longer than that, with substantial federal assistance in the post-war era.

In the 1970s, there was a lot of federal investment that came as part of the Clean Water Act,

which enabled us to modernize and upgrade our wastewater systems.

These systems are now reaching the end of their useful lives, creating unprecedented investment needs.

And now that federal funding for the original construction has largely disappeared,

with the limited availability of grants and low-cost loans, which still have to be repaid.

Since then, we have shifted to financing projects locally.

We've completed generational upgrades to our water system,

and we're now undertaking similarly massive investments in our sewer infrastructure.

But costs have increased dramatically.

Regulation is more complex,

and the climate change is creating new demands across all of our systems,

and it's on local ratepayers to shoulder these costs.

This is not a challenge unique to San Francisco.

Water and wastewater utilities nationwide face the same fundamental issue.

Infrastructure built with federal support must now be replaced with local resources,

and in turn, water and wastewater rates everywhere are rising faster than inflation.

Affordability is obviously a major issue on everyone's minds at the moment.

Utilities are in the headlines because utility bills are getting more and more expensive

as infrastructure needs to be replaced.

Utilities are facing new regulatory pressures and climate change without that federal support.

These are just some excerpts from recent headlines from across the Bay Area and the country

showing that rate hikes are happening all over.

And then the EPA, or at least the EPA that wrote this report, which was published about a year ago,

has acknowledged that after many decades of relatively inexpensive water and wastewater services,

I quote,

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 70s.

Affordability is one of the more difficult and multifaceted issues facing EPA in the nation today.

So in sum, this commission is not alone in facing these challenges and difficult choices to raise

rates. The affordability of drinking water, wastewater, and stormwater management is a

serious concern across the country today. Before I hand over to Anna, I did want to

end on perhaps a slightly more encouraging note. I mentioned already that reductions

in Clean Power SF's bill will help offset the impacts of water and wastewater rate increases

on San Francisco customers. Here is a comparison of our proposed average bills versus St. Pierre

California utilities. As you can see, even with the rates we're proposing for next year in this plan,

San Francisco bills remain in the lower to middle end compared with some of our peers.

I'll also point out that some of these bars are based on this year's rates because we couldn't

find information on the proposed rates for next year, so it's likely that come July we will look

comparably even better. So with that, thank you, and I'll hand over to Anna.

Thank you, Laura. Good afternoon, Commissioners. Anna Dooning. I am the budget director here at

the SFPUC. So you got a little context on what's on our proposed rates, how this is a nationwide

issue, and I want to bring it back to what's happening specifically in San Francisco and the

SFPUC today. So why do we see high rate increases today? First, critical upgrades to our aging sewer

system are the primary driver of the largest rate increases in this budget and in the years ahead.

That includes debt payments that are just now coming online for major projects such as headworks

and biosolids, which are nearly complete, as well as upcoming capital costs for new projects that

were required to complete because of state and federal mandates. Meanwhile, the cost of doing

business here is high, and the customer base in water and wastewater is not growing at a rate that

allows us to spread out these costs.

And again, all of these costs are borne by local rate payers.

We've made significant updates to our capital plan.

You'll soon hear more about this.

But this year, it resulted in a $12.5 billion

10-year capital plan.

Initial proposals to that plan, which I previewed for you all

in December, were nearly $16 billion.

Increases were driven by inflationary pressures,

more realistic cost estimates, a more thorough inventory of all of our capital needs, as well

as new investments in power.

But we knew that a $16 billion plan would require unsustainable rate hikes, specifically

on the water and sewer bill.

And through reprioritization, deferrals, the ultimate plan came down by over $3 billion.

This slide highlights one of those major cost pressures in our capital plan, construction.

San Francisco holds the unfortunate status of being the second most city in the world

in which to do construction.

You can see here we're just behind New York City.

Demand and usage are also a key input into our models that ultimately determine rates.

On the water and sewer side, updated estimates show water usage is slightly lower than our

prior projections which put further input pressure on our rates and in power

delayed redevelopment schedules meant rates were slightly higher than our

prior forecasts in the medium term but major customer acquisition projects in

our longer term forecasts ultimately drive rates down there so despite all of

these challenges throughout this entire process we have taken meaningful steps

to constrain costs we've reduced all of our operating budget proposals from

around $50 million initially to around $35 million now.

As we've mentioned, our capital budget went through multiple rounds of scenarios.

And what we arrived at represents rigorous reprioritization and a series of trade-offs,

more of which you'll hear from enterprises in the weeks ahead.

As has been alluded to, one thing we are excited to share today is that despite all of this,

Taken together with some of the power rate changes, the average San Francisco rate payer

will only see a 3% increase in their bill next year, and that is below inflation.

And I want to say this slide does contain an update to the slides in your initial materials.

There are 8,000 touchy power rate payers.

Other upsides in the budget and the plan before you.

The creation and sustainment of nearly 40,000 local jobs, many environmental benefits for

for the San Francisco Bay, and investments that bring us closer

to a clean energy future and that diversify our water supply.

Finally, I want to share with you our ongoing commitments.

First, you can count on this financial strategy team to continue

to carefully manage the agency's finances

and pursue every opportunity available to bring costs down.

We will continue to offer discount programs on every bill

for our low-income customers.

course, we will be transparent every step of the way. This hearing is just one of many

opportunities to connect with stakeholders and the public about our capital and financial

plans. And with that, that concludes the introduction to this. I'm going to dive into our operating

budget proposal. You will hear about capital, and then I'll move on to financial planning

and debt. All right, so reminder, we have an operating budget and a capital budget.

they overlap. So just first on the operating budget. Here is a snapshot of the operating

budget as proposed. This is what it would look like in two years with the proposed changes.

The categories in the slide you've seen before, capital continues to be the largest cost driver

in our operating budget. And that's due to both debt service on capital as well as revenue that

we use from our operating budget to directly fund our capital program.

This next slide highlights budget growth from the current year.

That's the bar on the left, where our operating budget is around $2.1 billion,

and it growing to over $2.3 billion, again, driven by growth and our capital costs.

This slide here breaks down that growth over the two years.

So each bar represents a budget category and how much it is changing from the current year budget.

The first line is debt service.

That is growth in debt service over two years

as we issue more bonds to pay for our capital program.

The second line, $56 million of the next two years,

is cost of living adjustments on current staff salaries and benefits.

That's before we add any new people or change anything.

Those are the citywide costs.

The next line here in purple is what we're calling new proposals.

These are changes to the budget driven by individual enterprise and bureau needs,

and each of them will highlight those changes in their forthcoming presentations.

I want to just highlight here a little bit more detail in salary and benefit growth.

So again, this is based entirely on current staffing levels,

and these are consistent with estimates of citywide growth in both salary and wages as well as benefits.

Healthcare in particular is increasing at much higher rates in the years ahead than it did in previous years,

about 9% annually versus around 6% to 7% in previous years.

New proposals, which again you will hear about in more detail, are largely operating costs

to sustain existing services or in some cases operate new facilities or respond to new customer

demands.

I also want to highlight that we made an intentional effort this year to shift the cost of ongoing

community programs back into our operating budgets.

Some of these programs relied on add backs from the Board of Supervisors and were unpredictably funded from one year to the next.

So a few bureaus today will highlight the programs that now show up in their annual operating budgets.

New proposals also come with a limited set of new FTE requests.

A total of 37 new permanent FTE is proposed in the upcoming budget,

of which the majority are filled by current temporary employees,

but in ongoing operational roles.

So transitioning the temporary funding to permanent results in an FTE count increase.

And with that, I will conclude the slides about our operating budget,

and I'm going to hand things over to Trey Hunter,

who is our capital budget manager, to talk about capital.

Hi, good afternoon.

Trey Hunter, Capital Budget Manager, delighted to be here with you.

So before we get into the capital budget and the 10-year CIP, this is just a reminder of

what the Capital Improvement Plan is.

It's not only a good financial planning tool, but we're also charter mandated to bring an

updated CIP to every two years. It's a long-range forecast of our capital investments. It includes

high-level project categories that roll up from individual projects. The first two years of the

capital plan are what is in the capital budget. This year's process and really the past four to

five years of the process have been guided by the agency's capital planning improvement initiative.

This year's process started back in January.

Some of you will remember that last year at this time we brought forward the award that we won for our agency's capital planning improvement initiative.

It's really an internationally recognized program that's been recognized by the Government Finance Officers Association with an award for excellence in the way that we do our capital planning here at the PUC.

This process included new guidelines, budget instructions, and scenario modeling, and enterprise-specific resource planning and prioritization models.

The ultimate result was the $12.5 billion capital plan that we're beginning to present before you today.

So the last full update to the CIP that we brought to you was two years ago.

This is what changed.

First, we've got the capital planning improvement initiative process that was more thorough than ever,

revealing more accurate and, in many cases, higher costs, including inflationary costs and previously planned projects.

It was also a more thorough assessment of our system's assets and the investment needs due to aging infrastructure

and emerging regulatory and climate challenges.

Through much of the back and forth, the plan was ultimately reduced, largely through strategic project deferrals.

In water and wastewater, which we focused on because their rates are most sensitive to capital costs,

this meant deferring projects beyond the 10 years while maintaining regulatory and level of service goals.

This plan is greater than our last CIP that we brought to you two years ago.

However, most of the growth is driven by the power enterprise and includes some major new

projects that you'll hear about in the coming weeks.

You'll see that in the water and wastewater enterprises that the plan has actually shrunk

from what was proposed two years ago.

This slide shows a breakdown by enterprise of the major projects that are in this 10-year CIP.

Similar to the process two years ago, nearly half of all the costs in the next 10 years are in our

wastewater enterprise. The table on the left does show the largest projects within each enterprise

funded in the 10-year period. The single most expensive project by far is the nutrient reduction

project and wastewater, which is responsive to regulatory requirements aimed at reducing

the environmental impacts of discharges into the bay.

That project alone is $1.5 billion total and is at the top left of this slide.

Looking now at the two-year budget, which will be adopted along with the operating budget

and the 10-year CIP, you'll see that we were actually able to repurpose prior year funds

and recalibrate delivery capacity to reduce requested appropriations in the next two years.

So the bars that are on the blue there on the right, that's what we brought to you two years ago

and said that we thought this year's two-year budget was going to be.

What's being proposed are those bars in the yellow.

We're really proud of a lot of the work that's gone into this by really hundreds of people in this agency

to bring those costs down.

So in summary, this 10-year plan represents the most detailed and thought-out planning effort

the PUC has undertaken to date, and many trade-offs were made along the way.

The two distinct portfolios are projects in wastewater and water, which are responsive

to regulatory mandates and make investments in critical infrastructure renewal, and in

power, which largely includes strategic investments for San Francisco's clean energy future.

So with that, I'll turn it over to Erin Korvanova, our financial planning director, to discuss the 10-year financial plan and talk about how we're going to pay for all this.

So thank you, commissioners.

The financial plan is mandated by the charter.

It goes out 10 years, but I'll say that our team has consistently been extending that

timeframe to really look at the full scope of the projects that we're trying to do here

at the SFPUC.

It's where everything comes together, the operating budgets, the capital plans, our

financial policies, and says, what rates do we need to set in order to afford all of this?

We use that information to go back with staff and run iterations.

It's a careful balancing act, thinking about the regulatory requirements, the needs of

our system, the needs of our customers, and affordability.

Crucial for our financial sustainability and credit ratings, the plans we're proposing to you exceed our financial policy minimums, sometimes by quite a bit.

Our debt service coverage policy, which says you must have sufficient revenues in order to meet your obligations to your revenue bondholders, is minimum of 1.1 times current coverage, and all the plans are over 1.22 and sometimes up to 7 times current coverage.

Our fund balance reserve policy requires a minimum of 25% of annual operating expenses.

All plans exceed that by at least 10% in every year.

And our revenue-funded capital is required to be at least 15% to 30%.

Overall, the plans are at 29% funded by pay-as-you-go funds instead of debt.

We try to plan conservatively.

If we have to revise our rate forecasts, we would always rather revise them down.

So this means that when given a choice between two options, we're going to assume that expenses will go up more than we project, so that hopefully we can come back with better news at a later revision.

I don't want to go into too much of the detail because you've already heard a lot, but I do want to highlight some of the key drivers of our financial plans.

First, looking at water and wastewater.

Both of these plans are driven by water sales volumes because our wastewater rates are also based on water sales, metered water sales.

We have lowered our sales volume forecasts.

The graph shows our wholesale volumes are coming down from our prior forecasts, and

our retail volumes are very slightly lower.

This is based on draft estimates from our water supply planning folks that our finance

team adjusts down to be more conservative.

If water sales were to rise over our forecasts, we would collect additional revenues, which

we could then use to reduce rates in future years.

We also have higher costs.

Anna mentioned the higher fringe benefit escalation that is increasing our health care costs and across all of our enterprises.

And the real driver is really the capital improvement plans.

For water and wastewater, while the costs have come down, some of the wastewater costs have been moved up,

so the rates need to go up faster.

It's more front-loaded in the 10 years in order to cover those costs and make sure we can deliver those projects on time.

turning again to the same graph you've already seen showing the 20-year forecast of the combined

water and wastewater bill the table on the right also shows our forecast of the rate increases for

the 10 years of the financial plan and i've boxed and bolded the years that we are planning to adopt

this spring it's important to note that every rate increase after that is a projection we'll be back

before this commission to talk about what those rate increases are and they will be updated with

the best available information. But we don't want to hide the ball. We want to truthfully state what

we think might happen here in San Francisco to people's bills. The line on the chart shows our

affordability policy, and our goal is to keep that bill under the line. As you can see in the graph,

we do exceed it in the current plan by fiscal year ending 2034, but a huge accomplishment that's been

a lot of work was to bring down our CIP in the long run so we can reduce rates and bring that

bill down under the affordability target further out in year 2045 of the plan. We have a lot of

places to go. We will always continue to try and improve on this because we know that this still

represents a very significant bill for a lot of our customers. Turning now to Hetch Hetchy.

Hetch Hetchy is also impacted by its volumetric power sales. And one of the things we've done in

this plan is we have revised down our short-term assumptions of load growth. Hetch Hetchy serves a

lot of customers in redevelopment areas such as the bay side, Hunter's Point, and Treasure Island.

Construction schedules have been delayed in many of those projects so we have slowed down the rate

that we think those customers are going to come online. The other thing I'll note here at the very

end of the Hetch Hetchy plan you can see a jump up in their projected power sales volumes. That's

really driven by new customer acquisition. A lot of the projects in their capital improvement plan

that they'll talk to you about are to build out the infrastructure to serve these new customers,

and it has a big impact on the bottom line. Power supply costs, although we serve a lot of our own

supply through our Hetch Hetchy hydropower generation, we are also exposed to the market,

and power supply costs have come down in recent years from our prior forecasts, so that's helping.

Here's what that adds up to.

Again, on the right, you've got the forecast of the retail Hetch Hetchy power rate increase.

You can see that we're proposing one year of rates for adoption later this spring to the commission at 7%.

And then the rate increases are around 6.5% and 7% until they drop down in the later years of the plan.

Those lower rate increases are because we have significant new load growth projected.

When that load comes online, it's more customers to share in the cost of HetchHetchy, and it helps keep everyone's bills down.

It's really important for us that we make sure that new customers pay for the cost to serve them.

Moving to CleanPower SF, this graph is showing the dotted line there in the middle is separating historic data from our forecasted data.

I wanted to highlight this because CleanPower SF, since its power supply, is almost entirely driven by market prices, power supply costs.

As you can see on this graph, our supply costs increased from about $211 million just five years ago to projected at $380 million today.

That sharp rate increase has been something that Clean Power Staff has worked very hard to manage around.

And luckily, we're forecasting that a lot of the market disruptions that came out of the war in Ukraine and the pandemic supply chain issues have leveled off, and we are forecasting a more flat power cost increase over the next few years.

This is helpful because we're also facing a difficult competitive environment.

We'll talk more about this at the next regular commission meeting, so I won't go into too much detail.

But PG&E is forecasting changes to their own rates as well as fees that are charged to our customers that would put our customer bills higher than PG&E.

Both because our costs are lower and because we wish to remain competitive with our investor-owned utility, we are projecting a rate decrease, which is shown here on this slide.

So on the left side, we have, and I don't want to go into too much detail because Clean Power Ceph's bills are quite complicated, but on the left side, we have the comparison of Clean Power Ceph, that's the bar with the green on top, versus PG&E bills, that's the bar with the blue on top.

and these are each at different points in time.

So we have July, which is the beginning of the fiscal year.

On average, our residential customers were just slightly above PG&E.

In January, with those rate changes that I mentioned that PG&E has put into effect,

our customers are now significantly higher than PG&E bills,

although our rates have not changed at all.

It's entirely due to parts of the bill that are beyond our control.

The third set of bars shows the projected 25% rate decrease for our residential customers.

It would range from 20% to 25%, depending on your customer class, which brings us down closer to PG&E and gets us through the rest of the calendar year.

Come next January, we expect some of the one-time adjustments to PG&E's bills to go away and put us back on what we think is a more sustainable, long-term, competitive environment.

And with that, I will turn it over to the last presenter.

Good afternoon, Commissioners.

Nikolai Sklaroff, Capital Finance Director.

You've heard already in the presentations

that debt is a significant component of the budgets going forward.

And that's not surprising because debt is what is left after you make the decisions many years later.

As you know, we have about $11 billion of debt outstanding,

and that reflects the investments that we've been making over a number of years.

We'll be issuing in the plan about a similar amount of debt, and we'll talk a little bit more about that.

But why do we issue debt?

Sometimes in meetings like this, people cavalierly equate our borrowing to a credit card.

And I'd highlight that it's very different than a credit card.

Our debt is one of the most important tools that you have as commissioners for managing rate impacts.

We're investing in multibillion-dollar projects.

And while we could set rates to have our current rate payers pay for that infrastructure, those rates would be extraordinarily high.

And it would be unfair to retirees, to the many people who move in and out of the city, to make them bear that cost all at once.

And so the borrowing is a tool that we use to spread the cost over the users of those assets over the next 30 years.

And we could even, for some of our longer-lived assets, borrow for longer periods.

So the debt is an important tool for managing the impact on our ratepayers.

Our debt is also a tool that allows us to accelerate our projects at a lower cost.

One of the most important costs that we're facing on all of our capital projects, and this is true of all utilities across the country, is a cost of construction inflation.

We get our projects started with low-cost tools like our credit facilities that allow us to award contracts at between a quarter of 1% to less than half a percent for those facilities.

We then borrow on our commercial paper program.

We just locked in six-month rates at less than 2.75%.

So with construction costs of 4% and higher, we're actually saving money if we get those projects going without delaying them.

In addition, we are creating equity.

Again, the spreading of the costs among the people who will actually be using those facilities and building that into our rates.

So while, yes, debt is an important cost, the key decisions you'll be making over the coming weeks are not related to the debt,

but the fundamental spending that the debt is helping to facilitate.

In our capital plan, we continue to make conservative assumptions of 6% for long-term debt.

It is always our objective to find the lowest cost of funds in the marketplace.

Bear in mind that we've just earlier this year drawn on some of our large WIFIA loans at a 1.45%.

So much less than the cost of inflation.

And in some sense, by paying back in future dollars,

we're paying less than we actually borrowed in real dollars.

One of the things that we've tried to do with this plan,

as we tried on our last plan two years ago,

is to wean ourselves off of the need for capitalized interest.

This is much further down in the future in the plan,

but we have historically, as an agency,

assumed that we are going to borrow the interest for the first two years in that CIP.

That raises the cost of our borrowing by 7% to 8%,

And by weaning ourselves off of that, we can reduce the amount of borrowing that we require.

Interest rates have continued to evolve as each time we come to you, the interest rate picture changes.

As you all see in the news, and particularly this morning's news, the Fed is under a lot of pressure to reduce rates.

rates, it's important to highlight that that doesn't translate directly into our long-term

borrowing costs.

It is very related to our short-term borrowing costs, the commercial paper program.

But the relationships between long- and short-term rates have changed.

And as you can see, while short-term rates have gone down, there's uncertainty on the longer-term rates.

Erin and her team do an amazing job bringing all this information to one place and helped to develop the 10-year plan for debt issuance.

As you can see, we have some significant debt issuance in the future.

I think it's important to emphasize a plan like this is a tool.

It's not predictive of the future.

We hope in all cases to improve on this.

So, for example, where you see billion-dollar transactions in one year,

it's likely we would come back with recommendations to break those up to further reduce the impact of those.

But this is what it translates into.

The blue here on the chart reflects the debt service we've already undertaken,

and the gray represents the debt service that we would undertake assuming a 6% interest rate.

The current rate is about 4.25 on a 30-year transaction,

So that gives you some sense of the conservativeness of these long-term projections.

But, of course, we don't know what those interest rates will be over the next 10 years or more.

The other thing to emphasize here is that one of the few things that I can say with absolute certainty

is that these lines won't remain exactly the same.

because of that conservativeness, but also just the way we will issue debt with each individual transaction.

Basically, we'll come in with a trowel, and we'll try to smooth those out.

So with each transaction, we'll look for refinancing opportunities,

and then we'll flatten out the impact on our rate payers.

This is the impact on power, and as you can see, a significant increase in debt here.

So I mentioned refinancing.

It's easy to understand, anyone who has refinanced a mortgage, why we have refinancing opportunities.

But it's also important to understand that the municipal bond industry is very unique in the way we structure our transactions.

we don't rely solely on rates going down to have refinancing opportunities.

Now, we have benefited as an agency from this very prolonged drop in rates,

but more recently rates have gone up since the COVID pandemic.

They're now aiming to come back down this year.

But let me just explain this very briefly,

and we've talked about this at previous meetings,

our borrowing is similar to your mortgage

in terms of borrowing for 30 years,

but it's fundamentally different in that each maturity,

each year for the next 30 years,

we're selling bonds to different investors.

And the short rates will be sold

to certain types of investors, the longer rates,

the longer bonds to different investors,

each at progressively higher rates.

And that creates this curve that we refer to as a yield curve.

If we simply move that yield curve forward 10 years,

as we have here on the chart,

you'll see that in 10 years,

we can refinance the 11-year bond at a new one-year rate, the two-year bonds, and so forth.

So we don't strictly rely on changes in rates.

Obviously, when rates go down, that benefits our refinancing.

But it means that we can assume that over time, some portion of our debt will be refinanced.

In fact, we have no bonds outstanding from 30 years ago.

We don't have any bonds from 20 years ago that are still outstanding.

They've all been refinanced over time.

And so we can predict when those are coming.

We can time our new transactions around those, create some economies of scale,

and are always looking to refinance costs.

I happen to be a rate payer because of my family's situation.

I pay multiple bills, so I'm as motivated as anyone to bring those rates down

and find these refinancing opportunities.

We have multiple refinancings in progress or identified for the coming year.

We will be back to you in February with the first of those and in June with the largest ones.

We have a request for proposals on the street right now for modeling those.

The last thing I'd like to speak about is ratings.

As has been mentioned already, the charter requires us to set rates to maintain high ratings.

That's generally AA or better.

And an important consideration throughout this planning process has been protecting those rates.

As you know, in the summer of 24, when we were issuing wastewater bonds, S&P surprised all of us by putting a negative outlook on our bonds.

At the general manager's direction, at the next financial plan, we all worked very hard to improve those metrics to ensure that before we came back with water bonds,

We had better metrics for bringing debt.

This plan improves on those further.

I would caution that as people talk about this budget,

that the things that you say are very important to the financial marketplace.

make decisions about spending funds,

but always show your commitment to paying those obligations.

That will be very important,

and that has been specifically called out in their rating reports

as an important consideration for the SFPUC.

So with that, I'll wrap up my comments,

and we look forward to answering any questions.

All right.

Thank you, Mr. Sklaroff.

Okay.

So last couple notes from finance,

and then we'll hand it over to the bureaus.

The proposed budget, our capital improvement plan,

and our rates were all developed

as part of a disciplined budget process

that balances operational needs,

financial sustainability, and rate affordability.

In our operating growth, we aim to limit growth

to needs aligned with SFPUC priorities.

The capital budget reflects unique considerations within each enterprise, and water and wastewater

stringent prioritization reduced short-term rates versus the prior projections, and does

bring rates below affordability targets in the long term, despite medium-term increases.

Despite the changing power sector landscape, short-term rates for HETCHI and Clean Power

SF are lower than our prior projections, and the overall utility bill for the average SFPUC

customer is just 3% next year.

We will, like I said before, continue to find opportunities to limit rate growth through every tool available.

So more details about the content of the budget is headed your way shortly and in the weeks ahead.

With that, our financial strategy team can answer questions now about the overall process, rate setting, how we put together the budget, and then I will turn it over to our Bureau AGMs.

Thank you, Ms. Dooning.

Thank you, Ms. Bush and Ms. Corvinova, Mr. Hunter, Mr. Sklaroff for all your work and

to our general manager, our CFO, Nancy Hum, thank you for the presentation and all the

hard work and, of course, everyone across the agency who worked to get us to this point.

I've got some thoughts and a couple of questions, but I'll defer to colleagues first for commission

discussion.

that wants to jump in on the stack at the commission with any feedback thoughts questions

for staff commissioner thurlow yeah thank you so much for the presentations they are super helpful

um one thing that i don't know if it's germane today today's discussion or if it's something

that we would dive into when we're talking about water in particular is um uncertainty around the

demand projections. And to what extent do we, did we consider alternative impacts on rates,

which I'm sure you did, but I think it would be helpful to kind of get a vision of that,

given that the major projects that we're funding are kind of inflexibly financed.

How do we accommodate a scenario and what are the range of uncertainties associated with the

demand projections. And I think about that because even from last year to this year, it seemed like

they were reduced by about 10%. So just kind of wondering where we are in terms of the likely

future scenarios or if we have visibility into that. Yeah, we can definitely bring back more

information about that. At the next hearing where we actually adopt the financial plan, we'll make

sure to include some slides on that. I think at a high level, what I would say is there is huge

uncertainty about this, and because our rates are highly volumetric, that does mean that how much

water we sell drives our revenues. We have a variety of tools to mitigate this. I'd say the

two key ones are we try to forecast conservatively. So if given the choice of several scenarios,

we'll pick the lower one. Don't bank on growth. Assume less volumes. And that means that if there

is higher volumes than we project, then that's additional revenues we can use to reduce rates in

future years that are not adopted. I think the other key feature that we use to deal with that

uncertainty is we don't adopt rates for a very long period of time. Our wholesale rates, which

have the highest volatility, we only adopt for a year out, and that contract with our wholesale

customers includes a true-up mechanism that has us go back and recalculate after we know the actual

volume. So it has built-in functions that help deal with that variability, and we'll bring back

more information on that, too.

Thank you, Commissioner.

Commissioner Jamdar.

Thank you again for that presentation,

and that was very informative.

I'm still trying to correlate the sort of rate increases

with the capital project costs.

It seems on the sewer, the wastewater rates

seem to be exponentially higher than the water rates.

Is that because of higher capital project costs

on the wastewater side or other sort of expenses?

Yeah, if you go back to the slide

where we had the pie chart of the capital plan,

half of the $12.5 billion plan over the next 10 years

is in wastewater,

and that is what is driving the increase rates there.

Yeah, okay.

And that's not the nutrient project?

And the largest project in that plan

is the nutrient project,

and the largest project both for wastewater and the entire plan.

So I think it's simplifying things, but if we were to simplify what is driving wastewater rates

in this kind of medium term, that nutrient project is a huge contributor, along with other projects.

The one additional thing I'll add is that on our water side,

since we do have both wholesale and retail customers,

those costs are spread out over a much larger customer base,

whereas in wastewater it is just San Francisco.

So it's both bigger dollars and fewer customers paying for those dollars, which means higher rate increases.

Thank you.

Vice President Leveroni.

Thank you.

Thank you for all the teams that put this great report together.

A lot of information.

Appreciate it.

And thank you for all the insights today.

A couple of questions.

One, I don't quite understand the 3% possible decrease if a resident is using clean water and all our services.

How does, and I was looking at the number, was like 8,000 people only, or am I missing that?

Was it 350,000?

So the 8,000 you're looking at is our Hetch Hetchy Power customers.

So the 3% increase statistic is not looking at them.

It's looking at the majority of people in San Francisco who take service from Clean Power SF instead, most of our residential customers.

So the way we calculated that is we looked at, and if you were to go to the bill slides that show the graph,

we took the current fiscal year water and sewer bill and the current fiscal year as of January Clean Power SF bill there shown as $104.

and then we compared to our projection for that same customer as of July 1st.

So in the case of water and wastewater, that does include that pretty significant increase,

but in the case of our Clean Power SF customers, that does include a 25% decrease in the generation portion of the bill.

So if you add up the total $104 for Clean Power SF plus, I'm forgetting off the top of my head,

the water and sewer combined, and then compare the percent change,

it is a 3% increase in that time frame, bottom line.

Okay. And then CleanPower, how many customers are not on CleanPower SF that would be able to, if they were on it, achieve this discount?

Or is everyone?

So the way CleanPower SF, like all CCAs, operate, right, is that you are automatically enrolled into the CCA unless you choose to opt out to PG&E.

And then there are a certain number of customers who have Hetch Hetchy power just due to the geographic location they're in.

And then there are customers who are direct access customers and otherwise have service.

I'm going to get the number wrong.

And I'm 4%.

We have about a 4% opt-out rate from customers who are eligible for Clean Power Self, which is one of the lowest of any CCA in California.

Okay.

Great.

Thank you.

And now just kind of moving on to the bonds.

On the bonds, I'm looking and saying

that we probably are going to plan a refi,

possibly in the next 12 months, thereabouts.

And last year, you did such a wonderful job

and was able to save a significant amount,

I'm going to say, of dollars that would be reduction in debt service costs.

However, would it be fair for me to say that that reduction then goes back into,

that we don't really see the reduction, we see it help another project coming online?

How does that correlation work?

Certainly.

Commissioner, thank you for the question.

We do have several refinancings in progress.

The first ones that will come to you in February, at the February 10th meeting,

will be a combination of refundings for savings, a very significant savings for our power enterprise,

as well as risk mitigation, further reductions of our federal subsidy reliance,

which also happen to continue to generate cash flow savings for us.

So those are future reductions in the debt service

that will lower the cost of the debt service that you saw projected.

So now, because we are continuing to issue more debt,

it won't lower our rates,

but it will reduce the amount of new borrowing that's added on top,

and that will reduce the rate impact in the future.

So that analysis is already built in?

No.

Commissioner, we do not assume any refunding savings in this projection,

so all of those refinancing opportunities represent potential reductions in the future.

Okay.

And if we were to receive a reduction going forward, which we were hopeful, that's why we're doing the refinance, how would we reflect that?

Just it might not be an answer now that I need, but how would we reflect that in the budget going forward?

That here was our budget that we approved.

However, in April and May, we received this type of reduction.

I was just trying to get an idea on how it flows into the process.

So for example, we are expecting that we will present to you

in about the June time frame a refinancing opportunity

for wastewater, a very significant refinancing

opportunity in combination with expected new borrowing

for wastewater.

that future debt service savings would then be reflected moving forward in our plan.

So we could not really use that then if we were saying, you know, we're going to anticipate potentially we're going to try to have a goal of saving $56 million,

or whatever the number could be when we think about our refinancing,

to be able to say that dollar amount could reduce rates.

If I might just – the reason for not doing it is because we don't know with certainty

that that refinancing will happen.

First, you haven't yet improved it.

and secondly because interest rates may change in the future.

And then I think we've had some refinancings over the last few years

that we do reflect in this current plan once they've been fully executed.

And what that does is it reduces your future debt service.

We can use those savings in lowering rates for future years.

We can use the savings to shift more of our funding into revenue-funded capital

instead of issuing more bonds, helping to reduce our debt burden over time.

We take the bottom line and balance it out.

You'll also see if we were to do a refinancing,

and we've already set the budget for the next two budget years,

you would see those savings on our quarterly budget reports

as we come to this commission with those.

Okay. Thank you very much.

Commissioner Thurlow.

One of the other questions reminded me that when we look at the comparison of San Francisco combined water and sewer rates relative to other municipalities, it seems like the water rates are low, which makes sense because the water volumes are low, probably comparatively.

but then the sewer rates seem to be a significant portion.

And I'm wondering, is this intrinsic to the type of system that we have?

Is it already because of capital improvements that have been made?

I'm just trying to get a sense of what are the big cost drivers there.

Yeah, absolutely.

It's a mix of things.

I'd say key among them is that our sewer system is a combined sewer system

that treats both stormwater and wastewater.

And so we do have those additional costs to manage the stormwater runoff that our system has to bear that perhaps other utilities across California would not have in their wastewater rates.

So we are getting more for our money in some sense.

I also think it's about sort of where in the life cycle each utility is in their capital planning.

We've made significant investments already.

All the work that's happening at our southeast treatment plan, I'm sure many of you have visited it.

there's huge investments there to renovate that that we are seeing in our rates because we're

really starting to pay for those right now in addition to all the big work that's to come.

Vice President Leveroni.

Just trying to get a historical perspective. There was the comment on 1998 there was a rate

freeze that set us back. How long did it set us back when that occurred? Is there a timeline on

that, or was it a one-year rate freeze, or was it a 10-year rate freeze?

So I don't remember how long it was originally supposed to be in effect for, but there was

another ballot measure in 2002 that was passed that lifted the rate freeze and actually set the

entire framework for setting rates. So the very fact that we do these financial plans, that we

have a rate fairness board. All of these processes that are in place for transparency around our

rate setting process came out of that 2002 ballot measure that ended the rate freeze.

So that actually was a longer period of time when you consider how we're spending money now. That

was a fairly long period of time to have a rate freeze and not be able to do projects.

No, yes, absolutely. And that was one of the reasons it was lifted was that was a huge handicap

because we have to pay our debt service and costs are obviously going up during that time frame.

and it's just eating into a flat capped revenue that was extremely financially challenging for the agency.

Okay.

You should also know, Commissioner, that also led to some of the development of our relationship now with Bosca

because there was a movement at the legislature for some of our wholesale customers

that we weren't being good stewards of the system.

So there was legislative initiatives, and a lot of the relationship that we have now with Bosca

and the more formalized processes that are in place come out of what occurred as a result of the rate freeze.

Okay, great. Thank you.

And then just kind of a long-term question.

We have to keep rates affordable, and we see where we are here in the, I'm going to say short run,

but probably a little bit longer than a short run,

But then we see it get a little bit out of the affordability.

What do we do then?

Or I should say, what can we do now

that might help change this on page 44 where I see that?

Is there things that we're probably trying to do now,

I would think, that might, even though we don't see the effect

in the schematic that we might be able to?

Right.

So 20 years is a long time from now.

A lot can change.

And as you saw, we are adopting a two-year budget

and two years of rates, or just one year of rates for power,

because information is constantly changing.

And we're actually able to bring down rates in the short term

because we have the best information available now

to take advantage of the lowest cost financing opportunities

and contracts.

Everything we're doing now, we're trying to keep costs low.

So as each year, as we get closer to putting forth a budget and adopting rates, we're going to make sure we're taking advantage of the lowest cost possible.

Over the long term, we're going to be doing a number of things.

I mean, everything that Nikolai referred to in sort of managing our debt, we're going to be taking advantage of every low interest loan, applying for grants and loans.

We're doing a lot of work to try to be more creative in how we're managing our, putting together our construction contracts.

And I think, too, what we are trying to convey in talking about our CPII and our CIP development process,

we are trying to be much more transparent about the scope and scale of the infrastructure investments needed over the next 10 and even 20 years.

So when we show those rate increases in the kind of the middle term outside the 10 years,

that's because we know we have to continue making investments even beyond the 10-year capital plan.

And because we've now put those on the map, we can plan towards those

instead of then coming to the end of the 10-year cycle and saying,

oh, we have another $1 billion in investments we need to make in the next year.

We're going to constantly be planning and hopefully bringing rates down along the way.

That will be the goal.

Great.

Thank you very much for that information.

All right.

Thank you, commissioners.

The only additional thoughts I wanted to offer up was, again, an expression of gratitude to the general manager and to the staff,

everyone who's presented and who's worked on getting us to this point across the agency.

I know that many of us commissioners and certainly myself have expressed concern and consideration around doing everything we can for the rate payers and for the rate, especially maybe myself as a rate payer advocate seat on this commission.

and I want to respect that this is not a conversation about rates.

Obviously, today in front of us, that will come later,

but the way that this conversation has been structured

and our other budget conversations are about really with an eye toward the decisions we make around the budget

and the future impact that they're going to have on rates.

And so I want to speak very specifically to budget and the way that the budget has been presented.

I appreciate, especially having waved around the projections from last year around rates, looking at what's anticipated in front of us, the budget conversation today and the resulting rates are in a better place than they were a year ago.

So I want to acknowledge that and uplift that, especially in those first four years, which is where I know I've been kind of focused.

I do think that we are buying ourselves time with the budget that's in front of us

and the ability to provide some relief in those first years to the ratepayers,

I do think is the right way to go because it buys us time to anticipate,

hopefully, a more favorable federal environment with respect to systems like ours

and agencies around the country, with respect to construction costs

or the debt financing tools that are available to us.

And although there's that bump in the midterm,

I do want to note that in the long term, we do come back down to where we want to be below our affordability curve.

And I do want to co-sign on the importance of delivering the holistic utility proposal.

This budget will deliver overall roughly 3% increase when you look at customers who are in San Francisco, water, rate payer, and power customers.

So I think that's important to look at what it does to the whole household utility bill.

I know having – I've talked with the general manager about this.

We've heard from Mayor Lurie his belief in the importance of affordability.

It's the number one priority you all put out there today.

I just, again, want to express appreciation and think that what's presented to us is really the right way to go with an eye toward ultimately when we set rates.

With that, can we call a public comment, Ms. Lanier?

Remote callers, please raise your hand if you wish to provide comment on this item.

First up, I have Mr. Stephen Rinaldi.

Thank you, council members.

Thank you, esteemed commissioners.

This is Steve Rinaldi, Vice Mayor of Millbrae,

and I want to raise serious concerns about the Millbrae Operations Center Improvement Project.

At a whopping $366 million, more than a quarter billion dollars,

this is one of the most largest undertakings in SFPUC's capital plan, yet it's buried inside

the broader capital improvement plan, hidden amongst dozens of other projects, denying it

the individual scrutiny it deserves. This project has not been reviewed or approved by Bosca,

the Oversight Advisory Committee charged with protecting ratepayers' interests. Its sheer

duration, stretching nearly a decade, raises red flags about oversight. Long-time timelines

without clear mechanisms invite waste mismanagement and a loss to public trust do not be misled by

claims that have saying staff has met with milbrae that is not accurate milbrae will be seeing this

for the very first time tomorrow night i invite this board to attend that meeting because the

lack of transparency leads directly to a lack of trust and let's be clear burying this project in

and the CIP mirrors how SFPUC hid its RFP from Milbrae

under the guise of a nondisclosure agreement.

If they were acting in good faith,

they would have produced a redacted version

to explain the scope.

Instead, they chose exclusion, shutting Milbrae

out of the process entirely.

Meanwhile, SFPUC has advanced this project

without meaningful collaboration.

That shows no regard for the loss of jobs,

the strain on infrastructure, the displacement

of downtown businesses, and the resulting loss

of revenue for Milbrae's general fund.

Most importantly, it reflects a lack of fiscal responsibility for ratepayers funding the redevelopment.

And I must ask, how could SFPUC have the audacity to tell our city manager they were planning on shovels in the ground by October without going through Bosqua or consulting with our community?

Does SFPUC really believe it operates on an island, not beholden to the community it impacts?

For those reasons, this project must be halted until Millbrae is able to weigh in directly, Bosqua provides oversight, and a true win-win outcome is established.

As Assemblymember Papan...

Thank you.

Thank you.

Ann Schneider?

Ann Schneider?

Ann Schneider, as I said, Bosco representative.

Your budget document looks at financial sustainability as well as climate leadership.

As I know you know, 67% of the infrastructure getting water to your borders is paid by Bosco members.

So your question, Commissioner Thurlow, about why your water rates are lower is because we are subsidizing a good portion of that water delivery cost on that.

The slide that you had that showed the comparisons, you're one of the 13 big cities.

You get advantages that medium-sized and small cities do not get in terms of federal and state funding.

I know it because we're trying to build recycled water.

Our chance of getting a federal water bond or loan is much less than what you will get.

So when you put on the project like the vice mayor just mentioned, we're paying for that, but we're also, in addition, losing a million dollars a year out of a $41 million general fund.

So we're getting hit double whammy.

Now, I went and looked at your environmental justice code, and it specifically says to avoid and eliminate disproportionate impacts, SFPUC decisions and activities in all service areas.

The question is, are we your service area or not?

Your water rates are looking strictly at your water rates.

A better slide than comparing San Diego or Oakland is looking at the 26 member agencies and what our customers are paying on that.

And I would encourage you to ask for that slide as you move forward.

I'm going to give you one example, and I know my time is running out.

In another capital improvements, you are currently tearing and cutting down trees in Millbrae, breaking our tree ordinance, not going through our ordinance and building a retaining wall.

We are an under Justice 40 program.

We're at high risk to heat waves.

We're at high risk to particulate pollution because of SFO.

And we're at high risk of flooding, again, because of SFO.

What you are doing is now taking the cost of that retaining wall that's going to bounce sound, block water flow, and the trees that were cut down and putting that pressure on us.

Thank you.

Thank you.

I will say, it is America's 250th birthday this year,

and I need to say this as a native and specifically,

you are likening us to taxation without representation.

Thank you.

Denise Louie?

Denise is gone?

Okay.

Questioners, don't use the word affordability

like a cliché. Quality of life issues. Not once in this presentation have given us a

report on the quality of our reservoirs, whether they are clean or not, whether they are maintained

or not. In the Bayview, over 20,000 homes, the Bayview Hunters Point, muddy water. And

And I can go on and on, but the people at home and those listening will not like it.

His presentations cater to those

who are looking at our assets

in a materialistic manner.

All the water was catered by the indigenous people

for thousands of years.

Today, you take the clean water and flush the toilets.

What does that say about y'all?

There are privileged people.

It mostly goes with the skin.

They can do whatever they want to.

But the people of color who work hard for the SAP

SFPUC are targeted. And you all think this is a plantation.

Thank you.

Are there any members of the public present who wish to comment via remote caller?

Moderator?

Ms. Lanier, there are six callers who wish to be recognized.

Thank you.

Caller, your line has been unmuted.

You have two minutes.

Thank you.

My name is Rush Rem.

I'm a former resident of San Francisco, now resident of Redwood City,

which purchases this water from you.

What you do to ensure water reliability affects what we pay here,

and we've recently encountered a 21% increase for single-family dwelling.

Your presenters today have insisted that the SFUC is doing everything it can,

exploring every opportunity to keep costs down. So let me suggest one simple thing you could do,

and that is to take another look at your design drought and design drought return estimations.

A wealth of data is available, including 1,100 years of tree ring data and your own

long-term vulnerability analysis that leads to statistical studies that suggest a drought

return of something between 7,800 and 25,000 years. That is once in every 8 to 25,000 years,

8,000 years, this sort of drought might happen. So let me offer an analogy. You're asking us to

pay rates on future investment because we need to prepare for the possibility that it will snow

seven consecutive days in July in San Jose at some future date. The freezing weather will upset our

supply of water. Now that's possible. Heck, anything is possible. But your de facto policy

of reliability at all costs means that we will pay now for that unimaginable day when it snows

and freezes in San Jose or that your design drought, as currently understood, comes to fruition.

Now I listened to a presentation by Steve Ritchie in one of your meetings last year,

and he justified this design drought by saying we need to prepare for a drought of biblical

proportions. I suggest we don't need to go to the Bible, but to science. Have a workshop on the

design drought and find out for yourselves how off base it is and how that affects your plans

for construction, capital improvements, investment, and budget. I strongly suggest that if you really

want to keep your costs down, take a hard look at your design drought. Design drought.

We will pay for your failure to do so.

Thank you, caller, for your comment.

Caller, your line has been unmuted.

You have two minutes.

Eileen Boken, Coalition for San Francisco Neighborhoods, speaking on my own behalf.

Regarding the two-year capital budget, in the two-year capital budget for fiscal year 2425-2526,

On page 188, subheading number 5 is, and I quote, Auxiliary Water Supply System AWOS, a system of mains and 1,889 high-pressure fire hydrants independent of the domestic water supply built solely for the purpose of firefighting.

The system is supplied with fresh water by gravity from a reservoir and two tanks located at high elevation in the city.

End quote.

Once again, parts of this are dead wrong.

Twin Peaks Reservoir Ashbury Heights tank, Jones Street tank, provide only the initial water to AWOS, while the AWOS pumps provide the primary source of water for the system using salt water, not fresh water.

After 15 years under its jurisdiction, the PUC proves once again that it lacks even a basic understanding of how AWOS works.

And this reinforces once again the need to transfer AWOS from the PUC back to the fire department where it belongs.

Thank you.

Thank you, caller, for your comment.

Caller, your line has been unmuted.

You have two minutes.

Hello, caller, are you there?

Hi, thank you.

Coming off mute.

Hi, this is Mark Shehenian.

I'm a member of the Executive Committee of the Sierra Club here in San Francisco and an SFPUC ratepayer.

With regards to the budget, we didn't magically end up here.

We ended up here because of the SFPUC's decisions and orientation to building too much infrastructure to sucking too much water out of the watershed.

We at the Sierra Club have done extensive modeling, and thank you for the question earlier from a board member, that shows that water demand will drop, not stay flat, and certainly will not go up in the future.

staff has not properly prepared you or our city for that future.

The symbol of this lack of preparation is the new water temple being built at 2000 Moran Street.

It's a $400 million temple to the SFPC's orientation and spending habits. Rather than

build temples, we should be looking to protect the environment with increased flows of water.

namely for the Bay Delta plan and to protect ratepayers with decreased flows of dollars.

Thank you very much.

Thank you, Caller, for your comment.

Caller, your line has been unmuted. You have two minutes.

Thank you. Good afternoon. This is Peter Dreckmeyer,

Policy Director for Yosemite Rivers Alliance, formerly Tuolumne River Trust.

I'd like to remind you that your 10-year capital plan does not include the SFPC's

alternative water supply plan, which would add between $17 billion and $25 billion to the budget.

That's a whole lot of money.

The first rule for getting out of a hole is to stop digging.

It would be a huge mistake to invest in very expensive AWS projects that aren't needed.

Planning for obligations but building for demands might sound like a good idea, but

it's terrible for the environment.

Regardless of whether the SFPUC ever finds itself in need of more water, the Tuolumne

River will continue to suffer.

In the future, we'll look back and see that the water was never needed, but the damage

will have been done.

As I've said before, the AWS plan is a political document used to justify the SFPUC's opposition

to the Bay Delta plan.

The design drought is 19 times less likely to occur than what other water agencies are

planning for.

Valley Water and East Bay Mud are planning for the six-year drought of record, 1987 to 92.

According to the SFPUC's Long-Term Vulnerability Assessment, the return period for that drought is 420 years.

The return period for the design drought is 8,000 years, 19 times longer.

The design drought is not prudent planning.

According to today's presentation, wholesale water purchases will be $10 million per year lower in just a few years than the last year's projections.

This is likely due to Bosca's new demand study.

It was released last month.

It should be noted that the Bosca study includes a sensitivity analysis with a very large range in possible demand.

The low projection, which I believe will end up being much closer to actuals than the baseline, is 157 mgd of total Bosca demand.

60 mgd of that water would be met by other cheaper sources.

That would leave less than 100 MGD of future Bosca purchases from the SFPUC.

Thank you, caller, for your comment.

Caller, your line has been unmuted.

You have two minutes.

Hi, I'm Dave Warner.

Your questions are great.

This financial plan is more of the same.

I'm not comfortable with the feeling-good comments about debt, but I'm going to use my time for a bigger issue.

I was asked what I would do if I were in your place, and then the other person said,

oh, I realize you're not getting the information you'd like.

So here's what I would say.

I've seen this planning process now at least three years in a row, and it's pretty much the same.

Commissioners don't get enough information, and they don't get it early enough in the process to do anything about it.

As much as I would vote against this financial plan, I doubt you'll do that.

You saw my letter contrasting the MWD, Metropolitan Water Districts, their financial planning materials to those of the SFPUC.

MWD both provides rate impacts of the considered projects and solicits board guidance early in their planning process, neither of which the SFPUC does.

There should be significant changes to the SFPUC's financial planning process relative to decision-making and commissioner engagement, perhaps along the lines of what MWD does.

You're a talented set of commissioners, but it's not clear that you have any impact on these financial plans.

Even President Arce's repeated requests for community engagement have not occurred.

I'm sorry to use this word, but your ineffectiveness is detrimental to your 2.7 million constituents,

and I think it is due to an inadequate financial planning process.

Please review MWD's process, particularly the depth of information provided and board engagement early in the process,

and please revise the SFPCs to address these two points.

One way to do this is to form a subcommittee to address these problems.

It won't be easy.

Revising the SFPC's financial planning process to increase visibility

and commissioner impact would be a game changer.

Your constituents need you, our representatives,

to be more involved in the process,

particularly relative to the major tradeoffs made

that multiple speakers today mentioned but did not share.

Thank you.

Thank you, caller, for your comments.

Ms. Lanier, there are no more callers who wish to be recognized.

Thank you.

Ms. Lanier, if I may, only because, and thanks for everyone who came out or who made comments.

I do want to say, obviously, this is the start of our budget conversation.

I do want to thank, you know, maybe, again, as a ratepayer advocate, two-thirds of our

Water rate payers are represented by Bosca, so I want to thank our leaders and partners from the peninsula for coming out.

And this isn't on the agenda, but just, I think, for my own edification.

The slide that talks about Millbrae Operations Center improvements, $366 million, is that the project we heard a little bit about today,

and we heard a little bit about last meeting, and there's letters that we're receiving.

That's the same project?

Okay.

and then again it's not agendized but if and when we get to the point of approving

our capital plan are we tacitly approving that project if it's in front

of us when we get to look into the capital improvement plan or is that

something we can learn a little bit more about between now and then the

approval of the budget is not approval of a part to any particular project okay

Thank you.

We can leave it at that.

Thank you all.

Thank you.

And Ms. Lanier, can we go to our next item?

Yes.

Item four, proposed bureau operating budgets for fiscal year 2026-27 and fiscal year 2027-28.

Thank you, Ms. Lanier.

We're going to be going through this process here dealing with bureaus today.

So good afternoon.

Today, I'll be presenting to start off the biannual budget for the General Managers Bureau.

Slides are up.

Put that up.

Okay.

Yeah.

During this budget planning process over the past several months, we identified four major pillars to prioritize as an agency and utility of the future.

financial sustainability, operational excellence, climate leadership, and people and community.

These pillars stand as a guide for our discussions today and throughout our upcoming budget presentations.

All the bureaus and enterprises that you will hear from today are made of dedicated individuals

who go above and beyond each and every day getting the job done to deliver critical services to our ratepayers.

I couldn't be more proud to be a part of the PUC and the important work that we do here

and to have them all as colleagues.

Next slide.

Next slide.

Okay.

Next slide.

This afternoon, I'd like to introduce the General Manager's Division,

which includes the following teams.

Racial equity, real estate, executive team, development, facilities management,

and emergency planning and security.

This is a very small portion of our agency,

but most of these teams are in this room today, and they support the work of the entire SFPUC,

either operationally, administratively, or through policy leadership and implementation.

They are the ultimate problem solvers.

Next slide.

This chart is an overview of the GM budget.

You'll note the 39 budgeted FTEs listed on this graphic is fewer than listed in the organization chart on the prior page.

The explanation is that some employees are budgeted in infrastructure but report in the GM Bureau,

i.e. facilities and development teams, for example.

The total budget for fiscal years 25, 26 to 27, 28 is around $2.6 million, relatively small,

$600,000 of which is for dedicated racial equity programming,

and the remaining amount is due to cost of living and salary and benefits updates.

The General Manager's Bureau is requesting $600,000 for dedicated racial equity programming.

Previously, that funding was allocated amongst the enterprise's programmatic funds.

This proposal consolidates and centralizes the budget under the General Manager's budget moving forward

forward and includes expenses related to contracting support, professional development, curriculum,

and other non-personnel expenses.

In addition, the general manager's budget will reallocate $100,000 of existing funds

to this funding for a combined $700,000 in annual programming for the racial equity or

ready team.

This concludes my presentation for the general manager's bureau.

I'm happy to answer any questions you may have.

Thank you.

Thank you, Mr. General Manager.

Questions from the Commission?

And if not, maybe a clarification.

Ms. Zanier, are we going to continue through to the sub items before we open up public

comment or are we going to open up as we go?

Continue?

I think we're continuing.

Sounds good.

All right.

So we're on to.

So next up is B, External Affairs?

Correct.

Have the slides, please?

Oh, thank you.

Mr. President, yeah, you'll deal with items four,

and then you'll take it at the end, just like you did.

Thank you.

Good afternoon, commissioners.

I'm deputy general manager Ron Flynn

and currently acting assistant general manager

of external affairs.

Today I'm presenting the 26-27, 27-28 proposed budget

for external affairs.

External Affairs is a bureau within SFPUC, meaning its function is to support the enterprises,

water, power, and sewer, and the other bureaus in getting our work done.

At a high level, External Affairs does public outreach, media relations and response, public

education, community coordination and engagement, public requests, as well as tracks, local and

state federal legislation, all the while acting as liaison for all of those stakeholders.

As you heard from General Manager Herrera, our agency is made up of dedicated individuals

who go above and beyond.

External Affairs is no different.

We have dedicated public servants who support our agency, our ratepayers, the community,

and our regulators in getting the information and support they need from SFPUC.

is led by division manager John Cote who is not here today and it consists of 31 FTEs.

When this commission asks us about plans to let people know about new rates, that work is done

by communications. When a construction project or an emergency takes place, the communication team

gets our message out to the public. It would not be an exaggeration to say that the communication

team touches almost every issue that comes in and out of this agency. Community benefits is led by

division manager Ronnie Bercher who is here today and consists of 21 FTEs.

Community benefits with the financial and moral support of wastewater runs the

programs and facilities that make up the Southeast Community Center. They

administer our social impact partnership program and manage our public arts,

education, and environmental justice programs. Our deep engagement within the

community we serve would not be possible without their hard work. Strategy,

Planning and Innovation is led by division manager Chelsea Boyard and has 11 FTEs.

Transparency and public responsiveness is at the heart of the external work that this group does,

which includes responding to public records requests and working with our citizen advisory

committees. They also provide much-needed administrative support to the External Affairs

Bureau itself and help with agency-wide initiatives. And finally, policy and government

Affairs is led by our division manager Jose Sanchez Molina and has six FTEs.

This is a small but mighty team. They respond to requests from local

supervisors on constituent issues, work to get our supervisors information needed

to address critical utility issues, work closely with state and federal officials

on important issues, monitor and comment on legislation, and build coalitions

across associations. I want to take a moment to say thank you to External

for the work that you do.

On the next slide, I'm going to go into more specifics.

But on here, I want you to sort of see that the vast majority

of external affairs budget is personnel.

While the overall budget proposal grows from $12 million

to $14.2 million in the first year and then to $15.1 million,

$1.6 million of that increase is due to our proposal.

proposal, the rest is permanent wage and benefit increases.

Let's look at the portion that we tried to deal with

in our proposal.

I'm going to stay on the side for, no,

I'll go to the slide here.

On staffing, we have a critical public record staff member who

is unfunded in a temporary borrowed position,

and we are asking that to be permanent funded position

within external affairs.

Critically, it shows here that there's an additional of an FTE,

but to be clear, someone is in and has been in that position

doing this work.

We also have two substitutions.

That is a vacant position being substituted

into new position classification, which

allow us to make permanent two positions which, again,

are currently filled, but are also

on temporary borrowed on funded positions.

These are being paid for by reductions in other positions,

as well as portions of our other portions of our budget,

and do not show up as cost increase.

So for the staffing corrections, there's

an additional $151,000 that we're asking for.

And to do our community work, we're asking for $1.52 million.

This is the majority of our new requests.

This will cover grants and youth employment

that this commission has already authorized,

in which we have traditionally paid for outside of our budget

process through ad backs.

That process lacks transparency and is not a reliable way

to fund this crucial work.

Our critical ad back work, other critical ad back work,

has been absorbed into the external affairs budget,

such as translation services and customer service outreach.

On youth employment, the funds will be allocated as follows.

1.3 million of the 1.5 is for grants.

That is the project learning grants

that have been awarded by this commission at approximately $550,000

a year, which serve 500 youths annually.

And there's also the partnership with San Francisco Unified

School District and the College Hill Learning Garden.

Collectively, those align equal literacy and career exposure,

and those grants and amounts are $750,000 a year.

And again, those are programs that have already been awarded,

but we fund them usually in the back end

without this process.

Finally, there's about $200,000 in professional services

money for continuing new curriculum, teacher training,

which is important in our project learning grant,

and other support for our youth education programs.

Other than that, we try to stay, and we're

successful in staying flat.

And I am happy to answer any questions that you have.

And thank you for considering our proposal.

Thank you, Mr. Flynn.

Maybe we can keep going, colleagues and Mr. General

Manager, and then save our questions to the end.

Thank you.

Next up is Human Resources Services.

Good afternoon, Commissioners.

Wendy Macy, Chief People Officer, here to present our Human Resources.

Mr. President, I meant to, if you have questions as you're going through, I was talking about

public comment at the end.

at the end.

Should you have questions as you're going through these,

please feel free to ask when people are coming up, OK?

I was only talking about public comment.

Sounds good.

Thank you, Mr. General Manager.

Ms. Macy.

Thank you.

Human Resources is a bureau that literally

touches every single of our 2,500 employees.

And without the dedication of these employees,

we would not be able to provide the valuable services

to our rate payers.

I want to express appreciation to our hardworking human resources staff, some of whom are here

in this audience as well.

We have been laser-focused on attracting and hiring the right people in the right roles,

and you've heard a lot about hiring in the past.

And right now, what we're doing is we're really focusing on these other core principles.

How do we enhance the employee experience so that the employees, the valuable employees

that we've worked so hard to attract, that we're able to retain them?

by enhancing their experience, giving them the knowledge and tools so that they can grow their careers,

and work as people business partners with our enterprise and bureau clients

so that we can provide them the expert advice that they so desire.

Here is our organizational chart.

I apologize that the font is a bit small, but we are a full-service HR department.

We do everything from recruitment, onboarding, talent acquisition, and selection,

employee and labor relations, learning organizational development and training,

employee health and safety, data analysis and HR technology,

people science and business partners, and we can't forget payroll.

So literally every aspect of the employee experience.

Our budget is remaining relatively flat, our proposed budget.

we're only requesting one additional position which is actually paid for out of temporary phones

so no additional cost the increases that you see on this chart are primarily driven by

employee labor cost increases that our presenters from the budget team discussed earlier

with the exception of a couple of proposed changes in addition to the one position

We're also requesting investment in a unified workforce HR system, as well as funding for a new health and safety training requirement.

Again, we endeavor to keep the budget as flat as possible and to keep any requested additional costs to a minimum.

The new workforce system is estimated to cost $8.8 million in capital costs over three years,

but in the operating budget, we're only requesting $0.6 million for software subscription costs in the second year of our proposed budget.

We also are requesting approximately $200,000 for a new training that the National Fire Protection Association standard requires,

which allows us to provide important safety training to SFPUC electricians and related staff.

The other two in this chart are cost neutral, because what we did with finance's instruction was to attempt to find funding to pay for these additional requirements.

So the requirements that you see here about medical exams and recruitment tools, we were able to fund via other sources.

So the primary request is for the new workforce and talent management system.

So I'll speak a little bit more about this.

Our systems in HRS, which, again, every employee literally touches, many of them are very out of date.

Some of them are 20 to 25 years old.

Many of them were built homegrown.

And our approach would be to create a unified system, to procure a unified system, so that we can provide the best and most efficient service to our clients.

This will allow us to really get ahead of our needs.

We know that this is a very tumultuous time.

There are a lot of demands on HR.

There are a lot of changes in the labor market.

Our focus on, again, retaining our employees that we have, our ability to provide client services and have a data-driven decision-making versus being reactive.

This can all be aided greatly by the addition of some systems that are consolidated and that speak to one another and that speak well with our city systems.

Again, we were able to minimize the costs.

We've been working very hard with our partners in IT to try to minimize the costs of this project going forward.

But we are hopeful that this will, again, help us provide better service to our clients.

With that, we're happy to take any questions, or we can move to the next presenter, as you wish.

All right. Thank you, Ms. Macy. Any questions from commissioners?

Yes. Vice President Leveroni.

Just curious. On the employment, moving from temporary to permanent, no change.

But do temporary employees have all the full benefits, or when they move to permanent,

they then now receive more benefit or a benefit that they may not have been receiving before?

They receive protected civil service status.

Again, from a funding perspective, we have been able to pay,

and there is a person performing this work, and in this case it's for water,

and it's working out well, but they're being paid out of temporary funds.

So this would actually kind of make their position official as a budgeted position.

Okay, thank you.

All right, if no other questions, we can go to the next presentation.

All right.

Good afternoon, President Arce, Vice President Leveroni, and commissioners.

My name is Nancy Hom, Chief Financial Officer and Assistant General Manager for Business Services.

I'll be presenting business services proposed to your budget for fiscal years 26-27 and 27-28.

Business services is comprised of six bureaus managed and supported by over 330 hardworking

and committed staff. Our bureaus support SFPUC's enterprises and bureau divisions as well as our

ratepayers and customers. Each of our bureaus is highlighted here in this organization chart along

with the main divisions and functions. They are financial services, information technology services,

customer services, loans and grants, strategy, innovation and change, and audits. Individually,

each leads and administers a very specific function in this organization. Together,

they provide comprehensive governance and oversight over key administrative and strategic

areas and roles in this organization. Before I continue, I'd like to take this opportunity

to introduce you to our leadership team who've joined us here today.

For our business services leaders, when I call your name,

if you would please stand up or raise your hands so we may get to meet you.

Laura Bush, Deputy Chief Financial Officer of Financial Strategy and Fleet Services.

Vivian Chen, Deputy Chief Financial Officer for Accounting Services and Financial Reporting.

Jennifer Hopkins, Chief Information Officer for Information Technology Services.

Deidre Andrus, Director of the Customer Services Bureau

Alexandra Gunnell, Director of the Loans and Grants Bureau

Tricia Yang, Director of Strategy, Innovation, and Change

Chris Crane, Acting Audit Director, who joins us today on behalf of IRLA Blackwood, who will return in February

I have much appreciation for this team as they are the leaders who ensure that they are supporting our staff

to ensure the operations are operating smoothly each day,

and that they are making and facing and navigating challenges

and making those decisions to ensure that we accomplish our organization's objectives.

This slide highlights business services priorities for the next two fiscal years.

Our priorities are in the dark blue boxes,

and they align with our commitments in the light blue columns.

Those commitments that business services has are financial sustainability,

responsible stewardship, excellent service,

and being a great place to work for our staff.

Our priorities are in alignment with those of the SFPUC's budget priorities,

which were presented earlier by Anna and what you have heard through this meeting today.

We'll remain focused on financial sustainability through continued and rigorous planning,

inclusive of, I'm sorry, rigorous planning and budgeting

to support our long-term affordability for our ratepayers,

inclusive of optimizing resources through strategic planning and financing

and pursuit of external low-cost funding.

We also prioritize responsible stewardship of not only our financial assets,

but also those of data, technology, and how we administer and govern our investments

that support our capital infrastructure.

We'll also continue to strengthen our capital data quality and forecasting use

to support development of rates and affordability assessments

and stay atop of enhancing resiliency through prevention and planning for emergencies.

Sorry.

Go back one more.

We're also committed to providing excellent service to our customers, both internal to

the PUC and the city, and most importantly, externally to the general public and our rate

payers.

And then lastly, we commit to being a great place to work for our employees and to retain

and attract a talented, diverse workforce for our teams.

The business services teams continues to champion training and professional development of our

folks.

Through these commitments, we champion financial sustainability and stewardship of our agency

to ensure transparency, accuracy, and in support in maintaining our strong AA credit ratings.

Our current year budget is $102.3 million with 332 FTEs.

Our proposed two-year budget totals $111.7 million and 336 FTEs.

The total increase of $9.5 million is due to a cost of living adjustment assumptions

in salaries and benefits, and the majority is attributed to 1.5 million attributed to

four FTEs, new FTEs that we're proposing for our automated metering infrastructure operations

team.

Those new positions are to maintain the integrity of our revenue and utility infrastructure,

and that team is also critical in support of our existing automated meter infrastructure

in the field.

They visit customers and locations to resolve metering issues and perform regular maintenance.

The team is also critical to serve an important upcoming role in the upcoming upgrade of our 15-year-old AMI system.

The other proposal of our two proposals is the Loans and Grants Bureau.

This is an existing team that is moving from the capital budget to our operating budget.

This team manages the identification, application, and administration of external low-cost financing for our infrastructure programs.

The team maintains close partnerships and collaborations at the local, state, and federal levels

and coordinates closely with our SFPUC enterprises and divisions.

These two new proposals total $1.5 million for our operating budget.

And with that, this concludes my presentation.

I'm glad to answer any questions for business services.

All right. Thank you, CFO Hum.

Okay.

Any questions from commissioners?

All right, then perhaps we can move to our final presentation.

AGM Robinson.

Thank you, President RCA Commissioners.

Yes, the final presentation of the afternoon.

Thank you for bearing with us.

My name is Stephen Robinson, Assistant General Manager for our Infrastructure Team at PUC.

The Infrastructure Division is responsible for capital delivery.

You will be hearing much more, of course, about the capital plans

and all the projects that go into those in the upcoming presentations in the next set of meetings that we have.

Our mission at Infrastructure is to deliver high-quality capital improvements for the PUC water, wastewater and power enterprises.

And then the rest of this statement is verbatim and the same as PUC's mission,

to do that in a manner that is inclusive, environmental and community interests,

and that sustains the resources entrusted to our care.

To provide some perspective, in this last fiscal year, we processed a record $1.2 billion of invoices related to capital projects.

The last time I presented this budget, back in January of 2024, at that time I reported a record number of $866 million worth of invoices in that fiscal year.

So we do have some big projects on in construction at the moment, but that is a pretty significant increase just within a two-year period.

Our internal goals are to continue to strengthen our people, our processes and our tools.

With the affordability challenge that we've heard so much about today, we continue to focus on adding value and improving efficiency and streamlining and optimizing the work that we do, knowing how significant an impact it has on the capital budget.

Our infrastructure team uses a centralized matrix organization to support all three of those enterprises at the same time.

For that last budget presentation in January 24, I showed 375 permanent positions in the middle.

We're now at 380. The numbers in each of the boxes here represent the number of staff within each team.

And similar, like you've heard the other bureaus do today, I'm joined by most of the managers you see on this chart.

So primarily as an opportunity again to put a face to a name for some public recognition

and an opportunity for me to say a personal thank you to them on behalf of the rate payers

and all of us and for the work that they do.

So as I go around, I'll ask them to give a wave

for those that are in the room to say thank you.

I'd like to start at the bottom with the green

because they really represent the majority of our staff.

Those are the large bureaus that do the technical work.

At the very bottom left is Johanna Wong,

managing our Engineering Management Bureau.

In the middle is Howard Fung

with the Project Management Bureau.

I know Susan Howe is here representing

Project Management today.

And then on the very bottom right is Construction Management,

and that's Algie Collinmore.

In the middle, in yellow and orange color, I would call them more of our support functions.

Kendra Cox manages our Contract Administration Bureau, CAB.

I don't think Kendra's with us today.

Underneath that, you'll see Rosie Angel for Infrastructure, Budget, and Finance.

Rosie manages and looks after our operating budget as well.

So you'll see she has helped me a lot in putting today together.

Thank you, Kendra, for joining us.

Just walked in.

Karen Fry for Environmental Management.

I don't think she's with us.

workforce and economic program services is Ben Poole, and then Moshkin is with us today for program

controls. The very top in blue is the AGM's office. You'll be very familiar with our three

directors that look after delivery of those capital plans. I don't think Katie Miller's with

us today for water. Yes, you are. Hi, Katie. Thank you. And Bessie Tam for wastewater,

and our newest addition, Sonny Daliwal for the power capital plan.

Also with us today is Angie Salazar at the top right as one of our department personnel liaisons.

That's the HR function relationship with HRS.

And also on this chart is Alicia Langlois, who is a DPL but also covers our racial equity leadership role.

Okay, this slide is similar to the format of what you've seen in the previous four presentations.

Shows a budget of $111 million for our current year, fiscal 25-26, rising to $122.9 in fiscal 28.

The difference from the other bureaus that you've heard about today is that we charge our work to projects in the capital budget.

So this refers to us being on an off-budget process.

So infrastructure staff charge direct labour directly to those projects that are in the capital plan.

That's all of the engineers, all of the construction managers, all the project managers that are doing the work at the project level are all charging directly to the projects in the capital plan.

We also then recover overhead expenditures through a monthly recovery process against those capital projects.

So that's non-direct labour such as my time, many of the managers that we see here,

or some of the more overhead support functions that I've mentioned today,

any operating expenses, work orders with other city departments.

Our overhead rate serves as an indicator of how competitive we are

compared to other similar organisations performing the functions that we do.

In the bullet, you'll see that although we build physical infrastructure in our team,

our budget here today is largely driven by labour costs.

The non-labour elements are a much smaller portion,

and they relate to those services provided to other city departments.

The increases that you'll see in this chart are only due to two factors.

One, the cost of living adjustments, you've heard others mention,

and secondly, then, when we convert positions to match the current need that the capital plan has.

There are no new staff positions that we're requesting.

We've submitted what I've called a fairly flat budget, in the sense that we do have no requests for new positions,

but in order to meet the demands of the capital plan that we have in front of us,

we can adapt by repurposing the vacant positions with substitutions.

There is some additional cost in this budget, but that is still offset by a larger savings,

in that we have vacant positions that are not currently occupied, and they're not then charging to the projects.

We've been working really hard, though, at the vacancy situation that we have,

and I'm pleased to say that we've really lowered that vacancy rate significantly in the last few years,

and that we currently have 80 vacant positions, but that 62 of those are in active recruitment.

So we're really working towards making sure we've got a full complement of staff.

The priorities for capital delivery, I've talked about the need to invest in people.

using the positions that we have to adapt.

We need to maintain that competitive overhead rate,

again, thinking about efficiency, optimization,

making sure that we add value in everything that we do.

We partner with the enterprises.

In response to the last few budget cycles

and the improvement initiative,

we're working towards establishing a planning director

inside each of the enterprises,

working in partnership with the delivery director

inside infrastructure,

supported by programmatic consulting services.

We continue to update our processes and procedures and tools that we use in order to deliver.

We think about the delivery methods.

I presented back in December thinking about those methods that we use.

And then we're also streamlining procurement by launching development of a new e-procurement system that will replace our current tool.

So in an effort to keep our presentation brief, I would show you lots of pictures of the work that we do to put it in perspective.

But you get to see those in our quarterly reports on a regular basis anyway.

But I'll continue to extend the opportunity for you to come and visit.

Site visits are always very meaningful,

and if there are questions in the coming weeks or on capital,

you'll get to hear from our directors and others as those presentations come forward.

Happy to take any questions or step aside for a bigger conversation.

All right. Thank you, AGM Robinson.

Vice President Leverroni has a question.

AGM Robinson, thank you very much for the report.

When we, you had mentioned in one that you assigned the dollar amount of your team

to a certain project that they're working on.

When we look at a budget for that specific construction project,

do we see the cost of our personnel in that budget,

or how would we see that as a commission?

So when we charge our direct time and our labor to capital projects,

each capital project has a budget that is made up of all of the soft cost elements

that go into it, including any consulting support that is required, but ideally, of course, our staff

time and the labor that was into it. The hard cost then typically then be the external or contracted

physical efforts that it take to build the capital project. So our time, our internal work would be

part of that soft cost from a project planning through design and support that's needed during

construction and handover. So we would be able to say the total cost of that project, including

our time and the contractor's time is X.

Yes.

Okay.

Thank you.

All right.

Commissioner Jamdar.

I'm curious about, thank you for that presentation,

about the replacement of SFBid with the new e-procurement system.

What kind of an upgrade do we anticipate?

Is it just a user interface, or what are the improvements to expect?

We have a couple of different tools that we use for the different types of contracting we do.

It's quite different whether it's a professional service contract or a card construction contract.

And now as we move into alternative collaborative delivery, different types of contracting again.

So we're trying to streamline that with one singular system that has a better user experience for our own staff to procure that,

but also for the vendors then that propose.

So it will be external facing as well.

Does that answer your question?

Okay.

All right.

Other colleagues, questions?

Thank you, AGM Robinson.

How about discussion for any other aspects of the presentation?

Commissioner Jamdar.

I have a question that kind of cuts across, I think, the bureaus and perhaps the enterprises.

It speaks to the climate leadership sort of aspect of the budget.

I know that we've had previous conversations about the climate action plan implementation,

and I know that we partner with the SF Environment on delivering some of those services and goals.

Is that reflected in this budget today, and if so, how?

I'm just curious what the status is of our partnership with SF Environment.

Yeah, so most of the city's climate action plan is focused on reducing,

on accelerating the transition to clean energy and carbon-free sources of energy.

So that work is primarily located in the power enterprise.

They will be here next week to present on their budget,

and I'd suggest we save that conversation for them.

But yes, it is part of the city's overall budget,

but mostly located in the power enterprise and all the work we're doing there.

Thank you, Commissioner Jemdar.

Unless there's any other comments from commissioners, and I do, I apologize to the commission and any members of the public commenting.

I have to go help on some parenting responsibilities with my oldest.

And Vice President Lavarone has graciously agreed to chair.

and I'll be reviewing the tape to get the public comment for anyone who comments here or virtually.

And with that, I have to step away.

Thank you, Vice President Leveroni.

Thank you all.

General Manager Herrera, thank you, you and your team, and members of the public for coming out.

Thank you, President Arce.

I think at this time, Ms. Lanier, if there are remote callers

or if there's any speakers that wish to provide comment on these items.

Yes, remote callers, please raise your hand if you wish to provide comment.

Is there anyone present who would like to speak?

Mr. DeCosta?

To all of you all in the chambers, please listen to me.

Please listen to me.

Some of the people who are heading this department, they did not speak truth to power.

I can give you two examples.

Masood Odekani, a lawyer, demoted and sent to the plant to push paper and treated with disdain.

Leo from the Water Department.

Over 21 years, no promotion.

Others come and ask him to do the work.

They don't know how to do the work.

Bill Taehan, Frank Jordan,

ganging up on innocent workers.

and these presentations mean nothing

because they're just

the people who are giving the presentations

make good money

but you know

if they really want a challenge

we can bring some other people

like Peter Rackmeyer and all

and challenge them

and see like if their presentation is worth it

what about the people

what about the people

What about a human being?

Where is your heart?

If your heart is in the right place, you can do something.

Good leaders know the way, show the way, and go the way.

Why is the city attorney ganging up on some of the workers?

Why isn't the policies and the standards policy?

Thank you for your comment.

Moderator, are there any calls who have their hand raised?

Ms. Lanier, there are two callers with their hands raised.

Thank you.

Caller, your line has been unmuted.

You have two minutes.

Am I on?

Yes, you are.

Thank you.

Good afternoon.

My name is Mary Butterwick.

I'm a resident of San Francisco.

A retired person on a fixed income, substantial rate hikes are issues for me.

I'm also concerned with the SFPUC is facing due to long-deferred maintenance, overprotected

water demands and growth numbers, and increased costs and decreasing sales.

According to the proposed budget, the average monthly residential and sewer rates will approach

and surpass the low-income household affordability target over the next 10 years.

And this budget includes little, if any, funding for the alternative water supply plan.

Build out of the alternative water supply plan may involve an additional investment of $17 to $25 billion,

which would double the budget and presumably the water rate.

Perceived need for an alternative water supply is driven in large part by the Commission's extremely conservative 8.5-year design drought.

The primary tool that SFPUC uses for managing flow releases is the Tuolumne River.

Reduce the length of the design drought by one year, apply reasonable demand projections,

and then present results to the public.

It is my understanding that these actions would reduce the amount of alternative water supplies needed by more than a third.

Hopefully, this reassessment would also facilitate a meaningful dialogue on the in-stream flow

needs to restore and maintain a sustainable population of fall Roe Chinook salmon in the

Tuolumne River.

What are we waiting for?

I do not believe that ratepayers should have to invest in very expensive alternative water

supplies that will not be needed.

Thanks for the opportunity to comment.

Thank you, caller, for your comment.

Caller, your line has been unmuted.

You have two minutes.

Good afternoon.

Denise Liu is speaking.

First, the documents presented apparently omit any mention of the emergency fire-fighting

water system.

When you're considering a budget, you descripted the whole picture.

So consider that we as taxpayers are responsible for debt service on CO bonds related to the system.

That's that to project rate increases for water support, a step of 23% in the coming two years,

and 10% for annual rate increases after this.

These provide costs to challenge any budget, and I'm not low in cash.

I'd like a fire truck parked outside my house in case of a fire among nearby unirrigated eucalyptus trees.

Thank you.

Thank you, caller, for your comments.

Ms. Lanier, there are no more callers in the queue.

Thank you.

Thank you.

I would like to now request a motion and a second to continue the meeting to a special meeting notice for Friday, January 23, 2026.

Motion to defer the meeting and continue it on the 23rd.

Seconded.

And call the vote.

President Arce, excused.

Vice President Leverroni?

Aye.

Commissioner Jamdar?

Aye.

Commissioner Stacey, excused.

Commissioner Thurlow?

Aye.

The item passes.

Okay. And I will adjourn the meeting for today.

Continue.

Or continue. Continue the meeting.

Thank you.