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HomeMy WebLinkAbout2024-11-06 Utilities Advisory Commission Summary MinutesUtilities Advisory Commission Minutes Approved on: December 4, 2024 Page 1 of 25 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF NOVEMBER 6, 2024 REGULAR MEETING CALL TO ORDER Chair Scharff called the meeting of the Utilities Advisory Commission (UAC) to order at 6:02 PM. Present: Chair Scharff, Vice Chair Mauter, Commissioners Croft, Gupta, Metz, Phillips, and Tucher (Arrived at 6:07 PM) Absent: None AGENDA REVIEW AND REVISIONS None ORAL COMMUNICATIONS Dave Warner, a private industry CFO, expressed concern that water rates were very high and would substantially increase. Mr. Warner presented two slides. One slide was on the long-term trend of water demand and projections, depicting a decrease in water demand. The second slide demonstrated the price of water per acre-foot in various demand and supply scenarios, concluding water rates would be too expensive in 2045 even in the best case scenarios. APPROVAL OF THE MINUTES ITEM 1: ACTION: Approval of the Minutes of the Utilities Advisory Commission Meeting Held on September 4, 2024 Chair Scharff invited comments on the September 4, 2024 UAC draft meeting minutes. Commissioner Metz made a comment in the meeting that he felt was important and should be included in the minutes near the bottom of Packet Page 12. Chair Scharff advised it was helpful to provide written corrections if anyone wanted to change the minutes. After “load,” Commissioner Metz wanted to add: He clarified that the current demand management program is really energy conservation and not active demand management. He recommended two actions: (1) Create a real active demand-side management program and (2) set a much higher target than 2% to 4% for energy conservation. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 2 of 25 ACTION: Chair Scharff moved to approve the draft minutes of the September 4, 2024 meeting as amended by Commissioner Metz. Vice Chair Mauter seconded the motion. The motion carried 6-0 with Chair Scharff, Vice Chair Mauter, Commissioners Croft, Metz, Phillips, and Tucher voting yes. Commissioner Gupta abstained. UTILITIES DIRECTOR REPORT Utilities Chief Operating Officer Alan Kurotori delivered the Director's report. Smart Energy Provider Award: CPAU was honored with the American Public Power Association’s (APPA) Smart Energy Provider Award. This award recognized the City for demonstrating leadership and being a smart energy provider in the City’s energy efficiency programs, distributed energy programs, and environmental and sustainability initiatives. Staff accepted the award at the APPA conference in October. Changes to Gas Transportation Charges: The City utilizes PG&E’s transmission pipelines to move gas into Palo Alto and passes those costs through to customers. PG&E raised rates for those transportation services; therefore, City Council approved in October an increase in the maximum pass-through limit from $0.25/therm to $0.30/therm. Staff anticipated PG&E would continue to increase rates, at which time staff would return to Council to seek approval for CPAU to pass those costs through to customers. Limited-Time Commercial HVAC Incentives: The City was offering increased rebates for commercial building owners who electrify their rooftop HVAC systems to $3500/ton (was $650/ton) up to $120,000 for retrofits. Emergency Replacement Heat Pump Water Heater Program: In September 2024, the City initiated an emergency program for customers replacing a gas water heater with a heat pump water heater. As of late October, 466 residents had either completed installations or signed contracts to install a heat pump water heater through one of the City’s programs, including three projects completed through the emergency replacement program. Hourly Water Usage Now Available on the WaterSmart Web Portal: Hourly water data is now available to CPAU’s customers on the WaterSmart portal. WaterSmart could provide information about a customer’s water consumption, personalized efficiency recommendations, and leak alert notifications. Customers were encouraged to log in to their CPAU account to obtain information. About 20% of customers have logged in to the WaterSmart portal. Staff’s goal for 2025 was to increase WaterSmart participation to 30% of customers. EV Programs Update: CPAU successfully installed five new multifamily EV charging stations over the past three months, including one at an affordable housing project at Alta Housing’s Arastradero Park Apartments. Combined, these projects provided 133 Level 2 chargers and 48 Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 3 of 25 EV spaces in Palo Alto. To date, about 36 properties used the EV Rebate Program, resulting in 433 EV charging ports and 73 EV-ready spaces for 814 multifamily units. Multifamily, nonprofits, and schools were encouraged to visit the City website for further information. Public Power and Natural Gas Week: CPAU had awareness campaigns to businesses and residents during the first week of October for Public Power Week and Natural Gas Power Week. Recent and Upcoming Events: A slide was shown of events held in October. Upcoming public events included Rain Garden on November 9 and Edible Water-Wise Garden on November 13. The Facility Managers Meeting on November 14 would not be open to the public as its purpose was to hear the interests and needs of business customers and facility managers, talk about programs, and an outside tour to see the completed upgrades at the Hanover Electric Substation brought online last month. Chair Scharff inquired if staff followed up to see if the installed multifamily EV charging stations were being used. Mr. Kurotori replied that staff could ask customers to share metrics and data, and report utilization rates back to the UAC. Chair Scharff wanted to determine if people were using the chargers and if it was a good use of resources. Mr. Kurotori had more data on the City’s facilities and charger networks, and he offered to provide utilization rates as an informational item. Chargers recently installed at schools were for school staff and district use only, not open to the public, as of Mr. Kurotori’s last visit to those sites. Chair Scharff recalled some people tried to use the charger at the Paly track field on Churchill and were told no. Chair Scharff questioned whether the chargers should be open to the public because they were installed with City funds. Karla Dailey, Assistant Director of Utilities, Resource Management, has worked with schools to accommodate public access to chargers outside of school hours; however, some sites had security around the schools. Commissioner Croft voiced her support for installing chargers at schools and anywhere people gather for public events. Commissioner Croft traveled to schools to attend events but missed an event because she was searching for a charger. Vice Chair Mauter asked if the City notified customers of leaks in case they were not actively monitoring their bill or receiving WaterSmart leak detection alerts. Mr. Kurotori responded that residents could sign up to receive a text if a leak was over 5 gallons/hour for a period of time. In reply to Commissioner Gupta asking if the WaterSmart program was available to multifamily properties, Mr. Kurotori stated that WaterSmart was only available to single-family residences. NEW BUSINESS ITEM 2: DISCUSSION: Discussion on the Upcoming Recruitment for the Utilities Director Position Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 4 of 25 Assistant City Manager Kiely Nose addressed the UAC on behalf of City Manager Ed Shikada. Human Resources Director Sandra Blanch and Assistant Director of Human Resources Nick Raisch were present virtually. Dean Batchelor announced his retirement. The City Manager’s office was working with the HR Department on recruitment for Mr. Batchelor’s replacement. Stakeholder outreach to various groups that interact with the position was being performed. A discussion had taken place with the Finance Committee. Tonight, the UAC could provide feedback on the recruitment process and characteristics of the ideal candidate. Tina White, with Teri Black & Co. Recruiting, acknowledged it was an important recruitment for the City of Palo Alto and the UAC. Using the input received from stakeholders, Ms. White will develop a recruitment brochure to use as the primary marketing tool for this position. Social media and other channels will also be used to communicate the opportunity. Stakeholder input will be taken into consideration when Ms. White conducts outreach and speaks to potential candidates as well as in developing interview questions. This recruitment process will have multiple stages of interviews, beginning with a screening interview by the recruiting firm. Two primary areas Ms. White wanted to focus on tonight were key challenges faced by the Utilities Department from the UAC’s perspective and what the UAC would like to see in the next Director of Utilities, such as skillset, technical skills, and leadership qualities. Commissioner Phillips asked if this was an unusual position because it encompassed electricity, gas, water, and wastewater. Commissioner Phillips felt it would be very difficult to find someone who had meaningful experience in all four utilities and wondered if one of the utilities would be prioritized above the others. Including fiber, Ms. White agreed that having five utilities was unusual. Ms. White did not think she would find someone who had experience or expertise in all five utilities. The UAC’s input would help determine what was more was important, a candidate’s technical expertise in a certain utility or leadership attributes. Commissioner Phillips inquired if splitting the job into more than one position was considered. Mr. Raisch replied that, if needed, the Utilities Director or General Manager of Utilities and Utilities Chief Operating Officer could counterbalance with different areas of strength. Ms. Nose remarked that there was a great team behind the General Manager or Utilities Director position, so background and knowhow in all five utilities was not needed. The nomenclature of General Manager or Utilities Director had not been decided yet but the person would be the leader and vision for the Utilities Department. The Chief Operating Officer and Assistant Directors had specialized utility knowledge to ensure the Director had the necessary support. Given the incredible importance of these functions to the City, Commissioner Phillips encouraged staff to ensure the right structure was in place to provide support. Because of issues with recruitment and retention of staff across all levels due to challenges with compensation and the high cost of living, Vice Chair Mauter believed that the input on this process from staff employed at the Utility was exceptionally important. Ms. Nose confirmed Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 5 of 25 that staff was included in the stakeholder outreach. Ms. White held two virtual listening sessions open to all employees, announced via email. Ms. White was working on an employee survey that HR will administer and provide the data to Ms. White for her to include when considering characteristics they were looking for in the candidates. Commissioner Tucher is on a board that had a broader depth of utilities, including snow removal. Commissioner Tucher thought it was helpful to have data on the breadth of portfolios of utility districts of comparable size to Palo Alto. Commissioner Tucher oppose a discussion on splitting up the position by utility, but would tend to oppose the idea. Commissioner Croft wanted someone with interest and experience in developing and retaining the workforce. Commissioner Croft thought it was important to create a place where employees felt like they were growing and wanted to stay. Secondly, Commissioner Croft wanted someone who believed in and would diligently work toward the City Council’s climate goals to the extent they were relative to the Utility. Thirdly, Commissioner Croft wanted someone to oversee the Utility’s finances and ensure transparency and clear communication on the Utility’s revenues, expenses, and reserves. With money moving around, it was unclear how much there was in the reserve accounts. When making utility payments, make it transparent and easy for customers to understand where their money was going and what it was paying for. Commissioner Metz agreed that having operational excellence and financial excellence were critical but the number one quality was to be a visionary. Commissioner Metz recommended strengthening the job description around visionary strategic planning. CPAU’s investment in hydro dams decades before it was fashionable and having sewers and potable water at a very early time were visionary actions. We are at a turning point in how electricity is delivered and used. The City is in the midst of a $300 million grid modernization, so vision of how we execute that is particularly important. If Commissioner Metz had to pick one area of expertise, it would be deep knowledge in the electrical business. Commissioner Metz spoke of the importance of having succession plans. Commissioner Metz opined that an engineering degree was needed to make necessary decisions in the electric space. Commissioner Gupta was excited about municipal fiber. It could be an attractive attribute for a potential candidate to develop and help bring forth a new utility. Commissioner Gupta suggested that the Purpose of Classification include the dark fiber telecommunication system, perhaps adding the fiber-to-the-premises utility or the utility pilot. Commissioner Gupta wondered if bullet points concerning the fiber utility could be added under Essential Duties and Knowledge Skills and Abilities. Since it is a new utility, it would be helpful to have a Utilities Director with experience or knowledge of that area. Chair Scharff did not think possession of a valid California driver’s license was a necessity because it excluded candidates from other states, so he recommended changing it to possession of a driver’s license. Chair Scharff expected someone who had 15 or 20 years of experience. Chair Scharff disagreed on requiring an engineering degree because he did not think the major mattered. For equity, inclusion, and diversity, Chair Scharff did not want the Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 6 of 25 requirements to be exclusionary. Chair Scharff was not sure he would include an education requirement. Someone could have worked their way up through the ranks and if that person had the skills and impressed people, Chair Scharff did care if that person did not have a bachelor’s degree. Chair Scharff agreed with Commissioner Croft’s point about moving forward the City’s climate goals; however, the Utilities Director, needed to say what would or would not work, or what had to be done to make it work but doing it in a cost-effective manner was important. The Council does not run a utility. Council and staff may at times be aspirational and not focus on what is practical, and someone needed to tell Council and staff. Chair Scharff was looking for a Utilities Director who had leadership qualities and sound judgment in balancing different issues. Vice Mayor Lauing mentioned a few things the Finance Committee discussed. From Vice Mayor Lauing’s background in recruiting, this was referred to as finding a unicorn. First, this position was critical, so you had to invest in getting the unicorn. The Finance Committee said to shoot very high and come back if a higher salary was needed. We have to finance the right person. Second, it was emphasized it had to be somebody who has done and wanted to do big projects. We have massive challenges and a $300 million investment. Lastly, somebody who had a demonstrative track record in recruiting targets. We cannot get anything done if we do not have the people to do the jobs. Commissioner Croft opined that the description of minimum qualifications was too short and was not reflective of the senior person we need. Commissioner Croft thought 20 years of experience was a good target. Commissioner Gupta asked if the minimum qualifications acted as a gating function to exclude candidates. Mr. Raisch explained that the minimum qualifications were meant to set a floor for applicants; however, using the wording “and/or equivalent experience” allowed the recruiting team to determine if someone was qualified. Commissioner Phillips had experience in recruiting unicorns and it was necessary to cast a wide net. Requiring X years of experience and a certain degree may exclude the perfect person. Vice Chair Mauter wanted a better understanding of the process, timing, and any plans for an Interim or Acting Utilities Director. Ms. White was working on the marketing brochure and will finish it after receiving all stakeholder input. The recruitment can open when the marketing brochure was done, with the goal to open the recruitment in November. Ms. White wanted flexibility with the typical 30-day timeline because people are distracted during the holidays, making potential candidates tougher to reach. Mr. Raisch remarked that during a five- to six- week period, Ms. White’s team will post the marketing brochure on their site and our site as well as do active sourcing, including letter writing and mailers to the people they have identified within this field, including calling people who work as Utilities Directors. Once that process closes, Ms. White’s team does the initial screening; looking at everyone’s qualifications, experience, education, and training; and might select the top 20 to do 45- to 60-minute interviews using a supplemental questionnaire based on feedback received from the UAC, Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 7 of 25 Finance Committee, and employee surveys. Then, top candidates will be invited to panel interviews, followed by final-round interviews with the City Manager’s Office. Ms. Nose stated that executive recruitments typically take at least six months. Ms. Nose’s understanding of the Finance Committee’s feedback was not to rush the process but to find the right person. Mr. Batchelor’s last day with the City will be around the holidays. City Manager’s Office staff and Utilities staff will ensure coverage of necessary duties during the absence of a Utilities Director. Commissioner Gupta queried if there would be a follow-up process with the UAC. Ms. Nose offered to keep the UAC apprised of where they were in the recruitment process. Ms. Nose or Mr. Shikada can provide updates at some of the UAC’s regularly scheduled meetings. Commissioner Phillips wanted to see the brochure when it was available and would appreciate it if the brochure could be distributed to the UAC. ACTION: None ITEM 3: DISCUSSION: Discussion with Bay Area Water Supply and Conservation Agency (BAWSCA) CEO/General Manager, Nicole Sandkulla: BAWSCA Overview, Regional Water Use and Efficiency, and San Francisco Public Utilities Commission Water Supply Reliability Investments Nicole Sandkulla, BAWSCA Chief Executive Officer/General Manager, delivered a slide presentation. BAWSCA was a special district formed in 2003 by the State Legislature to represent the interests of 26 water suppliers in San Mateo, Santa Clara, and Alameda Counties who rely on water supply from the San Francisco (Hetch Hetchy) regional water system to meet their customers’ needs. The City of Palo Alto relies on the regional water system for 100 percent of it potable water supply. In FY 2022-2023, the City of Palo Alto purchased over 3 billion gallons of water from the regional water system. The BAWSCA Board of Directors was comprised of an elected or appointed representative from each member agency. For Palo Alto, Mayor Greer Stone was appointed to the BAWSCA Board in March 2023. Starting with the headwaters of the Tuolumne River where 85 percent of the water supply comes from, water is stored in Hetch Hetchy Reservoir. The water supply is conveyed by gravity to the Bay Area. Along the way, the regional water system picks up supply from the East Bay and Peninsula watersheds that amount to about 15 percent of the water supply delivered. The regional water system included seven major reservoirs and three hydropower plants. As a result of encouraging water-saving behavior, rebates, and policy changes such as plumbing codes and state legislation, 32 percent less water is used today in the BAWSCA region compared to FY 1986-87 despite a 34 percent population increase. BAWSCA initiated a project to update the demand projections for the region to better inform the long-term planning Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 8 of 25 efforts for BAWSCA agencies and San Francisco, including updated water management plans and San Francisco’s alternative water supply (AWS) plan. State law required San Francisco to fix its earthquake-vulnerable regional water system. The resulting Water System Improvement Program (WSIP) contained 43 projects to ensure the system would continue to provide water following an earthquake, meeting minimum day-water use within 24 hours and normal water use within 30 days. BAWSCA provided oversight of WSIP, which was scheduled to be completed in June 2032. The two remaining projects were a regional groundwater conjunctive use project in northern San Mateo County and an Alameda Creek recapture project. The WSIP cost of $4.788 billion was fully funded by ratepayers. Recognizing the need to invest to ensure a reliable regional water system, SFPUC’s 10-year capital plan (FY24-FY33) identified and prioritized capital improvements. Public Comment: 1. Peter Drekmeier, Policy Director for the Tuolumne River Trust, presented slides. Two years ago, BAWSCA perform their most recent demand study including a sensitivity analysis. The 2000 Urban Water Management Plan (UWMP) water demand projections were much higher than actual demand. Mr. Drekmeier thought that SFPUC basing their AWS plan on UWMP demand projections was a huge mistake and very political, would add $17 billion to the budget, and double rates in 20 years. Therefore, it had to be determined how much AWS was needed. Mr. Drekmeier has worked on these issues for 17 years and offered to provide a workshop to the UAC. 2. BAWSCA’s goal was to provide reliable, high-quality water supply at a fair price. Dave Warner thought Palo Alto paid the highest wholesale water price of any major water agency in California. Commissioner Croft asked about the City’s contractual agreement with SFPUC, the contract duration, ownership structure, and SFPUC’s long-term obligation to the City. Ms. Sandkulla responded that the contract included guaranteed rights in perpetuity for supply assurance. The contract was an allocation of costs, wholesale customers in comparison to San Francisco pay in proportion to their water use. The contract provided assurance that the City would have a share of water during droughts, with the goal of no more than 20 percent rationing system- wide but the amount of rationing was not guaranteed. The contract states that San Francisco must provide the City with water that met drinking water standards. It was a 25-year contract, signed in 2009, expiring in 2034. There have been a couple of amendments since 2009 and the City will see an amendment in the coming months for renegotiation of the drought allocation among the wholesale customers. San Francisco built and operated the system. In the litigation that Palo Alto and others brought forth, the assertion was that the Raker Federal Act gave San Francisco the authority to build water facilities in a federal park, so wholesale customers argued that they were granted authority along with San Francisco. A lawyer would need to provide any further response to the question of ownership. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 9 of 25 Commissioner Tucher said that he’d understood the City’s wholesale prices were the highest in California at nearly $2500/acre-foot. Commissioner Tucher believed there had been almost a doubling in price over 10 years. Commissioner Tucher asked about the public commenter’s question of fair share versus fair price. Ms. Sandkulla stated that Mr. Warner’s comment was correct. BAWSCA, because of the contract and pay proportional to use for a reliable supply of high-quality water at a fair price, fair was focused on making sure you pay your fair share. There were WSIP and capital investments in the last 20 years. About 11 years ago, the original Mountain Tunnel, one of the major single tunnels to deliver water from Hetchy to the system, had deterioration issues inside. It could not be taken out of service because it was a single conduit. Engineers said the best alternative was a new tunnel in the Sierras, which would take a long time to build. A technical advisory panel suggested repairing the existing tunnel. BAWSCA was a strong advocate to an alternative that was in the financial best interests and for reliability. Ms. Sandkulla did not know if $2500/acre-foot was the highest water rate in California because the price was not subsidized. The City paid San Francisco the cost of the water. The price of water that Santa Clara Valley Water District charges their wholesalers is offset by property tax within the county for their State Water Project charges, as do most agencies relying upon the State Water Project including Metropolitan Water District, but those charges were not reflected in the cost of water. Utilities Chief Operating Officer Alan Kurotori commented that the Water District’s projected treated water and groundwater pumping charges would exceed San Francisco’s cost in the future because of necessary changes and upgrades to their dams and systems. Commissioner Tucher inquired if Palo Alto and BAWSCA did a financial review of SFPUC’s CapEx based on affordability criteria and cost per acre-foot. Ms. Sandkulla stated that BAWSCA reviewed San Francisco’s capital plan and provided input and comment throughout the development and implementation process to ensure the resulting projects were the best projects to meet the identified level of service goals and that San Francisco could meet its contractual and legal obligations. Commissioner Phillips stated his understanding was that San Francisco Water had two customers, San Francisco and BAWSCA. Ms. Sandkulla answered no; BAWSCA did not have a contract with San Francisco. San Francisco had 26 wholesale customers under the BAWSCA umbrella under a single contract. San Francisco sold water to other suburban customers throughout the service area that were holdovers from the past or because of location of the pipelines. Commissioner Phillips wanted to understand the decision-making process and BAWSCA’s potential leverage if the City of San Francisco was the ultimate decision maker. Ms. Sandkulla replied that the SFPUC, a department of the City of San Francisco, had authority. The contract states that for actions SFPUC took to meet their contractual obligations, there was not an approval authority from the wholesale customers or BAWSCA. Within 184, SFPUC was within their right to do whatever they needed to do to meet the obligation. BAWSCA’s goal was to make sure it was the best choice possible. Ms. Sandkulla routinely speaks to the commission, general manager, commissioners, elected officials, and others. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 10 of 25 Commissioner Phillips asked what was in BAWSCA or the contract to provide oversight if SFPUC increased capacity beyond the 184. Ms. Sandkulla’s recollection was that it required a separate agreement for that need and its cost allocation. There was language in the contract that opened it up for further negotiation. San Francisco had not indicated they wanted to provide anything more than 184. Commissioner Croft noted in tonight’s annual report that Palo Alto’s prices were about 50 percent higher than Hayward which gets 100 percent of its water from Hetch Hetchy. Commissioner Croft wanted to understand why Palo Alto was so high and what caused the huge variability in costs to the end customer in comparison to other cities, given that the cities were paying the same price under one contract. Senior Resource Planner Lisa Bilir explained that Hayward and Redwood City get 100 percent of their water from SFPUC. The reason for the difference for other agencies was because they either mixed their SFPUC water with another source or had a different source of water. A benchmarking study performed in about 2020 and presented to the UAC compared Palo Alto to many other Bay Area agencies that get 100 percent Hetch Hetchy water. The study demonstrated that most of those agencies were smaller than Palo Alto and had higher rates. The only two that had lower rates were Hayward and Redwood City; however, the gap between Palo Alto, Hayward, and Redwood City had been narrowing over time. In 2009, Palo Alto’s rates were 60 percent higher than Hayward. Now, Palo Alto’s rates were about 10 percent higher than the average of Redwood City and Hayward at median usage level but 2 or 3 percent higher than other agencies at low and high usage levels. The study found that operating costs was one reason for the difference. Another reason that contributed to the higher rates was that Palo Alto had consistently good and appropriate levels of capital investment in the water system. Commissioner Croft asked if the higher rates in Palo Alto were mainly due to the costs of maintaining the system within the city. Commissioner Croft believed it was more than a 10 percent difference because the annual median in Hayward was 85 and Palo Alto was 113. Ms. Bilir replied that operating costs, capital costs, and rate design could be different across cities. The median usage level was 8 or 9 CCF in Palo Alto. Every few years, a cost-of-service study examined costs and revenues. Palo Alto charged its customers in accordance with the recommendations of its cost-of-service study. Chair Scharff wanted further explanation as to why Hayward had cheaper water if they paid the same wholesale cost as Palo Alto. Chair Scharff inquired if Palo Alto was overinvesting or incorrectly designing rates. Ms. Bilir responded that it was complex to compare cities in different cost categories because cities get revenue from different sources or categorize their departments differently. Palo Alto did two or three benchmarking efforts with outside consultants and internal staff to perform comparisons across cities. Ms. Bilir clarified that rate design also meant that Hayward could get additional revenue from nonresidential growth that could influence some of their rates. In discussions with some of Hayward’s staff, Ms. Bilir understood they had a new school and new parks. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 11 of 25 Chair Scharff inquired if Hayward was buying and selling more water than Palo Alto. Ms. Bilir answered no; Hayward did not use a lot more water per person. Many of the costs were fixed. Over time, the trend was that Hayward had different customer usage and growth than Palo Alto on residential and nonresidential. Chair Scharff was looking at primarily residential rates. Ms. Bilir said that staff was happy to look at it further but it was a very complex question that did not have a simple answer. Chair Scharff told staff to come back or email the UAC because it was worth spending the time to determine why other BAWSCA agencies were a lot cheaper than Palo Alto. Mr. Kurotori remarked that staff could follow up with the City of Hayward. Staff could reach out to Alex Ameri, the Director of Public Works for the City of Hayward and previous Palo Alto UAC Commissioner. There were differences between Palo Alto and Hayward in compaction of their areas. Hayward might have a lot more industrial and commercial use. Staff could follow up and inform the UAC why Palo Alto was higher than Hayward if both were receiving water from Hetch Hetchy. Director of Utilities Dean Batchelor stated that if staff could get the information, it would be provided to the UAC next month for the discussion on preliminary rates and comparisons for all the utilities. Commissioner Phillips wondered if the benchmarks could include comparable communities that were not BAWSCA members, such as Menlo Park and San Carlos. Ms. Sandkulla clarified that Menlo Park and San Carlos were BAWSCA-served agencies. San Carlos and Menlo Park were served by Cal Water. Menlo Park was also served by a private water district, O’Connor Tract. Commissioner Tucher asked Mr. Drekmeier to elaborate further on his comment about SFPUC consistently over-projecting or over-forecasting demand. Mr. Drekmeier explained that projections from the 70s and 80s projected demand today would be 400 to 450 million gallons per day (MGD), more than twice of actual demand. The regional service area (San Francisco and BAWSCA) had been less than 200 MGD for the last 10 years. SFPUC created a Water First policy after a six-year drought that favored water supply over hydro because they previously were trying to generate as much hydro as possible to generate revenue but got into some trouble during the drought. That is when SFPUC came up with the design drought that was also in the AWS plan, which combined two of the worst droughts on record to create a mega drought. Mr. Drekmeier asked a couple of SFPUC commissioners why there were two sets of demand projections. The Water Enterprise demand projections were used in the UWMP and everything was based on it, and the Finance Bureau does sales projections. Those SFPUC commissioners asked for a report comparing the two projections to actuals. The resulting report found that both departments over-projected but Finance was a lot closer to actuals. The Finance Bureau projected water sales of 207 MGD in 2045, the Water Enterprise projected 244 MGD, a 37 MGD difference. 92 MGD costs $17 billion, so a 37 MGD difference was more than a third less. The report said that sales projections were as close to accurate as possible because otherwise there was a deficit if you do not sell as much water as you projected. One SFPUC commissioner asked SFPUC staff a year ago how it would impact rates if they did not sell as much water as they had projected. That commissioner did not receive a response and was not get reappointed, so Mr. Drekmeier hoped the UAC could ask the same question. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 12 of 25 It was a complex regional network, so Vice Chair Mauter thought it was important to highlight BAWSCA’s role in providing technical expertise to a very diverse set of relatively small agencies and regional coordination. Vice Chair Mauter emphasized that capital improvements to a hundred-year-old system were essential and important to ensure we had a reliable water supply. Vice Chair Mauter did not want to underinvest in maintenance of a system that was critical to the economy of this region and our enjoyment of it. Vice Chair Mauter wanted to hear more about demand projections. Vice Chair Mauter felt it was important to incorporate climate uncertainty into the analysis. There could be potential changes in the frequency, intensity, and duration of droughts across California. Vice Chair Mauter noted that Palo Alto consistently overestimated water demand, as shown in this quarter’s budget report that sales were a little under the projected amount. Water efficiency improvement had been tremendously successful. The metric of gallons per day per person had to take growth into account from urban infill versus maintaining the tree canopy. San Jose and Santa Clara were intermittent purchases of water in the system, so Vice Chair Mauter wondered if they should be included in the demand projections if there was not a supply obligation. Vice Chair Mauter thought a policy decision needed to be made as a Utilities Advisory Commission and as a region on how to fill the gap between supply and demand, acknowledging there were technical and political issues. Vice Chair Mauter saw a need for technical engineering guidance. Vice Chair Mauter believed there should be citizen, Council, and UAC engagement because these questions were policy grounded, had huge affordability implications, and strong implications about how we see growth happening in the region. Vice Chair Mauter asked for Ms. Sandkulla’s advice to the UAC on how to effectively engage with her predecessor and the SFPUC. Ms. Sandkulla remarked that drought was driving the AWS numbers, not growth. Efficiencies were beyond covering growth. Investments were for reliability. As we become more efficient, it was more challenging when you needed to reduce 20 percent in a drought year. Vice Chair Mauter queried if SFPUC’s definition of the design drought was correct. Ms. Sandkulla responded that since BAWSCA’s formation they had been engaged on the design drought and would continue to support the design drought as the appropriate metric for planning purposes for this service area, given our reliability on a singular source of supply. Better, more informed data was needed in order to revisit the design drought. Vice Chair Mauter thought there had been a lot of progress in the science of making better projections instead of combining two droughts to create a design drought. Distinct attributes as well as frequency, intensity, and duration of droughts have different implications for the water supply and structure needed in the future. Vice Chair Mauter thought that a more detailed study out of BAWSCA clearly defining an appropriate design drought for our region for not just today but potentially under future climate scenarios 50 years out would be an incredibly valuable service from BAWSCA to its members. Ms. Sandkulla pointed out that BAWSCA did not own and operate the system, so her preference was to have SFPUC do it. Vice Chair Mauter believed that BAWSCA and SFPUC working together on a study was ideal but if it was not possible, then it was imperative that BAWSCA take it on independently. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 13 of 25 Ms. Sandkulla remarked that San Jose and Santa Clara chose not to participate in the lawsuit that Palo Alto and other cities brought forth that resulted in the 184 contract. Therefore, San Jose and Santa Clara were not beneficiaries of the lawsuit settlement to have perpetual supply assurance through 184. All individual contracts were the same, including San Jose and Santa Clara. San Jose and Santa Clara have consistently purchased water from the system every year since the 70s. The BAWSCA Board has continuously supported making San Jose and Santa Clara permanent customers and was actively engaged in discussions about that with San Jose, Santa Clara, and San Francisco. In answer to Commissioner Tucher’s question if system meant the Hetch Hetchy system, Ms. Sandkulla said yes. Commissioner Tucher asked if San Jose’s and Santa Clara’s contracts were through BAWSCA or SFPUC. Ms. Sandkulla replied that San Jose and Santa Clara were signatory to the water supply agreement, were members of BAWSCA, had seats on the board, and contracted directly with SFPUC the same as everyone else. The only difference was that San Jose and Santa Clara did not have perpetual supply assurance. Vice Chair Mauter wanted to clarify if costs were driven by drought years, not by ample water supply years. Ms. Sandkulla responded that future costs, not current costs, were driven by drought years. Vice Chair Mauter thought that the region needed to make a policy decision on how to address the fact that two entities did not have supply assurances. Ms. Sandkulla remarked that it had been a struggle to find projects. Current conversations were around determining if there was a project that could be part of San Jose and Santa Clara giving permanent status and bringing in additional dry year supply that made it worthwhile for there to be a regional benefit. Santa Clara and San Jose do not have a perpetual right to water from the system. Santa Clara’s and San Jose’s contract with San Francisco says they can get 4½ MGD every year, pay the same rate as everybody else, and cannot be terminated without a 10 years’ notice. Chair Scharff wondered if Santa Clara and San Jose were costing us money because of the cost of investment for the design drought or if there were benefits resulting in a net positive because Santa Clara and San Jose saved us money in good water years since they buy water we would not otherwise sell. Ms. Sandkulla replied that there was a benefit to everyone when you sell water. Most of the time, the system had sufficient water to sell to its customers and was limited to who they could sell water. Selling up to 9 MGD to San Jose and Santa Clara was a benefit to the region as a whole. Everyone benefited from having a secure water supply in the region. Businesses rely on water supply. Ms. Sandkulla advised the UAC to make sure the next CEO for BAWSCA comes to talk to the UAC. Ms. Dailey asked Ms. Sandkulla to provide an explanation on Individual Supply Guarantee (ISG) and how or if it applied during drought. Ms. Sandkulla stated that collective wholesale customers were allocated supply assurance through 184. What was available in a normal year Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 14 of 25 was divided amongst the wholesale customers to calculate the ISG as a planning number to know how much you were entitled to purchase from San Francisco. Agencies could purchase more but did not have a right to it. Drought allocations were a separate formula based on wholesale customers, including San Jose and Santa Clara, negotiating for 2½ years on how to share available supplies during drought. The negotiations were concluding and the formula would be available in the next couple months. Chair Scharff asked if Hayward had unlimited supply. Ms. Sandkulla explained that everybody’s contract had an end date except Hayward’s, so Hayward has asserted that their contract read that San Francisco would supply water to meet your community’s needs. Hayward said that if they grew above their allocation of supply assurance in the 184 contract, everyone else had to cut back based on Hayward’s interpretation of their contract. Ms. Dailey confirmed Commissioner Tucher’s understanding that Palo Alto consistently did not use their allocated ISG. Commissioner Phillips questioned if supply and demand were not connected in the analysis and if demand changes were disconnected from the rates. With 50 percent debt service, rates would increase. Commissioner Phillips was concerned that the impacts of costs on the long- term use of water were being ignored. Ms. Sandkulla acknowledged that cost had an impact. A major component of the demand model was econometric, taking into account the available data. Until the last two years, data on droughts was very sparse. Costs increased because of investments. Sensitivity analysis was being done on total demand and PUC purchases. A third of the water supply was from water supplies less reliable than San Francisco. A more robust analysis will come out, which would be more useful to inform decisions. Independent of San Francisco, BAWSCA has done forecasts on behalf of the wholesale customers since 2002. BAWSCA goes through an independent demand projection process with each of the 26 agencies. BAWSCA provided the projections to San Francisco for their use. Commissioner Tucher wanted to hear comment on SFPUC’s Finance and Enterprise projections. Ms. Sandkulla asked Mr. Ritchie to respond. Vice Chair Mauter asked whether BAWSCA’s projections were closer to the Enterprise or Finance projection. Ms. Sandkulla replied that the Water Enterprise projection was informed by BAWSCA’s projection because the Enterprise projection was for long-term water supply planning purposes. The Finance Department projections were for year-over-year cash flow and rate-making purposes. Ms. Sandkulla confirmed Commissioner Phillips’s understanding that the econometric model explicitly used an elasticity of demand to calculate and adjust the forecast based on the rates the people were paying. Commissioner Phillips queried if those elasticities were available. Ms. Sandkulla stated that the demand projections and elasticities from the prior demand study as well as the entire demand study were publicly available on BAWSCA’s website. Ms. Sandkulla offered to provide the elasticities from the prior demand study to Commissioner Phillips tomorrow. Ms. Sandkulla did not have the elasticities for the current study. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 15 of 25 Chair Scharff pointed out that we never ran out of water even though the region has had many droughts since the 70s and a lot more water was used in the 70s, 80s, and 90s. Ms. Sandkulla felt it was more appropriate to allow SFPUC Assistant General Manager Steven Ritchie to respond. Chair Scharff asked to hear Ms. Sandkulla’s comment and then Mr. Ritchie’s. Ms. Sandkulla stated there had been a lot of singular one or two dry years but not many droughts extended to three years. Massive droughts occurred in 76-77 and 87-92. Then, there were a couple dry years but no droughts until the last 10-year period. We have grown into our demand. People used a lot more on a per-person basis in the 70s but you could save a lot by not flushing your toilet because a toilet used 7-9 gallons per flush. Your toilet today used less than 1 gallon per flush, so we have less ability to conserve. Regulatory constraints made the San Francisco system less reliable. The challenge was how to provide and manage the additional water that the environment needed. New drought year supplies needed to be developed. Commissioner Gupta inquired if the contract in 2009 specific to San Francisco’s obligation to provide safe drinking water included perfluorinated substances or microplastics in our water supply, and if BAWSCA or SFPUC was looking at that issue. Ms. Sandkulla answered that San Francisco’s obligation was to provide water that meets drinking water standards. Mr. Ritchie and his team were actively looking at perfluorinated substances and microplastics, so Ms. Sandkulla would let Mr. Ritchie talk about it. ACTION: None UAC took a break at 8:30 PM and resumed at 8:42 PM. ITEM 4: DISCUSSION: Discussion with San Francisco Public Utilities Commission’s Assistant General Manager of the Water Enterprise: Operations, Drought Planning, and Alternative Water Supply Planning SFPUC Assistant General Manager Steven Ritchie addressed the UAC. SFPUC delivered potable water to the system. Most wholesale agencies delivered raw water, not potable water, so a comparison of rates could be misleading. Valley Water’s rates may have surpassed SFPUC. Because of the quality and purity of the water from Hetch Hetchy, the water is only disinfected but did not need to be filtered. The water was delivered by gravity through the system across the Central Valley and up the Peninsula to the Bay Area without any pumping. From a sustainability perspective, this was one of the highest ranking water systems in the nation if not the world. SFPUC had junior water rights on the Tuolumne River, meaning in wet years we had plenty of water but had the right to very little water in dry years. The irrigation districts have senior water rights. For reliability, SFPUC relied on stored water in their reservoirs. The source water had been sampled for years and PFAS had never been seen in the system. Microplastics may be the next water quality requirement. Management decisions and planning were guided by Water First, experience, and risk management. Water First meant that water supply was a top priority with hydropower generation a secondary consideration. Experience was gained during the severe 1987-1992 Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 16 of 25 drought. We cannot operate to zero storage because there would be no cushion for the next potential dry water year. For drought planning, analysis was done of a drought worse than 1987-1992 by adding two additional dry years. This year might be the beginning of a new drought because October was extremely dry. A photo was shown of the upstream face of O’Shaughnessy Dam with water available at the bottom level but the other outlets were dry. All water agencies were obligated to create an Urban Water Management Plan (UWMP) every five years to demonstrate there was enough supply to accommodate anticipated growth over the ensuing 25 years. For example, SFPUC communicated with the City of Palo Alto’s Planning Department about their expectation for growth. When a Finance Department does demand planning, they have to make sure they do not run out of money. SFPUC has to make sure they do not run out of water. The 2018 adopted Bay-Delta Plan was contested and SFPUC filed litigation. Unimpaired flow paradigm and existing agreements may require up to 93 MGD of impact to regional water system supplies. A Healthy Rivers and Landscapes Program was an alternative being considered by the State. In the last couple droughts, the State curtailed SFPUC’s diversions in the system by certain water right holders. SFPUC had been working with the State on this but it could potentially impact SFPUC’s water rights. Housing Elements called for many new housing units in every community served by SFPUC. The population will continue to grow. Demand hardening would see if people could achieve 20 percent rationing in a drought. Regarding climate change, SFPUC worked with UMass Amherst on a long-term vulnerability study, the results of which showed shifts for more precipitation as rain than snow with changes in runoff patterns. The Alternative Water Supply (AWS) Plan for the regional water system was requested by SFPUC and the BAWSCA Board of Directors. This was not an adopted plan nor was it a plan to construct any particular project. The AWS Plan was meant as a planning document to give information to decision makers regarding potential future water supply issues and actions to augment the regional water system supplies to retain our current, appropriate risk management approach. Wholesale customers had a supply assurance of 184 MGD, if available and requested, divided by Individual Supply Guarantees (ISG) among 23 customers, excluding San Jose and Santa Clara as well as Hayward’s unique circumstance. San Francisco’s supply allocation was 81 MGD. San Jose and Santa Clara had a combined supply of 9 MGD. Total regional water system demands were 244 MGD based on the 2020 UWMP, comprised of numbers received from wholesale customers collectively through BAWSCA plus work that SFPUC did with their econometric modeling in San Francisco. Assuming implementation of the Bay-Delta Plan Amendment, water Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 17 of 25 availability would be 152 MGD but total regional water system existing and potential obligations were 274 MGD, resulting in a shortfall of 122 MGD. A map was shown of AWS projects throughout the service area: Daly City recycled water expansion, PureWater Peninsula, South Bay purified water, Los Vaqueros Reservoir expansion (LVE), supply alternatives for LVE, conveyance alternatives for LVE, Alameda County Water District and Union Sanitary District (ACWD-USD) purified water, and Calaveras Reservoir expansion. The three projects with PureWater or purified water in their name were potentially using recycled water for drinking water. According to the press, the Los Vaqueros Reservoir expansion project may not happen for various reasons. SFPUC thought they would continue to pursue the purified water projects because it was the surest future water supply. SFPUC will hire a Purified Water Program Manager in San Francisco to ensure SFPUC was moving in the right direction. The regional groundwater storage and recovery project and the Alameda Creek recapture project were part of the WSIP that SFPUC was working on with BAWSCA and the wholesale customers. The San Francisco groundwater project had been instituted for years and SFPUC could expand it. PureWaterSF would be a purified water project in San Francisco. There were potential projects with Turlock and Modesto Irrigation Districts. SFPUC will develop additional demand scenarios. SFPUC will explore the feasibility of a regional water system grant program where money could be distributed to customers who had projects they wanted to pursue that may not have been cost effective but might be beneficial to the region. A total of about $12 million was spent for the AWS Program over the last four years, mostly in planning purposes, and most went for the Los Vaqueros expansion project. Earlier this year, SFPUC approved a 10-year capital improvement plan, including funding for AWS planning. The FY25-34 CIP totals were $1.63 billion for regional water and $1.53 billion for Hetch Hetchy water. Those funds were going for a lot of projects, the bulk of which were replacements of old facilities, including the hundred-year-old Hetch Hetchy facilities and various pipelines throughout the system. The AWS program represented about $260 million in the 10-year plan. Almost $11 million was planned to be spent in FY24-25 through FY25-26 but a lot of that was for the Los Vaqueros expansion, so SFPUC may change where that money goes. This funding supported purified water projects. Delivering SFPUC’s CIP takes sound financial planning, including smart infrastructure planning and investment, low-cost debt funding, and conservative financial policies on reserves and debt coverage. In November of 2023, the SFPUC adopted a ratepayer affordability policy. Historically, 2 percent of median income was affordable under EPA guidelines. The median income is high in San Francisco but it is a bimodal economy. SFPUC does numerous proactive audits. Rate setting is compliant with Prop 2018 and the Water Supply Agreement. SFPUC planned their finances to support their infrastructure needs without overly burdening their constituents. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 18 of 25 FY 2025 projected wholesale rate: The wholesale revenue requirement was how much money it cost to operate the system in any given year, most of it fixed costs. Fixed fees were meter fees for various customers. There was a balancing account because sometimes funds were over or under collected depending on actual demand because it was prorated across water consumption. The wholesale revenue requirement minus fixed fees and plus or minus the balancing account was divided by wholesale volumes, which was $5.55/unit. This represented a 6.5% rate increase. The factors driving the rate increase were growth in capital spending, continued low water usage, and changes in the balancing account. A graph was shown of historic and projected wholesale rates. There were no rate increases from 2019 through 2022. Commissioner Gupta asked Mr. Ritchie to expand on the different components and reasons for the rate increases from 2024 through 2029 shown on the graph of historic and projected wholesale rates. Mr. Ritchie replied that a lot of it was due to changes in the capital improvement program and increasing debt service. SFPUC had indicated when they started on WSIP that water rates would triple; and wholesale and retail customers collectively agreed it was worth it because the system was at too much risk of a failure. Commissioner Tucher noted the chart started with 2018 but he recalled that rates were $1.50 or $2.00 prior to 2018. Mr. Ritchie agreed that rates were cheaper before but SFPUC had planned expenditures to build $4.8 billion worth of improvements and associated debt service. Public Comment: 1. Peter Drekmeier with the Tuolumne River Trust showed slides. In the fall of 2016, the State Water Board came out with the Bay-Delta Plan. Within a month, the SFPUC and BAWSCA had an editorial in the Chronicle saying that the Bay-Delta Plan could lead to 50 percent rationing, and the loss of 188,000 jobs and $49 billion. Mr. Drekmeier wondered where those numbers came from. An update to the socioeconomic study was 2½ times lower. During the drought that ended in 2016, jobs had increased 27 percent in the service area and water demand decreased by 23 percent. If the worst recorded drought were to repeat and the Bay-Delta Plan flows were in place, the SFPUC could manage the drought without requiring any rationing or developing any alternative water supplies. Water conservation and alternative water supplies could strengthen water resources much further. SFPUC was planning for a design drought 72 percent more severe than the worst drought on record. In 2021, SFPUC released a Long-Term Vulnerability Assessment (LTVA) climate change study, spent three-quarters of a million dollars, and SFPUC never cited it to support their position; however, the Tuolumne River Trust cited it all the time. The LTVA did not include a return period for the design drought, meaning the number of years it might be expected to pass between severe droughts. The SFPUC did not say what the return period was for the design drought. A 2020 document uncovered through a Public Records Act request suggested a design drought return period of 25,000 years and 1.3 Million acre-feet would need to come out of storage. The design drought was downgraded to once in 8000 years proportional to what SFPUC did in the final LTVA. A Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 19 of 25 graph from the climate change study demonstrated 100 years of observed data and 1100 years of tree ring data. After 25,000 simulated model runs, the worst droughts do not come close to the 1.3 billion acre-foot deficit in the design drought. 2. Dave Warner stated that Valley Water’s current wholesale rate for treated water was $2344 per acre-foot after a recent 12 percent rate increase, compared to $2470 in Palo Alto. Valley Water was working on a study on reliability balanced with affordability. It was wonderful that CPAU was comparing their rates to Redwood City and Hayward, trying to determine why their rates were different and learn how CPAU’s rates could be better. Money needed to be spent on infrastructure to replace the penstocks but maybe it could be spread over more time to make it more affordable. Mr. Warner believed that there were a couple of things the SFPUC could do to help rates that could make a big difference in what end customers have to pay. In response to Commissioner Gupta asking if the graph of projected wholesale rates included any of the potential AWS, Mr. Ritchie answered no. Vice Chair Mauter asked if Mr. Ritchie felt confident in SFPUC’s scientific understanding of how frequency, intensity, and duration of drought were likely to change under future climate scenarios, and if the study done within SFPUC was complete. Mr. Ritchie explained that the study was not intended to answer that question. The number of more than 24,000/year was part of an original analysis done by the researchers; however, without direction from SFPUC, the researchers concluded they did not have any data so it was too speculative to rely on in the report. As part of the study, an expert elicitation was done with 10 climate experts for two or three days of learning about the system and having discussions. When the climate experts were asked if they thought SFPUC’s design drought was appropriate, too conservative, or not conservative enough, 7 of the 10 answered appropriate or not conservative enough. Vice Chair Mauter remarked that the impact of changes in frequency, intensity, and duration of drought have very different financial implications. Vice Chair Mauter thought that an important part of the AWS Plan was to clarify how those individual drought attributes were likely to change going forward, and develop design droughts that were not just lengthening but were changing in frequency or intensity. Mr. Ritchie stated that was one of the key points the researchers made in the report that just came out. In an interview the researchers gave on this report, they said it was not just precipitation but the demand of the atmosphere and the biota had a big impact and those factors were now being incorporated much more. In response to Vice Chair Mauter asking if there was a planned update of the definition of a design drought, Mr. Ritchie answered no. At Hetch Hetchy, an analytical group of four or five people was providing insights to the SFPUC. The analytical group was connected to all the research networks on drought conditions, precipitation, atmospheric rivers, and other things. Mr. Ritchie agreed with Vice Chair Mauter’s understanding that climate science in this area was changing very quickly. Vice Chair Mauter thought that keeping updated and regularly revisiting it was very important and in the best interest of all the SFPUC system. Mr. Ritchie remarked that SFPUC did not have any control over that because it was done through the Water Research Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 20 of 25 Foundation to UMass Amherst with SFPUC funding. Mr. Ritchie was happy to participate in additional work that came from that study. Vice Chair Mauter spoke about the difference in the Enterprise and Finance demand models. Mr. Ritchie stated that the finance demand models were trying to get as close as they could to actual demands to make sure the SFPUC does not run out of money. The UWMP model was artificially inflated because it was based on what the Planning Department says would be the buildout, and SFPUC was legally obligated to show they had the water to meet that demand. Vice Chair Mauter commented that it was important to explicitly look at how new projects affected rates and how it subsequently affected demand. Mr. Ritchie remarked that the SFPUC received a comment letter from BAWSCA on behalf of the wholesale customers, which said that they fully supported all the planning the SFPUC wanted to do but to not build anything until the SFPUC came back to talk about it and made sure they were the right investments. Vice Chair Mauter requested clarification on how it was decided what gets built and the role that BAWSCA played in the decision making, and at what point individual projects come before BAWSCA. Mr. Ritchie explained that SFPUC was obligated within San Francisco to do an annual review of their capital improvement program. SFPUC did a thorough review every two years. SFPUC was starting on their mid-cycle review. The Water Enterprise identified candidate projects, which were then passed to the Infrastructure Division to develop cost estimates. The information was put into an 11 x 17 spreadsheet for discussion on each line item. Usually in October or November, SFPUC met with BAWSCA to discuss the coming year’s plan. Vice Chair Mauter asked what advice Mr. Ritchie had for Palo Alto City Council, the UAC, and CPAU on preparing our citizens for the potential blending with reused water and when should the City start the education process. Mr. Ritchie replied it was never too soon to start. SFPUC had been in discussion with BAWSCA and Valley Water about maybe doing something jointly with Valley Water. The common agreement was that the Bay Area should have a consistent set of messages on purified water. The messaging did not need to be project oriented. It was not a topic in the industry until about a decade ago. Now, it was getting more discussion and people were reading about it in the papers. When it is implemented, you need to have been working at it for several years and continue working at it. Vice Chair Mauter expressed her personal support for a regional cost sharing program. Finding low marginal cost projects helped everybody in the region, and there was the potential to reduce cost as a result of continued regional coordination. Vice Chair Mauter inquired if there was elasticity in other demands along the Tuolumne River and whether there had been any work to reach an agreement with the irrigation districts on water allocations in drought years. Mr. Ritchie explained that there were political and engineering considerations. In 2012, SFPUC thought they had a potential deal but there was a large public outcry during the public hearings about sending water to the Bay Area. SFPUC had been working closely with the General Manager and Chief Counsel but they were gone within Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 21 of 25 six months. SFPUC was starting to have conversations with the irrigation districts to find creative ways they might share benefits of projects. Vice Chair Mauter thought that as the marginal water supply costs of some AWS sources became a ceiling on willingness to pay, it may look beneficial to some of our partners at the irrigation districts. Mr. Ritchie said that SFPUC offered the irrigation districts a hundred times what they were paying for water and yet the deal died in 2012. Commissioner Tucher’s primary concern was that Palo Alto not be rushed into heavy investment in alternative water. Commissioner Tucher was open minded to questions of recycling when the time comes but he was concerned about rushing into making investments along the lines of the One Water discussion without open and transparent data and modeling, and without understanding the assumptions. Commissioner Tucher noted the wholesale rates that Palo Alto paid to the SFPUC were high and CapEx for the SFPUC was high. Commissioner Tucher saw $1.6 billion in the presentation and he wanted to clarify that was not all SFPUC water. Commissioner Tucher thought CapEx was in excess of $10 billion over 10 years. Mr. Ritchie replied that CapEx was not in excess of $10 billion over 10 years. Mr. Ritchie was responsible for three capital improvement programs. Hetchy water up in the Sierras was about $1.5 billion, the regional water in the Bay Area was $1.6 billion, and $1.3 billion for local water in San Francisco; that was the Water Enterprise. The $1.5 billion upcountry included power projects, so maybe about half was a water project but it was carried out on behalf of the system that SFPUC was responsible for managing. Commissioner Tucher attended a summertime BAWSCA meeting and learned that total SFPUC CapEx over 10 years was almost $12 billion and had gone up significantly in a two-year period. Mr. Ritchie stated that the total included the wastewater program. Commissioner Tucher pointed out that CapEx presumably had implications on future wholesale and consumer rates. Mr. Ritchie said it did in the sense that the split was roughly one-third and two-thirds for wholesale water and wholesale water costs but about half of SFPUC’s budget came from San Francisco for retail. San Francisco residents received a combined bill for water and wastewater. Bigger wastewater increases in the future will lead to affordability issues. There could be a constraint on what San Francisco was able to pay into improvements that benefit the whole region. We have to get creative and look at alternative ways of financing. A regional financing authority was created in the legislation but it had never been used. The legislation gave the region the ability to issue debt. Commissioner Tucher expressed his concern that Palo Alto would be affected by SFPUC’s large and growing CapEx. Commissioner Tucher thought he read that CapEx jumped 30-something percent from a couple years ago. The alternative water projects in the presentation were an extra investment. Mr. Drekmeier explained that a large increase occurred after a zero percent water increase in San Francisco, so it was restoring money that was deferred. Commissioner Tucher asked if 152 MGD was the amount of water that SFPUC gets from the Tuolumne. Mr. Ritchie answered no. After meeting the environmental obligations of 40 percent Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 22 of 25 unimpaired flow under the Bay-Delta Water Quality Control Plan, 152 MGD was the available supply from SFPUC’s sources for the regional water system to deliver. Commissioner Tucher inquired about SFPUC’s entitlement of water from the river. There was reference to junior water rights in the presentation. Mr. Drekmeier explained that the SFPUC was entitled to 750,000 acre-feet from the Tuolumne in an average year, which was about 690 MGD. Demand had been less than 200 MGD for the last 10 years, which was 225,000 acre-feet per year. The Bay-Delta Plan required an average of 93 million gallons left in the river. In the 70s, 80s, and before then, the SFPUC projected much higher demand, which was why they invested a lot in storage. Hetch Hetchy was a quarter of SFPUC’s storage. SFPUC had a water bank at Don Pedro. During extended droughts, on paper the SFPUC was giving up water from their bank but could keep all the reservoirs full. At full storage, SFPUC had about 1.45 million acre-feet, of which about 90,000 was dead pool, so SFPUC had about 1.35 million acre-feet. SFPUC needed 225,000 acre-feet per year. During the drought when SFPUC declared a water shortage emergency in November 2021, SFPUC had enough water in storage to last 4½ years. At the height of that drought, SFPUC had enough water in storage to last four years. In 2017, SFPUC was entitled to enough water to last 14 years. Between 2012 and 2016, unimpaired, natural flow in the lower Tuolumne was an average of 12 percent; 88 percent of the water was held in storage or diverted. 2017 was a bigger water year and the unimpaired flow was 79 percent. Going from 12 percent to 79 percent was not a good way to manage a river. A salmon run supports a whole ecosystem. Had the Bay-Delta Plan been in effect between 2012 and 2016, it would require 40 percent of the flow to come down the river in the absence of dams and diversions between February and June. In 2017, it would have been 44 percent. The Bay-Delta Plan was adopted in 2018 and had unanimous support from Palo Alto. Commissioner Tucher asked Mr. Warner to elaborate on his comment about affordability and reliability. Mr. Warner’s understanding was that the SFPUC’s focus was on reliability. Mr. Warner has not heard that the SFPUC was trying to balance reliability and affordability. Valley Water was looking at very significant increases in their water rates but they did a study to see what they could do to balance affordability and reliability. Mr. Warner wanted the SFPUC to say it would be great to do this project for reliability, here is how it would affect our water rates, and then decide if they should put off the project to help with water rate affordability. Commissioner Tucher asked for Mr. Warner’s point of view on SFPUC’s rising CapEx, which had an effect on our water rates. Mr. Warner thought there was a need to look more closely at water rates. Some water districts, including Valley Water, get subsidized water from the State Water Project and their property owners pay a State Water Project fee. Palo Altans also pay a State Water Project fee on their property tax bill. There were many factors to consider, such as how reliable the system was, how much it was out of repair, if you were building reserves, and how much debt you have. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 23 of 25 At the Yosemite Visitor Center, Commissioner Croft recalled seeing tree rings demonstrating long droughts. In published literature she round reports of the tree rings in California dating from 900 AD through now, showing a 21-year drought in the Klamath River system, two 10-year droughts in the Sacramento River system, and a 13-year drought in the San Joaquin River system. Commissioner Croft supported investment to identify feasible solutions for longer droughts and determine lead time to implement them. Commissioner Croft expressed her concern about a longer-duration drought happening again. Commissioner Gupta wanted further explanation on what SFPUC was doing now and potentially in the future on microplastics. Commissioner Gupta’s concern was if purified water had the same chemical composition quality as the water from Hetch Hetchy. Commissioner Gupta heard that purified water would meet the federal maximums but Palo Alto’s water was currently well below many federal maximums for contaminants. For example, the total dissolved solids in in Palo Alto’s water were consistently below 100 but the federal maximum was up to 500. Mr. Ritchie replied that purified water would undergo required treatment under the regulations. The water would not have a noticeable taste difference nor would it be chemically distinguishable. There was no standardized methodology for analyzing microplastics. The State Water Resources Control Board will provide standardized methodology to evaluate source waters in a pilot project in the next two to three years with 10 or 11 of the largest water agencies in California, including SFPUC. In response to Chair Scharff wanting to confirm that Mr. Ritchie said the main drivers for cost increases were capital improvements and declining water sales, Mr. Ritchie answered yes, they were the main drivers for rate increases. Mr. Ritchie explained that a household bill was a better point of comparison instead of rates. The rates San Francisco and SFPUC’s wholesale customers pay for water was a certain cost per unit but somebody in Los Angeles would use twice as many units at maybe a lower rate but they were paying more on a monthly bill because of the amount of water they used. Chair Scharff asked what the primary reason was for SFPUC wanting to sell less water. Mr. Ritchie stated that SFPUC did not want to sell less water. SFPUC wanted people to use water wisely to ensure water was available in future drier years. Demand was low in wet years because there was no irrigation. Stretching water supplies as long as possible was the purpose for conservation and using water wisely at all times. Mr. Ritchie did not want to encourage more water use in wet years and have people cut back if there was a drought the following year because people would get used to using more water and question having to cut back. Chair Scharff asked what the plan was to resolve the issue of continuously rising fixed costs causing an affordability crisis because not everyone could afford to pay high water rates, which may constrain SFPUC’s ability to put money toward new sources of water or large capital improvement projects. Mr. Ritchie replied that the plan was that people relied and would continue to rely on this water; as a result, capital assets have to be renewed, which costs money. SFPUC’s message was that the rate itself was irrelevant, what people were paying on a monthly basis was mostly relevant, and people would pay to have water supply reliability. Alameda County Water District gets 40 percent of their supply from the State Water Project but Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 24 of 25 does not get any water from the State Water Project during a drought. Alameda County Water District asks SFPUC for increased water supply during droughts because they need to have reliability of supply. They were not paying for the water; they were paying for the reliability and purity of the supply was the message SFPUC needed to give more than anything else. Chair Scharff stated that desalination plants could be built, it would cost a fortune, rates would go ridiculously high but you could have a ton of water. It was a question of how much money you wanted to spend, what were the rates going to be, and what the effect was on the people. Spending a huge amount of money to make expensive water was a social negative. We cannot continue to spend vast amounts on capital improvements. Chair Scharff asked when the amount spent on capital improvements would stabilize so there would not be huge spikes in rates. Chair Scharff wondered if SFPUC was on sustainable 20-year path if they continued to sell less water, especially if the population did not increase. Karla Dailey, Assistant Director of Utilities, Resource Management, said there was State legislation and regulation. There was the SBX. For the most part, everybody accomplished the reduction by the year 2020. New legislation was making conservation a California way of life by having to meet urban water use targets. Regarding selling more water in wet years, there were other pressures to make sure that water was being used wisely in California. Commissioner Phillips noted that when utility demand goes down, the price goes up. As long as you were guaranteed growth, it was not a problem. When you start losing customers, the price goes up for the remaining customers. The Utility’s obligation was to serve and provide reliability. In return, a formula was used to ensure the Utility gets their money back. Chair Scharff was concerned about the long-term plan. Chair Scharff said that legislature and people’s thinking could be influenced. Things could usually be fixed if you plan early. Commissioner Tucher queried what the projected wholesale price to SFPUC would be in one, three, and five years, and if it was contractual. Ms. Dailey replied that CPAU relied on SFPUC’s financial plan for the wholesale cost. Mr. Ritchie stated there was a graph that projected costs one, three, and five years from now. ACTION: None ITEM 5: DISCUSSION: Discussion of Utilities Annual Report for Fiscal Year 2024 (FY24) ACTION: Vice Chair Mauter moved to have UAC Commissioners email their questions to Utilities Administrator Assistant Kaylee Burton for staff response; and to allow for a 15-minute conversation at the December UAC meeting for additional follow-up questions and provide staff response available to the public. Commissioner Phillips seconded the motion. Utilities Advisory Commission Minutes Approved on: December 4, 2024 Page 25 of 25 The motion carried 7-0 with Chair Scharff, Vice Chair Mauter, Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. At the Commission’s request, Utilities Chief Operating Officer Alan Kurotori set a one-week deadline for commissioners to submit questions, staff had one week to return answers to the Commission. Commissioner Tucher requested further information on the Utilities Annual Report. Director of Utilities Dean Batchelor explained that a report was given to the UAC every quarter. Discussion took place with the fourth quarter report because the whole year was compiled. Utility KPIs were reported along with comparisons. In response to commissioners’ questions about reliability and the financials, staff included the information in the quarterly reports. Commissioner Tucher was looking for cost information. Commissioner Tucher would like to see a line for annual totals on the spreadsheets. Karla Dailey, Assistant Director of Utilities, Resource Management, directed Commissioner Tucher to look at Figure 9 showing gas supply cost actual versus budget on Page 14. FUTURE TOPICS FOR UPCOMING MEETINGS ON December 4, 2024, AND REVIEW OF THE 12- MONTH ROLLING CALENDAR Commissioner Croft asked about an offer for a graduate student to talk to the UAC about her project. Karla Dailey, Assistant Director of Utilities, Resource Management, responded that the student had worked on some of Palo Alto’s electric portfolio models but had since taken another job. Commissioner Croft thought it would be interesting to hear about her project if she was available. Ms. Dailey will follow up with the student to see if it was possible for her to speak at a UAC meeting. COMMISSIONER COMMENTS and REPORTS from MEETINGS/EVENTS Commissioner Phillips went on a tour of the Hetch Hetchy Reservoir and highly recommended it. Commissioner Phillips found the tour useful to understand the complexity of the water system. Commissioner Tucher visited the Water Temple. ADJOURNMENT Commissioner Mauter moved to adjourn. Commissioner Scharff seconded the motion. The motion carried 7-0 with Chair Scharff, Vice Chair Mauter, Commissioners Croft, Gupta, Metz, Phillips, and Tucher voting yes. Meeting adjourned at 10:33 PM.