Published By: Financial Services
Public Utilities Revenue Bond Oversight Committee
MINUTES
Monday, June 6, 2005
9:30 a.m. – 11:30 a.m.
1155 Market Street (between 7 & 8th Streets) 4th Floor
San Francisco, CA 94103
- Call To Order
Chair Patrick Sweetland called the meeting to order at 9:40 a.m. and roll call was taken. RBOC members present were Patrick Sweetland, Colleen Adams, Aimee Brown, Brian Browne, and Lisbet Sunshine. David Sutter was excused and Ken Bruce was absent.
- Update on Water System Improvement Plan (WSIP)
a. OCIP – Millicent Bogert. This item was continued to a later meeting with no objection.
b. PEIR – Laura Spanjian and Kelley Capone. Ms. Spanjian is the Assistant General Manager for External Affairs and Ms. Capone is an Environmental Project Manager in the Strategic Planning Group. Ms. Capone works closely with the City Planning Department, which is the lead agency for CEQA and is responsible for preparing the PEIR. Ms. Spanjian and Scott MacDonald, Assistant General Manager for Business Services said that the cost of the PEIR is included in the budget for Proposition A, and includes 2 to 3 full-time positions. Scoping is scheduled to be completed this summer and the draft of the PEIR (after several layers of review and public comment) is due between April and May 2006. The final PEIR will consist of the draft, public comments and responses to comments. The final certification and adoption is expected to occur by April 2007. Mr. Sweetland asked if SFPUC has engaged a consultant. Ms. Capone and Ms. Spanjian said that the joint venture of ESA and Orion was engaged after a competitive bid process for a budget of $2.2 million. The SFPUC hosted several public outreach seminars over the spring that were well attended and expects to conduct more public meetings for formal scoping this summer.Ms. Spanjian noted that the City Planning Department would be the lead agency in the PEIR. Mr. Browne asked if CIP revenue bonds would cover the review by the Planning Department. Ms. Spanjian affirmed that Planning Department work done in connection with the WSIP (CIP) would be funded from SFPUC revenue bonds.
Mr. Sweetland asked for public comment. Mr. Emeric Kalman said he did not approve of the selection of O’Ryan given his prior experience with the firm on a Recreation and Parks Commission project when the firm issued a Negative Declaration but the project was later required to conduct a full Environmental Impact Report.
Mr. Browne asked if the RBOC has oversight over commercial paper expenditures. Mr. Mike Martin, Deputy City Attorney, stated that the RBOC may comment and advise the SFPUC about CP expenditures, but was not empowered to restrict the issuance of CP. Mr. Browne then asked if the RBOC objected to an item being paid for by CP, but was ultimately to paid from revenue bond funds, could the RBOC recommend that the sale of these particular revenue bonds be block? Deputy City Attorney, M. Martin affirmed that the RBOC could make such a recommendation.
c. Financing Plan – Karol Ostberg. Ms. Ostberg summarized WSIP spending through May 2005 and projections, as follows:
Prop A money spent
$56,895,000
Prop A money encumbered
27,400,000
Total obligated as of May 2005
$84,295,000
WSIP appropriations
$141,000,000
WSIP FY06 request
$154,000,000
Commercial paper outstanding
$80,000,000
Ave. monthly WSIP spending projections thru January 2006
$13,000,000
Ms. Ostberg said that the general financing plan continued to include the use of CP to fund interim project costs and the issuance of long-term fixed-rate bonds to refund outstanding commercial paper and fund a certain amount of WSIP projected spending. The first Proposition A revenue bonds are scheduled to be sold in January 2006 for an estimated $350 million. Mr. Sweetland asked if SFPUC could outline the next steps. Ms. Ostberg said that the legislation would be drafted and that RBOC input would be sought prior to seeking Commission and Board approval. The financing team will be drafting the official statement and related financing documents over the next several months. Mr. Sweetland asked that SFPUC make recommendations relating to how the RBOC can be integrated into the financing process. Vice Chair Sunshine asked if the CP program would be terminated upon sale of bonds. Ms. Ostberg said that the CP program would be an integral part of the overall financing program. Mr. Browne expressed concern that a cost/benefit analysis of issuing CP versus incremental revenue bonds had not been performed to his satisfaction and after some discussion offered to submit his request/recommendation in writing.
Mr. Sweetland invited public comment. Mr. Kalman asked why it is so difficult for him to get financial information from SFPUC and the City.
- Report from Brian Browne on Demand Forecasting
Mr. Browne said that econometric demand forecasting is critical to quantify the important parameters driving system demand. He also said it was important to determine the price elasticity of water. He feels that the end-use model used by SFPUC is inadequate as a stand-alone tool for forecasting demand for a $4.3 billion project. Mr. Browne made note that the “proprietary” albeit “black box” approach needed to conform with sunshine as he said usually accompanied transparent regulator processes.
Mr. Browne note the lack of orthodox economic analysis, especially price theory, in making pivotal demand forecasts He also mentioned that system reliability had been lowered from 239 mgd as stated in the 2000 Master Water Supply Plan (MWSP) to 223 mgd. He said paraphrasing the 2000 MWSP that the then definition was basically “… a 24/7 delivery concept based on system reliability and hydrologic history for the period 1921-1999.” Mr. Browne said that no explanation was given as to why this number had been lowered in 2005 to 223 mgd. He presented to the committee a slide showing the 60 lines of code that he said supposedly represented the methodology. He made note that the parameters passed to this subroutine were not accompanied by examples. Adding that he could only evaluate the efficacy of this approach without a fully documented algorithm (assumptions and models specifications). Mr. Browne asked what was the objective (24/7) WSIP goal of the WSIP in regard to system reliability.
Mr. Browne showed the historical “deliveries” (quantities taken as a function of supply and demand) from the Hetch Hetchy system from 1983/04 to 2003/04 and noted that they averaged 242 mgd with a standard deviation of 22+ mgd and a spread of approximately 80+ mgd. He added that this period included the major drought episode of the later 1980s-early 1990s. He said that 30 minutes was too small a window to do justice to this topic. Adding, he would be available to expand on his presentation.
Mr. Browne described his professional experience with econometric demand forecasting and talked in some detail about the stages of the analysis: (i) preliminary; (ii) statistical; (iii) validation; and (iv) application including sensitivity/scenario testing. Mr. Browne presented a flow-chart illustrating diagramatically how this process should play out. He also noted that all forecasting efforts must be clearly documented (model specifications). Mr. Browne said that the lack of data made available to him from SFPUC precluded him from doing a thorough analysis. Ms. Sunshine suggested a future presentation on SFPUC’s method of forecasting demand. Mr. Sweetland said that the SFPUC has worked closely with each of its wholesale customers on this topic. The focus of this work has not been on price but rather driven by needs of the community given particular demographics, other sources of water and effects of conservation. There was a discussion about the relative merits of the two approaches.
Mr. Sweetland invited public comment. Mr. Kalman made a comment about water conservation.
- Report from the Chair
This item was taken after Item 5. Mr. Sweetland said that the state audit was previously mailed to members. Mr. Martin said he would let members know how they could access the sunshine training tape to fulfill their obligation to view it.
Mr. Sweetland invited public comment. There was none.
- Report from the Contracting Sub-Committee
Ms. Adams informed members that the Contracting Sub-Committee (made up of Ms. Adams, Ms. Brown and Mr. Browne) had met and were planning to meet again in three weeks. Ms. Adams said that the RBOC could hire a third party consultant or auditor from the Controller’s pool of as-needed, pre-approved firms. She said that the scope should be narrowly and carefully designed to elicit the most constructive, timely and cost effective results. The cost of the auditing services will be advanced from commercial paper proceeds and replenished upon the issuance of bonds. Ms. Ostberg is working with the Controller’s office to set up this mechanism. Ms. Brown added that she thought it was important to have the report and its findings completed prior to the sale of bonds in January 2006. Mr. Sandler asked that consideration be given to the extremely limited resources of SFPUC’s accounting department, particularly during the annual financial audit process. Members agreed to schedule a Special Meeting on August 10, 2005 from 2:00pm-4:00pm to approve the scope of work as developed by the Contracting Sub-Committee.
Mr. Sweetland invited public comment. There was none.
- Report from the Wastewater Sub-Committee
Mr. Sweetland said that the Wastewater Sub-Committee had been unable to meet, but hoped to schedule a meeting with staff to discuss the interim capital improvement program. Ms. Ostberg said that the substitution of the debt service reserve fund with a surety was completed on May 24, 2005.
Mr. Sweetland asked for public comment. Mr. Kalman asked a question regarding capacity charges. Mr. Sweetland said that subject was not within the purview of the RBOC. There was no further comment.
- Discussion and possible action to approve minutes of the April 4, 2005 meeting.
Ms. Brown moved to approve the minutes and Mr. Browne seconded the motion. Mr. Sweetland invited public comment and there was none. The motion carried unanimously.
- Discussion and possible action regarding proposed agenda(s) for next meeting(s).
The agenda for the Special Meeting scheduled for August 10, 2005 will only be contracting issues. Suggested agenda items for the next regularly scheduled meeting on October 3, 2005 were: OCIP, Rate Fairness Board, SFPUC’s demand forecasting; and system reliability.
Mr. Sweetland invited public comment and there was none.
- General Public Comment
Mr. Sweetland invited general public comment. Mr. Kalman made comments about conservation and expressed concern about future increases to costs of living.
- Adjournment
With a motion to adjourn by Ms. Adams and a second by Mr. Browne, Mr. Sweetland adjourned the meeting at 12:03pm.
