Public Utilities Revenue Bond Oversight Committee

MINUTES

Monday, May 14, 2007
9:30 a.m. – 11:30 a.m.
San Francisco Public Utilities Commission
1155 Market Street (between 7 & 8th Streets) 4th Floor Conference Room

Committee Members
Aimee Brown, Chair
Patrick Sweetland, Vice-Chair
Brian Browne
Stan Jones
Kyle Rhorer
Lisbet Sunshine
David Sutter

1. Call to Order and Roll Call

   Chair Aimee Brown called the meeting to order at 9:39 a.m. and roll call was taken. Present: Ms Brown, Patrick Sweetland, Brian Browne, David Sutter, Stan Jones and Kyle Rhorer; Lisbet Sunshine was not present. There was a quorum.

2. Public Comment - Members of the public may address the RBOC on matters that are within the RBOC’s jurisdiction and are not on today’s agenda.

   There were no comments from the public.

3. Staff update on WSIP Program Controls

   Ms. Karol Ostberg, SFPUC Acting Director of Capital Finance, introduced Kathy How and Abdirahman Abdi of Program Controls to the RBOC members. Ms. How confirmed that they were present to address any questions the committee members had in regard to WSIP program controls. Mr. Jones asked how they compute schedule and cost variance. Mr. Abdi stated that they use a baseline point of reference that includes the schedules for different phases for each project. As time passes, the schedule and costs are updated and the cost of the complete activities is captured.  Specifically they use a calculation with budgeted cost of work performed, budgeted cost of work scheduled and actual cost of work performed. Mr. Sutter requested a copy of the finalized change control order for review.  In response to a question posed by Mr. Sutter, Ms. How stated that the group was established as a Bureau with the SFPUC three years ago, but there was a Program Controls group before that time. Ms. How could not speak to their processes, tracking methods or software applications. Mr. Rhorer asked the group if SFPUC has a method to establish the milestones for planning, design and construction. Ms. How confirmed that with design, the milestones are set at 35%, 65% and 100% based on type of facility. With construction, the project specific Contractors set milestones as they have the flexibility to submit the subject of value which needs to be approved. With regard to planning, the milestones are set in a way which includes assessment, alternative analysis and public review. Mr. Abdi stated that a summary report, which includes variances, is published on the website on a Quarterly basis. On a monthly basis, an internal project-by-project variance report is published for the performing entities and management.  An annual report is published as well. Chair Brown asked if there was a policy to move money around as a project contingency within the sub-regions. Ms. How confirmed that there is a policy to allow up to 10% of the project specific budgets to be moved around among the sub-regions. The policy states that any contingency over 10% would need Commission and Controllers office approval.

4. Chair’s Report:

   a. Update on SFPUC Capital Finance Activities
   Ms. Ostberg gave a brief overview of SFPUC’s capital finance activities. On the Water side, the SFPUC issued the first series of Prop A bonds, $507 million Series 2006A in March 2006.  The plan is to issue $300 million in variable rate form next winter, subject to new budget scope and schedule.  Ms. Ostberg stated that Wastewater has issued its first $50 million in Commercial Paper with an authorization for $150 million for the five year CIP which is set for completion by fiscal year ‘09. After the Wastewater Master Plan is adopted, there will be a two year environment review process before bonds will be issued.  Currently SFPUC is discussing, but has not yet determined, to increase the $150 to add another $100 million to finance projects from 2009-2012. Ms. Ostberg stated that the Commission just passed the new rates package which is very important from a credit quality and rating agency perspective.  The Power Enterprise received an allocation for $6.325 million Clean Renewable Energy Bonds (CREBS). The Federal program offers 0% interest rate on loans for qualified issuers and renewable energy projects.

   Public Comment: Mr. Kalman asked if the solar projects are less expensive than PG&E electricity. He then asked how the solar projects were to be subsidized, and for a copy of the costs differences between electricity and solar power.

5. Discussion and possible action regarding RBOC Audit by Robert Kuo
   
   Mr. Bob Kuo asked the committee members to review the format of the submitted work scope which was provided April 27th. Task 1a is a high level summary of how projects change. Task 1b in the work scope is an analysis on how the budgets have changed and why they have changed. Mr. Kuo reviewed the three sample projects with the committee: Calaveras Dam, Crocker Amazon Pump Station and Crystal Springs Bypass Tunnel. Mr. Kuo stated that the 1b analysis is the format he and his group prefer to use and opened the floor for feedback from the committee on how to improve or edit the format so they can move forward. Mr. Sutter asked how confident Mr. Kuo and his group are in regard to filling in the various data gaps between the 2002-2003 programs. Mr. Sutter asked if they would be able to fill in the informational gaps and answering the outstanding questions that have been identified in the report. Mr. Kuo confirmed that it is a concern on their end, and they plan to focus on the significant changes from 2003 and 2005. Mr. Kuo stated that to date his group has received information stating that the changes were due to budgeting methodology and ancillary change in construction costs, yet he has not received detailed information to support that assertion. Mr. Sutter suggested that Mr. Kuo spend his time more efficiently by tracking the expenditures from 2005 forward. Mr. Sweetland asked if Mr. Kuo’s reports were showing project status of actual vs. planned as well as illustrating status of construction and cost overruns and the impact in the progress of work. Mr. Sweetland stated that he feels it is important to have a format that includes accurate status on the project phases, if they are within the contingency outlined and to have a format that includes the assessed plan value and earned value vs. actual cost. Mr. Rhorer agreed with Mr. Sutter and suggested that we move forward by looking at the data from 2005 and on instead of focusing on the data gaps from 2002-2005. Mr. Rhorer continued by asking Mr. Kuo to what degree he has been tasked to identify the “why” in the project efforts, and if there was a project-wide common theme identified. Mr. Kuo stated that finding a project wide theme has not been a focus of the report but a programmatic theme will surface throughout the process. Chair Brown asked Mr. Kuo if his team is looking into making sure the overall program is in line with Prop P which was approved by the voters. Ms. Brown stated that the committee has a responsibility to find out that the process and the bond proceeds are being spent appropriately according to Proposition P.  Mr. Kuo stated that they have not been specifically looking for those guidelines. Mr. Sutter suggested that if the consultants analyze the efforts of 2005 and forward, the committee could confirm that the 2005 WSIP is following the requirements of Prop P. Mr. Sutter urged the committee to request the consultants complete the 1b analysis in order to fill data gaps and get meaningful comparisons. If there are no meaningful results then the audit sub committee should consider refocusing the contract to revise the scope of work. Mr. Kuo stated that he needs a full understanding of methodology and process used to put the 2005 budget together as there were major increases in variances, and once these are identified, he will add them to the report. Mr. Kuo will have more answers by the next RBOC meeting. Mr. Sweetland added that once the committee can review the answers to the data gaps, they would be able to better determine if they are satisfied or if the scope needs to be revised. Mr. Sutter agreed, stating that until the five major cost category questions in the Calaveras report are answered the committee cannot say anything about the budget and scope growth on this project. Mr. Sweetland asked Mr. Kuo if he could expand in the report in what would happen with the project budget if it goes over, how it would be balanced, whether the scope would change or if budgets would get amended.

   Ms. Ostberg stated that Project Managers are reassessing schedule, scope and budget which will be released this summer around June and will be looked at by the Program Controls group and may affect Mr. Kuo’s scope. The committee closed this item by deciding that they would reconvene in a month’s time to review the report with the added data and new recommendations from the Project Managers.

   Public Comment: Mr. Kalman stated that he has problems understanding the figures and relationship between direct and indirect costs as his understanding is that labor and materials are the only direct costs under most city projects. Mr. Kalman asked if there is a determination on how much can be allocated for indirect cost like planning and environmental studies. Mr. Kuo confirmed that planning and environmental studies are considered direct costs. Mr. Kalman asked for a break down of how much funds are allocated for labor and how much are allocated for materials. Mr. Sweetland reiterated that Mr. Kalman’s specific request is not included under this scope, as it is literally and sequentially seeing what the changes are and why. 

6. Discussion and possible action to approve the minutes of the meetings held on  February 9, 2007, March 12, 2007, March 19, 2007 and April 16, 2007

   Mr. Browne motioned to approve minutes from meetings held on Feb 9, March 12 and March 19th. With Mr. Sutter’s second, the committee voted to approve the minutes. The minutes were approved on a 4-1 vote (Chair Brown, Mr. Sweetland, Mr. Sutter, Mr. Jones and Mr. Rhorer in favor. Mr. Browne opposed.)

7. Discussion and possible action relating to scheduling afternoon RBOC meeting times

   Mr. Sweetland stated that he is not in favor of moving the regularly scheduled committee meeting times, and suggested creating other opportunities to engage with, involve and accommodate members of the public. Mr. Sweetland suggested that a working group sub-committee or a special public meeting, where there is no need for a quorum, could be held in the afternoon or evening. Mr. Sutter stated that he too was not in favor of moving the time of the committee meetings to afternoons and suggested the committee set public hearing meetings once or twice a year, possibly around the time of the annual report being published.

   Public Comment: Mr. Emeric Kalman stated that there is a scheduling problem as there are committee meetings all over the City. He stated that 9:30 a.m. is an inconvenient time for the public but a later time could be considered inconvenient as well. Mr. Kalman stated that public participation is a mandate by the Charter and should be encouraged, but he endorsed the currently scheduled 9:30 a.m. meetings. Mr. Kalman requested accurate and complete minutes for the Charter mandated public review process. He asked that the committee try to improve the minutes by including more information.

8. Discussion and possible action relating to RBOC members requests for information from SFPUC staff

   Mr. Sweetland asked about the Statement of Incompatible Activities (SIA) from the Ethics Committee as the SFPUC was one of the agencies listed. Ms. Ostberg said she expected the SIA to be provided by the Ethics Commission by the June 11th RBOC meeting.

9. Discussion and possible action for future agenda items
   
   Bob Kuo Report
   
   Discussion of Controller’s involvement in the contract with Mr. Kuo.
   
   Ms. Ostberg suggested incorporating an update to the 5-year Wastewater CIP into the regularly scheduled RBOC meeting on June 11th.

10. Adjournment
    

    Ms. Brown adjourned the meeting at 11:33 a.m.