Public Utilities Revenue Bond Oversight Committee

MINUTES

Monday, September 15, 2008
   9:30 a.m. – 11:30 a.m.
San Francisco Public Utilities Commission
1155 Market Street (between 7 & 8th Streets) 4h Floor Conference Rm.
San Francisco, CA 94103

1. Call to Order and Roll Call
 
Chair Aimee Brown called the meeting to order at 9:35 a.m. and roll call was taken. Present: Ms. Brown, Patrick Sweetland, Kyle Rhorer, Brian Browne, Stan Jones and David Sutter; Lisbet Sunshine was not present. There was a quorum.

Staff introduced to the Committee Todd Rydstrom, the PUC’s new Assistant General Manger for Business and Financial Services and the PUC CFO and Charles Perl, the PUC’s new Director of Financial Planning. Mr. Perl noted his history working in government, including with the City of Palo Alto, the San Francisco Mayor’s Office, and, most recently, as the Budget Director at the San Francisco International Airport. Victor Young, Assistant Clerk with the Board of Supervisors, was then introduced. Mr. Young will take over the staffing of RBOC going forward. Mark Blake, Deputy City Attorney with the San Francisco City Attorney’s Office, was then introduced. Mr. Blake will support the Committee going forward.

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 members of the public.
 
3. Discussion and possible action to approve the minutes from the meeting held on June 20 2008.

Mr. Sweetland motioned to approve the minutes and Mr. Jones seconded. Mr. Browne noted that he asked a question about adding Peakers to the Hetch Hetchy division during the June 20, 2008 meeting. He stated that his point was that he didn’t think Raker Act envisioned the commingling of the departments. Mr. Browne concluded that his point was not reflected in the June 20, 2008 minutes. The minutes passed unanimously.

4. Report from SFPUC Project Management: WSIP Budgeting Process
PUC Finance Director Joseph Yew reviewed with the Committee the budget information contained in the summary pages of the newly redesigned WSIP Quarterly Reports.

Mr. Browne requested that he be provided definitions for all terms in the Report, such as planned value, planned value early, etc. Jeet Bajwa stated that he could come back next meeting to walk through the concepts that Mr. Browne noted.

Mr. Rydstrom continued that the Quarterly Report details WSIP spending by phase; the percent actual column of the report can be used as a barometer to compare the percent completed to the projection as well as amount spent compared to actuals and budget. Mr. Rydstrom explained that the PUC’s Commission is provided with quarterly financial and budgetary projection updates for the WSIP and these can be made available to the Committee if they chose to agendize for future meetings.

Mr. Browne asked whether AB 1823 was still the foundation for completion guidelines. PUC Staff Michael Brown said he would respond to the question before the next meeting.

In response to a Mr. Jones’s question, Mr. Rydstrom stated that it would be helpful to add a column to the summary report that adds the local and regional projects to show the WSIP totals.
 
Mr. Jeet Bajwa then reviewed WSIP cost structure with the Committee, they are: Construction, Land Acquisition, Delivery (soft costs) and Financing. Mr. Bajwa then reviewed the costs and estimates that are incorporated into the Constructions Costs of WSIP. Please see attached report.

In response to a question asked by Mr. Sutter, Mr. Bajwa stated that Design freezes at the 35% completed stage. Mr. Bajwa confirmed that most environmental litigation has generally been identified at 35%.
In response to a question asked by Mr. Jones, Mr. Bajwa stated that 99.9% of the Project managers are Engineers. In response to a question asked by Mr. Sutter, Mr.  Bajwa stated that the Project Controls group deals with the guidelines of using contingencies and they develop the hard cost and material cost estimates and work together with the Project Managers. He confirmed that all of the Project Managers are City employees. Mr. Bajwa stated that the Operations Support built into the Delivery Cost includes testing, shut down management and start up. In response to a question asked by Mr. Rhorer, Mr. Bajwa stated that escalation for delays is captured into the contingencies.

Public Comment: Member of the public Steve Lawrence has a question regarding Quarterly Report hand out given by staff. He asked if the number were based on a cost basis or an accrual basis. Mr. Rydstrom stated the Generally Accepted Accounting Principals (GAAP) require full accrual accounting for all Enterprise activities.  Mr. Lawrence noted the summary shows a difference between “system improvements” and “water supply” yet both should be under WSIP. Mr. Rydstrom stated that WSIP includes Water supply projects as well as System Improvements but they can represent different portions much like Regional projects and Local projects are both under WSIP yet noted in different sections under WSIP. He added that he will take that comment to the PM team to see if it’s necessary to make the differentiation clear in the reports.

5. Report from SFPUC Finance Staff on Rate Study

William Laws, PUC Senior Rates Administrator, provided an overview of the current rate study. Mr. Laws distributed a section of the consultant’s contract. Under the City Charter, the PUC is required to retain and independent rates consultant every 5 years to review cost of service and rates and provide recommendations to the Commission on its rate settings. This year the scope was expanded to include overhead charges. Through competitive proposal process, Raftelis Financial Consultants were awarded the contracted to do this study. They will develop an overhead recovery rate in accordance with OMB A-87 which will be used for indirect cost recovery. He then opened up the floor to questions from Committee members.

Mr. Jones asked whether Raftelis will look at what has been charged thus far in overhead spent on WSIP to determine whether there is cost recovery. Mr. Laws stated that the only retroactive work they will be doing is on the last rate study. He added that KPMG did a study in 2000 on overhead cost allocation study per OMB circular A-87, which is the basis for the 194% overhead rate used. Mr. Laws continued that staff then updates the allocation percentage each year based on the adopted budget. The rate study, including the overhead rate analysis, will run from August 2008 through June 30, 2009.

In response to a question asked by Mr. Browne, Mr. Laws stated that retail rates could increase 280% while wholesale rates could increase from 250-260%

Mr. Laws stated that Raftelis will not make judgments of staff level or determine if staffing costs are too high or too low, they are looking what the costs are and how they should be recovered through projects. 

In response to a question asked by Mr. Browne relating to revenue requirements and rate recovery, Mr. Laws clarified that the only study that will directly affect the rate setting will be the bureau cost allocation study. 

Mr. Rydstrom stated that the PUC is required under City Charter to have reasonable rates. Rates are rigorously reviewed by General Manager’s Office, the Mayors Office, the Budget Analyst and the Board during budget hearing. It’s everyone’s goal to minimize rate increases. Mr. Jones requested to meet with Mr. Rydstrom and the rate consultants to get a better understanding of overhead rate allocation study. Ms. Brown asked Mr. Jones to report back to the Committee at the next meeting.

Public Comment: Mr. Steve Lawrence asked for clarification on the 280% projected rate increase. He added that 100% would double the rate, and 200% would triple the rate. Mr. Laws stated that the 280% was implying that the rate would be increased by 280% instead of tripling the rate. Mr. Lawrence asked how citizens can influence the rate system. Ms. Brown stated that the rate system could be handled at a Commission level or other another Committee, but it is not the purview of RBOC.

6.  Chair’s Report

a. Report from staff relating to the Contracting Working Group Subcommittee RFQ Pre-Bid Conference
Mike Brown, PUC Finance staff, updated the Committee on the Contracting Working Group’s efforts to engage an outside consultant to evaluate the Department’s indirect cost allocations. Two Request for Quotations (RFQs) were released, with extensive pre-bid marketing, and in both cases there were no respondents. Mr. Brown explained the PUC has engaged Raftelis Financial Consultants to look at this topic as part of the PUC’s overall rate study. Mr. Brown said the PUC will make those findings available to the RBOC which could then serve as the basis for the Committee’s next audit. He continued that the Committee has approximately $100,000 remaining in its budget for audits.

Mr. Sweetland stated that the next step would be to integrate their interests with the current rate study and schedule another Subcommittee meeting to determine the best way to do that. The subcommittee members agreed to set a date at the close of today’s meeting.

7. Discussion and possible action of amendment to RBOC by-laws regarding Committee Member Unexplained Continuous Absences

Ms. Brown introduced Mr. Mark Blake, Deputy City Attorney, to discuss the amendment to the RBOC Bylaws. Mr. Blake stated that the provision attempts to create a mechanism for creating a presumption vacation from position for members who do not attend meetings without notifying the Chair or the appointing body. The draft proposal states if a Committee member misses three consecutive duly called Committee meetings without notifying the Chair or the appointing body of the absence, it will be presumed that they have vacated their position. After three consecutive absences the Chair shall place on the next agenda an item on said agenda for the member to explain their absence. This is designed to give the member an opportunity to explain and rebut the presumption. If the member does not attend the meeting as requested by the Chair, then the presumption is conclusive. The Committee would then direct the Chair to provide notice to the appointing body explaining the presumption that the member has vacated their position and to request that the appointing body appoint a new member. After discussion and questions from the Committee, the amendment was modified. Mr. Rhorer made a motion to approve.

Public Comment: Member of the public Bobby Campbell suggested alternative language to the by-laws as did member of the public Steve Lawrence.

With Mr. Rhorer’s motion and Mr. Browne’s second the mew language was unanimously approved; the Committee also directed the Chair to send a letter to the appointing body regarding a habitually absent member.

8. Report from City Attorney on illegal expenditures / waste under Proposition A

Mr. Blake, Deputy City Attorney, stated that he had not received the list of questions from Mr. Sweetland based on Mr. Lawrence’s concerns on Prop A expenditures from the June 20, 2008 meeting. Mr. Blake committed to answer the specific questions as well as provide augmented memorandum with the case law outlining the expenditure standards i.e. “waste” at the next meeting.  Mr. Blake noted that there is a process that the Committee should agree upon what internal controls would the PUC adopt on a going forward to cure the illegal expenditures. Mr. Blake stated that he would send the augmented memo to the Committee members before the next meeting so they have time to review.

Staff will send a copy of the questions to the Committee.

9. Discussion and possible action relating to RBOC member information requests raised in today’s meeting

Copy of Mr. Sweetland’s questions from the June 20, 2008 meeting; Augmented memo from Mr. Blake to include case law and expenditure standards; Information relating to AB 1823 for Mr. Browne

10. Discussion and possible action for future agenda items

Mr. Blake’s report in illegal expenditures under Prop A; Jeet Bajwa continued report on WSIP; Report from Mr. Jones relating to Indirect Costs and overhead design

11. Adjournment

Ms. Brown adjourned the meeting at 12:15 p.m.