Lifetime Citizen Portal Access — AI Briefings, Alerts & Unlimited Follows
SFPUC power enterprise warns of steep new costs as Hetch Hetchy tunnel needs major rebuild
Loading...
Summary
SFPUC staff told a joint LAFCO–SFPUC meeting that a deteriorating mountain tunnel and higher transmission costs could push the power enterprise into a budget shortfall, prompting options including debt issuance, rate changes and pursuit of new customers.
San Francisco Public Utilities Commission staff said on March 3 that the city’s power enterprise faces large unanticipated costs that could erode reserves and force new financing and operational choices.
Assistant General Manager for Power Barbara Hale told the Local Agency Formation Commission and SFPUC commissioners that the Hetch Hetchy system provides about 380.5 megawatts of greenhouse-gas‑free generation to the city but that capital needs have grown sharply. "We have a tunnel ... that is showing signs of deterioration and signs of a major rebuild being necessary to the tune of about $650,000,000," Hale said, describing an engineering finding that expanded the project’s scope and cost.
Hale said that change, together with expected increases in transmission and distribution charges and new reliability-driven projects, raised the SFPUC’s 10‑year capital need by roughly $883 million versus an earlier plan that assumed about $545 million. She identified roughly $16 million a year in added PG&E transmission and distribution costs and an additional regulatory compliance requirement of about $32.4 million in the capital plan. Hale also said the enterprise expects to lose a banking feature in its interconnection agreement that will further reduce net revenue by “about $2,000,000 or over $4,000,000.”
The IA (interconnection agreement) that has shielded the SFPUC from full PG&E transmission and distribution rates dates to 1978 and is set to expire; Hale said that without the IA the utility could see the transmission and distribution component of costs rise from about 1.8¢ per kilowatt‑hour to about 3.4¢ per kilowatt‑hour, a change that would compress margins on many sales.
Those pressures show up in the SFPUC’s fund balance projections: staff presented a 10‑year outlook in which previously projected positive balances shift downward when the new capital and operating cost items are included. "That's the budget outlook problem that we need to focus on solving," Hale said.
To address the shortfall, SFPUC staff presented a set of concurrent options: issue debt (the commission had been preparing a plan to obtain a credit rating for power enterprise debt), negotiate lower charges with PG&E where possible, cut or find efficiencies in operating costs, raise some rates, pursue new retail or enterprise customers (for example, the Transbay Joint Powers Authority agreement that will begin service in 2017) and pursue other revenue sources. The commission also committed to quarterly updates on progress and further financial detail.
Commissioners pressed staff on the tunnel’s history and why the need grew. Commissioner Reed asked whether that tunnel issue predated prior bond measures and why the Water System Improvement Program had not fixed the lining; staff said seismic‑focused prioritization and later investigative work revealed a greater scope and urgency than initially known. Staff said the asset is jointly owned and that the department will explore alternatives (a bypass, realignment and other measures) and work with wholesale water customers on cost allocation.
Public commentators and advocacy groups who spoke at the meeting said Clean Power SF (the city’s proposed community choice aggregation program) could provide new revenue streams and local build opportunities that would help the SFPUC’s financial outlook. Commissioners and staff said the enterprise must balance those long‑term program benefits with the immediate capital and cash needs now facing the power enterprise.
The SFPUC also noted a $19 million set‑aside reserve and warned that a deeper negative fund balance or failure to meet covenants could lead to more severe constraints on operations. Staff said certain bond covenants would limit some rate‑making discretion and emphasized that inaction could threaten the financial benefits the Hetch Hetchy system provides to the city. The commission did not take a formal vote on policy changes in the session; it asked staff for additional CFO analysis on borrowing capacity and for follow‑up financial material at the next meeting.
