PUC hears risk assessment for $4.3 billion WESIP; staff and consultants urge workshops before adding contingency

The San Francisco Public Utilities Commission on July 6 reviewed a program-level risk assessment for the Water System Improvement Program (WESIP), a $4.3 billion capital effort, and agreed to convene targeted workshops before making policy changes that could raise program costs.

Tony Irons, deputy general manager, and Julie Labonte, WISA director, presented consultant findings prepared by Parsons and CH2M Hill. Labonte said the consultants recommend increasing the escalation rate used to calculate future construction costs from 3.5% to 4.5% — a change she said would represent roughly $105,000,000 added to the program — and adding a 5%–10% program contingency to account for uncertainties. Labonte said a 5% program contingency would add about $233,000,000 to the program budget and that both recommendations are policy decisions that require commission involvement.

"This document is a question rather than an answer," Irons said, describing the assessment as a tool to identify schedule, budget and scope risks as WESIP moves from design into construction. Dave Backus, senior executive with Parsons, told the commission the report reflects the best available facts and compared the program’s escalation in execution scale to similar large capital programs elsewhere.

Commissioners focused on two core choices: accept increased contingencies and escalation assumptions now, which would raise the program baseline, or hold the baseline and instead consider cutting or reprioritizing projects. Commissioners cited figures from the assessment that the program could grow from about $4.3 billion to roughly $4.6 billion — and possibly toward $5.0 billion — if risks are not mitigated.

Several commissioners said they wanted more specific analysis of what would raise the consultants’ confidence levels before approving new contingency policy. Commissioners and staff agreed to a series of focused workshops to evaluate options for contingency sizing, schedule adjustments and organizational changes to manage the anticipated "bubble" of construction spending. Irons noted that any material change to program scope, schedule or budget would be submitted to the State of California under AB 1823.

Consultants from Parsons and CH2M Hill reiterated their commitment to remain involved in the program and to work with staff on the best organizational approach. The commission asked staff and consultants to return in coming weeks with more detailed analysis of the key cost risks and potential mitigation steps; no change to the program baseline was approved at the meeting.

Next steps: the commission directed staff to schedule workshops and produce targeted follow-up analyses to quantify the specific impacts of the escalation- and contingency-related recommendations and options for schedule or scope adjustments.