FY rd Quarter Budget Report

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1 Services of the San Francisco Public Utilities Commission FY rd Quarter Budget Report May 13, 2014 SFPUC Finance 1

2 Key Budgetary Variances Retail Water & Sewer Revenues Higher than Budget Wholesale Water Revenues Lower due to 2013 Prepayment Water Sources because of Wholesale revenue timing difference Uses Savings debt service, bond refinancing savings Wastewater Sources water use > than budget Uses Savings debt service lower from bond refinancing savings Power Enterprise Sources below budget power sales lower, drought conditions & Rim Fire shutdowns Uses Savings PG&E Interconnection Agreement and CAISO charge savings 2

3 FY Projected vs. Prior Year-End $Millions Prior Year-End FY Year-End Projected Water $ $ Wastewater Hetch Hetchy

4 Key Reserve Ratios Fund Balance Reserves meet one or more 15% of Annual Revenues 15% of Annual Expenses 1.25 Debt Service Coverage Ratio Water Wastewater Hetchy/Power Debt Service Coverage, exceeds 1.25 times requirement Indenture Basis includes current year results & fund balance Current Basis includes only current year results 4

5 Questions 5

6 San Francisco Public Utilities Commission FINANCIAL SERVICES 525 Golden Gate Ave., 4 th Floor San Francisco, CA MEMORANDUM DATE: MAY 7, 2014 TO: VINCE COURTNEY, PRESIDENT ANN MOLLER CAEN, VICE PRESIDENT FRANCESCA VIETOR, COMMISSIONER ANSON MORAN, COMMISSIONER ART TORRES, COMMISSIONER THROUGH: HARLAN L. KELLY, JR., GENERAL MANAGER, SFPUC FROM: TODD L. RYDSTROM, ASST. GM BUSINESS SERVICES & CFO, SFPUC CC: MICHAEL CARLIN, DEPUTY GENERAL MANAGER, SFPUC EMILIO CRUZ, ASST. GM, INFRASTRUCTURE, SFPUC JULIET ELLIS, ASST. GM, EXTERNAL AFFAIRS, SFPUC BARBARA HALE, ASST. GM, POWER, SFPUC TOMMY MOALA, ASST. GM, WASTEWATER, SFPUC STEVE RITCHIE, ASST. GM, WATER, SFPUC KATE HOWARD, BUDGET DIRECTOR, MAYOR'S OFFICE BEN ROSENFIELD, CONTROLLER SUBJECT: SFPUC 3 r d QUARTER BUDGETARY STATUS REPORT FY Enclosed are the third quarter budgetary reports for the three Enterprises' annual operating budgets for FY Projected revenues for the Wastewater Enterprise are slightly better than budget. Water Enterprise revenues continue to be projected below budget due to the early recognition of Wholesale Capital Repayments in the prior fiscal year, which was the primary cause ofthe large reserves shown below. Hetchy revenues are below budget primarily due to drought and Rim Fire shutdowns, i.e. resulting in lower hydro-electric generation. Net current year operating surpluses are projected only for Water and Wastewater Enterprises at year end. All debt service coverage requirements continue to be met, and adequate fiscal year-end reserves are projected in all funds. Beginning Available Fund Balance Fund Balance Budgeted to be (Used) Revenue Surplus / (Shortfall) Current Year Operations Expenditure Savings / (Shortfall) Surplus / (Shortfall) Projected Year End Available Fund Balance Water $ $ (82.1) $ (22.1) $ 46.4 $ 24.4 $ Wastewater $ 88.2 $ " $ 6.0 $ 14.5 $ 20.6 $ Hetch Hetchy $ 63.9 $ (40.2) $ (15.9) $ 11.4 $ (4.5) $ 19.3 If you have questions, please contact me at (415) at your earliest convenience. Appendix A Water Enterprise Appendix B Wastewater Enterprise Appendix C Hetch Hetchy Water & Power, including the Power Enterprise

7 Appendix A WATER ENTERPRISE OPERATING FUNDS FY rd Quarter - Budgetary Basis, 5W AAA ($ Millions) FY FY Actuals Original Budget Revised Budget Projected Variance Available Fund Balance as a Source $ $ 19.8 $ $ $ Sources Retail Water Sales A Retail Water Sales - In-City Departments B Wholesale Water Sales Revenue (31.2) C Interest Income D Rental Income Miscellaneous Revenues (0.3) E Departmental Transfer Adjustment (35.1) (33.3) (33.3) (33.3) - Subtotal Operating Sources (20.2) Federal Interest Subsidy (1.9) F Total Bond Proceeds & Interest Subsidy Sources (1.9) Operating Uses Personnel G Non-Personal Services Materials and Supplies Equipment Light, Heat and Power H Overhead (SFPUC Bureaus & City) Services of Other Departments Total Operating Uses Debt Service I Capital Projects Facilities Maintenance/Programmatic General Reserve J Total Uses - Operating, Debt Service, Capital & Other $ $ $ $ $ 46.4 Net FY Results $ 24.4 Available Fund Balance as of Fiscal Year-End $ $ Available Fund Balance Reserves as a % of (K) Total Operating Sources 67.0% 62.8% 60.2% Total Operating Uses 166.7% 151.3% 113.7% Total Uses (excluding General Reserve) 77.9% 65.8% 43.2% Debt Service Coverage Year-End Budgetary Basis (L) Indenture Basis (includes Available Fund Balance) Current Basis

8 Appendix A WATER ENTERPRISE OPERATING FUNDS FY rd Quarter - Budgetary Basis, 5W AAA ($ Millions) Revenue Variances A. Retail water sales are projected to reach $184.7M a 6.0% increase from budget primarily due to the adopted rate increase, and water consumption is projected to increase by 1.5% compared to prior year actuals. B. City Department water sales are projected to reach $6.8M, a 7.2% increase from budget, due to a slightly higher Retail Municipal water consumption, both for drinking water and irrigation, as compared to prior year actual usage. C. Wholesale water revenues are projected to fall short of budget by $31.2M, or 14.4%, as a result of a lower FY wholesale rate since Wholesale Customers made an early repayment of $356 million in the prior year. Wholesale water deliveries are projected to be 3.5 percent more than last year. D. Interest earnings projected to surpass budget by year-end as a result of a higher cash fund balances in FY than assumed in the budget. E. Miscellaneous revenues projected to fall slightly below budget by year end due to lower than anticipated revenues from Miscellaneous Service Charges, e.g. lab analysis and other miscellaneous service fees. F. The variance in Federal Subsidy of $1.9M is due to the IRS sequestration, which reduced federal subsidies for 2010 B, 2010 E, 2010G, and 2009 COPs by 7.2%. Expenditure Variances G. Savings in salaries due to vacant positions and corresponding fringe benefits. H. Savings due to less pumping during the Fall and Winter months. I. Refundings of Water Bond Series 2012 C and D resulted in $13.6 million savings, and the defeasance related to the Wholesale Customer early repayment in February 2013 resulted in an additional $25.9 million savings. J. General Reserve was intentionally budgeted and planned to go unspent to build up fund balance reserves. Other Notes K. GFOA Recommended Best Practice is at least 5-15% of revenues or 1-2 months of expenditures. L. Debt service coverage calculations made including the Federal Interest Subsidy as an offset to Debt Service.

9 Appendix B WASTEWATER ENTERPRISE OPERATING FUNDS FY rd Quarter - Budgetary Basis, 5C AAA ($ Millions) FY Actuals Original Budget Revised Budget FY Projected Variance Available Fund Balance as a Source $ 70.9 $ - $ 34.7 $ $ 88.2 Sources Sewer Service Charge A Sewer Service Charges City Departments (1.4) B Interest Income (0.5) C Other Miscellaneous Income D Total Operating Sources Federal Interest Subsidy (0.3) E Operating Uses Personnel F Non-Personal Services Materials and Supplies Equipment Light, Heat, and Power Overhead (SFPUC Bureaus) Services of Other Departments Total Operating Uses Debt Service G Capital Projects Facilities Maintenance/Programmatic General Reserve H Total Uses - Operating, Debt Service, Capital & Other $ $ $ $ $ 14.5 Net FY Results $ 20.6 Available Fund Balance as of Fiscal Year-End $ 88.2 $ Available Fund Balance Reserves as a % of (I) Total Operating Sources 36.0% 37.1% 42.5% Total Operating Uses 61.3% 63.6% 69.8% Total Uses (excluding General Reserve) 38.8% 37.8% 40.3% Debt Service Coverage Year-End Budgetary Basis (J) Indenture Basis (includes Available Fund Balance) Current Basis

10 Appendix B WASTEWATER ENTERPRISE OPERATING FUNDS FY rd Quarter - Budgetary Basis, 5C AAA ($ Millions) Revenue Variances A. Retail sewer sales are projected to reach $247.6M, a 3% increase from budget reflecting higher treated flow than previously budgeted; retail water sales are projected to increase by 1.5% compared to prior year. B. City Department sewer sales are projected to reach $5.3M, a 21.0% decrease from budget due to reduced sales projections than previously assumed in budget. C. Lower interest revenues projected due to low interest earnings on cash balance. D. Miscellaneous Income is projected to surpass budget by $0.5M as a result of unbudgeted Biofuel Revenues and higher revenues for City Property Rentals (Southeast Community Facilities). E. Variance in Federal Subsidy of $0.3M due to IRS sequestration reduction of 7.2% related to the 2010 B Series Build America Bonds. Expenditure Variances F. Salaries savings is due to the number of vacant positions. G. The savings primarily results from 2013A refunding bonds in January 2013, which refunded all outstanding 2003A Wastewater Revenue bonds and State Revolving Fund loans. H. General Reserve was intentionally budgeted to go unspent to supplement fund balance reserves. Other Notes I. GFOA Recommended Best Practice is at least 5-15% of revenues or 1-2 months of expenditures. J. Debt Service Coverage includes the Federal Interest Subsidy as an offset to debt service expense.

11 Appendix C HETCH HETCHY WATER & POWER OPERATING FUNDS FY rd Quarter - Budgetary Basis, 5T AAA ($ Millions) FY Actuals Original Budget FY Revised Budget Projected Variance Available Fund Balance as a Source $ 54.0 $ 20.7 $ $ $ 43.2 Sources Electric Sales - City Work Orders - General Fund Depts (0.4) A Electric Sales - City Work Orders - Enterprise Depts Electric Sales - Modesto & Turlock Irrigation Districts, WSPP (14.6) B Electric Sales - Direct, Non-City Depts., SFUSD, Community College C Electric Sales - Treasure Island Subtotal - Electric Revenues (14.3) Water Sales - Transfer from Water Department (0.0) Water Sales - Groveland, Lawrence Livermore Labs D Subtotal - Water Revenues Natural Gas & Steam - City Work Orders (2.0) E Interest Income (0.8) F Federal Interest Subsidy (0.1) G Other Miscellaneous Income (property rental, Transbay Cable H proceeds, Cap and Trade revenue) Total Operating Sources (15.9) Operating Uses Personnel I Non-Personal Services Power Purchases J Transmission Fees K Materials and Supplies Equipment Overhead (SFPUC Bureaus) & COWCAP Services of Other Departments Natural Gas & Steam L Total Operating Uses Debt Service Capital/Revenue Reserve M Facilities Maintenance/Programmatic General Reserve - Contingency/Purchase of Power N Total Uses $ $ $ $ $ 11.4 Net FY Results Before CCA Reserve $ (4.5) $ 38.8 CCA Reserves $ (19.5) Available Fund Balance as of Fiscal Year-End $ 63.9 $ 19.3 Available Fund Balance Reserves as a % of (O) Total Revenues (Excluding Bond Proceeds) 42.1% 28.8% 15.7% Total Uses (Excluding General Reserve) 59.3% 38.8% 18.5% Total Operating Uses 45.1% 26.1% 7.2% Debt Service Coverage Year-End Budgetary Basis Indenture Basis (includes Available Fund Balance) Current Basis

12 Appendix C HETCH HETCHY WATER & POWER OPERATING FUNDS FY rd Quarter - Budgetary Basis, 5T AAA ($ Millions) Revenue Variances A. Power revenues from General Fund departments are projected slightly below budget due to lower usage by Municipal Transportation Agency, Recreation & Park (Candlestick Park), Human Services Agency, and Real Estate (1155 Market). B. District and excess revenues are projected below budget due to reduced Hetch Hetchy power available for sale, as a result of a drought conditions and Rim Fire shutdowns. C. Power revenues from Direct/Retail sales are projected to surpass budget due to more power sales than assumed in budget for the Central Subway tunnel boring project. D. Water revenues are projected to surpass budget due to increased water sales to Lawrence Livermore Lab. E. Gas and Steam revenues are projected below budget due to lower rates for natural gas, $1M, and $1M due to General Fund under recovery (see partially offsetting savings in "L" below). F. Lower interest revenues projected due to a lower cash balances. G. Variance of $55,000 due to IRS sequestration rate of 7.2% as applied to the 2011 QECBs and 2012 NCREBs. H. Miscellaneous revenues are projected to surpass budget due to higher than expected revenues from Transbay Cable payments and rentals. Expenditure Variances I. The savings in salaries and related fringe benefits are due to the number of vacant positions. J. The $2.3 million surplus includes: $1.6 million in lower purchases from Western Systems Power Pool (WSPP) and $0.4 million in lower transmission costs from Independent Systems Operator (ISO); and $0.3 million from Local Capacity Requirements - no shortages. K. The $3.2 million surplus includes $1.3 million savings for distribution, demand charges, and capacity reserve under the PG&E Interconnection Agreement (IA) and $1.9 million savings from California ISO grid management and control area charges. L. Gas and Steam revenues are below budget due to lower natural gas rates. M. Reflects project savings, i.e. the closeout of the purchase of property project. N. The $4.0 million contingency is being used for Rim Fire recovery costs. Other Notes O. GFOA Recommended Best Practice is at least 5-15% of revenues or 1-2 months of expenditures.

FY nd Quarter Budget Report

FY nd Quarter Budget Report San Francisco Water, 1; Sewer Services of the San Francisco Public Utilities Commission FY 2013-14 2nd Quarter Budget Report January 28, 2014 SFPUC Finance Key Budgetary Variances! Retail Water & Sewer