Tools : Budget Analysis for Proposition B, San Francisco
BOARD OF SUPERVISORS
BUDGET ANALYST
1390 Market Street, Suite 1025, San Francisco, CA 94102
(415) 554-7642
FAX (415) 252-0461
July 18, 2001
__________________________________________
TO: Finance Committee
FROM: Budget Analyst
SUBJECT: July 18, 2001 Finance Committee Meeting
Item 1 - File 01-1103
Department:
Public Utilities Commission (PUC)
Proposed Ballot Measure:
Resolution calling for a Special Election in the City and County of San Francisco on Tuesday November 6, 2001 placing before the voters a proposition for the issuance of Revenue Bonds by the Public Utilities Commission of the City and County of San Francisco not to exceed $100,000,000 to finance the acquisition, construction, rehabilitation and/or improvement of solar energy facilities and energy conservation facilities and equipment and/or renewable energy facilities and equipment.
Description:
The proposed resolution places before the voters a ballot measure that would provide for a Special Election and consolidate it with the General Election of November 6, 2001 in order to request voters to approve the issuance of Revenue Bonds not to exceed $100,000,000 by the PUC for the acquisition, construction, rehabilitation and/or improvement of solar energy facilities and energy conservation facilities and equipment and/or renewable energy facilities and equipment.
Approval of the proposed resolution would be based on a simple majority of the voters. If, at the time of the Special Election, a majority of voters approve the subject Revenue Bonds, the Bonds may be issued and sold for the purposes set forth in the resolution. The Bonds would be Revenue Bonds issued by the PUC and payable from and secured by a lien on the revenues of the Hetch Hetcy Enterprise and such other funds as may be legally available and pledged for such purpose. Additionally, the Hetch Hetchy Enterprise would be responsible for (a) implementing and managing the program if approved by the voters; (b) designing and constructing the projects and (c) working with City departments to develop a mix of projects that would yield a net cost less than or equal to the avoided cost of purchasing retail electric power. A special facility charge would be levied on City departments benefiting from these projects to pay debt service on the proposed Revenue Bonds (See Comment No. 4). If approved, the $100,000,000 in Revenue Bonds would finance the installation of approximately 10 to 15 megawatts of photovoltaic panels and approximately 126,000,000 kilowatts of wind energy on City facilities.
Sources and Uses of Bond Proceeds:
The Budget Analyst notes that if the proposed proposition is approved by the electorate, the debt issuance costs for the proposed $100,000,000 in Revenue Bonds will vary depending on the size of the initial issuance and all subsequent bond sales, the prevailing interest rate at the time of sale and the timing of the bond sale. The proposed resolution limits the interest rate to be charged on the proposed $100,000,000 in Revenue Bonds to no more than 12 percent (See Comment No. 2). Other specific provisions of the proposed bond sale are to be determined (See Comment No.6). Attachment I to this report provided by the Mayor's Office of Public Finance assumes a total of two debt issuances and details the aggregate expenditure rate by project type (solar, wind, and energy efficiency projects). Additionally, the PUC notes that the timing of subsequent debt issuance would depend on the status of proposed projects. The following table is a summary of the proposed sources and uses.
Summary of Proposed Sources and Uses
SOURCES Bond Proceeds Total Sources
USES
Solar Project Fund Wind Project Fund Energy Efficiency Project Fund Reserve Fund Capitalized Interest Costs of Issuance Underwriter's Discount Rounding Total Uses
Comments:
1. The Hetch Hetchy Enterprise has never previously issued bonds and therefore does not currently have any bonded indebtedness. According to Ms. Laurie Park of the PUC, a final determination of how this proposed assumption of debt would impact the Hetch Hetchy Enterprise's future ability to finance capital projects through the issuance of Revenue Bonds has not been made. Typically, the Hetch Hetchy Enterprise has used cash on hand or reserves to finance its capital improvement projects.
2. According to Ms. Sarah Hollenbeck of the Mayor's Office of Public Finance, the proposed bonds are estimated to bear interest at a rate of 6.5 percent over the estimated 25-year life of the bonds. Ms. Hollenbeck notes that, depending on the status of the projects to be funded, there would be separate bond issuances of various amounts for the total amount of $100,000,000 of Revenue Bonds. Also, Ms. Hollenbeck notes that depending upon the useful life of the assets being financed, the term of the bonds may be longer or shorter than 25 years, which would effect the annual debt service projections. Based on the project costs and schedules currently estimated by the PUC, upon issuance of the entire $100,000,000 Revenue Bonds, the Hetch Hetchy Enterprise's average annual debt service would be approximately $8,259,583. Total debt service payments including $100,000,000 in principal and $103,094,821 in interest, would be $203,094,821. Attachment I to this report provided by the Mayor's Office of Public Finance details the aggregate annual debt service for the $100,000,000 in Revenue Bond proceeds.
3. According to Ms. Park, the estimates in Attachment I are based on conservative cost projections because they exclude other possible funding sources from the Federal Government or the State that may further subsidize the proposed program and reduce the City's debt service costs. Additionally, Ms. Park states that the program costs could be further offset depending on the mix of projects selected and the additional benefits of energy conservation retrofit projects. Attachment II provided by the PUC provides alternative cost projections factoring in additional funding sources from the State and the Federal governments.
4. The debt service for the proposed $100,000,0000 in Revenue Bonds would be paid from allowable special facilities charges levied on City departments participating in the program. The Hetch Hetchy Enterprise would add a "special facilities fee" to the power bills of City departments benefiting from the solar, wind and energy efficiency projects. According to Ms. Park, a final decision as to how the debt issuance would be structured has not yet been made. Additionally, Ms. Park notes that under an alternative approach, Hetch Hetchy Enterprise could fund the Revenue Bond debt service cost from all Hetch Hetchy Enterprise revenues; therefore not limiting cost recovery to the revenues derived from the projects funded by bond proceeds.
5. The PUC has not yet identified the specific projects to be financed with the Revenue Bond proceeds. Ms. Park states that implementing this program could enable the City to realize savings as a result of the avoided costs associated with the purchase of retail power because the power that would be generated by the installation of on-site photovoltaic panels and energy efficiency measures could, in the future, be cost effective in comparison to the cost of purchasing wholesale power from other sources. According to Ms. Park, the City's General Fund departments purchase power from the Hetch Hetchy Enterprise at an average cost of 3.75 cents per kilowatt hour, and Enterprise Fund departments (such as the Port and the Airport) pay approximately 12 to 15 cents per kilowatt hour. The projects being considered would generate power at approximately 10 cents per kilowatt hour, through a combination of on-site power generation with photovoltaic panels and energy conservation. This cost of 10 cents per kilowatt hour might be reduced by additional subsidies from State and Federal funding sources. Additionally, the 10 cents per kilowatt hour cost might prove to be lower than the prevailing costs in the retail power market in the future. Ms. Parks further notes that on-site generation with photovoltaic panels would further reduce the average costs of power generation by reducing the amount of power that is commonly loss through the act of transmission. Additionally, Ms. Park states that actual generation costs will vary by project depending on the size of the individual projects.
6. Ms. Parks further states that in no case shall City departments be required to pay a special facility fee if the fee would be greater than the rates such departments would pay for power under the rates they would otherwise be charged by Hetch Hetchy in the absence of such Revenue Bond funded projects. The Budget Analyst has been informed by the Office of the Sponsor of this legislation that an amendment will be introduced at the July 18, 2001 Finance Committee meeting that clearly state that this is the intent of the proposed ballot measure.
7. If the electorate approves the proposed issuance of $100,000,000 in Revenue Bonds, the subsequent sale of such bonds would require approval by the Board of Supervisors. Furthermore, expenditure of the proceeds of the proposed Revenue Bonds would require separate appropriation approval by the Board of Supervisors. According to Ms. Park, specific projects with clear costs and economic benefits will be developed prior to any request for sale of the Revenue Bonds and any request for appropriation approval by the Board of Supervisors.
Recommendation:
Approval of this proposed resolution is a policy matter for the Board of Supervisors.
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