CEO Report – November 2019

2019 California Economic Summit

Earlier this month, several members of our Authority staff and the Board of Directors, including Chairman Lenny Mendonca, participated in the Governor’s “Regions Rise” Economic Summit in Fresno. The focus of the Summit was on championing solutions that grow California’s economy, improve environmental quality and increase economic opportunity, three issues that our project is heavily invested in. Chairman Mendonca and ex officio Board member Joaquin Arambula were featured speakers.

The Authority was a proud participant in the first day of the Summit which included various tours of key areas around the Fresno region. Chairman Mendonca and Central Valley Regional Director Diana Gomez led a tour of two of our active construction sites for two dozen attendees from around California, allowing participants to hear firsthand from some of the workers who have been placed on the project thanks to the Helmets to Hardhats program. Also, attending the Summit were Board members Henry Perea and Tom Richards.

Following his keynote address at the Summit, Governor Newsom met with members of the press and separately did a sit-down interview with the Fresno Bee’s Editorial Board where he reiterated his support for high-speed rail and emphasized his desire for the state to use existing and available funds to develop the 171-mile Merced to Bakersfield line as an interim operating segment and the first building block of the Silicon Valley to Central Valley line. The Governor also reinforced the long-term goal of securing additional federal, state and local funds and private sector participation noting that “The only way we’ll do that is proving ourselves, getting a real project done and being able to test this technology, the first of its kind in the nation.”

Record of Decision for Bakersfield Locally Generated Alternative

On Friday, November 8th, the Authority issued a Record of Decision for the final 23-mile route between Shafter and Bakersfield in the Central Valley – a major milestone on two important fronts. First, it allows the Authority to move toward project construction into Bakersfield. Second, this is the Authority’s first finalized environmental action taken under the State’s newly-granted NEPA Assignment. The staff involved in finalizing this document deserves tremendous credit. More than 100 stakeholder meetings, 17 public comment and technical working group meetings, and 15 monthly regulatory agency coordination meetings went into the process. We’re proud of the collaborative and cooperative process that went into this effort with our local partners. This action environmentally clears the high-speed rail route as it extends to the station location at F Street in downtown Bakersfield.

Bakersfield Homeless Center Agreement Announced on November 5th

Together the Authority and the Bakersfield Homeless Center have reached an agreement that paves the way for potential expansion of the Center and a new facility within the city. This agreement was made necessary due to the fact that our future alignment will affect the homeless center. Under the agreement, the center, which is the only emergency shelter for homeless women, children and families in the city, will remain in its current location for up to five years while it works to relocate to a new location. We were pleased to reach this agreement because we are committed to ensuring that our project builds better communities.

Assembly Transportation Committee Field Hearing in Fresno

On November 12th, the California State Assembly Committee on Transportation held a field hearing in Fresno. The hearing was preceded by a construction tour for committee members and staff. The group toured the Avenue 12, San Joaquin River Viaduct and Fresno Trench sites. The purpose of the hearing was to review the status of the high-speed rail project. I testified before the committee along with Board Vice Chair Tom Richards, Board Member Danny Curtin, CEO Mark Evans of the U.S. arm of Deutsche Bahn AG (the Authority’s Early Train Operator), Helen Kerstein from the Legislative Analyst’s Office, Chair Louis Thompson of the California High-Speed Rail Peer Review Group, Executive Director Stacey Mortensen of the San Joaquin Regional Rail Commission and CEO Stephanie Wiggins of the Southern California Regional Rail Authority (Metrolink). Board Members Henry Perea and James Ghialmetti also attended the hearing and the tour.

2020 Business Plan

We’ve been getting numerous questions about the upcoming 2020 Business Plan; to update the Board on that front: The Authority’s governing statutes require us to adopt a business plan to be submitted to the State Legislature no later than May 1 every two years. The statutes provide direction regarding what must be covered in the document, including: expected schedule for completing environmental reviews, an estimate of anticipated funds the Authority intends to access to complete construction, any public-private development strategies being considered for implementing the system and a discussion of reasonably foreseeable risks. In addition, updated ridership and revenue forecasts, capital and operating costs, life cycle costs and other estimates are required.

The Authority staff is in the process of updating our forecasts and estimates in preparation for issuing the Draft 2020 Business Plan in early February for a 60-day public review. In addition to summarizing the progress made over the last two years, the plan will focus on the challenges, opportunities and key decisions anticipated over the next few years. These decisions will be informed, in part, by two reports requested by the Board earlier this year related to interim service in the Central Valley, a Business Case being prepared by our Financial Advisor and the Side-by-Side analysis that our Early Train Operator is working to finalize. The business plan will focus on and be structured around the progress underway between now and 2022 to have full environmental clearance for Phase 1 of the project and 350 miles of electrified high-speed rail under construction California.

Configuration Change – Kings/Tulare Regional Station

Recently, the Authority approved changing the Kings/Tulare Regional Station (Project 517) from an at-grade structure to an at-grade station with an elevated platform, a decision that was made in collaboration with Kings County and the City of Hanford. This configuration change yields several benefits including that most the right-of-way required to complete the structure (which has a smaller footprint) has already been acquired and handed over to the contractor. In addition, with this change the Authority will not need to modify the Union Pacific Railroad line at this location nor will we need to relocate a major PG&E transmission line. This change includes refining the station location which necessitates an environmental re-examination but does not create a constraint to starting construction of the viaduct structure. The Authority will now negotiate a change order to implement this change the cost of which was anticipated and accounted for in the Rev 1 Program Baseline adopted by the Board in May 2019. Due to the benefits described above, including greater schedule certainty toward achieving the federal ARRA deadline, this change is in the best interest of the state.

Settlement with Design-Build Contractor for Construction Package 2-3

On November 18th, we signed a settlement agreement with Dragados/Flatiron Joint Venture (DFJV) addressing a series of delay costs associated with securing right-of-way, utility relocations, third party agreements and Authority directed changes in design and scope. Per the delegation of authority policy, I reported to the Board Chair that this settlement had been reached. Through this agreement we have cleared the costs associated with these delays through a modification to the contract budget of $133.9 million and a time extension to April 18, 2022. A comprehensive analysis by the Authority’s independent auditor helped inform this agreement and, because of this agreement, a potentially higher potential risk exposure has successfully been avoided. These costs were identified and accounted for in our Rev 1 Program Baseline, adopted by the Board in May 2019; with the agreement, the funds were moved from the contract contingency to the contract budget. As a result of working through these issues with the DFJV, a more collaborative relationship has been established which has already led to increased construction progress. This agreement also provides completion date certainty both to the contractor and to the Authority.

Board Decision Process for Merced to Bakersfield

The policy recommendation made in the 2019 Project Update Report is to implement interim electrified high-speed rail service between Merced and Bakersfield as a building block to delivering the Silicon Valley to Central Valley line and the full Phase 1 system. At the October Board meeting, following presentations on two key reports that will help inform the Board’s thinking on that approach, the Board requested a high-level summary of the major decisions related to delivering high-speed rail service in the Merced-Bakersfield corridor. The PowerPoint associated with this report shows those key decisions. For example, with the environmental clearance of the Bakersfield Locally Generated Alternative, the Authority is in a position to initiate project development activities between Poplar Avenue and Bakersfield. Similarly, the Board heard a presentation at this November meeting on the decisions associated with siting a range of operating and maintenance facilities. These and other decisions will be further discussed with the Board in coming months and articulated in the Draft 2020 Business Plan as well.

2020 Board Meeting Schedule

We have identified dates for Board of Directors meetings in 2020. Starting in May, the meeting days will shift to the second Thursday of each month. The Authority is making this shift because we have found that it is easier to secure meeting space on that day of the week than on Tuesdays. There is an exception in June when the meeting will occur on the fourth Thursday. Meeting dates are as follows:

• Tuesday, January 14
• Tuesday, February 18
• Tuesday, March 17
• Tuesday, April 21
• Thursday, May 14
• Thursday, June 25
• Thursday, July 16
• Thursday, August 13
• Thursday, September 10
• Thursday, October 15
• Thursday, November 12
• Thursday, December 10