this has consent the port area and actually this is getting worse we are actually having exasperated order issues, because they are not going as quickly as they should be. the first-year budget is locked in, but for 2012, that number could be increased, but that is the first year we are looking at getting funds for the perimeter storage transfer box order control. commissioner: are we not doing some odor control now?

commissioner: we do not want everyone to leave here today thinking that we are not going to do anything about the odor control. it has encroached on where it was before. it is a significant project. there was another project, and there was a whole slew of projects, and do not forget, but operating costs to operate and maintain them, now that those projects are done, they will be handling coders as an operation, no longer as a structure -- handling the coders has an operation. -- the odors. >> we have $6 million going in for odor control. the koran year was not rolled

in. -- the current year was not rolled in. commissioner: all of those are zero, as well. finding the odor control numbers on the sheet. >> you would have had $6 million. commissioner: 1 line is that? >> it is line 14. -- what line is that? i would make the objection that it would show six and that year, if we did it that way. the commissioner: it is a simple

communication issue. that is all. >> they are not going to do anything about it until 2012. >> ok, and our last slide, ms. espinola reminded me that we spent 24 months working with the neighbors of the southeast water pollution treatment to control plant, working on odor controls, odor processes, and we actually have staff that specifically their day-to-day is odor control, testing, and meeting facilities. within our other planned

upgrades, as well, we have other odor control efforts, negative pressure, additional carbon facilities, chemical treatments to be able to reduce odors at facilities. the particular line item that i went through in this specific items, in the transfer structures. the other is part of the treatment plant improvements. president vietor: think you, ms. jackson. commissioner: and voluntary staff. >> the first two years of improvement planning is $7.60 million, budgeted, and that is really to get us started, but to start facility assessments. we have an asset management program, but we have to assess all of the assets we have up

there, actually do a full assessment as to cover a program costs. in your 11-12 and 12-13, we have $8.30 million to implement planning, and then steps upper -- and then, it steps up. treasuring the, 2012. our biggest enemies are escalation and inflation. this is a very flattering picture of oceanside. this is taken from the south. if we were to ask about it when it was built in 1992, it was $200 million. if we were to build now that is below the san francisco zoo along the pacific ocean in a canyon below ground with a membrane that has animals running around on the top, it would be $2 billion.

if we were to delay and build oceanside out in the future, the price goes up from there to $4 billion, so this is one of the challenges. when we made this presentation for you, we had to put each project on a schedule, a hypothetical schedule with hypotheticals timing and hypothetical order and figure out what those costs will escalate to be. the further we push demand, the more expensive in debts, and that is quite a challenge for us. so just to recap, we walked through, and i did not change this live, i am sorry, the 9% alternative. we walked through the 10-year note -- 10-year cip, which addresses all of the need that are dire for the system. we look at some lesser systems,

which excluded the flood control. it did not have the biosolids drawing and other improvements. we looked at a $7 billion program, which reduced the flood control and did not have the outflows, and then we walked through an $8 billion program that met all the levels of service, so now, i think i will be joined up here now by our finance person, and we will walk through some of the impact issues. >> kerin what you three hypothetical examples, but it gets real when we get our bill in the mail, and what of the good things for san franciscans, we have very affordable water and sewer rates, but part of the reason is that we have deferred maintenance over the past 25 years, and now, it does have to be some fairly large numbers.

we have run the scenarios but look at the average bill and looks at how rates would have to change as well as the affordability index, which is similar to what the u.s. environmental protection agency does when they determine affordability for water and sewer improvements, so keep in mind, our average monthly water right now is about $32 a month, and our average monthly super bowl xli family resident is about $51 a month, so as we walk through these slides, that will be a helpful frame of reference. the average monthly water bill would be $32 a month. and the average monthly sewer bill would be $51 a month. so about $1 a day for 24-sloven water and less than $2 per day for the past 24/7 sewer.

we have done a similar analysis, but we have shown what that means for rate changes every year over the next 30 plus years. and in the yellow section here in the graph, these are all of the adopted rates through 2014, and those are not going to change and all. we are having deliberations today. but what we do show you is the band of green numbers in the middle, and you can see the significance there is that the larger you get in the program, the $8 billion program on the far right column, then you do need to have larger double-digit increases in fiscal year 2018, 2019, through 2022, 2023, and those rate increases are upwards of 15% to 18% over that band of five years to get to the degree

when to keep things to second -- double -- single digits, that is the second column. we can do that, but that means we have to cut $250 million from the currently discussed capital plan and choose to defer those projects or not do those projects. commissioner: i am sorry. and in that column, you did not include future rate increases to deal with that deferral? >> that is right. we are trying to discretely show you the trade-off. these are the dynamic models that we do each time, and every single change typically has a multiple year change, depending on when you want to spend the dollar, and if you do not spend now, inflation becomes our biggest enemy. typically, the construction cost will go up the longer we

differ. >> -- commissioner: we would probably be looking at 9% increases for a long time. >> that is right. this is, of course, whatever we can borrow money at, and we have been borrowing at record low rates, generational lilo rates that we have not seen since the 1960's, and we have modeled all of this for you because it is such a long time, and we can assume our borrowing is 5.25%, and that is a long-term estimate given a follow-up on the aa credit, and we know interest rates cannot stay as low as they have been. we think that is still a fair estimate to assume 5.25%.

we looked at the probst world war ii note borrowing -- the post world war ii borrowing. we think it is a very, very good time to sell debt, and we have benefited on the waterside. in the long term, we expect to see 5%, 5.25% for a very strong credit quality sewer and water department. commissioner: given the comments of of president, at what point time will we see a potential rate increase? >> i think it is a bill further in the slides, if i may. that gives you an illustration of how fast we would have to ratchet up rates, and if we wanted to manage it to a single- digit increase. the next way we looked at it,

taking the same information, we then put it into the affordability metrics, to say if the u.s. epa uses the average utility bill for affordability index, it should be no higher than 2% of the water bill no higher than 2% for your waste water bill, how would just our waste water bill compare under those scenarios? so what this chart does is the very bottom row, it is the orange row, that takes the 10- year cip and shows are annual bill -- our annual bill, and this is based on our median household income year in the city, but what it shows is that generally, all four of the scenarios that kerin walked us through, they are generally below or at the affordability threshold, mckechnie so it means

we are not out of line for affordability, but, of course, the less expensive, the better, for consumers. >> -- commissioner: does this include the fact that deferred work was not included? >> that is correct. commissioner: it would look different than if the deferred work or included? >> that is correct. and it changes if you combine the water bill in the sewer bill. there, in the u.s. epa affordability index says those two added together, usually, you want them to be below 4% if they are added together, and you see here, once you look at what our total bill would be for water and waste water over the period, we are still significantly below the 4% threshold or limit, but, of course, always less expensive is better for our customers.

and then, one more way to look get it is that we'd get a bill that is a dollar number. this does that. it starts off and about $50, and then it shows how the average bill goes up over time if we do the $10 plan the $8 billion plan or the others, and those are all different colored mines there. to put that into a frame of reference, we also show how that waste water bill is compared to the monthly electric bill that san franciscans received in the mail today from pg&e. its average electric bill is about $70, $74 a month, and historically, the electric bill has gone up anywhere from 469 to 6% a year.

to keep in mind how that compares with inflation, inflation has averaged about 3% per year in the postwar period, so this shows that all of our plan scenarios for the waste water program would somehow fall in between the average electric boat for san franciscans if electric bills went up 4% to 6% over time. we do not know how they would change, but it helps put in context around how bills change. in other metric that we like to read you is if we just have the economy go on the status quo, the status quo on average, inflation is 3%, picasso and the dollar will double to $2 over 20 years with inflation at 3%, so everything gets more expensive, but, on average, in 24 years, to

double $1 at 3% inflation, that matters a lot to us, because our inflation in construction is typically not 3%. it is upwards of 5% or in some cases higher, and that was in the chart that kiran showed, so that helps frame the context of rates and how would affect our average customer, and so the discussion today is really to what is the best policy making and deliberation with being to be able to fit affordably into our customers pocketbooks, a 10- year capital plan that we can implement, including what that means for the difference scenarios for the improvement program and then whether or not to move forward today with the program management consultant to keep progress in to keep moving on the progress.

commissioner torres, does that into your question? commissioner torres: not really. i want to drill down a little more. >> if you look back actually in san francisco, you look back at our electric bills that the bureau of labor statistics put this out, the average inflation has been about 6%. commissioner torres: that is commensurate with the rate increase. in respect to the $8 billion model, that is the one niese the highest increase in. >> correct. commissioner torres: and the decision has to be made by this body about the money under the best scenario, so as we begin to look at those numbers, as we see those rates necessarily

increasing, and what other safeguards are we going to put into place so that these charts remained et? >> that is a great question. we come back to the commission every time we do a quarterly budget update to show you where we are. in addition to that, during the annual budget process, we are always bringing forward 10-year illustrations of the affordability index as well as the projected rate increases, and while we are discussing with you a large 30-year program, the world changes, et and decisions can be changed along the way, and for planning purposes, we are showing you what we think is best by year, but in some cases, we may have to revisit that, and we are given the opportunity every year, in case we need to fine-tune the program by ratcheting down for some time to stay affordable or perhaps to

defer year or two of a large part of the program, so it is never completely done. commissioner torres: going out 28 years from now, you will be retired then. hopefully, all of us will be retired. >> wage increases or chemicals would go higher or lower, that would need an adjustment. we live in a beautiful area. commissioner: we are not at a point yet where akin say we want those charts to stay steadfast. -- not at a point yet where we can say we want those charts to stay steadfast.

>> -- commissioner: we were looking at whether or not they were viable. not to a large extent, but after that review occurs, it would obviously have some impact on the numbers, and we do not know what impact this will have, that sacramento will have. i know the parties are trying to reach a modicum of compromise, but i do not know that we will be able to reach that in time, and given where we are federally, we do not know what kind of bonds, build america bonds, will be available. right now, it is fine. we certainly do not have the borrowing capacity in the state that the city of san francisco has in terms of the incredible rate that you can borrow money at, but still, at the end of the day, as we see the debate occurring in the house, and we

see the movement in terms of this budget a but the federal and state level, a lot of the expectations we thought might be available may not be available, and i just want to make sure that we take that into account, because you may be getting great interest rates in terms of the bonds out there, but there may not be that federal subsidy to help us out down the road, and that is a challenge we face with many of the bond initiatives across the state in this nation, when the obama administration has put forward, which may not be available. >> it commissioner moran, the point brought up is a good one. we have a long ways to go. we will probably be back to talk about the base line and twist of dollars and actually about one year from now. we would expect to have a

program manager on in the fall. the process takes awhile to get through the requester proposal process, and the selection of the rates will qualify -- it will be key. what we really need to day -- commissioner moran: a procurement manager and a program manager. >> we will then be able to go through line by line what we have got, and they will be validating staff's work, doing additional work to look at where our facilities are. some projects may be broken up into pieces. some, infrastructure could be in such bad shape that we would have to rip it out ahead of the improvement programs and do it right away. commissioner moran: what is your

timetable for finding that person? >> we are having discussions with the union. when those discussions and, we anticipate those discussions will end, and we will put the rfp out on the street, so we can have large consultant firms be able to make their -- it goes out in march. commissionermoran: march 1. >> it is on the street for a period of time. i will actually go through the details of what we know and what work has been done to get proposals. we do a shortlist. we have a fairly extensive interview process of the top candidates. this been decided, it comes back

to the board of supervisors, and, unfortunately, it looks like we are hitting the board in august, when the board shuts down for bids, anyway, so it would be shortly thereafter. we would get the controllers authorization. >> there is no way to accelerate that process? >> there seem to be lots of ways to slow it down though. commissioner moran: of course, there are. it is government. [laughter] >> you do not want to hurry and get married to someone. we waited, and that is why i am trying to push to get it out on the streets as soon as possible so that they will know we are real this time, but i just

wanted to make sure that we get the right team to work with for the next 15 years, because as i mentioned before, we saw a lot of turnover, and i just want to make sure that everyone is clear what our expectations are as far as needs on this program. commissioner: this is not an action item. this is basically for us to give feedback, and i guess the most meaningful feedback you have is that we are impatient. >> that is a good thing to hear. that means that you want us to go ahead and get the rfp on the streets. president vietor: anything else? the next item is for the waste water. before we get to that, any other

reactions or input and we're looking for a staff on this? any public comment? ms. jackson? >> espinola jackson. i did not know i would be jumping up so much today. i really hope that you pass on this. 15 years have passed. we have had several directors. the process has been really, really slowed down, and like you said, things have been happening, and i am glad that i was here today so that i could whisper in my baby's ear.

i have been working on this since the 1970's. i heard her say that you have been out there. we need to really get the work going. thank you very much. president vietor: ok, any other further public comment? if you did state your name for the record, sir? >> my name is larry wong. i represent the collective bargaining unit for the engineer's and technical people. the past couple of months, kerin has approached local 21. at two of the meetings, we gave presentations. last week, we talked about the work scope. at this point, local 21 supports the rfp conditionally.

it was involved in the resources of the puc staff, equipment, a final review of plans, reviewing training requirements, but making sure things are up to snuff, preparing a manual and policies, identifying staging areas. the one thing the union has a problem with is that you already have staff on board. they have the capability to do many of these items. the thing i find stressful is not interesting -- this was developed with the program.