that we ensure all san franciscans are well informed about the program, and have had an opportunity to express their level of interest in it, given the level of financial commitment, they will be making as a household to the program, and its enhanced renewable attributes relative to the supply that pg&e is currently providing. in that early notification period, we're going to be reaching out to between 10 and 20,000 households here in the city, to ask them to express their level of interest. once we've informed them about the rates that they would see, what sort of a premium we could expect them to pay, what the character of the supply is, once we educate them about the program, this is intended to be a face-to-face conversation, or

a phone-to-phone conversation, where we'll really have a chance to test our prospective customers level of interest. it's our intention then to have a real solid read for you on the level of interest, prior to coming to you, and asking for authority to sign for the general manager to sign the contract with shell energy north america and kick the program o off. that early notification period needs to meld well with the formal launch of the statutory opt out period, that's the opt out program we've talked about before that's required by the state. so we want those two components to work well together. we'll be presenting to you our key communication strategies and our overall budget, and again the proposed clean power sf timeline that factors in these changes, and in particular the

early notification period concept. to given you a quick overview of the timeline, and with an emphasis on the action item for you, i'm turning to slide three, where, at this time period, we are reaching out to yourselves, to members of the board, to the mayor's office, we having the joint meeting with lafco to make sure we're really on track with the intentions from the board and the mayor, making sure that we are putting together a customer notification education plan that's supportive of your intentions. we'll be asking you to approve that plan on the 30th, in the joint meeting, and also to allow us to go forward with the communications consultant, our contractor. then in the first quarter of next year, we expect we will be

surveying -- conducting our third citywide survey of prospective customers. we will then be presenting to you our adopted not to exceed rates, asking you to adopt -- excuse me, the not to exceed rates for the program in february. then that will start under the rate requirements, that will start the 30 day clock, where the board of supervisors will then have an opportunity to consider their comfort with those not-to-exceed rates. and then by mid-march, we'll know if we have a program offering that the policy-makers agree is affordable to san franciscans. then in the second quarter, we'll begin that early notification effort that i mentioned. and we'll be coming to the commission in june to ask each of you to review the findings of the customer survey of our early

notification efforts, and authorize mr. kelly to sign the shell energy north america master agreement. by the third quarter of 2013, we should be -- we should have signed our shell energy north america master agreement, and be testing then, with shell, what the actual prices are that they can bring the supply to us at. recall that under the master agreement, once that agreement is signed, we have five months to settle on, with shell, the price, the wholesale price that we will commit to for the megawatt hours we're purchasing from them. if during that five month period we can't come to an agreement, we don't believe the price they're bringing to us will result in a program that we can successfully provide to our

customers, then after that five month period we may -- we have the discretion to say thanks, but no thanks, we are -- we're not going to go further with this program offering with shell. likewise, they could also walk away, no harm, no foul, no financial obligation. if we aren't able to reach agreement on what that price should be. they will solicit the market for what the market will sell power to them for, then they will bring that to us and say are you ready to commit. we may go through a couple of rounds of that before we get to a price point that we think, as staff, we should bring to you for consideration. but we do have a limited time period in which to have that effort run its course. once we have settled on a confirmation, assuming we do, with shell energy north america, then we would be making that commitment to purchase the supply from them.

we estimate it will cost about $38 million, and it will be for four and a half years under -- as defined in the master agreement that you've already authorized. once that confirmation is complete, if it gets completed we will start the statutory opt out requirements and begin our overall education and notification process with the rest of san francisco, if you will, making sure that folks that we're targeting for service really understand the offering. and then that means we will complete statutory opt out period and launch the program in the october to december timeframe of 2013. >> president torres: okay. >> thank you very much. >> president torres: any -- >> happy to take any questions. >> president torres: any questions from the commissioners? commissioner caen. >> commissioner moller caen: a

slide one, there are even suggestion -- but what happens when we do the analysis? and the analysis shows a negative impact? >> so if we -- when we go out to customers, if they tell us they're not interested we will come back to you and report that and we'll have a decision point for going forward. that's the intention of the engagement with customers early on, is to really test their level of interest. so that will be another opportunity for you, to give us direction on how to proceed with the program. >> president torres: we'll also have further discussion at lafco joint meeting on the 30th here at city hall and obviously all commissioners are welcome to attend that meeting of which i will be there of course. public comments, mr. decosta, you wanted public comment on item 7(b), you said.

>> commissioners, way back in the year 2000, some of us stakeholders used to regularly meet at 77 -- to discuss our energy issues, and we looked at the regional-wide. at that time, unfortunately, sf puc was intent to putting some combustion turbines, you know, to the detriment of what we're talking today. the way i want it look at this is that we seem to be talking in generalities. and really what we should be talking is line item by line item, so that whoever does or pays the bills in the homes, knows exactly what they are

getting. now recently some of you all who pay attention to the news, you all notice what hurricane -- some of our folks haven't got their electricity and it's been weeks. i say this because in all those deliberations, one of the things we have to pay attention to is who has proprietary jurisdiction over the transmission lines, who has proprietary jurisdiction to do the maintenance and how much of this information is being deliberated. now, i have a -- some set of chart over here and they're talking about twin power sf stakeholders meeting 1:00 to 2:00 pm that already took place on november 7. i don't know why they put this out, but if at all such a meeting took place for one hour,

i think it's a joke. this is such an important issue that it takes normally four or five hours. you know, you just can't get into it and say okay -- and the meeting is over, no. there are many, many factors, many, many elements, many, many facets that have to be discussed. so, commissioners, i am the director of environmental justice advocacy. and it behooves me to bring my experience, the last 40 years i've been dealing with these issues at the presidio, here there and everywhere, i've paid my dues, but let us not keep the public out. we have astute people in san francisco. let us give our input. the more outreach we do, the better results we get, but let's not, you know, dictate something that people will just go with

the flow. ain't going to happen. thank you very much. >> president torres: well said. any other public comments on item 7(b)? >> good afternoon. again, commissioners, eric brooks once again representing san francisco green party and the local grassroots organization in our city. so first, one quick technical note. aisle take a david pilpel -- after all, and that is i believe the board of supervisors in the legislation that passed, decided to adopt a five year, not a four and a half year shell contract. that could be staff is going ahead with four and a half anyway. i think it has latitude to do had that but you might want to k there's not a disconnect there. more importantly i unfortunately have to raise a red flag on our process and that is that -- you know, over the past couple of years, we've had some great harmony with staff. staff has been really good. i think we've achieved a lot,

and the fact that there's past in september and we're on our way is very impressive. however in the last couple of stakeholders meetings, we, in the advocacy community, have become somewhat alarmed, and somewhat may be an understatement. in those stakeholders meetings we finally got the 400,000 -- a lot of the results from the $400,000 worth of work that we've been asking for years that you do to prepare for the local installation of hundreds of megawatts of renewables in san francisco. we also knew that once that information was prepared, and we just got introduced to their initial financial model that they came up for the project, incorporating the build-down as we've said for years, local power has shown a financial model that can launch the program in tandem with what we're doing with shell in a way

that can bring in up to 97,000 customers at price parity with pg&e, not at a premium. and that is absolutely crucial. that means we can offer ratepayers something that will be the same price as pg&e, except for the exit escape charge that pg&e gets. that will be a small increase. during those discussions, it became clear to us that staff seems intent on just continuing with the current track this they were prepared to do which is focusing on the shell contract. this radically changes potentials for how we're going to roll out the shell project, what pricing we will set for shell. we need the rate fairness board to make sure we're analyzing this information and if what local power is presenting is going to work we need to adopt that, and not a program that has this huge premium that's going to scare off customers.

i will speak to this when we get to item 19 but i wanted to raise that that we're now in a -- we need to get back together on this and that you see what local power is doing so we can get the best deal for ratepayers that we can get. thanks. >> president torres: thank you. any further comments on item 7(b)? all right. >> next item is annual financial audit and auditor's presentati presentation. >> good afternoon. todd rydstrom, assistant general manager and cfo. i am pleased to be before you today because i believe this is one of the most important things that our ratepayers look at as well as you in your oversight of

the sf puc. i'm joined again by the partner in charge of kpmg tiffany ras mussen our independent auditor, who you along with the controller's office looked to financial statements. i'm pleased to present to you today our fourth year of clean audits for all three enterprises. upon that is a remarkable achievement and i want to particular point out and call out deputy cfo francis lee as well as deputy cfo charles pearl who runs accounting operations. myself along with app take a lot of care. this shows you the last five years of all three enterprises and the most important thing to notice is that it shows clean audit opinions and no material findings over the last four years. so we've continued that trend. >> president torres: on that point, after reading these

voluminous audits, one thing was striking to me and that's the assistance program. and i think there were 28 recommendations, as i recall. and those recommendations are being implemented to ensure that people are not taking advantage of the program that don't -- that are not eligible because they are way beyond the low income level. is that correct? >> that is correct. in fact those audit findings as well from the community assistance program, which then dovetails into the financial audits, show that we have already addressed -- we've gone out to all of those identified accounts, looking at them, reverifying them, in those cases where there is ineligibility, backfilling and getting collections already. >> president torres: what was the nature of why that wasn't done in the first place? >> the nature of that in the first place was that we, in the spirit of administrative efficiency, trusted and counted on the pg&e care program as a

proxy for participant eligibility. and what we found is that, based upon that, that's not good enough and we needed to do our own eligibility by looking at participants' tax returns as well as their income verification to make sure that we were stretching our low income affordability assistance program as much as possible. >> president torres: so 46% of ineligible people is unbelievable and i'm so happy that you're implementing a program of verification because that lends to the transparency to the rairpt and the confidence by the ratepayers that we are being as efficient as we can and not letting people take advantage and abuse the system in respect to those people that really deserve to -- >> yes. we really want to stretch that dollar as far as we can. thank you for noticing that. in addition to noticing that the gfoa continues to provide us awards for excellence in reporting and transparency. this is our third year for winning that, on the heels of our outstanding achievement for

our report that tells our ratepayers as well as other stakeholders what we're providing and what value we provide as well as our third year of our distinguishe distint award. if i can turn the mic over to -- for her independent assessment. >> tiffany ras mussen with pg&e and i have the pleasure of being here, i've been doing this off and on since the year 2000. working with the puc is a pleasure. todd and his team are fantastic to work with. as he said you have unqualified opinions or clean opinions on water, wastewater and hetch hetchy this year. we also are in the process of working on the cafr, the annual financial report for puc which pulls it together and working on the wholesale requirement audit which will be issued later this year. the team is well organized, and they take financial reporting very seriously. so again it is a very smooth

process in working with them. i have a presentation for you which is our required communications but really i would just entertain any questions if you have any, as todd mentioned and i mentioned, there were no significant findings, and working with them did not -- any disagreements or any challenges. >> president torres: was the grant jury's report part of your deliberations as well? >> no. >> president torres: that was not within your jurisdiction. >> no. the audit statements as of june 30. >> president torres: who was responsible for that within our operation? >> so the civil grand jury for the department of technology -- >> president torres: right. >> i worked on that as well as our i.t. director as well as our -- nancy hahn who runs insurance and controls and our vomp was to -- to the independent grand jury to the telecommunications department. >> president torres: which is under the jurisdiction of the puc. >> no it's not but we do use their services like citywide e-mail and citywide data. >> president torres: so you

indicated the issues that we had with the department of technology. >> we did and we participated in the hearing that the board of supervisors had, i think it was a week and a half ago. >> president torres: thank you. any questions? >> any questions? okay. thank you very much. >> president torres: thank yo you. >> the next item is the quarterly budget report. >> it's a pleasure to give you some more good news today, and that good news is that water sales hav up. and the water sales being up has helped both our wastewater as well as our water enterprise. so in your packet today, i have three brief slides to walk through with you on that report.

water use and sales are up about 3 1/2% for wholesale customers and nearly 3% for our retail customers -- i'm sorry 3% for our retail customers and also about 3% for our wholesale customers. we noticed in particular that passenger traffic at sfo which uses our water, as well as a lot of the requir irrigation accouno more outdoor irrigation was included. we seen economic growth in other business sectors as well in the economy. and what that means is oftentimes we have more visitors at our hotels and those hotels use more water as well as the restaurants. this translates to more water water treatment as water goes down the drain and down the toilet and that is good news on the wastewater side as well. where warmer weather doesn't necessarily help us, in weaker power cells because there's less

hide generation as the water comes down the hill so we have a slight shortfall in our power enterprise. the next slide here provides for you one of the fund balance reserves, basically at beginning and ending checking account balances and what you have planned. in the water department we're nearly doubling our reserves from the end of last year to what is prkd projected. the wastewater department is up slightly, very similar to plan. and then in hetch hetchy water and power reserves are projected to go down to 47 million. this was planned because you had invested over 30 million of that into cash funded capital projects. so that's not a surprise. that was an intentional investment. if you look at each one of our operations, water, power, and sewer, all of them in the

current year are doing better, either because of better revenues in the case of water and weight water, or more expenditure savings in the case of hetch hetchy. so on very good financial footing. the score card you hold us accountable to for looking at reserves show fund balance reserves are being met either at percent of revenues, percent of expenses and also meeting everything required under debt service coverage. so we are in good financial shape as is shown for the current year first quarter projections. >> president torres: any questions? any public comments? there being none,. >> the last item is recent update.

>> good afternoon, commissioners. joey labonte. i'm glad todd had some good news because mine may not be quite as got unfortunately. this is the quarterly up date for july august and september. the updates include the latest forecast on the significant changes associated with the calaveras project. and the second half of my presentation will focus on those changes. as of the end of september, the resip was 68% complete over all. and as with the past several quarters, most of our focus has been on construction activities as shown on the chart here. only one of the three projects that still remain in design at this point are seismic reliability projects. the good news here is that all seismic reliability projects are

either in construction or have been completed. so the large changes on the calaveras replacement project are reflengd here in the regional program variances reported for this quarter. we -- if we focus on the numbers for the regional program, you'll see that we are now forecasting the cost of regional projects to be 150.6 million more than the total budget approved for these projects and this will present an increase of 138.7 million over the forecast for the last quarterly. nearly the the entire increase in the cost forecast is associated with the calaveras project. that project is now forecasted complete 25 months beyond the approved completion date for the program which is july 2016. however, to minimize costs what

we're planning on doing is to discontinue all program level resources as planned mid-july 2016, unless the implementation of the calaveras project move on on its own, using its own resources. >> i'm sorry, i department quite understand that. you mean you're taking it out of the wsip? >> what happened is we had this program infrastructure that helped us manage all our projects as a program. -- program-wide. once we arise mid-july -- mid-2016, calaveras is going to be the only project remaining so will this mental all the program structure and have calaveras running on its own using its own project resources. so the large cost increase forecasted this quarter is the largest one reported to date, that's obvious.

and you can see it here on the cost tran for the previous year. the good news however is we are still forecasting the program on budget. the reason is we have enough contingency left in the calaveras project as well as funds available in the program management reserve to be able to absorb this large increase. and we are taking steps, as we speak, to identify and achieve cost efficiencies in all areas of the program to make sure we keep this commitment to deliver the program according to the budget that has been approved by this commission. so that's important to us. the last release of funds approved by the board of supervisors, from the program management reserve was done a couple of weeks ago. and you'll see here on this chart that we are planning to use the remaining balance in the

management reserve, which is $117 million, to cover some of the cost increases on the calaveras project. the other thing i'd like to mention is i do have about $40 million worth of savings in various projects that have yet to be moved to the management reserve. and what we'll do is we'll use a good portion of those savings, move them back to calaveras to replenish the construction contingency that is required to be able to deliver that -- the remainder of that project. >> president torres: these increased costs were as a result of a totally unexpected development, correct? >> correct. >> president torres: that's important to put that in plain understandable english so the ratepayers and people here and the commissioners will realize this was a geologic occurrence that we did not anticipate. >> you're right. in the second half of my presentation i will summarize those but you are absolutely right. before i go into calaveras i wanted to give you a very brief

update on the progress being made on all our other projects. so here are some note woaverthwy accomplish jts. we advertised the construction project for the san antonio backup pipeline due by the end of this month. we noticed an -- on the seismic upgrade on the bay division in early september. this is important because this is the last project that was listed in california assembly bill 1823 to go into construction. the over all reliability of our system was also enhanced in mid-august, when we achieved substantial completion on the bay division pipeline three and four cross-over projects. we also accelerated pipeline installation in the san joaquin pipeline and we were able to complete all pipeline work on