2013 revised wsip. your packet today includes several documents that support our request to revise the program, and also included in the commission packet is a letter from bawsca dated april 17th, which includes comments on our proposed wsip provisions. so, why is it that we have to revise the program? it is not unusual for a program of this complexity to go through revisions periodically. as project moves through the various phases of pre-construction and then into construction, new information becomes available and new challenges are also oftentimes encountered in the field. revisions to our schedule and budgets then need to be done to incorporate this latest knowledge understanding and analysis. these revisions also allow us to identify some of the project savings that can be used to

compensate for project overruns. and despite the fact that we have identified a number of savings on several projects, the current approved wsip budget is inadequate. so, with revisions to that budget must be made so we can secure the funding required to complete all our projects. the california water code also requires that we seek your approval for schedule revisions when schedule delays cannot mitigate it. so, doing nothing about our budget shortfalls means that at some point eventually we would run out of funding and would have to stop some of our projects in the middle of construction. in our view, this is an irresponsible approach as abandoning projects during construction could expose us to liabilities associated with early termination of construction contract. also, given the fact that we only have three projects in pre-construction, we have very limited options of cutting

projects before they transition into construction. this is also an option that we believe is undesirable. keep in mind that if we were to do nothing or cut any projects, we will no longer be able to achieve the los goals that were established for the system. now, the proposed revisions that are before you today are the culmination of the two-month comprehensive review of all our active projects. that assessment involves active participations from all our project teams. many of the infrastructure division top managers as well as aecom, our program construction management consultant. the assessment to a great extent focuses on three kia expect of the programs, construction costs, delivery costs, and project schedules. all our project managers were required to justify all proposed revisions and final review meetings that were attended by key members of the wsip management team including myself.

as mentioned, the progress has been made on the program to date, especially in recent year. as a whole, the program is not 72% complete based on expenditures to date and this is a percent completion that is measured against the proposed budget if we were to measure against the lower current budget that is in completion with the over 75%. we have completed construction on 60 of the wsip 82 projects and records of our monthly man-hours she we past the peak of construction this past august. only three projects remain in construction. two of those are water supply project and one is a seismic reliability projects. now, the next three slides, we provide a snapshot of what has been accomplished in the program over in recent years.

starting with our treatment projects, construction has been completed and all the projects that are highlighted in blue and construction has yet to start or is ongoing on the projects highlighted in green. so, you can see here that we have completed construction on two of the four treatment projects and with construction being now 98% complete of the slope plant, before long we will only have remaining work at the harry tracy water treatment plant. construction has been completed on four of our six storage projects, as indicated here, the calaveras dam project is now 39% complete. ~ the regional groundwater storage project is one of the three projects remaining in pre-construction and it is now in the later stage of design and environmental review. [speaker not understood] progress has also been made on all our transmission projects as indicated by the amount of blue on this slide.

all these completed projects have already added significant delivery to the seismic and delivery reliability of our system. five transmission projects with significant seismic delivery reliability -- seismic reliability objectives remain, and you can see here on this slide our two ongoing tunnel projects are the only two remaining segments needed to complete the new life line being built around the bay. and the new tunnel there is 79% complete, while the bay tunnel is slightly further ahead at 81% complete. so, shown here is a high-level summary of the changes proposed as part of the march 2013 revised wsip. major scope changes are proposed on two projects. the scope changes on the calaveras projects are due to the deferring geological conditions discovered in mid 2012, while a different and

simpler design concept is being proposed for the alameda creek recapture projects. >> is this different from what you presented before? in terms of revisions? >> no. this is more dash on calaveras, commissioner, this is going to be more the final numbers. >> you drilled down to the final numbers? ~ >> exactly. what i briefed you on previously was what [speaker not understood], but now we have negotiated the numbers. so, these are more solid numbers. >> thank you. >> okay. so, on the second bullet there, we have -- you have actually already approved that vegetation restoration of wsip construction site project in october. so, in reality we do not have any project addition as part of this program revision. we are proposing a revised program completion date of april 11, 2019, that represents an eight-month extension over an approved current wsip schedule. and we are also proposing new

program -- revised program budget of 4.64 billion, which will present a 54.9 million dollar or 1.2% increase over the current budget. now, what' important here is that none of these proposed revisions will result in a reduction to the level of service goals to be achieved through the wsip. however, they will result in a delay of when these goals will be fully achieved. although we are proposing to extend the program until april 2019, only two projects will extend past july 2016. and this is why we are committing to phase out all program resources by mid 2016, and allow these two remaining projects to be completed independently. the completion date for the calaveras m project is the same as what you adopted in january of this year -- woops, excuse me.

and although the new design concept for the alameda creek recapture project is simpler and will result in less intoews i have improvements within the creek, the implement station schedule will be longer because it will likely require a pilot study to be completed prior to the start of planning and design. the schedule of that project, which includes a total extension of 33 months, is now controlling the overall wsip schedule. the schedule of that project is tied to the calaveras dam schedule because the intent of the recapture project is to recapture flows from the calaveras dam and these flows cannot be released until certain improvements are being completed as part of the calaveras dam project. we have asked the project team, by the way, to try to accelerate this recapture project and look at different options to do so.

the program level budget changes proposed -- before i go there, sorry. on the schedule delays, there is also other schedule delays of significance and they're shown here. and by the way, this slide is slightly different than the one that is in your packet. the 12-month delay on the san joaquin pipeline system is due to outstanding claims on one of the three projects issued as part of this project. the nine-month delay on the san antonio pipeline back up is due to the extension of the deesign phase that include several [speaker not understood] that impacted the environmental review. ~ the eight-month delay of the csa transmission upgrade project is due to very challenging conditions encountered in the field, including some different site conditions associated with very complex under water work on that project. and finally, the five-month

delay on the seismic upgrade on bdl 3 and 4 is to avoid conflict with other projects being bid at the same time. and also delays for the relocation of conflicting utilities that has to be done by the union sanitary district. now, here is a program-level budget -- level change proposed as part of the march 2013 revise wsip. the second column shows the current approved budget, while the third column shows our proposed budget. the proposed budget for regional project has an increase of 76.3 million. this is partially offset by 21.4 million decrease in the budget for the local projects. overall, our proposed budget is 54.9 million over the current approved wsip budget. now, we have told you already

that some savings are forecasted at a number of projects and they will help compensate for overruns. what you see here are the largest cost savings and the largest cost increases. the new design concept for alameda creek involves a much simpler physical, extensive physical improvements so we were able to realize $21 million in saving there. the low number of change orders and the amount of progress made on the bay tunnel has allowed us to redistribute some of the contingency available on that project. so, we have $20 million there. a recent low bid on the beta vision pipeline 3 and 4 also allowed us to save $13 million on that project. and we have also -- have been able to cut significantly our program management costs by phasing out consultants and city staff more quickly. looking at increases, of

course, $88 million in the increases for calaveras is due to the different deferring geologic condition, also the need to replenish the contingency fund for that project. i mentioned the field challenges associated with the underwater work with the csa transmission upgrade project that has resulted in increases of 29 million. the $50 million increase on the regional groundwater project includes increases in both the delivery and construction costs . and finally, a better definition of the major elements of the peninsula pipeline project has led to the $11.5 million increase. the project cost now is based on a 65% estimate whereas before it was based on a much more preliminary estimate. as you know, the deferring site condition at calaveras has

had very significant increase on the wsip budget as a whole. in this graph here shows you how big these impacts have been in regards to the proposed changes in front of you today. the cost increases on the calaveras project are shown in red while all the savings on all our other projects are shown in green. first set of bars are for the delivery and other costs, and second set of bars are for the construction costs. so, you can see that 88.2 million in additional funding is required for calaveras as part of these project program revision. on the other hand, the proposed budget for all other projects have savings totaling 32.6 million. and most of those savings, by the way, are in the construction costs. now, given the magnitude and significance of the

differing site conditions on calaveras, i wanted to recap for you the cost impact of that discovery. three months ago you approved an additional $117 million to cover the construction costs required to address this major change. as emelio mentioned, we have just completed the negotiation of a new change order for that issue, and it totals 126 million. so, the additional amount, the 88.2 million, we're asking you to approve today covers the 9 million difference between what you approved before and what we negotiated. $30 million in additional delivery costs as a result of extending the project two years. and about $8 million for a few other construction trends. that project increase also includes a $30 million in contingency to address any

unanticipated issues that may arise in the future. as indicated on the slide, total cost, construction and delivery cost associated with the geology condition adds up to $163 million. but what is important to realize here is that only $19 million of that total is due to the fact that the unknown geologic conditionses were discovered in construction instead of pre-construction. and again, if, when you think about it, if it wasn't for that one change, we still would have more than $100 million in savings on the program. okay. now what i'd like to do is walk you through a little bit what makes up the wsip budget and how we arrived at this $4.64 billion program cost. so, our budget includes the following. financing costs, which will present the up front borrowing cost to construction until assets are put in service.

other costs which include expenditures such as environmental mitigation, real estate purchases, contribution to art enrichment, and others. delivery costs includes program and project management, planning, design, environmental review and permitting, construction management, and environmental and engineering support during construction. and construction costs includes all the contractors' bid for the actual construction work as well as funding to cover any changes that may arise in the field as well as any city provided equipment or materials. since most of our remaining costs are construction related, i wanted to elaborate a little bit more on construction costs. and here's how those are built. so, the construction costs for the three projects that are less than pre-construction are basically based on the latest

available engineer estimates, and then to that we add 10% contingency to cover any potential changes during construction. so, all those projects that are in construction, the construction costs include the -- all the contractors' awarded bids, all change orders that have been recorded to date, all trends that identify issues that may later result in change orders as well as additional contingency to cover the risks that may materialize in the future. now, another way to look at our construction budget is to look at it as the sum of the actual expenditures incurred so far, as well as the forecast of future expenditures to complete all projects, plus contingency on top of that for unforeseen issues that may arise in the field. now, taking into account all the [speaker not understood] issues we know at this time,

the forecasted construction cost to complete all the program is 2.7 billion. you can see on this slide that nearly 1.7 billion, or about 62% of those costs are actual costs that have been incurred to date. construction costs also includes 64.7 million dollars contingency issues that may arise between now and the completion of the wsip. this is enough contingency to cover a significant portion of all the risks we identified on all our construction projects. specifically, that amount is equivalent to what we call the 88% risk confidence level. and what that means is that we have enough funding to cover the impacts of the risks associated with the 88% confidence level or probability of occurrence. now, if you wanted to go and fund the 100% probability of occurrence, you would need 192, almost double the amount of

funding. and this chart here shows why it is that you need so much more funding to go from 88% to 100% confidence level. this is the risk curve for the wsip and it's generated using again all the risks in our program, on all the projects that are in construction. on the vertical axis is the confidence level of risk occurrence and the zonal access is the total value of the risk or amount of funding you would need to cover those risks. so, you can see at the left side for very small investments, they would lead to very fast increase in the confidence level. but then when you get around 80% or so, the curve really flattens out so you need to make much more significant investments at the right side to be able to get closer to the 100% confidence level. >> what is the confidence level when we found out about the

geological problematical various? >> we always -- the common practice in the industry is to include funding for 80%. so, that's where we've been, you know, trying to achieve and it varied from project to project as. as new issues arise, you start drawing on the contingency so the availability goes below 80%. >> the confidence level was below the 80% norm -- >> yes. tell you the truth, when i did this analysis, i didn't know where we were going to land and i was pleased to see -- ~ i did not come up with the 64 to come up with 88. i didn't pick 88. as i look at things -- i look at the contingency on a project by project basis and we ran the whole analysis program wide and this is where we landed, which, in my professional experience, i feel is a very good place to be. again, if you would want to go, you know, towards the right here, you would need to make incredibly larger investments

to gain only couple percentage points. >> so, at the end of the day when a rate payer comes up to you on the corner of goth and sutter and says, ms. labonte, why are we spending all this money on this project, what does it do for us? >> well, the additional funding here will allow us -- >> i know what the additional funding -- the calaveras dam, why do we need to worry about that? >> there's a reason for each project. in the case of calaveras dam, it is a key component of our overall water supply stratejai. without it, you lose incredible flexibility into the overall operation of the system. and you would become especially vulnerable during drought conditions. >> good answer. question. >> what happened with hetch hetchy -- >> it's a buffer, it definitely provides -- yes. so, there's -- and the dam currently --

>> that's even a better answer. >> the dam has been found to be seismically vulnerable so we cannot operate it at full capacity right now. >> okay. i just think it's important people may be or may not be watching on television, to make sure we help them understand why this expenditure is so necessary. >> and bear with me. i've got only three or four remaining slides. so, you know, the impacts on the rates, of course, is it's an important issue to address. and the $54.9 million increase in the wsip project -- in the wsip budget will not have any further impacts on rates. this is because the water enterprise will make some adjustment to its 10 year capital program to compensate for this increase in the wsip budget. also, as todd reported in multiple presentation in recent years, we have realized some very significant cost savings

in our borrowing rates and these savings will result in lower than otherwise needed future rates to repay the wsip [speaker not understood]. when you approved the revisions to the calaveras dam project back in january, bawsca made 10 different recommendations that were added to the commission resolution. the [speaker not understood] of assessment that led to today's march 2013 revised wsip addresses a great number of these recommendations, however, there are a few recommendations we plan to address separately in amendments to the commission that will be forthcoming. this slide here shows the three topics this memo will address. now, in closing here in summary are the actions that we are asking -- seeking your approval for today. and essentially, we are asking you to approve the scope, schedule, and budget revisions that are part of the march 2013

revised wsip and those were documented in detail in the 30-day notice of public hearing that was part of your packet. and thank you for giving me the time. >> no, thank you. any questions? commissioner caen. >> is it fair to say -- at the beginning of your presentation you listed the projects that need additional funding. >> um-hm. >> but they're compensated for by savings on other projects, correct? >> partly compensated for. the increases are greater than the savings. >> okay. so -- >> that's why we end up with a net, a net $54.9 million shortfall. >> okay. so, one can't say that that 55 million is just for calaveras.

>> no. calaveras itself was 88.2. so, calaveras itself, under this revision, was 88.2. and savings on other projects partially offset that. so, what we did is you look at all the increases forecasted on certain projects, look at all the savings forecasted on others, and came back with a revised program budget that has a net increase of 54.9. >> anything further. >> emelio cruz. if you took the step back to january where you approved a $117 million increase because of calaveras, today we're coming to you and recommending an additional $88 million to cover all of calaveras. and then we also presented to you the savings that we've seen on all the other projects combined in the neighborhood of 36 million. so, you can definitely say that the entirety of the increase is

the result of calaveras and that, in fact, without calaveras, we would be coming in over 100 million under budget at this point. and for members of the public who might be listening to give this scope, $200 million change is a significant change. ~ $100 million because of the landscape underground on the original design, calaveras is moving 3 million cubic yards of soil more than the original design. that translates to 3 billion pounds of dirt. so, $200 million is a large impact to the program, but it's primarily the result of needing to move 3 billion pounds of soil in order to complete the calaveras dam. and, again, the completion of calaveras dam allows us to go back to our historic reservoir levels as opposed to the 35% that we've been currently under because of the seismic condition of the existing dam.

>> that's the 1500 football field? >> i've not heard that reference, but i'm getting head shakes. yes. [laughter] >> okay. so, the only part that i'm not clear on, i thought that you said the savings were not covering completely the additional cost excluding calaveras. is that what you just said to me? >> no, there's a site, actually, that shows that if you take calaveras out of the picture and you just look at all the other projects, we are netting $32 million in savings or so. i could look at my notes. yeah. so, take calaveras out of the picture. the net-net on all of the projects is actually a savings. but the overrun at calaveras is so big that we eat up all that savings and then some. >> i see. >> and that further supports

what emelio just said. calaveras itself is the problem. >> so, just -- it's a tale of two stories. if you don't include the calaveras overrun, i think the program experience, i think over $100 million -- take out all of calaveras -- >> i think it is important, and that goes a little bit to the question of -- commissioner torres' question. and i mention that in my presentation. if we knew ahead of time, during pre-construction about the deferring site condition, let's say we had boring and we identified this slide. i mentioned that all but -- all the changes we have here on calaveras, all but $19 million would have been incurred. so, 163 minus 19, that's 144.

so, the original program costs would have been $144 million more to begin with if we knew about this because we would have had to move all that dirt. we would have had to take-two more years. and guess what, we have conferred with our general managers and all our water supply experts, and we would still have proceeded with that project. this is how critical that project is. so, really, that change here that was discovered during construction is worth 19 million. ~ when i think about it. because if we had known about it from the beginning, we would have committed the additional funding. yes. i'm not sure if i explained this right. >> yes, commissioner moran. >> thank you. the additional 54.9 million -- >> um-hm. >> -- where does that come from? >> well, when we issue bonds, there's no differentiation between water bonds or wsip bonds. so, we have a schedule for, you know, how we're going to issue bonds over