fall into a high risk category. it involves a lot of changing variables. the great thing is, within the budget that we have moved forward with, we have jumped up to 10 miles this year, compared to 6 miles last year. we will be stepping up to up to 15. the way we are moving, we are on a 15-year replacement cycle. we could go back to the prior cycle to speed that up, about what we're looking for this the knee of the curve. that would be the optimum catch up period. so if approved, we could catch up in 15 years and stabilize at

18.5. if we were to do that faster, we would see a steeper slope and have a higher r&r annual appropriation. >> i do not know how we can jump so greatly this year in 2010? >> they have things that are ready to go. we have an exceptional team of product managers on the r&r and they have a full project list. we have a hydraulics team that just put this work out and they have it done down to a science. we have a package where we can have a template that is all routine check lists. they have already got these

projects designed and ready to go. stepping up to the next level represents getting additional staff to sustain that. i were routine was 6 miles a year, depending on what occurred. sometimes, the priority gets the needed because of another construction, and then ask, delores. -- van ness, delores. in this case, we have one full year. to sustain that, i agree, it will be challenging. we are going to need some additional tools to keep them going. i have requested a senior product manager that would be overseeing the r&r program and would be collaborating with the

waterprise so maybe we can find a street where both need to repair replaced and we can have the optimization of cost. paving, excavation costs, closures, can really bring the price of a project of. and we are pretty proud of them. that is a credit to johnny wong. >> there is another graph where you show increase in the inspections, but not replacement, which i found curious.

>> unfortunately, what that first line refers to, total must be inspected, those are responses when we have a problem. this is the chart that tummy passed out to the commission. -- tommy passed out to the commission. that first wrote is response to a simple, -- sinkhole, other

calls. in the condition, the second row, that is mileage that will be used to identify what will be replaced. not just this is facing all, this is what needs to be replaced. that will be what goes into the risk model to determine the source for the next several years. that aim is to be able to assess the entire 952 miles of sewers. it will be ongoing. we will have a tv truck logging and review with the tapes and updating our condition assessment.

we can program which miles we are doing each year. does that adequately cover your point? the first number is bigger because it is individual spots that have failed in the collection system. >> how many years is the rotation of an inspection? >> the manager of collection systems is here. he is the best to answer. >> the initial pass through of the system will take six years. the reason you do not see a corresponding increase in the repair and replacement it is we are sending inspection teams to our estimated worst locations, based on the estimates we have seen over the past 16 years. we are going there to see if our

conclusions are correct. those will be taken care of first. the object is to use this new accord and we are getting and then to come up with a 10-year plan. once the sewers are replaced, they do not require a six-year cycle. it is more likely that you will do a 10-year cycle. perhaps more frequent with others. >> getting back to your charts on 56, 57 --

those dollars are animal dollars, they are not inflated, not present value? >> currently, right now, $1 million on mile. >> so when you look at [no

audio] k annual cost come if we were planning on a 15-year cycle. then on the next page you show the 15 years. after you break the hump, you step down to an 8-year. has that been subject either to present value analysis or the lowest life cycle costs that was in the asset management section of the report? >> this takes into account the risk assessment, and that is how we ended up with these categories. 160 miles that needs to be replaced to then have been in a manageable level of risk. you have a system in some places that is older, getting close to 110, but we are getting the highest risk first.

you have these in variable that are changing at the same time. i did not throw in cost escalation. we had looked previously at other charts which had the total cost. you have different lengths of time and you are escalating in a flat line. this analysis has built in everything. same with that asset management approach for selection. it is the $3 million a mile. >> if you could get this information to todd, and say, given a financing structure, what we want rates to look out over time, the answer might be different.

>> that will be the next section. >> these match what we discussed in the 10-year budget program. how long can we wait to catch up? >> the thing that i have been wrestling with is we did have discussions as part of the budget process. there was a recommendation that we do with the 15-year cycle. so if that is answered, what is the question, what are we trying to do here? if this information is given to todd, and the direction is how do we finance it, that will give you one answer. here is a risk profile, here is

what it takes to do with that risk over time. here is how it will play out. you tell us the financially most important thing to do. that may get a different enter. if we say we want to have the rates change in some other way, basically we want to have blocks of actions that are tied to something that people can understand, then we could conceivably come up with a third enter. a --nswer. >> the discussion we will be having about rates, if you put this thing together, it feels like to much. there are ways to decrease in the ssip or do less per year.

>> i really want to move on but i want to make another point. we built all of those factors into the chart. all of those variables are changing, risk, variable assessment. todd will talk about how this profile plays out when we get to the rate. all the projects that we have been discussing over the past two workshops have been laid out in a scandal over time. we have biosolids facilities beginning right away. treatment scattered over 30 years. treasure island is at the midpoint of this decade. low impact design run the entire 30 years. that is an annual program would

also has capital projects for creek daylighting. downspouts program would also be an annually funded project. we have channel tunnels. what i wanted to share you in the next slide is the location of those projects. this is a nice graphic that looks at what is what is in the ssip. we have a localized flood protection project that would handle storm water flows within those neighborhoods. be able to capture and manage the storm water. what is not in the ssip. we do not have a southeast outfall replacement for upsizing. we do not have the diversion tunnel that we have discussed

previously to bring flows east to west. we cannot anticipate the regulatory requirements in the future, but the list goes over everything that we have been discussing. so with that, todd. >> first of all, good morning. the general manager. i had the fun task with my staff -- i want to recognize our administrator and others -- who have put this into the household budget perspective. many of the numbers will be impacted based on the level of goals you want to see achieved. when we have taken here is

everything that karen explained as far as the sewer system improvement plan, the ramping up of the collection system to a 15-year target, and then put that into how that would affect the average waste water bill. the chart before you is the total server system program. -- sewer system program. you see that the budgetary authorizations would have to be on track to tee up as part of our 10-year plan, would grow

from under $100 million today, to afford to of $650 million by 2016. that would be as the budgetary authorizations for the planned cost digesters would be needed. additionally, we would see a spike in 2021 for later portions of the source improvement program coming online. that is a fairly large program but i want to put that in the context of what we're doing now. we have taken much of this in anticipation as we look at the 10-year budget plan. the rest of the plan included two additional bars. the first one is the green bar, which represents the cash-funded

programs which you have already built into your rates. that cash-funded program is a program that is of the $40 million a year over the next 10 years, growing at a pace of 30% every year. we also need additional ramping up for r&r. there is not enough cash to pay for that. you will see a red bar stocked on top, what are repair and replacement needs, that are on top of bond fund it. we have a lot of bond and state revolving loan that will be paid off over the next 10, 15 years. that will free up debt capacities and that can be used for new system improvements. lastly, the same blue bars, we

stacked on top of that the need for the sewer improvement program. the cash-funded agreement portion, every year we are depreciating about $40 million of capital assets. on average, if you are cash funding what we are depreciating, we are neck-and- neck. depending on the goal, the most critical needs, at least you can see that over the next several years we are matching the annual depreciation with annual cash spending. the cash program over the next 10 years is projected to be able to fund at about $430 million. a significant number but much smaller than the $6 billion program that karen described

earlier. what this means to the average water and waste water bill, if i could draw your attention to the bottom part of the screen, the dark blue portion. that is the average water bill. we ramped those rates up to pay for the upcoming cost. the lighter blue portion is if we stacked on top of the residential, business bill, the sewer program. $83 would be the total combined bill for water and waste water. if that were to grow through 2030, the projected completion time of the ssip, you would see

a projected average, total sales, would grow from $83 to write around $53. that seems like a lot of money. i would like to take a moment to see what inflation looks like. the red line that we have marked, if we do nothing, and the world on average has a 3% inflation, which has been the post-war average, every cost will double. so between now and and 2024, and everything will cost twice as much. and the other metric used, in terms of capital planning, if we do nothing, construction cost

inflation tend to significantly outpaced regular inflation. we are assuming that will be 5% of construction costs. those are always two key inflation numbers that we keep in mind as we do this production. the total bill, as far as what it means on an annual rate change -- and as mr. harrington mentioned earlier, we are able to fit a great deal more than one might think into the household pocketbooks possibly because of paying off old debt, and that will help clear up some capacity for the sewer system. so if we have 3% inflation and a pathetically the commission were to develop capital plants that

fit into a 3% inflation scenario, we would be following those annual rate increases uc there. after current rates are adopted, we would only be setting rates commensurate with 3%. that could achieve a lot, but not everything needed for the ssip. in order to do the sewer system improvement program, we would be looking at likely in borrowing rates because we have to fund it, between 4% and 5%. when we reviewed the water system with the commission, we have always used that long-term borrowing costs. we have been doing incredibly well. we just sold some water bonds on thursday. we got 3.1%. however, we are more

conservative in this model. we know our record low borrowing level that we are getting now will not likely last forever. so we are doing a more realistic 5% borrowing rate. what that shows is, this is possible, but we've with need -- we would need five years of rate increases, and then we could rent them down further after your time, your 15. the rate changes, annual changes would be much smaller than what we thought on the water system improvement program. this is a function of different things. the sewer bill is two-thirds of the total.

water was only one parent. also, we had some debt that was paid off. the other illustration we are showing here, if we are lucky enough to borrow at 4%, that means we still need two years of 10% rate increases. but then we can significantly ramp down near 6.5% for the next several years after that. that will help to put it in perspective, as far as the average rate change. these percentages will be much less than the 15% rate changes that we have seen in the water system program. >> remind me again, the first four years on that are higher than the 3%.

why is that? >> the prior year, we did a 5% rate adoption. we assume that we would continue that. whether the scenario is long- term inflation or a 5% borrowing cost, we have assumed we would live within the rate increases, even with lower consumption and treatment. >> you have had a dark blue for the water rate. we have talked about the next round of water system improvements that were not included in the ssip. is that subject to later discussion? >> this is what ever is in the capital plan. not a large water improvement

system program. this is a cash-funded program waste water funding is only 5%. to look at utility bills. the first line at the bottom looks at the average water bill and how that fits into average household income. figures we read say anything below 2% is affordable, if your

water bill is below that, if your waste water bill is below 2.5%. it is deemed affordable. so on average, our water bills are affordable compared to the needy in el -- income. our debt, and we have issued six straight debts so once you lock in that rate, you do not much change. the waste water source system improvement program is the light blue line. with the projected need of services to improvements needed, we would rent up from 1% to 1.5%.

then we would lock that in to a fixed rate. household incomes are soon to continue to grow at that 3% global inflation. this is how household income would change over time. in today's dollars, household income is $70,000. household income is when we look at all the income coming into a household. if two people live in a home, it is their combined income. if someone has unemployment insurance, that is included. so this is a number from the federal census bureau.