criteria. >> i am todd rydstrom. you have been to the rate setting process for many times. given the projected growth of the redevelopment area, especially treasure island as well as hunters point shipyard, we have undertaken construction as part of the budget a revenue requirement review of the power enterprise as well as a rate review. the charter also requires a price tier to be considered them for us to hire an independent consultant to review the cost of service as well as the rates and to bring them before you. today i have 14 brief slides i would like to walk you through. the most important part from the staff perspective is to hear

from you if there is a particular criteria or rate design or creative policy idea or implementation policy would like us to factor in as we review these rates and proposed rates, and then have those ready for you to deliberate on and consider it later this year in late november or early december. if i could just transition to the power point here on the computer, the review progress and objectives of the first item -- we have contacted with others to contribute to the rate design and rate analysis. to date we will update you on where they are and get your thoughts on criteria, a key policy directives, and special rate setting. you will be able to share those

today and have agreements and questions all throughout the fall. we encourage you to forward those to us as well. the key deliverable as you will be seeing and hearing more of -- deliverables you'll be seeing and hearing more of is a draft report from the consultants as well as a proposed rate legislation before you by december 14 for your december meeting. in addition to the work that we are doing at the staff level and your commission timeline in particular, we are humming the entrance consul to. that was done in early december. ms. power and by our partners and are working closely on the cost of -- and i are partners

and are working closely on this. it is a very unique thing. tandem work is also occurring with the rate fairness board as required under the charter. we have held a number of meetings over the next few months with various board members. we will be going to the cost of service for hetch hetchye che power. we go through that so they understand the underlying cost of service. we will review rate design in similar package to what you have before you today as well as all the alternatives and potential combinations of rate design, as required under the city charter, to write a recommendation and report and some not out to you as well in late november or early december.

the key attribute of any rate setting is the ease to communicate, the low cost of administration, to make sure the cost of service is equitable and fair, adequate, stable revenues that promote efficiency and conservation, and affordable programs for low-income ratepayers. you will notice that is almost verbatim with the criteria required by the charter. in the case of power rates, you have flexibility currently to provide subsidies legally under the california constitution. it is a more flexible rate setting than what you otherwise have during your power and with water rate deliberations, which are constrained and limited. that is only cost of service without subsidy. the key components to this

slide are other key policiey issues or criteria you would like us to include on this score card. if you could think of that and got those, i will give you another chance at the end of the presentation to ask those if you would like. to put this into context, the power enterprise is roughly a $100 million operation of the sfpuc's total budget. it is providing to san francisco what is effectively the equivalent of about a third of all the power used throughout the city. that third of the power is mostly going to all the municipal buildings, the municipal railway, the school districts, the housing authority, and that large blue

wench represents that, 61%. the next would be the modesto and turlock irrigation districts. they also have rights to low- cost power in particular. the next largest is the airport tenants. we provide power to the tenants at san francisco international. they comprise about 10% of all the usage of power. the sliver that in particular is of interest to the rate fairness board is the rate that we retell. that is what voters asked the fairness board to do in 2002. their work will be spent almost entirely on that very small sliver of about 1% of projected retail demand at the hunters point shipyard, the trans bay terminal, and at treasure island. nevertheless, it is a

potentially growing wedge depending on how fast we develop the project as areas grow. this is a very full slide, but if i could take a moment and what he threw it, which challenged the consultants as well as our staff and myself 0 --- if i could take a moment and walk you through it, we challenged the consultants as well as our staff and myself to see how rate designs compared to current rates and how the long list of options could possibly apply. across the top of this are six key types of rate setting structures. the first few to the left are going to be very familiar to you, because you have seen them and used them in water and waste water rates over the last 10 to

15 years. we will look at if there is applicability to any uniform rate, where everybody gets charged the same amount, just like a postage stamp. whether you send a letter to new jersey or virginia, it cost the same amount. levels of service at time of use are not differentiated. based upon our research, if you go to the bottom of that page, that is rarely ever used in power rate setting. you would imagine not a lot of proposals will be before you for that in late november and early december, nor before right fairness. however, in class differentiated, that is where we looked at residential demand verses commercial demand -- versus commercial demand, we can separate large businesses or so families or anything else.

that is frequently used in water, waste water, and power setting. the next category of rates is two part rates. this is what you have now for the water bill, where we have a charge that represents 20% of the average bill related to fixed equipment and fixed capital costs. then there is an 80% volumetric where the more you use the more you are billed -- volumje metric where the more you use the more you are billed. tiered -- if you are a super user, it is there a way to structure a discount for people with low usage tax on water and waste water, we have to tears. for your first three units, you are charged one rate. w-- we have two tiers.

in those categories are often used by other power utilities, typically used as well by water and wastewater utilities, and are fairly common already to you based on your prior rate settings. over to the right are the newer things that will also be coming before you. differentiation for time of use and seasonality -- this allows for special pricing or price differentiation for peak demand in a day like today. a lot of air conditioners are being run and the cost of power right now to run an additional load is much higher because of the increase yet very large used infrequently. we will be looking at that as well as seasonable variations in demand and take into account

our climate in the bay area that is more temperate. the last one is a three part, differentiating a large fixed amount to come on line as well as implementing tiers and other pricing. you will have a burly link the packet to look at and -- a fairly lengthy pocket to look at and we will distill it to recommendations of staff as well as what the consultants propose to you, as required under the charter. to put this in perspective and pause for a moment, if you look at pg&e ratings right now, there are 83 different tariffs that a customer who reside in san francisco may be subject to. in our rate setting process, because it is largely based on loaded and cost of service, we would anticipate less than 20

different tariffs. to the degree you do a low income discount, that typically is a known at schedule. that could count as one. vice president vietor: the 20 different tariff options are categories would probably fall into these five designations? >> that is right. on the residential businesses, the recommendation might be to differentiate by class and time of use. that could be one or two schedules. you could have a base class and then you could have a time of the schedule wil-- time of use schedule. we will make it as administratively streamlined as possible and not nearly as lengthy as a pg&e equivalent. this is just to kind of what your appetites to what you see

later this fall and in early december. the rate design alternatives in particular that would be helpful for stuff to get from this commission is down the left-hand side. if there are additional criteria then easy to communicate, low-cost administration -- if there are measures of how you want us to look at a quick ability, fairness, -- equitability, fairness, or stability of revenue, we would like to get those from you and we will score those evaluations against all the different rate models. what i have done for you today is giving you a high-level view based upon sort of a street light perspective of where some great designs to a really good job and where they fall short. if i may walk through this

uniform rate example, it is really easy to communicate. the public typically likes that. it is very easy to administer because there is not a construct where there are calculations being made. the problem is it scores a red, or very low, on cost of service, because you typically cannot closely align the cost of service. delivering a piece of mail to virginia takes a lot more cost and delivering mail to palo alto. that is a classic example for us delivering a lot of power to a big customer versus a little power to a household. there will be cost differences in uniform does not allow you to adjust. the other example would be energy efficiency conservation. if you charge everyone the same price, it is not a good policy lever because they are not

provided incentive to conserve. what is interesting is we are looking at these different rate models and looking at the criteria the charter requires and are seeing how dependent upon the great design methodology that we looked at, and we are going to look at all of them -- rate design methodology that we look at, and we are going to look at all of them, there are going to be different advantages and costs. for instance, getting over to time of use and seasonally adjusted is not easy to communicate, but it allows us to possibly implement policy directives and policy issues that are important to the commission.

the rates to be considered in early december specifically our retail, residential, and commercial rates. we will also bring back before you a summary of the department of rates and work orders for the general fund rates that the irrigation district and others are being charged. we will provide suggestions on efficiency and demand response incentives to attempt conservation. we will be including in that report a proposed low income medical discount like the lifeline provision under the charter. we will look at the cost of service associated in the current budget, for example the $5 million subsidy for go solar sf as a public policy charge. we will also look at net energy metering, which is

technologically very easy to do and would not require any special meeting for us. what we would then plan for future rate studies would be looking further at economic development areas to the degree there are special incentives to be in a special development tom, kind of like enterprise zones. -- special development town, kind of like energy zones. what we are doing now is saying here is what power we have and who currently use is it -- uses it and has a drop on it. to an extent that there is a surplus or a tight power supply, there is a flexibility you could potentially have. with that, i am happy to answer

any questions or hear whatever thoughts or additional policy criteria you would like to consider. >> thank you, todd. vice president vietor: i have a couple of thoughts. thank you. it is so great to sit through your presentations because you make all this complicated information easy to understand. it is a little simpler. on these desirable rate attributes, there is efficiency and conservation, but what about removing from the loud, like grenoble's -- removing from the load, like renewables? it seems like that would play into that matrix in some way. >> you are right. that could also factor into that energy metering and how it could be removing the load need. vice president vietor: we know

there is cost associated double have to be factored in. >> we will look at that. vice president vietor: this time of use and seasonal piece, it is interesting, coming from san francisco and whether we are having now. it is our season but it is unseasonably warm. -- coming from san francisco and the weather we are having now. it is our season, but it is unseasonably warm. there might be additional load impact as we move forward in the next 10 to 50 years. i know we are doing shorter-term rate setting, but it seems like we might want to do some review and forecasting on that as well. i also think it would be interesting to see what power rates are needed and when, and that is sort of the question for ms. hale. i know we have probably reviewed

this before, but this pie chart is great to see. how much has that changed over the last two to five years, and are there any projections of how that could change? i know you were saying that we are developing the 1% peace, and that could grow. -- 1% piece, and that could grow. there are big developments in the next years that could affect the loud and therefore the rates. >> we are including a projected load and updating the 10-year financial plan and what it would look like. we are looking at a median water year, a wet weather year, and a dry weather year. that will provide with the scenarios that are most likely are. vice president vietor: that sounds great. my last piece -- on the future developments, i would like to see something on distributor

generation and where that could get us if we look at development coming on line as we move toward shutdown of our plants and any kind of distribution opportunities throughout the city, if that would affect our right. -- our rate. not to give you any more work to do. thank you. commissioner moran: how does this effort relate to the cca process we are going through? >> this is specifically what is not in mthe cca. this is everything else we do now currently. the cca is a unique stand-alone entity that would be reviewed and prices set and proposals reviewed based upon its own procurement of power in the marketplace of whatever level it

is adopted. commissioner moran: this is where we really are as a power provider. cca is the generation. this happens at hunters point, this happens in treasure island. cca is the distributor, they do all of the work. >> the interface would be in those circumstances where if we were to provide power to them. >> that would be a separate rate schedule providing at a wholesale level.

>> what our current budget is is what they're selling to the housing authority. this was projected in the 10- year capital plan. the peace we are adding would be the additional new housing on treasure island. we also need the commercial shipyard and the trans bay area. >> does this include city hall?

>> it does. we will be able to look into these based upon the current rates we are looking at. what this would mean for the levels of rate setting. >> in your chart, that looks on awful lot like the criteria that we would have to restore water and sewer rights. if you go to the utility version of the world, they are allowed to recapture the expenses and the cost of debt plus a rate of return. you have an envelope that you are working with and you have to choose how you will divide that up and down -- divide that up.

one of the things i have felt a light-a lack of is the lack of that kind of envelope. it is hard to know if you're given subsidies. wind do you start making the subsidies? it is hard for us to establish either an envelope for a bottom line. this involves a series of policy questions and the true retail we have talked about is coming up with a pg&e a equivalency and this is not what we are looking for. it would be nice to think that on our subsidized rates, the

bottom line was cost recovery. i would appreciate some consideration in this process of how we set policy objectives. this gives us a way of making trade of choices -- trade-off choices. >> i would be happy to be part of the general managers' report and share how this is going with the consultant. some items we have covered are the assumption of the credit rating. we have made a very good

progress on this. we would get a power credit rating. this should also be will for you in the. remaining walking through what the implications are. the other alternatives we have had is marginal cost pricing verses average cost pricing. we know that we have a very efficient system that reduces prices add a variable cost. that gives the commission more flexibility. how we choose to share or divide up that cost, we want to show you where the rates are today and where they would be and how they compare to the costs from pg&e.

there is securities rate of return on capital and how that specifically looks at how the rates are proposed. ultimately you decide how those rates are set. >> i have one clarifying think on your question, if we will buy the power generation, would that affect the rate? does that need to be an attitude or whatever you would call this to be able to say that maybe that is the cost of service line? >> we will be providing the power that is generated. >> we will do this on the open

market or hopefully investing in windfarms and hopefully that would be provided to pg&e. they're similar questions on how we charge for the generations . >> is to any public comment? >> commissioners, in this discussion to make things simpler, but we don't follow some of the main elements to analyze empirical data. for