from the watersheds limited to only 265 million gallons a day. the projected demand for the wholesale customers but this was adopted as part of the position in october, 2008. the point was to allow the pc and customers to focus first on the recycle water, ground water, while minimizing additional diversity on the river. the purpose was to see what we could do. coupled with that is the environmental enhancement surcharge. this establishment's -- establishes the the imitations and what the commission is obligated to do is to break this up into individual supply allocations. beginning with next year, the wholesale water rates need to

include a surcharge to enforce the surcharge. this would be levied only if the wholesale customers exceeded the limitation. what we have been working at is trying to work within the context and reaching customers. this is established in the contract as $81 million per day. this includes the demands of san jose and santa clara. they are interoperable. our whole guarantee to our customers is 184 billion gallons per day which includes the other customers but it does not include san jose and santa clara. to do the allocation, we have to shoehorn in san jose and santa

clara along with everyone else. this presents part of the challenge that we have to deal with. when the other things is that we have more customers to protect customers of of the individual guarantees so that we have some, four in particular, who project more water than what they are guaranteed. those are the basic charges that we have to deal with. one of the terms and water sales agreement is that it shall be the responsibility of each customer to limit their supply so that this remains within the supply guarantee. in this case, the individual supply allocation has no explicit relation to the individual supply guarantee and several customers have

identified that this is a very important issue. and how we deal with how we live within those means is very important. one other thing to know to is the contract which allows for transfers between customers. the wholesale customers can be those that transfer. they need to be for the remainder of the year. the public utilities commission must determine the ability to deliver that to the recipients. they stay in effect until 2018. we have discussed paris options with our customers.

four options happen this fast, the first option we've looked at was taking our projected amounts from our customers. that the individual supply allocation and their projected purposes. we had a number that did not like that, particularly those that had a guarantee. we had a second version which was based on the individual supply guarantee. we will let the transfer work out to, if anyone, should it some of that extra allocation. we did that back in september and we got the feedback and we

came back to the commisç on november 9, november 23, and we started to do a different version, which is utilizing projected purchases. the idea of a reserve was something that you could then use as insurance against unanticipated demand increase out there that could be allocated to whichever customer had that anticipated demand increase. and then, most recently, we started looking at the individual supply guarantees with much larger reserves, where we would take that excess potential allocation there and put that into reserved for use with all of the different customers, so this is what we looked at. each one kind of took a different track, getting different feedback from people, to try to come to what would seem like a reasonable decision here. what we put in the agenda package was an option for the commission to consider that limits individual supply

allocations no more than the guarantees and provides a reserve allocation. police -- reserve allocation. one of the things we know about projections is all projections are wrong and that the actual future is going to be somewhat different than was projected, and it is hard to know if any particular customer would be over or below their projected purchases, so the idea of a reserve seems to be able to help deal with that, and then we set up for the allocation of reserves that would be allocated first to those who have guarantees of allocations and secondly to those who have purchases above their guarantees. in the discussion in the last year or so, particularly with commissioner marin -- moran, it would take a different approach, more akin to what we looked at through the process.

this would limit the individual supply allocations. it would reduce sanders in santa clara -- it would reduce san jose and santa clara. you can reduce their allocation without having to commence the process that i talked about earlier. if you reduce their allocation much more than that, you have that in the system, and i do not believe that is anyone's intense. there are the individual -- it is an increase over the supply assurance. there is a particular contract that does not limit the amount of water that you can purchase from san francisco, so that is the case any way we deal with it.

this would eliminate reserve. this is proportional to the individual supply guarantees. this would be a way to balance out anybody u.s. excess demand and get that from another agency. the transfer mechanism does not require an exchange of value. it just allows for it to occur, so that would be to our customers as how that would actually happen. that is where we are at. the allocation, which i said, is very similar to the second draft that we produce and shared with customers awhile back.

and with that, will be able to answer any questions. president vietor: do you want to hear from the public? commissioner: i think that will be good. president vietor: ok, public comment, and then we will hear from the commissioners. any public comment? on this latest version or earlier versions on this item? secretary housh: we have a number of speaker cards, and i asked them to line up in no particular order. >> good afternoon. i am with the city of palo montalto. my name is -- -- the city of caulwell note -- the saudi coast -- the city of palo alto. i do not think this will take a

full three minutes, but we object to the limitation when the resources not directly linked to the initial supply guarantee. however, if we had to choose between option number four an option number five, we would choose option number 5. thank you. president vietor: thank you. next speaker, please. >> larry, with the palo alto commission. we did have a longer, prepared statement. we do welcome option number five, and it is not totally aware we would like to be, but we think it is an improvement over option number four and hope that it is therefore adopted into not have to get into being very confrontational on this, so we very much appreciate your

efforts in this regard. thank you. president vietor: thank you. we appreciate your comments. commissioner: we know for elected officials, that is quite a burden, so we appreciate your time. >> i am on the city council, in a way to draw your attention to a letter that is in your packet, and i would like to make a few points from that letter. menlo park is fundamentally opposed of using something other, for a number of reasons. being used to alter contractual

rights or as a means to establish the price of water. i want to draw your attention to the attachments. this goes through six or seven bullet points that describe the uncertainties in the current projections. this has the projections for each of our wholesale customers. you will see their footnotes associated with those -- there are footnotes. for planning purposes, some cities took a very hard look at this. they adjusted their numbers.

there is many reasons that water use varies between cities, commercial use of water, the weather, and the city should not be penalized for that. the isg's, on the of. , they are clearly the most prevalent method of establishing water allocation among the whole set of customers. this is by virtue of executing

the water supply agreement. president vietor: thank you. and thank you for coming today. we appreciate it. next speaker, please treat >> good afternoon, president vietor and members of the commission. i want to congratulate them on their thorough and thoughtful work. the city concerns are in letters attached to your package, so i will not go through those other than to note that we believe that the option four is disproportionately low and

impacts conservation-related investments we have made. with that, we have had a chance to briefly review option 5, and we still have some concerns regarding the development process. this is listed in our letter. we think item five addresses some of those issues for us, and we are supportive of option five versus the other options. president vietor: thank you very much. next speaker, please. >> good afternoon, commissioners. i am peter. option five. the one thing that stands up for me that does seem a little unfair is palo alto, which does have a supply guarantee of 1.96, with purchases of 3.94, is not getting anything more than its

isg, and they have 45 gallons per person per day. that is compared to san jose and santa clara, who do not have isg's, but who are getting 4.13, and they asked for 4.5. it seems of unfair that palo alto, which does have an individual supply guarantee, is getting quite a bit less to customers. president vietor: thank you. next speaker, please. >> good afternoon, commissioners. patrick, with water resources. i like option number three.

one city continues to believe that the fairest and most appropriate means by which to establish a supply allocations would be projections. this is by the agencies. also, we believe that the establishment of the projections is the fairest and appropriate because it is the commission's decision aimed at a projection by 2018, it meets the agency needs. it does not establish what class of an agency. because it provides a collective mechanism by which all agencies are protected. i cannot comment for others on what they submitted with their projections, but i can trust you that we took a very hard look at what those projections would be, and we're still above the supply guarantee. not by much, but we're still above, so the point that we are raising in our correspondents, and we do want to thank staff, so i appreciate it -- we are raising in our correspondents --

correspondence, you need to allocate the full amount. i think that is necessary. the reserve component of thought within our context does not meet the requirements because it establishes, a larger -- it establishes a larger role in a market -- the market. we believe that a balanced and reasonable approach among competing interests, none of us are going to be happy. the point is, we think we have modest -- what we're doing with our water supply and how we are investing in conservation, how we're managing our demands within the agency. when you look at what is happening with this allocation no. 5, it seems to be somewhat

ironic that three agencies stand to gain almost 3.7 million gallons more water. now, is that really their needs? or is that just what balances us out? we of multiple challenges. and this is not to put a situation such as ours. so thank you, and happy holidays. president vietor: thank you. next speaker, please. if you could speak into the microphone? >> draft five has just come out, so i will summarize the

principles, which are that we still stand by draft two, that we think the isg takes precedence over projections. i mean senior water resources engineer, and i am really at going are comments from the november 9 meeting. we still stand by the isg and think that is the most appropriate. there is an interruptible customers that perhaps won't. -- customer that perhaps will not. president vietor: thank you. thank you for coming. next speaker, please. >> thank you. i am the city manager of palo alto. i want to thank the commission

and the staff for a job that i would not want to have. and we believe the we have recorder our objection to most of the proposals. i am perplexed that these options and alternatives keep coming up, and we are not made aware of them. i am uncertain as to why this is continuing. we started out with several options that came to you in november, and i voiced my objection to the ones that were being proposed at that time. i am not in favor of option four at all.

i would have to study and look at options 5 a little closer before i could make comment on that. we are struggling with a 1.196. i am very concerned about the allocation and what that is going to do to us. i believe there was a presentation to before that if we go over yet -- over that, it could affect palo alto, and i think that is unfair. i just wanted to address that. president vietor: 84 your comments. yes? commissioner: on that point, what are the variables that we

need to consider in this? president vietor: did you want to hear the rest of public comment? more public comment, please. >> i guess we are trying to argue a problem that might not exist. we're going to reach 265. the water use is going down. if the system succeeds, it will be one of the first agencies to

be paying the environmental surcharges. we are not asking to grow. we are willing to live within our means at this point. we are not asking that we will need water for growth. our customer base is mostly commercial and industrial. the population in the area is about 10,400. the people who work in our area are also in san jose, menlo base, so hetch-hetchy is critical to us. we are looking at how we can destroy the economic impact. nobody is talking of limiting the water supply. the agency can take whatever water supplies they need. we're talking but the economic impact. so we are not asking for growth.

$220 million invested. santa clara and other agencies in the south bay. we have implemented conservation measures. again, we are down to about 63 gallons per day. for residential customers. thank you for your attention. president vietor: thank you very much for your time. next speaker, please. >> i am with the city of santa clara. i also have submitted prepared comments. given that we see option 5, i think i would comment on some of the impacts to santa clara. santa clara has been a customer since 1974 of the sfpuc, and though we have seen a decline,

we have still been using an average of 4.1 over those 25 years on average. option five, there'll be a risk for santa clara. we would be at risk of exceeding that value. we do appreciate coming up with these options. we appreciate your time. president vietor: thank you very much. any other speakers? public comment?

>> i am with the city of heyward. thank you very much. this is the projected u.s. agreed it was the best allocation. since then, some agencies with relatively high isg's have allocated to receive more water -- this is the projected. it was the best allocation, some have said. is s -- if sfpuc decides to

include this, my area asks -- we benefit similarly. you have heard that our allocation is going to be its projected use. but agencies with higher isg's, they're going to get their projected use and then some. please give us the same treatment. thank you. commissioner: just for clarification, your area does not have an isg. what number would we use? >> we would take into account agencies that have higher isg's

and how they benefit from the inclusion of isg's. one was increased by 10% because of their isg. there should be given to us. i just wanted to finish by saying item five, which we became aware of at this meeting to hey, we cannot support that at this point. thank you very much. -- at this meeting today. president vietor: thank you. anymore public comment? hearing none, public comment is closed. commissioners? commissioner torres? commissioner torres: we have