that is where we want to recalibrate the timing or perhaps locked in savings sooner. as you have adopted the operating budget, right now on it is slightly better. the combined bill is roughly flat year over year. one problem that is largely self is on the waste water side. we are continuing to constrain the budget and not let the budget grow to live within our adopted range. this is unique to the power operations. these are self supporting.

they're covered by cost recovery is. the fund balance is projected to be depleted. by june 2013, we are projected to have no reserve if we hold spending as currently projected. based on present trends, that is when we would run out of money. the net operating surpluses $35 million a year. we will talk about that and the next item. this is $35 million above the surplus. surplus. the 10 yearñ  plan that we adopted

and we challenged to show what the balances regardless if we have money to pay for it to show what the structuralok options ae of unmet need that could not be cash find it. we will talk more about that later on. we will limit cash funding in particular. we have a hold -- for our rates. we have an independent consultant as required by the charter to look at those rates. we separated out the financial aspects and we can look at borrowing to cover the shortfall. on this one, we have issued

instructions to have roughly a flat budget which would likely be -- as well!u as -- power. what is most important for us is to hear from you if there are different programs and policies and initiatives that you would like us to add. nothing was obviously missing but nevertheless there is the policies i change. >> commissioners. >> i have the feeling that we eat are walking into a buzz saw.

we have menaced this for decades -- manage to this for decades. as we consider going to the debt market, we have to make ourselves credit worthy and i expect in the course of doing this that we would not only have to change our accountant also some of our practices and it is some of those that would end up increasing the cost of power to general fund the department. i would like your thinking about how to manage that transition. >> we have a special item as well. i can't do this year as well if you like but we are looking at

the current expenditure side of the budget either somehow we ranging that and using that ford debt services feature as opposed to cash as we do for capital projects. this will mean increasing the revenue of the budget. the only way to do this is to get additional customers or we calibrate and the general fund rates that are lower than the average cost. this is the goose that lays the golden age every year and that is at about $35 million in extra cash which could be invested in capital, solar, but also in paying debt service which allows us to do a lot more up front for addressing deferred payments.

right now, we have invested that in whatever it needs to be in cash early to make sure that this does not go down and that there are no health and safety concerns. it is because we have been investing before in cash-funded capital, we have chosen to address those issues and if it is left unaddressed, we would be coming to you with the new budget in 2013. >> this is what we have had as a conversation for the last years as part of the budget.

the good news is that we were not taking care of the assets and so we had the money to spend because we are not fixing that golden goose and we spent a lot of time building up a real asset replacement plan that now stars to say that we need an to fix things and that is why we said, now, we know, to have to spend and how we will do it. we need to have more frank discussions with the mayor's office and the board about how do we start charging at least the cost of producing that power. we are subsidizing a new railway and if they had to go out and buy it, this is the tune of 10- $14 million a year. this needs to start to increase, so we will see whether anyone

has the stomach but if not now, when? it is one thing to break evening and you would like to think that the citizens could benefit in terms of what happens but to actually subsidize this is a different discussion. the amount we are spending out has not changed and that is not sustainable. >> will there be a variety of scenarios of what that would look like? we could think about it and think about what the impact would be. >> we have put this on your early january calendar. he will see for every one of our

customers for you to have that before you actually deal with that budget. >> is it likely that they will adopt a budget that has to assumption of a rate policy? >> is it likely, i don't know. i think that is in the mayor's office and from the boards perspective, this would be difficult to do that. we could start to have this in the second year. it will be up to the commission but if you did this based on the increased rates, and you would probably get some push back. >> one of the concerns i had

was the capital program was one that was intended to continue at a fair clip. even though the current year might not have an impact, the logical outcome of what you are setting in motion -- >> that is a great segue to the next item because you asked what options do we have. this is the last few pages within the section that is attached to seven. >> if i might practice out, we did take to task as was

previously looked at, at the taking of the shortfall and the operations department to go through the prioritization and the capital project requirements. so, i will cover some slights on what we can do and how we can do it. then, i will deal with all the hard questions. on page two of the presentation, just to revisit, on the capital plan to be adopted as part of the budget, the current plan shows deferred maintenance of $289 million more than what we could cash. we are doing a lot that we have a lot to do.

the scenarios are illustrations of a 20% cut scenario and and out of balance of what the limits could be. not that we're ready to propose any one of these items but a 20% cut only solves about half of the problem. a 50% cut and it renewable energy bonds, this only goes down to 121. this would be a tough decision because we are working on things like the efficiency. this will have to look at

source side solution. we have looked into the manger lenders and the financial plan. we asked what it would take for them to loan us money. >> we have identified that there is a possibility, depending on what the structure was for the general fund rate and to be able to finance anywhere from $248 million. the needs all sell change. in addition, increasing the revenues of pennies per kilowatt hour. right now, we are on -- which compares to the average bill which is probably about 15 per

kilowatt hour and that is about the average for the enterprise rate. if we just went from 4.75%, that would generate about $4 million. that is really significant. if you take that and you pay the debt service, that means that you can find the projects up front. this is really important. >> how does that translate into dollars? >> we will go through that with you but rightg

cost is at 3.75%. our average cost as a whole is about 9%. if we come up with a-/t:ç the lenders that we talked to her, we have discussed this and we actually issued the bonds to the general fund and we are paying the general fund payment. we have reviewed revenue bonds, either direct purchases or

private placement and those are the option before we get a credit rating. the credit rating is sacha provided by the agencies, otherwise we could structure this to have the capital plan and be able to sustain us until after a 11-12. then we can to public offerings, just like we do with water and wastewater if we're able to time it that way. >> we have options and we have a system that is incredibly cost- effective right now. how do we address the shortfall. this illustration shows what we will get on the general fund subsidized rate. it would be $4 million extra and what that would support in

capital projects, maybe $40 million. you could address the needs of the shortfall but that would be $4 million a year for the next 40 years. this is just like a home mortgage. the next steps on the budget hearings which will come before you. the deputy general manager will be working on staff on different scenarios. on the expenditure side, we have talked to potential lenders and underwriters on the revenue side and then it will be a discussion with the mayor's office. there is a mutual benefit to possibly to a certificate of participation. we generate power that is very very cheap so even raising this

a penny or two penny will mean cheaper power than we can buy on the market place and no one wants to do a project that would somehow deferred maintenance on a generation unit which would cause the cost to go purchase power to satisfy the general hospital. there is a mutual benefit to looking at the structure if the sector was and looking at the financing the mayor's office and others have been receptive to helping us work on a shredded cheap. we will bring it back to you in a report from early january and also we will look at what the charges are. lastly, we will evaluate the

power purchase agreement and the issuance through the general fund credit. this is similar to what we did in our headquarters, we said that if you borrow money, we will sign a lease with you. the purchase agreement could be something in the way of the general fund. they would sign an agreement with us, maybe a 3.754 the next two years. that extra penny would then pay the debt service or the should to to get in anticipation and the issue of the general fund. that would be mutually beneficial. the commission input in particular, if you have

specific tradeoffs, things to bring back to you as far as the project party, if you live within your rates, i don't want to see a rate change > 10%, we'll come back to you with that. we plan to look at those sources and we think we probably need a combination of both. then, the repeat of those criteria which we started out the discussion a little while the dow, the level of service and the internment of justice and stewardship. there is a lot to say and i'm sure that we will hear the question. >> for the 10-year capital,

based on our prior discussions, it seems like it would be sensible to have the next 10 year plan look at the current year and not increase in the obligations but some program over the next 10 years that does that in a reasonable way and that basically satisfies the level of capital activity that we are starting and what we're looking at today and then we have a document that we can use to talk to the rest of city hall about what this will mean in the long term. >> right, we're coming back with a couple of options and this is one or the other. one would be how do you ratchet up those rates over time.

we are doing things to subsidize the general fund so the postal program, that is $5 million a year. we want to continue to fund this. we have put in a substantial amount money for energy efficiency programs. do we want to change how we do that? >> we have talked before about how to capture the benefit of your conservation. you have a the customers that you can confront that and you have other opportunities. >> i believe that you had as

come back with criteria about project, revenue generation, health and safety. those we have tried to include here as well. still free to send us an e-mail and we will try to raise the budget for you. >> is there any revenue that can be gained through the programming? i don't know if this can be a part of the budget discussions, if there was some kind of provider out there that we could purchase power from unless there was a financial piece in there, and the provider which would help us with the revenue side or the budget shortfall. >> we would happy -- we would be happy to come back and talk about this in january. if we can get a lower price, we

would like to pass this to our customers because we are trying to make sure that this is an affordable program. to take this off would be difficult, i think. >> maybe there's something, i don't know if we will be going anywhere with a hybrid model but maybe there's something as it relates to the financing peace. we would want to make sure that this is going to work. >> when we bring back the public option, that is the january meeting where we set rates. on balance, we do have some surplus power. if you follow that, how does this satisfy the loads at hunters point? >> i have a couple of other

questions and comments. i know that we will be looking at our policy in january, i know that we have been talking about our surpluses. is there an opportunity in there for identifying the big tickets for sale to generate revenue? >> in conjunction, we might be providing and we just don't know, water to some community has. to get a sense of what those numbers are, how we want to deal with this from a policies perspective and what is the impact on that, we can come back with that, most of that is

governed. by and large, the school district will use the same rates and we can go back and show you. we to work to get them the interruptible rate. >> it would be interesting to look at that all peace. that is part of the child nutrition act that was signed by obama. schools will have to provide free water, which is good. i know that there is a budget crisis and they are dealing with a deficit sell i don't know the excuse that they were going to follow. i am interested in seeing that and exploring, especially with the watershed spent -- the watershed to make sure that this

is adequate and leased to do what we want to do and to generate additional savings down the road turned down -- savings down the road. i know that we subsidize rain barrels, to what dollar amount and how many do we have? are there protected plans for that? >> this is not a lot of money but we can't tell you how much we have created with that. >> this has created an impact on the conservation peace because they are using water, we need less water in the system and

will we be going harder next year? and those -- i've noticed the impacts to all of the ratepayers. >> the 39.8 includes debt service and cash-fund capital? >> this is on last page of your packet and this includes a

federal way of borrowing money. >> how is the number divided between debt service and capital? >> that is almost all capital because we have time to this issue later on in the year. >> 141 million is for the improvement? >> that's for the 24/7 operations, if you go all away across 141 as well as the repair and replace. >> where is the improve maintenance, the infrastructure that you are referencing earlier? >> in the case of power, we only show what is cash-funded. what you see here is one of only have about $35 million every have about $35 million every year of cas