. we will be coming forward to you with some budget implications, but we have also been trying to think creatively about how to fund the work, knowing that revenues are down within the agency. the truth is we are starting at ground zero at this point. who is going to write the policy? we do not have anyone staffed up because the new program has not yet been approved. we're hoping to staff up in a way that is smart and takes into account what the revenue issues are, but also is realistic with regards to what has to take place in those limitations. vice president moran: thank you for that. it is incredibly timely. i was noticing at our december meeting that we had two or three items that talked about the triple bottom line. [laughter] and it made me start thinking

about what we really mean by that. what we mean by it gets defined as we figure out how to describe it and quantify it and act on it. the closest parallel i think we have had experience with is in need -- in the mtd area. we said in contracting we wanted the lowest priced bid, but on the other hand we encourage small local hiring. over a considerable time, we developed a way of thinking about that. we said this is work -- is worth up to a certain percentage of the price, but not for huge contracts, and only can qualify after review criteria. and that is not directly applicable here. this issue is much more complicated than just bid

preferences. but there are two things i think might be applicable. one is that in the evolution of that process a lot of thinking and discussion and decision making was made. it was not just how to presented. it was, credit we should give and to what kind of firms. -- it was a question of how much credit we should give and to what kind of firms. i am thinking that someone has yet to go through and figure out what the triple bottom line is. the other thing that came out of this is easy to understand. in that sense, it is very transparent. you can explain it to people. you can argue about it. but you get the point very quickly. as we get into a triple bottom line, there may be a tendency to get very complicated trying to internalize the economic costs.

it is a very hard thing to do, and even harder to explain. i would encourage two things. one is that we try to go toward a straightforward and easy to understand methodology, and that we use the development process as a way of encouraging discussion at the commission level as to what we really mean by that and how we will think about the applications. president vietor: thank you, commissioner moran. any other questions or comments? this is a potential action item. is there a motion to adopt at this time the community benefits policy? >> i will move. >> second. president vietor: any comments or questions on this? it would be great to take public comment at this time if there is any public comment on the

community benefits policy. >> commissioners, i wanted to speak in favor of the policy. as most of the commission knows and is aware, over the past year this has been the product of an incredible amount of work. there have been stakeholder meetings with environmental groups, community groups, and job applicants. a lot of us. it has been very capable. with former commissioner ellis and your general manager consultants, there has been a lot of discussion about this. it is a robust policy. it gets us to a lot of the goals that are seeking to be advanced in terms of leveraging all the opportunities for community empowerment that are available. when you spend the type of resources the puc is spending to improve things like our waste water system rebuild, $3 billion

to $4 billion, it is massive. i think there is a lot of reassurance. we have a general manager that believes in this. i was one of many people who was delighted to see general manager harrington stand up in support of general hiring at the board of supervisors. that was really important. i cannot reiterate too much how important it was to have that. we have someone who believes in this at the helm of this agency, a commission that believes in, from our point of view, the importance of leveraging community-based job opportunities that are good paying, high-quality jobs with benefits -- it is important. again, i want to speak in favor. i think there are a lot of things we can do with this. we talked about once there is a local hiring policy in place,

let's move forward with agreement for the waste water system. there are a lot of good things to accomplish to that. with mandatory local hiring, that a switch is the concern of a year ago, when -- that us wages -- that assuages the concern of a year ago, when there was a question of whether to move forward. there is a lot we can do. this is a great commission. it will be great to implement this. i look forward to working with the commission. president vietor: thank you for your comments. is there any other public comment on this item? hearing none, all those in favor? opposed? congratulations. we are very excited about this policy and look forward to working with you. next item, please. >> item 11, presentation and discussion of the independent rate consultant's report

regarding the cost of service studies for retail electric power utilities, discussion of proposed schedules of electric power rates and charges for the san francisco power enterprise to its retail customers in san francisco, and discussion of miscellaneous fees and charges for services provided by san francisco power enterprise to go into effect 30 days following adoption. >> hello again. todd rydstrom, assistant general manager and cfo. we will also be discussing item 12. >> item 12, presentation and discussion of the rate fairness board report on proposed retail power rates. >> this summarizes our power operation, specifically during our last summer's retreat at the commission. many of the questions i know commissioners caen, vietor, and moran aksked was to review the

rates for business operations. we have done that. we have taken the operating budget you have adopted as well as the 10-year financial plan and capital needs and looked at those portfolios. but general manager hale and myself have been looking at revenue requirements for power operation as a whole what our attributed allocations are to streetlights, general fund customers, new customers you're going to hear more about today, redevelopment areas, and retail power rates, and to look at a fair cost allocation of those charges. we have a very efficient power system. it is very well run. we are the beneficiaries of a power system that provides a very low-cost clean greenhouse gas free emissions.

in addition, we have our own solar power generation coming online as well. today, we have three parts of the presentation. we have three slides -- we have nine slides from our independent rate consultant. under the charter, we are required at least every five years to do an independent rate review by an independent consultant based on cost of service. this is satisfying that charter requirement. in addition, we take that information and put that into what would be proposed retail rates. these are the rates specifically for the redevelopment area, not the general fund or enterprise fund. we will discuss that at your budget hearing. the deputy cfo will walk you through the slides from the

staff proposal. lastly, we are joined today by mr. howard ashe, chairman of the rate fairness board. the have gone two hours of review of the analysis of the projected operational needs. he is here today to provide their opinion on the rate fairness evaluation of the staff proposal and the san francisco public utilities power operations approach to proposed rate setting. chairman ashe will provide that summary. i will turn it over to mr. frank perdue from montague. >> good afternoon. i will cover a few of the affected -- president vietor: if you would not mind introducing yourself. >> frank perdue from montague

and associates. i will talk about the objectives of the study and what we set out to do in the results of the study. i also want to provide a few points that were already mentioned by mr. rydstrom about the quality of the utility and its costs compared with other utilities. with regard to objectives, the first step really is to establish the total costs of the power enterprise. we developed a model to address that. secondly, it is to allocate those costs to customer groups and categories. part of that process is using a revenue requirement model, what we call an enterprise model. we look at the whole power enterprise, its production cost, its financial cost, and understand the drivers of those costs. we feel in our work it is important to stress the cost and revenues. we work with power enterprise to do that.

when i say we stress test revenues and costs, i am talking about what mr. harrington talked about. right now, you have a very high water year. you want to know what that does to revenues or city's sales. at other times, you have a very low water year. you want to know what that does to revenues or costs. we work with power enterprise to do that. the model we developed with them involves setting rates for irrigation districts. you know the long-term capital plan costs. probably most importantly is when you serve electricity customers in the redevelopment areas, area, and understanding of what the costs are on an actual basis and the revenues, we build that into the model. as was mentioned, the goal was to get this to the development areas. just really two points on this

slide. one was stated, we you have a carbon free resources. these surrounding resources do not have that. because of those, you have a very low costs. if you look at the main points, the costs for the power enterprise averages about 9 cents per kilowatt hour which is very low. pg&e has costs that are much higher, about 15 cents per kilowatt hour. in santa clara, this part of the power authority, they have low costs supplied as well. they have very low costs: 9.4 cents per kilowatt hour.

a couple of. secundus slide. this is the overall process. this is a revenue requirement. what we tried to do is to take those costs and which are the power supplier costs. after that is done, we try to put that into categories such as energy capacity and a customer charge would be like the bills. after the step is finished, that is allocated to customers.

the main focus of this presentation at a study was the redevelopment area. to get up the costs, we had to do it and enterprise approach to break out the cost attributable to the redevelopment area. here on slight four which is before you, i will focus in on a couple of areas. the first day it is cost analysis. the enterprise has a total cost of service of approximately $95 million. this is before revenue comes in

for enterprise customers but the total price averages over the five-year is setting. . this is different than customer categories and you see the average cost of service. the costs are about 9 cents and you see this at the bottom. when you see customer groups have different costs. you see the residential customers in the area which have a cause greater than 9 cents. the reason for that i might take you back to the slide about the general fund, the load is very flat. the cost to serve is typically lower than the cost to serve of

payload that has a shape to it. if you take the highest demand slashthe average energy, the percentages like 5% where as your municipal customers are much much lower. there is a cost which is higher than 9 cents. there are also some customer costs. the other out lighter here is about having a very high cost and the reason is the capital association which was allocated directly to the customer category. as i have stated, this was a collaborative of effort with

the power enterprise. we examined several different options to setting residential rates after we went through the cost of service steady. option one and two, what these are all customers save for the energy. then there is kind of a progression where we look at the grids which typically provide a price signal so that customers can surf. this is the recommended option that we came up with. i want to walk through this a little bit. the customer charges $4 which each customer would pay. you would see kilowatt hours of use and you see three tiers

theire. then you will see different rates associated. what is happening here is the redevelopment area is that the average was supposed to be 130 kilowatt hours. a rate report describes these options in details. . we selected option number6.

there is a really good reason for the untypically your commercial -- for the typically commercial side. you have many and diverse customers. we did that as well. options 3 and 4 based on winter uses. we selected option for and we recommended that to the power enterprise.

the next two slides are really repetitive. the customer charge is important, the price signal is important so that when customers use more energy, they save more. winter service should be differentiated. this should include it in monthly service charge, $5 for -- phase service.

these should have seasonal characteristics which is recommended. it is the couple of other point before i close, in our report which we provided some information with regard to the general fund customers and enterprise customers, this provides the framework with the decision lakers their rates. -- with the decision makers to change those rates. we build plants to maximize the good things. that concludes my report. if there are no questions, i would like to turn it over. >> i have some methodology questions.

the first of all, the presumption here is that we will provide cost-based rates and that is in the charter which says that we will do this for retail rates. this does not say that we will do that for all rates the way that the methodology works is that if verdoorn lead -- if we have revenues in excess of costs, does that reduce the revenue requirement? which there reduces the rate which would be allocated to the redevelopment areas? >> i would agree with that. the study was to allocate costs to the redevelopment areas. if the enterprise customers arm charged the peachy any rate, we

would not consider that specific and allocating cost to the two customer groups. >> as i read it, you had a revenue offset which basically took the revenues from the airport and then deducted that from the revenue requirement for all other classes of customers. >> the chart you are referring to did indeed have revenue offsets. those were from surplus sales of electricity which was the main revenue of said. the second came from the two irrigation district. also on the river bed or is called the north industries development.

we did not consider the revenue contribution from revenue customers although that data is available. we did not use that source to offset the total cost. the that we wanted to determine what the cost to serve different groups was without regard to the rates currently being charged with the exception of the revenue offsets that i just mentioned. >> it looked to me like to the revenue of sets have the effect of taking the collections and crediting those against the revenue requirement so the total requirement was lower. incidently, when you apply that to customers, that allocated to the redevelopment area was also reduced. >> that is exactly correct. we did not take those from

revenue customers to offset the costs. >> why do you have to do it that way? what i'm wondering specifically is whether we can have a two parts of our business, one is where the rates are cost-based and the other is where we try to maximize revenues. we have fought very hard for a very long time, we have fought battles in congress and in the courts to preserve our right to charge rates to some customers not just on the basis of cost but on market value and did concern me if we are in any way stepping away from that. would it make more sense or if

it would be permissible under this methodology to basically segregated out the money-making part of the business and to take the load out and the revenue out and to have this totally separate. then to look at the rest of the business and allocate this. >> i may not be the best person to answer the policy question. >> for the methodology and cost- based, is it permissible to separate an enterprise into this? >> this allowed us to do that. [inaudible]

ultimately this is a policy decision. we did a rate steady some are based upon cost of service and how we can do that by offering a premium. >> i guess if i can synthesize this discussion. are we saying that the rights you are proposing would have the effect that any revenues and costs would receive from the district and actually subsidize rates? >> there is not cost subsidization we cannot sign any of this to offset any cost anywhere else. >> what we are recovering from is paying for the cost and the

obligations that we have. >> if we make money off of them , they are not being held. >> i'm not sure i agree with that parent tauchnitz -- i'm not sure if i recall with that. if we are making money from anyone, my reading of your methodology says that it does not specifically subsidize the redevelopment area. what it does is it subsidizes all costs of the rates. this does this as a matter of formula. if we are