the majority of the potential recovery amount is based on the auditor's review of the tell a royalty payment, documentation during which it identified a number of issues with the methodology used to calculate royalties. in this particular area, we found that there were a lot of numbers that did not match. their methodology was not consistent. we did a lot of in-depth review and it was very difficult to ascertain what they should be paying. the other significant portion of this amount $200,000 is based on a term that requires hanson to reimburse. hanson has potentially understated gross revenues under the lease by 2.25% and may need

to reimburse the puc for audit costs. with regards to lost revenue recovery, there was $2 million that was identified by the auditors. in other words, the puc cannot collect this amount and this total is based on the following. two of the lease is technically required both brent and royalty. however, in the case of one of those cases, only some rent was ever collected under that lease. the result was $1.78 million in lost revenue to the puc. the puc has raised concern that the intent of the original parties was never to collect both rents and royalties under this lease. this was evident early on. based on discussions with the deputy city attorney, it's the auditor's opinion that a technical reading of the lease includes both rent and royalty.

further consideration would be needed in determining intent and is unlikely that the city could not collect any rent owed under the -- due to the puc's early interpretation of how it has handled the lease. the puc also put another one of its leases, which expired in 1998, in holdover status. however, because it only had a royalty payment term and the mine was an active, the puc has not received any compensation for the land and over 10 years, even though the laiseasee continues to use the land as storage. from this business perspective, it is receiving a good royalty rate and the rent for mission valley route.

according to the puc, this is an issue of needing to do a better job of amending and combining its lease is going forward. as the auditors, we looked at each of those separately. the audit also found that the puc real estate division did not properly managed its leases. it did not monitor compliance with all lease terms, tenant rent, deductions, and did not have an adequate system. it had an unsort of will spread sheet and not all these provisions were included. the way in which they were managing the tools and did not allow for good management of its leases. our key recommendation was collect amounts owed and

determine if hanson should reimburse the puc for audit costs. the impact -- the puc may collect $634,000 from hanson. it will ensure that all payments are received. the puc has proposed a staffing rework for real estate services. our final audit with the puc in this time period is the construction of tesla. due to the audit shop personnel lack of experience, we chose to bring in a consultant to assist with this. according to audit standards, when we look at doing an audit,

we look at collectively, do we have the expertise and experience to conduct the required audit? if not, then we bring in a consultant to assist with us and to be part of the team. in this team, we brought them in, this consulting team. along with them, we had two audit staff that worked with this organization. we selected one construction project that is a regional construction project and is currently in process. it is using the system, the tesla waters treatment facility. one used the older or more manual system, which was the east-west transition name. the contract was awarded and is $81.4 billion design-build contract.

the objectives of the audit were to determine if each of the contractors complied with their construction contracts and to evaluate the puc's management of the two construction contracts. in terms of findings, we had a positive finding. there were no exceptions found. in other words, we found that the contractor complied with their contracts and the puc did a good job managing the state of construction projects. the puc employed construction management best practices on both projects. both with and without the new system. with the manual system and with the new system, they had great practices. the audit found that the project and contract oversight -- the puc staff and contractors identified a couple minor areas within the cmis system that could be improved.

for example, there is some redundancy and duplicative efforts in the policy regarding records. reporting needs are not been addressed for all levels of management and staff. there is contracting processing backlogs. the need to designate one computer solely for cmis and the labor-intensive they that is slowing processing. there's no current link between progress payments made and rent reported -- rent recorded. for example, are city-wide accounting system. cmis user groups do not occur consistently, which would increase the understanding and usability of cmis overall. our recommendations, not use a change orders in lieu of issuing rfp's.

the puc paid 16% more than the original contract, which the original contract amount was $19.9 million. this was for phase two being added to the contract. although this is a high increase, the auditors found that all appropriate reviews occurred and contract modifications were approved. the decisions made were well documented and reported on threw out the duration. the puc should determine if cmis rates applicable to the other water system improvement programs. the impact -- the puc employ good project management practices on these projects and the puc has reestablished its cmis users group.

and just for note, for 11-12, we are already in the progress of planning our audit with the puc. a couple that have been noted is the asset management performance audit that we are considering and another audit of the water system improvement. we are completed. thank you very much. supervisor campos: thank you very much for your presentation. colleagues, i do not know if you have any questions for the comptroller -- controller's office. why don't we let the puc provide additional comments. we know you are working with the comptroller -- controller's office. >> i would like to point out our gratitude to the office and the

city services auditor. this speaks well for the city and county and our financial transparency and our willingness and ability to report things when they do not go so well, as well as when they are going well. that gives the public and our lot of fighters ability to see a great deal of confidence in the institution. the puc takes all the findings very seriously. we highlighted a great deal and discussed some areas of real estate that are not going well. we have put mitigation measures into place. we are also fully implementing our upgrades with the maximo. we went live on monday with 7.0 , as well as our peril system, the 311 system. that's good news to report. as i mentioned before, we are overseen, including this body, about 10 different entities and

bodies, and we will continue to do our quarterly reporting to the commission showing where we are doing well, as well as where we need to do better. absent are real estate department, things are going very well at the puc. i'm pleased to report that things are on track. we are spending between $10 million to $40 million per week on the water system improvement system. we have borrowed money at record low rates. we have walked those in at fixed rates. there's a lot to be proud of for the puc. supervisor campos: supervisors, any comments? supervisor chiu: just one question. i think it is very clear that the puc is already moving to address these issues. in terms of a time line, maybe it makes sense for the controller's office and the puc

to come back to this committee in the future to talk about where things are in terms of responding to the concerns that have been identified. i do not know what would be a good time line in terms of making sure you have sufficient time to address all of the recommendations. >> we meet monthly and go through every one of those items internally with staff. then we were poured out quarterly, and in the till, to our own commission. it is whatever the will of this body is, we will make sure we do that. >> maybe we can work with your office. your office and my office. we can bring you back in the next few months so not only the committee, but the public has the benefit of hearing about the steps that will have been taken by that point to address these issues. >> thank you. supervisor campos: thank you

very much. thank you to the controller's office. yes? you wanted to add something. >> yes, traditionally, we do a six month, twelvemonth, and two- year follow up where the departments provide an action plan. we have a unique relationship with the puc. yes, we do meet once a month, but we do have this standard protocol. supervisor campos: maybe we can come back after six months and see where it is. >> that would be fine. supervisor campos: we can coordinate in terms of the exact timing. i think it makes sense to do it after six months. that will have given them some time to implement some of the changes. >> thank you. supervisor campos: thank you very much. thank you, again, to the puc and to the controller's office for your good work and very thorough presentation. colleagues, any other questions?

why don't we open it up to public comment? is there any member of the public who would like to speak? seeing none, public comment is closed three colleagues, why don't we continue this to the call of the chair so we can bring it back? we have a motion by supervisor farrell. without objection. madam clark, do we have any further business? >> no, mr. chairman. supervisor campos: great. enjoy your weekend. have a good time.

>> hello, i am about to call the meeting to order. secretary housh: pres., others, roll call. i might note that commissioner caen is ill. president vietor: thank you. next item, please.

secretary housh: the approval of the minutes. any commissioners? president vietor: any comments? the minutes are approved. next item. mr. secretary, i seek public comments here. secretary housh: i am sorry. public comments. members of the public may address the commission on matters there are within the commission's jurisdiction and are not on the agenda today. we have no speaker cards. president vietor: thank you. next item, please. secretary housh: next item, communications. i would like to call your attention to the new letters, which are highlighted.

additionally, there is an events calendar, scheduling issues, as well as two written reports, if you have any questions about those. commissioner: on the reports, i have one comment and one question. on the waste water cip update, one thing that would be helpful, talking about the programs, there is a huge difference but not a lot of explanation as to what has changed. some of that you can figure out when you go through it, but a quick and erroneous conclusion could be that the program has grown out of control, and i think it will service all to have a couple of paragraphs to talk about what the migration was from one to the other. epo and then on the update on major developments, one thing i

was curious about, the criteria for inclusion or exclusion of projects. >> steve richie, with water. this was about major developments that we could identify, and we actually were working for -- i guess i would say that the criteria that we used was were we aware of a project? that was a fundamental measure. so, for example, there was talk over time about the cow palace. nothing was a recent on that. so we did not include anything related to that. what we did include was what we have a readily available information for hi, -- what we

did have readily available information for. vice president moran: and there were some cow palace's. there seemed to be some things that were not on hear it. it seems small. i think there is more activity going on. it is my understanding that we will do this from time to time. >> those are definitely within the envelope of what is expected in the customer service area, and we can ensure that we will get more with the management plan. that is when we will see real data. vice president moran: ok, two other comments on that. one, it talks about the ceqa process on individual projects when they come up. also, for the two projects that

were highlighted, those were not things we would be doing. >> that is correct. vice president moran: and the final issue is the issue of palo alto, which we have focused on before, and one of the things that we noticed is that there was a huge increase in their projected water, and i think given the size of that community, it is important to note that it is one project, and as a water supply in,and they will need to deal with the developer about those water supplies -- and as a water supplier, they will need to deal with the developer. somehow, their huge percentage increase was somewhat untoward,

and i just wanted to make sure that was clarified. thank you. commissioner: i had a question, too. it seems that many of these were moved to pending. i would like to know when we will be able to address them in the coming months or when you can come back to us and tell you -- tell us when you may be able to prepare the pieces. i guess those are the three. i know there were a couple for some time. >> right. we have been moving them from meeting to meeting and then moving them again, and i thought that was kind of unfair, thinking it was going to be happening if it was not. the part we are now hoping is that at your second meeting in april. we are working with an mou, but that is not an indefinite hold. it really is the first or second

meeting in april. real estate is really part of the whole rearrangements of the real-estate department. i do not have a date on that, but it is certainly high on our list. commissioner: thank you. president vietor: great. anything else on this item? during none, next item, please. -- hearing none. secretary housh: other business. vice president moran: i have two requests. both are aimed at our resources acquisitions, and the first part of it is a request for staff suggestions as to a unit cost limits -- as to unit cost limits, so within the water

enterprise, i would assume there is a different cap, versus conjunctive use, but i would like a proposal as to what reasonable caps should be, and that would be for all three water enterprises, and the second request is for some thinking from staff. if we are trying to put together research portfolios that are a combination, -- i think the answer may be yes, but i think we should think about it and articulate it. and, i guess, a third part, i would like early on an estimate as to how long that process will take to come back to the commission if it is going to be any significant length of time. i would like to entertain some objectives on that.

part of what this comes from is that as we have been meeting and approving projects and budgets over time, i have been trucking costs, as you know, and for the water projects, they range from $500 per acre foot to a much higher level, and that is a huge difference. not all conservation projects and not all reclamation projects of vote -- are created equal, and we have to figure out how we can judge between those. i think we need to be thinking about that, and i would like to start that discussion. >> we can work on that. again, i think what we have been doing at your request is giving you what that per acre foot estimates is. we also discussed that if money

is the only consideration, you would never do recycling plants in san francisco, because it is just cheaper. -- you would never do any recycling plans. not just cash or costs. there are things that this commission has chosen to do. vice president moran: and i fully support and understand that. i guess my concern is trying to find three bottom lines that make sense. the one we know how to measure. >> we have been telling you. we have chosen to be ok with that. vice president moran: well, we have, and we have not. some of this is after the fact. we now have a history as to what these things cost, and i do not

know that we have been in a position where we say that this is what we want to purchase. here is where they fall in the cost continuing -- continuum. it has pretty much been after the fact reporting. if i were doing interim suggestions, it would probably take a regional level and maybe doubling it. lots of -- probably take a reasonable level and maybe doubling it. there are lots of ways of doing it. we have talked about the way we do it with other contracts, where that is kind of a double bottom line. some are worth up to 10% more. there are other ways of doing it. saying it comes above a threshold, that is a discussion. if it is below the threshold, no need for discussion, but if it goes above the threshold, let's

talk about it. the process of doing that, we will and quantifying some. -- in the process of doing that, we will end up quantifying some. i just want to make sure we explicitly deal with this stuff, not after the fact. president vietor: it seems to me that this is sort of a strategic question. it has come up before, and we need some help from the staff perspective on creating these three different areas, if you will, around the economy, the social justice peace, the jobs -- the social justice piece and others, and then maybe some goals that we would like to work goals that we would like to work towards.