. president vietor: any questions? public comment? >> i was a founding member of the lake merced task force. i also have the privilege of serving with the recreation chair of the task force for a number of years. regarding a joint management of

a lake merced track. it did not work. we have learned from experience the proposing a shared or joint responsibility. how can we help support programs for high-school student athletes? it is time to move on. san francisco reconed park has no reason to be fearful about taking back full control of the

lake and the recreational component. with your of mr. and of the water project, it is just a drop in the bucket. the organizations will be happy to work with sfpuc. we can provide you with the experience, he leaders that have long-term experience in serving our community. thank you. president vietor: think you for your comments. we look forward to seeing the evolution of the mlu. >> the plan is to have it here on may 28.

president vietor: other comments? next item. >> any new business. president vietor: next item please. >> the report of the general manager, there is a sub item. >> we told you that during april, we get [unintelligible] it may ultimately impact the puc's needs. >> i will give you a brief update of that in particular.

the highlights are also included in your package. we filed everything timely from our commission. in addition to that, the city's capital plan. the financial projection has been issued last week by the comptroller, the mayor, and the budget analyst. one of the things in particular there is the structural shortfall. the news was the projected shortfall of about $306 million is a pretty big number. it is a little bit better than that was a few months ago.

they make about $20 million of improvements and a general tax hall of about $15 million. i have looked at the water revenues, and we are not seeing it yet. nevertheless, the city is seeing some good news. next year, there is a shortfall for the general fund. so it will be a long-term problem. the five-year financial plan is a key financial item. you already about -- adopt a plan. the departments are going into the heavy lifting stages.

they are having to balance the general fund production, and also the savings that they are doing. in particular from the mayor's office, one is the note of the fiscal stewardship of this commission to have a structurally balanced the budget. they have noted the those of lower water revenues. they have appreciated your ability to send to them and a flat budget. in addition to that, they have a much more complex set of revenues than we do. the plan as early to address the 30 very different revenues into

the 60 departments have been of the general fund. it is a much bigger job. the pension reforms, they wanted to make sure that they communicated it was an issue that the mayor's office and the city departments will have to talk more about in the coming months. the is a growing part of the budgetary cost. we were able to afford those into the budget with other costs and savings that we achieved. the other updates that are coming up on that front, the budget will be packaged with the other enterprise the budget report and go on may 1. the budget hearings are slated before the finance committee on may 19 and may 26.

i will also be back before you to go through the third quarter financial results and give you an update on the revenues and expenditures. we are working with the sports budget analysts. we go through the line-item details. the city's budget goes before the board in june, and other key items candidates, interim budget adoption. everything is on track for right now. >> there will be 19, for sure.

and then the 26 if needed. your welcome -- and the final budget comes back to what is often called the add back process. the always make some cuts. there will be many opportunities to talk to you about what those might be. they tend to be projects that are worthwhile projects that did not make it in the first cut of the budget. >> we have not seen any cuts

yet? >> nor have we seen specific movement toward editions that they are starting to talk about. there are always issues, for example. they put in energy efficiency programs for general fund apartments. the mayor's office is trying to figure out which of those programs will go for. that is a look at the capital plans and the general fund department. they will try the program how much they can get to spend on the programs that are energy efficiency and fund savings. they will be looking for us for additional funding, or the is aware that we would normally progress. there are issues with the state budget that will have an effect on the city close the budget. there are none that we are aware of that will affect our budget.

>> the positive for us is that they will delay their own sales, in particular, the transportation bonds that are being delayed. that is going to leave a lot of additional. we should be very well positioned for the july bond sale. commissioner torres: we will be well positioned for a bond sale? for the puc, not the city of san francisco. >> we are working on that right now. commissioner torres: you don't know how fortunate you are. >> of the city is expected to be going to the market pretty soon. they will expect to be getting news about their ratings and the next couple of days.

commissioner torres: the conversations i have with the treasurer are very depressing across the board. >> it allows us to claim additional reimbursements. commissioner torres: $28 million? hong >> $20 million. -- commissioner torres: and you know what impact it will have on the city's budget? >> just in the projection of what the service he will be -- need will be, it has been failry stron -- fairly strong. they could talk to the governor

about that. commissioner torres: is there a compromise? >> not that i am aware of. >> there has been some additional revenue that has come in from the extra water. additional revenue that has come into the coffers because of the additional water? >> we're looking at the revenue line items. we will have more in a couple of weeks. >> doesn't affect the budget negotiations -- or doesn't it affect the budget negotiations? >> we are trying to update and

try to see what that balance is. >> because the budget has already been submitted, those numbers -- >> it does not tend to be. the general fund the side, you're trying to make it through the year. we tend to have that longer-term infrastructure program look at the world where we know that we have to have some extra money. or if you remember, looking the last several years, it was not that year. we tend to have a longer view of it. >> the other question i had was around the subsidy question. is about opportunity to start to have a bit of conversation with the mayor's office about where

we are in the budget cycle? it seems that as they are looking at the example that you put forward, which general fund department should have access or should be qualified, it should be part of the conversation as well? >> i can assure you that we are. we lived through what it would mean for additional energy, and we point of the work through the city service are the third. there is energy efficiency spending, and how we can save the most on power and cost. i think they are very appreciative of that and recognize that. it is never a bad time to talk about it. >> i think we should be talking about it at every opportunity. president vietor: other

questions or comments? next item, please. >> the consent calendar. these are recommended for action. as a commissioner wish to remove any of the items from the consent calendar? and you wish to of the calendar? -- do you wish to move the calendar? i will read the items. >> i have read them. [laughter] >> the public has not. march 7, 2011, approved for a immediate replacement of market street. item b, authorizing the general

manager to apply for a proposition grant funding% to disaster and prepared this as stipulated. they will provide matching funding up to the 2.2 $4 million. a memorandum of agreement with -- $2.24 million. the ground water projects. the approved modification of the public utility commission contract. heating, ventilation, air conditioning. the mechanical services to accomplish mechanical systems in the city building. this contract modification will

allow energy efficiency and mechanical systems facilities. local water or replacement contracts. the installation to the lowest qualified bidder. except for construction water enterprises, wd 2493, of approve modification with actual quantities increasing the contract and authorizing final payment. president vietor: there has been a motion and a second. is there any public comment on the consent calendar? all in favor? the motion carries.

>> the next item begins regular business. the presentation and discussion of proposed wholesale rates and the environmental surcharge. >> i would like to provide a brief update for you today about the wholesale rates as part of the annual budget process. this year, as we discussed previously and provided a great alternative memos to the commission, as well as to all wholesale customers, we looked at the current rate setting methodology and we looked at what other alternatives could be to increase revenue stability. will looked at a monthly

approach as well as the annual deliveries approach. we basically wanted to solve the equation that would result in the same number of revenue dollars being recovered, but with increased certainty that they would come in the same year that we expected them to come in. we will be asking you to vote on these on the may 10 meeting. the high level summary is on page 3 of your package as was the briefing to you. the wholesale revenue requirement, we want to increase our confidence.

the retail side of water contensumption, the wholesale hs shown a great deal of conservation and lower sales. we have been dealt in our sales of about 5% every year over the last four years. the approach to looking at this was also to prepare ourselves for the next comes sale. we have had a very good story to tell. they are very comfortable with our credit. they are always looking at ways for the entity to provide reliable and predictable revenue streams. why is that important? as agencies look at our financials, they want to make

sure that we are scrutinizing any of our shortfalls, and what the plan is in order to address the revenue projections, why that matters, we have such a strong investment rating that allows us to borrow very inexpensively and to save ratepayers a great deal of money. the adjustment of a single notch down word, some additional conservatism would result in about $10 million of additional costs. that is something that we always want to ensure we are providing revenues in a persistent revenue stream to keep that strong rating. the dialogue with the customers has resulted in written responses that are attached

before you. that would be 26 wholesale customers that would be part of the group. their preference over zero was that while there are appreciative of the staff taking time to look at alternatives for revenues, and they wanted to continue to do that for next year's rate saving process. the " here -- quote here from mr. jensesn is that -- jensen is that we can meet our quota and provide a means for existing methodology. what you see in your packet today is what our intention is to bring to you for final consideration, that would be a continuation of our existing methodology, and it would mean

that we would need to change wholesale rates to increase them. that would be consistent with us recovering the balance in account with prior years over the next four years. and specifically, $25 million over next year's rates. and i personally called and talked to most of our wholesale customers about what their thinking was on revenue projection as well as input from the staff. based on a continuing assumption of an additional 5%, we presume deliveries [unintelligible] we think this will be a very solid story when we go to the rating agencies.

we will let them know that we have tightened up and are even more conservative. have also said, what about an additional insurance policy? we will be coming to you and asking for your consideration of a new item this year, a trigger reset. so if there are even less deliveries, which would put into place a trigger mechanism to allow rates to ratchet oup to 290, effective with 2012 rates. that was the first eisenhower hall that will come before you. -- that is the first item that will come before you.

and the proposal for an untreated water discounts. this is in agreement with the county district. particularly, it was to make it consistent for them to pay for only the services. in particular, they are a customer that does not receive treated water. what we have done is gone through our financials in the budget issues and said, what to the discount factor be for this customer that does not receive treated water? we received no protests. we received one letter from the wholesale customers. they thought it was consistent and did not protest the proposed rate.

the discussion has been very productive and i would say collaborative with a number of customers. in addition, there is one last thing. there is the environmental enhancement surcharge. that is the second part of the supply allocation discussion that you have late last year. this says is a provision of the water supply agreement that requires the commission to look at the establishment of an environmental surcharge effective july 1, 2011. and the surcharge would be levied only if deliveries from the system exceeded 265 ngd. we have looked the likelihood of

that being relatively low. nevertheless, we are still required to propose that for consideration. it is broken into two parts. the other total allocation collectively being -- it will be reviewing the proposed rates. but in particular, what we're looking to propose at this point is a 50% surcharge, so it will be an additional 50% cost for any water that is used of the supply allocation. it makes higher use of water exceeding the supply allocation factor by individual customers

50% more expensive. that would go into a dedicated fund that the commission will be asked to forward to the board of supervisors for adoption. in to be used for environmental enhancements. we have not receive any protests or comments to date from wholesale customers. they appreciated the proposed tier structure, because more water that is used in excess, the more surcharged incentives you have to not use its. this proposal -- to not recognize that. tiering would be up to 1 million gallons over, it would be 50%.