anyone with pagers or cell phones, please turn them off. they interfere with the equipment in the meeting.

>> good afternoon. i would like to call to order this meeting of the san francisco public utilities commission, may 10. please start us off with the agenda. >> [roll call] we have a full quorum present. >> thank you. we have a very full agenda. if you are giving a presentation, we would appreciate if you could try to keep your thoughts and ideas as concise as possible. >> approval of the myths of the regular april 12, 2011 meeting. entertaining any motions? >> second. >> those in favor? opposed? the motion carries. >> the next item is public comment.

the public can address the commission on any items within the jurisdiction of the commission but not on today's agenda. >> hearing no public comment, the next item, please. >> communications. did the commissioners have any discussions or points related to the letter summary or changes, recommendations from the staff report, and that would be the time to discuss these items. >> commissioners? comments? >> sorry, are we out item number five? >> letter summary, advance calendar, staff reports. >> i wanted to know if mr. judson had any remarks. >> this was a question on the correspondence material? >> on the staff report, correct.

>> we open to those this morning. we are trying to figure out that way to get those and download them more easily. >> great. if i have a chance to look at it, i will comment on it in my comments later on. >> i have another agenda item. >> this is a service review. >> page 1. second paragraph. it is the second sentence that starts -- audit includes. >> not sure. is it a memo?

>> it was in the packet. >> with consideration over general controls? ok. is it in the memo? or is it inside of one of the reports? >> this report. >> got it. >> alright, i am there. >> sentence -- second sentence, second paragraph. is that a boiler plate? >> it is a boiler but remark. any time we do these audit, our external auditors and independent auditors review the financial statements to make sure that it fairly represents the calculation of what is charged. >> there was a need to start

doing internal review with sarbanes oxley. the board changed all opinions to say whether or not they should be doing that internal review in general, or if it was a specific opinion thing that was being mentioned. >> i have another question. how do lie identify these things in the same area, from kpmg. second paragraph. it says that as a basis for designing or auditing procedures in the balance, when

does this happen? i read this some time ago. that was my note. >> every year after we conclude our financial independent audit, we provide an audit for all three enterprises. about three months to four months after that they do a detailed review specifically of the balance account for all the charges that are before the wholesale customers. so, typically this immediately trails the financial of and the balancing account audit is done such that it is completed over the course of november to february of the following year. this is one of those independent oversight of the wholesale revenue requirement calculation that is in sight of the water supply customers. it is one of the independent

checks and balances. let's thank you very much. >> i have one question as well. on the gray water. tommy, maybe? ed? >> the question? >> i am glad to see that this highlight is going to be taking place, but is there any work as a part of this characterization questioned on a projection of what we could be potentially diverting from our system with a gray water system that is somewhat full-blown? something to show the benefits of the gray water program? >> we have all i hear of the program, talking about other water sources and programs. it is not fully developed yet, but if we do not have

information, we certainly will get back to you. >> as part of the pilot, a water program will conduct audits on the homes that have installed the gray water unit. we do not know if there is a range out there, 40% to 50% of used in the home, but we are not sure, that is why we want to do an audit. we adjusted our first workshop last saturday. as we go forward, we will be auditing those systems. >> it will be great to get those numbers. i do not note that factors into the urban water management plan, because we were not sure of the actual savings on the program. our next urban water management

program, we hope to actually capture those numbers. >> thank you. >> other questions? >> we had a comment on the advanced calendar, a proposal for annual retreat on july 12. we have not asked the commission if it wanted to have that and will retreat, but there is a chance to take a day to look at larger picture items. that was the plan. july 12 was not a good day, so i thought that i would bring up, unless we hear otherwise, that she would like to do it retreat with a collection of dates available. >> one idea was the next commission meeting in july, which is the 26. we will do a quick little poll to see if that is even an option. i know how difficult schedule that can be.

does that work for july? >> of the 26? >> and the 12th. >> after the meeting in the afternoon. >> july 26? great. there was also a request in here for june claim that -- to 28, meeting of the southeast facilities. i had put in a request to see if we could do it lightly earlier. i do not know if that happened, but to get a sense of it? >> the se commission has asked us to meet with them. >> the timing issue is just, once we began the meeting for the new commissioners, there is

typically one meeting each year in the southeast and the challenge is that we have to have it within hours so that the community can attend. we were thinking that there could be a 4:00 to 7:00 time period. but that is the regular commission meeting? >> we would also be inviting this out these facilities commission to join us at that meeting. probably joining us for just the last few hours. >> our commissioners available on june 28 from 4 fought the 7:00? 3:00 to 6:00? >> that is not ideal, but i will try. >> a regular day at a later time? june 28. >> one thing that i have to say is that they have great food. [laughter]

>> and it is very appreciated. >> does that work for commissioners? ok, great. next item, please, mr. secretary? what other commission business. does any commissioner happening in light of? >> hearing done, next item. >> the report of the general manager. " we have a quarterly financial report? -- >> we have the quarterly financial report? >> [inaudible] >> would you like to make a public comment? we called public comment a little while ago, but these come forward if you have something to say. sorry. >> i have a question about the report or gray water.

i want to know if there is a manual in progress that is designed for indoor use of gray water. apparently there is a design manual for outdoor use. can someone answer that? >> yes, please. but paula? >> thank you. what i am the manager of water resources. we do not have a design for indoor use. we have a design manual for outdoor irrigation only. i am happy to share it up with you. >> indoor use is a much more involved process? >> yes. let's not in progress currently. >> thank you.

>> other public comments on the general managers' report? sorry, on the communications? now we are moving to the quarterly financial report. >> good afternoon. i have four on each item with much of what you already heard. i would like to echo that with the update. slide number two in your packet , hold up on the screen, water use and sales continued to be lower than what was assumed in the budget with the retail sale use showing a slight uptick for additional volume. we have seen traffic surging between 4% and 5% at the airport. meaning more water usage and

flushing of toilet. looking at the wholesale side of the business, we continue to see lower demands and deliveries. april, down 4.7%. continuing to meet $4.5 billion in budget and of wholesale revenue. overall waste water sources are under budget in both cases. savings offset the weakness in water, but i am wastewater is fully offset. the power enterprise, there has been specific news there. that is a program that is getting a lot less interest by the federal government, in particular the tax credit program we have used in the

past. $12 million of selmer micro projects, the federal government has not issued applications for the 2011 series and it is a part of the president's proposed budget. as well as a potential concern from congress. we are increasingly concerned that that program might not exist in the future. this year they are $6 million weaker than we thought in the enterprise. the good news is that we have a lot of water coming down the hill. we are producing as much as we can in the current year. if i may just walk you through the break of water up line, we budgeted to use none of that water and wanted it on balance to have very strong coverage ratios and reserves for the rainy day.

however, that meant that our demand for water had gotten much lower. we planned to end this year looking at their reserves in the water department, but by the time it came to review the first quarter update we have already started to see a significant amount of water revenue at $11 million. trends continued to go south by second quarter. we thought we would have $5.6 million in reserves. with the uptick in retail and expenditure savings, we have been able to score projected reserves at $11.5 million. slightly better in the water department. rejected by year end, particularly because of additional sales year, $82 million but offset that weakness in energy bonds.

>> can you say that last part? l'express flight 3, comparing the second quarter versus the third quarter, you will see that there is a delta of about $2.6 million. i bow room in the commission that you assumed that when we came to talk to you after the second quarter report during the budget hearings. >> when you did the 10 year financial projection for our revenues, given the variability of that, but revenue no. did you put in there? average? >> for power revenue we assumed medium hydro. we always had the budget at the assumed level for the year. >> in actual years it will be more or less than that? >> yes. >> meaning that surpluses are

not with a surplus? the intent is that surplus over time will offset. so, you cannot just say spend it. >> as of today, i cannot tell you anything extra but you have assumed in the budget. water and power is exactly as you assumed in march, the end of february, early march. >> with this additional potential loss? >> it will hurt more in the next two to 10 years that the federal government does not smile upon the body again. i do have a summary, i can show you what that looks like. >> it is not on slide four? >> it is slide 5. we show you the reserve

requirements. we have a reserve policy adopted. it has three potential rates saying that we have reserved for the end of the year 60% of revenues and 15% of expenditures to protect against uncertainty there. or that we have a 1.25 debt service coverage that is exceeded. right now because of the leak in the water department in particular, you see that we no longer satisfy the top two triggers but we do comply with what continues to satisfied that coverage, albeit at lower levels. waste water is better as we had planned to have additional reserve buildup. we still continue to satisfy those measures at this time. this final slide is relieve the proposed budget update.

we took that ending reserve balance at the end of the new budget year starting july 1. the mayor's office did do some additional changes and final balancing for the enterprise department. this is a summary of what happens. items in red are additional costs with lower revenues. for example, what was proposed as slightly higher city-wide obligations that is tracked and monitored by the comptroller. just our share of what the overheads are. cost technology allocations were updated. great with him to have lower revenues for the hospitals -- rates were assumed to have lower revenues for the hospitals. you can see the changes here are a relatively very small percentage.

depending on how the federal government continues that program, we talked about the $6 million shortfall in the current year. because of the correct status of hedging our be had not assumed that we would continue to do those projects. listed here on twin peaks, hitting solar on the school and micro hydro. ultimately that is a decision for the commission. the bigger concern for us is the next 10 years. the proposed budget assumed additional allocation from the fed of $3.4 million. if those do not come to pass, that would be a shortfall. the capital plan assumed another 9.6 in the last eight years. a total of about $13 million of

10 year capital plans. if the federal government does not come through with their prioritization of renewable energy funding. >> putting the current year at a total of 19? >> just for renewable energy bonds. >> so, that is the good news and the bad news for the budget update. happy to answer any questions. >> on the power rate for the hospitals, have we adopted them for the next fiscal year? >> no. for a number of years the commission has not adopted power rates other than expectations for revenue. we have had conversations with the city attorney about how and when. adopted rates have traditionally not been adopted by the commission for a number of years. >> i do not want to get into a

long discussion about this today, but this represents a further erosion of the city power base for us, putting on some serious issues. notably, to some degree, putting the city's green initiatives that will risk. we need to have a serious discussion about that in the near future. not today, but that is something that i think we need to have a discussion about. >> in an item for our retreat. commissioner moran: i think that would be fine. one of the things that would help with that is the tables you have our short-term tables, and if we had a 10-year extension of what this kind of erosion does to our financial picture over the next 10 years or so would be helpful.

>> we could do that. >> any questions? >> i have a question. this is in the support materials further on it. page two, i noticed under the water enterprise that our debt service ratio is getting dangerously low. >> it is getting very low, and that as a result of the declining water sales in particular. that is why the item later on your agenda today, item 12 i believe it is, which is a water read item -- that is one of the reasons we have to also increase rates, is to satisfy the timing of the revenues for when the debt service is due. our debt covenants say we cannot go below 1.25 times coverage, which is why you prudently adopted the reserve policy that you have, and it is also why every quarter, we come back before you and point out how close we are getting to that ratio.

we know as an entity because of our very strong investment rating, investors like that we are careful and monitor that continuously. we have always made the representation to our bondholders that we plan to end will budget for and have adopted budget policies to satisfy 1.25 times coverage. we are committed to do that. we will satisfy that requirement, albeit not at the high levels that we used to. commissioner vietor: other questions? next portion, please, of the general managers' report. >> commissioners, juliet ellis will give you an update of where we are with the art commission. >> hello. we were scheduled to actually provide you an update at the last commission meeting, and

since that time, we want to give you an update with what is been happening with our arts enrichment realignment and revised mou that will be taking place between the puc and arts commission. our plans at this point are to come back to you at the june 28 meeting that will happen in the southeast with a couple of items. one is a more in-depth overview about the work we have been doing over the last four months. looking at the 2% set aside required based on the administrative code, all above- ground construction needs to be allocated to arts in richmond, so we have been spending the last several months working with our city attorney an arts commission staff to revise the mou about how those dollars get spent. on june 20, we will get back to you with an overview about the work that has been happening at policy and resolution for your adoption, and by that point, we should have finalized the mou between the puc an arts

commission that will realign those dollars, which ends up being millions of dollars to be more consistent with the puc's priorities. >> so we will be back next month, but you should have an answer to your questions for the last year-and-a-half. >> if you would like a preview, i am happy, but i know commissioner vietor wanted us to be brief today. >> in the mou, do you know any advance if we have any say sell about the approval of the arts that will be in our facilities? >> i do. [laughter] >> will you share with us? >> i would love to share with you. what we uncovered as part of the process is that in 2004, there was a city attorney opinion that let us know that the puc has full discretion over how our e