-- city and county of san francisco and in wholesale customers. >> you have been hearing about the surcharge over the last six months, when you adopt the interim supply. this is the second part of that. it actually puts into place the projected water use exceeding the amounts, which is not projected to exceed, but nevertheless, we are to adopt the fiscal 2011-12 rate setting process. it is required under the contract. for water sales to be effective, with the fiscal year 2011-2012 delivery, usage over to london 65 mgd, and just to compare it, it has been about 225 -- 265.

we are significantly below that number. .an equivalence surcharge for retail and other customers and that would apply to each customer in terms of supply allocation. the mechanics of it is that it would be done by the following september, and it would be over the remaining nine months of the following fiscal year. this is predicated on the record and that the board of supervisors adopted restrictive special fund for any and all proceeds of the surcharge, and it can only be used pair under the conditions outlined in the water sale agreement. that also be jointly reviewed plan by the general managers, and they would jointly review any uses of that funding for

environmental and hits the projects. this surcharge before you today is only through a planning process through 2018 in particular. what does this mean in far -- as far as comparisons in terms of a projected cost? we have sold the $4.60 billion in bonds and are paying the debt service. you will see that our average cost is $1.7 million, and that includes the per gallon cost. about half a penny would be the cost.

we took that into consideration when we ratcheted up the incentive or penalty, depending on how you look at it. it is 3 tiers. we proposed a 50% surcharge, so if i can just walking across the top line, the base line would be $1.70 million. we add a surcharge in excess of the allocation. the surcharge would be $850,000 for total water charges for usage for the enroll allocations. if any customer were to use increasingly more over their allocation, and they would have a further incentive/penalty

applied to them. the cost per unit of water would be about $5.1 million. you will recall back in december, we walked through with you some of the alternatives the alternative lovers or alternative sources of supply, and the cheapest for any jurisdiction to do would be conservation, so on average, the cost for conservation would be about $800,000. these are high because they provide an increasing incentive just to give increasing conservation where to look at local groundwater or local recycled water projects. with that, the next up is to be the board consideration of the surcharge fund, and then,

related to water bonds, we would be talking to investors. if i could move to the overhead projector i do want to refresh the collective memory for the public what the projections are for water delivery, and water deliveries here, this dark blue is of our wholesale customer projections. the light blue is retail customers. the surcharge is the top red line. i think the most important thing here is that you will see that our water projections are incredibly below what the trigger would even be, and this is a technically an important exercise, but the likelihood of us having to levy a surcharge is quite low.

president vietor: thank you. vice president moran: that goes out to a certain year? thank you. >> thank you very much, president, commissioners. we are with organizations who are interested in water issues, and we were very pleased to support a project that allowed the retrofit to go forward.

if the system went over 265, and the agency over its isa would have to pay a surcharge. at the time, we did not know what that would be, but we were assured that be substantial. we are getting there but are not quite there. the tiers are so big, we are not likely to go past the first one. the spirit of the compromise for the tiers to be tighter. the letter you received, but we suggest that every have, it would go up. it is up to you. maybe it would be everyone it mgd, but the jump from one to 5

does not seem very reasonable. for example, 4.5 mgb over, which is still not very likely, it would still be a certain percentage for the water, and we see that as possibly just the cost of doing business rather than a real deterrent, so we're hoping that you will move forward with a tighter tier system, and we are happy they are moving forward expeditiously. this is wonderful day with an item that we feel needs resolution. commissioner: if you are using over a certain amount, that is not 100%. president vietor: other any

other comments on this item? >> president, members of the commission, we received a copy of the letter last night, and i have had a chance to sit here this afternoon and read the letter and think about it. first of all, there are two suggestions, and the first is extraordinary for a number of reasons, and i hope you are not going to move in that direction, but if you were, then i would suggestion of a long conversation with your general counsel before you do so. the changes in the the tiers, and the statement was made that what your staff has proposed does not provide sufficient incentive, a financial incentive, to stay within the limitations and coast.

and i would submit that it does, and i will give you my evidence. first of all, as your own staff said, the surcharge if you can impose, even at the lowest tier, is greater than the cost of conservation, which inspires people to conserve, which, by your own evidence, we need inspiration. it seems to be working up quite well korea it does provides an incentive. it is at the lowest tier, and it does provide motivation. of if you look at the second and say, is this an insufficient surcharge, surcharge, at the lowest tier, if they were going to be won over their allocation, the cost is $850,000. if you look at the second, from one to 5, it is 1.5 $7 million

per each. the target is $8.5 million at the top, in surcharge. let's compare that to a few numbers we have heard today. first of all, this charge will apply to san francisco, as well. staff was concerned that their reserves are down. if they use one-third water, if they were to use 5 war, then it is 81, in the amount you have to play in a -- pay in a surcharge, this is not a small amount. this is about 75 to $80 million per air. these are not flesh economic times. this is a significant incentive.

if you compare to our annual budget, and we do a lot of service for customers and work well with you, this is four times our annual budget. i take a lot of grief over the budget, just as your staff does. these are not small amounts. i implore you that these charges that you haven't closed or may impose, while customers have not agree to them are not insignificant compaq and i would suggest you go no further than your staff recommendation. president vietor: think you. >> there were two alternatives suggested. one was over the individual supply guarantee. that penalty would apply to all of the water used, not just the excess.

if you had an allocation of 10 million gallons, and you went over by half a million gallons, this would be applied. the pinon from the city attorney, an early read of that, whether in compliance, it would specify that this excess surcharge only be applied over the 200th 65. the other one is really whether you wanted to have something stepped up as a percentage for what the staff recommended. again, we have recommended that it go from a percentage of the surcharge and over $5 million. roughly speaking, this would be 200% at $2 million.

this is rather dramatic if you get to the higher numbers, should you ever reach them. president vieter: this is in until 2018? >> yes. this is only through the 2018 period. president vietor: so when it gets close, we can adjust it? >> i think in fairness, if we started to get close to having it happen and adjusted down, there would be a number of people involved. it really is intended to cause the behavior, if we were having a different outcome in we adjusted it, i would think that once we set it, we would prefer

to not have it changed. president vietor: commissioner moran? vice president moran: that was an experience and frustrating in the sense that there was no really ideal solution that was possible. and we did the best we could in that, but what we knew when we adopted those is that the incentive would apply differently to different customers. for customers who are against their supply assurance, that they would have to pay something, there is not. i became convinced that the incentive that is provided is a

pretty blunt instrument, and it is not really amenable to fine- tuning. i think the illusion that we should somehow smoothest to apply it more equitably is i think just wrong, so i think we have to have something that provides an incentive. i was also impressed during the prior discussion, when you agree to a water supply agreement, you do not know how much it will work out. what has happened is because about what is happening around 2018, the wholesale customers are highly motivated to try to figure out how to deal with that uncertainty, and they have a great deal to look at water supply alternatives and how to adjust their consumption within the indra supply agreements and also looking forward bill 2018.

so i think what we set out to do in the water supply is happening. the incentive was provided. the response is there, and they also of customers working towards that, so for both of those reasons, i am not tempted to try to dufay intergradations. -- try to do finer gradations. i think that the staff recommendation is reasonable. i am hearing that the wholesale customers, while they do not like it, they are satisfied. those are my words that i am have provided the incentive to

the agreement that we all hoped would be there, so i would recommend that we follow the staff recommendation. president vietor: commissioners, any comments? commissioner: i do feel it is a relative situation because there are incentives to conserve, and i think in the seven-year period, we are going to be low our mark. because of the way things are going, and so i think we should call a vote.

present vietor: all of those in favor? opposed? thank you. next item. secretary: returning to regular business -- president supervisor avalos: ietor: commissioner vietor: thank you. we are back from a short recess. if there is no objection from the commission, i would like to take the least discussion out of order. item 15. and then we will continue on with the regular calendar. hearing no objection, can you please read item 15? >> discussion of possible

action to approve the terms and conditions and authorize the general manager of the puc to negotiate and execute an amendment to the existing lease between the city and sustainable agriculture education, a non- profit corporation to modify the description of the leased premises to delete approximately 0.65 acres located at the southern end of the premises near the water temple enter at approximately 1.5 acres located nearby in to the north of the yard. increase the base line for water usage from 12,000 units to 22,400 units, provide credit for tenants approve water bills in an amount not to exceed $63,544, provide for additional tenant alterations, provide 10 additional funding in the amount of $332,500 for implementation of a water- related educational curriculum over the remaining term of the lease, provide to the tenant a

onetime payment in the amount of $70,095 for conducting stakeholder out -- and preparation report concerning the proposed alameda watershed center, and update an amended lease in certain lease exhibits, including a farm licence. the park is now fully under production and addition of anchorage, the existing 1.5 acre persimmon orchard at the entrance of the art will be added to the premises located on parcel 65 in alameda county, california. >> i think that is the longest written agenda item. natural resource the general manager. i wanted to take heed of the will minutes to say a couple of quick things. you have the details already. and also [inaudible]

to speak briefly. she may do that. this has been a long time coming, months in the making. in some cases, years in the making. i wanted to start by thanking a few people in the organization who had a hand in the spirit this is something at touches every element of the puc in some way, shape, or form. i wanted to recognize our watershed environment program coordinator. when we presented in december about all of our projects, karla had a chance to generally describe a lot of different things. this was one of the things we highlighted as a priority, this lease and project. usually, i asked her to just orchestrate. this was one of the cases where she had to orchestrate and go out and pick up the pieces and make the whole thing happened almost from scratch. real estate, finance, external affairs and our general manager -- everybody had a hand in this because of its complexity and the way it deals with all parts

of the uc. the first lease was four and a half years ago. it was an experiment. we did our best to estimate what we thought needed to be done, and we are back hand out to set the stage for the next five and a half years. that is why it took in some cases months to pull things together. we are generally staffed out in this area right now on issues like this. in a lot of ways, i want to recognize some bell and her staff for having built this gap with the community and the people out in sunol. we are trying to do more of what we did with sage, and we are trying to do more with stage already on this property and to a great extent, that is what this lease amendment does. it sets the stage for us to expand our program and build on the pilots' efforts in the last four years and gets through the next five and a happier with that, i would be happy to answer questions both have.

i think we will also have some sustenance to sustain you through the rest of the agenda. >> thank you. i wanted to thank you all for your tremendous support for this project. this is the project that integrates community benefit farming, natural resources stewardship, and public education, and it is very much in line with your long-term planning for recreation and public education. we started -- excuse me -- oh, and see. there is shows up. we started a number of years ago with this concept. we started with a better piece of land that had been hate for a number of years. years ago, it was phenomenally productive farmland in walnut orchards, and in other types of farming. the community came together for this. we brought in communities from oakland, our families, local farmers to help us establish the

basic infrastructure. there was also a tremendous support from the puc for us to develop a management plan and support from others, including the usda and the columbia foundation, for the cost of some of the basic infrastructure for the site. three farmers have been established there pretty much since the beginning growing specialty tomatoes. we have an offering from the farmer here, a squash tomato they have specially bred. for all of you like to grow your own at home, here are some tomatoes. another farm with they and their extended family are growing strawberries, which we also have here to offer you today, hand delivered by barge, and we have a family farm which has a very diverse operations. collectively they have well over 1000 customers.

it's being sold the school district in east oakland, and the other point of our program out there that has been hugely important has been the education fees. in this first for a half years, literally thousands of people have come out here primarily kids coming out to generally explore. in recent years, also to start to learn from the new curriculum we have just finished with fourth through eighth graders. kids come out. they work in the bill district. they help farmers out, and they admire and just look on with wonderment at the magnificent temple. there really is kids of all ages. the emphasis is on hands-on learning. the curriculum has 18 different lessons, sat out to california standards, and we hope it will also be a very important tool as you go ahead and develop the watershed center out there. also with some support for puc,

we are developing right now this outdoor classroom. again with -- in partnership with the san francisco chapter of architects for humanity. this building we hope to have up by this fall. these children are standing here just where we see this outdoor classroom being developed, and this will allow us to offer programming year round those days when is rainy and those days when is very, very hot. and really will also be an adjunct to the facilities being built out there. another important element is the natural resources stewardship. our requirement, we have established a bill to strip 30 feet wide and about 600 feet long between the farm and the creek. this was just a concept a few years ago. our partners were local landscape architects. again, in the approach from the center, this was an idea.

today, i invite you to come out and visit. it is flourishing. the elderberries are 8 feet tall. it is covered with poppies. most importantly, it really has its fundamental function of being an area where beneficial insects can come and be available to then go on to the farm and which provides also a filter strip for the sediment that otherwise might go off to the creek. and i guess, equally importantly, it is a tremendous learning environment for kids to come out and understand how the natural resources integrate with the farm and filter between the farm and watershed, and it is a great opportunity for kids to come and dig in. over 1000 plants have been planted here by many in small and big, and many of the community have come out to make that happen as well. wildlife restoration is important there. in recent months, the local eagle scouts have established

owl boxes, and you see some have the box birds sitting in the spring bargains. celebration has been part of this from the beginning as well. up above our folks from the east bay regional park district, and we tremendously appreciate the support on the ground and in getting us to this point. i just wanted to say that i look forward to working with you in the coming few years to develop a watershed and in three or so years, celebrating with you again as the great center is completed, so, please, help yourself to strawberries and tomato seedlings, and again, thank you so much. >> i would just like to thank you. i have known you for many years, and she is doing god's work, and the work is really remarkable, and we are just appreciative for all you do. cme