run with this, getting this whole scope of work done. so the key theme that we need you to understand is that if the term sheet is approved very rapidly and that kind of locks in a structure for an agreement with shell, that that will be to sued -- too soon. we need until january for the scope work to be completed on the build out so it can properly inform what the rates will be like and what all the different variables will be for the cca and clean power sf as it rolls out. we need to let you know that there is a big red flag here. we're not happy with where things are at. and there is a pretty big disconnect, and we need to make sure that that disconnected is overcome before read jump the gun and pass a term sheet or a program description.

finally, to the program descriptiondescription itself. it looks to me what staff is proposing is an informal widthwise into the program -- opt-in to the program. [chime] only 70% took that chance. opt-in is a very bad way to roll out the program. it is liable to get people enrolled and that could kill the entire thing. thank you. president vietor: just to follow-up, i do not think it is an opt-in program beginning -- program. >> it is opt-out. all san franciscans can

participate from day one. if you opt out, you are under three years in current regulations. it is one chance, yes or no, on the program. >> so, you are automatically enrolled? >> yes, you are formally enrolled unless they say yes or no. unless they do one of the notification points i mentioned earlier. >> they will be formally offered services? >> correct. at the end of the day, we expect 7500 account holders -- not people. bayh you are going to have a smaller program than you

otherwise would -- 7500 account holders is larger, by far, then what marin is offering. president vietor: can i ask a follow-up question? don't they have a substitution claus? >> yes, they have a clause in their contract with shell that allows them to some substitutes resources through negotiation or construction. president vietor: is that something we are considering as well? >> yes. we are providing a similar opportunity. the fact that we may have more customers, more accounts than projected through our opt-in and in the event we are wrong on the rates of opt out may allow us to procure additional resources above the 30 megawatts

commitment remaking with shell. president vietor: if this work is complete for build out, hal will that fit in? >> is not need to be addressed in our contract. in the schedule we are talking about so far, having nats -- that room in the term sheet will be provided their. we are on a separate track, working on how we're going to procure those resources. we have had a number of meetings with stakeholders about how to do that. then we are also working on it internally. that is moving on a parallel, but separate track. president vietor: thank you.

more public comment? >> good afternoon, commissioners. i just want to reiterate mr. brookes points -- mr. bruck -- brook's . . as soon as that scoping is completed, we will be better able to understand those rates. basically, this is a comprehensive analysis of the potential short and long term employment options that will be offered by the program. this includes workers training, development, that will ensure local hiring and job retention numbers and emphasize a robust training. this also leads to other things such as local businesses, and also the ability to scope

opportunities for local contractors. and especially in underserved communities. thank you. president vietor: thank you. additional comments? commissioners? ok, next item, please. i guess we're going to return back to this discussion. where are we -- >> madam president, regular business agenda item 9, a positive -- possible action to approve the project level scope, schedule, and budget of the june 2000 and revised water system improvement program and directs that to send a notice of change report to the california joint legislative audit committee, the california department of public health, and the california seismic safety commission in compliance with california assembly bills 1823 and 2437.

>> president vietor, commissioners, good afternoon. could you turn on the projector? thank you. we are seeking commission approval to revisions to the program, a process we go through every couple years. it is common industry practice to periodically adopt new schedules and budgets for the program, the magnitude, and complexity of the water program. the packets for today's public hearing include a number of documents that do support the changes we are proposing to make on the program. i am happy to report he will not see any surprises today. these changes are consistent

with what i have been reporting to you and the board of supervisors through my quarterly reports. except for a few minor changes, our proposals are just hanging as the forecast -- are just saying as the forecast from late may as part of the quarterly update. we are in deep implementation of the program with ongoing construction projects worth over $2.5 billion throughout our service area, and we're very proud of the work that is being currently accomplished on the program. so, the commission last approved revisions on the schedule budgets for wsip on july 27, 2009. the prudent practice before us is to periodically perform a review of all our projects.

this last review was initiated in march, and assimilation of the review are the proposed changes we're asking you to approve today. the program revision we are proposing will tell us to -- will allow us to capture the lower construction bids as well as the tap on our delivery costs. -- cap on our delivery costs. it will provide a more realistic project baseline against which we will measure performance. we will analyze the progress made on the wsip, including scheduling. i want to address these extensions. now, since only commissioner caen was with the since the beginning of wsip, i want to briefly review of the program

since its inception in the early 2000's. this chart shows the stages of the program at the bottom of the time line. at the top, you have key milestones. the formal revision made to the program to date are highlighted in our and on that chart. a few months after funding was approved in late 2002, we submitted to the state a plan that highlighted a program for our improvements begin -- for our improvements. the program had an initial budget of $3.6 billion. then in early 2005, we approved levels of service goals for our system, and that significantly changed the scope of the program. the reason why we approved these goals was to allow us to

formulate a program description for a programmatic dir -- eir. the changes made to the program were so significant we decided to rename the program to the water system improvement program, to show that we were establishing a new program baseline. the revised program budget was 4.3 $4 billion bbn -- $4.34 billion. were made later revisions in 2008 and 2009. the latest revisions were for $4.9 billion, and the overall program cost remains at $4.9 billion. now, but i would like to do is

walk you through the three major parameters of the program and tell you what has changed. on the scope side, basically, we did not add or delete any projects to the wsip since the program was approved in 2009. in fact, the overall scope of the program is essentially the same. only minor project scopes were revised. there were only " for regional projects -- there were only four regional project documented separately. there in the slide. i would like to point out the last two of these four projects are what we call support projects. what that means is the need to be completist to successfully complete the program, but they did not likely contribute to the goals of the program. one change of wanted to highlight is the fact that we will we want to transfer the

management and implementation of the program from the wsip to the water in enterprise capital improvement program p been -- capital improvement program. we're talking about the san francisco ground water improvements surprise -- supply, recycled water, and east side and recycle water. moving the project will allow us to focus our efforts in the core wsip projects that lau was to concentrate on deliverability reliability. will belong to implementation timeline and no system reliability goals. >> how will they be funded? >> they will be funded through the wsip still. would be transferring the money

involved in the implementation of these funds in putting before gas to the water enterprise. any additional money would be encumbered or requested to the water supply cip. but they will love all required funding to implement these projects. we think this makes a lot of sense because the expertise within the puc does reside with the water enterprise, and this reorganization will allow us to better coordinate these 5 water supply projects with a number of other water supply initiatives. they will continue to be involved in this project, as they are involved with all other puc capital projects.

the scope of the program is based on four levels of service goals that were established through the regional system and these have to do with seismic reliability, deliverability reliability, and quality of water supply. every time we reach completion on a project, as we did earlier this year, we increase the likelihood of meeting be a system goals. while we are committed to meeting our goals with the wsip series of projects, we made significant revisions to the program in 2000 up -- in 2005. the goal was to meet the goals of the system means that were known at the time.

given the nature of these goals and the need to continuously update and maintain our system and replace aging portions of the system, meeting these goals will be a continual process that will extend well beyond the life of the wsip. since 2005, we all -- we actually made a number of improvements to the program to make sure we do meet these goals. the wsip still needs the goal establishment system, but there are two areas we are aware of that will require potential follow-up work. those areas are the seismic upgrade project and an area that relates to our water supply goals. now when we conducted geotech investigation to support the peninsula pipeline project, we found that we needed additional improvements, and some additions were made to the project to

address some of vulnerability in addition to liquefaction. we also note it is also possible additional pipeline work will need to be required in the city, but that has yet to be verified. veep improvements that we know are needed to increase -- improvements that we know are needed to increase reliability, if more work is found to be required to meet the goals, that work would be done as part of the ongoing water enterprise cip. questions have been raised whether changes we're asking you to approve would impede our ability to meet goals, in particular those associated with water supply. in short, there is nothing from today's action that should affect water supply goals or our commitment to meet these goals.

however, we also reported to you that in order for us to participate in our larger projects, we have had to provide more flows for releases, and that makes meeting the water supply goal more difficult. you requested that we come back to you by the end of august and report back on progress towards meeting the water supply goals, and staff will expected to sell. now, switching gears to the schedule, the most that can change that we are asking you to approve today is the revision for the program schedule where the overall program submission date has been extended from december 2015 to july 2016.

all our local projects will be moved. they will be completed by june 2015. 40 of the 46 regional projects will be completed by the completion date of december 2015, and the remaining projects will be completed by july 2016. those projects include the loss of four projects. the system security upgrade, and the by a regional habitat project -- we also have two water supply projects that will extend until 2016. finally, these two last projects will be the peninsula seismic

upgrade, and this was actually added in 2009 and had a late start. and the six projects that continue to be the project that controls the overall completion date of the program. shown here is a summary of the approved schedule of our 40 local projects as a change from 2009 to what we're proposing now. you can see that we get 21 local and 14 regional projects that have been completed, that we do not need to revise the scheduled. we have unchanged schedules. we've been able to accelerate one local and regional projects. and finally, the project schedule was been extended but more or less than 12 months.

commissioner caen: i have a question. to me, these numbers do not drive. in slide -- to meet these numbers do not jive. you show 8. >> these projects -- what you see is this was approved in 2009 and what we are approving in 2011. they are two different things, really. that cannot be compared. >> i think the easier answer is the eight projects will be for more than 12 months. they do not necessarily go into 2015. commissioner caen: oh, go on.

>> where were we? ok. now we are going to switch gears one more time to cost changes and the proposed budget is $4.9 billion, which is the exact same budget that was last approved. although there are a number of project level changes, some up, some down, the net saving of all these projects will allow us to establish a program management reserve of $161 million of the savings that have been accumulated since 2009. i like to think of the management reserve as a savings account. i will elaborate on that in a few minutes. i want to highlight the fact that you as a commission will

still be required or will need to seek your approval for all construction cost increases over 10%, as well as extension for a schedule of 10%. our budget is divided into three major categories. construction costs include the awarded construction contracts, the cost of an owner-provided equipment and material, and delivery costs include such things as project and program management, planning, design and construction management, engineering support and construction, and finally engineering costs cover art improvements and real-estate expenses. we know we have benefited from a great bidding environment over the last two years and that has

enabled us to save $2 billion in construction costs. the savings has been partially offset by the expenses shown on the sly. the slide shows the projects where we realize the greatest cost savings, and the various columns, this is basically the delta between the 2009 approved budget against the actual awarded construction contract. you can see the carry tracy project alone, we are able to save over $1 billion. now this slide shows the greatest increase in deliverability costs. those have increased since 2009. once again, harry tracey is at the top of the list.

with a contractor on board, we have a better understanding of the efforts that would be required to address the complexity of the construction more to be done at the plant. we need to keep the plant operational to facilitate construction there. also, new construction management resources for the year that is happening for that project. permitting agencies have imposed a number of additional requirements of the past few years. in addition to that, we are covering a three-year post- construction as well as maintenance and endowment

accounts in that project. i will do a few more projects here. the delivery cost increases are associated with the number of items that were added to the project that are associated with fishery improvements, investigations, a bridge to a pg&e power line, and finally on the peninsula pipeline, i did tell you that geotech information revealed the need for additional scope items, and that increased some of our delivery cost for that project. if you want more details on the delivery cost increases, you can find that under attachment p of your packet. our goal is to keep our delivery costs as low as possible without impacting or compromising our work in the field.

i constantly work with our project team on cost-control. as part of this last round of provisions, i asked our project managers to provide a more detailed resource plan for all major project activities against the recommendation that was made by our department. for this exercise, every single pm had to identify every single individual to work on all major activities. the outlook was based on hourly projections for each individual, and i think this led to a more realistic projection of our effort to complete all our projects. i think 2009, in some cases, we may have been optimistic about the level required to complete some tasks. blogger require now is a more realistic projection -- what we require now is a more realistic projection of what it will

required to complete the program. as program director, i really wanted to give a better understanding of the areas where the delivery cost increases came from. this is the main area. nearly a third of our projects have a need for additional resources as a result of the extension. new printer information, such as geotech data, unforeseen failures during construction, and operational requirements added approximately $28 million overall. additional requirements by resource agencies for permitting added a $11 million. finally, the level program management was estimated and we also added to that part of our budget in the new construction

more into program and we were diligent in following up on the warranty items. there's no question the delivery of a large double program in the bay area provide some unique challenges. we must be careful when we compare the costs of our programs to the costs of another program. they have to allocate the costs the same way. does said, i think it is still a worthwhile exercise -- that said, adding it is still a worthwhile exercise. i just want to point out that there are no industry standards for incremental work because that is so location or project- specific. what we did for comparison purposes is we provided the completed projects era in california.