first, one key change that just happened over time, and we have talked about this in the past, the pg&e rates in 2012, july 2012, are going to change to be a flat generation rate, said that is one where usage increases, the rate charged for generation does not change. that will be modified so that there will still be the same conservation incentives, but that actually ties into how we would design our rates, that we would not a flat rate. we also are considering working on maintaining a great benefit for low-income customers. they would be eligible for the same program. rate stability. we're looking at a 4.5 your

program, contract, rather, what show. and this is to assure that the rates stay stable over time. we're being prudent and doing a reserve. the cfo taught to -- talked about that a bit. this is for each year of the contract. i do not mean the same number over 4.5 years. but we do know what that is for each year of the contract. we know that at the outset. president vietor: how is the reserve account funded? >> the reserve account will be funded from customers, part of the rate. i will leave the rate and finance questions for mr. r ydstrom, if i may.

through our conversations with shell and doing market research, what we have brought back and spoken to you about in the past, we really could be offering renewable power on day one. in terms of the rate premium, it is not so significant for customer preferences. we are heading that direction. >> how does that work? -- president vietor: how does that work? does it involve the grid? how do we know that that is 100% renewable? >> at least for me, when i was a physics major, energy was the most difficult, and water was a lot easier. just like when you have multiple rivers flowing into a central river, you do not know

how much which glass of water or wherever it came from, but you know how much is coming in. but the same token, the amounts of energy coming from the system needs to be balanced, and there is a very strict accounting by an independent control operator that makes sure that people who say they are putting in energy are putting in the right amount of energy and have a way of tracking how much is getting pulled out, so that is a balance. that is part one of your question. and in guaranteeing the supplies are there. we will have a contract for the types of resources, and reporting will be provided by the supplier, and we will be mapping that. it is a relatively standard way of operating.

it is a clause a state agency -- a quasi-state agency. to make sure that that type of thing happens, the distribution network, the transmission network is open and with access for all suppliers and consumers. commissioner: i have a question. can we reach the same rate as pg&e? >> no, ma'am. : commissioner >> i do not have the number. it is not an enormous% increase.

i would have to double check. >> to make sure understand the question. you are saying -- >> i was at the last cummings. -- laskco meetings. that was part of the original discussion. what was the rationale to get away from that? >> it was never a realistic goal. inherently impossible to buy green power that is more expensive and deliver it cheaper. if you -- it's the green power

was cheaper, it would have purchased it. the problem is they would like green power cheaper. that was never the case. we love the seller on the rooftop but it costs 23.5 cents to produce it. we're able to sell power here at 11 cents. we cannot buy at unless you want to go ahead and subsidize that. that is not the way it will be long term. we will start to own our own infrastructure as the world changes. there will be a difference and the green power will be reduced in price. green power is more expensive. >> shell oil is coming to the

rescue? >> they will by wind. -- buy wind, the chepaeapest is wind. even with that, it is still more expensive than your basic what they call brown power which is the majority of what is produced and should be by pg&e. >> we have discussions with shell about the values and compliance. we would -- my concern is the results from conversations surrounding pg&e. i am not so sure at this point that shell oil has been sufficiently vetted but i do not

know. >> shell oil is internationally known. some of the similar questions were raised when iran energy selected shell oil. and it is a large corporation. the only one that would step forward. it is one of those things you might take into consideration as you look at the contract. it is the only company that has offered to do business. >> it is not show oil. -- shell oil. a subsidiary. i will move to slide 13. there are a bunch of different renewable as mr. harrington was

noting. there is a different variety that we can utilize under grenoble's which is the -- that we can utilize. you can -- electricity comes off those panels. there is firm renewal bills which is the bulk of the product we will be purchasing. -- renewable switches the bulk of the product we will be purchasing. there is the tradeable renewable energy credits. all the sources would qualify as renewable under the california energy commission's guidelines.

and all are the types of resources that count toward rps. in terms of developing the grenoble's over time, we are envisioning we would be operating on a parallel path. the process would develop city owned resources. the term sheet for the contract is similar. the opportunity is to substitute resources. we could replace an existing resource. we also in terms of talking about, we will get to customer enrollment later. we talked about phasing in customers, adding to the program over time. we can plan for having generation be available, using a

new generation to offset future demand as customers come on board. which brings me to customer enrollment. initially, the goal and vision was that we would issue opt out notices to customers across san francisco at the same time and looking at that, one of the significant issues we have come across is the risk of guessing a percentage of opt outs wrong. the contract is for a specified volume of energy. if you are above or beyond that buffer which will be part of the project, you would be able to purchase that energy. if we overestimated the subscribership, the revenue

would not be there and someone would have to back fill the contract. we would have to cancel the contract and terminate the program. we're thinking is starting with a smaller program and talking about targeting 75,000 enrolled customers, residential customers, equivalent to 30,000 matawan. -- megawatts. there is another 100,000 customers would not have sent -- to send notices to. we wwere -- were thinking we could have customers opt in through the city at the same time and we could have them be available to help offset any underestimation. the last thing, i want to touch

base on there. >> >> commissioner moran: how did you come up with the 2 rudder 30,000? >> there were a couple of things that, the first, the goal is to hit everybody. the city i -- the whole city is a bit optimistic and does not address these risks. two-thirds of the residential class, that is a nice chunk and leave some left over. in conversations, there is a size of program which we -- it is not worth the hassle for them. by comparison, the arrangement that iran has -- mraimarini has has with shell, it is not all

these terms are in flux, nothing is totally hammered out. that is the general [inaudible] of it. there is megawatt hours which do not change very much depending on how many customers you have. the more you have, the lure that becomes. -- lower that becomes. >> commissioner moran: how would they be selected? >> we were thinking that would be a geographic areas. 7% of the overall residential accounts. that would be across san francisco. the actual identification of which census tract or block or however we cut of the geographic areas, we have not finalized on

that. the first crack out of the box, we do not want them to opt out. but what customers that want to stick with the program. -- we want customers that want to stick with the program. it might be more receptive. >> commissioner moran: in a market survey we went over, some parts of town for more inclined to stay in. are you -- is it to equalize? >> my goal would be those who have the most chance. >> the issue i am concerned about here is as we go through this, there is several risks that are monetized and put into

a reserve fund and that is how we deal with them. this is one that cannot be monetized. this cannot be dealt with as a reserve funding and the structure we're looking at is we by the power first and without customers, and try to get rid of it. this is an area where there is unreserved risk. i am concerned that we're too aggressive here. i could hold this in abeyance but i wanted to identify this as an issue. especially if we are oriented to the most successful people first. the remaining 111,000 customers will be those who are least inclined to stay in the program. it is not an equally fertile back up plan. if you look at 75,000 as a

percentage of the whole, that is an optimum rate of 32%. that is a number to keep in mind. this is a key risk element for us. i am inclined without further discussion to look at something which is more conservative -- a more conservative rollout plan that would cover that kind of risk. >> it is important to realize that some things can be mitigated. that is what we are doing with the program. >> 85% -- what does that mean? >> the firmed and shaped are

resources were you take a intermittent resource, these are regulatorily definied. the wind power works when it is windy and the sun power works when the sun is out. when you are trying to get a block to try and cover when people are using their appliances and such -- >> how do we anticipate forecasting? >> we have historic data and we are forecasting the load. since we have so many -- is accurate. >> 30%, 40%, 50%?

>> it will be in the 90's. >> commissioner torres: in the 90's? i did not think we have the technology for that. >> forecasting how much energy is needed at certain times of day? >> commissioner torres: yes. >> we have been given information and it varies through the year. >> >> commissioner torres: i do not think pg&e has the capacity to forecast accurately. local jobs, we have talked about that before. what local jobs will be coming to san francisco? is shell hiring local people? >> more notably some local jobs, we have been in discussions

with noble americas. i will touch base on this as not having a single entity providing all services. we are talking about shell making sure that the buys are put in the system at the same time. these are large dollars but the one area where there is labour associated with it is the call center operations. dealing with customer interaction and the like. that is services we're talking about with noble americas about and they have expressed flexibility in how to -- who i are answering phones. they are a global commodities trading company. >> a temp agency?

>> they are a broad company, dealing with shipping iron and other things across the world but they have acquired a subsidy that used to be a subsidy of -- and they do electricity commodity trading. when marin hired them they were sempra. they changed names but the same people located in the same place. >> commissioner torres: how many local jobs do we anticipate creating? >> with shell, none to speak of. shell is doing it on a part-time basis.

>> they're going to be the broker. >> that is accurate. on noble, they have said they will have their call center in san francisco. >> commissioner torres: will those people be unionized? >> we have not gotten to that part of everything we have done has been unionized. >> i believe you will get to this in your presentation. maybe you could finish the presentation and we can take questions but on the local building out pieces, the idea is this will be the job generator. >> i am not sure if understood the answer. firming and shipping? -- shaping. my brothers and sisters in ipew

want to understand that further. >> i appreciate your bringing me back to this. the concept is in -- interim and resources. that resources will provide -- resource will provide [unintelligible] those are an equivalent number of megawatt hours tied with the resources. there is the wind and hydro resource. the firming is the fact that hydro is coming and you want the energy when you are contracting.

the balance is not being provided as being from up by the hydro. >slide 16. we touched on this, i will go briefly. this is a concept where we are working with shell and noble. a four and a half year term which offers a -- stability and reflects -- flexibility for developing resources. 17. we in terms of mitigating risk, we are talking about the supplier taking on 100% of the risk and the city having no skin in the game. we have not found a counterparty that is willing to take them on.

we do have a counterparty in shell that is a credit for the entity. -- credithworthy and today. by the same token, shell wants certainty that the energy they are buying and the hedges they are placing, they will be able to recover their costs. there is some future preparations -- appropriations and are being discussed. one is a program for a reserve amount, all thse numbers -- these numbers are in flux. this is what would be in a reserve account that shell would have access to. we are talking about an operating reserve. this would be in the 500,000 to

$1.5 million. if something were to go not as anticipated, would have to go into the process of terminating the program suddenly. this would be we get opt out rates incorrectly and take a few months to issue new opt out notices to the number of customers and we do not have sufficient revenues to cover the cost of the 30 megawatts of power we are purchasing. given that cost, mitigated by the amount of excess energy shell would be providing, we're not going to eat the whole thing but there is a portion that we might have to recover. this is designed to cover things like that. the last of the big ones under discussion is providing security

to shell, in the case of a default by the city. we do not have the capacity for an open-ended termination payment. that is requiring some creativity on both sides. >> when you say security, do you mean cash? >> yes. to be clear, with marin, the jpa signed a contract saying they would be liable if there was a default. which is a great thing if you have no money. to offer to be liable is not very meaningful. it is a different discussion. that is why the discussion has been more involved with sh ell. we are saying the city will not be open to any other

liability and to make this effective, we would have to appropriate the money to be available to you. it would not be available to anything else which is why a would-be important to negotiate. >> with that establish a limit? -- wpi;d that established -- what that establish a limit -- would that establish a limit? >> if the power market is such that should we default, which is not the intent, if the power market has higher prices, there would be no liability except whenever trading. that is fine. this kicks in if we default. and the power market is such that there is lower costs and the cannot buy that.

it is an interesting place. we want to limit our liability. >> what this be in reimbursement of actual cost? when you use the phrase default payment. >> it would be what they lost. the auditor would have to demonstrate their costs were greater than what they were able to sell it for. >> the cca program allows an opt out for the stand out program. opt in is how the state law [inaudible] to better understand why i was talking about this reserve, i am on slide 18. similar, to get shell