management comfortable with the various ways of having a cap termination payment. the total appropriations for getting the first phase of the program, 75,000 customers, $19.5 million to get started. we are also very much planning on following the policy of once we get a revenue stream established, that we would be able to start building renewable sources in the city. breaking out with that 19.5 million, there is $500,000 for shell and $500,000 for noble.

$15 million is to secure the city's obligation. there is a structural issue if they don't get enough customers that they would have some skin in the game and they would have the ability to get some compensation if prices were to move and they found themselves in a position where -- they would have to lose money and sell. $15 million out of the $19 million would be put in escrow. we have confidence that that is there. there would have to be subjects to make sure that they wouldn't have gone. and it would be appropriated on top of the $15 million reserves. >> the $15 million city

defaults, i understand that, you mentioned the value of the fuel and the energy. >> only in the instance where our program is unable to continue so a couple of things have to happen. our program is able to continue for whatever reason. we would be into default. that is the form. and we don't necessarily of the $15 million if that happens. what they are going to do is offer a fixed price, they're going to purchase 4.5 years of instruments to buy energies that they are committing to sell to us at a certain price.

the expectation is to be able to get revenues at that price. if we were to terminate early and prices moved against them, after six months, there are four years left of energy that they are committing to buy from someone else. that would have the cell that energy and they are not selling it to us. then there is no penalty. >> and if we terminate prior to expiration, that is litigation? counsel? >> i can answer that if you would like. that is what the next slide is getting into in terms of where the liability is capped.

for the liability to be capped, pretty standard provisions in the energy market. it is pretty commonplace to figure out if one party defaults, how to value that energy and to decide whether or not there is a payment owed to the non defaulting party. we're only having the contract being worked on in such a way that a defaulting party in no circumstances could benefit from defaulting. the uncapped provision, that is the next slide. >> you are referencing the mitigation of whatever has occurred in respect to the purchase of that energy. if it went down, we would be liable for that cost. if it did not, we would still be

liable in terms of mitigating the cost or upon the alliance of their contract with us. >> if the price went up, the expectation is that they could sell it to some other third party and we would not of them anything. >> these trade balance for less than, that is what we are dealing with. >> correct. the liability is capped at $15 million in the instance where the program is not able to have sufficient revenues coming in to the door. because the counterparty was concerned about political risk, they were operating just fine inconsistent. they just want to terminate the program.

in the as instances, we were agreeing that the termination payment would not be capped. >> i have a question. i simply don't understand something. what advantage is it to us to have show purchase this energy they won for 4.5 years out? >> the primary one is that we don't have credit. to enter into the market wholesale energy marketplace, you have to give the counterparties some confidence that you will be able to purchase its for the price specified, and we're talking about millions of dollars. shell is able to enter into those contracts on our behalf

with this type of collateral which would be insufficient if we were doing it on our own. >> they were trying for some rate stability, so you can lock in the rates for a longer time if you're subject to the market value and fluctuations, you would not be able to offer the kind of rate stability. >> my point here is that this type of energy, i feel, will be going down in future years horse soon. what is the advantage of locking in an array when these sources are going to be costing less? >> hail advantage, if there is one, obviously, if the market is such that if there is more demand for renewals, i also think you are right that renewable will go down in terms of its cost, but since

california is requiring investor of utility to provide a greater degree of renewal as part of the normal portfolio, the competition for those same kinds of things will be going of and that has a tendency to make the price go the other direction. there is the risk that when everybody else is trying to buy renewable, we would not be protected in that situation. it is an educated risk mitigation decision to make. >> i don't know if you're going to talk about and if you have as part of your negotiation, the substitution peace that could affect the rate structure as well and could affect pricing to a certain extent. it will beg the conversation on local billed out. if you could address that at

some point, too. >> there are terms written into the contract where we do have the ability to substitute resources that we procured directly or own directly. and to the extent that there are benefits, hopefully we can use those to our advantage. one thing to amplify what the general manager was nothing, because of the doldrums of the economy, the prices for energy both renewable and otherwise are lower. in the time we have been negotiating, the price has fallen of little bit. by the time we signed, it might be a little bit higher, but we are not seeing skyrocketing prices. >> i am not sure i quite fully understand that either.

if we were able to identify additional resources and take advantage of the substitution caused and it was at a lower rate, we would still be on the puck? >> it depends on where the market is. >> what we are discussing, if they can unload that other power and to make money, there is a way to capture that. if that is an expensive thing, we might be facing that. but we're talking about fading customers in overtime, so one way of clearing in the new resources is timing it with future phases. i am now on slide 6. as a general manager was noting,

the renewable standard is currently being litigated in terms of what is going to count and what isn't. even after all the approvals would go through this body, and go to the board of supervisors, get an a or a signature. there are final factor is that we will have in the contract that will need to be determined before the general manager with a sign the contract. one is the issue of the performance bond and what that method is, how to calculate what we would need to post to make sure that is something we can handle financially. the staff decision has been moving very slowly. we are lobbying and working with commissioner offices to set up meetings on a very senior level.

the last point i already foreshadowed of that, i get that the market prices are within a certain band, and we have a recent refresher on indicative pricing for show. that allows the average rate of customers, it has declined from 11.3 cents. it to go back to 5 cents by the time we are striking a contract. their questions there. in terms of the questions specifically the commissioner moran had, the 30 megawatt basce basis, it would be a 50,000

accounts. it makes a difference of 25,000 that would be likely to participate. there would be a number of opt out notices, and to expect another 25,000 additional likely customers. the difference of going between 20 and 30 megawatts, about 3.5% higher. we also spent some time since the last time we met before this body talking with the counterparty about how it might affect the type of collateral they are wanting. it reduced its a bit, but not by direct percentage. 19.5 million to 18 million. it is not a major driver in terms of that issue, i would

say. it is important to note that we did discuss how small a program that would be willing to contemplate. it is less than 20 megawatts. >> the good news, as you might imagine, the prices should be pretty variable. we had a certain amount of fixed costs for marketing. it would make a big difference in the price because you really are saying that virtually all of the costs are variable. it is more of a policy called that a financial one. it is not a rate one. on slide 8, to break that down,

for a typical bilhah, it is the difference between $6.70 at $6.90. we talked about $7 a month, i think that as a lot more accurate for a particular customer. really, the interesting thing here is that the bottom in terms of comparing the program size and the effect on customers is and comparing to what we expect customers would otherwise be paying. the 30 megawatt program as far as their total bill, would go up by 17.5% and 8 20 megawatt program would be about 18%. >> when you say the total bill, is that the total pg&e bill?

>> we have jurisdictions for getting a ballpark estimate on that. >> of the savings would be $6.70 for 30 what? -- 30-watt? >> a majority of our customers are low energy usage. the bulk of the customers would see their bill by about $7. >> up from the current pg&e rating? >> correct. >> what is it costing us to increase their rates? >> this is what it costs. our costs -- >> how much total money would we have expended to ensure that a ratepayer will get a second dollar increase? >> we will have spent the $3

million we have spent so far. and the additional $19 million to appropriate. >> what is the total? >> $25 million. >> plenty of that is security. >> don't fall in love with appropriations. i am just trying to get a handle about whether this is the right thing to do for the ratepayers. we don't know -- that we know that is not the case. at the minimum, it could be an increase of seven or maybe more. when does this program start? ok, thanks.

>> you are basing this on the minimum. >> the typical customer falls in various usage bands. we are using the majority of customers falling within this band and using them out of kilowatt hours per month. -- the amount of kilowatt hours per month. the vast majority are in that 40%. >> this does not assume by energy prices going down. >> no. >> it does not assume substitutions. >> this assumes we're not substituting anything. all the unknowns are not in this.

president vietorcommissioner caw studies about people who participate in this program. was based on the fact it would be the same order of less than pg&e? or the fact there would be paying more? >> they steadies' you saw earlier this year, those were based on asking, if the program asks -- costs more, how likely would they be to stay with the program? we tied the questions we were asking to actual usage. how much energy you used versus a different member of the community. we had that pretty well

stratified. that is why we have some confidence the would-be customers participating. we also assume an opt out rate. there is a fair number of customers and the majority are price sensitive. some people may not want to put their money where their mouth is. >>if there are no other questio. >> good afternoon. you had task us to come back and update with the hetch hetchy

fund. this is what we discussed. overlaid to that the decision if we were to go forward such the hetch hetchy or on the hook to pay for the $19.5 million of additional costs, here is how those additions would look. if i could walk you through slide 10. the dark black line is the resulting or projected fund balances and showing in a single measure the health of the state of the hetch hetchy fund. as we discussed, given the current capital needs and given the current level of subsidized rates, selling power for less than cost, we would be slated to run out of money in the fund around june 2014.

that is quickly approaching. if we make the assumption that hetch hetchy has to fund the additional $19.5 million that mr. campbell walked to through, the decision to move forward on ccna, which would be one of the funding choices, we could afford to do that. we would run out of money even sooner. one of the questions you ask me specifically -- asked me specifically, how can we have all long-term sustainable hetch hetchy fund. we have provided some of the difficult choices that will have to be made in the event that a funding source to pay for ccna or stabilize the hetch hetchy funny to be made. the first is rate increases.

i would like to walk you through the politically tough decision, what that means. the first column would show if we were to raise rates one penny for those rates were not paying their full cost, the total value of that based on our load is $4.6 million. raise rates one penny and go from 3.7 5 cents to three. -- that would mean revenue of $6 million. that is a quarter of the cost that was mentioned before. what that would mean i an extra burden to meet new railway at the top, they would have to pay an additional $1.30 million and their power bill. we would -- it would mean sending higher power bills to fine arts museum were a student thousand dollars, sending a

unified school district $400,000. all these decisions would generate $4.6 million for additional revenue for one- fourth of the funding needed to cover a cca decision or make better the shortfall we project in 2014. if we raise two pennies, the burden is twice as much. it would take if we wanted to hypothetically recover about $20 million about the same numbers that were mentioned before, a 4 cent rate increase would generate $18.5 million. i am not proposing that at this time. to give you one order of context on the difficult decision. that is one option to look at. the first we discussed was digging the fund balance and spend down the checking account

balance faster. that made us go off the cliff faster. not a good long-term decision. second, to increase rates and bring in more revenue. that is this slide here. another idea would be to make further cuts above and beyond the difficult ones you have already had to make in capital investment. and to help refresh the collective memory and also for the audience what i have summarized for you on slide 12. a summary of all the additional power-related investments. ion hetch hetchy. in fiscal year 2013, we are slated to invest an additional $4.2 million in grenoble's. that includes $2 million to go solar sf. put another $2.60 million into

energy efficiency. you can see that none of those numbers, added altogether or taken individually, get anywhere close to cover a $20 million amount to cover cca. the fiscal year 2014 and beyond, the big numbers are the redevelopment of treasure island. to the degree that we provide power there, we would need to invest $30 million of additional electricity related infrastructure. or to the degree we need to upgrade our facilities up country, that would be $19.3 million in fiscal year 14. 16 million in the out years would be a decision to not do those facilities. that would help generate additional savings and or costs

we did not encourage and help make hetch hetchy co back into the black. the choices, if hetch hetchy will pay for it, you have to look at the revenue side or the fund balances. those are the sources or the expenditure side, cutting staff, cutting programs, or cutting additional capital investment. while slide 12 shows -- those are oftentimes people that are funded by those positions. the people that are helping develop a small grenoble's. in the entire hetch hetchy power enterprise, this has 75 to 80 employees that are funded and on average hired during the year. that equates to $1 million, about seven peoples costs of salaries and benefits.

it might be a combination of difficult choices of revenue side, expenditure side, if the assumption is hetch hetchy pays for it. there is also polic other policy choices you can consider. if the general fund were to pay for the additional costs. that is a matter for policymakers to make, not me to suppose. there is the mix and match, if there were a decision to raise rates for those who don't pay over time. we could bond on some of our capital projects. if for example you thought you would have 1 cent the first year and 2 cents the second and you were willing to bonn that, that could stretch out the payment for those facilities or the bus on van ness. that would make you more

comfortable. it is almost impossible to think of any way out of it that does not include something from the general fund. either as a rate increase. i do not want to lay that too much on cca. that was always going to be the conversation. all of our things unless we stripped everything out were always going to run out of money. this is speeding up the conversation. it is not making the difference in terms of the general fund. >> we do not have been here a picture of what we have to do just to keep the hetchy fund balance sustainable. one of the things we did in the budget process, we took some big capital programs like the capital programs like the transmission system and put