which is an important part of the component of community choice aggregation, and those of us better support of a moving forward believe it is important to move on parallel tracks with a bill out to make sure the bill that happens as soon as possible. this is the beginning of the discussion we wanted to have been hearing early so by the time the proposed contract comes before the board, we will have had an opportunity to have an in-depth discussion of issues. i will turn it over to mr. harrington.

>> we have been working on this for so long, it is tempting to jump into how will we make this happen. if you could put this up on the screen, that would be the goal. it is good to live in san francisco where you can talk about climate change. it really does exist. greenhouse gases are happening. peoples' activities are a part of that. in san francisco we have tried to do a variety of things.

people try to be energy efficient and conservation programs. they walked and ride transit. there is brown power with all but the environmental impacts of that. there is nuclear power, and so the idea really is to have the city give its people the choice of having green power as opposed to the choice they currently get. in many cases if you own your own home, you can do so. for many of us we are renters and do not have those options. the real options is to abrogate our purchasing power and say we want free energy. through this program you say i will pay a little bit more energy, but i will grit -- get clean energy and feel better about it. we want to start the program

relatively small. it will be the largest cca in california. it is a good first step. as you mentioned, and the long- term goal here is to be creating our own power. the reason the water system has worked so well for the city is we own our assets and create the assets, and you can keep long- term rates stable and do things differently. the goal here is to get customers and start to build on that and do everything you can about energy efficiency, but we still have to create some power regionally and locally and figure out ways to foster that and build those things as we move forward with this program. we have come a long way. and the basic idea of it is to provide electric generation services to customers within the area you are aggregating four.

one line of the bill that we will control is the energy generation. everything else will still be pg&e. they will be doing the metering, building. if you have issues with anything, it is still the people from the service department. you get all of the services at pg&e. what is different is we deliver greener power. the state law provides that the way this program works is we send out notices to people and give them multiple chances and a lot of marketing to make sure they realize this is their choice. they have a choice to go ahead and stay with clean power or to go with pg&e. we give them to notices before we start delivery in two notices after. -- two notices before we start delivery and two notices after.

again, this is about choice for people. this started a withab11 ab117. the board of supervisors seven years ago established the first cca program. in 2006-2007 we put 5 million into the budget to do engineering, research, and initial marketing. in 2007 with a draft implementation program. after that we started with proposals. in 2009 that was a bit of a false start. brown's successful in the negotiations with the first under we selected. we came back to the board in 2010 and said we need to configure this a little more flexible. there was no one willing to do all the things we for originally. we put about $1 million in the

budget, primarily to talk about marketing. we want to make sure everyone is aware of the program and choices. then we started negotiations after that. we came back, and we ended up going out and selecting shell energy north america to be the provider of the power and broker for us, and noble america to do the customer service management. in may of 2011 we brought market research to the board, and at that time we said -- we went about and ask people if there were proving to get more to get green power in san francisco? the basic response was that many of them were not. many of them were price sensitive. if it costs $1 more, they would rather have the power they currently have. at least a third of them were

willing to pay a little bit more to have clean power. so what we're proposing is 100% clean proposal. it is easier for marketing and makes better sense for the world. we also asked for policy guidance to make sure lafco and the commission were ok with what we were going ahead with. we have come before lafco and the commission 26 times in the past five years. this is a program that has been vetted. there are 11 joint meetings in the pasttw two years. our next joint meeting will be december 6, 2011. at that time we hope to have a contract that we can endorse and bring to the people -- full board of supervisors in the month of december.

unless there are larger questions, i will turn it over to talk about the program and finances. >> thank you. barbara hale, assistant general manager for power. i would like to dive deeper into some of the policy direction we received from the commission -- from the board. first oand then compare that toe program we are proposing to you. as mr. harrington mentioned, we had guidance from an ordinance adopted in 2007 that really hit on these key points. rate, to meet or beat. stability, we want to make sure we provide long-term rate stability, not programs that have a lot of fluctuation in rates. we were asked to provide our renewable mix that was 51% dependent on renewable generation sources by the year

2017. at that time it was a 10-year ramp up. the objective was to develop 360 megawatts. we were asked to enroll all san franciscans from day one of the program. the expectation was we would have a contractor ration of about 15 years or longer that was perceived to be necessary to allow for this large in-city generation and efficiency component. that there would be a single supplier to reduce the administrative accountability issues and the risk would be allocated primarily to the supply year where the city would not be are risky under this program. no financial liability to the city. in the course of our effort, reaching out to the marketplace to achieve those objectives, it

became clear we needed to compromise on some of them in order to launch a stable and effective program. what you see on this side is a comparison between the original goals and what we're proposing today on each of those points. our rates we are proposing is to have rates that are higher than pg&e that paid for the full program cost, but an energy mix that is 100 percent signed renewable from day one, not a 10-year ramp up, but a day one wanted to% renewable with rates being stabilized over the multi-year contract of 4.5 years. with enrollment based, about 50 to 75 residential accounts at the start.

that we would have multiple suppliers, show energy north america for the supply, and noble for the back office work, and that the city would take on some financial responsibility, some risk, which involves an appropriation of 19.5 million for the first phase of the program. i will spend more time on that, that important point as we go through this. it is important for us to know the program as we have designed it has built into some mitigation of their overall risk. that starts with the phasing of the program. we are targeting that initial 50-75,000 residential customers. that allows us to flex up in the program offering if it turns out

we have higher numbers of customers saying no thank you during that process that mr. harrington mentioned. we will process those and hope to stabilize the program in the early months of the program. we are resuming relatively high it off-ouopt-out rates. the fact that we are offering our customers 19% renewal product, we see this distinguishing our product from

the product that pg&e is offering. wanting our program in mid-2012 will correspond with -- and that pg&e regulatory authority house authorize them to implement in june of 2012. we do not want to get our message is mixed up with the rate changes that are happening on the usual schedule with pg&e. the shell energy folks will be providing the energy products for us. noble america will provide the customer-side services. and then the as i mentioned, it will require an 19.5 million appropriation to launch the initial phase out. finally, in terms of term sheet highlights, once customer revenue stream is established, we will be able to embark on the aggressive local build out

objective that has been part of the program from the initial days of the ordinance was adopted in 2004. let's spend time talking about the appropriation i mentioned. we need to provide shell with a demonstration of our obligation to make a shell hole if the city defaults and the contract terminates prior to the expiration. through our negotiation process with shell, we are proposing a $15 million fund to secure the obligation. the $15 million appropriation would be placed in an escrow account. it is possible the obligation will go down over time during the 4.5 year term.

we're still talking about that prospect with shell, but we are proposing to obligate the city to secure its obligation with an initial 15 million. we are also proposing to have a $4 million reserve set aside that will help mitigate any potential program risk with funds available to us to help carry the program forward as we go through opt-out process and the customer base settles down. 19 million is not a program cost. it is collateral in the unlikely event that we terminate the program early. supervisor chiu: have you assess what you think that might be internally? >> what we've done is look at the expectation of being wrong

honor expectations. having looked at the market's expectation and individuals telling us directly, we think we are conservatively estimating what the program cost will be an participation rates will be. i think we have minimized the risk of being wrong, and we have negotiated that amount. we are not just negotiating with shell a formula, but the $15 million is a commitment in the shell contract, and that is a cap. that is the highest it could be under the city obligations scenario. it could exceed 15 million in limited circumstances. if the program is not financially successful, it is the $15 million figure. if the city decides on its own, for whatever reason, while the program is successful, healthy, to terminate the contract during the 4.5 year term, under our

agreement with shell, we would be obligated to reimburse show for its losses, and under that scenario where the city determines on its own to terminate the program while it is a healthy program, we would not have a cap obligation. it would be effectively capped if the losses of the contract, but it would none -- would not be the lower $15 million amount. that helped get shell comfortable with the lower 15 million. supervisor campos: from my perspective, is important to note that would be the case only if the program is acceptable. at that point the question would be what reasons with the city have to end a successful program that presumably is not only meeting the environmental

goals that we have, but also bringing in revenue? why would we do that? that is a very important distinction, and we would be in control of that. >> it would be the city's decision. it would be on the city's time clock. the city could take a look at what market prices are, evaluate and make an informed decision to do that if it chose. with this premium product comes additional cost, as we mentioned. what we're looking at here on slide 16 is burial -- varying levels of renewal. the overall cost increase the customer would see on the bill. small ball of puerto clara brajamost would see a premium of

$6.70, over and above the pg&e bill a customer would seek, had they chosen to say no, thank you and stayed with pg&e. we are here per board -- here before you providing you with an overview of the program today. we are actively finalizing our negotiations with shell and noble. we intend to have a contract ready for approvals and appropriation amounts defined and before you early next year, and intend to begin and rolling customers with your approval of that contract and appropriation request in july and august. with that, i would like to take any questions you may have. if not, turned to mr. reid

strostrom. supervisor campos: i have a quick question. i know at some point we will have a discussion and hear from some folks in the community about what the proper scope of the program should be. you outlined the original objectives of the 2007 ordinance, and i am wondering if you can generally speak to why this approach, as opposed to a larger program for the benefit of those who have not heard about the program, and one of the reasons we wanted to have this hearing, is because for those members of the boards that are not part of lafco, this is the first time they are hearing about this.

>> we're really looking at this program offering as an opportunity to provide san francisco and with choice. over time, as we develop a consistent revenue stream and began to demonstrate on going sustainable nature of the program, we hope to include resources that are locally built. renewable resources that are on our san francisco-controlled land with san francisco in performing the work to own and operate them. the overall goal of the program really goes back to the city's policy on climate change, on the electric resource planning work the city has done and adopted to it really green up the decision

of your electric supply decisions that you make every day. the choice has not really been there for san francisco in a resident's -- san franciscan residents to have our resources portfolio. this provides for that opportunity. relative to the original ordinance, we're starting small, but when we work through with a competitor, the competitive marketplace, putting those offers out for what our goal was, we really got the message back that it was not an overall package of goals that was achievable in the marketplace. the concept of community choice aggregation is relatively new. there are not providers in the market where this is their business plan, this is their market niche. that is developing. as we -- if we flash forward 4.5

years, we may find ourselves in a different circumstance with more providers helping us with the objective of the program and hope to be in a position of seeing it grow and mature towards really realizing the initial goals of the program that articulated in the 2004 ordinance. president chiu: i have a couple of quick question about the shell company. they're not a local company, right? >> no, they are not. they are in fourth american company. they are working with iramorwin, and it is something we've discussed with them and they're open to, but we do not have any commitments at this point. >> i think it is fairly office -- obvious that that be an

important component of this. i would be curious in the future for briefings on this. president chiu: thank you. >> good afternoon or good morning. general manager for business services. part of the past before business services is to assess the business risk, as well as the market risk, put that into a financial statement, and what that would ultimately mean to customers. as ms. hill mentioned, we have done a lot to mitigate the risk, in particular looking at how we size this for a particular business opportunity. the big one was making the assumption we would have load or

demand of 30 megawatts when the market was 360 megawatts. in addition to that, very careful on this and crudeness, we're also implementing this where the entire state is under a mandate to increase grenoble's for the portfolio standard purchases up to 33%. there will be a lot of future demand in the marketplace, which is one of the reasons we have been able to come before you and provide what we think are -- a window of opportunity of very reasonable start up costs and commitments. the financial statements also look very good, because unlike pacific gas and electric, we do not have a profit built in. we did not have required dividends to shareholders. we're giving 100% clean power without any profit, and giving all of those moneys, investing

them in to clean and green energy. that is the biggest and largest cost of running operation. 82 percent signed of all of the groups are doing that. we're setting aside amount for benefit reserves for the benefit of future customers. so we are able to do this at a time in a window while the economy may still be floundering, that has allowed for there to be a lot of reasonably priced renewable energy right now in the marketplace where we think we can take an opportunity to take advantage of that and locked into a long-term contract to help people of san francisco. what that looks like over a multi-tiered time on the financial statements is that we build up rate stabilization reserves over time, and we also take components of those $19.5

million of start up reserves, and we put those into the program to make sure we have adequate cash flow to meet monthly bills. you will recall, you use electricity all month, but do not get the bill and pay for it until the following month. how is this possible and how will it affect average in franciscans? most of franciscans are already very conifers -- conservation- minded. they typically have a smaller footprint them a lot of other communities in california, a special central valley communities that need more electricity for cooling their homes. in our case, because we have relatively moderate footprints, studio condos and smaller homes, which typically have users who

use very little electricity. that makes the premium green products of very small amount. by way of comparison, over half of all of the residences in san francisco would be considered small users of electricity. that translates into the build impact, and that is why it makes it such a winning proposition. and the small user is an example of our tier 1 customer. this is the same way pg&e presents materials. a small user in a small bedroom or studio apartment or condo typically would pay about $40 per month under the current bill. what this would do is say if you want to come at you now have a choice, and that choice you did not have before, but now you would to stay with pg&e who was

providing 18 percent signed a standard renewable energy, or you could come here and have 100% clean and green power. that would be $17 per month for you to make the environmentally conscious decision for you to do that. you would not have to do that, but you least have an option to pay $7 to help the environment. that is going to be over 40% of all the residences in san francisco would have the very minimal impact. if you are in the next year, which is well over half of household, you would only be paying $14 per month. pretty small numbers when you look at them in monthly terms, even smaller when you compare them to a cup of coffee at starbucks. how does that fit into a household pocketbook? president chiu: i have heard di