agenda is the quarterly financial report from mr. rydstrom. >> and if i may, through the general manager of this, we have two items on the report today. one is where we have been, the financial audit for last year but i am joined today by the partner in charge incpmg. a like you to hear from her how we aired on our financial audit speed up then our deputy cfo will give you the current year highlights, the quarter one highlights, if i may. as president moran said, we have a robust audit program. in item five, you notice we're actively engaged in a 30 separate audits. before you today are three of those, the financial audit of the three enterprises, water,

waste water, and hetch hetchy water and power. the high level overview of those financial audits of where we were last year is that we have published those financial statements with the review of kpmg, our external independent auditors. we coordinated that review with the city comptroller's office, which also does an independent review of our financial matters. those were all published without any findings, what is called clean audits, as of october 28. the clean audits are the final outcome of last year, and i wanted to update you that we have been awarded in the government finance officers awards for certificates of excellence in reporting, having very transparent clean financial statements. we have been awarded that as well for our annual financial report, our summary financial report, and our budget book. the item before you today is

specifically the annual audits, and i will turn it over to the partner in charge at kpmg to give you her high level, and some of our financial condition. >> good afternoon. i am the kpmg audit partner, and i served as the audit partner for all three of the entities that he mentioned. i will be very brief but you have 11 pages in front of you that are required communications. i think they are pretty clear as they are. as he said, we did complete all three of its with unqualified opinions, had no material findings, had no disagreements with management during the course of those audits, and issue them in line with the timelines is said by the controller's office of the puc management, which was well ahead of the prior year's timeline. i am here to answer any questions you may have. our presentation does speak for

itself. commissioner vietor: thank you. any questions from the commission, comments? >> no, it looks good. thank you so much for your hard work. >> thank you. it is a pleasure to work with the puc. thank you. commissioner vietor: thank you. >> next is our quarter one financials. i will give you an update their pit our deputy cfo presented it this month to you, so you can get to know her better as well. i want to thank francis because she does a lot of the heavy lifting on the quarterly financials as well as the annual financial, working with our external auditor. if she could come up. >> it afternoon, commissioners. deputy cfo here to present the fiscal year 2012 first quarter budget update. the first one highlights the keep budgetary variances. water use and sales from july through september are lower than assumed in the budget.

retell water deliveries averaged 5.2% year-to-date, below the prior year. there's also lower water demand in the municipal departments, and the wholesale trends continue to decline with wholesale water delivery 9.6% year to date below prior year. water and waste water sources have a similar story. basically lower than budget due to lower water demand and treatment. waters cost savings of about $9 million partially offset the revenue shortfall that is projected due to lower water consumption and lower interest yields. all the waste water sources are projected to be below budget, cost savings from the get positions in general reserve contingency are projected to fully offset the lower revenues. hetch hetchy power sources are projected to be on budget after taking into consideration the elimination of the federal clean renewable energy bonds and the increase of power sales.

cost savings of about $10 million are projected in the power purchases, transmission costs, debt service, and salary savings, as well as general reserve contingencies. the next slide is a recap of the first quarter's projected fund balance in comparison to the last year. weakness in sales continued in the water enterprise, and the last fiscal year with $22.4 million. we plan to use four million dollars from a projected to end the year with $18.4 million. waste water begin in -- began the year with $41 million, to add cost savings after of selling the revenue shortfall, ending with $48.4 million. hetch hetchy begins the full year with $88.4 million, using $21.2 million to balance the current fiscal year's budget and added $9.7 million ending with $76.9 million. the next slide shows that all

three enterprises exceed the 1.25 times debt service coverage ratio. wastewater and hetch hetchy need additional reserve requirements of 50% of annual revenues and 15% of annual expenses. the government finance offices associations recommended best practice preserve races are general between 5% and 15% of revenues or one to two months of expenses. this concludes the update. we're happy to answer any questions. commissioner vietor: ok, thank you. commissioners? one thing that does stand out in that is that we had budgeted this year assuming that water use would continue to decrease but would also bottom out. am i correct in concluding that we were wrong and that it has not bottomed out in the water

consumption continues to decline? >> yes, commissioner. we did make an assumption in the budget that we would sell 140 million gallons per day to our wholesale customers. we have experienced in some ways a wetter, cooler period in the early part of the year. typically from july through october, we deliver anywhere from 44% to 45% of an year's worth of hot water to our wholesale customers. this year we are even lower than we assumed in the budget. the budget assumed we would come down to 140 of deliveries. if you analyze what the first four months or, the continued decline in trains downward of 9%, we would be delivering 130 two million gallons per day. our budget had assumed 140. we do believe that there should be some leveling off in the

declines. we do not have a crystal ball, but the projections have to assume that we will deliver 136 million gallons per day. not as far south as the current recent four months, but also not as good as the 140 but the budget assumed. so right in the middle at 136. we watched this delivery and sales data daily on deliveries and then monthly on sales. so we know it is a very serious item to watch, just because this would be a couple years in a row now that we have had to come to you and tell you about water sales weakness, in particular with our wholesale customers. commissioner vietor: which is a budget issue for next year and is also a matter of making sure that we do not fall below our coverage requirement. >> that is right. in our case, we are bringing on the service for the nearly $5

billion water system improvement program. it is critical that we manage our reserves to make sure we always satisfied that 1.25 times coverage that she went over and the previous slide. we are right now satisfying all of our requirements to do that, but we need to than always check that we do not have further revenue weakness so that we can always meet those coverages. commissioner vietor: as i recall also, one of the things we were wrestling with in the budget last time was how we deal with the debt by customers on water rates, and the contract provides for and we have agreed to basically being their banker and help them finance the repayment, and that puts stress on the coverage as well. so those are issues that you're going to be monitoring, and i know, and we're going to need to look at during the budget process. >> a it is important in the current year for managing

because there is typically more fluctuation in the summer months. that is why we're thinking that during the winter it may be lower, but maybe not that much lower. there is an outdoor use in. it does not make a difference if it is a lot more wetter year. we have to look at whether we have to hold on hiring people are holding on capital programs to make sure we stay within budget. it will come up for the rate- setting for next year. in the current year rate- setting, we had a trigger that it usage was dropping, we were going to raise the rates again. it did not trigger that. it almost did, but it did not. if we went a few more months, it might trigger it. so we might have that kind of a conversation for how we sat next year's rates and whether we want to have any changes in the rate- setting process. commissioner vietor: ok, thank you. >> the dow -- the good news, of course, is that we are

conserving. the next item is updates from the sewer system improvement program, karen kubick. >> i have to get help with the technical part. director of the sewer system improvement program. good afternoon, commissioners. congratulations, president moran. i am going to give you a brief 10-minute update on the sewer system improvement program, highlighting the program management activity. can you bring these lights up? the agenda for today is just to talk about the status the when i last saw you, we were bringing

the program manager on. i want to talk about the activities we're moving forward with, highlight the tasks, talk about schedules and future times you're going to see us that the commission. we have been conducting a full immersion and process to get our consultants up to speed on all the waste water activities, taking them on taurus out to the plant, taking them through the technical information. we have been joined in our office by about 14 folks, combining up with our 11 program management step that we have at our city staff. we also bring out our watershed folks. shown in the picture, we have tommy and myself, taking some of our program managers and consultants out to see general tunnel and southeast plant. two the folks that are here with me today from the consulting company, and it is 18, ae com parsons -- a team.

eric and neiman. we're making great efforts to have this be an integrated organization. this organization chart shows some of the higher level topics. watershed assessment, a condition assessments, a communications strategy, program controls, and we have been piggy about the level of folks we have been bringing in, and we have gotten great staffer from the consulting team. i think having the lagered duration many different. i will talk about some of the different tasks. on program management, we are putting together the program management plan bank, which is really the recipe book for how we're going to fix the waste water system. we're beginning the planning of a team building session. we're pulling city staff, including puc and dpw together with the consultant so we can get very good, very tight, working teams move it forward.

updating the procedures created for wsip, developing our own document control systems to be of track everything. as we move to our new paperless building, we will be allowed to find everything again. quality assurance and quality control. the objective, of course, with the end in mind, is that we consolidate this program. and we validate it to be about to present it to the commission. and hopefully some lively workshops next summer. that will be a fun town to look forward to be on the technical side, we have great folks held with the permitted in regulatory strategy. watershed characterization will begin. we have our aid watershed's loudly. we will look at how each of those functions, where we have problems and how we can plug those problems. condition assessments are beginning in early december. that will be to do detailed evaluations at each of our

treatment plants, pump stations, a large box structures, to determine what the condition is and what the gatt is and where we need to be. the management plan is something we will look up, because we want to have that framed out. what is our long-term strategy for bio solids and for use of the gas? we won a city strategy. facilities plan, we will look at where we are now, five years, 10 years, and how southeast will change. i also want to highlight the very bottom thing, an exciting new opportunity, storm water rates. i was lucky enough to attend a low impact design conference. this is what is happening at a lot of places. if we were not a combined system, we would have smaller facilities. we oversize our facilities because of the amount of storm water that enters them. the amount has to do with the amount of impervious area. this is an exciting new opportunity for us. ed has assembled a working team

of finance and sources to study it and come up with ideas. communications, internal, external, everybody. we're getting help with the strategy and a work plan. we're working with external communications. and we were working to develop a large term plan as to how we communicate this program to the public, but the commission, internally, to be able to build support. we are developing draft materials. we will have handouts. we will not have to carry things on the run. we will have fixed materials will be able to hand out to build and hopefully curriculum as well. this was the first of many in this picture. i have been in the sizing to the team that waste water is fun. it took some convincing, but we did a bike ride on october 1 and went through the entire system, from southeast, along the bay, north point, along the presidio, along the box, into oceanside.

losing people all along the way, but it was a good fun first effort. we will bring the watershed framework report at the next meeting in december. we're starting of the watershed assessments according to that. bottom line, that is and that has been talked about a lot. it will probably be the first -- i hate to say guinea pigs, but under the guidance of our general manager and external affairs, we're looking towards using a triple bottom line to be able to incorporate public values in a non monetized fashioned so we can consider them as we're making decisions about projects. quickly, on projects themselves, the central bayside system improvement rfp is out. on the street, bids are due next three, november 15. very exciting. after this project, which was previously known as the channel tunnel. we changed the name is basically because we have a lot of basic

functions being incorporated into this. we have the north basin, a central basin, and they creek basin. we will get the functions and will be taking care of localized flooding in challenges from a climate change. after that rfp comes in, we will then be putting out the long looked forward to southeast improvement digest rfp, and that is currently being asked of. we're taking advantage of having this wonderful expertise, working with our team, and working with that rfp to have a very clear message so we get great proposals. our schedule forr current tasks, fp is due november 15. the southeast improvement rfp would go out around the yard. watershed characterization's will take about a year, but we are doing a fast pace in terms of identifying what projects we would need. we need to fix our flooding

issues and take care of the state of the state. we need our levels of service. condition assessments occurring for the next year as well and program of validation. we expect to be back here in july and to have a fun summer going to workshops with you. we can talk about rates and the whole deal. feature highlights, i have a feeling you'll see me also in december. one of our items got cut, the level of service for r&r. we will be here for quarterly updates and that in september to do an award for the selection of the conflict -- consultant timber se improvements. the projects we're working on now represent about $4 billion worth of ssip anticipated costs. so thank you so much. >> thank you. commissioner vietor: thank you very much -- commissioner

moran: thank you very much. two comments. you talked about of dating or a review of wsip reporting requirements. i do assume that we're not starting from scratch on this, that we're basically using what we learned admitting that forward. the other thing is the program validation discussion, i think it is incredibly important. is the idea of getting public buy-in for the rates that we're going to be talking about, and it is daunting. part of our credibility is going to rest on the degree to which we have taken a really hard look at some of the options we have and make sure that we are asking for what is really needed, and i think that is going to be tremendously important. if we can move this quickly on it, that is great, but it is

definitely important. >> great, thank you. >> i have one comment, too. on the watershed projects part of it, i think it is really exciting and very cutting edge. i was in wyoming recently when they did a whole piece of legislation that was one of the first of its kind of watershed as a protected area. a little bit different, but it was looking at the whole ecosystem. so i look forward and want to hear back as the proceeds, because i know that it is challenging and complex to be approaching this project in that way. i am hoping that as you give a regular update, you can lead as noah the characterization's are that you come up with and how you're going to prioritize and rollout that program. i know it is moving quickly, and it would be great to hear back on that part in particular. and the other part that i have a lot of interest in is the triple bottom line peace, because that is very pioneering. i think i could really be a

model for utility to use that approach, especially as we start. and there is a way to kind of document that whole process and really, you know, create sub matrix that can be shared with other utilities. i think that part will be a really interesting component of this project. >> it is really cool. maybe if i can get 10 minutes in december, that would be good. commissioner moran: and your credit is good with us. you came in well under 10 minutes. thank you. >> that concludes the general managers' report. thank you. commissioner moran: thank you. any additional commission questions or comments? we have a public comment. >> nothing like putting sewage on the agenda. i am from clean water action. as a very interested in this.

i have been waiting for the watershed framework. i am very excited about the watershed characterization. i have about 20 community members who were very interested in seeing how this is going to proceed and how they can participate. so i look forward to working with staff. i have already had someone from the neighborhood e-mail in me about the bayside improvement project, a community benefit. i am not exactly sure what that is, but i promised i would get back to her. >> i would be happy to talk about that. as you know, the commission has developed a community benefits policy, and it says they should be involved in the community and all the things we do. we're now extended that to our contracts. professional services contracts on the entire sewer system to permit program had an item saying what you'll do in terms of community benefits. do you intend to use local

stores? how will you hire people? all the different things in the community benefits policy, we're now asking contractors to tell us how they're going to help us implement that policy. so we're not asking, in this next rfp, for them to come up with ideas on how to do it. as you can imagine, engineers, this is not their first priority. often, you tell us how to design its ending, and we're happy to do it. we're happy to broaden their view. they now have to go to community groups to ask for help about community benefits, which is exactly what we were hoping for. commissioner moran: thank you. any other public comment? >> we have no speaker cards. commissioner moran: ok, thank you. call the consent calendar. >> item 8, consent calendar. all matters listed hereunder constitute a consent calendar are considered to be retained by the san francisco puc and will be acted upon by a single vote of the commission.

approve water enterprise, water conservation and operating- funded high efficiency clothes washer rebate program, and negotiate and execute a professional services agreement. accept work performed by p&j utility company for water enterprise program-funded contract number wd-2617, decreasing the contract to reflect the quality of materials and labor required in of breath final payment to the contractor. approved on occasion never wanted power enterprise-funded contract hh-940 san francisco /pencil lead/east bay with western allied mechanical. and power enterprise-funded contract hh-941, san francisco/peninsula's/east bay with johnson controls inc.

commissioner vietor: does anyone would disagree the item from the consent calendar? >> double move the calendar. >> i have one question on 8a. what is the impact of cca on that program? >> the program right now combined our money with the utility company money when somebody buys a high efficiency washing machine. they get the money from the state for efficient the kinds of things. on day one of cca, it had no impact. we are arguing to be about to get that kind of efficiency money that goes to pg&e and be able to use it with our customers better should that happen, we would combine this money and offer it. it is a four-year contract that allows us to get out every year as part of our planning for the next year. if we take it over, we would cancel -- cancel it with pg&e. commissioner vietor: either way, cca customers should be able to

take advantage of that program and have available the pg&e funding or ours? >> exactly. the idea is not devaney lack of funding for energy and water conservation conductivities. commissioner moran: we have a motion in a those in favor? opposed? carey said. ok, call the next item. >> regular business. authorizing the general manager of the san francisco puc to execute a memorandum of understanding between the sfpuc and san francisco recreation and park bank commission regarding management of the lake merced tracked and accept the report of the resource in planning and conducting an environmental review and making its recommendations to the commission. commissioner moran: mr. ritchie.

>> i am here today to talk about lake merced in all of its facets. basically as a brief overview, i am going to talk about the proposed lake merced management mou between the puc and park commission, the watershed reports, and specifics about the bauhaus, which is a particular -- about the boat house, in dealing with the lake or said water levels. here is a photograph of lake merced. three legs. south lake, the main body. northlake, which is kind of the park at the top. at the bottom is an area called in how -- impoound lake. it is separated off because of sewer facilities. it is our responsibility

overall. this would update the puc resolution. it does not replace that revolution, but would define better our responsibilities, defining the rec and park responsibilities. the whole point is we defining the responsibilities so that expectations are clear for all to say. on the pc front, there is a laundry list of items about attracting collaboration with rec and park, really focusing on water levels, water quality.