completeness and the progress we are making there. there was also a report on the approach to contaminants of emerging concern. i think you take away message that i had on that was that we have committed to a monitoring and reporting process that is more stringent and more protective and more informative than what state law requires us to do, and that is a good thing. and we have completed our first round of identifying things we need to pay attention to, and that process is underway. i think it is very positive as well. then i have to give the concise staff report award to steve ritchie, who managed in the first page to get the three take away messages for his item. thank you for doing that you are an example to all of us. commissioner caen: r.c. going to have that as a public meeting at

some point to review that? commissioner vietor: the intent is and know, that if it is a written report, it stands on its own, but we had the opportunity to ask any questions. but it is not an option item. the intent is to take items and have complete report so that we can review it and not take up a commission time. if there is something in it there that you have questions about, you should ask them and we should spend time on it. it really requires our time, then we should schedule a calendar item for that. commissioner caen: i do not have questions on this particular document, but as it progresses, it might be of interest for the public to know what we're doing. commissioner vietor: and those reports are part of the public record. their posted, so that if anybody sees on the agenda that that is something they're interested in,

they certainly have access to the report and can raise public comment about those as well. >> in this instance, the ground water storage and recovery project, as that moves forward, that will be back before this commission on awarding contracts. commissioner vietor: commissioners, any questions or comments about the staff reports? is there any public comment on the staff reports? >> there is an additional comment that he wanted to make. commissioner vietor: on the staff reports? >> it relates to general public comment. he had left the podium when the item was called, so i did not realize he wanted to be called again. >> my apologies for the confusion. commissioner moran, i have been working here in the puc for almost 10 years. every time, i tell myself that i have known it, i have seen it, and i am is a prized with more

things. two weeks ago i came nt with the scam on the change orders i got a letter from the puc in stated the following -- basically what it says is that the staff and guests -- investigated it in the issue i raised up. the puc admitted it. it was flye field by the field staff. when i came here to the puc on september 23 and talked with staff, they showed me a printout that was just printed from the puc computer system for change order number 81. it had five signatures on it. meaning it had been approved, went through the ranks. this is what i saw. if you approve a change order, you cannot go back and say the staff flag did in the field. that means that has been processed.

furthermore, the reason why we are facing all these issues is because of corruption in some of the staff. harvey l. wynn, the bureau manager for construction submitted either an e-mail or a letter requesting the private contractors in the private consultants to bid on his services. while he is in charge of selecting those consultants. that is more than a conflict of interest. this is why some companies are getting work, some companies are not getting work. there are serious issues, mr. president. commissioner vietor: i appreciate your comment. let me suggest this, the commission is a really horrible place to try to deal with the kind of issues that you raised, especially on an extemporaneous basis. if you come to us in public comment and make statements like that, we have no way of getting

testimony from other people who no different fax and coming to a conclusion ourselves at the spur of the moment. you also say some very serious things, and i am a reluctant to have the record present just one side of these sets of accusations that the accused party has no ability to counter. that is not to say that you should not raise your issues. what i encourage you to do is to communicate your issues formally and in writing. that you do that to the commission and its staff. and we can review them. and we will deal with that. but it is really -- and this is not a forum that is designed to deal with the kind of issue that you raised. and i think that we can deal with that much more effectively if we did it in a formal and written process. >> i will do that. budgets for the record, i have been communicating these issues with the puc for a couple years now. every time i bring it up, they seem to find a way to either

cover it up or find a way to say it never took place. commissioner vietor: when i say the puc, i also mean it the commission. you can communicate with staff. you can copy us. you can communicate with us directly as well. we do have, and one of the things we have spent a good deal of time on in the past several years is we recognize that with the amount of money that we're spending and the rate we're spending it, we have huge obligation to make sure that is being done properly. we have an honor program in place second-to-none, and i have never seen anything as comprehensive as that. and we have resources, not just departmental resources, but in the governor's office and elsewhere that are paying a great deal of attention. i can guarantee you that serious allegations will be treated seriously, and we just need to do it in a proper and orderly way. >> i will follow your request.

if my eyes out -- i would like to say that i am asking officially for an independent body to investigate this. i came with a clean heart to the puc. all i was asking at that moment was for them to stop it. but they went to the company that those documents implicate, and they told then that i came to them. that is not acceptable. and i do not trust your staff, sir. >> just to be very clear, our audits group is looking at that. we're having it at a larger view to make sure we understand what is going on with the issues. the last comment that was repeated several times -- at the last commission meeting, you raised a number of issues, but you named them. if they are aware of that, it may or may not be because our staffs said anything to the. you raised here. it was on the record here that

you will be in critical about that. so to think you can come and have a conversation about that and not think others will hear what you say may not be the best way to raise these issues. >> mr. general manager, what i am telling you here is what i have experienced. the issue was raised on or about september 23. within three days -- that was a friday, within friday, they were notified. it had nothing to do with my public comment here two weeks ago. commissioner vietor: ok, well, we are on staff reports. >> i am afraid that i have not learned to hear your voice a very well, because i was sitting in the back. so i apologize if i am unnecessarily questioning, but did you say you are no longer having staff come up and give the report, that you're just accepting them? commissioner vietor: no, and i apologize if you cannot hear me. >> no, i am sure it is my aging years. commissioner vietor: i have a

similar challenge and often cannot hear people standing at the podium. i will try to do better. some time ago, we miss several items to the report section. if it was just information that needed to be presented the public and commissions, we could do that without taking up calendar time. that has been going on for some time been a there's nothing new there. my only request was that in the presentations, and those reports, the first couple pages, the reader knows what is aiming for, what the basic takeaway messages are. beyond that, as items to come to the commission, i have requested staff and talked to the general manager about setting time limits on the length of staff presentations. for a couple different kinds of items. we have three basic items. the first is an action item. the presumption is that the issue is fully baked and ready for action. asian not take a lot of

discussion beyond what is in writing. with it -- we would ask the staff to limit the presentation to 5 minutes. that should be adequate. if not, the commission can ask for additional -- >> i am sorry. i do not mean to make you repeat everything but i just wanted to comment on the cac report was -- which was very interesting and comprehensive, particularly the inclusion of nanoparticles. however, i did want to have some kind of understanding of when that was going to be expanded to discharge water quality. because, of course we're all concerned about what we are drinking, but what we are throwing away is where we are more likely to find contaminants of emerging concern. thank you. commissioner vietor: ok, thank you. do we have an answer on it that? or should we report back to the commission on that? >> i think it might be better to report back to the commission

that the next meeting. commissioner vietor: ok, let's do that. any other comments? >> we have no other speaker cards. commissioner vietor: ok, moving on to other commission business. i just have one item. as part of taking the chair, i went back and read the rules of order for the commission, and i found a few things i had forgotten about, which leads me to two things. one is i have asked mike to discredit -- to distribute a copy of their rules so we can remind ourselves what is in there. there's also some housekeeping that needs to take place to the order of business is an example, and it does not follow the order of business that we use, so we need to corrected that. while we're doing that, if there are any substantive matters you like addressed in the release, please communicate that to the secretary, and we will work to address those. that is not a call for that, but if you see the need, this is an

opportunity to do that. is there any other commission business? ok, hearing none, we're on to the report of the general manager. >> before we start the items listed, a short update. representative devin nuneez from the central value has related issues from the puc. he has written letters to the super committee into the house appropriations committee. he has made a variety of allegations and discussions. one is talking about the annual amount that the puc pays for the use of the hetch hetchy reservoir area in use at the national park, and that the money raised should be increased considerably. he made a variety of statements about the endangered species act. and should there be anything going wrong with the endangered

species act related to the tuolumne river, the puc is responsible for all of that and should take care of it and pay for it. one of his quotes in the letter was that all of this has been exploited by wealthy subsidized corporate delta farmers and the social elite in san francisco. in the last couple of days, he has started to take out tv ads against senator feinstein in the central valley. we had been working with people within congress and others. it does nothing like this will have much traction. the way he is raising issues this outside the normal bounds and the normal regulations. but i wanted to make sure you are aware of this and that we're working on it. the first item on the regular 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