department's operations. some of the big ones are the convention facilities on, debt service costs, public health implementing an electronic records to comply with health care reform, county aid needs, and other costs that other departments as well. these are all projections and estimates. obviously, there are uncertainties early in the budget process. we are all concerned about the continued economic recovery and with what is happening internationally and that the state level, we want to keep a close eye on the economy. our benefit cost growth, editor all estimates and projections. we will know the true increase in health and dental and retirement costs in the upcoming months. the state budget continue to be an area of great uncertainty with changes to the redevelopment agency, public safety, health and welfare realignment. we make no assumptions about current year's spending or even

that supplemental spending, the single biggest uncertainty being the outcome of labor negotiations, which we will not know about until the spring. to provide history and our projections, the point of this slide is to show that over the past six months we have seen continued improvement in our finances. at the time we issue our joint report, we were projecting a $480 million deficit for next year, $642 million the year after. we issued are five-year financial plan, it went down to 458. it just shows that we are seeing this ongoing revenue improvement but it is also because we have implemented on going measures in the current budget, particularly with the passage of prop. see, ongoing savings which have brought those projections down. things are looking up, but that is still a significant deficit

to overcome. to move on to the final piece, what we have instructed the department to submit -- supervisor chu: what i would like is for us to cut over to the puc rates. and we have a context where the budget projections are, maybe we can have a conversation around the rates, given the time constraints of the general manager, and then come back with instructions. >> good morning, supervisors. thank you for letting us speak about the water -- our rates for the public utilities commission. it is great it is in the context of the entire city works as well. if we could turn the overhead on and shrink it.

the supervisors, as you'll notice, since the year 2002, we have not raised our power rates for municipal bond department at all. the power rates that were in effect in 2002, 3.7 5 cents per kilowatt hour are still in effect. at the same time, gasoline has gone up 140%, month adult passes, 177%. the residential tuition at city college has gone up to 111%. it is unsustainable to think that we can continue to run our system with no rate increases for ever, so it is time to deal with that. we have had this discussion repeatedly over the years. in 1989, there was a discussion about the need to set targets that would approach the cost of service. we did a study and said we were

not doing that. in 2001, 2002, we raised the rates a bit and have not raised them since. but since then, the board of supervisors has repeatedly passed ordinances and policy statements saying we should be charging the cost of service, but we have been tailored to that as part of the budget process. recently, in 2010, 11, the cost of delivering power to general fund department is about 8 cents to 9 cents per kilowatt hour. we are currently charging 3.7 5 cent per kilowatt hour. what that means is we are being very good to general fund apartments, which is great. one of the reasons we have the system is so we do not have to pay pg&e rates. you will notice one of the largest users of our power is committed to real way. muni pays us under $500 million for their power. the cost to deliver that power is closer to $11 million. if we did not exist, hisham muni

had to pay pg&e, it would be closer to $80 million. that is repeated through general fund department. this building pays no power rates at all for electrical power. it is time for that to change. the subsidy of $22 million a year is not sustainable for our organization. in the last year's budget, looking forward to the 10-year capital program, we have to start making cuts. over the years, we have built up a great reserve and has allowed us to keep the right flat. it allows us to do different programs, conservation programs in the city, but with no additional money, those programs are in jeopardy. in this last year's budget, looking for for the next 10 years, we may cut over $220 million. some of the programs i just mentioned, energy efficiency, and nobles, in most cases, those budgets have been about $45 million over the next 10 years. in all 10 cases, we dropped by

about two-thirds. our working assumption is we will need to cut those positions and cut those budgets unless something changes. we also looked at up-country transmission. we had hoped to transform some of our power facilities. we dropped that by $120 million because we are going to maintain the power lines we have, maintain the facilities, but we're not planning upgrades. so we have cut about $220 million from our budget, a tenure-objection. even doing that, we are doing -- showing falling off and having a negative fund balance in two years. within the framework of the two- year budget you're talking about, we would go negative. when the reason for that, we found all of our capital on a cash basis. since we have the rates in effect that are stable and set, but goes to the budget process every year, we are unable to have a rating and issue debt the way it currently exists.

we are coming to you today with the idea that it is time to have a regular rate setting process that goes through the process we use for water and waste water, bring that to the board of supervisors to the commission and set rates, and then we will be able to issue debt, to long- term financing for the long-term capital needs of your organization. that is what we're here to talk about. i will turn it over to our cfo to propose what we're talking about. supervisor chu: in terms of a fund balance slide, slide 6, you talked about some of the reductions that the puc had proposed. on the up-country transmission assumption, $119.2 million reduction, that assumes he will continue to maintain transmission assets but will not work on any upgrades to those transmission assets? >> correct. in the last couple of years, we had to pay $50 million penalty selling a lawsuit from the forest service because we were not maintaining our live

properly, according to their standards. they believe we cost two of the fires and the stanislaus national forest. we are clearly putting enough money into making sure we maintain those lines, keeping them up to speed. we are also part of power grid for the country and state. there are additional regulations that require us to be much tighter in how we manage our power delivery, manage our power houses, and transmission lines. supervisor chu: in terms of all other power siepi cuts and deferrals, are these things that the puc believes it is not necessarily mission critical in terms of keeping operations running? >> correct. what we have in there is a street light maintenance, working on our facilities. we manage hundreds of miles of transmission lines, but we also have our own roads in the sierra nevada. it leaves money to maintain those roads. supervisor chu: in terms of the

projections you have with the amount dipping below what we expect, the use of fund balance, item seven, page 7, what kind of capital projects to resume in these projections? >> those assume those that are left, the one from page 6. they assume exactly what we're talking about. they assume we continue with up- country maintenance, taking care of the facilities. we have been spending quite a bit of money in the past few years maintaining and somewhat upgrading our actual power generation facilities. the power plants that actually make the money and generate power. there is a little bit of that to do. there is an old power house in moccasin that we'd do some made bids on as well as those activities. it is mostly the maintenance. supervisor chu: existing power

transmission lines and safety. >> right. at some point, we would like to a great power lines. if so, we can make more money. we can probably try to find a partner and that is outside of the support remark. supervisor chu: with regard to the bonding issue, the point you're making is the puc does not have a rating. we are not able to go out and get a favorable rate in order to bar a modest duties of the capital projects because we do not have a regular rate-setting process. in terms of going through a regular rate-setting process, we would still be going for every year. the board have the ability to reject those rates. how does that change the bonding situation? >> we would be asking for a multi-year rate package. on the water rates, 3.5 years ago, we can with a five-year increase. we set those rates in place for five years. we will be asking you for setting those rates for a period of two to four years, enough

time to stabilize. it will not get to the cost of service, but would be substantially closer and would allow us to go out and say to the bond rating agencies, these rates are set in the normal fashion, goes to the puc, board of supervisors, and we can expect to receive the money that those would generate. supervisor chu: thank you. >> good morning. habra reads from, cfo, assistant general manager. tahrir charged with his stewardship of this most number of resources for the city and county, we have two options for your consideration and the liberation. those both satisfy the edge of sustainability and would allow the water and power program and project to borrow affordable bond proceeds. importantly, the two pennies

over two years, as mentioned in the budget director's briefing as well, would mean, over the next two years, we would go from a 3.75 cent kilowatt-hour, up to 4.75, 5.7 5 cents, remain at that low thereafter. why this is important, it sends a strong signal to the bond markets and allows us to borrow power revenue bond proceeds. it balances the 10-year financial plan. also brings in the additional revenues of about $4.5 million. annualize that to $9.1 million thereafter. this would also allow you consideration of another policy decision, the committee choice aggregation. it would also facilitate the ability to say yes and keep financially solvent hetch

hetchy. showing what the next 10 years of rate index are to ensure full transparency for all our ratepayers. this allows us to satisfy and meet those requirements. in addition, and as mr. harrington mentioned, it does facilitate capital financing for facilities and transmission. before this, we have not been able to correlate with you on our strong water and waste water credits. however, what this does not do is allow for any restoration of the city-owned renewables, they go sf programs, approximately $90 million in programs that we have to make as part of the capital process. supervisor chu: what is the current rate being charged to general fund department? >> 3.75 pennies.

that is the top of slide 8. supervisor chu: if we look at the price, think about what the cost is, all told, $16.3 million cost to the city at the moment at the -- >> 3.70 5 cents for almost all general fund department. however, which charges zero for city hall and street lights. supervisor chu: if protect the current roster of the apartment as is, just as a starting point of conversation, if we increased by two since, currently pay 3.75%, we should expect that impacted the ground $12 million? >> 9 per $1 million if we raise everyone from the current rate one penny. the two-percent option is not to vote from zero to 3.754 city hall lights. it is just a rate of one penny

across the board. that is the value in that slide. to show that graphically for you and for the television audience, but that does is allows us to go from correcting this shortfall situation, which would be our status quo, and ability to buy low-cost bonds for the repairs, allows us to achieve that red line. that satisfies the green line, which is the long term reserve policy. that has been adopted by our city and commission. the next option would be a four-cent option. as mr. harrington said, that takes us closer to cost of

service. the cost of service assumption assumes adding back or restoring the city-loan renewals, coastal are sf, city efficiencies. your key bookends are two-sent status quo that allows us to be financially sustainable, or 4 cents, to allow us to have all of those same things, as well as add that the public our program to its previous level for city renewables, energy efficiencies. again, a similar graphic or the satisfying of the reserve policy, not falling off of the financial cleiff. the overarching impact of the summary, the same departments that were highlighted earlier. what it would mean for the municipal railway. one additional penny in their costs would be $1.3 million.

that is on a billion dollar-size but it, so it is a far the small%. only about a fraction of a percent. two pennies the following year would be $2.6 million, only a third of a percent of their budget. similarly, i know that you are reviewing public health budget as well. $600,000 of cost. is such a small portion of their 1 $20 billion budget, it does not even register, as far as a percentage of the budget. less than a fraction of 1%. supervisor chu: with regards to the change in the budget amounts, i understand they are small portions compared to each of these large entities, and help me understand in terms of the cuts that we have made, it has been awfully hard to get $1 million in cuts from the department of public health

because of the things that we do, leveraging state funding sources. even though it is a small portion, it is a significant impact, right? >> certainly. it will make it harder for the departments to meet the targets that i was -- i will present. >> with regards to the mta, we received an allocation based on trends and revenue. we expect they will probably get a bump up in revenue as a result of that. is that enough to cover this? >> generally it is more than enough. however, they have other expenditure increases that are above what the baseline impact will be for next year. >> they might see increases to existing labor contracts and other thing that will exceed? >> they have already built in the power increase. projection that they have presented to their board have assumed this as well. you will see they are predicting

multimillion on texas for the next few years. supervisor chu: thank you. >> in summary, it is approximately two pennies for the $4.5 million for the affected departments who have been able to have a discount in the past. that would be enough to bring the hetch hetchy from the back into structural long-term balance. that and be the most affordable option. the full restoration would be four since. we have reviewed this in detail with the return the sport, as we are required to do under the charter. we have also had to make full rate making transparency contrasting with independent outside rate analysts to review the materials to ensure all costs are reviewed. we are happy to answer any questions. supervisor chu: with regards to the time line, does your commission plan to act on these

rates at any time? what does that mean for the cost of the board to reject or let it stand? >> commissioners, the way the charter reads, the board has 30 days after our commission submits the rate increases to the board to veto the rate increases. the plan is to have at our commission next week on december 13. if we send it over on the same day, but would only give you your first meeting in january. what we planned to do is to hold that for a week and submit later on in december, so that would give you a chance to come back in january and have a hearing, if you wanted to, further discussion. we would expect the rates would be set by the middle to end of january so that we can prepare our budgets based on those. because of that, now, or at the end of -- whenever we go to the process today, should you have thoughts about how you would like to see us bring forward a rate increase, we will look to hear them.

we would hope not to bring a rate increase for that would be vetoed by the board. supervisor chu: i know that we want to move on the agenda, but i just want to comment, with regards to be able to increase the rates, i think a rate increase that is being proposed, whether it is two since, four since, it is substantial for us and the general fund, given that we pay the 3.7 cent per kilowatt hour rate. we understand it is a lower rate than the cost is. i think the general sentiment that i have is we probably need to start picking up more of the cost to allow for hetch hetchy and the power program to be more successful. i am very concerned. i would like to make sure we are not to believe impacting our budget. we know we have a budget deficit in next couple of years, so we want to be conscientious of that. in terms of what we're paying for for that rate increase, in

terms of being able to pay for infrastructure and the general operations and maintenance of our facilities, i think that will be a necessary thing. anything above and beyond that, i would have questions about. the two-cent increase will be more than a 50% increase on our current rates at the moment, so it is significant, even though it sounds very low. i would hope, and i pressure you for speaking to the commission so that we have the opportunity to potentially act accordingly with the rates. >> we share your concern, supervisor. when you freeze rates for 10 years, when you move, you had a bigger move, rather than a gradual movement. supervisor chu: supervisor kim? supervisor kim: i just want to reiterate some of the point you made. i understand where this is coming from. i have begun to talk to the other entities that will be affected by this, including the school district.

i know everyone in acknowledges the need to potentially raise rates but has concerns about being able to absorb this in their budget. i would want to look for ways that we can look with the work with everyone to make this happen, even if it meant having smaller increases over time. january, i think, is early. i know you want to be able to take this into account when you present the budget for us. i would rather see the overall budgeting and see how these increases will impact your budget. preferably, i would rather see this in march or april. i think i would be more ready to make a decision at that time. january might be fast because of the holidays. everyone from the school district and city college will have a hard time try to grasp what this means for the budget and how they can allocate those funds. those are just bought some of my thoughts. >> i appreciate that,

supervisor. the reason we did choose this time frame is that, we owe the mayor a budget by march 1. if this is not going to happen, we will be having layoffs. we need to have much more intensive conversations in our commission meetings in january and february as we prepare the budget, if it is not going to happen. supervisor chu: through the mayor's budget office, you are requesting departments to submit their budget. >> february 21 is the charter deadline for departments to submit budget requests to the controller. then the controller for them to our office. supervisor chu: in terms of when the puc will go to the commission, it will go with a full budget sometime in early january? >> our first series are january 12. supervisor chu: since this is

just a hearing, informational, i appreciate the information presented. if i could ask the puc to follow up with the committee members with regard to the rates and conversations you are having with the mayor's office in terms of was is comfortable. if there is an agreement about the what the rates may be, you may have to go to the commission as early, if you have a good assumption heading into your budget. that might be an option, rather than taking into your commission for approval. let's have a conversation off line and see what we can do if there is an agreement in terms of what we can absorb in the budget. given the hearing on the power rates is done, i want to open up for public comment. is there anyone from the public that would like to comment on this item? item 10 or 9? >> eric brooks, standards as a

green party, local grassroots organization. on item 10, at times, you have seen us at odds with the puc on various issues. at this time. we need to back them up on this request. i want to remind folks that climate scientists came out one week ago saying that we no longer have 10 or 20 years to get our global act together on the climate crisis. we have about five years to get our act together. when electricity -- when what we're charting for electricity is a lot less than what it actually costs, it is the same situation with gasoline in the u.s., where we have been subsidizing it for decades and people waste it. this may not be an easy step, but it is a necessary step for saving the planet. the other thing that stopped brought up that i want to highlight, this is key to the

bond rating of the power enterprise of the sfpuc. as you know, i have been working extensively with the organizers on getting clean power sf, our community choice program, off the ground. that will require a big revenue bond issuance to get it off the ground. the beauty of it is, raising the rates up to something normal will give us the opportunity to have sfpuc have the bond rating to be aggressive on building renewals and efficiencies in the city and a clean power sf, and other programs. especially the efficiency in wind will bring in revenues with which we can go to departments, like the schools, muni, hospitals, and mitigate their increase, so it is not as bad. they are bringing in revenues and efficiency measures are bringing in revenues.

please support with the sfpuc is asking for. thanks. supervisor chu: any other speakers? >> i also want to speak in support of the puc's plan with respect to the electricity rate. in light of the shortfall that is going to occur, it is occurring, has occurred, without eliminating these subsidies to where the cost is not being paid, we have a situation that is not sustainable. the work needs to be done on hetch hetchy. renewable energy programs -- since we are talking -- supervisor mirkarimi and his work. there is a legacy of a lot of the program to have worked all these years that i think we will need some of this to continue. that is important that you have done all these years and i think

this will help to move forward with respect to the solar program, clean power sf. as to the cost, there is a possibility this will is advised energy efficiencies within departments to mitigate the potential cost to where we may see cost neutrality. any energy efficiency work, we have identified $100 million in opportunities to be more efficient with electricity being used. the department may have to make some of these tough questions and they ought to -- may opt to invest in these efficiencies. this could actually end up, what we're after in this, a sustainable system. strongly support the puc. thanks. >> thank you, mr. harrington your work at puc really shines