easier. >> you mentioned the street lights. i know we are doing the street by a hearing on june 4th. i do not want to do it now. but compared to the sewer system and a water system, the street lights are significant, but significantly smaller than the other capital needs. that is why it is a little bit perplexing sometimes that our street light system is in such bad shape. i know that pg&e controls a lot of it, so it is outside of puc's control a lot.

busey a light at the end of the tunnel -- do you see a light at the end of the tunnel in getting the street lights didn't care so they are not falling apart, like some of our street lights -- getting taken care of so they are not falling apart, like some of our streets might actually are? or will be focused on pedestrians rather than just exclusively writing -- like team that roadway for cars. -- like in the roadway for cars. -- lighting the roadway for cars. but the amount of money that we could spend be to upgrade all of the roads over two years. the other thing would be to walk in and have 1¢ rate increases. that is now allowing us to do binding and that will find it street lights.

the ability to do it will be better generally over time. we have the ability to do upgrades on the l.e.d. street lighting. we also have miscellaneous street light repairs and the bus rapid transit on van ness. those will go a long way to change the problem areas on street lights. about half of them are owned by just pg&e. the pedestrian lighting is a particular issue because the lights were often designed for street lighting. they were designed without as many trees there. they sometimes do not like the sidewalks -- light of the sidewalks as much as people would like. and in many cases, people do not want them shining in their windows. that will be the discussion for us in the future. one of the nice things about the

l.e.d. lights is that you can remotely increase the capacity. you can work with people much easier than with the current lights that we have. they are not designed for low level pedestrian writing under trees. >> i do want to reiterate this, and i know that we are on the same page, the need for long- term infrastructure. in one district there is literally? tape -- there is literally duct tape holding things together and it is very jarring and disheartening. and they are not puc lights. >> there are some lights that are like your old-fashioned christmas tree lights, when one goes out the although out. mize understanding is that pg&e is putting money aside to

upgrade those. we have more money in the last two years budgeted for street lights that we have had in the last 30 years. we are paying attention to it. chairperson chu: now why do we go to mr. rose and report? hold on, we have a lot of questions. mr. rose? >> madam chair and members of the committee, you mentioned the other items on the calendar. just for the record, we have reported on those items, 4, 5, 6, 7, 8, 9, 10 and are recommending approval. we are here to answer questions if you have any specific questions regarding those items. we are in agreement with what mr. harrington stated on the puc on the specific line items in the budget. if you look on page 10 of our report where we stated that we are recommending reductions, and

these are shown on the pages 13-17 of our report, a total of $2 million. we have revised that down to $two million two ordered $23,017. -- where we have previously recommended 2 million to a moderate $48,000, we are revising that down. -- $2,248,000, we are revising that down. on page 14, and the middle of the page, we are adding to that

in government and public affairs manager. instead of that ad-john, we would recommend a manager -- add-on, we would recommend a manager to that. it would now become 20 four thousand dollars. and for 2013-14, where it says 28,000 two hundred $95, it would be $25,206. that is the first change. on page 16, toward the middle to the bottom of the page, on maintenance, services, buildings and structures, where we had been recommending a reduction of $220,000, our recommendation now

is $100,000 for both fiscal years. the number in the second column will become $304394. and on page 17 at the top of the page for maintenance, services, buildings and structures, we are now recommending a reduction of two hundred thousand dollars for that line item -- $200,000 for that item and that would be for both fiscal years. and finally on page 17, on professional and specialized services, we continue to make a reduction a $200,000. however , we are now making a recommendation that it be a

continual reduction, not -- a onetime reduction, not an ongoing reduction. those are our changes. we will be happy to respond to questions. chairperson chu: could you repeat for fiscal year 2012-13 with the total recommended is now? >> it was $2,596,000 and is now $2,073,00. chairperson chu: what we go to the capital budget projects as well as the sales. the reason why these are more important for me to review more closely is that there are a few that are voter approval. there are some that are not sf

voter approval. these are those that have to be approved or issued by a supermajority in order to change and fix the sewer system. we are simply fixing and repairing our existing infrastructure. however, i think we do need to scrutinize its because we do need to understand these are not items that went before the board before. these are not large components of future bond issuances. they're having a significant impact. it looks like the rate repairs will double in current -- in terms of the current charges. that is not insignificant to households. that is why i want to not gloss over these items. they are huge. if you look at some of them, they are half a billion dollars worth of infrastructure work. this is not something that we should just skip. i wonder if the puc could

address those items, four through nine in particular for the bond issuances, and then we can talk a little bit more separately about that. item four is connected to item 9, 6 is connected to item eight, and five is connected to item seven. but they are not necessarily the end -- same amounts. my inclination is perhaps we take a look at the initial review about it. it is not actually doing some of the sewer repair work yet. it is how we will lay the framework for a potential $600 billion project. however, i wonder if we might reserve the appropriation authority to understand better what the picture will look like. >> i will ask todd, the cfo, to

talk about that. >> thank you for the opportunity. when voters told us to upgrade the water supply system, they told us we have to do a high level of reporting for any bond level they have given to the public utilities commission. are heightened lovell of approval was for that every time we ask for bond funding and every document in every bond sale has to come before 3 oversight bodies -- before the commissioner -- for the commission, the board of supervisors, as well as the charter mandated revenue oversight committee. after all three of those reviews, we need a super majority of supervisors. the improvements to our system, many of which last from 75 to 100 years, one could say it is most equitable to ratepayers to

smooth out the pavement over the useful life. the closest way we can do that is to issue long-term bonds which have been incredibly low cost financing which has ultimately saved their ratepayers money. absent being able to sell bonds, we would have to pay everything in cash. that's just not possible. we went through the graphic that showed our stores are 85 to 90 years old now and they only get older with each passing year. what is before you as to compliments. one is the detail in the capital budget and in the companion documents for bond opposition. the bond authorization to are going to be his smaller numbers because we try to pay cash for what we can pay cash for because it's usually the least expensive for ratepayers. the authorizations include

financing costs and total $163 million for water, $523 million for waste water, and $12.3 million for power. i will walk you thru the details that is the water enterprise. at the top of this page, you can see our request includes $87 million for fiscal years 12--- for fiscal year 12-13. in addition to the heightened oversight requirements, they required us to do a 10-year plan both financially+ capital. we take everything we have for capital need and translate that to our average rate payer. as policy makers, we are one of

the only utilities in the country that will tell us what you need. we will also tell you what it means for the average san francisco ratepayer for a water bill and sewer bill and that's unique in this country and something we lead the trend on. in the case of the water department, you can see the investment over the next couple of years is a water main replacement as well as a regional pipeline and treatment upgrades not included in the water program. the majority of that at the bottom of the page, you can see how we pay for it was operating revenues -- are cash funded program. because those assets are long lived and will benefit ratepayers in our generation as well as our children and grandchildren, we looked at doing long-term bonds. at the beginning of the

meeting, it was mentioned that we were able to sell bonds at an average rate of 4.2%. that is really important because average cost if we were to defer capital typically goes up 5% because of the price of concrete. whenever we can do the work and create the jobs now and do it more cheaply at a savings to the ratepayers, that's the best of all possibilities. that would be a summary of the water department. >> that pertains to item number five, an appropriation worth $171 million in capital work and the sale of bonds worth about $163 million. then there is basically the cash component? >> right. i have highlighted to rose here because that is a general obligation bond funded program

that comes before you separately in a few weeks. >> the expenditures is primarily for water main replacement work -- that was the water component not funded to the voters approve program? >> that is correct. we have about 1,215 miles of water mains going beneath the street. we think we need to replace 15 miles per year. we have some very old pipes. some are in very good condition, so we always make sure we do condition assessments and repair the ones that need it the most. we try to do the water and sewer replacement at the same time so the street is only dug up once. supervisor chu: at the current rate, we are only funding about 6 miles a year? this gets us to 15 miles a year? >> it ramps up to 15 miles in

2015. if you look specifically at two years, we would ramp up to about 14 miles in 2014 and 15 miles in the next year. >>supervisor chu: how do we geto that? >> we look at where they are and the failure rate and that is what we think we would need to do it over the next 10 to 15 years. water pipes and sewer pipes are typically of similar age to the neighborhoods that develop in san francisco. as we develop new neighborhoods, a lot of infrastructure went in there and that is the typical average age of those pipes. what needs to be done now gets us to 15 miles a year and we think that's the best practice

in our industry. if i may go on to waste water -- waste water is where we will have a lot of need for investment over the next 20 years. in particular, the source improvement program which you heard a lot about, if we tried to size it today, we would think it cost about $4 billion. but inflation happens over 20 years. depending on how we do this improvements, it could reach as much as $7 billion once construction cost goes up over time. the proven, a media needs for design, as well as the immediate investment for the treatment made net cost. we are increasing the collection system for line item replacement and doubling the

proposed budget before you. that would prevent potholes' from occurring and other street disturbances. sourcing is predominantly revenue bonds and we are able to pay in cash about $37 million a year. there is a further bit of good news -- the ability for us to get grant dollars from the state. it was on-again, off-again, and now it's on again and we have an award letter that we believe the money is going to happen this time -- $24.1 million. that is a success from what voters approved. every time we look at a capital

plan, we are trying to figure out the cheapest, lowest cost source of funding and that is how we prioritize each of the approaches. in the case of hetch hetchy water and power, are improvements are primarily for the regional pipelines to the up country system. the majority of uses is in power infrastructure. you will see in the mid -- in the middle of page 29, you will see the investments and these are critical investments in the generation and powerhouse. you have funded in the past the rewiring of the generators and these are critical because it basically allows us to create a

$150 million revenue stream we would not otherwise be able to do. that allows us to provide what is very low-cost power to city facilities and a hospital. thank you for that. the other investments are streetlights toward the top of the page. we are investing more than we have in decades. thanks to you and the mayor's office and policy-makers, we have been able to implement a twopenny ratings increase that allows us for the first time to do power revenue bonds for fiscal year 13-14. i want to go through to brief slides and also through page 35

-- supervisor chu: items 6 and item eight, the appropriation is about $141 million and the remainder is a much larger one. can you explain that? >> the remainder is water- related bonds. in addition to that, we were able to apply to the state and have been successful in getting loans funding which is low-cost funding, cheaper than revenue bonds. we have some cash from the system which allows us to fund a portion as well. the lowest cost is what we are always trying to prioritize.

supervisor chu: back to waste water -- the appropriation is a large number. it's about half a billion dollars. can you break down how much of that is eight digest verses other work? >> it will be approximately $168 million. that's for the planning of the digesters project. that could be upwards of $2 billion. it matters of a lot that we do it well because our sister agency across the eight -- east bay mud, has done an incredible job and we plan to do it well as far as creating capacity to be able to provide renewable electricity as well.

but there may be the potential to do even more. supervisor chu: what is the remaining? >> an increase toward 15 miles -- that is $114 million over the next two years, including the doubling of spot repairs in the city. the other portion are maintenance and repair and replacement at the waste water treatment facilities and a potential for long-term as well as short-term needs at treasure island. >> thank you.

>> we are subject to the rate fairness board, another strength of san francisco's oversight process. this translates into an average build. we have rate affordability as far as the average cost of a gallon of water to bring it down to your tap is less than a penny. by the time we do all these improvements, it is going to be less than two pennies. a very good deal. to flush the gallon of water down the toilet or put it down the drain, it currently costs a penny to make a clean and go out into the ocean. those are some of the metrics we used because our customers work in gallons. >> can you speak a little bit about what that would look like?

for the waste water, if we were to issue half a billion dollars to do the work on digesters and the disorder replacement, what does it mean to an average household? not by pennies per gallon -- i don't think i'm fleshing to penny's down the toilet, but what are you talking about in terms of an average bill? >> i can show you that on slide #34. over the next few years, it would mean very little because we typically have two or three years of capitalized interest. that will mean we have on $500 million of project costs, depending on how low we get the rates, anywhere from $45 million a year to annual debt service. why that doesn't have as much

impact as you might think otherwise, the big area, the potential rate impact, why it doesn't have as much impact as you might think is because we have old bonds being paid off. those are helping us over the next two years fit in with additional investment and borrowing we are benefiting from very old bonds being paid off. where the big decisions will be that affect long-term rate affordability is once we ask and come back and propose the timing and sizing of the construction of the digesters as well. >> -- this graphic takes a walk over the next 20 years and says what you see before you in our 10-year capital plan, we go out

10 years, but that would look like. we have a pretty affordable deal at about $40 a month. this makes us at about a penny per gallon of treated sewage. that is projected to go up to about $60 a month by 2019. the reason it stays that affordable is because the old bonds are being paid off and we see here is able to be fit in and stay affordable. but the big decisions are going to come around 2013 and 2014. anytime we need to make a key decision, it has to come back for appropriations and bond authorizations and it has to be approved by a supermajority. supervisor chu: this is an extremely scary graf, to think

we're going from $40 to $180 over time. islanders have a large part has to do with the you are making assumptions about what the total cost of the sewer system improvement program will look like. a decision has not yet been made that would put this into action. i want to make sure people are aware of that, but how do we level this number down? this is a steep increase and even though we recognize we have a large infrastructure problem that we need to fix, at the same time, this is a very significant increase. what are the strategies you will be bringing to lower this down? >> there are couple of approaches and a lot happens this summer. we're doing a validation process that revisits the pi