snooze alarm for 12 minutes and we can interrupt the proceedings at that point for questions >> i have some slides for the presentation here. when you are being handed now will be very relevant at that point of the presentation. i'm going to talk about some material we talked about last august, supply and demand in how we need to look through the future. i will update that material and get into information about how we are comparing different options for the commission. we wanted to identify that there are potential shortfalls by a third -- by 2035 and we posed a number of questions to the commission at that time to try to get some guidance. here are the preliminary conclusions from that workshopped -- from that

workshop. it definitely needs to be done in the context of the contract we have with our customers. the priorities for making up water supply shortfalls, the time should be covering the in streamflow requirements, maintaining assurance to our customers, providing increased customer demands in the future and making santa clara a permanent customers. it's clear you want the widest array for water supply in the best information you could get on the alternatives to make good decisions. the performance objectives established by the commission is providing 260 million gallons per day of water with a wholesale supply for customers with a retail supply allocation of 81 million gallons per day.

the policy decisions were to establish that as the interim supply limitation and be silent after that. san francisco would be a goal of not more than 20% in any year of a divine drought, which is about eight and a half years. we included the retail side through conservation, recycled water and ground water and we will report on that today. various decisions were due by the end of 2018. those decisions are whether or not to make san jose and santa clara permanent customers, how much water would be supplied to customers and whether to offer a corresponding increase in the supply insurance. this would all require a review to do something different so that would be one or two years at the bare minimum.

to look at these supplies again -- on the regulatory front, it's about 12.8 million gallons a day which might be mitigated with recapture from the filter gallery project. we are looking at somewhere between 7.4 and 12.8 million gallons a day being carved out of the supply for the in the stream flows where having. on the policy front, the specific choices before the commission are whether or not to the future also customer demands and reduce the drought supply. the responsibility for those decisions is the primary decision rests with a wholesale customers whether they want to purchase additional supplies

from san francisco because the long term strategy and we're working on supply options so we have a clear menu of choices for the commission to make and for the wholesale customers to decide what they might actually want to purchase. on the san jose and santa clara front, it's looking at the supply guarantee. the responsibility for the decisions are on the supply side and it do they want to purchase the supply? they believe that guarantee is important and are quite interested but when it comes to saying they want to buy it, it's a question we really have to get too. the total supply shortfall of is 7.4 million gallons a day.

if we change supply restrictions, we are looking at 27.4 million gallons a day. the lowest line it is green and that's the retail demand line. the blue is the total wholesale demand as it increases over time. that adds up to the red line on the chart which crosses the light blue line. that is our water supply which will change over time as the regulatory restrictions come in. that is where we get to the policy decisions in what to do about that gap. i always have to show the slide that presents uncertainty. we have state water resources

processes going on, the effect of those proceedings could be tens of millions of gallons a day. that may be a obligations that come about from the regulatory front. we will see where we end up through those. on the demand uncertainty front, we know demand will rebound in an improving economy because we have started to see an uptick. other suppliers are seeing that the drop in demand has leveled off. we have to see how fast it may recover. smart growth -- i will always bring this up. you should be focusing people in existing areas with existing transportation resources like san francisco and we could see a large increase and that's an uncertainty in the future.

all of the decisions we make will be up -- will be uncertainty with these factors. i want to turn to water supply as we move forward. the water supply options developed as part of the improvement program. the transfer of 2 million gallons a day from the modesto irrigation district. it's a very important component of the supplied differentiated it from the regular supply. we have plenty of water in wet years. we don't have water in dry years. that's about 7 million gallons and that's important for dealing with the drought. the other options we looked at

were the san francisco ground water project and east side project. both of those collective oleaster to about 7 million gallons of additional supply on top of what we have in the retail service area. we have been going beyond that and are looking at more conservation. daly city could supply water to focus right now and the san francisco, where we supply golden gate national cemetery with recycled water. the menlo country club, a recycled project with redwood city, the regional desalination project we talked about and we're looking into additional transfers that would still have to go through a process to come to realization. the non potable supply program

-- what can we do in building that? this is an asset we talked about and i will highlight it to say here is a policy decision that could be pretty important. a couple of issues here. first is the effect of conservation on demand. our total demand before conservation -- bubble is the total demand with expected conservation. we will be saving about 23.1 more than we are saving already. we are saving a lot already and demanded the future will probably be cut by 25% because of the additional conservation that is out there. we have had conservation and it will be more aggressive going into the future.

that is really important water to us. the second thing i want to illustrate is the yellow line. if we do the projects we say we are going to do, the demand will be down around 71 million gallons per day. basically we have 10 million gallons a day at of allocation that and san francisco will be using in the question is how do you want to treat that 10 million gallons per day? is it something too big to entertain -- to provide at them

a permanent status as customers? this is an asset you get to choose what to do with. how to deal with the future allocation san francisco has. to bring it back to the very short term, that's part of what this is to help prepare you for. the second is the non potable supply program. that makes it easier to recycle water and building. the menlo country club project. putting those in context of other decisions -- >> that is the 32nd warning.

>> the important thing here is the white diamonds. that is where the commission would decide whether to embark on environmental review of the projects. bill white diamonds is where you get started and the green is for the project approval before you go to construction takes place. 13, 14, and 15 are wind projects start to come to fruition. this is where we have the detail coming in. >> you start talking about some of the decision tools. any questions or comments about the material presented in terms of basic demand and supply

situation? >> i am unclear on the issue that you raised earlier regarding dead surplus water. when are the discussions going to take place for that decision making? >> that is for the commission to decide. we have an allocation of 81 million gallons a day. assuming that all comes to fruition, doing the recycled water and ground water projects, once you have done those projects, you will have 10 million gallons a day of regional water system supply. once you have decided those projects and they go forward, you have that headspace there and you get to decide if we have this extra water, do we want to keep it for ourselves or do we

want to sell it to san jose are solid collectively to help take care of the mitigation obligation and in streamflows? >> we are setting this up. we want to have more detailed information to show you what it could look like when you could possibly make decisions. it is a gradual thing and the supply options are such that if we have a media decisions to make, there are long-term decisions that will affect how the san francisco water supplies held by san francisco or held by the region. we were trying to tee this up for the retreat in august. >> that it could go to any entity? >> it would go to the wholesale

customers. >> within the region? >> we could satisfy the needs of san jose and santa clara. we could retain it as san francisco as it might be seen over the next 30 years or so. >> the other aspect of that is we could keep that has a way of minimizing drought curtailment? if you go down to a 20% reduction then the real reduction is less. i will call it a surplus -- i don't really mean that, but we haven't access of supply which is costing as a good deal of money.

the wholesale customers also have similar situations and their projections of what they're going to need to use in the foreseeable future. in both cases, this is something of value, something purchase with a good hard cash and we all have decisions to may about how we look at it and how we do it. to just make it available as a whole or keep it as an asset to ourselves? we are not alone in that decision making process. >> individual sell customers are in the same position as having access apply insurance and how do they deal with that in the future.

>> maybe you could just pull up a slide. this surplus is based on all these projects moving forward. >> its moves -- it's mostly driven by conservation. the ground supply, the recycled water project, it is the third, fourth, and this project listed. the times are 2013 and 2015 for the project. >> i know we are going to be talking more about it in the upcoming meetings but you say that it is a 2012 decision and i'm wondering why? second, if we are projecting a

surplus, i think a surplus is a bit of a mixed bag, but why would we be considering not only the timing, but the transfer? i know it's an expensive transfer. those were my two questions. >> the first question was why now because we have been in discussion with modesto irrigation about money -- about part of the decision to round out the yield we were trying to achieve college is not just regular your waterbed dry year water. we call it a dry year transfer because that's what it has its value. we need to purchase it every

year because we don't know which years will be the dry years, but because we have finally gotten to the point in our discussions with modesto, they started having workshops last year. the decision was made to have a transfer with the district and san francisco expressed a willingness but no one in the district has expressed a willingness. they only did that last fall and they have been going through that process over the last several months. we anticipate they will be making a decision soon on that once they have made a decision to enter into an agreement for your consideration. that, we would expect within the next few meetings. >> i don't understand why we would need to make a decision if we don't need the zero water. >> even though demand is down,

we have dry year issues to deal with. when it is not there, it is not there. >> one was to have no more than a 20% reduction. we looked at several ways to fill that bucket and some of the projects are longer-term, but we needed this transfer to fill the gap and improve the program. we have been pursuing this for a couple of years. the analogy i use his car insurance. this will protect us against a long-term drought which we cannot predict in the future. we have a willing partner and unless you have a willing partner, there would be no deal. the timing is right to move

forward on it. >> this is more than a few months or few years. the discussions have been going on for 15 years and that is typical of water supply options you develop, whether that's building a dam or reclamation facility. these things just take time and part of the time it takes is to build a degree of acceptance and trust in the case of a water transfer. it's not the kind of thing where you can wait until you get into trouble and then sat want some water. when you have an opportunity to put that in place, you can take it up. it is not different than if you were to build a reclamation facility, that will produce

water as soon as it is online. we don't need water in wet and normal years. so you might say why do we need that because we don't need the water. given the fact we have limited storage, adding water in a wet year doesn't do us good. all of the benefit comes with a dry years and you need to put those facilities, whether physical or contractual facilities, but those in place before the dry years happen. it seems counterintuitive, but it is important and needs to be done in advance and not after the fact. >> sorry for my ignorance and the learning curve here, but the dry options are what in this menu of options we are revealing? >> first and foremost, san

bruno, south san francisco, cal water service, we will deliver them excess water when we have a water available and they will not pump the groundwater basin because that's cheaper water to pump than to take water from us. that will allow it to recover so when it gets dry, they can convert back to well water. that is something we've been working on for some time. in about three years, we hope to have that go to construction and that will include 15 additional wells. those are the two big projects. there are also limits in quality.

their limited more by the usage and anything else. >> if you could go back to slide #4, you talk about the performance objectives. one thing i think is implied by this but you don't state it precisely is don't have the reliable supply. the good news is both the wholesale and retail customers have not come to a point of demand where that is a problem. we cannot meet all our commitments with the developed water supply that we have. that's an important thing to recognize.

if you go to slide seven, one of the conditions in the agreement as it relates to taking on a permanent customers is that we cannot do that. if that will hurt our ability to meet that with wholesale customers. this discussion about how we develop our water supplies is in process. we have not reached a conclusion on that. one conclusion we can reach is under today's circumstance, we could not meet that no harm criteria. we need to do something. we need to either produce additional water or make the decision we don't need the access we have as a city or some

of the wholesale customers or something. in the status quo, we cannot meet the contractual obligation we have to our wholesale customers and take the interrupt bulls as permanent. what that tells me is there is work that needs to be done there. we know enough now that we need to be talking seriously to the customers about how we change the world so we could take them on bad as prominent without harm to ourselves or will sell customers. last year, we said in general, we would like to do that. we recognize there is some obligation of them into a legalistic about what it is and we would like to be able to take them on as permanent. but if that is our desire, we need to do something about it and make sure we are busy

pursuing it. >> anecdotally, we did talk about the dry year transfer, but that's a question for the santa clara rep. what about making us permanent or what about the 9 million gallons a day? if there is any individual entity, they're focused on that themselves. it's very important to them. >> any other questions on the supply-demand side of things? what are to proceed with what tools you are going to be getting us to work with? >> as we have gone through staff and had questions about the triple bottom line, we've been talking about how to analyze these things and get comfortable with decisions? we have been talking to the waste water program and they are looking at how to tie it back to the mission statement to provide customers with high quality and

efficient services and a sustained resources entrusted to our care? how do you convert those? then there was a hard copy of the next two slides because they are fairly dense. we took a crack at this with the methodology for comparison on the left-hand column. that is the five categories -- water category for potable supplies, affordability, reliability, community interests and the relative environmental impact. the text next to each of those, we tried to identify ways to judge whether or not a water supply option was successful in achieving each one of those categories, breaking them down and that's a crack at it. there is no right or wrong in

that. in these categories, what are the things important to the commission as a way to differentiate between projects? less than $3,000 was more favorable. $4,500 was neutral. if it was above $6,000, that was less favorable. that was a way to put a range on things. each of those categories is like that. let me take you to the next slide as a way to look at those. you have the five categories and across the top, we have nine of the projects. for each of these projects, we looked at