again, i want to thank you for making an additional time to revisit our upcoming budget. we wanted to present for my paratransit a two year budget and last year was the second time for a two year budget. this is the puc two year budget. one of the important things i've learned as general manage to to engage the enterprises and to look at the proposal but we wanted to focus on our core mission which is to continue to deliver quality service and water and power and sewer and to adapt to regulatory requirements and make sure we identify implement financial and

operational efficiency across the organization. so i worked hard with our atms and in some regards they were helpful and really looking through the great ideas that state had to make our operations efficient. so we really spent a lot of time balancing 3 core principles and priorities is one is to continue high quality and reliable service and we wanted to make sure we kept our infrastructure in a good state of good repair and to reserve our rate pay core. so with that we looked at ways to keep our operational budget as flat as possible.

so we looked at ways to do more with what we have. the other exponent of our budget was to pay for the mortgage. we visited a lot of money in our capital programs as more debt is acquired we have to pay down on that mortgage. the other major issue is that we have unanticipated capital needs. we'll talk about it in several of those presentations and the big was is mountain tomb. and the last area which we're really focusing on is the increasing regulatory requirement of water and power up country. so we'll go into detail. to keep the budget flat with

inflation increases only and you'll see about 90 percent of those are due to costs that are outside observer control. you'll see the costs we've tried to a incorporate it is outside our control. i want to turn it over to todd to walk you through how we're going to use this time over the next 3 commission meetings to give you an overview of the 2014, 15 and 16 budget. thanks >> so i'd like to say good morning and welcome you to the new budget hearing 3 starting on the 11 o'clock. today is the first one, we're kicking it off with house/senate power.

to walk through the agenda for the television audience. the items are concluding a special workshop where a number of our challenges are before us. and then we'll talk about presenting the large binder the highlighting you all have in our packet. you've been reviewing those. both a g richie will walk through the proposals as well over the next two years. i will close the session with going over the next 10 year impact and the capital plan and financial plan a and what that means for rate. i'll see over the course of the next two hours everything to do with hetch hetchy water and power and the 2 year budget and

the challenges over the next 10 years. on the 28 we'll do the wastewater and even though rest of the infrastructure we'll be collecting all our questions and the follow-up work you want us to do and present those on february 11th. the budget in a big picture is about $873 million today and you'll see the portion that we're looking at today is called hetch hetchy water and power and that altogethe is $185 million of that total nearly $8,900 current budget pr the majority of the operations of hetch hetchy a big picture for the television audience is practicallyly 20 percent of the costs are related to water and water customers. about 80 percent of the

operating costs are related to power and power customers pay for those costs. the operating button is at 80, 20 split. on the capital split you're going to see that power is going to need a great deal investment as well as significant amount in hetch hetchy water. the offer arching budget themes as you've heard in december deliberations continue to be those are the goals they include the levels of service you'll stipulated and the quality of the operations and the energy preparedness and front and center the affordability factor. so that will be the information you want.

with that i'll transition to barbara hal and she'll talk about the power workshop and we'll then go on from there >> mr. president, just so we stay literally on the same page i have in front of me is the materials that was sent out last thursday plus i guess there was a memo from the general m anything subject to that i'm not looking that. you need to know if there's anything that's changed if you could use that as your bottom line >> are there additional materials in the binder. >> it's the same materials. >> the only change that the memo i sent out friday and than

yesterday there was an additional of page 2. >> okay. thank you. >> so before we focus on the power or hetch hetchy water and a power budget we felt that it's important to take and spend time on the power enterprise. as you went twroorgz then ed harrington was faced with a two year budget where the power enterprises was really facing a physical cliff. they didn't have enough revenue to cover the cost. so what they did at the time to bring it into balance the first thing was they defender about $249 million of capital work outside the 10 year plan. the second thing that they

focused on is increasing the general fund rate by 2 kent over 4 years to increase the revenue. the third thing they reduced a lot of that programs good programs we were supporting like energy efficient and go solar and programs like that. the other thing they did was they looked at ways to actually debt finance a lot of the capital work so at the focused on that. and also, they assumed that as far as our commercial rate we will keep up with pg&e so that revenue will increase. so in that they felt over time that they will bring the revenue in alignment with the costs and

meantime they were planning to spend down the receivers in those years because we did have a large reserve at that time. that's the plan. we updated the plan and now there are some serious other concerns that have we are countering so we're talking about that. but we have now, some new regulatory requirements and additional costs from pg&e as it relating relates to transition and distribution. we have the project tunnel which is the asset between water and power and that's a major project. and so if you look at those that's the cause of bringing us out of the alignment again.

we want to spend time talking to review where we were and what are the challenges but we also are present to come up with a plan to try to bring us in alignment. barbara will go into detail. i want to let you know at the conclusion of the presentation we'll have dialog as you know hetch hetchy has been valuable to the city. we've been able to, you know, really contribute to the city my right now i wanted to bring the visibility that hetch hetchy is in trouble and we need to pull resources together to really help hetch hetchy and the power enterprise become a good operating illuminate.

>> thank you barbara hal general manager happy new year everyone. i want to make sure members of the audience know we have a power point presentation at the table. we also have a memo as the commission secretary said was sent out electronically to the commissioners on friday. and i believe there are copies of that available. the only revision to the memo it was missing in its transition to you page 2 and that was corrected. during this workshop portion i wanted to provide some context for the budget conversation. review our bottom line budget and describe the current and expected operating environment and the financial circumstances

that the general manager just alluded to. identify the areas of focus and again, just really provide some overall context for the how we're proposing to fund our operation and a capital needs >> first, i think it's good to review our priorities. those should look familiar to you. we're - >> barbara if i might. >> yes. >> have we seen this. >> this is the handout that the secretary handed you this morning. >> so i have it in here somewhere. thank you >> and i'm on page 3 of the presentation. >> thank you. >> so we're continuing to

provide our one hundred percent green house gas free to our public and continuing with the street lights and distribution. we're planning to transition with our key partners and that's with our agreement with pg&e and our long-term power agreement with turlock irrigation district and our agreement. we're continuing to support our local efficiency and local prongs and the new emphasis we're going to talk about is developing new revenue sources for the capital requirement and to continue too fast the other requirements for the

illuminates. let's looking the puc's budget for the 13, 14 is 83 million and 1 one hundred and 85 million is the amount of fund that the hetch hetchy water and power system requires. and so that's the water assets and the power assets that are up country that's the power activities we engage in locally. when you breakdown the water and power of the one hundred 89 million 49 mill is transcribed to power and 36 million to water. i think our cfo said it's a 20, 40 split. so how do those revenues and match up with our costs. that's what you see on slide 5. on the left are our revenues.

you can see that the largest portion of our revenues are coming from our enterprise customers. we have general fund customers then our wholesale with modus operandi even though and turlock are open transactions and other income. that is about one hundred and 28 million in resources. we have additional need for expertise and that's where we dip historically into our reserves to fund our overall costs. as you see our operating costs open the right our operating costs and - the wholesale purchases we make and the distribution we procure from

pg&e to move our power and other high cost items. you can see how we balanced out that one hundred and 49 million and still have a fund balance at the end of the fiscal year 2014. as the general manager mentioned we've been in an era of having a balanced plan. you adapted in federal bureau february of 2012 was your - final plan is new revenues about $3 million a year it assumed higher to the general fund which resulted in higher revenues that's the two kent a year over the 4 years that the general manager talked about. we anticipate over the 10 year

plan debt financing at 63 million. in order to balance that plan we noted to cut about 3 hundred and - exemplary 3 hundred million was cut in order to come into balance. the largest portion of that on the up cut capital needs. we also cut some of our local programs our energy efficiency and our renewable projects that included go solar and our other capital projects locally which includes street light services. it was tough to get there but we got a balanced financial plan and that funded number one

deferral fees. we funded that through our current customer basis. in a normal year we generate about 1.4 million megawatt hours. you can see on that left bar the total hours and how their distributed among our customers with 41 percent of megawatt hours going to our enterprise customers and that's where our largest portion of revenues comes from the 79 million. in the middle column the rate on average we're chargingors customers. for 41 percent of the power you can see we've received 69 percent of our revenues that's our highest paying customer base they pay retail rates.

then we have our general fund and wholesale customer transactions at the top. so this is - funds one hundred and 11 or 12 million every year of our costs. now we have new challenges. although we had a balanced plan we've got new capital improvement needs. as i mentioned our current adapted plan fund 4 hundred in power needs and we're expecting american people increase of 3 million over the new 10 year period. we're seeing increases of costs from pg&e for the transmission costs. and some increased operating costs associated with the loss of our intersection agreement with pg&e.

taken together we're seeing from that challenge an increases of $20 million a year in operating costs. and then finally, our third challenge that would anticipated in our balanced financial plan in our 10 year plan adapted in february with some new regulatory requirements like newark and federal requirements and our federal cal i placing requirements on us. we assumed 26.9 million in regulatory compliance costs with the standards that are embodied on us by newark and we can. and we've identified an increase for new rules of 32.4 million of up country capital needs to

comply with the standards. taken together - >> i'm going to ask you to go back to the challenges slide. >> yes. >> so thank you. i'm hoping that commissioner vietor will consider commenting. i'm looking the memoranda in the passage for the public january 10th >> yes. >> you kind of summarize this in advance. i'm looking at page 6 it's the second paragraph. i'm concerned that we're not listing energy efficiency under challenges especially, since you highlight the build out options that's been identified. the puc budget for the renewable projects and efficiency promotions has fallen from 10

million to 3.3 million in favor of and we're in favor of the following; right? to support rate discounts for customers and for defender needs to keep the system returning. first of all, we have to address the challenge of energy and it's important because we represent a lot of the maintenance workers. i know there's also going to be the balancing act but it's appropriate certainly given our recent conversations to say that's one more challenge >> it is and when we presented in order to bring our budget into balance we presented the option of increasing the general fund rates and in order to continue to support this reyou

believe so going go gunshots or efficiency but that was rejected for a lower increase spread over a long-range time period. this is the policy choice that was made two or three years ago in order to bring the budget into balance. we continue to struggle about how to keeling keep our funding be available. it's a resource to us as a illuminate and it certainly a program area that has a lot of support among our supporters >> i agree i think that energy efficiency has a lot of things this renumbers are not caught up with the installation but energy

efficiency has been proven and i'd like to get more data specific to the puc and more specific to the general fund. has the promise and the actual benefits of saving power have been if we had a board enough customer base we could resecondly, hopefully at the highest rate possible as well as the financial savings. you're saving power and money and creating jobs because of the maintenance piece and rugby the green house gas emission. so from a policy prospective i think does beg for a deep look and analysis how that might work. a couple years ago they were fighting to keeping that at a

priority level but those capital improvements are coming down the pike and we've got to cut costs and identify additional revenue resources to address the capital needs. i think that part of the conversation needs to be energy efficiency whether it's the general fund, you know, go on going in and changing the bulbs or the commercial customers which we're going to hear about t is a potential resource doesn't make sense in the energy efficiency if we save the power do we have a customer to sell it to. i would welcome more thought and a high-level analytical to save the power to sell it as well as

the financial savings understanding we don't have the capital to invest in energy efficiency >> commissioner moran. >> i think i agree. the challenge is to fourth where we can make the saved to the customers we sell the power to. that's one the issues that's been con fouvend. it's harder to afford programs that benefit pg&e customers than it is to show the ability we have the power to sell 1928 and highlight the importance of the subsection agreement. we heard that the dollar impact is 20 mill every year into the future. it will also effect we get to call the customers.

as we precede on that it's not just budgetary but in other regions as well. it is one of the keys channels >> unless there are objections i said to see the slide to include a brief statement of that additional challenge i didn't hear an objection. i think that's one of the things we face and it should be render. general manager kelly >> i want to highest energy efficiency we've been talking about a plan and components of a plan. one of the things we've talked to the mayor's office is to really look at ways to increase the general fund rate and in doing that they recognize that try to reduce the shock of the

increased rates by energy efficiency where you can reduce consumption. we're interested and in providing energy efficiency along with a rate increase. we're looking and working with the mayor's office to look at ways that we can actually do that. that's something that's coupled with the agreed increased rate >> i guess that's a question for barbara. so when we talk about renewables it's providing reluctant power to the puc >> yes. >> so we can serve our general customers go solar is serving residential commerce correct. >> it's larger low serving

customers that are pg&e customers and businesses that are pg&e customers and available to customers of obvious who have the fund to several provide those renewables. for example, we put the solar on the roof at the semiphone hall from our renewable program. other customers of ours have the wherewith all to fund some of the solar themselves at about just need a little bit of help through the go solar program. we do have go solar fund to some of the customers that we serve but it's largely prominently going to customers that pg&e serve >> what i'm getting another is what is the return if we look at