concerned. they're asking us questions about it. and, so, this is one of our top priorities, this mountain tunnel. >> thank you. >> i think commissioner breed's question, though, was around financing. what were you looking at to finance that $6 45 million? >> so, what we wanted to do is currently the asset is ~ a joint asset. 55% is on the power side, 45% is on the water side. and, so, we are looking at how we can finance it given the fact that power enterprise has a financial problem. and, so, this is one of the thing that we are working with staff and working internally to first see if we can reduce the cost, look at other alternatives to look at ways that we can assist in financing this so it won't have a major impact on the water side. >> so, why is it that power is

55% water, 45%? it seems like the revenue that's generated from the water side ~ would be much greater than the revenue generated from the power side. i imagine it's like night and day the difference between the two. our water from hetch hetchy come right through the mountain tunnel, right, it doesn't have any other place it goes so it's -- all the water in our system goes through there. seem like that would be the larger bulk of what would be paying for the cost of the mountain tunnel, the water. >> so, it's an agreement that happened in 1985. >> the water sales agreement? >> well, where they identify the proportion cost of these assets, 185. what was the rationale? >> you know, we are continuing to research the rationale. i don't have a good answer for that question. >> i would love to hear that rationale. it doesn't make much sense to me, and if there's a way that

we can have a new rationale, that would be great. >> and we're looking at that as well because -- but we have to work with our wholesale customers because, of course, they want to make sure they pay their fair share and their definition of fair. and, so, we're starting to have those conversations. >> do you have a sense of when you'll be able to finish those conversations? >> we're moving swiftly on all fronts and this is one of the biggest issues that we're facing. not only on the power side, but on the water side. >> so, then, the final challenge is the cost we are incurring to meet new regulatory requirements. the western electric coordinating council, the national electric reliability council implements reliability standards nationwide and within the west. they are an arm of the federal regulatory energy commission

and they've gotten much more diligent and involved in how utilities, electric utilities operate their system. electric utility system are interconnected and a problem on one entity system can cascade into another's. with the reliability council, what they're trying to do is make sure that that cascading does not happen and all the systems individually are operated in a way to keep their problems within their own assets. and, so, in order to comply with new rules that are coming out to address those reliability concerns, we have included in our ten-year capital plan an increase of 32.4 million to address the needed improvements. so, again, we had anticipated almost 27 million, but with the changes in regulations it needs to increase by 32.4.

unanticipated at that level. and as we face all of these challenges, we still have the ongoing obligations and responsibilities that the federal law and the city charter have placed on us to operate our hetch hetchy system responsibly to the benefit of san francisco's businesses and residents. and with a focus on meeting the public interest and the necessity for having a role in electric provision, electric service provisions here in san francisco. but though challenge do present consequences that can be quite negative for the city. if we weren't operating our power assets and the city -- the city's general fund were

paying pg&e rates, the cost of doing byness for general fund departments would go up by about 50 million each year. for us, this financial circumstance isn't a reliability issue, it's a financial issue. of course, it becomes a reliability issue if we don't address it, but at this juncture we're addressing it as a financial issue and we're confident that we won't go negative given the options and solutions we have before us. but, you know, inaction will have us losing that sheet of benefits that i showed you for the city. we will also face, as we move forward, the need to meet bond covenants which does take away some discretion on the part of the city for how it prioritizes its rate making and use of its

revenue. and then, you know, inaction would also have us finding a very difficult time in complying with the raker act requirements to operate the system to the benefit of san francisco. how did you that translate into a budget outlook? what you see on this slide is an end of fund balance. so, the end of the year, fiscal year fund balance, how much do we have in our bank account after we've completed a fiscal year. we see that tract in the black line for the fiscal year ending 10-13 and beyond, that ten-year outlook at that time, prior to facing these new challenges i just described. when you put the new challenges in with the new capital needs, the new operating costs from

transmission distribution, the new regulatory requirements, you find us on the blue line that dives down below zero pretty rapidly over the 10-year horizon. that's the budget outlook problem that we need to focus on solving. and here's some of the options that we are siam am ~ siam sigh mull thaictionviously pursuing. we talked about the fact we'll issue debt in order to fund some of those long-lived capital improvements. we're looking at reducing costs. we talked about negotiating with pg&e to the extent we can on some of those operational costs. we're looking at whether there are costs we are incurring today that we could be more efficient and reduce. we're looking at ways to

increase rates and we're looking at ways to find new revenue sources, new customers, new customer that fall into that category where they pay us more than it costs us to provide them with service. so, the retail enterprise, commercial type customer. we're also looking at whether there are funding sources for some of the services we provide. we're currently funding, fully funding the service -- street light services that the city enjoys. that's a responsibility we took over when the general fund was having a hard time some years back. and we're looking at whether that's -- we could return to the old way of doing it. >> could you give examples again of potential customers of anyone already been courted? >> the most immediate example that comes to mind is the joint transbay power authority, the folk operating the new transit center.

they've recently become a new customer of ours. that agreement went through the board approval process and we'll be serving them in 2017. so, we'll see additional revenue from that customer. other sites that we have performed evaluations of, feasibility studies of pursuant to the charter are the hunters point neighborhood as it builds out, the shipyard area, the -- >> i think it has a new name now. >> i'm sorry, i'm probably not up to date on what the -- >> it wasn't a good name, it should be shipyard, but go ahead. >> okay. we were talking about it as a new green community when we first started our engagement with them. the other types of customers could be other public agencies that currently self-procure who have expressed interest in potentially working with us as their power provider.

so, we're exploring all of those options and pursuing those options. i've redirected some of my staff effort to that in order to bring the dollars in. >> yeah, and i just want to stress how important that is because it's an opportunity now because they are coming to us asking, can we buy power from you? and, so, we are definitely focused and letting everyone know that we have power to sell at a cost where we can, you know, get some revenue to help address our issue. and, so, that is where we redirect staff to really -- to do that. >> thank you. one thing i don't see in your powerpoint is what we're expected to generate in terms of looking at new customers in that. like, what our goal is in term of what we currently on average per year generating and when we look at including new customers, what we expect to -- what level we expect to be at. and i also think that it would be good to understand where we're at when we have drought

years like we have right now. because we probably are not going to be able to generate enough power this year than if we had cpa transbay joint powers authority already as a customer, we might not able to actually fulfill their demand. >> we expect to fulfill our customers' demand in every year regardless of whether we are self-generating or purchasing in order to meet that need. the cost for power on the wholesale market we would expect will remain below the rates we would charge. and, so, we would never find our self-unable to provide reliable service. for example, when the rim fire occurred, we were directed by fire command to dee energize all of our power units in order to protect the firefighting staff ~. we did that. no one here knew the difference because even though we shut off that 380.5 megawatts of generate thattion we were doing or can do, you all still got

your power. san francisco airport, all of the general hospital, all of the critical city services, sfmta, all of the critical city services continued to receive service reliably even though we were barred from generating our own electricity. and that's because we have a staff capable of purchasing and selling in the market as we need it. >> who do we purchase from? >> it depends. we look for our good price on the counter party side, folks who are in the market and ready to sell. we are members of the western systems power pool. all of the members are posted online. you can see the various different types of entities that sell and buy in that power pool. >> is there a record of who we purchase from? >> absolutely. >> and can i get a copy of who we purchase from? >> sure, sure. it's listed in our annual financial report, our c-a-f-r we publish every year. >> okay, it would be great to get a copy of that as soon as

possible. and the other question i have is we're facing a routed year so we are going to meet our customers' demands? are we purchasing power currently because we're not going to be putting as much water through -- >> yes, we are, today we are purchasing a little bit because we're doing some maintenance on the system. it's pretty typical at this time of year before the snow melts, we do some tuning up and make sure we're in good stead on all the up country generating units. it's pretty typical in every year we do some purchasing, some selling. >> are we not taking any additional purchases because of the drought? >> we probably will have some additional purchases in the spring. >> the spring. >> yeah, towards the end of this fiscal year, early summer we -- at the rate of storm right now, what we're looking at, we are expecting to purchase a little bit more than we typically would. but all still within budget. we don't expect to have any needs that were unanticipated given how we budget for power.

>> and have you made any contracts for the spring already? >> new york city we haven't done any forward purchasing for the spring. we can, we can -- some time we find the published prices for power are pretty low and if you strike a forward deal, they just charge you more for it. so, when we're in that situation, we stick with purchasing on the spot market and not making a forward commitment for the power. so, it's all based on the he economics at the moment. >> and could you share with us, you know, via paper like who you've actually purchased from heretofore this year and also the ongoing basis who you will purchase from? that will be important for us. >> certainly. for who we have purchased from because those are consummated deals that were recorded. as i said, i don't think we have a forward purchase plan. if i'm wrong, we can provide the answer to you. i think the answer is going to be there are none.

>> and are those purchases that are made, are they approved by the public utilities commission or -- >> we have an energy trading policy that's been approved by the general manager that gives staff at certain levels authority to go forward without having to have additional authority. long-term purchases are subject to the same rules that other contracting obligations are for the city's procurement. so, deals that hit the 10-year threshold, is it $10 million threshold, come all the way through the board's process. >> thank you. >> and, so, the only thing i would just highlight, of course, is definitely cheaper to sell or we actually get more margin when we sell hetchy. but when we go into -- and buy and sell, we don't make as much. so, that's why, you know, when we look at the he drought, we would like to have more reserve

for those occasions. and, so, that's why drawing down on the reserves, get kind of nervous. >> and, so, if we are successful in pulling through acting on these various options for balancing our capital and operating budgets, we'll have a budget scenario that looks more like this where werbach in alignment with what we had projected prior to facing these new challenges. back on that black line that you see going out through fiscal year-end 20 24 ~. >> and, so, we made a commitment to our commission that we're going to come back quarterly and give them an

update on where we are as far as each one of the challenges and how we move forward and come up with a plan to bring it back in alignment. >> thank you. commissioner breed? >> thank you. i just wanted to go back to the last slide and ask a question about issuing debt. would this impact our ability to issue debt for a local build out for clean power? >> so, when you issue debt, you have a certain capacity, a you are familiar. >> yes. >> so, any debt issuance and commitments we make take up that capacity and represent opportunities that can't be pursued for other program areas. so, if we were to, for example, issue debt for street light services improvements on that capital part of our program, then we wouldn't be able to spend as much money on -- we wouldn't have capacity to spend

on up country generation improvements or rooftop solar here or other local build -- >> yeah, i understand that. but based on the possibility of issuing debt, we would potentially go to our potential capacity in 16-17, right? so, for example, we'll be able to issue debt based on what the capacity would be at that time after issuing the previous bond. but in 16-17, depending on the number of projects and the amount of money for those projects, we'd be issuing debt which will maybe reach capacity or come under capacity? that's what i'm trying to understand. >> and when i'm saying capacity -- yes he. when i'm saying capacity i'm talking about the stream of dollars coming in, the revenue that we're making. >> yes. so, the potential for reaching capacity when we potentially -- a bond for 16 to 17, would probably be at our capacity.

so, it will impact our ability to issue debt for local build out, for clean power programs. >> you're saying it will. i'm not certain and i apologize. our cfo is not here today, and he could be more certain for you our revenue stream has greater capacity for bonding than is shown on that slide, i think it was 43.7 million. and as i understand it in talking with our cfo, we do have more capacity for borrowing than that. >> okay. >> i'm not sure what the -- >> we're not certain, it just depends where we are when we have the ability to issue, issue bond capacity? >> right, depending on what our revenue stream is -- >> so, we just don't know right now? >> i don't. >> okay. >> if i might just add, if you

-- nancy, your interim executive officer, if you had a cleanpowersf officer, you would have addressal revenue, additional customers. so, your bonding capacity increases as ms. hale said. typically revenues. you also have bonding revenue that is limited by only certain kinds of revenue. i would assume that cleanpowersf would limit revenue from a certain program. so, more revenue, more bond that ~ bonding that is for particular projects. >> okay. >> the other thing i would like to highlight is that right now we are providing the $19 million set aside. and, so, the issue that we're struggling with is as our enterprise starts to struggle, if you look at a scenario where

we're unsuccessful, really we'll start going negative. it doesn't matter because once we start going negative, they will freeze all our assets. and, so, the whole thing is that's why we're feeling so -- our major priority is so that we won't go negative. >> so, okay. so, i wanted to ask a question about -- we know the governor just passed a bill for emergency funding for the drought, and tomorrow i'm introducing -- urging resolution that asks for funding for three significant projects at puc. so, in your slide you specifically say, of course, all bets are off if we have a drought. we may run into a scenario where there will be the need to spend more money in order to deal with the reserve. so, i wanted to know if puc is making arrangements to make those requests to the state. and if received, that could

mean freed up revenue for, you know, other possibilities, correct? >> yes -- >> but would allow us to go into our planned action as listed here? >> well, i think they're looking for shovel ready projects. >> we have three shovel ready projects? >> mount tunnel is not shovel ready. the one we identified is cherry aqueduct where we can tie that reservoir into our drinking supply. the other one was the direct install because a lot of -- we give rebates, but people can't afford to actually take out the old and replace it. then we have groundwater projects. we're ready to rock and roll. we're working with the rec and park to move forward with those projects. those are the projects that do qualify. unfortunately it just helps the water and not help the financial of our power enterprise. >> okay. thank you.

>> commissioner vietor. >> [inaudible] on the procurement issue and i know that there was some -- during the [speaker not understood], there's was market protest and long term procurement questions. i've asked this before, but can you remind me, it's usually the criteria is cheapest, we don't have additional criteria for how we purchase power. >> we have renewable energy credits from our system that we can apply to clean up the brown power we purchased when we are purchasing. >> so, [speaker not understood], it might be getting into the question of where to procure from. i think it would be interesting to actually see with that charter something that shows what those credits are, how much of that purchasing we're doing, even look at it in terms of drought. because it could potentially

grow to be a larger number. it's important to kind of from the environmental policy perspective be tracking and look at that. >> sure, we track our purchases and use of renewable energy credit. i'd be happy to come back with presentation materials on that or do a memo to be responsive to -- >> understanding that we might not have the luxury today because of the financial situation, but there is anything that we can do moving forward to even move beyond the equation with [speaker not understood] power, but actually purchasing stock market or long term procurement, it would be good to have an understanding of that, too. >> sure, happy to include that. >> we're only to replace the loss of power due to our drought or to increase power. we're only going to renewable sources. is that correct? >> no, that is not correct. we are purchasing on the

system, making system power purchases which are not unit specific, are not technology specific. and then we have renewable energy credits from our own store of credits from our own generation that we apply to that power to maintain the 100% greenhouse gas free renewable label. >> so, like regs? >> yes. regs from our system, we generate regs from our own system and we use the regs from our own system. we've also purchased regs. >> there was opposition to cleanpowersf because it was based on regs. seems like that's already practice within the public utilities commission to practice -- >> yes, it's the practice to in the energy market and sf. coming back to actions and options, i want to spend time

on the new revenue source line there. and that gets us to looking at what are our opportunities. we've been talking through this presentation about commercial retail enterprise level paying customers. sort of how did we arrive at that. what this slide shows is four different types of sales. wholesale, clean power sf, large commercial retail. so, the top column. and it shows -- it walks through the price it sold for at the top line, the transmission and distribution costs that occurred. so, those are deducted from the sale rate to arrive at a gross margin. and then we factor in other costs, costs of hetchy power, for example, local build and repayment stream, and we arrive at a net margin we look at

these different types of sales opportunities. so, if you have a kilowatt hour hetch hetchy power, where did you make the most sense to deliver from that power? it you can deliver from the wholesale market. on average we'd clear about a penny. you could deliver it to the klaxon power s.f. program as it was envisioned when we presented it to our commission at the 11.5 cents a kilowatt hour. ~ you'd see no margin because any extra money was plowed back into local builds and refirethv. ~ requirement. you could sell to a large retail customer and have 7.9 -- 5 .5 to 7.9 to spend on local build, on up country improvements, to restore and reserve ~ for that drought that we've been talking about. so, just purely from that business perspective, it makes the most sense when you do the

math to use that hetchy kilowatt hour for a large commercial customer retail sale here in san francisco. >> i appreciate that. and knowing the financial constraints that the public utilities commission is in, it makes sense that we have a mix, what we won't be able to get and sell in terms of revenue from that. i think when it comes to cleanpowersf, it's not what we get above what we put in. in terms of pennies on the dollar, but also what we're able to achieve in terms of greenhouse gas reduction and really increasing the consciousness of people about our climate and what we're doing a about it. i think there were other benefits -- [speaker not understood], understand you give me a docks youthv that's purchasev financial, i have to

push back a little bit. >> and, so, then, what does this overall picture, financial picture and business case mean for cleanpowersf? i think for us, you know, our first priority is to have a healthy and stable power enterprise so that we can continue to provide the benefits that we provide. we will pursue transmission and distribution cost reduction. we will figure out how to fix mountain tunnel for the power benefits it brings. and we will work to secure a more retail enterprise commercial customers and the revenue that they bring. meanwhile, we understand that lafco will continue to work ~ on cleanpowersf. and hopefully with the information that cleanpowersf local -- sorry, lafco folks bring in, we'll be able to evaluate again in the future our opportunities to move forward with the program.

and i'm happy to take any additional questions. it's been a good dialogue so far. maybe you've exhausted your questions. >> i appreciate your entertaining questions in the middle. i think it's very fresh in our minds while you're going through this. thank you for your presentation and your work together. we'd like to get updates as we move forward as well. maybe the lafco meeting, we'll be joined -- puc-lafco, we can get updates, anything that's happening. commissioner breed. >> thank you. i just wanted to i guess -- i don't know if this is a question or comment, but it's my understanding that we were looking at putting the street lights in the next easter bond and not a bond for the puc. you mentioned that as an example. so, i just wanted to make sure that we are looking at the various opportunities there