solar on city facilities as well as the grants that have been provided for private solar on rooftops. but the system is aging and needs a great deal of improvement. take a moment and think about our mountain title as an example, it's been in continuous operation for over 80 years with very minimal improvements. and, so, you will hear from us as our commission has been deliberating over the last several months, that our capital needs have increased significantly. we run a system that is in large part 50 to 100 years old. and many of those assets have had little to no refurbishment because they were built to last that long, and that's a testament i think some of the [speaker not understood] soundness of the men and women in san francisco and those that came before us. the central capital improvements mean that our capital plan and our required spending is going up over 500

million alone and closer to now be a total of 883 million of essential capital improvements. we think of our capital as both essential. you have to do it in order to keep thing just running and the low cost power coming into city hall and funding all the street lights, the general hospital and the muni. and then also there is a lot of other capital projects that you'll hear about during our budget hearing that we would like to be able to do, but there's just not funding identified yet. so, you're going to hear capital needs in excess of a billion dollars. mountain tunnel alone i mentioned earlier is one that is about $6 28 million, and this tunnel has been in operation for 80 years ~ with little maintenance at all. and it's a function of how well it was built and being built through granite.

additionally, to the expensive and not aging infrastructure, we have benefited significantly as a city from very low cost of distribution rates. an interconnection agreement settlement in 1987 with pg&e. those costs are set to increase significantly upward of 16 to $20 million based upon what pg&e has filed for their ferc as well as cpuc rates. those cost increases are far in excess of what we had previously assumed in our ten-year projections. and you, along with the city charter, require the puc every single year to update a ten-year capital plan, a ten-year financial plan, and we then convey that to our policy makers and the public what those rates are going to be needed to cover costs. there is no profit. there is no extra money. it's just what will cover costs. previously that balanced

financial plan and capital plan was in existence until these three significant pieces of additional cost increase for large capital, mountain tunnel, the significant increases with pg&e projected costs for the transmission and distribution, and then lastly a regulatory environment change which resulted in us having to do additional improvements because of federal regulatory requirements, in particular, for the safety of the electric grid. many of the requirements are important given the sensitivities that we've seen in the press recently. however, that means that costs are higher than what we've previously assumed and what you would have seen a year ago when we discussed our budget and our capital plan. general manager harlan kelly is developing and executing a plan right now. we have and are continuing to work with the mayor's budget office on our plan and proposed budget. we have also, thank you to your

budget analyst, met with ms. karen bum and her team to go over the projectionses. we've met and discussed them at length with the controller ~ as well. and, so, the numbers are very daunting and i have to tell you, after being here six years, they are the large concern. that being said, we really like the go solar s.f. program. but there is a concern that without bridging the gap and raising rates further on general fund departments and others that have benefited from low-cost power which we've been able to do historically because we had assets that lasted 80 years, that lasted 100 years, but they don't last and they're not going to last 200. we need to be able to increase revenues in order to bridge that shortfall. we discussed with our commission in context, just in closing, that our projected shortfall is nearly a half a billion dollars over the next ten years.

those are numbers very large that you may have heard about on the general fund and the three-year order of pfizer report. but just for our enterprise alone, because of the significant increases and the $6 28 million for the mountain tunnel along with the pg&e costs and the regulatory costs are a net result in about half a billion dollar shortfall. that means while we would like to be able to give and deliver clean greenhouse gas free power to municipal facilities for $50 million less than what pg&e would cost, i don't know mathematically how that's possible any more. so, we look forward to working with you as well as the budget committee over the upcoming month. and our proposed budget is $2 million over the next two years in our plan as adopted and review to date by the commission has $2 million for the next four years for a total of 8 million as well as

continuing to increase funding for street lights. we want to do more. we would like your help in reviewing how we could possibly do more and look forward to working with you. assistant general manager [speaker not understood] also has a presented asian to provide you information. ~ presentation >> if i could ask a couple defining questions. first, i appreciate your comments in support of the program in general. i think that is a value we all share. i think part of the reason we are here is every single year your department has proposed reducing the amounts and we come back and we have a big fight about it and then we have ended up restoring this. and what i was hoping to do was to avoid that groundhog day by starting the conversation. the surprising news you provided in recent months about what you were projecting to be significant budget shortfalls, is there or has there been an audit of your sfpuc power enterprise programs? this is information that has caught all of us who are your

policy makers by surprise, and, frankly, we're all trying to under how we got here given the stability in prior years. so, can you give us a little bit of a sense of how we were caught so off guard with this information? >> a good question f. we turn the clock back two years ago when you saw us come to the budget committee, you heard both myself and mr. harrington at the time talk about the hetchy fiscal cliff. and at that time it was solved by cutting the capital program, deferring $2 24 million ~ of other types of improvements. that $2 24 million of cuts included the assumed reductions from 5 million down to 2 million go solar sf, cut energy sufficiency, cut city renewables on city buildings, $90 million, 30 million each from programs that we really want to do. but if we continue to provide

power below cost, there just is not enough money to do all the things that are good and that we would want to do. and, so, the fiscal plan for the puc's power enterprise was balanced the last two. previous to that it was not balanced and it showed a shortfall. but it did you point out that it is relatively straightforward if we don't have more revenues to pay for costs, we could only buy what we can afford to. so, here again now, we fast forward two years three new pieces of information mean costs even larger than what we have ever assumed. mountain tunnel was already in last year's capital plan [speaker not understood]. it was in it for the last several as far as the maintenance work, but it was in at $100 million of cost. with the potential for collapse of the mountain tunnel which would disrupt the water supply and a recently completed

engineering study, though costs have gone upwards of $6 28 million ~. so, that, sir, is new, and i do understand that that would be a very surprising and large change. the interconnection agreement expiration, though costs have always been in our ten-year plan, but not to the recently filed and heightened levels by pg&e, to ferc and cpuc. but lastly and a very much smaller amount of it, the regulatory environment, we used to comply -- we used to work with and want to comply with best practices in all our utilities, but that has gone from being best practice to now in the next coming budget mandatory. it is vaster than what we had originally assumed. so, i'm sorry to have to report it and i wish i could -- i wish i could tell you exactly that we can continue to give $50 million of cheaper power to the general fund, but i don't see

how to do it at this point any longer. >> and then two follow-up questions. i had shown some of the timelines around the decrease in -- i don't think you can see it from here, but a decrease in go solar s.f. installations and clearly these are all trend lines, but i think all of us as well as the public are concerned about, if you slash funding, potentially down to zero, what is your suggestion in how we move this forward? is your department able to continue to operate this program? do we need to think about whether your department can continue to do this, whether there are other funding sources that are out there? i think this is something that in the scheme of our budget is a very modest amount of money, but it has had a big bang for its buck from an employment stamped point, from an environmental standpoint, from a solar standpoint. want to get your thoughts on what we do. >> we would agree that going down every avenue to figure out additional funding, additional funding.

just for an example, additional rate payers who pay cost of service would be helpful. to the degree we raise the general fund rate for power one penny, we could raise $1 million with the revenue. and, so, that's to provide some perspective. the only way we collect money at the power utility is if we charge rates. we are exploring wherever we can grant opportunities as well as cap and trade revenues. [speaker not understood] has been very, very active a have i, but we will continue to explore every possibility. that said, we had a very painful task of going to our commission and going to you two years ago and will be possibly again this year saying we don't have a ten-year idea that solves everything unless we get more revenues, unless we raise the rate on the general fund to cost of service because we can't, we can't continue to

spend more on capital improvements that have to be done, otherwise the lights won't come on. >> i appreciate your presentation. just [speaker not understood], one of the challenges i have is we know this is a program that generally pays for itself because when we help the public not just with jobs, but by putting on these installations, we're raising property values, which then lead to property tax revenues that come in. and, so, again, from my perspective, i feel like this is an investment that then leads to future tax dollars coming in and i want to figure out how can we sustain this as we move forward. but appreciate your presentation. >> thank you. >> and now -- >> before you go, supervisor tang has a question. >> just a quick question. i know you mentioned in your presentation that we have before us the california authority initiative which the puc was piggybacking off of is no longer available in northern california. number one, i just wanted to revisit when that rebate program went away and also if you have any insight as to whether something of this

nature or similar may be happening or taking place and available for the public in the future. >> yes, thank you for that question. and if i could, i'll defer to assistant general manager hail because she is also an expert in that area, if i may. >> before she comes up, can you talk a little bit about new customers that -- and what that would do for puc profits? >> yes. i would say what that would do to recover costs, not even profits for the puc. so, for an example -- >> so, we don't make a profit for charging anyone for power or water or anything? >> as a municipal utility, we are barred from making a profit. so, that makes us unique compared to -- >> so, we're subsidizing it now. so, that's my concern is right now based on the rates that we're charging, we're subsidizing our water, our

power, our sewer and that's just bad business. >> we cannot subsidize the cross-water power and sewer. each one of those three has to pay their own share -- >> but they're not. we're, we're asking for general fund revenues. we're subsidizing it with grants. we're looking at bonds and all kinds of other resources to pay for infrastructure needs. and, so, the rates are not covering the costs. >> you, supervisor breed, are correct. in the power enterprise, for the power enterprise work, the general fund rates are not paying for the general fund related costs. >> okay. the general fund related costs, but what about the other power rates that we charge to other customers? >> for example, our customers in hunters point, the shipyard area, the parse away, we are providing them power at about 15% cheaper than pg&e rates. so, we are less costly than

pg&e. in the case of the airport -- >> but we're paying pg&e to distribute that power, correct? >> that's correct. so, we don't have our own distribution lines. we don't have our own transmission lines all the way into the city. we have our own generation units and some transmission, but we have to use pg&e's transmission and distribution lines -- >> what are the future conversations, discussion around how the rates that we set equate to everyone paying their fair share and not -- i mean, i understand, you know, that you believe, based on i guess the data that you have, that the general fund is not necessarily covering its costs. but i'd like to understand that a little bit more -- i want us to go a little bit deeper >> okay. >> -- and look at what people are paying besides general fund support ~ and how the expenses

are for the department and how those clearly don't match up, regardless of what you're charging other entities. because that's an important conversation that needs to be had. i realize that we're not able to generate a profit and recover our costs, but we're not recovering our costs based on the rates. but more importantly, we can't just say, well, the city general fund needs to cover it because we're not paying our fair share, and we don't have any documentation to support who actually is paying their fair share and how do the changes in the amount of money that we pay and say that, okay, we're paying our fair share and everyone is paying their fair share. it's still not going to equal the total amount of expenses that we have for the project. so, i guess i'm just not seeing what you're trying to explain to us because we don't have any

data to really understand exactly what that means and what we need to do because i'm not inclined to just say, here's general fund dollars. we're going to pay our fair share without understanding it completely. >> point well taken. and we will provide that during our budget hearing. the charter requires us to not only do it for one year, but for ten. and the charter also requires us to have an independent rate consultant actually verify and review the numbers. so, those are some of the protections that voters in san francisco put into place in 2002 that holds that sfpuc and the water enterprise, the power enter pry, and the sewer enterprise to a heightened standard of fiscal integrity ~. >> thank you. >> you bet. >> okay. barbara hale can come on up and give us a presentation right now. >> thank you. barbara hale, assistant general manager for power. what i'd like to do is walk us

through and give a little background on the program and where we are today. i have an overhead slide. if sfgov-tv could help us walk through those. [speaker not understood]. we've talked a little bit already about some of these issues, but just to make sure the audience here and viewing electronically are clear, power enterprise is san francisco's power provider. pg&e provides services to many residents and businesses here in san francisco, but power enterprise is a public utilities commission is who provides power services to muni, to fire stations, to police stations, our libraries, our general hospital, you know, those essential city services receive their electricity bill from the san francisco public utilities commission. so, when our cfo was talking about the rates and the funding

and the revenues, those are rates we are charging primarily to city services, city service providers. we're also charging rates to tenants and businesses located on city properties. so, you can see on this slide it's about 2,260 accounts. we have the wonderful benefit of the hetch hetchy hydroelectric system which provides greenhouse gas free electricity to our customer. we're also san francisco's energy efficiency services provider, san francisco's renewable -- rooftop renewable provider. that's where go solar s.f. factors in. and we provide service to san francisco's 40,000 street lights. so, for a part of the city's important public safety feature, street lights and pedestrian lighting, we provide the electricity. we pay all the costs for the operating and maintaining those lights whether we own them or not.

next i just wanted to review quickly the power enterprise's overall priorities. this is a very familiar slide to folk paying attention to our budget. what's unique about it and what's emphasized here on slide 3 is the fact that we're now focusing more on developing new revenues to support our long-term capital requirements and continuing to work to comply with ever changing regulatory requirements. ~ folks there's been quite a bit in the news lately about one aspect of that. you know, the metcalfe substation that pg&e owns and operates was attacked by an individual. the federal energy regulatory commission who has responsibility for overall reliability of the electric grid is responding to that by imposing new regulatory requirements on us. so, we now have additional costs that we hadn't

anticipated to address cyber security concerns on the electric grids. that's just to give you an example of that regulatory -- changing regulatory environment we're working in. shifting focus, then, to the purpose of today's hearing, our go solar s.f. program, we talked a little bit already through supervisor chiu's introduction that this is a program that was established by ordinance. after about 14 hearings, we had an ordinance passed that designated the puc as the program administrator, and it states the objective of providing an appropriation of 2 to $5 million annually. that appropriation comes from the s.f.p.u.c.'s power revenues. so, that appropriation is spending dollars ~ that we have collected from our customers. our overall program objective

is to encourage installation of global power systems in san francisco clearly. what's unique about our incentive program is the fact that it includes this important job component where we're providing jobs to disadvantaged san franciscans. we have a work force development program associated with this incentive -- yes, with this incentive program. most solar programs across the nation do not include that. so, that's the part of the program that's unique to san francisco and that we really want to see continued and replicated across the nation. it also includes the unique bonus, if you will, to low-income households to make sure that solar is not just something for folks who cleared the affordability bar in san francisco, but for folks who are residents here and have a strong interest in having a renewable resource providing their electricity. we have added incentives for those households. and, of course, to support the

local businesses here in san francisco. sort of another variation on one of the slides that supervisor chiu provided. here are the appropriationses over time. before we were experiencing our financial difficulties was at that maximum level, identified in the ~ ordinance the board adopted, that $5 million level. we have seen it drop down to the $3 million level in the 11-12 program year, and down to the 2 million. at that time was when we were asking the general fund to pay more so that we would have sufficient revenues to cover our costs. and then you can see reflective of the supervisor's comments, we did increase the appropriation and brought it back down to what's been in our ten-year capital plan since the

2011-12 time frame, the $2 million level. the program by ordinance is a ten-year program. so, it appears in our ten-year capital plan, funded going forward at that $2 million level until 2018. >> before you move on from this slide, i want to point out one thing which i think you know and i want to mention this to our colleagues. in february of 2013, go solar san francisco had actually run out of its $2 million funding. >> right. >> and essentially the program ground to a halt. ~ and there was a significant, significant advocacy campaign on behalf of the community and this was why later that year mayor lee and the general manager to the puc then increased the funding from 2 to $4 million. and at the same time i know the s.f.puc die creased the individual incentive levels to stretch program dollars to achieve more installations. i point this out because what i'm concerned about is if we go back down to this $2 million

level, we'll just be in that same place we were in a year ago and we'll be back here [speaker not understood] and have this conversation. i'm just not convinced that this $2 million level of funding is sustainable. >> yeah, and for us one of the program challenges that we'd like to be able to work with the community on is how to sustain the funding. a program like this does best when there is stability. with the california solar incentive being closed, the program being closed in northern california, we've seen a drop off in the rebates and incentives available. our program has sustained the portion of the program that pg&e was contributing to is no longer available to our businesses and residents who are pg&e customers. so, we are seeing that. that funding has gone. our funding availability, because of the competing needs we have, is at the $2 million

level. we would love to sit down with folks and talk about what other outside funding sources might be available. in order to not just have funding available for the program years today, but also beyond 2018 because there's no funding available program beyond 2018. >> so, one thing i'd like to say, and if you have ideas on how to increase that funding, love to hear them. i know you've got looks like another 10 slides to go and we have a lot of members of the public whore here to want to speak. so, if you have any specific ideas, but i want to just take a moment to pause and say ~ the point of this hearing really is to think about long-term sustainable funding. ~ who and we've heard the need puc has, but any ideas would be great. >> okay. let me flip through past a few of these. this is information that's already been provided. i will point out for those who are interested on slide 8, we go a little bit deeper into the

current fiscal year appropriations. and you can see on slides 9 and 10 how those appropriations break out among the different program components. it was last spring, supervisor tang, that the california solar initiative funds became unavailable. you had posed that question earlier. and that really does affect our, our, our residents and businesses. ~ participating. i did want to spend a moment on slide 11 because that shares with you how the work force numbers break out within san francisco by zip code. we've talked about the 121 disadvantaged san franciscans who have been employed through this program since its

inception. and you can see how -- how that breaks out within san francisco zip code areas. the data on the right has the zip codes ordered by highest number of disadvantaged san franciscans employed from that -- from that zip code. >> if i could just comment on that. it seems this is exactly the type of work force development impact we want to see. >> absolutely. >> in neighborhoods that have significant need for folks -- for jobs and particularly [speaker not understood] collar job. >> yes, and not just through 2018, but beyond. completely agree with you. and then looking at slide 12, program changes, we talked about the fact that csi was available to us. we piggybacked on the csi program for applications, for inspections of systems. with the csi program gone, we

are now -- we went through a crush of work at the early part of this fiscal year to implement an online application system. at that time we were clearing the queue. we had a backlog of applications and with the additional funding that we talked about being placed on the program, we were able to clear that backlog in the early part of this fiscal year and then open the program for more applications through this new electronic process in november. we did,s as supervisor chiu mentioned, reduce the incentive level at that time largely because ~ studies were showing nationally the cost of [speaker not understood] are down, which is great. we want to make sure we have this incentive level dialed down at an amount that gets the biggest bang for the buck and is it over rich. we think we're there for most program elements. we may have dialed it back a little too much on the local -- excuse me, on the low-income

customer component. and, so, we're taking a look at that as program administrators at that. and then a quick shot of the tiered structure of the program. this what another one of the changes that we implemented in 13-14 to make sure that we were not over inventing small systems within the statutory discretion we had ~ we went ahead and tiered the incentive structure based on the size of the systems. and then for areas of improvement, we -- flipping through to slide 15, you know, really want to make sure that we are improving access of the program benefit to not just to the pg&e customers who reside and work in san francisco, but also to the customers of the power enterprise. so