water and power because the system is very efficient system. it contributes significantly to san francisco. for example, contribute $678 million in transfers to the general fund between 1998 and 2001 and also contribute $151 million in funding to street lights, both solar energy, efficncy and city owned renewables over the last ten years. they've provided low cost energy to city father mily and as you know, we are providing low cost to the general fund departments like general hospital, call street lights, mta, unified school district and community college for the last 15 years.

we had to increase the general fund customer's rate by half a penny each year for four years. we also did some severe cuts and deferral capital projects. we were able to cut $224 million, about 30 percent of our capital plan to a chieve a balanced budget. these are two things we were able to continue to provide $50 million of savings to the general departments and others. this is a slide that talks

about what the cuts were and here, $224 million in cuts and deferrals looks like . so you can see we had to cut energy efficiency and also city renewables as well to achieve a balanced budget. we figured out how to balance it two years ago, but the structural challenge remains and so we have some additional challenges these next two years, in the next two year budget. we have new capital and operation needs that have been identified. the one i talked about is mount tunnel rehab, which is $519 million increase of what we had in our prior capital plan. we also have an additional pge transmission and distribution and street lights. we have additional costs associated to regulatory compliance that comes to about

$32 million increase. and on top of these we are seeing a decrease in supply power sales which represents about $13 million in lost revenue because of the draught. we are faced with tough choices -- >> supervisor wiener has a question. >> i just have a few questions related to the power enterprise. >> yes. >> i know i've heard you refer to this before as a fiscal cliff or something like that. i just think it's important for the public to understand that this is a really -- from everything i know, and i think you're saying it in a fairly understated way today that this is a pretty dire situation for the poc's power enterprise and this is 100 percent

hydroelectric clean power. is the power enterprise as currently structured, is it viable for the long run? >> well, i think it is. and i think the main thing that we are working with in the department, the mayor's office and hopefully the board of supervisors is that this has been an asset to san francisco for over 100 years and so right now the city departments are paying a low cost of power, 65 percent below the cost that if pge provided the power, which we said is about $50 million a year. and we are supporting programs like history lights, go solar, energy efficiency and programs like that, and so we are saying -- and we have all this major infrastructure because it is over 100 years. we need to reinvest in the

infrastructure. so what we've been trying to do is balance how we get there and so, you know, our goal later on to talk about some of the things that we could do to bring it into balance. >> it just seems to me that, yes, you can charge, you know, muni more for its power, which means, you know, presumably a reduction in service because muni has a limited pot of money. we could transfer street lights into the general fund and we could put somehow maybe or probably not figure out a way to pay for it and we would continue to see a deterioration, but it seems like all the things you're suggesting are a little bit kicking the can down the road because ultimately we're all one city and it's a zero sum game in terms of one department paying for something or the general fund or not. it's all city money. to me, it seems like the actual

structural way to resolve this is if for the power er enterprise to have more customers. right now your customer base is very limited. you really struggle to add new customers because there's been a lot of political pressure not to add new customers, you know, ccs, we passed -- cca with votes at this board and that's been bottled up, but it seems to me that you should have more customers. do you have a sense of -- in terms of how -- if you were able to sell more of your power to customers, how much power you would need to sell to still bring in enough revenue to stabilize this situation. >> so we are actually working through different scenarios and you're absolutely right that if we have more customers, but it

really depends on the type of customers. if we have more general fund department customers, which we're sub sidizing -- >> i mean i'm talking about non governmental customers. >> when you talk about non -- or commercial rate customers that will help us tremendously so we're talking about trying to achieve 100 megawatts so we are working with power enter vise is working on pursuing opportunities with developers and, you know, working and looking at people that are presently on our city land, our city departments that are on private property. we're just looking at nose opportunities to bring those folks and supply our power to. >> thank you.

if i could ask one more thing specifically to the street lights. i know we've struggled at keeping them up. i believe they've spending about $250,000 a year to maintain about 25,000 street lights. and i know we had a little mishap a few months ago and ultimately agreed with the mayor's office to a commitment of increasing that to $5 million next year and then $4 million the following and that is a dramatic improvement, but still in the big scheme of thing it's rather small. i know that's part of that negotiation we also agreed that the mayor's office and capital planning folks would come up with a global calculation of

what all the capital needs are of our street light system so that can feed into the capital plan so we can stop ignoring our street lights. where are we in that analysis. it should be done soon, i think. >> i think the first thing we're doing is that we are hiring a consultant that -- you know when the consultant will be on board?

>> what's the timing looking like in terms of come pleting whatever this is going to be in terms of getting our heads around the total capital needs of our street right system. you were going to finish your assessment within a few months, but what happens after that? >> i don't have that answer, but that's an item we can report back on may 21 for plans. >> and the timetable for when we're going to have that answer. >> we need to amend that into the capital plan. >> great. >> thank you. >> so working with the mayor's office to identify strategies where we can bring our finance in the balance in the next two

years, we're looking at hechi in the long term and so some of the hard which choices we're making on multiple fropts, fronts so here's some things you'll see in the mayor's budget. the first thing the mayor has made a commitment, instead of increasing the general fund rate by half a cent, he's raising it a penny. it's a penny over each year for the next two years. he also agreed to fund the natural gas and steam costs and then also we will be able to debt finance andish issue our first revenue bond which will help our cash flow. then we've also made additional $40 million of capital cuts and deferrals for the next two years, but just want to let you

know that we've already put $224 million in deferral, we put in another 40 million and it just minimized, you know -- or actually it increases a risk based on operation. so -- and then also one of the things we had to do is we had to reprogram the cca reserves for the capital needs, such as generators that we needed, exciters for our power generation, go solar, street slights and all our facilities because the fact is we would have to borrow money at 6 percent. >> can i pause you right there? you mentioned you had to do. these are the reserves the board of supervisors had set up and you should be coming back to the board of supervisors to ask for that and i'm actually kind of surprised to be hearing about it here when there's plenty of time to talk about it

earlier, including our last meeting where barbara hill from your power department came and presented to us. what's your response? >> this is -- in talking with the mayor's office, this is the proposed -- >> the board clean power sf. >> well, it is the mayor's budget that he's presenting to you that you'll have time to comment on. >> okay. we'll have plenty of time to talk about it, but i'm not likely to approve a budget for public utility commission that has swiped our reserve for a clean power, community choice aggregation program. we can talk about -- i know that the entire reserve of 19.5 million might not go towards the clean power program or cca, but there are other parts of it, but it might be good to come with us with a different

scenarios for how that money can be appropriated and not talken, but to actually come here to committee and say we're going to reprogram cca dollars when there have been eight votes on the board of supervisors, maybe more, who have set up this reserve for clean power, it's actually kind of offensive. >> first of all, i definitely apologize, but we're working with the mayor's office. we ran over 100 different scenarios of how we can bring our power enterprise into balance, so this is something in the last day or so we talked about and i would like to -- you know, i'm hear to here to give you what's in his budget that he plans to submit tomorrow. >> just based on the responses that we received in our questions about the mayor's support or lack of support for

clean power sf, i don't really have a lot of faith in the answers i'm going to get. i e don't believe there was any real deep thinking or analysis. it was all just political arguments that we received and you can tell me a lot of things and it'll be an argument that i'm going -- again, unless you can give me something really detailed about why you cannot keep a reserve for a priority that the board of supervisors had sat and worked on for over 12 years. >> we can definitely work with you and talk to you more about it. i understand what the board feels about that money that we put in reserve when considering it, one one of the considerations i'll put out that, when you have money in reserve, it is collecting interest at half a percent and

we're borrowing money for 6 percent and so we should have a conversation. maybe there's a way when it goes that we make the money available, but sitting there collecting no interest when we are borrowing money at 6 percent, that was one of the bases behind it, but willing to work with you to talk about ways that if something happens, how do we execute and get that money. >> i know you said you talked about it for the first time i a couple days ago. i've been contemplating that this was going to happen for months now. i'm sure you've been con tell mating e contemplating about this for months now as well and there hasn't been that discussion. please come back with different scenarios about how much you'd like to take and what you'd do with the funds, how they'll be spread around. >> will do. so the only thick i thing i want to point out is that we actually presented fully

funding or leading the cca in place. we had dlsh $5 million in street lights, $2 million in go so solar and we had a cliff. and we're looking to work with the mayor's office to increase the general fund and so that happened in that discussion, but i hear what you are saying and we will work with you to come back with a more detailed plan. >> mr. kelly, i know you're usually really good and your staff are really good at giving us heads up on lots of issues as they come forward, but i feel totally blind sided by this one. i know as supervisor breed, avalos and i were sitting in the meeting last week, there were so many opportunities to raise what was coming down the road on this and i sure would like to look at and con

consider would lead to more of a clean energy future for our communities, but this is upsetting to me as well. i'm looking forward to hearing the alternatives. >> dually noted. beyond the two year budget, there still is a problem that we're facing with the power enterprise and so we will be working with all of you, not only on the cca as it relates to the power or go solar or energy efficiency, but there is a great need of hooking looking at bringing more customers as supervisor wean iener talked about, get more full paying customers and also

we need the ability to be able to debt finance some of our projects and also we need to do more in looking at asset management so we can look and be smart about deferring and cutting canal ting capital projects. one of the key factors is we are currently in negotiations with a new agreement with pge. we have an interconnection agreement that expires in 2015 and if we are able to continue a deal, we would minimize the impact to the power enterprise and also we are in the process of reevaluating mountain tunnel, so we are trying all the things we can do so that we will have a power enterprise that is financially in balance. that's one of our biggest

challenges that we have before us. >> mr. kelly, can i ask another question about -- i think it's a slide that went back to the cuts and deferrals and it says that -- i think it's 30 million cuts to go solar, but i'm reading a recent posting from the mayor's office that he announced full funding for go solar sf in celebrating the installation of the new solar array at davie symphony hall, but i'm wondering if you can talk more about go solar and how the full funding is going to happen. >> one of the things in the mayor's budget is that he, by looking at the increase of the general fund money, also looking at the cca and so we had to invest in our capital projects, we had to look at

street lights, we had to look at solar, which he wanted at fully funded and so we use all those resources to actually fund go solar and also, the street lights and capital -- essential capital programs, but based on the conversations that we had today, i think we will work more closely with you to sew see what that hooks looks like. i want to thank you for your time today. i do apologize for the sudden shock of cca, but we've been work wg the mayor's office again and we had many scenarios we were running and so i felt i

had to come today and let you know what the final plan was. >> okay. supervisor breed. >> so the -- so you don't necessarily have any alternative proposals, other than to reprogram the cca reserves? >> well, the board has passed a resolution to look at joining marin and so -- and in order to do that we would have to fund a feasibility study, which we will need money to actually do that with some con tib tingency just in case we decide to join marin. >> we approve your budget though so if you're saying we leave money it's, like, we would leave the money. >> well, semantics, you know, so yes, you are an approval body, this is the mayor's

budget, it is our department that has the money so everyone has involvement in it. and so what i was sharing with you was highlight of what the mayor's going to present in his budget tomorrow. >> so the mayor's going to present reprogramming some of the reserves that we, as a board have put on reserve. >> that is correct as i understand it. >> so two things have happened since you received the cca appropriation. the first thing is that we will be confronted with having to issue the first power revenue bonds since we built the system. also the world changing so far as richmond, our neighbors across the bay were able to get a deal with marin clean energy because of the experience they had. that was a no money down, no

reserve requirement except for a feasibility and customer assessment. so the energy markets have gotten more comfortable with ccas and so i know you're considering before this body and the budget analyst is reviewing fiscal impact right now of a direction by your body to have us do that consideration of feasibility work with a partnering with marin. if that were the case, we would do our best efforts to try to get as good of terms if the cca partnership with marin were similar to that of richmond. that didn't require the money down and so -- >> and i do appreciate that, but i just don't think that a conversation about the cca reserves should be happening within the context of the overall budget. i think that should be a separate conversation. if there's a desire to reprogram cca funds that should be brought to us separately and

not within the context of the budget. i wouldn't be supportive of this budget that reallocated cca money and i want to make sure you understand that and i would prefer that conversation be completely separate. until we have something on the table to support cca and some clarity around what we're going to need to spend, i'm just not on the same page as what p ec and the mayor thinks on this particular issue and i want to make sure you know that. thank you. >> any further questions? supervisor avalos. >> just wondering if there were any other options available from taking funds from cc a a reserve? >> the other option is a larger rate increase for the general fund. or more cuts, potentially lay offs in the event they kind of

big if picture for a moment, in water and sewer we have rates and charges that cover costs. for our third enterprise power, we don't have that same issue. in fact, our key customers, and luckily we've been able to do this historically -- our key customers, the general hospital, street lights that benefit everybody, those costs are not being fully paid and so that's what's happening and so going back to supervisor wiener, is this a sustainable operation? yes, you bet it is, if we have rates that cover costs and in fact, it's an amazing system that has really served san francisco well, but with this one enterprise of our three, we have to make those choices because rates currently don't cover costs. >> and what is that -- how does

that impact our budget elsewhere? >> it's pretty significant so for every penny, that's revenue generated for about 0.3 hours per kilowatt hour. that's assumed one penny of additional one penny next year, but that's not even enough to cover costs we incur now. to the degree, you know, and additional penny were offered as an alternative, that would be an worth an additional $3.4 million to the pec. that means the budgets you see at the general hospital and the mta and other general fund departments, including street light costs, would go up on your general fund, part of the budget. >> what pobltd is there possibility is there to

renegotiate the 55 /45 split between power and water for the tunnel? >> one of the things we are actually -- we've done some research and we are seeing the -- sort of the -- what was behind that split. you're talking about that in our water and power, we have facilities that are joined -- they convey water, but also generate power, and 55 percent of that asset is funded by our power enterprise and 45 is of water. and mountain tunnel, which is $519 million in need of infrastructure repairs and 55 percent is power, and so the question is that we need to -- >> if we program can we renegotiate the different splits, because clearly the

volume that comes out of the tunnel is greater volume even by dollar is for water, not for power. so it seems like power's covering greater part of -- >> that's something we're going to talk to our customers, but as we bring it up, they mention that we want to talk about all the facilities then because they feel that maybe some of the facilities should be all power and not water, so they want to bring it all on the table at that time, so we've had conversations and we're doing some research about, you know, all the facilities and what that impact will be. >> so as a question i have is related to how we can cover the costs, the feasibility sfud di study for marin energy because we have cca funds in las koe, i believe. it doesn't necessarily have to come from the reserve.

it's not even a lot of money either. >> yeah, it's not. >> okay, thanks. >> anybody else, any other questions right now, comments? okay, thak thank you for being here. at this time we'll open this item up to public comment. if anyone wishes to comment on item number one. walter, thank you for being here. >> good to be here. [singing]