consumption of the services i think i'm going to need if i go through this yeah, i'm very >> good afternoon everyone. i am joined by supervisor avalos, breed, wiener. i want to thank the members of

sfgtv. do we have any announcements? >> yes mr. chair, submitted to the clerk. items after the date will appear on the may 6, 2014 board of supervisors agenda unless otherwise stated. >> thank you. can you call item number one please? >> item number one, hearing to receive update on the budget for fiscal years 2014, '15 and fiscal year 2015, '16. this is >> this is a first of two herings we have today. i want to thank you for being here and all the [inaudible] thank you for being here. you can take it away. >> thank you. good afternoon chair farrell and supervisor avalos, breed and wiener. my name is har long kelly and

i'm the general manager of the san francisco public utilities commission. this is my first two year budget and i am posing as a general manager so supervisor farrell asked for me to give a brief high level presentation today and then on may 21 we will go a deeper presentation on our two year budget proposal. today's presentation is organized in the following ing manner. first i'd like to give a p bird's eye view of our bud jed and a year ago at this committee and also give you updates on our capital programs, rate sending process, the ring fire and the draught response. finally i will close with the big picture of key updates and

challenges that are in our bud get. so the p and c is guided by three core principles and priorities. one, to provide high quality services of water power and sewer, maybe tan critical enfra structure to ensure our assets are in a state of good repair. we are constantly working to balance these priorities. so how are we moving forward on these core priorities. as far as water enterprise, we are over 80 percent complete with our water system rebuild and we're on track to replace 15 miles of water mane every

year. with the power enterprise we are focusing on our ageing assets. my priority is investing in our street lights to promote public safety. as far as a waste water enterprise we are on track to replace 145 place 15 miles of sewer every year and rebuild. the key is to rebuild the southeast treatment plant. there are a number of ways that we are working to preserve rate pair affordability while making capital improvements. we will see these reflected in our current two year budget, as well as up coming proposed for the next two years. first we have nearly a flat staffing so we minimize the increase of staff. we also -- we proposing a relatively flat operating

budget with just the costs of inflation adjustments. our finance team has also been successful and lacking in some of the lowest bond financing costs since the 1960's. . finally we are consistently considering how the time and phase our projects so we can make these improvements in a way that has the least impact to our rate payers. and i will talk more about in more depth of how this translates to the rates. it's about a 7 to $10 increase in the monthly bill for the proposed rate increases that our commission is considering. here's a snapshot of our budget. the main take away here is that we're up about $140 million and the question is what is that?

the break down that we show here is that the major investment is really driven by critical capital investments, whether we're investing in projects or paying the debt on these projects once we built them. the big picture or reason for this proposed budget increase is related to our capital needs. there are additional elect ricity costs that we will incur. these are based on the transmission and distribution costs that we are paying pg ande and we also will see our personnel and operating costs increasing ing rough ly by 2 percent, which is roughly about the cost of inflation. now i wanted to give a brief review, some updates from the pnc since the last time i made my budget recommendation. this includes our rate setting

process, as well as the fire and draught. thankfully there's no locusts yet, but the year's not over. april marks the ten year an niversary of the first project in the water system improvement program going into construction. we are now about 80 percent complete with the program. we had a wonderful ceremony monday at [inaudible] reservoir with supervisor yee. i'd like to thank the board of supervisors. you also see some of the key numbers related to the water system rebuild. we are very proud of this program and how it's progressing. we have critical projects that are still underway, including [inaudible] dam, and the bay tunnel.

we project that this program will be completed by 2019. on the sewer side -- san francisco is really fortunate to have a sewer system that's been serving the city for over 100 years, but the system is old, is ageing and is in need of an upgrade. in august 2012 our commission acknowledged the need to invest nearly $7 million to ib invest in our sewer system to bring it to a state of good repair. 2 billion of this is invested in the out east treatment plant for the digesters who receive 80 percent of the city waste. a key update since i presented to the commission last year is that we are move ing forward

with the plan of the tie jesters. digesters. another big priority over the he past year is we've gone through the rate setting process. it goes for both water and waste water because customers receive a combined bill. this has been a yearlong process. the charter requires we do an independent rate study. our staff has been developing a four year rate proposal that was considered by our commission last week. i'm extremely proud of the work of our external fair and finance bureau and finance

team jointly presented over 100 committee meeting, civic groups, participating in many events and reached approximately 10,000 people. all our materials were developed in multiple languages. in fact, 20 percent of our presentations were done in spanish, cantonese and mandarin. in addition to our in depth outreach and education effort, we also set over 200,000 prop 218 notices, which are legally required, summarized what the rate proposal will be. we received about less than 100 protest letters . take away from all the outreach, is that customers need further rate increase to implement or rate infrastructure, but no one likes the rate increase.

so the question is, what does the rate proposal look like? it's a four year span. the average annual increase is 7 to $10 a month on the average single father mily household bill and what it supports is our 7 day, 24 hour maintenance for replacement of water manes and sewer pipes each year. and also the planning and early implementation of the sewer system improvement program. the rate fairness board was very involved. that had about ten meetings on the rate setting package. they determined the rate proposal is fair and concur with the staff recommendation.

>> just regarding the sewer replacement and now that it's underway, i'm sure those of us that are here all the time -- can you tell us the rate we're doing it today, how that's going and also what we fra digsly traditionally did versus what we're doing now on our streets. >> what we were doing before -- years ago we had a rate freeze on the sewer side and now as it's ageing we're trying to catch up. the life of a sewer is about 100 years and the sewer is 100 years old. we're experiencing more sewer main brakes and water main brakes so we are in the process of -- doing asset management to determine a replacement program. in order to bring our pipes in a state of good repair, we

reupped it from 7 miles to 15 miles per year so we're trying to prioritize and hit each community to really make an impact. >> where are we kind of on pace to be doing that? >> yes. but as you know, it's very challenging with all the other work is being done in the street and it's been really a task to actually participate in coordination, but i think we're trying to do a better job of doing that. i think one of the things we need to work on is new services because, you know, can't really anticipate in advance when someone wants to do service. >> supervisor mar? >> i wanted to ask mr. kelly if you can go back to slide 16 on the rate package. i know you've brought outreach explaining the rate increases,

but it says an annual rate increase -- $7 to $10 per bill for an average single father and mily, so that's about $100 to 120 $120 per year. what's an average bill? >> so it's going up a little bit less than 10 percent. sgh >> it's about 8 percent. thank you. >> i would like to then talk about the rim fire. the rim fire began on august 17 and it was contained on august 24. the burn area is about eight times the size of san francisco and affected both our water and power operations. the recovery effort is

progressing well and i want to give a special thanks for supervisor avalos and breed who went to visit the site after the fire and i just want to let you know it meant a lot to the staff to see you guys out there to see what happened first hand. >> we get our hands dirty. >> but not burnt. >> our feet actually. >> so moving from the fire to the draught, i just want to also thank the board for supporting as we have responded to the draught, supervisor breed held a hearing that sponsored two resolutions calling for the state and federal funding for san francisco. how have we been responding. well, on january 31, 2014 we officially asked customers to voluntarily reduce their water consumption by o 10 percent. san francisco has responded

positively and stepped up and met this goal that we've asked them to achieve. the mayor released executive order on february 10 directing all city departments to reduce their consumption by 10 percent and we've been partnering with the city departments to work towards that goal. we also have identified a project in our water system, which is lower cherry aqueduct. this is a con tingency plan that will bring drinking water into our system as needed. finally over the summer we will be looking very closely at our supply and our customer's consumption to determine if more stringent water conservation steps are necessary. let's talk about the key issues in our bud yet.

budget. at the may 21 hearing we have provided you in depth presentation, but today i'd like to provide you a summary of the challenges we are facing. water and power has been a real asset to san francisco. for nearly 100 years we've been providing clean affordable 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, efficiency 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