>> good afternoon. i'm chief financial officer. the second year the budget cycle is closed the commission has the ability to make some adjustments for priorities that it deems critical in nature. today i'll provide this to you and when we were last before you with this topic the annual budgets are here before you for reference. at this time if there are no changes, no action is required on your part during the mid-cycle budget process unless you choose to. between year 1

and 2 the adopted budget remained relatively flat. the the 2-year budget was approved in accordance with the commission and quality of services and planning for the future and commitment and personnel. >> they are further clarified through key policy initiatives of the commission. the matrix here highlights next years approved budget of 988.8 million

. again, no action is required by the commission if there are no changes to the budget, however, those adjustments can be made to account for any key policy changes that you feel are important or new emerging priorities. this is a list of considerations that you may find helpful. these areas are other policies within our department. . charles pearl, our deputy chief financial officer is joining us today. >> thanks. good afternoon

commissioners and again we thought we'd pause here in talking about your priorities for next year just to take a brief look at how the current year is going. again, we're talking about next fiscal year fiscal 16, the second year of our 2-year budget cycle and the slide before this you have 2 considerations that you felt were important related to the finances and that being affordability and revenue generation and sufficiency so we thought it would be helpful today to share with you a preview of the q 2 update which we'll give you at your next meeting in february and this is preparing for next years budget. the good news is that our customers actually have responded to requests to voluntarily cut back on water use but means we need to manage

around the revenue variances this creates and you see this in more detail when we come back and give you the q 2 sales information at your next meeting but this chart here gives you a preview of that and in in particular i'd like to bring your attention to to what's circled. a current year variance of approximately 41 $41 million in the can you $41 million in the current year and wastewater at 23 at $23 million. we have approximately 8 $8 million to cover part of this shortfall and on the right side of this chart you will see we have sufficient fund balance to balance things out which is a good thing but over the near term as you recall you have approved retail rate changes for the water and wastewater

enterprise for the next 4 years through fiscal 18 and we project those will be sufficient for our needs even at this lower reduced consumption levels if things hold as we currently project them. also a reminder that i want to point out in this 41 $41 million for the water enterprise about 25 million of that is related to our wholesale customers and we do reset those rates each year and we'll recover that portion that we'll bring to you in may of this year so we have lots of things in the tool belt we're working on and will share that with you and talk of things in a broader sense but i wanted to share with you a little bit of how the current year is looking as this has come up over the last few meetings and with that

i'm happy to take any questions and pass the rest of the presentation back to miss hong. >> thank you charles. as we begin our preparations for the next 2 years budget cycle we highlight one commission policy a month and provide further knowledge of how our organization monitor monitor and measures for each of the policies. before we schedule these discussions we'd like to ask the commission whether these are the correct policy topics for discussion and if yes, what delivery format would you like to present this information to you? and it

could be in the form of regular progress reports or any format you would want. >> thank you for putting that together. part of the impet u.s. for this came from discussions we had a while back and one thing you can do is see how you are doing and really spend more time about where you are trying to go and whether you are getting there or not than worrying about balancing the budget in 1 year and we have a series of policies that this commission has adopted the presumption is that will become the work of the general manager and staff so part of the reason for going through this is to say okay let's go through those policies

one at a time see how we're doing and if we're not doing some elements of that is that because we've changed our mind or is there an obstruction of some kind that we need more money for or haven't got around to it yet so have that kind of discussion and out of that have that informed general manager and staff as they put together the budget for the following 2 years so this is responsive to that and i very much appreciate you putting it together. one question i had, the may event, what do you anticipate there? that's not the name of a policy that i recognize so i'm not sure what you had in mind there. >> . >> that could be in the form of the budging process we can talk about how the budgets are put together at that time we might want to very visit the mission of the commission here and

whether there may be some changes that you may see coming up while you are beginning the new fiscal year you may look forward and say what's coming around the corner and you will probably hear some of them in the next meeting as charles had mentioned so those are things you might want to talk about and how would we measure against that performance and that that might be a time to go over the existing process and also thinking about what you might want to incorporate and planning begins in october or november. >> actually, i think this year is really challenging because in a 2-year budget the off year is the year you kind of see what you are doing as you mentioned before but this year we haven't sold as much water because people are conserving actually more than we anticipated so with the 41 the $41 million shortfall we have

to relook at you know what we're doing and the other thing that we are probably going to spend a lot of time talking to the commission about is that when you look outside, there are a lot of construction going on a lot of hook ups to our sewer and water system and one of the things i'm concerned about a lot of developers are looking at us because our time of hooking these water, their water up, it's actually because of limited resources, it's taking us longer and so that's some that's some of the things that we want to talk about and the other thing the watershed assessment there's no funding for that but with all these new developments in, they are required to to do that so we just need to really talk about, you know, not only the policies but some some of the practices that are actually going on so the commission can see what the challenges are because what we may end up doing is asking for

more resources especially the areas where we cover the funding like the hook ups to water we actually charge the newcomers for the hook ups so to have those discussions as we formulate what the need is to address those issues. >> one of the things that i've been thinking about lately is how to deal with the deficiencies people have when people do the right thing and conserve more which is a great thing for the resource but gives us some financial problems part of that is the right setting problem and we're taking a look at the rate structures i'd like to take an aggressive look at rate structures and talked a little bit at the last meeting trying to change the paradigm the more you buy the more you pay and

changing it to something like we'll give you all the water you need and at the same time we'll you will conserve more than you think you do and i think there's some things we can do there the industry talked about water budgets. they are intr u.s. ive and hard to implement but can be done on an opt in basis so for people where per gallon charge doesn't make sense you can have a fixed cost for everything within that budget and if you go over that then there's a per gallon charge but there's things we can look at that are very different from the the way we set rates today but the reality that we want people to use less and less water and to resolve the policy conflicts there. i don't know whether

it's within this structure or some other discussions, but i would like us to address that, you know, it's not going to hit rates this year but the following year we should be thinking about that. >> and actually that's a great topic because not only on our water side, it also impacts the wastewater side and so what we've been looking at and we started look at, is if you look at our wastewater what really impacts our wastewater is storm water because our systems are sized for storm water so property that has the most storm water may not have a bathroom attached to it or may not even be our customers so i think we're really interested in looking at the rate structure not only on the water side but the wastewater side and i've been talking to a lot

of general managers from other agencies out there and they are faced with the same dilemma and one of the things they are talking about are fixed costs and you can identify what your fixed cost is and you have some other costs associated which can tie into conservation or something something like that so your comments i think are well received and that's something we'd like to engage in in because once we do the investigation and do the outreach, it's going to be, you know, a couple of years before we implement anything. >> chances are it would look quite a bit different than the current rate. >> oh yes. >> and that will have a lot of people interested. >> yes. >> but i think and one thing i encourage people -- there has been kind of the accepted wisdom in the water industry is you have to have per gallon

charges as a best management practice there's considerable discussion about the short comings of that kind of policy and other forms of rate structures that can have actually greater incentive for conservation that don't look like that at all so i would just encourage the staff as you look at that to not let that be a barrier. one scheme that could fit in there is you know that when you conserve water you are going to sell less and make less money so there's going to be a revenue shortfall so as as soon as you approve a conservation program whether you do anything about it or not, you know you are going to have to raise rates and at the last meeting we showed over the the last decade in order to keep revenues the same we had to increase rates 25 percent just

to continue to meet the pay roll and one way you could fund that is with a conservation charge so if you want to reduce consumption by 10 percent, you put a charge on that would compensate for the 10 percent and the first year you are not going to make that you will have extra money and can spend that on conservation money so spare money. by that time then you have the revenues covered that you are going to miss otherwise so i think there's a variety of techniques like that that we can get creative and come up with some very different approaches that actually provide much more of a conservation incentive than we have today. water bills are so small probably for most people you know 10 percent of the water rate doesn't really make much difference and for some people it means a whole lot but

it's an imperfect price signal. >> i wanted to also note the rates policy is scheduled for november of 2015 so they can move some of these policies up or down the calendar feel free to let us know and we can make those adjustments as well. >> i guess the question would be there's a bunch of thinking that needs to take place and i'd leave it to you to figure out when we're going to be ready to have that discussion. >> lastly just one last slide to highlight the budget schedule for the city. the budget timeline is highlighted here for the city and we'll be before you again for mid-cycle proposals or any changes. one added note is any changes for

the department on a on a 2-year budget cycle any changes to revenues or expense will require a reopening of the puc budget which means we'll have to go before the board of supervisors for approval so that's just a note. >> am i am i hearing correctly that staff is not proposing any changes? >> i think we may look into doing a supplemental if we can address the issue that we're facing not having enough staff meeting the development needs and developers hooking up because it's self funding so we're trying to figure out can we live within our means but i do feel it's unacceptable if

we're able to do it in 6 weeks which i still think is a long time now it's 3 or 4 months and that has a major impact and that's something that we'll come back with that and we may ask for a supplemental. >> okay. did we decide how are you going to present this? will it be different ways? >> we can come here before the commission and do a brief presentation about the individual policy itself it would be the manager who manages and we could highlight the policy. what are the what are some some of the goals and objectives of the team that's

responsible for the policy and how do they monitor performance? a lot of the policies are sometimes audited and they come by annually and look at anywhere at and addressing some some of the concerns in terms of managing technology social security or whatever industry updates there are in terms of priorities. >> do you like that format? >> i think that's a good format and for the details, it is kind of tricky some some of the policies make it really easy they say we're going to do these five things and you can look at those things and say are we doing them or not and

other policies are very aspirational and that's going to be to be a little tougher to wrestle to the ground and if we approach it from the standpoint that the policy is the policy and how are we doing and you know, do we need more or less money for this and i think that will meet a lot of the objectives that i have coming into it and i expect that in the process we'll find some policies are easier to think about than others and we may decide to change them at some point and i would hope that we don't get into a detailed discussion about changing the policies during this but we may put them on a list you know that these are things you know aside from whatever budgets they impact we may need to revisit policies in these areas. >> there are policies we're currently working on ways to to measure performance for example community benefits

currently working and developing an actual bench marking framework looking at key objectives and that's in the planning and development at this time but you know, a year from now we'll be in phase 2 so there may be some information we can report at that time possibly an update on what we're doing to begin monitoring and reporting our staff performance. >> and some some of the policy is how we do things versus how much we're doing and so like for the community benefit i mean the answer i would say how much we spend on community benefit i'd say a billion dollars because everything we do benefits the community we're just doing it in a way in which it benefits the community you know to the maximum so so and then a lot of the policy is, you know, across the whole

organization and so i think each one we will probably have to figure out what's the best way to explain how what we're doing, how far we are in reaching that aspirational goal, and just like, you know, for example, the watershed one, you know, we would like to do more but we just don't have enough resources and so we had to prioritize how much effort we're putting towards that so we'll come and talk about each one and how we're doing and if the desire is to do more then we need to think about how to maybe ask maybe not this budget cycle, but the next one, we need to think about savings that we're doing in one area we need to reprioritize it or we need to bite the bullet and look at you know, what we can do. >> and you mentioned the community benefits policy we had at the last meeting a lot

of time on community benefits and economic justice which served one set of purposes and this is different. and i think on some of those aspirational ones the challenge will be how do you sort through that so that that you can get to the bottom line fairly quickly so but that i will leave to your best judgment. >> thank you. >> so we're just going to have to deal with it as it comes. >> as it comes. i think that's right. >> thank you very much. >> all right. that concludes my report. >> are there any public comments on the general manager's report? next item, please. >> item 7 is the facilities project update.

>> good afternoon members of the commission emilio, cru z. this is only an informational presentation with no actions required. as a refresher, we came during the summer time to present to you where the project was going and talked about a technology that exists in europe called thermo hydrolysis and we're in fact recommending moving in that direction and analyze the unit process and came up with

preliminary costs related to the over all biosolids project and looked at all of the technological issue and see social impacts noise odor job creation and truck trafficking and when we went through all of the analysis we came up with the recommendation and the actual process for how the train will work and finally on the exact site location that we're recommending as we launch into the environmental phase. again, we got into a lot of detail and stopped, took a step back and compared this against all of the levels of service that you, as a commission has approved. the process itself where it differs the most is that we'll be adding a pretreatment to the to the digestion process

introduces high temperature and high pressure and sterile ize the sludge that allows us and gives more flexibility in the market and secondarily reduces the volume of biosolids by about 10 percent because of the additional consumption that happens during digestion and looked at the over all plan looked at alternatives. we did 3 dimensional mock-ups to understand how the plant would operate and came up with a preferred layout. in defining that preferred layout we looked at maintenance and operational costs and flexibility and looked at environmental issues and what else we need to introduce to the plant in

order to keep up with the regulations and at the social components, how can we make the plant a better friend and a better neighbor. so adjacent to fell street and residential units and a plan is to acquire the 2 parcels that are is shown adjacent to the cal train one is an triangleal and one an odd shape. we are moving along towards acquisition of that and are far along in that acquisition and we've been in negotiations with central shop and see identified a location to a to move them to in the city of brisbane and we've met

with both the city admin state of the city administrators office and they are in line with that project moving forward so the plan is to move the train adjacent to the train terms and to the train tracks. it moves the newest construction which is currently not used for operations because we have to stay 100 percent 100 percent in compliance during this construction project. secondly it moves it further away from the residents that we possibly can in the land we own and in the land that we're looking at acquiring. when we made the presentation they were very happy to see this location because one of the recommendations that came out of the biosolids task force -- at that time the puc did not commit at that time we are in fact now moving forward to move

them as far from the residential component as possible. >> i have a question -- on the existing layout, where would the new digesters be? >> they are the yellow circles so as you can see we currently have 9 digesters in operation we'd be going to more efficient digesters and we believe we can get down to 6 from the 9 that we have today. another interesting interesting component, we did look at 4 detailed alternatives in layout and 3 of them were paired alternatives and one of one of the analysis is that that you can stuck with pairs and we do believe we can get down from 6 digesters down to to 5 and so going with the linear layout gives us that f