the power does the water wholesale customers can't pay for it so that is the challenge that we are bringing up. >> okay. >> how do we determine the 55 45. >> well, i wonder who was there around that time (laughter). >> i was there but i don't remember. >> again. >> let me try to take it then you can since you were there. >> so my understanding when we looked at all the assets power and water and joint and the expect was that a lot of the assets that benefit power they sized it to maximize the power generation so like mountain tunnel for example, they built it not for

the amount of water be delivered but to maximize to generate in producing power there's a lot of assets that probably fall under that and so they felt that was you know benefit for the power and also customers are not benefiting from the power there was an effort to trying to determine each one of the assets what is the value as it relates to generating power for the power enterprise and how much for water so through a whole list of assets they came with the official category of 55, 45 so if we see one asset that's not right we pretty much put all that in the basket some maybe hire and some lower with 45 you can't go wrong is that - >> yeah. i think you've

described that well i was a young cubby was here but not involved in that negotiation you described my understanding of that perfectly so you end up with i think this is an important point to make with replaced to the mountain tunnel it is less true when you make it statement system wide you have joint financing and conceptual issues in general if we build a new power house or a new transition line nothing on the waterside that constraints our activity. >> well, yes they'll be recognized as power assets. >> well it is narrow and within the joint assets the mountain tunnel the elephant in the room.

>> tunnels are yes. >> i mean i have a similar question around the transition assets maybe we'll get to this this is actually taking it the next step if these are economics some we'll have conceptual and some financial issues but as part of the plan we'll say you know let's unload the transition assets and think of a refinancing strategy or what have you. >> those are the sorts of things we'll be talking about may 12th we're anticipating some of the solutions. >> it doesn't matter how far you move transition closer to our customers if it types of providence or transition pg&e will cost the same this is is what we wanted to illustrate if

we were to go on transition we'll have to do transition all the way so this was really the main point. >> this is one thing that challenged that the interconnection curling were negotiation the transition assess was not open it was how utilities maintained their monopoly so we maintained access to pg&e's transition the price we paid was a negotiated price they only have to - the deregulations they put on a postage stamp rate mileage was not a factor under the oldest agreement those are productive under the deregulated and the roll after those inspired those were stranded assets we need to figure out what to do with that.

>> and including taking the transition in invoking to the city; right? >> well, that's a good topic. >> yes. it is and tophic for may 12th and later let's keep going we are going to start losing folks that takes care of the extraordinarily factors the changes in the 1970s to the present-day now let's see let's talk about the present-day we've talked about that it is an aging system hetch hetchy assets are over 50 year-olds nearing the end of their life they're getting old and need reinvestment we have excess supply compared to our load 3 hundred and 80 megawatts of supply and one hundred and 50 megawatts to customers we don't get much

value for the sale of electrical and to put a price tag on that lets look at the next slide many of you most of you have sown that depiction our left the megawatt hours and right the revenues we've realized from the sales as you can see 39 percent of generation is sold through the full pay full service customer provisions and the finding for 56 percent of our revenues and as you move up the stacks same method applies up to the top is where your knee market sales as you can see sales into the wholesaling wholesale market are 25 percent of the market sales of generation we realized

11 percent of the revenue from that we have an opportunity to take those the sales into the market and get higher value for them. >> i just wanted to point out that when you look at this this is really important because you see that the 3 did percent we actually get a full pay full service of $0.14 and so if you look at the middle column of what the rates are you see why you know where we get our revenue this is important we come back to this slide injecting i wanted to make sure you kind of understand the slide slide. >> is the airport under general fund. >> the airport is is under full pay full service like our

enterprise the port and examples of the general fund would be city hall the hospitals, police and fire stations and houston. >> treasure island and hetch hetchy are full pay full service customers rates that are represented here are difficult for treasure island and hunters point but the concept is the same the rates you know we're roar our costs from the two sights. >> how about muni. >> it's a mix for example muni are under general fund and parking garages are under enterprise explicitly to power the bus system and the transit system is general fund okay? so another condition we have

little supply diversification we're dependent on the weather rows so our volumes are volatile how does that play out it is demonstrated in the next slide as you can see the revenue from the wholesale market it the same slide i showed before where the orange demand line is depicted as this green bar this green patch the blue power house profiles in the early slides are shown for a dry year a normal year and wet year under the different scenarios our revenue can swing from to our advantage of $15 million or disadvantage of $15 million per year those revenue swings we experience

because of the voluntary illicit of our foul >> the nice thing that seems like dire situation down in the ground floor category that boirpd disappeared from our screen. >> how much opportunity can you seize. >> right and the volatility when that the downside of what you're describing commissioner to complete the picture when we have generation below our full service demand needs we're out on the market purchasing anyway, the so where do you want your volatility in the price of the

power or the revenue you receive? to our advantage we have seeing that the full pay full service customer base has a growing revenue stream so that's a good thing to the disadvantage sales we're going to get a lower sale we're not seeing as much revenue from that sector >> and you're showing that going to zero is probable an offer statement. >> yes. >> i mean. >> it is going down never going to be zero well, i expect it not to be zero you know so 25 percent of our generation is sold into that declining sector and 39 generation is into the

inkline sector and our expiring agreement the pg&e interconnection expires and the enter sales agreements those represents the challenges hangs and represents opportunity as we adjust to the extraordinarily and internal conditions we're talking about today and sclaits cost one $.6 billion in new costs trying to digest it pie chart i'll pause and explain that where you see the hashed which doesn't come out as well on the slide on the screen the break away slices of the pie those are unfunded aspects of

our our needs that his of the by that are more solid in color and not broken out those o are funded aspects of the plan so $3.2 billion in capital needs over the 10 year horizon, $202 billion is fund through the revenues and bond you adopt the official plan that leaves one billion dollars unfunded that's the break away slices of the by. >> can you say what kind of projects. >> in the break away? for distribution that's our estimate of costs we could face if we have an unfavorable outcome in our replacement

agreements at burk the unfunded supply $130 million, that's an example oh so those are the tuesday - those are the supply and transition costs and the slices that have been identified as deferred so aspects of the financial or excuse me. our capital needs have been deferred so the other break away slices >> okay. thank you and then when you look at our increasing costs relative to market as you can see there are higher costs supply assets becoming less competitive to the more we spend open hetch hetchy

resources depicted here in green the more risks we are out of market we we have to keep on eye on the spend on improvement to make sure we don't price ourselves up below 0 the cost we're showing for illusion the utility scale solar and wind and the open market price and then we have sort of what i'll call the garden variety organization we have to close the gap and update the city's system and the accounting system and so on those are realities we're facing and they're worth noting here we'll come back to you in budget time talk about

how we're addressing some of the mormon dan of our work a and final our sharing community goal is a financial draw draw away from funding our operations and our need for reinvestment and it is at risk if we can't get our costs contained and address those costs effectively so here's the sum slide of the conditions together you as a commission and us as a staff over the last several years have managed to get the system financially stable and that's terrific as the general manager said at the opening we are financially stable entity we've achieved that but taking some

sort of stopgap steps raising rates and the debt financing we celebrated in today's meeting to use a former word those are leathers we've pulled them and now time to plan for what we can do in addition to make sure we maintained our long term operating financial will stability of the business enterprise there's been - we're another point fundamental change it noted so i'll pause there and see if there is any. >> would the one billion dollars deferred capital more than half of that is the interconnection facilities in negotiation with pg&e. >> that's true. >> one hundred and 64 out of

the one billion dollars. >> when we talk about the stakes involved and replacing did interconnection agreement it is more than half of our unfunded capital program. >> big deal. >> any other questions or comments before i move on so i mention that fundamental business change is needed let's talk about the opportunities are the present we talked about the need for or the benefit of those different customer sectors harlan highlighted that slide the full pay full service customers are the large power users and the one customer sector that's where most of our revenues come from today we have targeted schoel as an opportunity and clean power sf

and the also sales into the market those 4 market market sectors that present themselves to us with the hostile value in the full pay full service customers. >> so heros that same slide again where you can see the customer sector making the largest contribution to our revenues heros our full pay, full serve here their depicted is the sort of the growth revenue opportunity and in the next slide as you can see how it breakdown open a kilowatt contribution among the four sector to orient you to the slide the gray shows the cost to serve each of the customer sector gray and orange together the

total stack of each bar shows the rate that electrical is sold to the customer so he can't, the orange on its own shows the margin above the costs that we receive from that customer sector and can apply to our needed system reinvestments once again full pay full serve clearly is shown is to be the hoist value opportunity for us. >> and the orange differential we control by market use. >> correct. >> when we say that cca will cost a penny that is our choice. >> only cost close to that's a decision for the commission. >> yes. and but again to our point tempered but the option could be for that borough in

that somewhere we are looking at a wholesale purchaser. >> i wanted to point out and this is important we have a lot of dialog that is cca is its own lion of business and when they're looking to guy power to minimize the cost to its rate payers we talked about that different rate payers when we sell power to them we have to be competitive because cc organization if it is too expensive cca wouldn't necessarily bow the power if it is two executive so that's why wrooer we're trying to be realistic how cca buys the power and prices that extensively we show we'll get a slight margin that will help the hetch hetchy

and also help the cca because we'll price it extensively and part of what is built both that expectation commissioner there will be orange as we look to blt build a portfolio of electrical supply we're time to have it be include grefg free element in order to secure that supply our cca payers will pie a little bit more for the green house gas free hetch hetchy power rather than the power that didn't have the g a benefits. >> and then the other thing i want to point out on the slow down as you can see are you going to talk about the wet year. >> i would going to talk about the wet year in the slow down. >> you have a question why

aren't the costs i same why is one all four set except for the full pay. >> because the opposite example

the extreme left we're getting it all the way to the toaster it is costing united states us to do that okay. >> so this is a summary opportunity and a moment to pause if you have any other

questions that i've presented so for? okay so then let's go ahead and do a recap and next steps our model is out of balance we need to do right sizings for long term stability and talked about the different functions and elements that need to be addressed and in workshop two we'll come to you with recommendations to how to get us into better balance and more stable in the long term that workshop is calendar for may 12th this is just sort of a teaser tuned for the next >> thank you excellent presentation. >> i'd like to add it was it was pretty need not and not easy to do so thank you.

>> you're welcome. >> the one thing the 12 is the cca not to exceed prices so. >> one minute speaking. >> i wanted to warn you. >> fair enough thank you. i have a question to you mr. kelly. >> can the joint projects be looked at again i mean it seems to me to should be 50/50 not 1912 50 did i say the wrong thing. >> one of the things that we we've been looking at trying to found the folks that participated in or to analyze the split

we do recognize that some persevered w4 575 some are adhere or lower we'll have to go through a process to open up and spends tons of time and we don't know if we'll benefit from it is something on the table and you know the main thing you can't cherry pick and say this is wrong you have to open the whole thing up this is the one of the things we still have an option and still looking at. >> well, to me joint means 50/50. >> at that point it was joint but the level of you know benefit was determined with the

percentage was yeah. i you know wasn't here you want to add something. >> i want to say the name remembering on the other ones on the waterside they pay 66 percent and we pay 33 percent we were trying to find an allegation based on the negotiation not necessarily a hard science and things change over time with the rebuilding of the facilities that's why the general manager focus is trying to talk with the wholesale customers about new facilities and substantially new constructed facilities but they'll like 45, 55 so. >> well, i understand 2/3rd's 1/3rd but i don't know.

>> yeah. all right. very good >> where are rebock to the agenda. >> any comments public comments. >> jason fried lafco staff i want to talk about the different price levels for the different wholesale fees commissioner moran you are correct in my opinion the one cent is something a decided fork to pay clerical advocating for cca i have to run. >> business and it should be paid there are some of the steps to looked at i would say what is the product your offering a g h product but offer a permeate and part of the coping in shape is part of more money it is a higher standard product the cc

organization will have to pay the fillmore and shaping and give you the stretch that's the preemptor beyond did wholesale market value one of the things that's important inform remember y c a is helping to pay for other services and when you going back go back to slide 49 go sf i've argued that cca is not the full funding revenue for sgro but the report bringing the work 90 in house how to charge it it could be somewhere there are a lot of factors not incorporated into that price that helps cca and