deal with it. the spill ways work. they didn't clog up with things. it was just a massive amount of water in a very short period of time. so yes, our communication staff has been in communication with the chronicle and certainly they've just modified the headline at least in the online version to could be a problem. i think that's where we all are. we all are going to look at the whole situation and see are there physical problems with the dam. of course it was built in 1925. so it's an old dam. it has performed well for years. are there things that we need to do differently about how we manage it? do we need to modify the space? all those things are on the table in terms of getting at what happened, why and is it safe going forward. those are the critical conditions we need to answer and we're prepared to answer them. >> well, i thought it was unfortunate but as you probably know, the headlines are not written by the author of the

piece so it's the headline guy writes it. >> yep, i've had that experience too many times. >> anything else? >> thank you, very much. >> thank you. >> is there any public comment on this item? item 9, the bay area water supply report will not be heard today because they were unable to attend the meeting. item 10 is a 2018 water and wastewater rate study update. with mr. sandler. commissioners, erik sandler c.f.o. of the p.u.c. and i'm here to present, with some colleagues, a number of items. set the stage on april 10th, you

will have before you recommendations to make adjustments to water rates, sewer rage and water and sewer capacity charges. and in may, there will be a number of items before you related to miscellaneous fees and charges as well as rules and regulations regarding sewer service charge for parcels. what i wanted to do in this particular presentation, is to highlight for you some of the work that we've been doing and some of the items that you will be seeing in the next few meetings. so in terms of major topics, i'll talk about the rate study you've been hearing about over the past 18 months. provide background with some overview of the rate-setting process. some of the elements of the scope of the study and some of the highlights of the proposed changes to rates and charges. and then the second half of the presentation, it's going to be provided by simone hudson and

john scarpula and really it's addressing all of the work we've been doing over the last 18 months with respect to affordability and the impacts of our rates and charges on low-income customers. and i understand four years ago when you were considering rates and charges, the commission emphasized that it really wanted to understand a little bit more than this over all percentage of medicinmedian household affordabilities. when we went through the budget process two years ago, i remember commissioner vietor, you encouraged us to do a lot of work. i know this is a long presentation but the work that the staff has done to address this question, i think is tremendous. and a lot of resources were dedicated to get a better picture of the situation.

so, i'm going to start with rates and charges. so just providing a little bit of background with respect to this study, the city charter requires that every five years we engage a third-party expert to conduct a cost of service study. and what is important is that really the state constitution prop 218, requires that rates and charges be set based on cost of service. the requirement of the city charter and the rate study is the main document that insures that we can set rates based on cost of service and we comply with the legal requirements of the state constitution and the city charter. 218 also contains not just the rates setting and also some procedural requirements that

guide how notified rates. provide them an opportunity for public comment as well as protest. the package that we're talking about is a 4-year rate package starting july 1st, 2018. so this has been an effort that's been conducted over the past 18 months. and it has engage a lot of the organizations, not just the rates and charges team, but a lot of the organization as well as outside stakeholders such as the rate fairness board, citizens advisory committee and we have here a variety of the work streams we've engage in so we stained the consultant in the april-june 2016 timeframe. we spent the last year we spent some time with you reviewing a number of critical financial policies that performed the policy.

that formed the policy context of this study. and we've conducted some of the main efforts in the rate study itself as well as community outreach and again the rates and charges will be before you aprie july 1st, 2018. so i spend a little time talking about the statutory framework in which we set rates and charges. now i'm going to spend just a moment talking about the policy framework. over the last year or so, we had a number of policies before you for revision and consolidation, enhancement, and actually a few new policies. the rate pay era insurance policy is the over arching policy that guides rates and charges. sufficient to meet environments of the agency to appropriately budget for repair and reconstruction and replacement of assets and setting rates and charges to achieve certain

policy goals to properly fund the organization to ensure customer equity, environmental sustainability, predictability of rates and charges, simplicitying anand of course affordability. there are a number of financial policies. i listed them here. fund balance reserve and capital financialing policy. they influence the revenue requirement. those policies we talked about when we were reviewing the budget in january and february as well as the 10-year capital and financial plans. they impact the rate and charge process through the revenue requirements. these are the real -- the three elements of the scope of work with respect to the rate study. the first is the revenue requirement scope of work and the revenue -- [ please stand by ]

>> -- there needs to be an adjustment in fact revenue requirement of about 6 or 7% a

year for water and wastewater enterprises. and we also understood that of the increased revenue generated from these adjustments, 80% it was targeted for investment or capital, and that would either be directly funding cash capital investments or bond issues to make those capital investments. the next work stream in the rate study relates to the cost of service. this is kind of the boring financial and engineering exercise, but it's absolutely critical to ensuring that our rates are compliant with state law. we made a number of updates under the hood with respect to the rate study that really enhance the quality of the work product, and this is really a collective effort of not just the rates and charges and finance team but also engineering team and the

various folks at water and wastewater enterprise, so i wanted to thank -- this part is really an organizational effort. some of the key things that we addressed, we really looked at the system peaking factors, the peak hour, peak day, seasonal peaks, and really tried to refine this information on a system level and a customer class level, because these -- that's the main way that we allocate cost to achieve our tier structure and -- for our residential customers. we also went through a detailed allocation of operating expenses, we reviewed all of our asset allocations. we made a major improvement in terms of how we credit revenues from our wholesale customers to different functional categories and cost categories, speak we did a completely new and costal indication of bureau expenses to the enterprise. so before i talk about any

changes to rate design, i thought i'd review for you what our current and water rate structure for you here is. we have fixed charges and variable charges. fixed charges are based on either meter size or account. and then, you have residential -- or you have variable charges that are based on meter water used or estimated discharge to the sewer system. so in the water rate structure, we have a fixed charge for -- that's based on meter size. for residential water customers, we have variable charges that are two tiers. the first tier, for a single-family residential customers is four units, and the first tier for multi-family residential customers is three units, and they have different

prices. for our nonresidential customers, the usage characteristics vary so much that we don't have tiers, and we currently have some different volumetric rates for specific categories of customers, and one thing we looked at was simplifying the volumetric rates for nonresidential customers. on the water side, you've been hearing from me for the past three years, we do not have a waustwater charge for customers. all of it is build on a volume2rdvolum volumetric tier. there are three chemical characteristics, and theose ar the constituents that are used to characterize the strength as sewage, and there's a designed strength for residentia