tv [untitled] May 10, 2011 3:30pm-4:00pm PDT
we received a letter. it is important to observe that some of the unpredictability here is the pain of our own creation. we could be a lotif we simply re annual revenue requirement. that is what we attempt to do. denominated by usage, which complicates its in the bentley. -- complicates it significantly. but to regularize this, to what degree we are able and willing to do that, but i think we do need to recognize that what we went through is not a mathematical error, and there may have been some mathematical errors, but fundamentally, we
missed our projections. people did not by as much water as we assumed they would, which means we were paid less. that is what the ballots in the account is for. so we have a mechanism for doing it. but the system has performed as designed. i think we can do better. i think we need to look at the rate structure, but i do not think it would be right to include how the system has but operating. >> certainly, when we have been talking about the unpredictability of usage, we have been focusing on conservation, focusing on the economy and a lack of jobs possibly or foreclosed homes and therefore reduce usage, and we also have been looking at the weather and the changes in the weather, so those changes are
what we have beenjust to mentioe customers who have other options for buying water, and some of those customers have minimal guarantees in terms of what they have to buy from us, but our water is getting more expensive, and as our water gets more expensive, because our customers are paying the full cost of our water system, we have customers who have access to federal and state water, which we all subsidize, and that water is cheaper. our customers are paid to subsidize those systems and our own system, and it's very difficult. for example, the alameda county water, they were buying 30 million gallons from us, and they are down to 8. this is a choice they made because they can get cheaper water from somewhere else. they are down about as low as they can get. that is what we are not projecting it for next year.
there are things like the weather. i guess the good news is we have bottomed out. our customers have choices where they cannot cut much more, but there are things, and as we think about statewide water bonds in statewide issues, it is difficult to be thinking we would be happy to have our customers pay the full cost of our water system and also pay the cost of other water systems in california. president vietor: is there any comment? next item, mr. secretary. secretary: a discussion to adopt a fiscal surcharge beginning in 2012 for the environmental surcharge structure beginning in fiscal
year 2011-12, and continuing, to authorize the general manager to establish and manage it if it is approved by the board of supervisors and adopt findings pursuant to the california environmental quality act, as required under the terms of the water supply agreement between the city and county of san but cisco and the wholesale customers, which was approved in 2009. -- city and county of san francisco and in wholesale customers. >> you have been hearing about the surcharge over the last six months, when you adopt the interim supply. this is the second part of that. it actually puts into place the projected water use exceeding the amounts, which is not projected to exceed, but nevertheless, we are to adopt
the fiscal 2011-12 rate setting process. it is required under the contract. for water sales to be effective, with the fiscal year 2011-2012 delivery, usage over to london 65 mgd, and just to compare it, it has been about 225 -- 265. we are significantly below that number. .an equivalence surcharge for retail and other customers and that would apply to each customer in terms of supply allocation. the mechanics of it is that it would be done by the following september, and it would be over the remaining nine months of the following fiscal year.
this is predicated on the record and that the board of supervisors adopted restrictive special fund for any and all proceeds of the surcharge, and it can only be used pair under the conditions outlined in the water sale agreement. that also be jointly reviewed plan by the general managers, and they would jointly review any uses of that funding for environmental and hits the projects. this surcharge before you today is only through a planning process through 2018 in particular. what does this mean in far -- as far as comparisons in terms of a projected cost?
we have sold the $4.60 billion in bonds and are paying the debt service. you will see that our average cost is $1.7 million, and that includes the per gallon cost. about half a penny would be the cost. we took that into consideration when we ratcheted up the incentive or penalty, depending on how you look at it. it is 3 tiers. we proposed a 50% surcharge, so if i can just walking across the top line, the base line would be $1.70 million.
we add a surcharge in excess of the allocation. the surcharge would be $850,000 for total water charges for usage for the enroll allocations. if any customer were to use increasingly more over their allocation, and they would have a further incentive/penalty applied to them. the cost per unit of water would be about $5.1 million. you will recall back in december, we walked through with you some of the alternatives the alternative lovers or alternative sources of supply, and the cheapest for any jurisdiction to do would be
conservation, so on average, the cost for conservation would be about $800,000. these are high because they provide an increasing incentive just to give increasing conservation where to look at local groundwater or local recycled water projects. with that, the next up is to be the board consideration of the surcharge fund, and then, related to water bonds, we would be talking to investors. if i could move to the overhead projector i do want to refresh the collective memory for the public what the projections are for water delivery, and water deliveries here, this dark blue is of our wholesale customer projections.
the light blue is retail customers. the surcharge is the top red line. i think the most important thing here is that you will see that our water projections are incredibly below what the trigger would even be, and this is a technically an important exercise, but the likelihood of us having to levy a surcharge is quite low. president vietor: thank you. vice president moran: that goes out to a certain year? thank you.
>> thank you very much, president, commissioners. we are with organizations who are interested in water issues, and we were very pleased to support a project that allowed the retrofit to go forward. if the system went over 265, and the agency over its isa would have to pay a surcharge. at the time, we did not know what that would be, but we were assured that be substantial. we are getting there but are not
quite there. the tiers are so big, we are not likely to go past the first one. the spirit of the compromise for the tiers to be tighter. the letter you received, but we suggest that every have, it would go up. it is up to you. maybe it would be everyone it mgd, but the jump from one to 5 does not seem very reasonable. for example, 4.5 mgb over, which is still not very likely, it would still be a certain percentage for the water, and we see that as possibly just the cost of doing business rather than a real deterrent, so we're hoping that you will move forward with a tighter tier system, and we are happy they
are moving forward expeditiously. this is wonderful day with an item that we feel needs resolution. commissioner: if you are using over a certain amount, that is not 100%. president vietor: other any other comments on this item? >> president, members of the commission, we received a copy of the letter last night, and i have had a chance to sit here this afternoon and read the letter and think about it. first of all, there are two suggestions, and the first is extraordinary for a number of reasons, and i hope you are not going to move in that direction,
but if you were, then i would suggestion of a long conversation with your general counsel before you do so. the changes in the the tiers, and the statement was made that what your staff has proposed does not provide sufficient incentive, a financial incentive, to stay within the limitations and coast. and i would submit that it does, and i will give you my evidence. first of all, as your own staff said, the surcharge if you can impose, even at the lowest tier, is greater than the cost of conservation, which inspires people to conserve, which, by your own evidence, we need inspiration. it seems to be working up quite well korea it does provides an
incentive. it is at the lowest tier, and it does provide motivation. of if you look at the second and say, is this an insufficient surcharge, surcharge, at the lowest tier, if they were going to be won over their allocation, the cost is $850,000. if you look at the second, from one to 5, it is 1.5 $7 million per each. the target is $8.5 million at the top, in surcharge. let's compare that to a few numbers we have heard today. first of all, this charge will apply to san francisco, as well. staff was concerned that their reserves are down. if they use one-third water, if they were to use 5 war, then it
is 81, in the amount you have to play in a -- pay in a surcharge, this is not a small amount. this is about 75 to $80 million per air. these are not flesh economic times. this is a significant incentive. if you compare to our annual budget, and we do a lot of service for customers and work well with you, this is four times our annual budget. i take a lot of grief over the budget, just as your staff does. these are not small amounts. i implore you that these charges that you haven't closed or may impose, while customers have not
agree to them are not insignificant compaq and i would suggest you go no further than your staff recommendation. president vietor: think you. >> there were two alternatives suggested. one was over the individual supply guarantee. that penalty would apply to all of the water used, not just the excess. if you had an allocation of 10 million gallons, and you went over by half a million gallons, this would be applied. the pinon from the city attorney, an early read of that, whether in compliance, it would specify that this excess surcharge only be applied over the 200th 65. the other one is really whether
you wanted to have something stepped up as a percentage for what the staff recommended. again, we have recommended that it go from a percentage of the surcharge and over $5 million. roughly speaking, this would be 200% at $2 million. this is rather dramatic if you get to the higher numbers, should you ever reach them. president vieter: this is in until 2018? >> yes. this is only through the 2018
period. president vietor: so when it gets close, we can adjust it? >> i think in fairness, if we started to get close to having it happen and adjusted down, there would be a number of people involved. it really is intended to cause the behavior, if we were having a different outcome in we adjusted it, i would think that once we set it, we would prefer to not have it changed. president vietor: commissioner moran? vice president moran: that was an experience and frustrating in the sense that there was no really ideal solution that was
possible. and we did the best we could in that, but what we knew when we adopted those is that the incentive would apply differently to different customers. for customers who are against their supply assurance, that they would have to pay something, there is not. i became convinced that the incentive that is provided is a pretty blunt instrument, and it is not really amenable to fine- tuning. i think the illusion that we should somehow smoothest to apply it more equitably is i think just wrong, so i think we have to have something that provides an incentive. i was also impressed during the prior discussion, when you agree
to a water supply agreement, you do not know how much it will work out. what has happened is because about what is happening around 2018, the wholesale customers are highly motivated to try to figure out how to deal with that uncertainty, and they have a great deal to look at water supply alternatives and how to adjust their consumption within the indra supply agreements and also looking forward bill 2018. so i think what we set out to do in the water supply is happening. the incentive was provided. the response is there, and they also of customers working towards that, so for both of those reasons, i am not tempted to try to dufay intergradations.
-- try to do finer gradations. i think that the staff recommendation is reasonable. i am hearing that the wholesale customers, while they do not like it, they are satisfied. those are my words that i am have provided the incentive to the agreement that we all hoped would be there, so i would recommend that we follow the staff recommendation. president vietor: commissioners, any comments? commissioner: i do feel it is a
relative situation because there are incentives to conserve, and i think in the seven-year period, we are going to be low our mark. because of the way things are going, and so i think we should call a vote. present vietor: all of those in favor? opposed? thank you. next item. secretary: returning to regular business -- president supervisor avalos: ietor: 5 minutes, please?