Commission will now come to order. Ms. Lanier, can you please call roll.

President Arce.

Aye.

Here.

Vice President Leveroni.

Aye.

Commissioner Jamdar.

Here.

Commissioner Stacey.

Here.

Commissioner Thurlow.

Here.

You have a quorum.

Thank you, Ms. Lanier.

Before calling the first item, I'd like to announce that the San Francisco Public Utilities

Commission acknowledges that it owns and are stewards of the unceded lands located within

the ethno-historic territory of the Mwekma Ohlone tribe and other familial descendants

of the historic, federally recognized Mission San Jose Verona Band of Alameda County.

The SFPUC also recognizes that every citizen residing within the greater Bay Area has and

continues to benefit from the use and occupation of the Mwekma Ohlone tribe's Aboriginal lands

since before and after the San Francisco Public Utilities Commission's founding in 1932.

It is vitally important that we not only recognize the history of the tribal lands on which we reside, but also we acknowledge and honor the fact that the Muwekma Ohlone tribe and people have established a working partnership with the SFPUC and are productive and flourishing members within the many greater San Francisco Bay Area communities today.

Item 3, public hearing and discussion, water enterprise and Hetch Hetch U water budget and capital plan.

Good afternoon, Commissioners.

Steve Ritchie, Assistant General Manager for Water.

I'm pleased to be here today to present the budget for the water enterprise, both on the operating and capital front.

And I will have some introductions in a little while of a lot of the managers that really support it

and make the magic happen of water coming out the tap all the time.

First, just a little setting again.

This is a schematic of the water system that stretches across the width of California

from Yosemite National Park in the east down through the series of tunnels and pipelines

to hydroelectric generation powerhouses,

and then on down to the San Joaquin Valley,

where it crosses over into the Bay Area proper.

That gold area there is our service area in the Bay Area.

We serve about 2.7 million people.

And then how the pipelines and tunnels convey water all the way up the peninsula.

And all told, we have eight major reservoirs,

three up in the Sierra, Lake Lloyd, Lake Eleanor, and Hachechi,

two in the Alameda area, San Antonio Reservoir, and Calaveras,

and then three on the peninsula, San Andreas, Pilarcitos, and Crystal Springs.

And just because, you know, it's kind of like living with them all the time,

we have these three bright red lines on there,

which are the major faults that our system crosses.

So that's one of the things that we're very, very cognizant of all the time

is from a capital point of view, making sure that our system is sustainable in the event of a major earthquake,

but from an operational point of view, that we could have a major earthquake at any time

and need to be ready to respond to that so that we can restore service to our customers.

Next is a slide showing our customers, our wholesale customers in particular.

This is a map that provides the information regarding each of the customers who are listed there alphabetically on the right-hand side.

The map shows where they are located, and you see they're kind of a big fish hook around South San Francisco Bay,

down the peninsula and up into the Alameda County area after crossing through northern Santa Clara County.

The depth of the blue color is a representation of how much water they get from us for their customers.

So the darkest blue, for example, San Francisco and Hayward's very close there as well, are virtually 100% of the Hetch Hetchy Regional Water System water.

The lighter colors are the white one, the big white one, for example, south of Hayward is Alameda County Water District.

They only get about 20% of their water from us because they're state water contractors and get a lot of water from the state water project.

But you'll see that the peninsula there is largely quite blue, and about 60% of the, or 21 customers rely on our system for more than 60% of their drinking water supplies.

So we're a very important water system in the Bay Area.

We're the third largest in the state and certainly the largest in Northern California.

Now I'm going to talk about our organization.

This is the org chart that we operate under, and it's got various boxes on it.

I will hit the highlight boxes in particular.

First, I'd like to introduce my deputy, Ellen Levin.

And so you can stand, and you have to keep standing, too.

Ellen is responsible for hydrology and water systems

and is very active in the Bay Delta program, FERC Don Pedro Relicensing,

and she has been doing that for a long time and is working very diligently in that area,

but is key to supporting the organization.

On the operating divisions, we've had some turnover, so we're seeing some new faces here.

First for Hetch Hetchy Water and Power Division, Adam Mazurkiewicz,

who was just appointed.

Margaret Hannaford, who you've seen several times,

retired January 9th, and so Adam is the new manager

of the Hetch Hetchy Water and Power Division.

The next one moving across there

is the San Francisco Water Division.

Bill Tehan is the manager of that division.

They're the folks who operate here in San Francisco

delivering water on a retail basis.

Next is Ryan Gabriel from Water Supply and Treatment.

Angela Chung was the division manager.

She moved over to wastewater.

So Ryan also is a brand new division manager within our system.

He was the operations manager for water supply and treatment.

Actually, I should have mentioned that Adam was the operations manager for Hetch Hetchy Water and Powers.

So these are people who are very experienced and capable to take on those new roles.

The next one is the Natural Resources and Lands Management Division.

Tim Ramirez manages that.

They're responsible for managing our watershed lands and that of our environmental compliance and environmental protection programs.

The next one, ironically, the two at the bottom, neither one are here today, but for water quality,

Andrew DeGrasa, who is out at a conference, is being represented by Matt Dobbs, who's administrative manager.

And thank you for being here, Matt.

And then Water Resources, Paula Kehoe is not here.

She's actually moving towards retirement.

So she will be retiring very soon.

And so we're about to start the process of recruitment.

But Paula's doing so much, she's actually represented by two people here.

Julie Ortiz, who heads our water conservation group,

and Manisha Kotari, who represents our alternative water supply group.

And lastly on the list, I want to mention Allison Kastema, who is the Bosco liaison by the label in the chart here, but who has been instrumental in putting the budget together, particularly the capital improvement program, working to make sure that we keep it all lined up and moving in the right direction.

So these have been very critical folks throughout in all the planning processes, but really on the operational day-to-day basis.

These are the folks who are there 24-7, and they're very critical to our operation.

So thank you for being here.

Thank you all.

So moving into the budget part of it, priorities for the next two budget years.

They're here, and these are not a prioritized order, but they're very important, all four of them.

Maintaining progress on major projects that are in and going into construction.

We have some major projects in construction and also some that are getting close to there.

We have had, and we'll talk a little bit later about the Water System Improvement Program,

which was a major effort for $4.8 billion worth of capital projects.

What those did was they made a lot of, we made a lot of improvements,

but all the planning had been done, so we kind of had a gap for a little while

in terms of getting new projects in the pipeline.

And that's what we're starting to see now, those projects now coming to fruition.

And so we'll be talking about some of those that are in construction right now.

Always meeting current and new regulatory requirements.

We've got to comply with lots of regulations, and we do.

That is very, very important to us.

We want to maximize use of available resources in our capital spending.

I think this has been a theme for us for a while, is that, and you'll see some oddities here where you say,

well, you're doing this project, but there's no appropriation.

The reason there is no appropriation is because we do have some money already appropriated that we haven't spent down.

And so that's one of the things we're focusing on in this budget.

And lastly, continuing to meet the 2023 level of service goals and objectives.

This is, in essence, for us in the water enterprise and for the PUC, what we're all about in terms of an operation.

And so going to the next slide is very much a summary of those.

So there are, I believe it's two, four, six, eight, eight level of service goals, and each one has several objectives there.

But it's actually three dense pages of text to actually include all these.

So I did make a slide to cover those.

And these are readily available.

In fact, I should probably pass a new set on to the commission because it was in 2023 when we adopted them.

They recovered drinking water quality, regional seismic reliability, regional delivery reliability, which is different from seismic reliability, but it's, you know, do you have the redundancy to make things work?

in-city seismic reliability, in-city delivery reliability, water supply overall, environmental stewardship, and sustainability.

So this was very important.

It was first done in the WISP.

So we had a set of level of service goals and objectives for then, but they only covered certain things.

So we really expanded these in 2023 to make sure it covered our whole operation.

So at any time, if we're doing something, it should be in concert with those level of service goals and objectives.

And these are a very important guide for us.

I wanted to make sure that it sets out clear objectives and ones that we can all work towards.

Some of the challenges that we have.

again not a priority order but certainly

all very important. First is aging infrastructure.

The system is more than 100 years old. I mean there's many new things that are

in there but a lot of our system particularly on the Hetch Hetchy end

and also down on the peninsula are definitely more than 100 years

old. I always like to point out our single oldest dam in the system

was built in 1866. So it was just after the

Civil War. So we're talking about very, very old infrastructure.

Historically, excuse me, achieving

Tualmany River improvements while managing water supply risks.

I think that for us is a big deal on the Bay

Delta front and other things. And that is something

that we are committed to. We're committed to making sure we're making improvements

in the river quality while at the same time managing the water supply

risks. And I think those are not mutually exclusive goals. A lot of people would like

to make it sound like they are. They're not. Those are things that can be done together,

and that's what we're all about. Historically restrained increases in staffing. We always

get into budget time. It's like, well, we can't add staff. We can't add staff. But what we've

been doing is adding more and more different things and increasing technological complexity

to those things. And so we're finding now that we're a bit behind in making sure that we've got

staff there who are the right folks to operate our increasingly complex systems.

We've got increasing regulatory burdens. We're going to talk about dam safety later on here.

Ever since the Oroville fiasco of 2017, there's been a very high level of scrutiny on all dams

in the state, and we're no exception. We have 18 regulated dams in our system, and we're working on

all of them because it is what you have to do. Dams are very useful, but dams can be dangerous,

so they need to be safe. Cross-connection control. There are new regulations on cross-connection

control. Again, not a very sexy topic, but you can't have areas where somehow the plumbing got

screwed up or somehow water that's polluted backs up into the drinking water system.

So cross-connection control is a very high priority in the state and an equally high

priority for us.

And then our favorite eight letters in the Hetch Hetchy world, WECNNERC.

That's the Western Electricity Coordinating Council and the North American Electric Reliability

Corporation.

Those were regulations first introduced in 2008 to regulate the bulk electric system in the United States.

After some major outages, they finally felt that it couldn't be left to just the private industry to take care of itself.

It was too big a risk out there.

But the whole regulatory system has grown and grown and grown since then.

So you have to actually really do a lot of work to comply with all of the WEC and NERC regulations, because the consequences are severe.

You can't have a blackout that knocks out half of Northern California.

That just doesn't work.

Maybe San Francisco might suffer a blackout, but that might be just a different operation, not ours.

But we would – that was a joke, by the way.

But I think the electricity regulation is really critical to our operation.

I've already mentioned some of the management staffing changes that we've gone through just recently.

And then, obviously, here we're working with achieving a flat operating budget and a restrained capital budget while meeting our LOS goals and objectives.

Having those things together is part of the challenge.

And that's what we kind of like to do, is face challenges.

So first I'm going to talk about the operating budget and cover that briefly.

This is this year of FY26 and the next two years, which we're covering with the budget of FY27 and FY28.

And you see that there's roughly about $750 million, getting up to $783 million for the operating budget with 870 FTEs.

Over the next two years, we will have increases in salary and benefit due to cost of living agreements.

So when we talk about a flat budget, it's flat except for the first $17.7 million that gets added on top because of the agreements.

We have five new temporary to permanent positions.

They've been temporary to support certain activities, and now we're converting them to permanent.

So those are basically budget neutral.

And seven new positions to support management of water infrastructure and facilities,

including the activation of the new ozone water treatment facility in Sonol.

That one I want to highlight because this is a case where the treatment facility is not yet completed,

but we recognize we need to start getting the staff on board now

so that they can be ready to start operating it when it is completed,

as opposed to, okay, we built the construction, we built it, it's all ready to go.

Now, go figure out how to operate it.

That's not a path to success.

so a little bit more about the new operating budget proposals there's a total of 12 ftes in

that this table lays them out you know a water data analyst position that we'll be adding in

the water administration group at basically a neutral cost because we'll take money away from

other operating cost centers. Water quality has new positions relative to cross-connection controls

and also new money for increases in drinking water permit fees. Drinking water permit fees

have been going up steadily ever since the Division of Drinking Water moved to

the State Water Resources Control Board a few years ago. And so they're kind of under the radar,

but it is continually growing, and we need to keep an eye on that

and making sure we're getting benefit for our fees.

In the Water Supply and Treatment Division, the Sonol Ozone Facility, as I mentioned,

that's where we're adding four positions in this budget to make sure it's ready

for when it's going to go into service about three years from now.

So they will actually, as they're hired, start to work in and around the facility

as it's coming up out of the ground.

And then natural resources, two positions overseeing watershed infrastructure and environmental stewardship.

Again, we're offsetting those with some reductions in our programmatic projects.

So all told, this is an addition of 12 FTEs for water with a cost this year, or the coming year, of $2.3 million and into the next year of $3.1 million.

And that's pretty flat.

On the next part, it talks about Hetchy Water.

And we always talk budgetarily about Hetchy Water different because it's a combination of funds from water and power sources.

So we always have to, it's kind of the hybrid out there, so it's a little different.

But organizationally, Hetch Eche water and power is within the water enterprise because it's part of the operating system, that which we generate hydroelectricity from as well.

So over the next two years, we're looking at a major increase in revenue-funded capital of about $28.7 million, $5.6 million in the salary and benefit increases due to the cost of living agreements.

Oh, thank you.

We're converting five positions from temporary to permanent as part of this budget.

And we're increasing payments to other governments, which is a lot of what we do.

It lists several there, the Don Pedro Recreation, Tuolumne County, the USGS, and the National Park Service.

And I realize that we neglected to include two of our largest partners here,

the turlock and modesto irrigation districts because we we pay them money as part of the

services that we get throughout the system so and the agreements that we have so there's definitely

increase there but the biggest increase was in the revenue funded capital so that's just a shift from

bond funded capital to revenue funded as part of a way to make sure that we're

keeping in balance between bond funding and revenue funding

And again, a quick summary here.

On the mandatory payments, we're looking at $1.3 million in 27 and another $1.3 million in 27-28.

On the WEC and NERC front, to cover costs of increased compliance, we're looking at, again, $0.7 million and $1.4 million in 27-28.

And temporary to permanent position conversions of about five.

which are revenue neutral.

So a total of $2 million in 27 and $4 million in 28.

And with that, I'll stop here for a second.

That is kind of the intro and the operating budget side,

and I'd be happy to answer any questions on that piece before we move into capital,

which has a lot more slides and information there.

Thank you, AGM Richie, for the very detailed summary.

I know it was a summary, but it was a very detailed summary.

So I know you're going to go further into detail.

If I can ask, just before we take questions and comments from the commission, when we

return to your presentation, will we be, when you said capital, will we be going into item

3B, which is the 10-year capital plan, or will you be going into the presentation?

No, it will be the 10-year capital plan.

Okay.

So maybe, colleagues, if it's okay, kind of like we did with respect to the power enterprise,

can we have discussion and then take public comment on the operating budget,

which would be 3A, before we then move to 3B to hear AGM Ritchie's presentation on the capital plan,

the 10-year plan, including the two-year?

Will that work for folks?

Okay.

Who's first up?

Commissioner Jamdar.

I have a clarifying question.

So there is no debt service in the Hedgehi Water and Power budget.

And why is that?

Is that all funded just through revenue?

And I'm just not understanding that aspect of it.

Oh, yeah.

Be my guest.

A bit taller than me. Laura Bush, Deputy CFO. Great question. Very astute noticing that. That is because the Water Enterprise issues debt on behalf of Hetch Hetchy Water, so Water Enterprise pays the debt service for projects, the water portion of Hetch Hetchy Water and Power projects.

So all of the debt service for Hetch Hetchy Water and Power projects, the water portion at least, is paid for by Water Enterprise.

Vice President Leveroni.

Here's a couple of questions just kind of getting historical.

On the level of service goals and objectives, the eight that are listed there, those were adopted in 2023.

I thought I heard you.

Yes, these were adopted in December of 2023.

And are they reviewed every year and updated, or there's no need to because it's like you just keep following that goal until completed,

or just an overall goal to say this is what we always have to do to maintain high?

Yeah, these are not updated.

In fact, basically what I would say is back in 2005, when the first level of service goals were looked at,

I think as we were preparing for the water system improvement program,

we realized that we didn't have specific targets aiming for on the design front.

And so it was like, okay, well, we need a new one of these.

We knew some new water storage.

Well, how much water storage?

Why how much more water storage?

So at that time, just for those construction purposes,

they adopted the initial levels of service.

What we found over time is those things were very useful,

but we do a lot of other things other than just occasionally build some stuff.

And so really these are operational-oriented and other things like that

things like that to make sure that this is what we're doing. And these are really long-term.

So there was that initial adoption, which was official in 2008. We made those changes in 2023.

I would not expect to do much in the way of changes in these for quite some time. But it

might be worth reviewing every once in a while just to remind ourselves what they are.

Great. Thank you very much. And then on the challenges, goes without saying the aging infrastructure, 100 years old.

What percentage, when we look at the map, what percentage of all of the red lines there, other than the earthquake lines, would you say are still 100 years old?

Is there a percentage amount that you might be?

It would be hard to say on a percentage basis.

One of the things about the water system improvement program,

people think it was rebuilding the water system.

Well, it wasn't rebuilding the water system.

It just rebuilt components of it enough to make sure that we would have water to survive

or probably to survive a seismic event.

To really get to those points where we're not having things fail on us,

we needed to start getting a lot of just older stuff.

I would say on the Hetchy front, a lot of that is 100 years old.

You'll see three or four projects that are all dealing with 100.

So it's more like 75% down here in the Bay Area.

It's probably a little bit short of that now as we've replaced certain things here.

But we still find pockets in the system.

we referred to in the city to the Abraham Lincoln Pipeline

because it was installed in 1864.

I'd already talked about the 1866 dam.

We have an 1875 dam.

We have an 1888 dam.

It goes throughout the system.

It's everywhere, just in pockets.

But there are some connectors that are newer, which is good.

And then this last question still on the challenges.

is, has it been, I'm going to imagine, more cost effective on the historically restrained

increases in staffing?

To supplement that, as sometimes we see with contracts and everything, we have consultants,

outside consultants.

Is that what has helped us there with those constraints?

Yeah.

In certain things, we're dealing with, we can have consultants come in that can augment

staff and help us through.

There are some places where we've just been stretched a little thinner and saying, okay, let's prove how much we need staff.

We thought it would be easy to operate, and maybe it turns out it's not.

And so we're trying to document that.

So as we move forward over time, we're selectively trying to make increases in places where we really think we need them.

Thank you.

Commissioner Stacey.

Thank you.

I had a question similar to Commissioner Jomdar, and I want to make sure I understand.

The debt service for Hetch Hetchy Water is included as part of slide 8, the water budget and FTE overview.

So are the revenue-funded capital projects that are shown as part of the Hetch Hetchy Water Budget,

Are those standalone capital projects, or has the cost of projects just been allocated between revenue-generated and bond-generated financing?

Another great question. It's the latter.

So the water enterprise issues the bonds for water projects and for the water portion of Hetch Hetchy water projects.

The revenue-funded capital is in the water enterprise budget, as well as the Hetch Hetchy water enterprise budget.

And we allocate the revenue and debt to projects in our financial models, and obviously when the debt gets issued as well on a portfolio basis, depending on the nature of the project and balance of financial metrics.

Thank you.

All right.

I had just one quick clarification while we're on slide eight.

I'm just curious, and there's an error, AGM, Richie, if we could put that up on the screen there just to look.

Okay.

So the royal blue, I guess, for lack of a better term, on the bottom, which signifies debt service on the three columns,

In terms of, I guess what we would call the debt ratio,

the portion of debt service to the overall operating budget,

what kind of best practices or industry standards do we look at

or even internal policies to know where we want to be around debt service

and how do we feel about the actual in terms of the goal?

I would definitely turn that over to finance to speak to the financial policy, which is what that really is.

And even if generally, just a general sense, I was just curious.

So we have two financial policies that speak to this.

The first one is our capital financing policy, which states that between 15% and 30% of our CIP must be revenue-funded versus debt-funded.

We are actually exceeding that in the water enterprise.

I'm just going to wait.

Yeah.

We're at 40% for the water CIP, which is a significant reduction over time in use of debt in water CIP.

As you can see from the chart, water has a lot of debt.

And about half their budget pays for debt that's already been issued.

So we're reducing the reliance on that over time.

The other financial policy that speaks to our leverage and our ability to issue debt and take on more debt is our debt service coverage policy.

This is a number that I live and die by.

This is a very important metric that credit rating agencies look at to assess how much cash we have to pay for our debt service out of our revenues.

And so we have a very minimum for that in our bond indentures, which is one times current debt service coverage.

We have a commission-established policy, which gives a little cushion over that minimum at 1.1.

and it is our internal planning target to exceed 1.2

to make sure we have a strong financial outlook

in our 10-year financial plan.

So you'll be able to read about this in the 10-year financial plan,

which will be coming to you as part of the February 10th packet.

But overall, we look to those policy metrics

as the evidence that we have a sustainable debt issuance plan

and a sustainable capital plan.

So it sounds like we feel good about where we're at.

especially in light of where we're going.

Yes.

Thank you.

All right, any other questions?

Colleagues?

All right, Ms. Lanier, can we take public comment

before we go to Item 3B, the 10-year capital plan?

Remote callers, please raise your hand

if you wish to provide comments on this item.

Are there any members of the public present

who wish to comment?

Mr. Tom Smagle?

You want the next item?

Thank you.

Anyone else?

Present moderator are there any college have their hand raised?

Miss Lanier there are two colors with their hands raised. Thank you.

Caller your line has been unmuted. You have two minutes.

Thank you commissioners. This is Stephen Rinaldi vice mayor in Millbrae. It looks like we're a

little out of order. Last meeting we took both points a and b so I'd like to speak on 3b in

particular the 10-year CIP in the two-year capital budget. So I'll go back to ending my call right now.

Thank you.

Thank you.

Thank you, caller, for your comment. Caller, your line has been unmuted. You have two minutes.

Thank you. Hi, this is Ann Schneider. I actually had raised my hand for items

not on the agenda and then like vice mayor rinaldi for item 2b on that are you going to have public

comment not on items on the agenda no we will have a public comment on item 3b

okay um then i'm going to use this time under under the original one for what i was going to

to do originally. Is that okay? Item 3A. If we can just clarify, any comments pertaining

to our operating budget would be in order on this item, and then on the next item we're

going to have a capital plan discussion. But any comments on operating budget? And Ms.

Lennar, if we can make sure that our guest speaker has the additional time after we clarify.

Absolutely. Okay. Thank you, Chair. I guess I will wait for it to be. Thank you. Thank

Thank you.

Thank you.

Thank you, caller for a comment.

Ms. Lanier, there are no more callers with their hands raised.

Thank you so much.

Thank you, Ms. Lanier.

Can you please call the next item?

Item 3B, fiscal year 2026-27 to fiscal year 2035-36 10-year capital plan, including the

two-year capital budget.

Thank you.

We'll move on into the capital budget now.

And first we're going to talk about priorities and project drivers here.

And certainly the continuing to meet level of service goals and objectives is a big one,

and that's why it's listed first.

But we are making sure that we are taking care of our operational excellence,

prioritizing safety of our employees and the public, meeting our regulatory obligations,

minimizing risk to water deliveries, minimizing risk to power generation.

We want to be leaders in climate change, so meeting our environmental stewardship objectives

and adapting the system to address climate change as we move forward.

And then financial stability, which we were just talking about there a bit,

ensuring that our strategy fits within our objectives on the financial front.

So keeping rates affordable, maintaining strong credit raisings,

and while balancing risk to operational objectives, that we have to cover all those things.

Hey, Jim Ritchie, can I just ask really quickly, just to clarify, because we were trying to figure out amongst ourselves,

are we hearing right now item 3AII, the Water Enterprise and Hetch Hetchy Water new proposals for fiscal years 26, 27, and 27, 28,

or are we into the 3B 10-year capital plan, including two-year capital?

We're in the 3B 10-year capital plan.

I think...

Well, the new proposals were part of the operating budget.

And that would have been like the elements that had, you know...

Additional dollars, additional personnel, yes.

Those were...

Sorry, we're just clarifying.

This is the Brown Act at work.

We're having our public discussion.

Actually, I don't have the agenda in front of me,

so I'm maneuvering that.

But yes, that was...

It sounds like for commissioners and anyone watching at home

that wants to know where 3AII was,

it was the last few slides of your presentation

where you had, I think there was 12 proposals

and there was a personnel item and then the...

Yeah, what we've done here, now that I can see the agenda,

we had the budget and CIP presentation,

And so we were looking at both of those.

We broke those apart for the sake of focusing comment between the operating budget and the capital budget.

So if I had to point out where we are exactly now, we are on the CIP presentation.

and that really is in budget item B, I, and II.

Great.

All right, so we're squarely within the world of 3B.

Please continue, H.J.M. Ritchie.

Thank you.

Yeah, we're squarely in the world of 3B.

Okay, so what we are doing is planning for the long term.

since 2002.

The Water System Improvement Program

invested $4.8 billion

in the regional and local water systems

because those

received insufficient investment in prior

decades. It was

funded by revenue bonds with a planned

30-year debt burden and

an anticipated tripling of water rates.

That's something that was very clear from the

get-go that water rates would triple,

but our customers, particularly our

wholesale customers, said, yes,

That's okay with us because we need the improvements.

That debt load now constrains water system capital spending.

That's one of the things that we've been talking about here is we picked up a lot of debt there,

and so we have to manage our debt a little more closely here going forward into the rest of the capital needs.

So the regional and local water system needs total roughly about $10 billion.

dollars. That's 6.8 local and regional and 3.3 in Hetch Hetchy water. That's including regulatory

requirements for all our reservoirs and dams. The net effect of that is we've looked at those

dollars and they're not all in the 10 years. In fact, we decided to start looking at a 20-year

horizon and even that wasn't enough to cover all that expenditure that we anticipate in the future.

So we've actually started to look into what we would call the third 10 years, something we've never really done before, but recognizing that the number of projects we need and the cost of those, we can't pay for them all at once.

We're not doing them all at once.

So we're really stretching them out in hopefully a very smart way so that we're getting the most critical things done first.

And even the others are still somewhat critical, but something has to wait.

So those are the hard decisions that have been made by us and what we're proposing here to the commission for our plan.

So on the local and regional front, we basically have been producing a $2.5 billion capital plan for the 10 years that balances infrastructure reliability, project deliverability, and affordability through deferrals of lower priority projects.

One of the things that we've made clear, I think, to ourselves and to others is for a water system that has just fixed a set of assets and is just getting older, cancelling a project isn't in the cards.

It's just a matter of when you're going to have to do it.

It's not whether you're going to do it or not.

But can you do it?

Do you have to do it now?

Can you wait 40 years before you have to do it?

And so we've got some assets that we actually are trying to extend their life in different ways so that we really can spread this out over time.

So deferrals is actually the word we use a lot now.

But these are all treatment plan improvements, alternative water supplies and dam construction, and optimizing the scopes that we're trying to achieve in each of these categories.

We basically were trying to maintain the highest priority safety and regulatory compliance and system reliability needs while managing the rate impacts.

One example, we have three major dam safety projects that I'll talk about a bit later.

The full dam projects, we've deferred a bit, and we've spread them out over time.

But we worked with the Division of Safety of Dams where we were talking about doing some interim measures

that will actually improve the performance of those dams,

but it won't be the full project that we know is needed someday.

But it's just a matter of how can you get the best bang for your buck early on

and then ultimately do the big project.

on the Hetchy water side it's a little bit different the Hetchy system is a very linear

system if you look at the map there's pipes going every direction in San Francisco and in the region

but everything has come straight down so it's it's a bit simpler to prioritize there I'd say a bit

it's still a challenge but it is you know again a very set of linear assets so they've got a

methodology to do some risk-based project prioritization based on the

priorities up there and the project drivers and then they also evaluated

deliverability for those projects and reviewed our historical spending and

delivery capability analyzing carry forward appropriations again spending

money that we've already got that we haven't spent yet and applied

information from all of those above and produce the 10-year capital plan. So we think the proposed

plan on the HETCHE front, which is a separate plan, is expected to result in significant overall

operational risk reduction. So I'll actually be talking about three 10-year plans.

For financial purposes, they talk about water and HETCHE water. For planning and construction

and operational purposes, I talk about local water, regional water, and Hetchy water,

because they're really three different animals that have different needs.

So first, on the local water 10-year capital plan, this is the appropriation schedule that

is laid out over time, which has a peak of about $180 million per year, and then tails

off somewhat. It doesn't mean that you know everything's done but it just means

that there's only so much we can do in the time and that's a 10-year plan of

about 1.25 billion with the two-year budget of 313 million and there's one

particular project that's driving those earlier costs and I'll talk about that.

The second is the regional 10-year capital plan which the two-year budget is

about 264 million but the 10-year plan in total is similar to the the local of

about 1.25 billion and so when you put these two together you've got the water

enterprise plan but you can see that each one has a different time schedule

for projects and it's something we think that we can accomplish and then there's

the Hetchy Water 10-Year Capital Plan. Again, this one looks a little bit different because the others

are just water revenues. They're local revenues for the local projects and then, you know, regional

revenues for the regional projects. And I should say, you know, and I neglected to mention that for

the regional projects, they're paid for by about a third by San Francisco ratepayers with local funds

and about two-thirds by the wholesale customers.

And that's basically on a pro-rata proportion relative to the amount of water used.

So it's always very clear that the regional customers and the local customers

are each paying their fair share of the regional projects.

On the Hetchy waterfront, we have the mix of blends that we apply.

So each one of these bars has four components,

or not all of them have four components, but the blue is the amount of water.

So those are water-funded projects that are just water revenues solely.

The next, the yellow portion, is the power-funded portion, and that is power revenues.

The third is this next section, which is kind of the hatch section.

Those are paid for by developers.

We're in a system out there working within the bounds set by the CAISO

that if folks want to add a new load onto somebody's infrastructure for transmission,

that they have to identify what kind of improvements need to be made to protect that system

and keep it operational with that new load.

So the developers are the ones who are on the hook to pay for those improvements

So that's why there's a special fund category here that we're pointing out that those are power funds, but they're really provided by project developers.

And then the green bar, which is the highest one there across the board, those are joint projects.

Joint projects are ones that have been classified as joint because they serve both water and power needs.

and in that case the power revenues pay for 55 percent of the project and water

revenues pay for 45 percent of the project and that's all part of a formula

that was developed back in the 1984 contract with our wholesale customers

and you know we're always looking at and trying to make sure we're classifying

things in the right way and maybe coming up with new methods of looking at you

know is this the right share and so we're exploring that but for right now

those are the rules of the road for joint projects and so you see that most

of the projects that are in there are joint projects a couple of examples of

fairly substantial projects are O'Shaughnessy Dam we have improvements on

and the moccasin penstocks we'll talk about which we negotiated out that they

will be classified as joint even though they have an underlying classification of power.

But those are big joint projects that, again, there will be a cost share in paying for those

projects.

So those are the way the whole 10-year plan plays out for each of these.

Any questions about the 10-year plan overall before I get into specific projects?

Questions, colleagues?

Commissioner Thurlow.

I really like the framing of the first, second, and third ten years associated with

all of the big capital projects and some of the projects that have been deferred.

So I guess my question is, do we think that we see roughly balanced needs over those 10,

20, and 30-year time horizons?

Or by differing projects like these dam projects,

do we have larger capital needs coming just outside

of the tenure horizon?

That in part may depend on construction costs

and how they vary over time.

What we think is that, I think I mentioned

the example of the dam projects.

When you look at a dam, there's the dam, there's a spillway,

there are outlet structures.

And so doing all of them and making them all perfect is pretty big.

If the dam is the thing at risk, then you generally can restrict the level of operation in that reservoir to reduce the risk.

So that right now I think we have two reservoirs that have water level restrictions in them.

So we're giving up some flexibility there, but that reduces the risk for a period of time.

those projects. We also will be doing smaller interim projects to improve the ability to move

water out of the reservoirs so that that's going to help maybe restore some of that water level.

But so you have less ability for your operation, but not one so great that it is going to harm us,

we believe.

Thank you.

And then I guess a follow-up question is,

is our plate for capital improvement projects

kind of full for the next 30 years?

And what is the likelihood that large, unanticipated capital

projects emerge?

Does that happen?

I'm just not familiar.

I think our plate is going to be full for a long, long time.

The one project that we'll talk about in here,

which is the poster child for this,

is main replacement in San Francisco.

We've got 1,260 miles of water mains in San Francisco.

We're just constantly replacing them.

A lot of us would like to see a higher rate per year.

But you make it a big high rate per year,

and it just swamps the whole capital program.

There's no way you could do that.

So we've got to, but we're going to be at it.

It's like painting the Golden Gate Bridge, except it's underground and you've got to dig it up.

But it's basically, it's forever.

We'll be replacing mains in San Francisco.

We try to find better ways.

We've actually got one project now where we're doing a major slip lining project where you stick a smaller pipe inside a big pipe.

That doesn't work in every case.

But if you can do more of those, those can be cheaper, because you don't have to dig it up.

You just stick a pipe inside.

So there are, you know, but our infrastructure division is not going to go away anytime soon.

Full employment is going to be there.

Yeah, I noticed that was the local pipeline replacement exercises were like a $500 million expenditure in the existing plan.

So that's sort of the steady state rate that's required moving forward.

Well, it may be higher because if it just goes with inflation, it just keeps getting bigger.

Maybe somebody could remind ourselves, but it used to be it was like $2 million a mile and $3 million a mile.

Here, we're seeing $6 million a mile.

And on the high-pressure stuff for the emergency firefighting system, it's even more dollars per mile.

So the dollars per mile add up when you're in a tight urban environment like we are.

Yeah, thank you so much, A.G. and Ritchie.

Commissioner Jamdar.

Thank you.

I have a question about slide 14.

So since 2002, we've spent about $4.8 billion in sort of debt service.

And for the next 30 years, which is roughly 25 years to today,

And then for the next 30 years, it's $10 billion.

So that's nearly doubling the anticipated sort of cost of upgrading infrastructure.

Could you explain this accelerated rate of our need for capital projects in the next 30 years compared to the last 25, 30 years?

Yeah.

Well, at least in terms of the debt service on that, that's something that I think was presented as part of the first presentation in the overall view of this.

And so we showed a slide that shows this is the debt service over the years,

and it starts to tail off as you get to the end of those, the life of those 30-year bonds,

and it starts to tail off.

And so we'll be, you know, picking up some, but not as much as that,

since it was really a big push totally on debt funding everything.

So we're trying to make sure that we don't get into that much of a hole.

but that's going to be the financial challenge for us

is how much do we pay for with revenue

and how much do we pay for with borrowing.

Those things are going to have to be managed carefully throughout

and the answer will probably vary over time

but it's one of our very critical measures.

All right, any other questions?

Sounds like we can continue to the major projects.

And actually, I will give a preview of next week.

There's, you will see the water,

the wastewater enterprise capital program,

and it has many similar issues.

And so as the commission and as the staff of the commission,

we have to deal with these things altogether.

So it gets to be a good challenge.

All right, on to major projects then.

Yeah, now I'm going to talk about some of our major projects.

And for people who downloaded it off the site, there is one additional slide that was introduced at the end.

I brought this in because of something we wanted to make clear.

So it's an extra slide that you'll see on the screen.

And we had some hard copies for the commission, and we can share that with anybody else.

But it will easily be made available.

One of the things about the water system is we always talk about our transmission lines, our tunnels, our dams, our reservoirs, our water treatment plants, but the basic water operation is something that we haven't really focused on in making sure it's clear.

So I put this slide together with help of others to try to show where our major

operations centers are because they are the hubs of how we do our work. So it

starts off with the SFWD there in San Francisco. The operations center is

currently at 1990 Newcomb and but this first project we're going to see after

this is 2000 Marin which is basically building a whole new operations center

here in San Francisco. On the peninsula there,

and you've already heard some comments on this, is the Millbrae

Operations Center. That basically, that box

outlines the area of responsibility or sphere of influence

might be another way to look at it, for that operations center. That's the base

of operations for all the activities that take place there.

And that one is located in Millbrae. And the second slide, the second

project we'll look at. The third is the

Sunol Yard. So we have the facility out in Sunol, which is

again an operation center for the East Bay facilities that we

manage here within that block. And then lastly

is Moccasin. Moccasin is the operation center for everything in the

Hetch Hetchy system. So those are really

four big pieces, four big points of work that we've

never really highlighted. I wanted to make sure we highlight those for the commission

so that you understand that those are critical to our operation

for the base of operations by our staff.

First project is local,

the in-city headquarters project. That's the new San Francisco

Water Division headquarters, which is at 2000 Marin.

That project construction started in late 2024

and completion is expected in 2029.

There on the lower left is the artist's rendering of what it looks like.

So, of course, it's beautiful and lovely because that's what artist's renders always do.

The upper right was a photo I took in early December.

It's not so beautiful because it's truly in construction.

What you see there on the right-hand side is a new administration building,

which is four stories and a six-story parking garage because this is a fairly

constrained site but at least it's better that certainly better than the

one that we're in now so this is a major improvement that we are working with the

total budget on this project is about four hundred and eighteen million dollars

the 10-year plan only has about a hundred and fourteen million in it

because we've already appropriated funds and that project has again been in

construction and particularly the area where you see you know the the steel

going up that's the area the time of the greatest progress so it's moving very

rapidly right now the next center the next slide is the mill bration

operation center improvements this is looking at major upgrades to our

regional operations center there and Melbrae it includes consolidation with

staff from the seismically unsafe Rollins Road building which is in Burlingame. The Millbrae

Water Quality Laboratory which is in the existing administration building there is outdated and in

need of replacement. There's a set of shops buildings that are unsafe and unusable but which

which are the old south shops and we've got a lot of other temporary outbuildings and storage

containers scattered around the site and things scattered around the site and

particularly for the shops folks those basically are are shoved in with the

other folks in the north shops so that they're they've built mezzanines in

those places but they're really unsuitable for long-term operations so

all of those factors are being you know built into our proposal here for the

Millbrae Operations Center. The total budget is $428 million. The 10-year plan

is $365 million because there's money that's already been appropriated and the

first two years is $57 million. And one of the things that has been raised

with folks is the new South Shop building which is on the south side of

property that is where the orchard supply outdoor supply hardware is currently operating and we

actually were gave them a five-year lease back in 2020 and we had a limitation on that lease because

we thought we might need this property but we didn't know for sure if we were going to need

it for this project and we tried really tried to make everything fit in the footprint above that

area and it didn't work and so that's when we decided we're gonna have to have

the whole space and we notified OSH that their their lease would not be renewed

but because of project you know work we actually renewed there gave them a one

year extension on their lease up until 2026 and we just signed a second

extension because we think it's okay to give them a second year extension there. So we've given two

one-year extensions now on that property for the lease of that building. But we have concluded,

we concluded quite a while ago that our Rollins Road staff were originally housed at Millbrae,

but they got pushed out of there because of growth that was already occurring there.

and the Rawlins Road property became available and had some good attributes for it that we took into account.

But the water quality folks there in particular are separated from all the other operational folks

and from the laboratory folks that they work with.

And so we've had challenges that we've had to deal with there.

We bought the Rawlins Road site several years ago.

because the owners wanted to sell, and we had the right of first refusal, so we did buy the property.

But we didn't really do the normal due diligence we would have done.

What we discovered after some analysis, when we thought, okay, well, maybe we can make some improvements here,

that it was evaluated structurally for seismic conditions and was found to be seismically unsafe.

and so we concluded we needed to move them away.

Temporary movement of the staff wasn't going to work, and we needed to move them away.

And when looking at the long-term needs, it was clear that we were really valuing inter-divisional coordination, collaboration, and efficiency.

Basically, the water quality division staff there are ones who were doing sampling throughout the system.

They've got to get them back to the laboratory.

They have materials there at Millbrae or at Rollins and at the laboratory they have to

go back and forth on.

They're also the responders to water quality complaints.

So a lot of benefit is going to be had by moving the water quality staff over there.

Additionally, we have, because they are all mobile people, we're going to be bringing

over 40 additional vehicles to the Millbrae site.

So that's going to be a place that we need.

We have the space to actually park cars there if we use the whole space in addition to all

the other needs we have.

So those are some of the reasons why we really felt it was appropriate to move them over

to this site and move it into this whole property area.

we've been in communication with the city of Millbrae

we probably could have done more early

but once they knew we were going to be in a short term lease

at Osh I think it was clear that there was a very

significant possibility that we might be at this point

and that's where we are now is trying to move forward

and we've made communications with Millbrae a priority

on this, and so we're continuing on that vein

and want to move forward positively on this project.

The next are regional water treatment projects. We have two

Sinole Valley water treatment projects. One is the

addition of ozone, which is necessary for

control of taste and odor compounds. That's actually in construction

as well right now with completion expected in 2030.

Again, it's a large project, $326 million.

The 10-year plan has only $84 million in it

because, again, we have already appropriated a fair amount of money

so that we don't need to appropriate more going forward in the 10-year plan.

And then we also have the Sinole short-term improvements,

which is within the footprint of the existing plan.

So there, if you look at the right-hand side there, the photo, you see the large rectangles.

Those are the treatment basins that we have.

And then there's kind of a triangle area that's off to the right of that.

And a big circle at the top, which is the water storage tank.

That triangle is where the ozone project is going in.

So, you know, next time we talk about this, we'll show many construction projects as well.

This one is really well underway.

Another regional water treatment project

is the Tesla Ultraviolet Treatment Facility

to increase reliability, particularly on the backup power

system.

So we've got about $40 million worth of improvements there.

That project was first completed in 2011

and put in operation then.

And we're starting to see things that we need to change out

because they're starting to get older.

This is another area where we're finding technology is changing over time.

So in our backup power facilities, we're finding that you used to have control systems

that you could buy and change out parts.

You can't change out parts anymore.

You have to buy whole new systems to install.

So that's where a chunk of this money is going,

is into redoing the control system out there.

The next is the Harry Tracy Water Treatment Plant, which is located in San Bruno.

The Harry Tracy Water Treatment Plant, this is phase three.

The chemical delivery facilities at the plant are in need of rehabilitation for about $30 million worth of work.

That hasn't started yet, but it is an improvement we need at the Harry Tracy Water Treatment Plant.

The next are the dam safety projects.

There are three dam safety projects that we know in the near future we're going to have to deal with.

There are Pillar Citos, San Andreas, and Turner Dams.

Pillar Citos is the one that was constructed in 1866.

San Andreas was constructed in 1875.

Turner Dam is the baby of the bunch that was constructed in 1964.

So it's a relatively new dam and a relatively modern dam.

So in terms of prioritization of these, the oldest is, and the two old ones are the first,

and the younger one is later down the road.

The total expected cost of all the improvements there is about $1.4 billion.

So Turner is about, you know, there's below the photos of the dams.

Turner is 776, San Andreas is 380, and Pillar Citos is 190 because it's so much smaller.

But we basically met with the Division of Safety of Dams last October and said,

these are the dams. We know we need to do these.

We've got them spread out because we can't do them all at once.

And their response was, what can you do?

And so that's when we've been developing interim projects that total about $44 million in the 10-year plan to start to meet the Division of Safety of Dam requirements.

So we're about to reach out to them and say, this looks like responsive to what you said.

But again, I think they were very clear.

They know we can't do these all at once, that we have to take our time and be selective about what we do.

So these projects will live for quite some time in the CIP.

The in-city main replacement, you know, the first is the local water conveyance distribution.

That's the bread and butter main replacement project.

And it just shows the 10-year number.

But these are really ongoing programs.

Those numbers will be there every 10-year plan going forward in some form or other.

So those, actually in the first two years, we actually worked really hard to pare those numbers down

so that we know we're going to spend that money.

And we have nine projects that we think we can get out fairly soon.

And so we're working really hard at those.

Two of them have already gone out for bid, and the third one is right behind.

So that's the challenge.

We've told the engineering staff and infrastructure, you know, if you can get them out to bid, you know, we will find the money for them.

So but don't tell us you're going to do it.

And then we've appropriated the money and we don't get them done.

So we know that we will probably have to appropriate more in the not too distant future.

But prove it to us first.

That's really the challenge there.

And I think they're up to it.

So we're looking forward to that.

The next one is the Potable Emergency Firefighting Water System.

This is the system that is built to the same strength as the emergency firefighting water system,

which is a high-pressure system that we operate in San Francisco for fire control.

And that is then in the model we've developed now.

you can build water mains that are built to that standard and deliver water off of them.

But then when you have the event of an earthquake or other big catastrophe,

you can shut off basically all the potable supply and focus it down to just firefighting supply.

And that way, you can get dual purpose.

And we pay for this partly with ratepayer funds and partly with general obligation funds.

So, for example, there is going to be another emergency services earthquake response bond measure probably going to be on the ballot.

It was just approved by the board the other day, at least at the budget level.

And there will be money to come in from the GO bonds to partner with our ratepayer funds to build these systems out.

Another thing that's really important for us is the local advanced meter infrastructure program

and meter replacement. And I want to make sure it's real clear. Water meters are the plumbing part.

The AMA part, the advanced meter infrastructure, is the part that's reading and transmitting out

the data there. And so you've got to make both of these things work together. And so we've got

money for small meter replacement for new developments and large meter replacement.

Small meters are all 5 eighths inch meters. Those are standard household meters. The large meters

are anything between 3 and 10 inches in diameter. The large meters generally tend to be for bigger

customers so that that's where a lot of the money is. There's also manifold services renewal.

Manifold services are where you have a single pipe coming in and then a manifold and a bunch

of meters there. And we're going to be replacing those with single meters that then can meter out

all the load and deliver it through a manifold later to where it is. And that's more efficient

for us and will require fewer replacements over time.

Because one of the things you worry about with meters is the meters

themselves actually wear out slowly over time and start

to read less and less. So when we last replaced meters

in a big way in 2015, we've notified customers your bill

will probably go up an average about 3 or 4 percent because the

new meter will read more accurately. And sure enough, that's exactly what happened.

On the AMI front, one of the things that we're doing right now, which isn't in the capital program, but I thought I'd mention, is we are just issuing a contract or have issued the contract.

And starting next week, we'll be replacing 5,000 of the units we call MTUs.

Those are the units that actually you can pull out and plug in a new one so that it's transmitting the information.

That's to head off the failures that we've seen in the past and making sure that we are getting good reads all the time.

So we're doing that as an interim measure right now.

And then the AMI Refresh and Renew is for us to go out and do more on the order of 50,000 of those so that we get them in place

while we are going through an effort of trying to figure out,

do we want to use the same AMI system,

or do we want to, in the future, not too far out,

hopefully, convert to another system?

Because, again, technology is changing,

and we're trying to figure out what's the best investment

for the PUC and the ratepayers here.

But there's a lot of things happening there.

But meters are one thing, but the electronics and the AMI is the other.

I'm going to shift over to upcountry now at Hetch Hetchy.

The first project here is the Moccasin Penstock Rehabilitation Project.

This is, you know, I think the single largest project on the Hetchy Capital Program at $533 million.

The penstocks, which are there in the photo, those are the pipes that come down the mountainside

and go to the Moccasin Generation Building.

Those are more than 100 years old.

Actually, they just passed, 100 years old.

1925 is when they were put into operation.

We've had needs assessments and a condescension assessment complete.

We've looked at alternatives, and we drafted an alternatives analysis report,

but we're going to go into a little further review.

One of the things we were able to do was acquire some property that completed our control of the right-of-way,

So we want to make sure we build that into whatever we do here because property is oftentimes a big stickler in a project.

And fortunately, it came on the market, and we bought it.

We needed to buy it because it made sense.

The construction on this is expected to begin in fiscal year 32 with completion in fiscal year 2036.

But this would be a big deal project.

We're looking at the alternatives.

that would be one would be you know just putting more pipes down the hill the

other would be actually building a shaft and a tunnel to actually move the water

and both of those have pros and cons that we're still looking at the O'Shaughnessy

Dam outlet works phase two phase one was basically all preparatory work to try to

you know get conditions set up in the dam so that we could make the

improvements. So that what we're looking at are the replacement of valves that are in the dam face.

Again, the dam was constructed initially in 1923, so that these are 100 years, actually more than

100 years old. So replacement those needle valves and one butterfly valve. There are a series of

slide gates and drum gates that are used to move water around and improvements to the diversion

tunnel and pipeline. So this will actually be a fairly complex project because particularly for

those valves that are in the dam, they are in the concrete of the dam. So it's going to be a very

challenging project to take care of this. But again, it's 100 years old. It needs it.

Moccasin Dam and Reservoir Long-Term Improvements. There was a major flood event in 2018 that a lot

of us experienced, and it was a real wake-up call to how much you could get in an atmospheric

river when you least expected it.

And so that event caused us to reevaluate the dam in conjunction with Division of Safety

of Dams, and so we're working at construction of a new auxiliary spillway with adequate

flow capacity to help the dam survive.

We're at 35% design with the construction hopefully beginning in the next three, four years and completion in 2033.

And then, last but not least, because this is the last of the projects to be highlighted here,

because there are other projects, of course, that we're not talking about, but one that I will.

It doesn't have a slide.

This is the San Joaquin Pipelines Valve and Safe Entry Improvements.

These are a set of four contracts that we've been going through.

to make sure that our San Joaquin pipelines have cross connections that work

and that we have safe entry and access for our staff whenever they have to work on the pipelines.

So these are a series of projects where we're basically installing in many places

spool pieces that can be removed to lock out sections of the pipe.

And so you can get in, take them out, everybody's safe, do the construction work, and get back in.

The last project that I would mention is on the alternative water supplies.

That's something that we've talked about, and some of the stakeholders have commented a lot about,

that, oh, my God, these will all cost a boatload of money, and you shouldn't just do them.

Well, we're not going to just do them, but we do have certain projects that we think are worth pursuing.

there are two of them that are in the capital program.

One is the Peninsula Pure Water Program,

which is done in conjunction with Silicon Valley Clean Water,

which is the wastewater entity down in the Redwood City area.

We would take wastewater from there, treat it to a high degree,

and actually move it into Crystal Springs Reservoir,

where it would be there for some period of months

before it got filtered at the Harry Tracy Water Treatment Plant.

So that's what we call indirect potable reuse.

But it would be, you know, it's the one project that really seems to be beneficial

that we want to pursue at this point in time.

The second is actually a demonstration project here in San Francisco.

You'll see the title in there.

It was the Pure Water SF Proof Project.

And I forget what proof actually stands for, but basically it's to prove out that we have the technology.

So after we've moved out of Newcomb Street, we would like to construct this demonstration facility there

to show how you can treat wastewater to a high enough degree that you can use it in what's called direct potable reuse,

which is basically you don't pass it through nature.

It just goes straight into the drinking water system.

And we think that there's a future for that.

I know San Diego is moving that direction, L.A. and Metropolitan are moving that direction,

and we think it's certainly worth exploring and ultimately demonstrating.

It's going to be a long-term view.

It's not something that's going to get done tomorrow, but one of the requirements is that if you're going to do it,

you actually have to have a demonstration facility to prove that you can actually produce water of a suitable quality on a reliable basis,

and that's part of this project.

This project has planning money here.

I think the construction money actually is in the second 10 years on this project.

Now, I've been through a lot of projects, but there's a lot more if you want to go through the spreadsheet line by line.

But they really do represent, again, things that cover all aspects of our business

and making sure that we can reliably deliver water to our customers.

Happy to answer any questions.

Thank you for the terrific presentation.

AGM, Richie, thank you to you and your teams.

I'll turn to colleagues first.

I'll have a question a little bit later just on the last two items for alternative water supplies.

And I'm sorry if I somehow just didn't hear it, but ballpark total budget for Peninsula Pure, what's the total budget?

I think it's about $700 million.

$700?

Yeah.

And then how about for Pure Water?

That's more in the $100 million range.

Okay.

All right.

Thank you.

Questions from colleagues?

Colleagues?

Commissioner Stacey.

Thank you, and thank you for the detailed presentation.

I appreciate how difficult the budgeting process is

and figuring out what you can push out past the 10-year capital plan mark,

what is safe to defer, and what is more of a priority.

And you gave us some examples of the dam, the three dam safety projects.

And it sounds like you've been in conversation with DSOD.

Is that the right?

DSOD, yeah.

and that there are interim measures that we can take in the meantime.

But if those interim measures don't work or aren't to the satisfaction of DSOD,

we really might be required to lower further the water levels in, you said, two, maybe three reservoirs.

Yeah, in two reservoirs right now we have restrictions.

Pilar Citos and San Andreas.

When we met with DSOD, we showed them the schedule of if we did everything in a big way,

projects take a long time to develop.

And so their initial reaction is, well, you're not really going to be physically changing things for quite some time.

And we're not comfortable with that.

And we said, well, it's going to be hard.

And they were the ones who suggested, why don't you develop some interim projects that can get some benefit quick?

So in particular, dams are, there's the dam, there's the spillway, and then there's emergency release conditions.

And they really are interested in emergency releases.

And so that's what we're looking at as an interim project, particularly for Pillar CEDOS,

because it lends itself very, very well to doing that piece first.

And so if we do that and divorce it from a big dam project,

we think we can get that done much sooner.

And they would be happy with that.

I also learned from them, Pillar Citos is the only dam in our system

and one of the few dams in California that is rated as poor.

and from their perspective

there's satisfactory, fair,

poor. Poor is bad. So

if we make the improvements there, they can at least upgrade it from poor

to fair. So that to them is

that's a sign of success and we're going to be able to operate

the reservoir better. So it's a win for both of us.

But I guess we were a little surprised when they were saying, well, just do something that can make it better.

And so that's the path we've been going down, and we think we've got a good plan there.

Good to hear.

The other, you had a slide up for the San Joaquin pipelines.

It looks like most of that project is being deferred past the 10-year capital plan.

Is that right?

Yeah, can you bring those slides up?

Numbers correctly.

This one that's right here, I think.

The total budget is $157.8 million, but only $29.1 million is in there.

Yeah, we've already spent a lot of that money.

Oh, I see.

Yeah.

Okay.

We just talked about it the other day.

On Tuesday, there was talk about extending the schedule for the surge tower at Tesla.

That's the one project of the four here.

That one's done now, basically, and that's basically heading for closeout right now.

So that money's already been spent.

Okay, good.

I misunderstood that.

I was also looking at the regional water capital plan.

It looks like there are big increases in years 3, 4, and 5,

and so I looked at your more detailed information in 3BII,

and it there are just there are seven or eight different projects in that that have big budget

allocations in year three four and five there's not really any it didn't seem to be that there

was any one project that was going to push years three four and five up by you know sonal valley

Crystal Springs, Bay Division Pipeline, San Antonio Pump Station, Alameda Creek Recapture, San Andreas.

There are a lot of projects that are going to push up the capital plan in years 3, 4, and 5.

Yeah, that is correct.

One of the things we did in an early internal budget presentation was say,

well, let's just look at the projects that are either in construction or going to construction soon.

And that amounted to a substantial amount of money.

But they're all ready to go.

And so we've actually spread them out a bit there.

But you can only spread it so far before you can't do justice to the projects.

Yep.

Okay, that's all for me now.

Thank you.

Any other questions, colleagues?

I have not a question but an observation because the general manager and I had a great conversation yesterday

where he wisely and correctly reminded me it's not always possible to get the consensus on every decision we make.

But I think something I know that I personally shared in that conversation and in our meeting on Tuesday is that I've been really, really impressed and proud of the fact that just about everything that comes in front of us, or at least for me being on the commission for about a year and a half, is so well prepared, so fully baked.

I can't think of any instance where there's been a decision we have to make where there's, you know, significant opposition or pushback or that there hasn't been every effort to get to either to actually get to consensus or get pretty darn close.

You know, so I want to pay that respect to the entire agency and staff for doing that.

And there's one topic, we don't have to vote on it today, but I'm guessing because we heard some of the callers waiting in the queue who've been to the commission,

I know that I really enjoyed to join you and members of the team, including Allison and Katie.

We went down to the Millbrae City Council to hear the presentation on the Millbrae Operations Center.

and I know that we're continuing to have dialogue with the folks down there.

I heard pretty loud and clear, at least on that particular issue,

we're not at consensus unless you all have been working stuff through

since whenever that was a couple weeks ago.

I learned really loud and clear kind of what was alluded to today,

which is the absolute essential nature of the Millbrae Operations Center.

That's the center of so many key activities in that area, and it's not just the personnel.

There's some consolidation of personnel.

There's a laboratory space.

There's a shop space.

So I heard that loud and clear and believe that to be true for us.

I did hear a number of electeds and elected officials and members of the public who got up and testified their concern.

I mean, it seemed to be very focused on the hardware store, on the, it's not orchard supply hardware.

Outdoor supply hardware.

So I don't have a question.

I'm just making an observation that if we could put up slide 23.

Oops.

Overshot.

You know, yeah, this is the one, though.

And, you know, I think one day that in a minute I'm going to channel former GM Andy Moran in his design drought quote,

and I think hopefully one day we're quoting General Manager Dennis Herrera that try as we might, we can't always achieve consensus.

I think it's a truism.

but everything we can do to try to get to a point i'm making an observation it's not a question it's

not nothing i want to respect the conversations that may or may not be having but my hunch is

if we can ever get to a point where we have everything we need here and that little box

that says new south shop if that gets to a point where we have our new south shop

somewhere in there, and then that says outdoor supply hardware,

we've probably got consensus on an issue where I feel like it's still probably far apart.

Respecting the conversations, hope they're going well,

and then hope by the time we do have to make a decision,

we're either at consensus or as close as we can be,

but at least we'll know that we did everything to address potential breadth, magnitude,

identity, character, and that we can say that we did everything we could to get there.

Good luck in those conversations.

Maybe the callers are on to say, thanks, we all worked it out.

I don't have a crystal ball to know if that's the case or not.

No, they will not say that.

Got it.

I can't believe that's the answer.

There's a variety of information.

I don't even, and it's only if you want to.

I don't even, I'm just leaving, I'm making an observation.

No, no, no, I'm just going to say that.

Riffing on consensus.

I owe them some more information, and we're putting it together right now to answer some detailed questions,

because there are very detailed questions that they have asked, and each question seems to lead to others.

So we want to make sure that we're giving them complete information to deal with.

But, yes, we are not there.

literally just before the meeting I sent the news about the extension of the OSH lease for another year.

That document was signed and so that's good to go.

Another piece of information is that the Civic Design Review Board put out an RFQ for artists for the community art that needs to be developed.

and I shared that with them as soon as it came across my desk.

So anything that comes to me, I'm sharing, but I'm working on more that we can provide to them and to others

to make sure everybody sees this.

And also, we've looked at the project itself.

One of the things that, if you put the slide up, I can point to a spot.

And honestly, it's only if you want to.

I'm respecting my guy.

I don't want to go too far as a commission into the work of staff.

I'm just giving you a little bit of the flavor of it.

One of the things that we've done, because actually the wholesale customers, Bosca,

sent us a comment letter that we just got yesterday.

We're looking into the responses to that.

And one of the things they're looking at is, yeah, let's make sure that we're being very efficient in this.

This site used to have a particular element on it called a wellness center.

And that part of the project got cut about six months ago because we were starting to see costs creep up here and there.

I said, you know, we can't afford to have the budget increase.

We need to keep the line drawn.

So the Wellness Center, you know, bit the dust.

The space is there.

Maybe we do something in the future.

But those are the things that we're doing.

I just wanted to make sure the commission knows that we are doing those things.

I know I appreciate it.

I'm going to bet and win that every other commissioner appreciates it as well.

I just think you know what you're doing.

You've done this.

I mean, it's not easy work.

I appreciate you.

That's what I wanted to see firsthand and also be there to be with you and the team in that conversation.

I just think if and when that day comes, like any other issue, as the GM, as General Manager Herrera said,

try as we might, we can't always get to consensus.

In my experience, it's about 99% of the time.

But if it gets to where we have to make a vote, where there isn't consensus,

I think it's important for us to know breadth of opposition,

magnitude of opposition, identity or character of opposition,

and that we did everything we could to try to get to consensus.

Thank you.

My last question.

And that wasn't even a question.

That was an observation.

I know.

I appreciate you for sharing.

It's just that suffice it.

I think it's probably safe to say that we, just about every meeting and often in our inboxes,

get communications and testimony from two very committed advocates around revisiting the design drought scenario.

My question is just this.

Do we ever get to a point where certain of the reality is around capital planning,

the way that things like alternative water supply investments,

We talked about these two projects.

Any other capital projects that have some sort of nexus to our design drought planning scenario?

Do we ever get to a certain set of fiscal realities?

And let me just specifically focus on the rate component.

Do we ever get to the point where the necessity on achieving our affordability goals or other goals with respect to rates?

I know this isn't a rate conversation, Mr. Deputy City Attorney, but this is a conversation about how capital decisions can have impacts on rates.

Does it ever get to a point where we say, all right, let's sit down, and we have Andy Moran in our ear when he said he can't agree with any comment that our design drought operating rule is overly conservative.

But does it ever get to a point where we start to look and remodel so that we can have some benefits with respect to capital expenditures that could?

I'm glad you asked that, Mr. President.

I think you'll recall what I said the other day after Mr. Ritchie gave his water supply analysis.

I made a statement about focus that we were going to do.

This year that was I think that's kind of related to what you're saying. That was the whole point of my

comment was to not just illustrate the work that we

continually do and are doing but with

sort of some of the timeliness that we have this year with the urban water management plans being due the conversations going on

with the Bay Delta plan and

and healthy rivers and landscapes, water demands and obligations.

That was the whole point of me making that statement,

that there is going to be a focus on all of how we look

at our water supply planning and demand management,

and obviously that impacts everything that we do.

So that was the point of that, and that's why I made that commitment

that later this year we will show you the results of our,

or talk with you in public about the results of our analysis.

Okay. That works for me. The only other thing I'll throw out there, not that I want to be quoted on it, because I'm not the one. I've said it before, but I'm not the source. The notion of the flip side of Andy Moran is take only what you need. That ain't me. I mean, that goes back to the first peoples. But I think that's really appreciated and looking forward to that conversation.

Any other questions from colleagues before we go to public comment?

All right. Thank you, AGM Ritchie. Ms. Lanier, can we take public comment?

Remote callers, please raise your hand if you wish to provide comment on item 3B.

Is Mr. Tom Smagle still present?

Tom Francis?

You are correct. Mr. Smagle, our general manager, wishes he could have stuck around.

He had another appointment at 3.

I'm passing out the statement that Tom would have read, and in light of the fact that there's two minutes,

I'm only going to read a portion of that statement today.

So in accordance with our water supply agreement with the city and county of San Francisco,

Bosca met with SAPUC staff and reviewed materials in advance of this 10-year CIP workshop.

We reviewed it for both Water Enterprise and Nehecheche system.

Bosca sent our comment letter yesterday.

What you'll hear in the statement is somewhat of a paraphrase of what's in that comment letter.

strictly we're going to be talking today about highlights in that letter that we want to make

you aware of. So first of all, relative to dams, the ability to defer identified work on dams and

reservoirs requires ongoing engagement between the SFPUC and the State of California officials

charged with dam safety. Required work on existing dams in the years beyond the tenure CIP is

extensive and costly. This is a site that we wanted to make. On alternative water supplies,

unlike in prior budget cycles, the SFPUC does not propose to spend significant funds on the

development of regional alternative water supply projects, aside from the Peninsula Pure Water

Project, in year 10 of this 10-year CIP. Those costs are beyond the cycle that you'll be adopting.

This is a point which Bosca believes many members of the public may miss.

Bosca supports this budgeting approach since until regulatory issues associated with the Bay Delta plan are sorted out, there remains uncertainty.

On Millbrae, the SFPUC's Millbrae Operations Center serves to provide water supply reliability, address water quality needs, and is for emergency purposes.

But it's imperative that the scope and timing of the project for this center clearly represent the most cost-effective approach.

In our comment letter, Bosco requested additional information to clarify how this project has evolved over time.

That's it. I could have went on more, but you have the statement.

Thank you.

Thank you. Are there any other members who are present who wish to comment?

Seeing none, moderator, are there any callers who have their hand raised?

Ms. Lanier, there are two callers with their hands raised.

Thank you.

Caller, your line has been unmuted.

you have two minutes hello this is steven rinaldi vice mayor of milbra and i'm here to urge commissioners

to scale back staff's half a billion dollar capital improvement plan for the milbra parcel

on el camino real while we understand the need for some facility upgrades and scope is far too

expensive demonstrates inefficient use of land and it's harmful not only to our community but

the rate payers as well rate increases we already know san francisco rate payers are going to face

double digit increases in the next two years for water enterprise and waste water enterprise combined

we also know bosco ratepayers still have no clarity on how the cip will affect their rates

not only that there's one million dollars lost in annual rental income from outdoor supply

hardware and kfc and 50 employees will be displaced as for the partial inefficiencies

most of the land is consumed by surface level parking which flies in the face as sfpuc's transit

first policy. You reduced parking at SFPC's headquarter at 525 Golden Gate, where only four

spaces were used to promote transit use and lower greenhouse gases. Folks, I got to remind you, this

is a 10-minute walk from the largest transportation hub west of the Mississippi. You have Sam Trams,

BART, Caltrans, access to SFO over in Millbrae. And last but not least, I want to talk about

rebuilding trust. Why did staff just release an RFQ for two art projects tied to this proposal?

That presumes approval and undermines good faith of Milbrae and Boscoa. Last thing I'm going to leave

you with, there's been no conversation with the city of Milbrae or even our county. Mr. Ritchie

came down to our last city council meeting and admitted that they had no clue what our decade-long

county's Grand Boulevard design was about, which is basically a transit-oriented community on El

Camino Real. This whole project flies in the face of it. Commissioners, I'm asking you if this

project in its current form wastes ratepayer dollars, destroys local jobs, contradicts SFPC's

own priorities of equity and community. Ratepayers and Milbrae deserve collaboration, not a half

billion dollar mistake. I urge you to halt this project, bring Milbrae and BOSCO to the table.

Thank you, caller, for your comment.

Caller, your line has been unmuted.

You have two minutes.

Thank you.

This is Ann Schneider, former mayor, City of Millbrae.

Millbrae is representative to Bosco.

Chair, first I want to say thank you.

Thank you for your attempt to try to bring resolution for that.

I'm going to be blunt with my terms because now I've got less than a minute and a half

on that.

Millbrae is an overburdened community.

That means we're regional infrastructure and in our case, SFPUC, SFO, BART, California,

Caltrain high-speed rail, all cause, and PG&E, all cause significant economic harm by taking our land.

SFO was created on the city of Milbrae's land.

It takes away our access from the bay.

It has taken away 100 years of economic development opportunity, leaving Milbrae as one of the lowest revenue-generating cities in San Mateo County,

one of the lowest amounts of money we have per capita.

That is why we have to fight for economic, whether it's La Quinta Hotel or the outdoor hardware supply on that.

In addition, all of these regional agencies have left us with a huge environmental impact.

Flooding from SFO, people drowned in 2021, fuel chemical leaks, noise, high, high levels of particulate pollution.

So everything that happens here has to also ameliorate or mitigate the pollution there.

Under state law, AB 1628, it means that agencies coming into an area are supposed to have meaningful involvement in land use decisions.

That has not happened here in Millbright.

I started going back into your past work plans, and I looked at the FSPS, I'm sorry, your 2020 Capital Improvement Plan, and in it were three projects in Millbrae.

I was on city council during that time.

None of them came to the city of Millbrae.

One of them involved carrying power lines over Millbrae over areas that have had fires where we've almost had to evacuate neighborhoods.

So again, meaningful involvement in land use decisions should be on everything within whatever

jurisdiction you're operating in, not just Millbrae.

The new corporation yard, which is what it is, I did a little bit of AI homework, and

this will be the only corp yard on the entire length of El Camino Real and Mission and Foothill,

which is the El Camino Real.

Thank you, caller, for your comment.

Ms. Lanier, there are no more callers who wish to be recognized.

Thank you. Item four.

If I may, just before we go, item four.

So thank you, AGM Ritchie.

Behind the podium.

Thank you. Thank you to you and your staff.

As you continue the work, remember,

breath, magnitude,

identity, character.

It's mentioned in the Bosca letter.

Other questions?

Thank you for asking the questions.

Remember Bosco represents two-thirds of all of our highly valued and critical rate payer

customers.

Support your efforts to get us as close as you can to consensus on this important and

everything else that you do, including this important topic.

Thank you.

Thank you, Mr. General Manager and colleagues.

I think, unless there's any other comments.

Seeing none, can we go to item four, Ms. Lanier?

Absolutely.

Item four, motion to continue meeting to a special meeting notice for Thursday, February 5th, 2026.

All right, colleagues, can we get a motion to continue this special meeting to another special meeting notice for Thursday, February 5th, 2026,

here at 1.30 p.m. room 408 once again.

So moved.

Motion by Commissioner Stacey.

Second.

Second from Commissioner Jamdar.

All those in favor.

Oh, I'm sorry.

President Arce.

I was in a different meeting yesterday.

Can you please call a roll call vote, Ms. Zanir?

President Arce.

Aye.

Vice President Leveroni.

Aye.

Commissioner Jamdar.

Aye.

Commissioner Stacey.

Aye.

Commissioner Thurlow.

Aye.

The item passes.

item 5 recess to 1 30 p.m. Thursday February 5th

2026 at City Hall room 408 this meeting is hereby

recess to 1 30 p.m. Thursday February 5th 2026 at City

Hall room 408

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