MINUTES REGULAR MEETING Tuesday, April 8, 2008 1:30 P.M. City Hall, Room 400 1 Dr. Carlton B. Goodlett Place COMMISSIONERS The Honorable Ann Moller Caen President The Honorable E. Dennis Normandy Vice President The Honorable Richard Sklar The Honorable David Hochschild The Honorable F. X. Crowley

DEPARTMENTS AND ENTERPRISES Water Enterprise Wastewater Enterprise Power Enterprise Infrastructure Business Services External Affairs Gavin Newsom MAYOR   Ed Harrington GENERAL MANAGER Michael Housh SECRETARY

ORDER OF BUSINESS:

1. Call to Order: 11:45 A.M.

2. Roll Call: Present – President Ann Moller Caen, Vice President E. Dennis Normandy, Commissioner Richard Sklar, Commissioner David Hochschild, Commissioner F.X. Crowley

CLOSED SESSION (11:30 A.M.-12.30 P.M.)

3. Public comments on matters to be discussed in Closed Session.

There was no comment.

4. Motion on whether to assert the attorney-client privilege regarding the matters listed below as Conference with Legal Counsel.

Moved by Vice President Normandy, seconded by Commissioner Crowley, to assert the attorney-client privilege; passed (5-0 Caen, Normandy, Sklar, Hochschild and Sklar) unanimously.

The Public Utilities Commission met in Closed Session at 11:40 A.M.

5. Conference with Legal Counsel – Pursuant to California Government Code Section 54956.9 (b) and (c) and San Francisco Administrative Code Section 67.10 (d) (2) (Ambrose)

Anticipated Litigation: As Defendant.

Present in Closed Session were President Ann Caen, Vice President Dennis Normandy, Commissioner Richard Sklar, Commissioner David Hochschild, Commissioner FX Crowley, General Manager Ed Harrington, Assistant General Manager of Finance Scott MacDonald, Assistant General Manager of Water Michael Carlin, Finance Director Joseph Yew, Rate Administrator William H. Laws, City Attorney Joshua Millstein, City Attorney Don Furman, Legal Counsel Noreen Ambrose, and Commission Secretary Michael Housh.

6. Threat to Public Services or Facilities – Pursuant to California Government Code Section 54957 and San Francisco Administrative Code Section 67.10(a). (Ambrose)

Consultation with: Agency Chief of Security concerning security of SFPUC Water and Power Systems.

No action was taken.

7. Conference with Legal Counsel – Pursuant to California Government Code Section 54956.9 (b) and (c) and San Francisco Administrative Code Section 67.10 (d) (2). (Tan)

Existing Litigation:

Schram Construction, Inc. v. City and County of San Francisco, San Francisco Superior Court Case No. CGC-06-453479, filed June 23, 2006.

This agenda item was removed off the Calendar.

Following Closed Session, the Commission reconvened in Open Session at 12:45 P.M.

8. Announcement following Closed Session.

President Caen reported that no action was taken on Item Five and Items Six and Seven were taken off calendar.

9. Motion regarding whether to disclose the discussions during Closed Session.

Moved by Vice President Normandy, seconded by Commissioner Crowley, not to disclose the discussions during Closed Session; passed (5-0 Caen, Normandy, Sklar, Hochschild and Crowley) unanimously.

10. Approval of Minutes

a) Minutes of the February 15, 2008, Special Meeting

b) Minutes of the February 26, 2008, Regular Meeting

c) Minutes of the March 11, 2008, Regular Meeting

d) Minutes of the March 25, 2008, Regular Meeting

Moved by Commissioner Crowley, seconded by Commissioner Sklar, to adopt the Minutes of the February 15, 2008, Special Meeting; February 26, 2008, Regular Meeting; March 11, 2008, Regular Meeting; and the March 25, 2008, Regular Meeting; passed (5-0 Caen, Normandy, Sklar, Hochschild and Crowley) unanimously.

11. Public Comment

Mr. Francisco da Costa, Environmental Justice Advocacy, welcomed the new General Manager Ed Harrington. He then called attention to the following serious issues clean water, waste water, clean energy; saying they must be seen not from the perspective of San Francisco, but regionally. Mr. da Costa observed that in recent months we had experienced some turbulence, but that had been good because we learned from it, and now we needed to move forward.

12. Communications

There was no discussion.

13. Other Commission Business

a) Discussion of the powers and duties of the Commission, Commissioners and General Manager pursuant to the San Francisco Charter and the SFPUC Rules of Order.

Legal Counsel Noreen Ambrose reported on her review of the City Charter and administrative codes and briefly outlined respective roles of the Commission, individual Commissioners, and General Manager clarifying their respective roles and duties and providing insight should the Commissioners desire to amend their Rules of Order.

Ms. Ambrose noted that the basic division of authority between the Commission and General Manager as outlined in the City Charter was that the Commission had responsibility for formulating, evaluating and improving goals and policies and also responsibility for approving the annual budget, subject to the Mayor's responsibility to initiate and prepare the City Budget and submit it to the Board of Supervisors, and to conduct investigations using the Commission’s powers of inquiry, holding hearings and listening to testimony.

Ms. Ambrose continued by observing that the chain of command established in the City Charter was that the Commission establishes the policy in regularly scheduled, publicly noticed meetings acting by majority vote. The Legal Counsel said then the Commission communicates its policies to the General Manager, who has the administrative responsibility for the SFPUC and shall execute the Commission's policy.

Ms. Ambrose noted that the City Charter administrative code grants to the General Manager specific authority to select personnel, for example for employment as civil servants in the agency to handle requisitions, purchases of equipment and supplies. Also, Ms. Ambrose reported, uniquely to the SFPUC, special City Charter provisions adopted by the voters in 2002 also conferred independent authority to organize and reorganize the Public Utilities Commission Department.

Ms. Ambrose reported that the City Charter was very explicit in distinguishing between the role of the Commission and its ability to set policy from the authority of an individual commissioner, which was explicitly limited the City Charter. Ms. Ambrose noted the Charter provides that relative to the affairs of the department, individual commissioners shall not dictate, suggest or interfere and that any violation of that was official misconduct. Ms. Ambrose reported that this did not mean that the Commission had no role in administration of the department, reporting that the Commission acting as a Commission could establish policies for administration of the Department, and noted the Commission had adopted resolutions establishing administrative policies over the course of time which the staff must adhere to.

Next, Ms. Ambrose reported another point worth reviewing were the Rules of Order that grants the Commission President and Vice President special privileges as officers of the Commission, that the City Charter does not distinguish. Ms. Ambrose remarked it was not as if the President and Vice President could give explicit direction to the General Manager as they too must act through the Commission. Ms. Ambrose reported that what the Commission’s Rules as interpreted had given to the President and Vice President was authority to control the order of the meetings. Ms. Ambrose reported that the City Attorney’s office has interpreted that to mean that the President has the authority to decide along with the General Manager what matters may be calendared for Commission business. Ms. Ambrose also reported that should individual Commissioners disagree with the General Manager about what should be calendared, they then could bring a motion and by a vote of three, determine that something would be calendared that the Commission President and General Manager did not care to calendar at that time. Clarifying these responsibilities was something that the Commission could address in reconsidering its rules Ms. Ambrose suggested.

Ms. Ambrose then called the Commissioners attention to copies of city attorney opinions concerning these respective roles and authority of the General Manager and Commission, and copies of the City Charter sections referenced in these city attorney opinions provided to them.

President Caen observed that it would be a very good idea for the Commissioners to review this material as well as the current Rules of Order. President Caen noted that she did not see in the Commission’s Rules of Order an explicit procedure for setting Commission meeting agendas, and recommended that wording to that effect should be added. The Commission President observed that it had been understood that the role of the Commission President together with the General Manager would set forth the agenda and that it was understood any items proposed by any commissioner should come through the Commission President before going to staff or General Manager.

Ms. Ambrose responded noting that in the Commission’s Rules of Order, as the City Attorney has interpreted Rule 14 where it provides that the President shall preside at all meetings and Commission shall preserve order and quorum shall prescribe all questions of order to the Commission to mean that the President decides as a rule of order whether or not to hear an item at any given Commission meeting. Ms. Ambrose suggested an amendment could be crafted to spell it out in plain English as to the President’s prerogative regarding setting the meeting agendas. President Caen asked that such an amendment be prepared for the Commissioner’s consideration.

Vice President Normandy applauded the discussion and recommended that it be carried forward by making a couple of requests: first to continue this discussion after review of the information provided in a future agenda; and that in light of our new General Manager and new Commissioners, the Commission to collegiately review these matters and establish agreement on certain protocols that may not currently be reflected in the Commission’s Rules that should be. Vice President Normandy observed that the main purpose of the exercise should be to move toward a process individually and collectively to start thinking about any revisions needed and come to collegial agreement to adopt at an upcoming meeting.

Commissioner Sklar suggested time be taken to read the materials provided and come back with specific questions, suggesting the Commissioners follow the Vice President’s recommendation.

14. Report of the General Manager

b) Combustion Turbines Project Update

Commissioner Sklar asked that combustion turbines (CT’s) project be taken up next. General Manager Ed Harrington began this discussion by noting that it was a continuing one and that at the previous Commission meeting Acting General Manager Tony Irons had mentioned that the legislation moving the project forward would be going to the Mayor to bring to the Board of Supervisors. Mr. Harrington reported that legislation was delivered to the Mayor's Office yesterday, April 7th, and introduced project manager Mike Martin to discuss this topic further.

Mr. Martin began by noting that as Mr. Harrington had said staff had provided the Mayor's Office with a package of legislation with the construction contract as well as all the other agreements that will be needed for Board of Supervisors approval to move forward with construction of the CT’s Project. Mr. Martin acknowledged the great assistance from the City Attorney's Office and SFPUC and Public Office of Finance in pulling this package together. In response to Commissioner Sklar’s request, Mr. Martin proposed to provide copies of this information to the Commissioners.

Commissioner Sklar said that this has been an area of great interest to him and that he wanted to congratulate Mr. Martin and the team that got the SFPUC to where we are now. Commissioner Sklar noted that the summary sounds like the SFPUC had made giant leaps forward to accomplish objectives such as dramatically lower costs and meeting the goals the Commissioner’s had set last October as well as restrict use of this facility for reliability purposes only. Commissioner Sklar continued remarking that the process had reduced the cost to the City dramatically and resulted in a mechanism that will fully restore the ratepayers costs over the course of the life of the units. Commissioner Sklar expressed satisfaction with the progress made, but noted one remaining concern that the Commissioners might wish to address concerning the fourth unit, the one scheduled for the airport, which he thought not necessary and in fact a mistake to move ahead with as it was unneeded for reliability and did not make economic sense. Commissioner Sklar observed that it was not his wish to upset the contracting process but thought of leaving an option open of possibly not doing that single part of the contract, without disrupting the legislation. Commissioner Sklar recalled that the reason that the SFPUC was going ahead with the fourth unit went back into history and California Independent System Operator (CAISO) and proposed that they would have to accept the fact the SFPUC could meet reliability requirements without it.

Commissioner Sklar then pointed out that if we eliminated the fourth unit the SFPUC would not need call energy, or if we moved it to another site, the SFPUC might go forward without creating new legislation or taking new action here by devising into the contract and maybe into the package, the possibility of what is called a delete alternate in the contract with the contractor, where the SFPUC would have the option to eliminate one unit from the four. Commissioner Sklar continued by suggesting staff work on two possibilities: one that in the course of a period of time before foundation work is done staff discuss whether the fourth unit was needed; or secondly, examining the possibility if the fourth unit makes sense that it makes sense to site it with the other three. This, reasoned Commissioner Sklar, would cost $33 million rather than the $55 million for a single CT at the airport. Commissioner Sklar commented he would bet the cost of putting it, should it be possible on the same site, will be less because the costs would be spread over four rather than three turbines.

Commissioner Sklar asked if it were the sense of the Commission that these options be explored without changing the contract or slowing anything down. He noted in order to have those choices somehow built in so that if a determination was made with CAISO that the SFPUC did not need the fourth unit for CAISO and get $70 million in additional savings and probably $100 million less in costs for the City in contrast to the proposed project that the Commission had looked at last summer. Commissioner Sklar congratulated staff for moving this forward and asked his colleagues if it was the sense of the Commission, not a resolution or change, but an idea of exploring an even more sensible structure for the City.

Vice President Normandy noted Commissioner Sklar had made a good case, accepting the premise not to slow down the ongoing process, and observed secondly, that it was essential that the SFPUC continue to remain in contact with the various stakeholders involved. Vice President Normandy pointed out that the last thing the Commissioners wanted to happen was for anyone in the public to think simply because the Commission established the terms of this project, that the Commissioners now leaving them behind. Vice President Normandy noted the community members continue to be stakeholders and the SFPUC should remain in close contact with them. Vice President Normandy observed that Commissioner Sklar had made excellent recommendations which could have the effect of substantial cost savings and result in less environmental impact and suggested if this could be done the SFPUC should consider going forward with his suggestions.

Mr. Harrington replied that if this was the sense of the Commission, noting legislation was with the Mayor's office, staff would be happy to bring it to the Mayor.

Commissioner Sklar commented that this was the General Manager’s role and observed there was always the wish that the SFPUC were not required to do this but was doing the project solely because CAISO wanted it. Commissioner Sklar observed that this was the best of a collection of bad alternatives and if the PUC could make it still better, so be it.

Commissioner Sklar reported that one of the things coming down the line that Assistant General Manager of Power Barbara Hale had informed him, was that post 2015 producers of power such as the SFPUC at Hetch Hetchy, may be required to have a certain portion of their capacity in the locality were they deliver it, against any risk of catastrophic disruption of their main power sources. This project, Commissioner Sklar noted, would be our answer to that requirement and reliabilities in the future. Commissioner Sklar pointed out if these facilities are required for statewide reliability and considering Department of Water Resources transfer funds could facilitate making the City’s cost whole over a period of time. This the Commissioner observed therefore was one other reason, though he preferred nothing being built, for it being the best alternative to meet the requirements.

In response, Ms. Hale reported the basic thrust of what has been proposed was that all load serving entities be required to meet certain local location capacity requirements and these facilities could assist in that. Commissioner Sklar then asked, given by their rules, the state PUC would eventually have to apply to the state rate base to these units as part of the component and consider out years as a reimbursable time for the units for the city. Ms. Hale replied she thought generally, yes, noting the caveat of generally yes comes from the fact there were changes in the marketplace underway initiated primarily by the independent system operator CAISO with liability requirements to be approved by the multiple entities like the California Public Utilities Commission and the California Independent System Operator.

Commissioner Hochschild followed up these comments by saying welcome Ed Harrington, noting that it was great to have him join the team and build on all that's been done and take us forward in the next chapter. Commissioner Hochschild wanted also to acknowledge all of the hard work provided by General Manager Susan Leal and Commissioner Ryan L. Brooks.

Commissioner Hochschild noted that this was an important matter and he saw this as an important teachable moment for the SFPUC as an agency, pointing out that everyone knew the PUC got a black eye last fall from the way this unfolded. Commissioner Hochschild had a few observations about that process in hopes that the PUC might learn from and improve our work. Commissioner Hochschild recalled that Vice President Normandy had called this matter the most controversial during his many years on the Commission. Commissioner Hochschild remarked that when he started last September his biggest frustration with the process was with a lack of information he regarded as really mission-critical to be able to make a good decision. Commissioner Hochschild observed that he discovered important details that did not arrive to the Commissioners first from staff and his biggest request going forward was that the General Manager and staff put themselves in the role of Commissioners having to make decisions and ask what information would I want to have? Commissioner Hochschild remarked during this process he found out some useful and what he felt was essential information from the Bay Area Air Quality Management District that explained how the plant operated. Commissioner Hochschild noted that he really believed fundamentally as a principal one had to understand the problem before you can fix it. Commissioner Hochschild noted that what we have talked about as one entity was really in two parts: a 206 megawatt national gas boiler which produced 97 percent of the power of the energy plant and three diesel peakers with 3% of the power and basically all the PM ten emissions that are the air quality issues.

Commissioner Hochschild observed his question had been, why aren't we addressing the problem with a specific look at the diesel peakers first? He noted that to this day that has never been really addressed. Commissioner Hochschild further asked why we couldn't think about retro fitting the diesel. Commissioner Hochschild pointed out that the total price might be $170 million for the project and totaled with related contracts $220 or $223 million, making this the biggest energy investment since the Hetch Hetchy Dam. Furthermore, Commissioner Hochschild commented when the peakers were given to the City as the settlement, the Transbay cable wasn't even on the map and now it would be completed by 2010. Commissioner Hochschild observed that he was totally unpersuaded that did not move the needle at all about how many generators the PUC might have to put in to meet reliability. Commissioner Hochschild expressed his deep appreciation to all the environmental groups and all those from the community in opposition and offering comments on this project, noting that he had heard them. Commissioner Hochschild noted that he was not supportive of the peakers project but recognized the decision right now was in the purview of the Board of Supervisors.

Commissioner Hochschild expressed his hope going forward, that we can really try to improve our process with the goal of providing really comprehensive information to the Commissioners early on. Commissioner Hochschild concluded by noting that the current proposal was much improved from a financial perspective and he was very glad that the proposed JPower deal had not worked but that from an environmental perspective this arrangement was essentially the same.

Vice President Normandy expressed a point of order noting there had been discussion and suggestion put forth by Commissioner Sklar and suggested Mr. Harrington sees this as direction from the Commission, although there was no resolution on the agenda, there should be something formally proposed. Commission Sklar restated his concept to proceed with the contract, the SFPUC putting a provision into the agreement allowing in the course of the implementation of it or before, if the SFPUC could gain by dropping the airport part of the contract it could be deleted. Additionally, Commissioner Sklar suggested an option of moving the fourth turbine from the airport site to the site of the in city units, if it were possible to do so, so this might be a better project because of it.

Commissioner Hochschild asked what was the reasoning behind the airport and why an airport was chosen to be a secondary site. Ms. Hale explained that it was her understanding that a strong interest in minimizing the air quality and other impacts of the four turbines was what motivated the cities effort to move one turbine to another site and that in this process that the City had evaluated numerous possible locations but that CAISO indicated the turbines needed to be in a certain geographic area but one of the turbines could be moved out of the area of in the City and that was how this project ended up looking at sites there rather than inside San Francisco and also given the airport's reliability needs and available space and other infrastructure such as proximity to gas lines, made it a good fit.

In answer to a question by Commissioner Sklar, Ms.Hale noted that the SFPUC already serves the airport with Hetch Hetchy power. Commissioner Sklar expressed the belief there was no requirement for doing the airport as suggesting do so was mostly for financial benefit as CAISO only required this project for in City generation in order to shut down Mirant. Ms. Hale responded that in order to meet the reliability requirement, the CAISO had said in the action plan that it requires the replacement of the full capacity of the existing facility and for these turbines to be operational. Commissioner Sklar noted that differed from what he had been told by California Independent System Operator, (CAISO), which was only for the three in-City turbines.

Mr. Harrington noted that this question had already been discussed and the decision made as a policy decision by the Commission, the Mayor, and the Board of Supervisors and what staff was doing was implementing that and if the Commission wanted to reconsider and discuss it further he suggested that this item be calendared as an action item at a future meeting.

Commissioner Sklar asked as a point of clarification if CAISO required the fourth peaker in order to shut down Mirant? Mr. Harrington responded that was correct and that CAISO had said they needed four turbines, but not necessarily number four at the airport but four turbines. Commissioner Sklar noted that differs from what he had heard. Mr. Harrington then asked if Commissioner Sklar were in agreement. Commissioner Sklar responded that he was, as long as President Caen doesn't significantly alter the nuance of what goes on in the neighborhood.

Vice President Normandy observed that his understanding of Commissioner Sklar’s suggestions posed a possibility for environmental benefits as well as cost savings but that the Commission had no desire speaking of this commission to slow down the process or revise it. Vice President Normandy suggested that what was important was to see if we can, without interrupting or delaying, look into a delete option clause so if the SFPUC can benefit from considering removing airport from the discussion. Mr. Harrington agreed he understood this to be the direction given to the General Manager. Commissioner Sklar left the meeting at 1:20 P.M.

Public Comment:

Mr. Joseph Bryant, A. Randolph Institute, proposed a few points to be considered before moving forward on this project stating that during the past year the Commissioners had seen him expressing the communities’ concerns and opposition to the peaker plant that in his opinion those speaking for it do not represent anything in the neighborhood. Additionally, facts have changed Mr. Bryant observed especially with the Transbay cable coming which may be an alternative, but more important, what the Commission approved and sent to Board of Supervisors is not what is being discussed now but fundamentally different from what was discussed at many meetings before.

Mr. Bryant noted as an active stakeholder he had just learned of the new contract and asked if there were any way that the Combustion Turbine facility might not go forward. Mr. Bryant asked to give the community more time and hold a public hearing and that the SFPUC should give the community the respect and time to understand the major changes made and that it was unfair to rush this onto the community. Mr. Bryant requested the Commission to please hold a meeting to walk us through the substantial changes and treat the community that has to live with this power plant affected the most with the same special treatment the SFPUC has treated the contractor who was going to make big money off this.

President Caen thanked Mr. Bryant for his comments. She stated that the Commission was not really in favor of the peaker plants but it was the only alternative to get rid of that terrible Mirant power plant and that was the reason they're happening, and the CT’s were now with the Board of Supervisors.

Vice President Normandy also expressed appreciation for the community members input.

Mr. Joshua Arce, Brightline Defense, commented that his organization looked to the new leadership of Mr. Harrington to stop the run away power plant great freight train. Mr. Arce suggested and provided copies of an article from the Environmental Engineering News Record which Gregg Fishman of CAISO said that the Transbay Cable project would eliminate at least some need for local generation. Mr. Arce reported Mr. Fishman told him CT power plants were overkill in terms of what was required Mr. Arce further suggested that this proposal cannot proceed under the precautionary principal without an independent study. Mr. Arce argued that the community did not want power plants in Bayview Hunters Point or at the Potrero plant. Mr. Arce suggested as a possibility putting them at the airport and keeping power plants out of southeast San Francisco forever.

Ms. Jennifer Isaacs expressed surprise to hear the plan to go ahead went by so quickly especially with so many questions and concerns still unanswered about the issue. Ms. Isaacs commented as had already been said the information was flawed and she hoped now as a citizen and resident everything can be done to reassess and redo this issue in a way to kind of make the best decision for everyone.

Mr. Alan Bryant commented his community did not need power plants that feed off pollution and or any more power plants in the area than they already have.

Ms. Regina Hollins resident in Potrero Hill stated her neighbors don't want dirty peaker plants in our hill as we have suffered long enough with the existing things in our area and we're tired of it.

Ms. Orieyanna Johnson remarked that at this present time the community was working to clean up the Hunters Point Shipyard and the community had no idea what kind of toxins this project will kick up that residents will breathe. Now, she added came the Transbay Cable Project and these CT’s in the area, noting her people have suffered enough and that it was a good thing San Francisco has the law that everybody has sick days because we will need them. Ms. Johnson concluded saying people first, think about it.

Ms. Leesha Langois, a community member of the Bayview Hunters Point, stated that first and foremost her community did not need the peakers in their neighborhood nor any emissions leaking into the neighborhood anymore.

Ms. Espanola Jackson, Bay View/Hunters Point resident, suggested that this item was not before the Board of Supervisors, that staff last week had tried to have it pushed so it could go before the Board of Supervisors through the Local Agency Formation Commission (LAFCO) which did not vote on it and continued it because the LAFCO Commissioners felt as she did, that it needed to come to the SFPUC to hold discussions about the new contract that had not been discussed.

Ms. Jackson noted Mr. Tony Irons said he is going to take the contract before the Mayor no later than Monday but that the Commissioners had not even seen it and that staff was still trying to push it down our throats. Ms. Jackson commented that this Commission has been saying all along, with the majority of votes, no CTs in the southeast sector, but she was tired of staff running away, saying they had done nothing the Commission has asked them to do. Ms. Jackson also asked why this matter was coming up today as part of the Port Commission Agenda with a reference to JPower and staff has a proposed plan, and a Memorandum Of Understanding (MOU) that was coming May 13th. She asked do you know what it says, saying it says request adopting finding under the California Environmental Quality Act (CEQA) asking approval of an MOU with the PUC for underground utilities and approval of license with a JPower development that no longer exists. Ms. Jackson demanded a hearing, saying the Commission must come back to the community and hold a hearing with CAISO there about having those peakers in my community.

Mr. Harrington responded saying the policy makers that the PUC staff work for include this Commission, the Mayor and Board of Supervisors, all three of those policy making individuals or groups have made a decision about this. They have directed staff to work it out, there are alternatives given, one was, JPower and one without. What brought back was exactly what staff was told to do by policy makers. The staff had no right and certainly no obligation to do something different than policy makers of San Francisco direct. SFPUC staff were asked to give the legislation to the Mayor, it has not been taken to the Board yet, the Mayor has not introduced it yet. The Mayor has the option of putting it in front of the Board or not but it's out of the hands of the Commission. There is no action item before the Commission today related to this. LAFCO held a hearing and they were not asked because that is not part of what they do. If the Port Commission has a mistaken item on their calendar we would be happy to correct their information to make that accurate.

Mr. da Costa commented that this would not happen in a white neighborhood and that with the Transbay cable, adding 400 megawatts over and beyond our capacity to use energy this was not needed. He said not once in this discussion had he heard about possible use of Hetch Hetchy power or anything about the Jefferson Transmission line and evaluation of that line and how it has performed. Mr. da Costa said that line was supposed to provide whatever it was supposed to provide and we have not had this discussion. Mr. da Costa noted constituents from the Bayview had come here and in no uncertain terms had told the Commission they were already suffering from pollution. Mr. da Costa said our children and elders were dying and the SFPUC wanted to inflict further pollution. Mr. da Costa observed the City has a precautionary principle and it states and does not need scientific, empirical data, that if there belief for adverse impact, everything has to halt. He asked what about an environmental impact report? Mr. da Costa said somebody wants to push an agenda that adversely impacts our community and the Commissioners need to do the right thing.

Commission Discussion:

Vice President Normandy suggested the due diligence recommended a renewed effort to clarify CAISO’s position on this matter given Mr. Arce’s comments. President Caen noted that unless the CAISO had changed there position there was little to be gained by further discussion.

Mr. Harrington noted and staff confirmed that there was no change in the California Independent System Operator’s (CAISO) position on the reliability requirement for this project. Mr. Harrington observed that this was not a popular decision but not necessarily more popular if the Commission were to revise it over and over again. Mr. Harrington noted that Commissioner Sklar was clear where the item was because he asked the Mr. Harrington to work with the Mayor's Office to see if changes could still be made before it went to the Board of Supervisors for action. Mr. Harrington reported this matter will go to the Board before the Commission’s next meeting so if the Commissioners wished staff to request it to be returned staff can do that but after that, it will be out of your hands and at the Board. That being the case Vice President Normandy noted that absence of any hard evidence demonstrating a new policy from CAISO, the Commission had performed its due diligence in addressing this issue.

President Caen called a brief recess at 2:05 PM.

The Commission returned to session at 2:16 PM

14a) Water System Improvement Program

Mr. Harrington continued the report on the Water System Improvement Program to the April 22, 2008, Regular Meeting.

14c) Solar Incentive Program Report

Assistant General Manager of Power Barbara Hale updated the Commissioners concerning recent developments with the proposed solar incentive program reporting that on April 2nd, the Board’s Budget Finance Committee had heard the item, and that Supervisor Jake McGoldrick had suggested legislation to freeze the funding source for implementing our pilot solar incentive project. Ms. Hale indicated the PUC proposed to begin the program but that in light of the legislative activity and after consultation with Mr. Harrington, staff had placed the project on hold. Ms. Hale reported that all the solar incentive project information remained on the PUC website, that local solar installers and residents were excited about the prospect, and staff was ready to restart the program at any time. Ms. Hale reported that as a result of the Supervisor’s Budget and Finance Committee hearings, SFPUC staff were preparing a report that addressed the questions posed about the program. She reported that when that report was ready for release staff would provide copies to the Commissioners.

Responding to Commissioner’s questions Ms. Hale discussed the next steps in the likely Board of Supervisors process in addressing the solar incentive program.

d) SFPUC FY 2008-09 Budget Update

Assistant General Manager of Business and Finance Scott MacDonald next presented an update on the status of the FY 2008-09 Budget reporting that City’s General Fund problem was still in excess of $300 million. Mr. MacDonald noted that the Mayor had asked a number of departments for assistance in meeting a budget shortfall and the SFPUC Finance staff would be having additional conversations with the Mayor’s Budget Office concerning how this applied. Mr. MacDonald then reported that based on past requests from the Mayor's Office he expected there could be additional requests for relief from the power rates and maybe extra consideration for city departments regarding their power, water, or wastewater charges. Mr. MacDonald concluded his presentation by pointing out that under the City Charter; it was the Mayor who made the final decision concerning what budget proposals to present to the Board of Supervisors.

Mr. MacDonald next turned to responding to questions and requests for additional information made by Commissioners during the last several meetings. Mr. MacDonald noted staff was coming back to the Commission to ask for a motion and vote to see if staff’s responses on these issues met the Commissioners’ expectations. 1) Discussion and possible action to recommend revision of the conservation line items in the proposed SFPUC FY 2008-09 Budget submitted to the Mayor.

The first area of discussion and possible action was the allocation of funds placed in reserve funds “buckets” during the discussion of the Power Enterprise Budget. Ms.Barbara Hale presented a recap of these issues. Ms. Hale began by reminding the Commissioners of what was placed in the buckets and described her recommendations to allocate them. Ms. Hale noted that on February 22nd and February 26th the Commissioners had directed that $5.1 million be placed in a reserve bucket. She noted these funds had been originally proposed to be allocated to power feasibility studies at redevelopment sites, for the Transbay Terminal Project, and a study of the feasibility of a Newark to San Francisco transmission line. Ms. Hale reported that the Commission directed these funds be instead spent on studies of energy efficiency and renewable energy distribution and protection.

Ms. Hale reported that there was a continuing need for funds to prepare power feasibility studies at Redevelopment Agency sites and that the proposed Transbay Terminal Project was one, as were Housing Authority projects under the umbrella of the Hope San Francisco Project proposed by the Mayor's Office. Ms. Hale reported that the Housing Authority and Redevelopment Agency were looking for SFPUC support and study work identifying energy efficiency opportunities, renewable energy and other energy infrastructure needs at those sites, and to prepare an evaluation of the overall cost of the redevelopment facilities. These she estimated costing about $300,000 to $500,000 for each of the studies. Ms. Hale recommended from the bucket the PUC continue to fund some power feasibility study work in the amount of $3 million dollars and that the balance of $1.6 million that remains be allocated to general fund department energy efficiency efforts.

Ms. Hale reported these funds taken together with other authorized allocations would with what the Commission had approved, total up to $3.3725 million for energy conservation and efficiency, a $1 million increase. Ms. Hale then presented a draft resolution containing these proposals to the Commissioners for their consideration. with whatever action the Commissioners might direct related to a few pending Water Enterprise budget matters would give staff clear direction going into the FY 2008-09 Budget hearings.

Commissioner Hochschild responded to this presentation by noting his point around the critical nature of energy efficiency, made especially pointed given the discussion about peakers and what it will take to determine whether they have to operate. Commissioner Hochschild reported that he had opportunity with Ms. Hale during the last month or two to meet with the energy efficiency team and outside energy experts and that it had become more apparent the SFPUC was not where the Commissioners wanted to be in terms of how efficient our city and public buildings could be. Commissioner Hochschild reported that it was his understanding that it would require about $50 million worth of energy efficiency upgrades with existing technologies to bringing the City to be as efficient as we could be. Commissioner Hochschild voiced that he was very pleased at the increase proposed because the original budget proposed was as he recalled down to $2 million, the lowest amount since the fund was created. Therefore, he was happy to see that increase. Commissioner Hochschild then requested a further description of how the $5.1 million was being proposed to be allocated. Ms. Hale outlined in some detail how the original budget request, had requested $4.6 be spent on the power feasibility studies with the Transbay Terminal being one of the primary projects in the coming fiscal year. Ms. Hale reported that $4.6 also addressed the Newark to San Francisco transmission line study at $500,000, and that between these two elements arrived at $5.1 million amount in the “bucket”.

Commissioner Hochschild indicated that he was fine with the other feasibility study but observed that the transmission line was not as important. Commissioner Hochschild noted in order of relative importance for him were energy efficiency and demand response first and then renewable generation and then clean fossil fuel and everything else after that. Commissioner Hochschild asked the SFPUC not do the transmission study investment at this point because he felt energy efficiency and others choices were higher priority, but other than that, that everything sounded terrific.

Mr. Harrington responded by saying he did not disagree on the order of priority the Commissioner proposed but that when the Board of Supervisors had adopted the plan for the Transbay cable, they set aside a certain amount of money they gave to the SFPUC and could have given to the Port, on condition that the money be spend on transition line studies. This meant if the PUC did not want to spend it on that staff could tell the Supervisors and they could give it to someone else, but the PUC could not use it for the anything else. Mr. Harrington explained that what Commissioner Sklar had requested regarding use of these funds was not possible to do because when the Board gave these funds to the PUC it was conditionally for this use only. Mr. Harrington noted that the choice was whether or not to do it, explaining that according to the Board legislation that he had reviewed there were two pots of money from the Transbay Cable Project: one pot of money was specified as to use, and the second allowed for more flexible uses once the transmission line was operating. Ms. Hale reported that those dollars subsequent to our budget workshops and as a result of the discussion at the Commission meeting on February 26th were placed in the reserve “bucket”. Ms. Hale noted the Commission reserved use of these funds and directed those dollars be spent on renewable generation, generation and distribution protection, and energy efficiency.

Ms. Hale requested taking those reserved funds out of the “bucket” and allocating them into two new project accounts: a power feasibility at redevelopment sites account for $3,000,000 and a General Fund departments energy efficiency account at $1.6 million dollars. Ms. Hale then proposed using $500,000 for the Newark to San Francisco study and letting the other projects wait until we have additional needs in transmission studies. In addition, Ms. Hale reported that staff suggested $3 million go to power feasibility with the Hope San Francisco projects and the $1.6 would be added to the $2 million originally in the budget for energy conservation items. Further, Ms. Hale noted given the Commission’s direction addressing the southeast corner of San Francisco, staff proposed that a substantial portion of these funds be spent in the southeast San Francisco on energy efficiency items for capitol improvements.

Commissioer Hochschild expressed discomfort at making a decision about the Newark to San Francisco line without Commissioner Sklar present, asking if there would be another opportunity to address this particular item. Mr. Harrington noted that the timing was that this meeting would be the last time for the Commission to act if they wanted this included in the budget book that goes to Board of Supervisors on May 1st because by the time of the April 22 meeting, the budget proposal will have been printed. Mr. Harrington observed that the Mayor could send additional items to the Board while deliberation was going on send additional information or a supplemental request at any time during the year but this was last day to put it in the book.

After additional discussion it was a consensus of the Commissioners that these funds remain reserved in the bucket unspent and that the Commission move forward with what there was agreement on. It was then proposed to allocate the $4.6 million by identifying the two projects the Commissioners had comfort with and leaving $500,000 in the “bucket”.

Mr. Harrington commented that if the Commissioners chose to take that money out of the budget that the Mayor submitted to the Board there was a possibility that the Board would want to reallocate some of the money. There followed some discussion concerning the relative risks of leaving these funds in an informal reserve with Mr. Harrington promising to return to the Commission for further discussion before they were expended.

Ms. Ambrose read into the record the proposed resolution as “a motion whereas, on February 22, 2008, the San Francisco Public Utilities Commission directed $5.1 million to be spent on the study of energy efficiency, renewable energy, and generation and distribution protection; and whereas, The need for Power Feasibility Studies at Redevelopment Sites persists for Housing Authority Projects and the Transbay Project, with an estimated cost for support and study work of $3,000,000 to identify energy efficiency opportunities, renewable generation opportunities, other energy infrastructure needs and to evaluate overall cost to serve the redevelopment sites; now, therefore, be it resolved, That the San Francisco Public Utilities Commission recommends $3 million be placed in the Power Feasibility at Redevelopment Sites account and $1.6 million be placed in the General Fund Department Energy Efficiency account.”

Motion on the Power Enterprise Budget items as read by the Deputy City Attorney Noreen Ambrose.

Moved by Commissioner Crowley, seconded by Commissioner Hochschild, to adopt the resolution; passed (4-0 Caen, Normandy, Hochschild and Crowley) unanimously

Resolution No. 08-0055.

Next noting that there were additional decisions to be made related to the Water Enterprise Budget, Mr. Harrington asked Assistant General Manager of Water Michael Carlin to present an outline of what staff had considered could be done and how to focus the conservation program and how the PUC might want the program to look in the future. Mr. Carlin proposed adding three additional staff that would focus on three different sectors, residential, commercial and municipal, and augment the budget with $600,000 in financial incentives and bringing the figure up to $2.8 million. Mr. Carlin reported that the biggest bang to be found was working with sister municipal departments and retro fit and things of that nature, and the other focus was basically in commercial sector. Mr. Carlin noted that the SFPUC received a lot of criticism from the hospitality industry and hotels that we were not doing enough to help them so this would move the SFPUC more actively into that area. Mr. Carlin reported bringing the program up to $2.8 million would get a jump start but that he did not want to ask for more intending to expend the funds during the year.

Commissioner Hochschild asked and was informed that this represented a $1 million increase and how these new positions might be used was further explained. Commissioner Hochschild applauded these steps as a means toward convincing our customers that we were serious in devoting resources to greater conservation. Vice President Normandy applauded the outreach to the commercial sector. In response to a question from President Caen, Mr. Carlin reported that all of the previously allocated funds in each year had been expended.

Public Comment:

Ms. Jennifer Clary, Clean Water Action, commented that her organization had been working for five years to persuade the PUC that conservation could solve a lot of environmental issues and that her organization strongly support this proposal and the PUC had a great conservation department, doing an excellent job and she was excited by the grant they got to do low income conservation direct install because rebates don't work for a great part of the population’s Ms. Clary said she was excited by the things staff thought of and was sure they would expense this money wisely.

Mr. Peter Drekmeir, Tuolumne River Trust Bay Area Program Director, reported last year his organization had submitted along with Sierra Club and Clean Water Action 600 comments for the water improvement projects. Mr. Drekmeir noted that none of these concerns were about capital improvements that his organization supported those He continued that all of our comments were about the proposal to the diversion of more water from the Tuolumne River and a that couple of concerns that the demand projections were inflated for 2031and outdated population figures were used and didn't take into consideration the kind of commercial growth from Bay Area switching more to service and information and plus the price of water will increase three or four fold. That Mr. Drekmeir said would make conservation and water recycling more affordable. He felt the possibility for conservation and recycling was underestimated and there was so much more potential. Mr. Drekmeir recalled that the almost a year ago the Board of Supervisors unanimously passed a resolution encouraging the PUC to protect the Tuolumne River and try to focus on alternative sources, conservation, and water recycling and his organization’s feeling was that with measures like today we have tremendous potential to drop demand down to meet our needs without diverting more water, a win/win because diversions can cause delay. Mr. Drekmeir concluded we are proud of you and. Your next meeting falls on Earth Day, April 22nd, so an opportunity if you want to do something bold, there will be a lot of attention focused on it and he wanted to mention also that $2 .8 million dollars was great but there was a little bit of talk at the last budget hearing to doubling up to close to $4 million and that sounds better to me and he would trust the experts here.

Motion on the Water Enterprise Budget to authorize budgeting an additional $2.8 million allocated for water conservation activities in FY 2008-09.

Moved by Commissioner Hochschild, seconded by Commissioner Crowley, to adopt the following resolution; passed
(4-0 Caen, Normandy, Hochschild and Crowley) unanimously.

Resolution No. 08-0056.

CONSENT CALENDAR

15. All matters listed hereunder constitute a Consent Calendar, are considered to be routine by the San Francisco Public Utilities Commission, and will be acted upon by a single vote of the Commission. There will be no separate discussion of these items unless a member of the Commission or the public so requests, in which event the matter will be removed from the Consent Calendar and considered as a separate item.

Moved by Vice President Normandy, seconded by Commissioner Hochschild, to adopt items (a-d) listed under the Consent Calendar; passed (4-0 Caen, Normandy, Hochschild and Crowley) unanimously.

a) Resolution No. 08-0057:

Accept work performed for Wastewater Enterprise, Repair and Replacement (R&R) Program-funded Contract No. WW-407, North Point and Larkin Streets Sewer Replacement, by A. Ruiz Construction, approve Modification No. 1 (Final) decreasing the contract by $93,636.45, for a total contract amount of $308,713.55, (and with a time extension of 15 consecutive calendar days for a total contract duration of 85 consecutive calendar days;) and authorize final payment, in the amount of $38,971.35, to the contractor.

b) Resolution No. 08-0058:

Accept work performed for Wastewater Enterprise, Repair and Replacement (R&R) Program -funded Contract No. WW-408, 2nd/ 4th/5th /12th Avenues Sewer Replacement, by Harty Pipelines, approve Modification No. 2 (Final) decreasing the contract by $26,535.62, for a total contract amount of $2,197,624.38, (and with a time extension of 58 consecutive calendar days for a total contract duration of 268 consecutive calendar days;) and authorize final payment, in the amount of $252,659.68, to the contractor.

c) Resolution No. 08-0059:

Accept work performed for Water Enterprise, Water Main Replace/Retrofit Program-funded Contract No. WD-2462, 8-Inch and 12-Inch Ductile Iron Main Installation in Connecticut St., Texas St., 19th St and 20th St. by Synergy Project Management, approve Modification No. 1 increasing the contract by $17,817.00, Modification No. 2 (final) decreasing the contract by $127,250.23 for a total contract amount of $1,741,018.77 and authorize final payment, in the amount of $101,977.09, to the contractor (after deduction of $2,000 HRC liquidated damages).

d) Resolution No. 08-0060:

Authorize the General Manager of the San Francisco Public Utilities Commission to request permission from the Board of Supervisors to accept and expend grant funds totaling $8,119,150 from the United States Environmental Protection Agency (EPA) for Contamination Warning System Demonstration Pilot Project; and to execute all required agreements.

REGULAR BUSINESS

16. Discussion and possible action related to approve No. CUW20603, Thomas Shaft Roadway Improvement Project; adopt the required California Environmental Quality Act (CEQA) Findings. Moved by Vice President Normandy; seconded by Commissioner Hochschild, to adopt the following resolution; passed (4-0 Caen, Normandy, Hochschild and Crowley) unanimously.

Resolution No. 08-0061:

Approve Water Enterprise Revenue-funded Project No. CUW20603, Thomas Shaft Roadway Improvement Project; adopt the required California Environmental Quality Act (CEQA) Findings and Mitigation Monitoring and Reporting Program (MMRP) with respect to the Final Mitigated Negative Declaration for the project.

17. Discussion and possible action related to authorize the General Manager to execute a Memorandum of Understanding (MOU) by and between the San Francisco Public Utilities Commission (SFPUC) and the North San Mateo County Sanitation District. Moved by Vice President Normandy; seconded by Commissioner Hochschild, to adopt the following resolution; passed (4-0 Caen, Normandy, Hochschild and Crowley) unanimously.

Resolution No. 08-0062:

Authorize the General Manager to execute a Memorandum of Understanding (MOU) by and between the San Francisco Public Utilities Commission (SFPUC) and the North San Mateo County Sanitation District, a subsidiary of the City of Daly City (Daly City), and to provide the SFPUC’s funding for consulting services to assess the feasibility of increasing recycled water production from Daly City’s Westlake Wastewater Treatment Plant (Westlake Plant). The SFPUC’s anticipated cost is an amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000). This request would be funded through the Water Supply Master Plan Project, Index Code 505021.

CONSTRUCTION CONTRACTS

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18. Discussion and possible action related to accept work performed by Trinet Construction for Water Enterprise Water System Improvement Program-funded Contract No. WD-2429 approve Modification No. 5 (Final), and authorize final payment, in the amount of $45,896.47, to the contractor. (Labonte)

Moved by Commissioner Crowley; seconded by Vice President Normandy, to adopt the following resolution; passed
(4-0 Caen, Normandy, Hochschild and Crowley) unanimously.

Resolution No. 08-0063:

Accept work performed by Trinet Construction for Water Enterprise Water System Improvement Program-funded Contract No. WD-2429, Lincoln Park Pump Station and Storage Tank Upgrade, approve Modification No. 5 (Final), for a time extension of 100 consecutive calendar days for a total contract amount of $4,532,482, and with a total contract duration of 585 consecutive calendar days and authorize final payment, in the amount of $45,896.47, to the contractor.

19. Discussion and possible action related to accept work performed by JMB Construction for Contract No. WD-2467, approve modification No 5 (Final), and authorize final payment.

Moved by Commissioner Crowley; seconded by Vice President Normandy, to adopt the following resolution; passed
(4-0 Caen, Normandy, Hochschild and Crowley) unanimously.

Resolution No. 08-0064:

Accept work performed by JMB Construction for Water Enterprise WSIP capital program-funded Contract No. WD-2467 Key Motorized Valves, Phase 2, approve modification No 5 (Final) for a time extension of 70 consecutive calendar days for a total contract amount of $8,528,865, and with a total contract duration of 520 consecutive calendar days; and authorize final payment, in the amount of $101,735.00 and final release of retention in the amount of $421,356.49, to the contractor.

20. Discussion and possible action to accept work performed by West Bay Builders Inc., for Water Enterprise Water System Improvement Program-funded Contract No. WD-2475, approve Modification No. 4 (Final), and authorize final payment.

Moved by Commissioner Crowley; seconded by Vice President Normandy, to adopt the following resolution; passed
(4-0 Caen, Normandy, Hochschild and Crowley) unanimously.

Resolution No. 08-0065:

Accept work performed by West Bay Builders Inc., for Water Enterprise Water System Improvement Program-funded Contract No. WD-2475, Potrero Heights Reservoir Upgrade and Site Improvement, approve Modification No. 4 (Final), for a time extension of 150 consecutive calendar days for a total contract amount of $4,977,457.85, and with a total contract duration of 575 consecutive calendar days; and authorize final payment, in the amount of $80,336.88, to the contractor.