January 31, 2003

The meeting was called to order by Chairperson Commissioner Gonzalez at 10:09 a.m.

Members Present: Vice-Chairperson Commissioner McGoldrick, Commissioners Hall, Schmeltzer, and Fellman.

Member Absent: Commissioner Ammiano

Gloria L. Young, Executive Officer and Nancy Miller, Esquire were noted as present.

Vice-Chairperson Commissioner McGoldrick moved to approve the December 20, 2002 meeting minutes; Commissioner Schmeltzer seconded. No public comment. The December 20, 2002 meeting minutes were unanimously approved with no objection.

Chairperson Commissioner Gonzalez thanked the Executive Officer for putting the information together and requested a longer discussion at a future meeting.

No public comment.

Gloria L. Young, Executive Officer stated that staff was asked by Chairperson Gonzalez to research information about the Long Island Power Authority (LIPA) and whether they were successful in lowering their electric bills when converting to public power. Most of the information is from Dr. Irwin Kellner's articles from Hofstra University and discusses LIPA's accomplishments by introducing retail competition in New York.

Commissioner Schmeltzer asked that staff obtain information about the move from Long Island Lighting Company to the Long Island Power Authority and how the transition and acquisition happened.

Ms. Young stated that she believes it is public information and staff could contact our previous contacts and request additional information.

Chairperson Commissioner Gonzalez stated that the LAFCo should discuss how often they should meet and set up a regular schedule that can be counted on. It would then be easier to cancel meetings that are anticipated in the schedule rather than struggling to find out what can be accommodated in everybody's schedule.

Commissioner Hall stated how often the LAFCo meets depends on what issues the LAFCo is studying. He agrees if the intent is to set up a regular schedule for the convenience of scheduling. He would be interested in knowing what the LAFCo will be looking at in the coming months and year before getting locked into the schedule.

Chairperson Commissioner Gonzalez stated that we can perceive this agency as a place to tackle questions of government efficiency and other issues related to the original R. W. Beck study that was completed. Many of the issues that LAFCo has discussed here such as tidal energy, desalinization, or whatever other concerns members have would be addressed. One thing about this forum that was effective was the public hearings where guests were invited to speak about energy issues. Those hearings were not costly, and LAFCo could make forays into different areas. What is costly is a commitment to do a particular kind of study such as the AB117 Study or Financial Feasibility Study.

Commissioner Fellman stated that it is an excellent suggestion to have that be used as a forum for other issues while we are going ahead with the energy side of LAFCo's concerns.

Public Comment.

No public comment. Public comment closed.

Chairperson Commissioner Gonzalez stated that Commissioner Ammiano was not present and would want to have input as to what the schedule is. Ms. Young was asked to discuss the frequency and schedule of LAFCo meetings.

Ms. Young stated in general the frequency of LAFCo meetings has been once a month on Fridays. Staff schedules the meeting and then at the meeting that we are at, we schedule the next meeting. Over the last year there has been a month or two months that we have not had meetings because we were in the process of either having work done by consultants, and there was no need to meet.

Chairperson Commissioner Gonzalez asked if there would be any difficulty canceling meetings if we were to set up a meeting twice a month.

Ms. Young stated that as long as staff knows in advance, we could cancel the meeting. It is a 72-hour notice to cancel.

Chairperson Commissioner Gonzalez asked the Executive Officer to prepare a schedule and bring it to the next meeting taking into account the Board of Supervisors' recesses and any concerns Commissioner Schmeltzer has about her schedule as it relates to her private employment.

Ms. Young stated that staff would work with the individual Commissioners as well as take into account any changes that may or may not occur with the Board Committee schedules.

The above two items were heard together.

Ms. Young stated that the Commission at the December 20^th meeting directed the Executive Officer to work with various staff and with our existing consultant, R. W. Beck to develop scopes of work for the feasibility of acquisition and for the City to exercise its option of becoming a community aggregator (AB117). The meeting packet includes memos about both of these items, the draft Scope of Work, and a draft contract related to each one of the items.

SFLAFCo's total budget of available funds for consultant work is currently approximately $200,000. The AB117 study would cost $72,000, and the Electric Financial Feasibility Study would cost $200,000. The question then became if the Commission contracted for one of the studies, then they could not do the other. There is a possibility that the projects could be phased so you could complete the AB117 study and could be phased so that when the budget is approved for the next fiscal year, we could pick up those additional costs.

Mr. Smeloff is here to speak about the specifics of the studies. As part of the December 20^th meeting, the Executive Officer was directed to prepare the scope and work with the Department of Environment and the SFPUC to develop the proposals. At the December 20^th meeting, Mr. Smeloff mentioned that he has been in discussion with other cities that may be interested in participating in the AB117 study. The Commission during their discussion may ask for comments from both Mr. Bell and Mr. Blumenfeld as to whether or not there is an opportunity for sharing the costs associated with AB117. Originally, the fee for the AB117 Study was approximately $80,000 and was reduced by the contractor, R. W. Beck to $72,000. The initial fee for the Electric Financial Feasibility Study was originally $220,000 and was also reduced to $200,000.

Chairperson Commissioner Gonzalez invited Mr. Smeloff to discuss the importance of AB117 and the importance of shared costs and to have Mr. Bell make remarks as to the advantages and disadvantages of a phased project for the Electric Financial Feasibility Study.

Commissioner Schmeltzer asked the Executive Officer to clarify the length of time associated with the scope of work.

Ms. Young stated that the dates are reflected in the Amendments to the Agreements Nos. 1 and 2.

Mr. Smeloff of the San Francisco Public Utilities Commission stated:

Chairperson Commissioner Gonzalez asked when you talk about Oakland, Berkeley, and San Jose, what is the likelihood that there would be recovery of any of our costs?

Mr. Smeloff stated they have a limited amount of funds. We need to ask them how much they can put on the table now that we have a detailed scope of work. Instead of thinking about taking the $72,000 and lessening that impact, we should think about seeing whether we can get some funding from those three cities to increase the budget for the scope of work. I am willing to discuss that with them.

Chairperson Commissioner Gonzalez stated it seems to the extent that we have a price tag for doing the work that we need to do, the question for them is yes, they may ride our coattails and pay less and get a certain degree of the benefit of our initial work, but the question is that sounds like a shared cost, but we certainly are not beneficiaries of it. So by being at the forefront of this, the question would be why don't we wait and ride their coattails?

Mr. Smeloff stated I think that they can see that they can be a free rider on the work that they are doing because it would be in the public domain. We are going to spend $72,000 and they can take advantage of the work that we are going to do. If we are going to include them, I think we need to have a dialogue with them about what additional work could be added on to this at a reasonable cost that would add value for them. I think longer term there may be some opportunity to think of community aggregation larger than San Francisco to share some of the risks and responsibilities of managing power supplies on a regional basis rather than a local basis. That's a big issue, and I understand the need to stay focussed. I am getting the task done here so we can make decisions as the City and County of San Francisco.

Commissioner Hall stated we are talking about two different issues. I think in most of your talking you expertly addressed the subject of community aggregation that we have an estimate of $72,000. You talked about addressing and focusing on that and having enough funds to address the follow-up issues. First of all, before we go there, for the public that is watching this, can you in simple terms explain community aggregation versus the second item before us which is feasibility acquisition?

Mr. Smeloff stated community aggregation is that term as defined in the legislation that Assemblywoman Migden passed in last sessions that allows cities and counties to get in the business of buying and selling electricity without necessarily owning the wires and infrastructure to deliver that electricity. It breaks that up between commodity responsibility and the delivery responsibility. Community aggregation would allow San Francisco to sell electricity to businesses and residences and other end users. They would have an opportunity to opt out or to choose another provider including PG&E. They have a limited time to make that choice, but once the Board of Supervisors of San Francisco chose to do community aggregation, then it would become the default provider of electricity to San Francisco.

The difference between that and the acquisition of the distribution system in San Francisco is that under community aggregation, PG&E would still be responsible for delivering the power to homes and businesses. The other study that you are looking at would look at what are the steps and costs involved in taking over the wires so that you would be then commodity and delivery.

Commissioner Hall asked, what do you think would be a fair estimate for follow-up funds for a good aggregation study?

Mr. Smeloff stated my view is that once the PUC has put the rules in place, you should have another $100,000 or so available so we could do some follow-up studies and really put together an implementation plan. The next step after the rules are in place is for you to pass an ordinance to do community aggregation. Once you have done that, we will be in the position of making data requests of PG&E on their customers and on the San Francisco load. We will need to do some detailed analysis of that data to really understand the risks and costs involved in community aggregation. Right now you don't have any of that data to analyze.

Commissioner Hall stated we are empowered under the Charter to aggregate.

Mr. Smeloff stated you have the right under the Charter to sell electricity and you have the power under state law now to aggregate on a default opt-out basis.

Commissioner Hall asked would this $72,000 in your opinion be enough to give us a good game plan to enhance our aggregation ability?

Mr. Smeloff stated I think your staff has put together a good scope of work. I think this is a good first step.

Commissioner Hall stated the additional $100,000 that you are talking about would be nice to have around over what period of time? The next year, the next two years?

Mr. Smeloff stated we are going to push the PUC to move quickly on developing the rules and policies. There is no deadline for them with the exception of the energy efficiency funds within the legislation. So, once they have completed their work on the rules for community aggregation, we should have some funds available. I think that can be as soon as six months if we are really expeditious.

Commissioner Fellman stated following up on what Commissioner Hall said, I have a few questions just about the structure of community aggregation compared to a formal municipal utility structure. Under community aggregation, who would own the power that was being sold to the citizens of San Francisco?

Mr. Smeloff stated it is my understanding that part of it is to decide what structure the City and County of San Francisco wants. My assumption is it would be the Hetch-Hetchy Water and Power Agency would act as the agent that takes title and has that power delivered to San Francisco just as we do now for power that we buy on the wholesale market for municipal purposes.

Commissioner Fellman asked then the City and County of San Francisco would be doing the actual purchasing, evaluating of which prices were best, what reliability was necessary to fit into the overall energy plan that you developed?

Mr. Smeloff stated that is correct and we actually do that right now. We are in the market everyday, buying power, scheduling power through our Hetch-Hetchy power and enterprise.

Commissioner Fellman asked do you need any special control room other than what you have now to accommodate a community aggregation function?

Mr. Smeloff stated there are different ways of doing community aggregation. This is one of the things that your study can help answer. One of the ways is to contract out in the near term with an energy service provider to take on the portfolio management function. Some advantages of doing that in terms of pushing the risk of either being short or long in supplies onto a third party, particularly in this early phase. As San Francisco develops more of its own resources, these four combustion turbines and solar, it does make sense to bring that responsibility into City government and do the portfolio management internally. It's a risk benefit analysis that has to be done. Less risky to delegate that out to a third party. If they make mistakes and buy power at high prices and not enough and they are in the spot market, they are the ones that have to absorb the costs. But ultimately, I think we can do it through a combination of the scheduling activities that we have at Hetch-Hetchy and then augment that here in San Francisco.

Commissioner Fellman asked, that would be essentially what we would do if we were to set up a separate municipal utility within the City and County of San Francisco?

Mr. Smeloff stated we would have that responsibility. As a municipal utility, we would be buying and scheduling power, and you would have the additional responsibility of managing the distribution assets.

Commissioner Fellman asked as a community aggregator, do we also have the ability under state law to set the rates that are paid by the customers that choose to stay within the City.

Mr. Smeloff stated indeed we do. That is an enormous responsibility that will be assigned to the City and a delicate one. I think whether or not the community accepts the City taking on community aggregation, you need to have a rate-making process that is transparent, fair, and that allows due process. There are real advantages of being able to set rates. You can promote load management, shape your load in ways that can lower your overall system costs. But as part of an implementation plan under AB117, we have to put in place a file with the PUC a rate-making process. We take that responsibility away from the state and have that put into City government.

Commissioner Fellman asked as I understand it, we would still get a PG&E bill, is that correct? Or would we just get a Hetch-Hetchy water and power bill for example?

Mr. Smeloff stated likely in the beginning stage, the billing and metering function would continue to be done by PG&E and there would be a settlement process for the City, where the City settles accounts on its purchases of power. Longer-term, the City could look at putting in advanced metering technology. We are already investigating that at Hetch-Hetchy--how to get better meters on our own customers within City government. That's a policy choice on whether as you move towards a broader public power you want to do the billing and metering of the electricity.

Commissioner Fellman asked at the completion of the implementation of community aggregation, exactly what would we be paying PG&E for? What would remain a PG&E cost?

Mr. Smeloff stated you would be paying PG&E for the transmission and distribution of electricity. You would be paying PG&E for the metering, billing, and customer care functions that they carry out. If they were going to be responsible for identifying outages and repairing outages, they would still have a call center and have responsibilities for dispatching crews for going out there and restoring service. As a community aggregator, you don't really have the responsibility to manage local outages. Most times that you lose electrical service the overwhelming majority of time is because of problems in the distribution system. That would still be a cost under community aggregation that would be borne under PG&E.

Commissioner Fellman asked would we also have to pay them for stranded costs for their unrecovered collections?

Mr. Smeloff stated yes we would. That's what I mentioned that we need to see. There are two big issues that the Public Utilities Commission is looking at among others that will impact community aggregation. One is the treatment of so-called stranded costs that is the cost that has been incurred by PG&E historically during the energy crisis and the Department of Water Resources and its long-term contracts. The second is the PUC has mandated PG&E and other utilities to get back in the procurement business and develop long-term procurement plans. PG&E will be filing a plan in April of this year with the PUC. We need to see how that plan interacts with our goals of doing community aggregation. It really is important to have a dialogue with PG&E so there can be some hand-off of that function. We don't want PG&E to be making decisions now that ties up long-term resources that aren't the appropriate ones for San Francisco.

Commissioner Fellman asked do you feel that if San Francisco became a community aggregator, that it would result in lower electric bills for those who chose to participate in community aggregation?

Mr. Smeloff stated that is one of the questions that you have asked of your consultant. You have a good chance of getting lower bills by getting the Hetchy Hetchy power melded into the portfolio. If you don't get lower bills, I think a lot of the people in San Francisco would ask you why you are doing community aggregation.

Chairperson Commissioner Gonzalez stated I appreciate your remarks about budget concerns and your interest in having the LAFCo set aside more money to be able to do post AB117 work. As it is, this entire item could have been funded by the PUC. The LAFCo is not necessarily the agency with the City and County of San Francisco that is mandated to do all of this work. We have accommodated doing this because we also have as one of our priorities carrying this out, and we also do see it as part of the steps necessary to go down to public power. I just want to emphasize that because the other item on our calendar, the item related to the feasibility study, while there may not be a specific campaign related to public power for this year, it nevertheless has been a issue that has floated above so much of the terrain here in San Francisco in terms of it really is a risk benefit analysis to a certain extent.

There are things in our Charter that speak to a public-power mandate or interest and yet the PUC in its infinite wisdom has never pursued this kind of feasibility study and hasn't had that particular kind of interest as one of its priorities. So it puts the LAFCo in an unusual place with an unlimited amount of money to consider whether or not this is something that is valid particularly in light of political campaigns where one side or the other is fighting over feasibility questions, and the public is wondering who is telling the truth. Is PG&E telling the truth that it's going to be too costly? Are the advocates telling the truth? In certain respects, it seems if one of the charges here is to look at options to put to rest that question, it is a valid goal for us. While I hear your concerns for future money for AB117, I also want to say to you, that the PUC is going to have to make a commitment to this.

Mr. Smeloff stated I have made an offer to a very talented person to come in as a manager for community aggregation. She should be aboard around February 18^th. I am making steps to build the staff capability to actually carry this out within the PUC. Ultimately, the policy call on whether we do community aggregation is yours as LAFCo and yours as the Board of Supervisors. You need to give us direction that this is something that the City and County of San Francisco sees as beneficial. This initial study that you are doing here should help you in your policy making role to give us that direction. Once you give us that direction, of course you have control of our budget as well and give us direction as the PUC to set aside funds to carry out this activity. You have this bigger policy that you have to make right now as the elected officials and the appointees through LAFCo-do you want to do community aggregation? I don't think we can answer that question solely for you. That's why you are independently doing your study.

Chairperson Commissioner Gonzalez stated clearly it is a priority for us. If the voters approve public financing of campaigns, we know how the process goes. During the budget process, the Mayor gives a directive to its staff to accommodate that within a budget in the same way that AB117 has to become a priority in and of itself within that budget. Notwithstanding all of the problems that we have that is still the natural place it goes. One of the things that allows the LAFCo to do is not turn this into a supplemental request at the Board of Supervisors to try to come up with money that may not be at the PUC because it was not necessarily an anticipation for needing some money to get onto this right away. I think more than anything that is why we are trying to accommodate it because ultimately it is a goal that we share and we happen to have some money here that we can use for this purpose.

Mr. Smeloff is on my radar screen. I am bringing on staff. We are looking at putting money available for consulting services in the next year's PUC budget. It is my intent to follow your direction and do the kinds of additional research that needs to be done. But right now at this point in time, we need the general policy direction from you.

Mr. Mike Bell, R. W. Beck, stated I would like to follow-up on a couple of comments that Mr. Smeloff made. We worked with your Executive Officer to put together a budget for both of those items, both the AB117 and the acquisition. We put together a timetable consistent with the earlier discussions with the LAFCo which anticipated I wouldn't say a sense of urgency, but to move the process along for both items as quickly as possible. Therefore, we established a timeframe of approximately three months for the AB117 work and about a little over four months for the wires acquisition work. The question is to the timing of these items. The acquisition work is much more detailed, much more of a long-term process and therefore from my perspective, I don't see any problem with extending that over a longer period of time.

On the other hand, the AB117 work has a framework essentially established and is a little easier to achieve and accomplish. As Mr. Smeloff identified, there are actions that the PUC and PG&E are likely to take with procurement that would benefit the City to move forward now with those actions. Otherwise, if PG&E moves forward and acquires the power necessary to serve the City for years to come, it would be more difficult to achieve the AB117 objective. On the other hand, I would like to go back to what Mr. Smeloff said in regard to activities that are currently taking place at the City PUC. If you look at the things that Mr. Smeloff mentioned, such as the acquisition of the four Williams LM6000 units, the Modesto contract negotiations, the solar initiative and the ongoing negotiations with Turlock-that is a very dynamic environment. It is changing the picture of the power supply for the City in relatively short order. Most of those things have happened in the last few months. My point there being as that picture begins to crystallize, that makes the analysis of the acquisition somewhat easier to assess because the power supply component along with the wires component is a huge portion of that analysis. If the power supply piece works and if you have a better feel for what perhaps 60 to 70 percent of your total costs are, estimating the other 30 percent can be done with a lot more thought and reason.

I think that from the perspective of R. W. Beck, these projects could be phased over time. I would recommend to you however that there is a greater sense of urgency with the AB117 work because of the things that will transpire with the PUC. With regard to other cities, we would be more than happy to include other cities should that be your desire. We have done some work in the East Bay area, but it's been on a more regional basis. It hasn't been specifically city by city. That could complicate matters in terms of trying to pull together multiple cities, but we certainly would be open to looking at those possibilities.

Commissioner Schmeltzer stated for the public, could you recap for us the findings and the recommendations from the study that you did for us last year that we subsequently adopted so that people listening know where these two proposals came from.

Mr. Bell stated the previous work that was done indicated that there was a high possibility of potential savings for or through acquisition in San Francisco. During the course of that work, the AB117 was working its way through the legislature and ultimately was adopted and signed into law by the Governor, which opened up a complete new avenue in terms of acquisition of resources for the City and County. That's how this process developed into a bifurcated AB117 versus wires acquisition process.

Commissioner Schmeltzer stated but there were a half dozen specific recommendations that came out of that report last year.

Mr. Bell stated yes, and those basically are included in the analysis of the scope of work, further evaluation of the economics, the resources, and the ultimate benefits of both approaches.

Ms. Young stated Commissioner Schmeltzer, as a part of your work plan with respect to the work for R. W. Beck, there were about seven recommendations as follows: It was modified to include work on AB117.

Then there were the future recommendations.

Nancy Miller, Esquire stated I want to make comments in response to what Mr. Smeloff said and to what Mr. Bell ha been talking about with respect to the study on AB117. Obviously, what we are trying to do with this first study is to figure out whether or not the City and County as an aggregator that is a purchaser of electric power might be able to provide cheaper and more reliable power to its citizens. This is a broad study and the next steps on that study is the implementation plan which Mr. Smeloff and Mr. Bell talked about. I do not think that you as LAFCo can implement the implementation plan. That is really not your charge or legal responsibility. That implementation plan will have to come from the City and County of San Francisco, typically I would assume through your own local PUC. I am assuming that once we do this plan if in fact it shows that community aggregation is in fact a viable alternative for the City that the SFPUC would have funds allocated to actually prepare the implementation plan. Now obviously we can assist in that. We can do a lot of things to help provide that, but they in fact will have to be the ones to for example, set rates. You won't be doing that. You don't have the power to do that. You sitting here as this body. Sitting as the Board of Supervisors obviously you do. I just wanted to make that one point because I think it is important that the SFPUC start planning for budgeting for the implementation plan; otherwise, the study will just be put on a shelf and put nowhere.

Commissioner Fellman asked is it appropriate to say that the LAFCo's legal function is to review whether or not it is feasible and reasonable for the City and County of San Francisco to pursue the establishment of a community aggregation of either agency or function either within the PUC as a function or a separate agency?

Ms. Miller stated absolutely, but it's that next step as to how you implement it that we don't really have that power. Obviously, we can help and obviously, you have some funds available potentially if you so desire. But really the implementation will have to come from the City and County.

Commissioner Fellman stated I have viewed the study that is before us as doing the feasibility part of that, not the implementation plan. But, if we recommend that it's the PUC or whomever we designate would have to take on those costs and that responsibility for implementation of community aggregation.

Ms. Miller stated the second point I want to make is in terms of timing. I agree totally with Mr. Smeloff and Mr. Bell. Timing is very important on the AB117 issue because PG&E is also preparing its long range plan for how to serve its citizens. They are going to actually provide theirs the beginning or mid-April, May. If you are planning on becoming a community aggregator, you want to have a plan if not then, soon thereafter to be able to make sure that there's room for community aggregation in those long-range plans when the CPUC acts.

Commissioner Hall stated I think that's an important point that you just made as far as prioritizing aggregation versus feasibility acquisition. Ms. Young, how much did we spend last year? Can you give us an estimate on the feasibility acquisition, what was spent last year?

Ms. Young asked on the Energy Study?

Commissioner Hall stated yes.

Mr. Bell stated it was slightly over $100,000.

Commissioner Hall stated before us we have an estimate of $200,000. I know that your company has given estimates to East Bay MUD of a $1,000,000 for a good feasibility study. What are we buying here for $200,000?

Mr. Bell stated the comparison to East Bay MUD was based on an initial study that was done for them that showed a range of potential savings, basically, the same study that we are discussing here. The cost of that study was approximately the same amount as what is being proposed here. What that gave was an analysis that said based upon what we know of the loads, the resources, the likely acquisition cost and that was for a specific region of East Bay MUD service territory, not the entire service territory, but essentially an area west of Oakland Hills, the potential for savings were between one point and another point. Now the cost of doing an actual appraisal of the electric facilities and coming up with a much more concrete set of work for the actual acquisition is that next step that would have been the higher price range. But essentially the work that had been done for East Bay MUD was very similar to what is discussed here in terms of the wires acquisition. It is determining on a preliminary basis, what the power supply costs, what the wires costs, the customer service costs, what all those costs would be.

Commissioner Hall stated it seems to me that between the $200,000 that we get with this, there is $800,00 that I would assume we would want to know in the same points that you addressed in the $1,000,000 dollar estimate for East Bay MUD.

Mr. Bell stated we never did the additional $800,000. The reason that you phased this in like that is because if the economics don't work out, if it shows that there are not sufficient savings or if the risks are too high, you don't ever spend the $800,000.

Commissioner Hall stated but to have a credible complete package, you are ultimately looking upwards to a $1,000,000. Is that correct?

Mr. Bell stated ultimately, if you are going to acquire the wires, you are going to have to do appraisals, and you are going to have to do a great deal of legal work.

Commissioner Hall asked which could amount up to $1,000,000?

Mr. Bell stated it could.

Commissioner Hall stated our own budget analyst back in 1991 estimated that for such a type of study it would go between $600,000 and $900,000. I have great respect for Mr. Rose's office. I tend to agree with you. If we are going to start something, we want to make sure that we are going to go the full distance. Unless we are going to have all of the facts necessary to complete acquisition, I wouldn't want to start anything like that. I think we all know that a million dollars or more is probably what we are looking at in the long run. Am I correct?

Mr. Bell stated only if you choose to go down that path.

Commissioner Hall stated and we are going to do that in stages, but I don't like to start out on a mile race and reevaluate my strength after the first quarter and pull out. There is a certain commitment there that you make. This is a very serious topic. I think that everybody has to be aware of what we are looking at. It's not just $200,00 of which we spent $100,000 last year. If we were to have true public power, and I am for it. That's why I want to start with what is the most important part of what's before us and that is community aggregation and address this other thing on a step-by-step basis, but knowing full well what it is going to cost us.

Mr. Bell stated that's a valid point. If you move down the long-term path, it is a costly and time-consuming effort.

Chairperson Commissioner Gonzalez stated I just want to clarify a couple of things. The study that we did previously was not per se a feasibility concerning acquisition study. That was a component of the study that also included community aggregation that included the Electricity Resource Plan, that looked at solar, that looked at Turlock-Modesto arrangements. To my mind, that was really a study that was trying to let us know how many different options we had as a City and County.

Mr. Bell stated that is correct and it looked at issues such as local control and those types of issues. It was not intended to be what this study would be which would be a more formal analysis of the actual costs of supply, of transmission, of distribution, of customer service, and how they might compare to other alternatives.

Chairperson Commissioner Gonzalez stated to Commissioner Hall, I think the idea of $1,000,000 sounds so significant. Certainly if you broke it down in terms of the kinds of money that was spent at the Airport related to runway expansion or if you looked at even ten salaries that had been added to government in the last five or ten years with benefits, that ten salaries would amount to that. I think the race analogy is a good one. You don't want to just start something and drop out and not get anywhere because then maybe your investment is lost. But I think that to my mind, we have started on a slower process, on a more training process where we are looking at the likelihood of reaping certain benefits if we were to continue down a certain path. We're not at a place here that we are saying, let's commit a $1,000,000 to this study. We are saying, we did the first thing, we are looking at a lot of different options. This other option seems relevant. I think Ms. Fellman raised a lot of questions that even under community aggregation, what would we be paying PG&E for? What are the implications for that? Certainly, it's a question of priorities and goals, and I think we understand that.

Commissioner Hall stated I think you are absolutely right. I think it is a question of priorities and goals. I am not against taking that big hike. Indeed, with a six or seven billion budget like we have had in the past, this is nothing but a drop in the bucket. I just want to make sure that we take the first baby steps first before we go there. I think that is what the voters want us to do. They certainly weighed in on this issue three times in a little more than a year. From my point of view, I think Mr. Smeloff has made a great case for the necessity and the prioritizing of aggregation and giving it enough surplus to make sure we are going about public power the right way. We only have $200,000 I am hearing at our disposal.

Ms. Miller stated that is this fiscal year.

Commissioner Hall stated but they are talking about activity happening in three and six months.

Chairperson Commissioner Gonzalez stated Commissioner Hall, let me respond to a couple of points I think are significant. I think the reason why the community aggregation item is here is because we get the sense that it is a priority. I think though that Ms. Miller's comments are significant which is the dollars that Mr. Smeloff is talking about in terms of post AB117 study, the continuing monies that he believes is going to be necessary, that that really is about implementation and should be coming from the PUC. In fact, Mr. Smeloff is indicating that he expects there will be money for that. It's not lost on me that we have had public power campaigns defeated in San Francisco. But as an agency that is in part looking at new governmental entities, government efficiencies and when we see a political campaign waged where a big fight is about whether or not something is feasible or not, whether or not it is going to cost too much or cost too little, whether or not municipal government can do something that a private entity is doing--it seems to me that a part of the charge of this entity is to say well, what about a feasibility study? Let's put this question to rest. Maybe there are unique components about San Francisco that do in fact make it unfeasible. That's what I mean by a sense of priority. I think that fits in with what we have seen out in the political campaigns.

Commissioner Hall stated I have a different look about what feasibility studies are for when it comes to government versus political campaigns. A feasibility study is best utilized when the voters have said we would like this to happen. A feasibility study tells government how it is going to happen. That is when a feasibility study is of its greatest importance to the larger community. I would like to see a feasibility study with public confidence saying yes, we want to take over the acquisition of PG&E. That hasn't happened yet. So to put the cart before the horse bothers me a little bit.

To go back to your political campaign. That's like me last year putting home ownership (HOPE) on the ballot, Supervisor McGoldrick having it studied by our legislative analyst. If I come back in this year and I say I want to make a request of the Legislative Analyst to have HOPE studied, are you going to go for it? We're using public dollars to study something that the public hasn't weighed in on yet. If the public weighs in on it, I'm all for it. If you are claiming the feasibility is going to make the case for public power, then why not have the proponents go out there and raise the money and do a feasibility study just like the opposition has done in reverse.

Chairperson Commissioner Gonzalez stated what I find most interesting about this dialogue is that we're both using the same philosophical concept to argue our point which is that we shouldn't put the cart before the horse or that we shouldn't have that expectation. You have articulated from the point of view that you think there ought to be a voter mandate for it before we go down that path. I'm saying to the extent that each side of this debate has been trying to sway the public without this piece of information, it's as if we're not assisting the public in knowing what the truth is. We're asking the public to vote for something without information.

Commissioner Hall stated that's part of the political campaign. Our job here as legislators is to oversee how public money that we have in our coffer is being spent. The public has clearly said at this time they're not in favor of public power. Why do we want to prove that side one way or the other.

Chairperson Commissioner Gonzalez stated what if I had said to you the voter could very well have gone to the ballot and said, I am voting against a municipal utility district because I don't think public power is feasible here, or I don't like the way the head of this agency is being elected, or I don't like including Brisbane. Or they go to the polls and they say, I don't want to allow this entity that is being created to have the power to do a feasibility study and then acquire the grid because I don't have any confidence that that's a worthy use of public money. Who knows what the theories are. Those arguments are based on the specific campaign model that is on the ballot, but also whether or not the voter feels sufficiently confident that each side is telling them the truth whether or not it is feasible or not. One of the things that the LAFCo does is government efficiency. I don't think it is our job here to go out and run a campaign or to go out and supply the campaign with the fire power they need. We may do it inadvertently to the extent that this is a topical issue that has been present in San Francisco for decades, and there is that absence of the hard evidence that Mr. Bell's outfit can go out and do.

Commissioner Hall stated I think that same analogy can be said about anything that goes to the ballot except this particular item has been to the ballot and rejected three times in a little more than a year. I think we are pushing it when we say it is our job to provide the public with the very thing that the proponents of public power are saying they are not at their disposal to tell the public about. There are two sides of the public power issue. I happen to be for public power. I think it's great, but not until the voters by and large weigh in on it with the confidence to say you spend the money the way it should be. A feasibility study should tell us exactly how we are going to do things. They are looking at $1,000,000, not $200,000. We only have $200,000 here. They are looking at at least $1,000,000 before we get all of the answers to tell the voters this is the way it should be done. I for one under this particular budget year would not want to allocate those resources at this time. Anytime politics enters into this as this has, we have to be careful.

Chairperson Commissioner Gonzalez stated I think it's a two way sword. On the one hand Mr. Bell is quite right in outlining it. I appreciate you bringing this up because I think it is an important fact to understand that the level of ultimate study to go down a path would be more costly than what is being presented to us right at this moment. But it's also because there is a certain degree of caution about what would have to happen in order for this kind of activity to happen. You don't just say Mr. Smeloff, can you rent a storefront on Valencia Street and we're going to have a public power operation. I'm a little bit concerned that the argument against taking a step forward is this idea that we want to proceed with caution and caution sometimes costs money. The reason why it may be a valid point to do is in part the material that we've seen from the Long Island Power Authority where that money stayed in the local economy. At a time when other communities are being hurt in the post-911 economy, they've done relatively well because of that public power authority. I think that's very interesting. I don't know all of the details about their experience. I find it interesting to see a Republican Governor issuing press releases about the fantastic success there.

Commissioner Hall stated I agree with you on that, and I think ultimately we are going to go there. But right now as Mr. Smeloff said as many people have indicated, we are already along the path along public power. Let's take the most important efficient first step to make sure the aggregation process happens correctly. I would rather LAFCo pursue that first step so we can look and analyze what the PUC is going to be doing. I think that is a great function of LAFCO, the investigatory powers that we have. Let's insure that aggregation, the first, second, or third step of public power happens correctly. If we are not going to be able to oversee it, you know the PUC isn't going to do it. Let's get the first step off and running and then proceed down this path of acquisition at a later date when we have more time and we can do a thorough study like Mr. Bell is talking about. Let's take the first step first. We owe it to the voters after they have said three times in a year, they are not ready for it. Let's not make the case for one side or the other. Let's try to prove that public power does work and aggregation has a great benefit to the City. It's the most efficient way to bring energy to the City right now. Try to keep the bills lower and then later on convince them, well maybe we have to own the wires. Right now Mr. Smeloff said that's not necessary. I understand the feasibility study is necessary to prove to the public that acquisition may work, but that's not our most important function right now.

Chairperson Commissioner Gonzalez stated I think reasonable minds can differ on this. For one thing what I am hearing everybody agree on is and I don't want to speak for Commissioners that haven't addressed it, but I think that we are all agreeing that AB117 is important, it's a priority.

Commissioner Hall stated when I first got on the Board I was one of the first ones to call for a Department of Public Power. That's what I wanted to ask Mr. Smeloff, have we made any progress along those lines, a Department of Public Power which would deal with aggregating. Had we done that at that time, today we would be saying okay, what is the next step? Acquisition. Maybe we would have the money to look at acquisition. I don't think we're there and again, I think it's beholden upon us with LAFCo to make sure that the first step gets done properly.

Commissioner Schmeltzer stated I want to agree with the Chair about there being broad support on the AB117 and its priority. I think and Mr. Smeloff said this, one of the most important things about keeping this as a priority is that it does give the City a track record and something to look at and say the City is able to do this. If it is in fact able to do that. I think we would all hope that is the case. As far as the feasibility study, I want to say that when I first got my package of materials, I thought this was telling me initially that we could only do one or the other, and we could not do both. That was of a lot of concern to me. I was glad to hear that our Executive Officer had already spoken to the consultant about how to try and phase in different portions. I think a feasibility study without AB117 would be foolish. I think we would have more studies without anything on the ground and any real movement towards trying to establish the City provision of energy services to the public. I'm going back and forth listening to the two of you about the value of a feasibility study at the moment. I don't necessarily think that once you start on that road, that you are fully committed to that $1,000,000 dollars. If we start to get some information and decide this really isn't working, there is no point in throwing good money after bad.

Commissioner Hall stated we can start and pull out, but we do have before us certain limited funds this year and next.

Commissioner Schmeltzer stated and we should understand that this is not the beginning and the end of it. I also think that we put something out there that is partial and it will become a bulls-eye and a target. I think that is something to consider as we look at what we're doing. We may or may not have any resources to back up what we've done or respond to what people say about what we've done.

Commissioner Hall stated that is an excellent point because if we go down that road, we could do more harm without going the whole distance in the total public power effort than we are now. I think that's a beautiful point because if we don't have the resources to show the public as you are saying, Supervisor Gonzalez, that this can or can't work, they are only going to be in the same spot they are in today. I am not so sure we have those funds available.

Chairperson Commissioner Gonzalez stated I wanted to ask Commissioner Schmeltzer, what do you make of the discussion I had with Commissioner Hall about the ballot outcomes? Public power in some form has gone to the ballot, the voters have weighed in and rejected the measures. How does that play in the decision?

Commissioner Schmeltzer stated I tend to think our role as a LAFCo is to provide information on the City's ability to provide new services. In the abstract, we should put whatever information we can pull together and study and put out there to help decide these issues that obviously there are a lot of people who feel strongly about on both sides. We've seen this on many issues in the City-the same issues keep coming up because there are people that care very strongly about them and sometimes power has gone in a particular direction for particular reasons. We've seen it on other issues that they go both ways, one election it's voted up and the next election it turns around. That is largely due to new information that becomes available. Without that new information, you are having the same argument. My difference is that I think that the kind of information that is going to change that is more likely to come out of AB117.

Chairperson Commissioner Gonzalez stated the experience of seeing government in the energy business in a greater extent as opposed to evidence of what the feasibility is.

Commissioner Schmeltzer stated more abstract information. It's a complicated subject that people can understand on the ground more than the abstract. I'm not sure that's our role to decide which piece it is. I don't want to see the AB117 get lost in the other discussion.

Commissioner Fellman stated we're here as LAFCo to look at what is the appropriate role of the City and County of San Francisco with respect to moving forward on public power issues. We had our energy study. We are looking at the next step. We have before us a state law that offers us an opportunity to take a huge leap forward toward local control for the citizens of the City and County of San Francisco to procure their own power supplies and to basically move into a public power model with respect to electricity. I think our Item 5 study will determine whether that is feasible in a timely manner so we don't lose that opportunity to move forward in conjunction with all the other dynamics that we have heard today.

I also think it is very important and I want to follow up on something that Mr. Smeloff has said and was just commented on in the discussion, that we need to build confidence that the government can take over this role from PG&E. In my informal conversations on the ballot measures, I can't say that I have the same political dialogue that some of you do as supervisors, but the biggest concern I have heard among my friends and colleagues is not that they want PG&E to remain as their power supplier, but rather that they don't trust the City and County to do the work. They don't think the City and County can do it. There needs to be some confidence there.

The City and County can serve the same function as PG&E in a seamless manner because most people are primarily concerned about the fact that when they flick a switch, the lights go on and when they get their bill there is some predictability about what that bill looks like. I urge the LAFCo to focus on the AB117 study and with respect to the feasibility study, that is part of the conversation. I support what you said Commissioner Hall on phasing that so we can take it incrementally rather than jointly. I am also concerned that if we move forward right now with the feasibility study, that we would be using the same personnel at R. W. Beck to do both and there would be a conflict there, so we would not necessarily get the product we want on either one.

Public Comment

Brad Benson, Supervisor Ammiano's Office stated that the Supervisor regrets that he can't be here today to participate in this discussion. I know that the Supervisor's opinion is that there is not an inherent conflict here between pursuing both of these simultaneously. I think the advice from the Executive Officer has been that work can proceed on both of these items starting now and the feasibility study would continue into the next fiscal year where additional funds would be available to complete that work. As to the question of additional work on AB117 analysis, I think it would be worthwhile for LAFCo to consider that an implementation plan for AB117 is really not something that LAFCo should fund. It is something that the SFPUC should fund. LAFCo is looking at, generally speaking, as to whether existing City departments are adequate to perform different types of work, not to do the work of departments. So the PUC, perhaps working with the Department of Environment, should do further work after it completes AB117 analysis on developing an implementation plan. To summarize, Supervisor Ammiano would strongly urge a vote in favor of both of these items today.

Bruce Brugmann, Bay Guardian, stated this is really distressing. After all of these years, eighty years with the Raker Act scandal, literally thirty-four years with the Guardian covering this story to find a Commission that was set up by the public power movement to move public power forward and take on PG&E, and get this scandal straightened around, get our rates lowered, get our service better, and do what 2002 other public power cities in the United States of America are able to do. I come here today and here we have this debate in which the PG&E line is put forth. They don't have to come and testify because the line is right here. Mr. Smeloff comes in. We're all for community aggregation. But he comes in and wants a chunk of this $200,000. He could have gone to the PUC or someplace else. Instead he comes in here and wants this money, a mayoral appointee, and there is not enough money left to do a real study.

Supervisor Hall, who knows exactly what he is doing, runs it up to a $1,000,000. He knows better than that because he was out there with PG&E saying that it was too costly and is too risky. Go out and do your own feasibility study, he tells us. This is what the City is supposed to do. That is what Mike Bell and R. W. Beck are here to do. They do feasibility studies on everything else. The only reason that there has been this problem for so many years to get a feasibility study is because of three letters-PG&E. Anybody who votes against doing these two studies is voting the PG&E line, doing help for PG&E and can no longer say I'm for public power. There is no way to get any confidence along the lines that Ed Smeloff was saying. We need to have a little public confidence in City Hall and being able to do a public power system. We built the dam, we built the power lines, we have been operating a public power system, but we've been operating it under PG&E. How can the public have any confidence in LAFCo or the PUC or the City if this bankrupt PG&E with its terrible record on rates, on service, and on reliability is allowed in effect to control our system? They won't have any confidence. That's the problem and that will undercut aggregation and every other move that you make if you don't start right now on moving on this issue. This will get us going on putting the last leg on moving ahead on real public power and a public power authority. It will give us the leverage finally after all of these years to negotiate properly with PG&E and not from a prone position. We can negotiate head to head because we will have leverage in a feasibility study that will hopefully show what it should that power would be of an enormous benefit to the City and County of San Francisco.

Commissioner Hall stated Mr. Brugmann, you have been a champion of public power, and I commend you for that for years and years. You know the element that is missing here is what you are asking us to do. Why didn't you do this on your own? I mean all of the time, money and energy that you have spent over the last I don't know how many years, why didn't you go out and have this done yourself? Why are you asking government to pick up the tab to prove your case?

Mr. Brugmann stated you ran the cost up here.

Commissioner Hall stated I didn't run the cost up. That's an expert that gave us estimates. Are you questioning him now?

Mr. Brugmann stated I am questioning the fact that you want me to come up with a million dollars. I don't have it.

Commissioner Hall stated Mr. Brugmann you probably spent several million fighting this cause. Why don't you get off the PG&E kick because I don't own stock in PG&E. I am not here representing PG&E. I am here representing the government, and I am concerned about how the money is spent. If you are asking me to spend the money the way you want to, to kill a company, that's not where I am coming from.

Mr. Brugmann stated if you are not representing PG&E, that's front page news.

Commissioner Hall stated I am sure it will be front page on your paper, so be it. I am asking you, why didn't you after all of these years of trying to kill a company, why didn't you prove your own case? Why are you asking the government to do it?

Mr. Brugmann stated are you trying to say that I'm killing PG&E?

Commissioner Hall stated that is what you just said-they are the demon out here.

Mr. Brugmann stated no, we simply want to do what the Raker Act says, have a public power authority and kick PG&E out of City Hall where they don't belong. This is expensive, but the only way we could get to this point was to spend a bunch of money on the public power movement of people who don't have it. A bunch of money and going out on the streets and getting the signatures for a MUD. That is the only way we could get this moved at all. Nobody in City Hall would move this except Supervisor Ammiano.

Commissioner Hall asked is aggregation a good first step in your eyes?

Mr. Brugmann stated sure, it's good. We're all for aggregation. What we're not for is to do aggregation without fitting it into the big picture, which is a feasibility study by the people doing it.

Commissioner Hall stated Mr. Brugmann, you are absolutely right. We're not at the big picture yet because the public does not have the confidence that the City can do the job that a private company is doing.

Mr. Brugmann stated you are never going to have the confidence when you sit there representing PG&E and saying in effect, after all of these years we can't move the study.

Commissioner Hall stated please try to understand, I don't own stock in PG&E and I am not a PG&E guy. I realize that anybody that differs with you becomes an agent of PG&E. Try to understand that our job as legislators with a certain amount of money is to go one step at a time. Maybe it will help your case in the long run-I am hoping it will. But right now I am not going to throw the baby out with the wash to satisfy what you say has to be done.

Commissioner Fellman asked Mr. Brugmann, can you please comment on your opinion regarding the community aggregation aspects of Item 5 and feasibility study for that?

Mr. Brugmann stated that's fine, but I would rather have it go to the PUC where it ought to go and not swallow up the money for a feasibility study on the key issue here. This is the key issue. For all of these years PG&E is able to say with the help of Commissioner Hall and a bunch of other people, this is all too risky. This is all too costly. And they spend millions, three million this time around, eight hundred thousand reported after the election.

Commissioner Fellman stated we are aware of that.

Mr. Brugmann stated that's why you have so much difficulty even in dealing with PG&E. That's why the power was sold off to Turlock and Modesto. That's why it has taken all of these years to get here. Now here we are at this vote and you folks are dancing around saying, it really isn't time. When is it going to be time? It will never be time according to PG&E because they make hundreds and hundreds of millions of dollars from the system that they are by law required not to have and that we are required to have. These are baby steps and it has taken us years to get to this point. So we come down here and what do we find? This kind of opposition that resists a simple thing-the start of a feasibility study by the most qualified company in the United States of America to do it. We have lost hundreds of millions as Long Island shows. We have lost hundreds of millions to PG&E, which has hurt us in this dot com recession. It is hurting the recovery and as a piece of this study, I would recommend you do the Long Island study exactly as it was done there by Mr. Kellner, exactly as it was republished and redone in the Bay Guardian because we found it was over $620 million that was taken out of the economy here every year because of PG&E's high rates. Rates that should go back to the citizens.

Mr. Andrew Bozeman stated I do agree that the time is now to fully examine public power and to move in that direction. However, I do have some doubts, some lack of confidence on the ability of a civil service system to provide the kind of service that is necessary. I ask that as part of your study you consider making this power department a quasi-governmental body because from my impression the civil service system while it provides security and protection from the political process to the workers, it does not reward or encourage performance and efficiency. In order for us to meet the goals of providing more efficient service and better prices, I think we need to break out of the Civil Service system and create a quasi-governmental service somewhat like USPS in order to facilitate and encourage doing a more effective and efficient job.

Mr. Matt Lonner, PG&E, stated I am here to ask you to refrain from funding the electric feasibility study. Supervisor Hall made two correct points. One is that voters have rejected three takeover measures in a little over a year. The Budget Analyst and the City have knowledge that a credible feasibility study would cost at least a million dollars. These two years of conflict have not gotten San Francisco any closer to solving any of its energy needs. Conversely, a number of successes have been achieved or in the process of becoming a reality due to cooperation between PG&E and San Francisco. Measures that are moving us all closer to being able to close Hunter's Point power plant, replace it with cleaner forms of energy, and secure San Francisco's energy future.

By way of example, PG&E is busily at work working on the Jefferson Martin transmission line. That is a 230KV transmission line in San Mateo to San Francisco that is a real solution for San Francisco. We support it. Then Assemblywoman Migden's Bill AB117 would support aggregation. We look forward to working with the City in implementing and achieving the benefits from community aggregation. There is much more that we can do together. Aggregation for example is the best and the fastest way to solve many of the City's energy needs. That ought to be the City's focus. It's not really important that we agree on everything. Instead of focusing on areas that we don't see eye to eye, we should instead focus on areas where we can and should work together. It is in the best interests of the City, certainly in the best interest of PG&E, but most importantly it is in the best interest of the people of San Francisco.

Mr. Francisco Da Costa, southeast sector resident, stated this debate has been very interesting. I think first and foremost we need an evaluation of the San Francisco PUC. If you followed the debate a few days ago where San Francisco PUC was discussing the whole project of the construction and attending the various rehab of the system, you would see that within San Francisco PUC, there are many gray areas. So I consider we do an evaluation of whatever comes out from San Francisco PUC. SFPUC has done great injustice to the southeast sector. That includes the two power plants because they have a say in so many matters that are not given to the public. There are a lot of people listening over there on Channel 26 and we really don't have the detailed information about the debate that goes on here. Most of the people who are here are informed and have connections. Most of the people who have connections mostly have connections with PG&E. I feel that AB117 is flawed. I may be wrong. During the last elections, we had the opportunity to talk to a lot of personnel from PG&E who maintain the power lines. A lot of them would not want to work for the City.

Mr. Bob Buelo, Vice President, San Francisco Labor Council, stated I personally supported aggregation and I do think we need to have that study. But we can't ignore the other study as well. If we do ignore it and don't fund that one now, all you do is push off that next phase maybe five or ten or fifteen years, and that is not acceptable. We need to move forward on both of them. I would urge you to do so for these studies.

Mr. Charles Kalish, stated although I am a member of Bruce Brugmann's gang, I want Supervisor Hall to know I don't share his opinion about you being a shill for PG&E. I take you at your word that you support the idea of public power.

Commissioner Hall stated absolutely. I was the first one to call for a Department of Public Power.

Mr. Kalish stated I would like to make the point that I feel that you are being wildly disingenuous in asking us to come up with $3 million dollars to compete with PG&E and saying that the voters spoke. The voters didn't speak. PG&E's three million dollars spoke. You know that. It wasn't a level playing field.

Commissioner Hall stated I didn't mention $3 million dollars. I was talking about the money to produce a good feasibility study. The public power site could have easily done that in the last four or five years, and you know that with the money they spent fighting PG&E.

Mr. Kalish stated we don't have any money to fight PG&E. They spent three million dollars to defeat us. I just want to say we didn't lose at the ballot. We got robbed at the ballot because we don't have three million dollars to spend. A point was made to me that it is the job of the LAFCo to help us, the public, see into the future. That's what we are asking for. You want to do it step by step. Ed wants to do it step by step.

I completely believe in what Ed said and what Commissioner Fellman alluded to that we've got to demonstrate to the public that we are capable of doing the job. By that, you build the infrastructure of a department step-by-step. I am totally on board with that. But while you are doing that, you also have to know where the possibilities are for you to go. We need to know what the horizon looks like for acquisition, what acquisition would look like. That is separate from proving to the public that we can do the job and I ask you to look at that. Now is the time. This is when the sense of urgency is here. It's like one of the gentlemen said, we are not going to have this opportunity years from now because the will won't be there, the money won't be there. Let's get the information in front of us. Let's find out what the future has in store.

I also want to discuss and I disagree with Bruce about the capability of R. W. Beck. We need to open this up to other companies. R. W. Beck from what I understand has not led a study in which public power was the eventual outcome. They haven't demonstrated what some other companies have demonstrated, an ability to provide us with the in depth study that is needed. Long Island Light and Power used a different company. Davis is using a different company and came up with a much deeper study. This is what experts are telling me, and I am here because they are not here. I am asking you to open up the bidding to more companies. They gave us a good first step. They're possibly not the company to lead us into the future.

Mr. Richard Ow stated I am happy to hear that Supervisor Tony Hall suggests that we should have public funding to have the study. I suggest that Supervisor Hall will give us his first check to establish this fund for the public power study.

Commissioner Hall stated Mr. Ow I think you misinterpreted what I said. If you would like to go back and look at the tape you will hear that I said we should not use public funds to prove a case. Now if you would like a check from me on that, I will wait until my raise comes in, how's that?

Mr. Ow stated I do not know the intricacies of acquiring public power, but what the businesses and every person in this City want is reliable electric sources without blackouts and reasonable rates. The businesses and each individual cannot pay so much for their electric bill. I was at the MUD on these three issues. The reason we lost every time is because we do not have a public study and PG&E put out all these statistics to their favor. I urge that your Commission approve the study so the people can understand both sides of the story. I hope that the final study will be one page so everybody can understand it.

Mr. Garrett Jenkins stated $200,000 for one page, I don't know about that. I want to thank you Commissioners for the thoughtful discussion on this, but I disagree with you Commissioner Hall. This is a public issue now and we should use public monies to resolve this issue and get down to the bottom of whether or not acquiring the grid and the power system, power production, is feasible and appropriate for San Francisco. We are on the right track so let's just do it and get it done. I think we should also consider how we are going to provide relief to the people of San Francisco, to the businesses of San Francisco in the long run. I think through public power that can be done. Whatever this body can do to make that happen to give the people the information they need to make an appropriate decision, this body should do. We have talked about aggregation for a long time. It's just a part of moving toward public power. With that information alone, I could make the decision that we should acquire the grid. If we are going to buy the power without owning anything and it's going to be cheaper. Then what if we did own something, then it's obviously going to be cheaper. That would make the decision for me. As far as the political portion of it, I campaigned for public power and what you heard these people talk about, that question came up all the time--you don't know exactly what it's going to cost. That question is going to come up again. Just resolve that question and move forward.

Mr. Tom Roberts stated it sounds like there is consensus on the feasibility of the AB117 community aggregation portion of this. My comment is given community aggregation, if the Hetch-Hetchy agency that is created can follow the ideology of Mr. Smeloff, I think that would be a great step forward. So, if we look at their being $200,000 this year for the feasibility studies or to promote clean distributive power for San Francisco, if we have $130,000 left and we do not spend that on the study for acquisition, can that money be used to advance the community aggregation?

Commissioner Hall stated I can answer that and Mr. Smeloff answered that. The $72,000 would lay out the game plan, which I think one of our responsibilities here at LAFCo is to insure that that game plan is correctly given to the PUC. But Mr. Smeloff would like to see another $100,000 in backup funds to implement it. I agree with him on that. That is where the extra money would go. I would rather see that go into insuring that aggregation gets off to a good start and has enough money to become a reality towards public power. The same reasoning I used when it came to the acquisition study. I would like to know that eventually we could get all the facts that are necessary to complete public power in San Francisco.

Mr. Roberts stated it seems that the funding for what he was talking about would come from separate funds from the PUC, not necessarily funding from this agency.

Commissioner Hall stated I do not know if that's a reality or not. I do know that I want to insure that LAFCo is in control and direction of that aggregation aspect. I am not going to leave that at the PUC.

Public Comment closed.

Vice-Chairperson Commissioner McGoldrick requested a vote on this matter.

Chairperson Commissioner Gonzalez stated to the Executive Officer, if we were to vote on Item 6, would that be the phasing that we were discussing?

Ms. Young stated that is correct.

Chairperson Commissioner Gonzalez asked in terms of the current budget, how much of that money would be committed to Item 6?

Ms. Young stated $100,000.

Chairperson Commissioner Gonzalez stated that would leave about $28,000.

Ms. Young stated it's slightly less than that. You had approved at your previous meeting the fact that we would provide the general budget with a five percent contingency. That number is being upped as we speak. However, I am going to a Mayor's budget meeting this afternoon. If there are adjustments, I have had conversations with legal counsel. There would be some adjustments in the per hour fee of the legal counsel, and we could look at other areas to make appropriate cuts. About $20,000 to $25,000 would probably be available. If you approve Item 5 for $72,000 and Item 6 would be $100,000 to begin the process of acquisition in a phased process to end the study in the next fiscal year, which would then be replenished with consulting fees. If you look at the contract even though there is a slight typo in it, both amendments to the contract start on February 10^th. If in fact I am directed today, I will begin negotiations with R. W. Beck to sign off with the help of the legal counsel to execute those agreements. Both dates start February the 10^th. Mr. Bell has agreed that can in fact happen. One of the acquisition contracts, given the scope of work, won't be completed until approximately July 28^th which would in fact take us into the next fiscal year.

Commissioner Hall stated that leaves us no backup money for aggregation.

Ms. Young stated in this fiscal year, you are absolutely right.

Commissioner Schmeltzer stated under this phased proposal for Item 6, the study would end in the next fiscal year in July. How much of our budget for the next fiscal year would that take up?

Ms. Young stated we have $300,000. If the Commission continues to allow the budget to be left as it is, which you have the ability to reduce your budget--the Board of Supervisors or the City and County does not, then you would have $300,000 in consulting services. We have always estimated approximately $100,000 for legal services which leaves you approximately $200,000 for other studies. It is estimated it won't come in at $100,000, but we are not really sure of that depending upon the negotiations with these amendments to the contract. There is an aspect of AB117 that has a legal aspect to it with respect to some work that will have to be done by our legal counsel. So you will have to keep that in mind.

Commissioner Schmeltzer asked that's this fiscal year?

Ms. Young stated that's this fiscal year. Next fiscal year it is $100,000 that we would anticipate towards legal counsel, unless there is a reduction in the use of our legal counsel.

Commissioner Schmeltzer stated we are looking at a $300,000 budget minus $100,000 for legal fees minus...?

Ms. Young stated minus $100,000 for the second part of the acquisition, which would leave you with $100,000.

Commissioner Fellman stated so what we would be voting on today is Item 6 at the level of $200,000, but the payment is split between Fiscal Year 2003 and Fiscal Years 2004?

Ms. Young stated that is correct.

Commissioner Hall stated if that's the case, why did we all prepare a list here several weeks ago of what our priorities would be--desalinization, solar power, recycled water. This is the last county in the state...

Ms. Young stated at the last meeting that was before the Commission was the work plan including a list of priorities. We had that prepared. That's what we were discussing at the last meeting in December. Commissioner Ammiano raised a proposal around AB117 at that meeting. AB117 is a part of the work plan to begin with. It was felt that was initially a must do. As a result of public comment, there was an additional desire to move toward acquisition. So the work plan in terms of the other items that were on that list, tidal, desalinization, looking at non-profits. Those are still on the table, but we have not dealt with those as of yet because of these two other items that have taken priority.

Commissioner Hall stated under these two items, we will never deal with that.

Ms. Young stated that's a question for your colleagues.

Chairperson Commissioner Gonzalez stated to give Commissioner Hall an idea about my discussions with Mr. Blumenfeld related to tidal energy, he is under the impression with even $5,000 he can start moving on that issue and make public presentations before our LAFCo. I think there is no question that these are substantial amounts as they relate to our budget. I think a lot of our powers are going to be in our ability of inquiry, holding public hearings and not necessarily necessitate the large expenditure of money. We won't be able to do everything we want to, but we will certainly be able to start. You did raise the point about whether there would be any extra money for the community aggregation component. Mr. Smeloff, I just want to remind you, did make the point that he felt there would be money at the PUC or that was a consideration that they are looking at being able to fund that. Our counsel raised the point that that's really part of the implementation as opposed to part of the studying. I get your point which is we could have that money here to be safe on that.

Commissioner Hall stated assuming that's the case, I go along with that. Let's let PUC pick up the extra money that Mr. Smeloff thinks we are going to need for a proper aggregation program. I am going back then beyond one meeting more. I just see things like reclaimed water and water desalinization and solar power all of those things of being if not equal more important to the community than a feasibility study.

Vote to approve the SFLAFCo Scope of Work for Analysis of Chapter 838 (AB 117-Migden) - the California Community Choice of Energy Law and an Amendment to the Agreement with R. W. Beck to Analyze the Feasibility of Becoming a Community Aggregator and Develop a Plan Required for the City to Exercise its Options to Become a Community Aggregator:

AYES: Vice-Chairperson Commissioner McGoldrick, Commissioners Hall and Schmeltzer; Chairperson Commissioner Gonzalez

NOES: None

ABSENT: Commissioner Ammiano

ACTION: Approved.

Vote to approve the SFLAFCo Scope of Work for Providing an Electric Financial Feasibility Study to Supplement the Energy Services Study and an Amendment to the Agreement with R. W. Beck to Perform the Services

AYES: Vice-Chairperson Commissioner McGoldrick; Commissioner Schmeltzer and Chairperson Commissioner Gonzalez

NOES: Commissioner Hall

ABSENT: Commissioner Ammiano

ACTION: Approved.

Ms. Miller stated this is just a housekeeping item. You do not set any spheres of influence in the City and County because it is consolidated and you don't have any independent districts so the statutory deadlines do not apply to you. This is to confirm that for our records, and I move that it be approved.

No public comment.

Vote to approve this item.

AYES: Commissioners Hall and Schmeltzer and Chairperson Commissioner Gonzalez.

NOES: None

ABSENT: Vice-Chairperson Commissioner McGoldrick and Commissioner Ammiano

ACTION: Approved.

No public comment.

Mr. Peter O'Donnell, Senior Energy Specialist, San Francisco's Department of the Environment stated I would like you to create a future agenda item that the Department of the Environment is prepared to come in and make a presentation at your next meeting. I believe that is February. We would like to do a presentation to you on the opportunity San Francisco has pursuant to tidal energy as a renewable energy resource. We expect in February to present to you a one megawatt pilot plan drafted by a partner manufacturing company, and we will also be able to bring in state, federal, and environmental spokespersons to address some of the components in looking at the engineering generation and environmental aspects to this kind of feasibility project here in the City and County of San Francisco to simply start a public dialogue to look at these issues. We would very much appreciate that opportunity.

Ms. Isabel Wade, Neighborhood Parks Council stated I wanted to bring a potential agenda item for the future for consideration. It is a matter of energy and also a matter of multiple jurisdictions which I believe is the purview of a LAFCo. Namely, the topic relates to our fresh water lakes in San Francisco. My organization just completed a study regarding the three fresh water lakes in San Francisco and they are in great peril. Two of the lakes in particular have multiple jurisdictions which I think have resulted in our failure to deal with trying to save these lakes. One of the sources of emergency water supplies for a City in an emergency, namely Lake Merced. I was hoping that the LAFCo might exercise some leadership on this topic of our lakes and see if it fits into your purview. I know that Supervisor Hall has been interested in helping Lake Merced so I was wanting to bring this to your attention as a potential agenda item.

Chairperson Commissioner Gonzalez stated I wanted to ask you in the study that you put together, the fresh water lakes. What are we talking about here in San Francisco?

Ms. Wade stated the three fresh water lakes that are natural lakes are Lake Merced, Pine Lake in Stern Grove, and Mountain Lake Park.

Chairperson Commissioner Gonzalez asked is the concern water levels at the lake?

Ms. Wade stated yes, water levels, especially in the two lakes and the big issue is overpumping of the aquifer on the west side and so there is a great need to address that. Because of these multiple jurisdictions, it seems to have been very difficult. There has been an all volunteer task force meeting for a couple of years on this. But as Supervisor Hall knows, it isn't funded. Although the Mountain Lake study and task force was funded because there is federal jurisdiction over there. We haven't had that liberty. Our study was funded by a private foundation. We spent a year with the hydrologist looking at the situation of our lakes. We are normally engaged in advocacy for our park system, but these three resources really are a critical piece of three neighborhood parks. We were actually very surprised to learn that we are the only City in the Bay Area that is not using recycled water in our park system. But we did a study. We have a Master Plan for recycled water that was done in 1996, but we don't seem to make any headway on these things.

Chairperson Commissioner Gonzalez stated to the extent that you have these studies that have already been done, the one in 1996 and then the one with the fresh water lakes, do you think if the LAFCo were prepared to accommodate public hearings that you would be able to put together some folks that could come in and educate us on the issues facing the City as it relates to these items.

Ms. Wade stated we would be happy to help with that if it is the right forum.

Chairperson Commissioner Gonzalez stated because the members have spoken about it in the past, particularly if you have already done some study. If the members are interested, we could get copies and perhaps try to calendar something in the future.

Commissioner Hall stated I certainly appreciate you weighing in on these water issues, but I read your report from cover to cover. There is nothing in there that addresses the advances we have made with Lake Merced. Do you recognize that there is a lot of activity going on there?

Ms. Wade stated absolutely.

Commissioner Hall asked, do you realize there has been a number of agreements signed with users to stop underground pumping? Yet I don't see credit given to the proper people or authorities and I am just wondering why that is.

Ms. Wade stated I am not sure that we saw it that way. I am sorry if that's an oversight because we are absolutely pleased with your leadership on trying to do something about Lake Merced.

Commissioner Hall stated it is not just my leadership. There has been a whole slew of people who have worked on issues that your report does not even address. If we are going to continue to engage the free services of the public and ask other agencies to weigh in on us, I think that has to be recognized on any document as important as the one you put out. I would suggest that before you become an expert on these issues that you look exactly at the work that has gone on, look who is responsible for it, and give credit where credit is due. Then I would be really in favor of having you at every meeting. I haven't seen you at any of the meetings regarding Lake Merced. I appreciate the efforts you do on the park system, but this is a whole different issue. This is something that a lot of people have put their heart and soul and work into. I want to see those people given credit in the future. Just like I would give you credit for the work you have done. You give people credit who are behind Lake Merced that eventually will address Pine Lake and any other thing that you want, but Lake Merced is on its way to being whole, it is up almost two feet. It's not going to happen overnight. I'm sure everybody in town is going to jump on the bandwagon within a year or so. The more the merrier.

Chairperson Commissioner Gonzalez stated Ms. Wade has at least in my private conversations with her has always spoken very highly of the work that you are doing. What I find interesting is that the issues related to lakes is one of the most important environmental considerations facing in the City and they certainly don't get a sufficient amount of attention. I was familiar with what is happening with Lake Merced because you have brought the item to the Board, but I was surprised to learn that there are other fresh water lakes and being informed about the recycled water problem. I think again so much of the work that happens at the Board of Supervisors runs into problems because of an inability to focus on an issue and conduct real hearings. I think that if you take that model that we used with those energy hearings and try to apply them in these other subjects, I think we could really get somewhere. If Ms. Wade is capable of bringing people in on this issue and invite three or four public speakers to try to engage us in a dialogue, I am sure it would be of assistance to you.

Commissioner Hall stated absolutely and the particular lakes that she is talking about all suffer from the common enemy, that is underground pumping of the aquifer that supports the level of every fresh water lake in San Francisco. A lot has been done there. Don't take what I have said the wrong way. I am glad that you are weighing in on this. I could certainly use the help and support. But there are literally dozens of people that have given years of service that I think have to be recognized. That is the value of the report. I would suggest that a report like that should be run by the offices of the people actively engaged in trying to make something happen. Because otherwise, it becomes just another booklet on the shelf and I have got a stack that high.

Ms. Wade stated that is why I am here today hoping that it won't be a booklet. I apologize for any oversights. We have been active participants in the Lake Merced Task Force. It isn't me personally attending but one of my staff persons have been there.

Chairperson Commissioner Gonzalez stated and this is an important point insofar as the LAFCo has been mired down and all of the talk about energy for good reason. For Ms. Wade to come to the meeting, sit through all of that discussion to bring up this other issue. Clearly, I think there would probably be a lot of folks in the Neighborhood Parks Council who want the kind of more simplistic type issues of parks being addressed by her group.

Commissioner Hall stated one of the things you can help us out with Ms. Wade is the water levels coming up for various reasons and will continue to rise. I noticed that in the last couple of months a rather shabby look at the park areas around the lake. That would be something that you and your volunteers can certainly help bring to the attention of the different agencies responsible, Recreation and Park, Public Works to keeping it clean because of the one thing that is happening and the other thing isn't happening, the overall picture begins to get confused. I would think that is an easy issue to help us here at the Board. We cannot go out and monitor this on a daily basis, but I would like to see your help and support on that issue, keeping the surrounding areas and pathways clean.

Ms. Wade asked as a volunteer?

Commissioner Hall stated no, just as awareness. I am not talking for you and your crew to go out there and keep it clean-that would be great if you could do it.

Ms. Wade stated but we can't do it all.

Commissioner Hall stated the one thing I would like to see happen is some kind of awareness to the state of the grounds around the lake because I think the lake itself is being addressed and I appreciate your help on that as will Pine Lake and every other lake in the City.

Public Comment Closed.

Chairperson Commissioner Gonzalez stated to the Executive Officer, my thinking would be to start scheduling both the tidal issue and the issue of lakes and water in communication with Ms. Wade and Commissioner Hall's office. I think these are areas that we could contribute something to what the City and County is trying to do.

Commissioner Fellman stated that I agree. What I was trying to suggest is that we identified several areas of future interest when we worked as a Committee. If it would be appropriate to ask the Executive Officer to set up a process where we can schedule hearings, establish the topics, and schedule hearings that would be no longer than two hours. The hearings would be on this reclaimed water issue, the proposal for desalinization, and solar power. We could have a hearing every two weeks and have people come in to speak. I don't know if it is appropriate to hire someone to organize those meetings or whether Ms. Young would set up the meetings. We had Mr. Maynor do the energy hearings.

Ms. Young stated, I worked with Mr. Maynor and several of the folks that were here were people that I knew from past experience.

Ms. Fellman stated I would put before the Commission that we would set up these hearings and then we can talk about the mechanism. We've kicked off our Energy Services Study. Let's start doing the next thing.

Ms. Young stated Chairperson Commissioner Gonzalez and I had conversations this past week. There is an interest from the Department of Environment to look at tidal and desalinization which was brought up by several of you and is a part of the work plan. If in fact it is amenable of this Commission, what I suggest is if you schedule a meeting for February 28^th, that would allow us to do some public outreach and public notice. I have had preliminary discussions in the past twenty-four hours with staff of the Department of the Environment. They would be willing to provide us with experts on the tidal issue. In addition to that, I had conversations with our legal counsel, and she has indicated that she could also get us a couple of other speakers.

When Commissioner Hall and I were at the CALAFCo Conference, I had an opportunity to talk with the previous City Manager of Santa Barbara, Sandra Jones, who is a friend of mine. She is willing to come up to San Francisco to testify. In 1992 Santa Barbara did not only initiate, but implement a desalinization project. At the time, they were concerned that they had about two years of water supply so it was a fast track process for them. If in fact we were to ask her previous staff to attend the hearing, for instance the Public Works staff-person, we would definitely have to think about funding and paying for them to come up and go back that day. If February 28^th is a date that is amenable to you, then we could notice the hearing. It would be a matter of what you want to see happen on that date.

Chairperson Commissioner Gonzalez stated my suggestion would be for our Executive Officer to set this up in late February, but let's have an intervening meeting in a couple of weeks so she could present to us what her plan is for that meeting. Later in March, we could do a similar thing and have planned the next hearing. If you think at the next meeting, you could be discussing different kinds of public hearings in late February or early March that would be ideal also.

Ms. Young stated, the problem is that I will be in Sacramento next Friday and will be part of the deposition for our case in litigation. I asked our attorney if she was available on the 14^th, and she is not. I believe Commissioner Schmeltzer has indicated she is not available on the 21^st. That leaves us with the 14^th and the 28^th. The question is whether I can bring you a plan or take the fact that we have resources available from the Department of the Environment and from our legal counsel with respect to the whole issue of tidal, and move on that issue. At the 28^th meeting, I could then come to you for a plan for other opportunities.

Ms. Fellman stated so in other words, there would not be another meeting until the 28^th?

Ms. Young stated unless you decided on a meeting on the 14^th. I would have to talk to our legal counsel about the 14^th..I could try to contact her within the next week as to whether there are other items that make sense for us to meet on that date.

Chairperson Commissioner Gonzalez stated my thought would be to have the meeting on the 14^th. If we don't have a quorum, then we won't have the meeting. If there's enough members here that could at least discuss what would be happening on the 28^th, that would be ideal. We could have the City Attorney staff the meeting insofar as our previous decision had been to use them on occasion. There are going to be cases when an individual member isn't present, but I think we would at least have a quorum to have that discussion.

Ms. Young stated I will need direction today if you want to select the 28^th. If we are going to select the 28^th, we would have to have a public meeting. That means we would have to do a 21-day notice in order to be legally compliant. That's why I was looking at the 28^th as the furthest date and the first possible date that would allow you to get notice out if we were going to coordinate with the Department of the Environment at give the community an opportunity to know this is happening.

Commissioner Fellman stated I am not available on the 28^th. I would like to hear the presentation, but I can always catch up. Given the time, would we lose that much ground if we waited another two weeks for the hearing?

Ms. Young stated, no we wouldn't.

Chairperson Commissioner Gonzalez stated I think we have to be very careful to not get into a position where we never schedule meetings unless everyone can be here. Reality is we will just run aground if this is the case. I think if the Department of the Environment can put this together by late February, I would be glad to work with Ms. Young and the Department of Environment so you could meet the public notice requirements. I would rather start moving in a direction where we could start having a dialogue.

Commissioner Hall stated so the particular topic would be what?

Ms. Young stated as a part of your work plan, there was some discussion about the use of tidal water. The Department of the Environment is also interested in pursuing that aspect as well. They are willing to provide and work with not only other agencies that have in fact used tidal water, but also vendors, experts, etc. to bring us a public hearing similar to the one we had on public power. Ms. Miller indicated she could also add some resources to that pool. It is on your work plan and is what the Commission has approved.

Commissioner Hall asked did we prioritize the work items?

Ms. Young stated you did not prioritize them. The priority was to first go forward with AB117.

Commissioner Hall stated just a note that we are the last County in the state that is not using recycled water. That is going to happen sooner or later. I don't want to de-emphasize the importance of desalinization or tidal water, but we are going to have to address the recycled water issue sooner or later.

Chairperson Commissioner Gonzalez stated let's address the issue in March. The only reason I am picking this one in February is because I know our local Department of Environment is prepared to give us a presentation, so I am feeling that they can meet that deadline, but I am not seeing it as a greater priority than the other.

Commissioner Fellman stated for planning purposes, let's say we will do tidal in February, recycled water in March; desalinization in April, and then in May we are going to get the aggregation study from R. W. Beck.

Ms. Young stated I will put something in writing back to all of the Commissioners.

Ms. Fellman stated I think that covers everything we have identified for this fiscal year as far as our scope of work.

Ms. Young stated we are also in the process of having to prepare our budget and that's taking a great deal of effort, so trying to do both would be slightly difficult.

No public comment. Public comment closed.

The meeting of the San Francisco Local Agency Formation Commission adjourned at 12:35 p.m.