Still more on Hetch Hetchy

News Hour with Jim Lehrer

and

here's the original expose by the SF Chronicle revealing that San Fran had been using money meant to repair the Hetch Hetchy system (which serves more than 2 million residents outside the city) for city projects:

The San Francisco Chronicle

SEPTEMBER 15, 2002, SUNDAY, FINAL EDITION

SECTION: NEWS; Pg. A1

HEADLINE: A CHRONICLE SPECIAL REPORT;

S.F. looted region's water system, diverted millions into city coffers;

Now $3.6 billion sought to repair and expand aging Hetch Hetchy

SOURCE: Chronicle Staff Writers

BYLINE: Susan Sward, Chuck Finnie

BODY:
Copyright 2002 San Francisco Chronicle.

About the series

TODAY Bay Area water system in peril.

MONDAY Public power vision betrayed..

Over the past 20 years, San Francisco officials raided the city's vaunted Hetch Hetchy Water and Power system of hundreds of millions of
dollars, leaving the Bay Area's largest water supply vulnerable to earthquake, drought and decay.

Despite increasingly serious warnings about the need for expansion and seismic upgrades, city officials postponed the costly work and used
profits from Hetch Hetchy's hydropower electricity sales to bankroll city programs and salaries for everything from the Municipal Railway to
health care for the needy.

Today, engineers warn that a significant earthquake could cause widespread damage to the system, ranging from the collapse of Calaveras
Dam in Alameda County to the destruction of a key tunnel that delivers water through the foothills to 2.4 million Bay Area residents,
potentially cutting off most of the system's water supply for 60 days. Now city officials want San Francisco and its suburban water
customers to borrow $3.6 billion to fix the problems - and pay for it by more than doubling water bills.

"The politicians used the Hetchy system as a money machine in the basement of City Hall," said Jim Chappell, president of San Francisco
Planning and Urban Research, a nonprofit civic group. "For decades, there has been gross irresponsibility in the siphoning of funds clearly
needed for Hetchy maintenance."

Since 1979, San Francisco officials have diverted $670 million from the Hetch Hetchy system into the city's general fund, according to city
records. As recently as fiscal year 2001, the city took nearly $30 million from the system.

Rudy Nothenberg, who ran the city's Public Utilities Commission during Mayor Dianne Feinstein's administration, defended the fund transfers,
saying, "There is nothing wrong in my view with using the (Hetch) Hetchy power resource to generate money for the general fund, which
pays for cops, parks and recreation and everything that people hold dear."

The city's diversion of the funds, though legal, exploited a loophole in the City Charter and shirked its obligation to maintain the Hetch
Hetchy aqueduct that the city constructed from Yosemite National Park to the Bay Area during the early 1900s.

The deteriorating condition of the system has prompted a rebellion by Hetch Hetchy's suburban water customers, who have raised the
threat of seeking state control over the repairs if the city -doesn't move speedily on its own.

Fiercest of San Francisco's critics are lawmakers representing those communities where residents and businesses depend solely or in part on
Hetch Hetchy water.

"If we have a major disaster, all the Bay Area will suffer," said Assemblyman Lou Papan, a Millbrae Democrat who represents more than
400,000 Hetch Hetchy customers. "We can no longer afford to put up with the child's play going on in San Francisco. The deterioration rests
on their shoulders."

Today, San Francisco officials say they need $3.6 billion to put the Hetch Hetchy aqueduct back on a sound footing.

This fall San Francisco voters will be asked to approve Proposition A, a $1.6 billion bond measure, to cover the city's share of rebuilding and
expanding the water system over the next 13 years.

To pay for it, San Franciscans' water bills would nearly triple by 2015. Suburban users of the system would raise another $2 billion toward
the project, requiring a more than doubling of their water bills over the same period.

California historian Kevin Starr calls the failure to maintain Hetch Hetchy more than just a matter of dollars and cents.

Recalling the system's creation in the early 1900s - an engineering marvel requiring an act of Congress and the sacrifice of majestic,
3-mile-long Hetch Hetchy Valley - Starr said the system's decline amounts to an abandonment of the public trust.

"For San Francisco to neglect Hetch Hetchy is to neglect the public works project it used to bring itself into metropolitan status," said Starr,
the state librarian.

Dangerous disrepair

Much of the 167-mile Hetch Hetchy aqueduct is more than three-quarters of a century old and vital sections are in dire need of repair:

-- State engineers suspect that Calaveras Dam, located in Alameda County 10 miles northeast of San Jose, is unstable, and have advised
San Francisco to keep the reservoir behind it less than a third full.

For years, water officials have been concerned about the dam's stability - in part because it failed in 1918 during construction and because
the Calaveras Fault runs within a quarter-mile of the dam.

"After it failed, they continued to build the dam on top of the material that had slid into the reservoir," said Ron Delparte of the state
Division of Dam Safety. "We -don't do that anymore."

More than four years ago, the state warned that the dam was in "an extremely high seismic environment" and "its height, reservoir storage
capacity and location create a very high damage potential to life and property."

More than a year ago the state told the city "the stability of the dam would be in question in a major quake," Delparte said. The city agreed
to lower the reservoir to a level considered safe for now.

State officials say that if the 200-foot-high dam failed, its water would cascade along Alameda Creek's path through Sunol, Fremont and
Newark, threatening lives and property.

Tentative plans call for replacing the dam and increasing more than six-fold the total capacity of the 31 billion-gallon reservoir.

-- A 64-year-old reservoir on a hill in the heart of the city's residential Sunset District - known as Sunset Reservoir North Basin - has a
seismically deficient concrete roof. In addition, the dam's northwest corner, at 28th Avenue and Ortega Street, sits on sand that could
liquefy in a major quake. State officials say the reservoir's 89 million gallons could spill out to the west, threatening lives and property.

Four years ago, state dam safety officials told the city to look at the stability of the reservoir's foundation, and now - in 2002 - the city is
preparing to design the repair and finish the work by 2005.

-- Some sections of 75-year-old pipelines carrying Hetch Hetchy water across San Francisco Bay sit on wooden trestles that were
constructed long before modern seismic-strengthening techniques were developed. These pipelines are decaying and are considered very
vulnerable to failure, particularly because they cross the Hayward Fault. The city says a fix -won't be finished until 2013.

-- Meanwhile, the entire waterworks - 21 reservoirs, 25 tanks, two water treatment plants, 23 pump stations, 40 miles of tunnels and 1,470
miles of water mains stretching from Yosemite National Park to North Beach - is so overextended that one vital tunnel bringing water to the
Bay Area has not been shut down for maintenance in decades, city utility officials say.

This tunnel lies between the Hayward and Calaveras faults, and if it were to break in a quake or other catastrophe, that could halt the flow
of more than 85 percent of the system's water to Bay Area customers for 30 to 60 days, city-hired experts have concluded.

-- While deferring system maintenance, city officials have moved slowly to meet water demands created by growth in Hetch Hetchy's
service area.

When Hetch Hetchy was built, San Francisco had about 417,000 residents while Alameda County had 246,000 and San Mateo County
27,000. Today San Francisco has about 770,000 residents, Alameda County 1.4 million and San Mateo County 707,000.

On Hetch Hetchy's list of customers are thousands of businesses crucial to the economy of the Bay Area and the nation - in particular
Silicon Valley's high-tech industry.

With such growth occurring and more to come, critics say San Francisco failed to plan adequately where to get more water. Even with the
revamp, city officials say, the Hetch Hetchy system still would be 10-20 percent short of projected need in a long drought and, without
Proposition A, shortages could be in the 45 percent range.

This state of affairs exists despite the fact that San Francisco has known since 1994 that the Hetch Hetchy system was going to fall short
of customers' demands, according to a state audit.

"The San Francisco Public Utilities Commission has been slow to assess and upgrade its water delivery system so it can survive catastrophes
such as earthquakes, floods and fires" and meet future supply demands, auditors said in a 2000 report.

"San Francisco has not been aggressively looking at increasing the system's reliable water supplies to tide its customers through dry years,"
said Nicole Sandkulla of the Bay Area Water Users Association, representing Hetch Hetchy's 29 wholesale customers. "If there is a drought,
we'd all suffer - there's not enough water."

Sandkulla noted that in 1998, Contra Costa County Water District completed construction of the new Los Vaqueros Reservoir in the eastern
part of the county. Another major water development is being pursued by East Bay Municipal Utility District to give the agency Sacramento
River water during drought years.

Where the money went

Within the Hetch Hetchy system, there are two branches - one providing water and another generating hydroelectric power. The City
Charter called for the water and power systems to be merged when completed. When merged, hydroelectric revenues could be declared
surplus if they were not needed to maintain the water and power system. Only then could those revenues be used for other city needs.

But city officials have never declared the systems complete and merged. Thus city officials can declare the hydroelectric profits as surplus
to that branch of the Hetch Hetchy system and then use the revenues for general city needs - even though the system's waterworks are in
desperate need of repairs and improvements.

The city began diverting the hydropower revenues at least as early as the late 1960s. About $25 million in Hetch Hetchy funds went to fund
Muni electrical maintenance work in the following decade, which spanned the mayoral administrations of Joseph Alioto, George Moscone and
Dianne Feinstein.

Since 1979, the earliest year for which the San Francisco Public Utility Commission (SFPUC) officials say they have records, more than $236
million in Hetch Hetchy power revenues were transferred during Feinstein's administration ending in 1987; $95 million during Art Agnos'
four-year administration ending in 1991; more than $104 million during Frank Jordan's administration ending in 1995; and more than $233
million through Willie Brown's administration.

In 1999, Brown began reducing the amount of money the city took in Hetch Hetchy power revenues, believing the city should be weaned
from using those funds, Brown aides said. In the 2002 budget year, there was no transfer.

City Hall politicians who took the Hetch Hetchy money say it went to pay for police, public health and other important services and that it
helped San Francisco stave off municipal budget cuts during lean economic times.

Former Mayors Agnos and Jordan said they approved the transfers only after being assured by their staffs that the moves would not have a
negative effect on the Hetch Hetchy system. Agnos said the transfers in his administration declined over time because of his concern about
the need to protect the system, and Jordan said the city's budget problems forced him to continue transfers.

"I walked into office with a $300 million deficit and was having to consolidate services," Jordan said. "The public was clamoring for health
care for AIDS, social services for the homeless, Muni, affordable housing, the libraries."

Jordan said he toured the Hetch Hetchy system and knew it had long-term infrastructure needs, "but it -wasn't something I could take on
as an immediate priority given what I was dealing with."

Critics say the transfers were done out of expedience by elected officials.

"They milked the cow and chose to ignore an asset when they should have been putting its revenues back in the system to protect all who
depend on it," said Assemblyman Papan, who sponsored legislation this year that sets specific deadlines for the repair of Hetch Hetchy.

Warnings ignored

San Francisco had many warnings of trouble ahead.

In 1987, an SFPUC consultant faulted the agency for failing to perform preventative maintenance on the Hetch Hetchy waterworks, lack of
familiarity with the system's condition and lack of proper planning.

In 1994, Board of Supervisors Budget Analyst Harvey Rose concluded that the SFPUC was not collecting the basic information to set
priorities for what needed to be done to keep Hetch Hetch water flowing.

In 1999, experts hired to examine Hetch Hetchy vulnerabilities forecast enormous failures throughout the system in a severe earthquake.

Mayor Brown's five-member Public Utilities Commission adopted a 13-year capital improvement plan this May to put the waterworks on sound
footing, at a total cost of $3.6 billion, shared between San Francisco and suburban ratepayers according to their proportional use. The $1.6
billion water bond on the November city ballot is to pay San Francisco's share of the project.

San Franciscans, who pay some of the lowest water rates in the Bay Area, would see their monthly bills climb from an average of $14.43 to
$40.85 by 2015; suburban users' bills would go from an average of $32 to $71.

Typically, the suburban users now pay higher rates than San Francisco because their water systems are newer and they are still paying
them off.

The commission's vote on the revamp plan came two years and four months after its staff first began formulating a construction priority list,
which includes seismic strengthening and expansion to increase the system's capacity.

Jim Fabris, head of the San Francisco Association of Realtors and a member of a mayoral task force that evaluated the SFPUC's Hetch
Hetchy improvement plans, says he cannot fathom how the city could have moved so slowly given so many warnings.

"What is mystifying is how many in government knew of the severity of the infrastructure's aging problems for decades" without moving
expeditiously to meet repair and supply expansion concerns, Fabris said. "To not have done so borders on a crime."

Starr, the California historian, sees the city's failure to act expeditiously as indicative of a San Francisco-style arrogance - we built the
Hetch Hetchy system, it's ours and it's magnificent.

"It's this idea San Franciscans have that this -isn't a real city dependent on maintenance but it's a Monte Carlo, an Oz, the Club Med of
American cities," Starr said.

Some of San Francisco's often-desultory approach to care of Hetch Hetchy has to do with politicians' lack of interest in approving
infrastructure projects that will bring them little glory.

Oral Moore, Hetch Hetchy's longtime, respected general manager who retired in 1983, says most routine maintenance and repair should be
paid for year-by-year because that avoids bond measure interest charges.

But, he said, politicians "have budget problems above and beyond Hetch Hetchy and they -don't like to see funds diverted to the water
system from other important city needs."

Dean Coffey, who headed the Hetch Hetchy system from 1979 to 1989, said he pushed for repairs before any transfers of the system's
money over to the general fund, but "there was a tremendous amount of pressure put on the commissioners and staff by City Hall, which
wanted as much revenue out of Hetchy as possible."

Suburban anxiety

While Hetch Hetchy's problems have been well known for years in the relatively small circle of water and power experts, the problem has
been brought into sharp focus only as Hetch Hetchy users outside San Francisco have grown increasingly critical of the system.

Those users include hundreds of high-profile businesses that produce everything from cars to computer chips. Many of these companies
prize the Hetch Hetchy water for its high quality and the relatively small amount of additional treatment it requires before being used in
manufacturing processes.

"Our industries are delighted to have the Hetchy water because it is so soft," said Robin Saunders, director of the city of Santa Clara's
water and sewer system that serves dozens of high-tech firms. "It comes right off the Sierra, which is mostly bedrock granite. It's put in
pipes and comes straight to us so it has a very low mineral content. That makes it ideal for the Silicon Valley industries that have to have
ultra-pure water for their industrial processes."

In the state Capitol, lawmakers representing San Mateo, Santa Clara and Alameda county customers of the Hetch Hetchy system have won
passage of legislation that creates a mechanism allowing those water users to issue bonds covering their share of the project and sets a
series of deadlines for the project. All are expected to win Gov. Gray Davis' signature.

Ira Ruskin, chairman of the regional water reliability committee for the Bay Area Water Users Association that represents San Francisco's 29
wholesale, suburban customers, says the measures are greatly needed: "There is a human and economic catastrophe waiting to happen.
The very health and well-being of 2.4 million Bay Area residents is at stake.

"We cannot stand by and leave it up to San Francisco to decide when or if they're going to fix the Hetch Hetchy system," said Ruskin, a city
councilman from Redwood City, where Hetch Hetchy is the sole source of water. "The SFPUC's past record shows an inability or
unwillingness . . . to repair the system."

The Legislature's recent involvement in the issue of Hetch Hetchy's upkeep occurs at a time when San Francisco has been losing ground as
a population center and suburbs have been growing.

With the $1.6 billion bond measure on San Francisco's November ballot, the system's 29 customers outside the city will be watching the
outcome intently.

Clearly, the city finds itself in a world far different than the one where its leaders grabbed the Hetch Hetchy water almost a century ago.

"San Francisco's political position is slipping and it can no longer imperially call the shots," said Rich DeLeon, a San Francisco State University
professor who studies and writes about the city's history and politics. "The city has to get its act together and work out water problems on
a regional, cooperative basis.".

Librarian researcher Johnny Miller contributed to this report.

-----------------------------

$670 million

Hetch Hetchy hydropower revenues San Francisco officials used for other city services.

$3.6 billion

Estimated construction and financing costs for rebuilding and expanding the Hetch Hetchy system.

2.4 million

Bay Area residents who use Hetch Hetchy water.

183%

Projected monthly water bill increase for San Francisco water users by 2015.

121%

Projected monthly water bill increase for suburban Hetch Hetchy water users by 2015.

Nov. 5 Prop. A

S.F. voters will be asked to approve a $1.6 billion bond measure to fund repair and expansion of Hetch Hetchy system.

------------------------------

Hetch Hetchy Water and Power: A century in the making

-- Phelan's ploy - In 1901, James D. Phelan files for water rights in Yosemite's Hetch Hetchy Valley and at the nearby Lake Eleanor, not
revealing he is the city's mayor. It's the beginning of one of the most notorious water grabs in U.S. history.

-- Battle preparations - Phelan signs water rights over to the city in 1903 in preparation for the decade-long battle to win congressional
approval to flood Hetch Hetchy Valley and use it as a reservoir for San Francisco water and power.

-- Catastrophe - San Francisco's 1906 earthquake and fire gives the city's search for a new water source special urgency, as the private
Spring Valley Water Co.'s water mains break and a three-day firestorm consumes much of the city.

-- Muir's opposition - The Sierra Club sends a 1907 resolution to the secretary of the Interior opposing the flooding of the valley. John Muir,
the famed founder of the club, is among the leaders of the fight to block the flooding.

-- Bond measure - In 1910, San Franciscans vote overwhelmingly for a $45 million bond to fund the Hetch Hetchy project, which will use as
its main source the Tuolumne River, originating in a glacier on the slopes of 13,000-foot Mount Lyell.

-- Key players - Two men who will be crucial to building the Hetch Hetchy system step onto the city's political stage in 1912: James "Sunny
Jim" Rolph Jr. becomes mayor of the 417,000-population city and names M.M. O'Shaughnessy city engineer.

-- Raker Act - O'Shaughnessy and Rolph lobby for passage of the Raker Act, which allows the city to dam the Tuolumne River for water and
power. Barely two decades after creating Yosemite National Park, Congress approves the act in 1913.

-- O'Shaughnessy dies - On Oct. 12, 1934, 12 days before the first Hetch Hetchy water flows into the Bay Area, O'Shaughnessy dies at age
72. The last years were bitter for him as project costs grew increasingly controversial and he was pushed aside politically.

Bond foes - In 2002, several groups, including the Sierra Club and Environmental Defense, oppose the water bond and call on San
Francisco to study the feasibility of restoring Hetch Hetchy Valley to its natural state.

-------------------

"To provide for the little children, men, and women of the 800,000 populationwho swarm the shores of San Francisco Bay is a matter of
much greater importancethan encouraging the few who, in solitary loneliness, will sit on the peak of the Sierrasloafing around the throne of
the God of nature and singing His praise."

James D. Phelan, former San Francisco mayor, in 1913 testimony in Congresson San Francisco's bid for the valley

"This is a large undertaking for a small city the size of San Francisco. The City That Knows How'with courage and determination has
broughtthe project to completion."

M. M. O'Shaughnessy, San Francisco's city engineer who supervised most of the system's construction

"Dam Hetch Hetchy! As well dam for water tanks the people's cathedrals and churches,for no holier temple has ever been consecratedby the
heart of man."

John Muir, first Sierra Club president, naturalist and ardent foe of Hetch Hetchy Valley's flooding

-----------------------------

Costs to upgrade Hetch Hetchy

The San Francisco Public Utilities Commission, the city agency that runs the Hetch Hetchy Water and Power system, proposes $3.6 billion in
repairs and upgrades to the waterworks over 13 years. Here is a breakdown of the projected spending:



------------------------SpendingConstruction in 2003 dollars - $2.1 billion Inflation adustment - $500 million Contingency & management
reserve - $400 million Financing costs - $600 million Total - $3.6 billion

-------------------Water bill increasesHetch Hetchy water users would face bill hikes to pay for their share of improvements to parts of the
system that they use. For a typical four-person household, here is a breakdown of the projected increase, which would be phased in
through 2015:.San Francisco-- 2002: $14.43 a month-- 2015: $40.85 a month.Outside San Francisco-- 2002: $32.00 a month-- 2015:
$71.00 a month

------------------------------Hetch Hetchy raidedDespite the regional dependence on Hetch Hetchy for water, San Francisco politicians
turned the system into a cash cow to feed City Hall spending. Amount of money pulled out and transferred into the city general fund by
year, since fiscal year 1979:

-- Total amount since 1979: $670 million-- Cumulative amount adjusted for inflation: $956 million

------------------------

Hetch Hetchy water usersTwenty-nine wholesale customers of the San Francisco Public Utilities Commission serve Hetch Hetchy water in
these areas of San Mateo, Santa Clara and Alameda counties.

.Source: San Francisco Public Utilities CommissionChronicle Graphic

E-mail the writers at ssward@sfchronicle.com and cfinnie@sfchronicle.com.