TO: Honorable Members of the Board of Supervisors

FROM: Office of the Legislative Analyst

SUBJECT: Employee Suggestion No. 54: Sell Hetch Hetchy Bottled Water on the Open Market

In 2003, the San Francisco Public Utilities Commission (SFPUC) launched a pilot project to bottle and sell mountain water from the Hetch Hetchy Reservoir. Currently, the water is sold in four "boutique" locations around the City. The employee suggests that the City begin distributing the water to an open market. The water could be sold to tourists, visitors and the general public at a profit, in order to create new revenues for the City.

The City is bound by federal law restricting the sale of Hetch Hetchy water and lacks the infrastructure needed to sustain a bottled water business enterprise. Thus, the City is unable to sell Hetch Hetchy bottled water on the open market. The SFPUC released an RFP to provide cost-competitive bottled water products containing SFPUC water but did not receive any bids. However, the SFPUC continues to seek a bottler to expand its bottled water program.

Former Mayor Willie Brown first broached the idea of bottling and selling water from the Hetch Hetchy Reservoir in 1998, as a means of financing an $8 billion remodeling and retrofitting of the Hetch Hetchy water system. In 2003, the idea manifested in a pilot project wherein the City completed a limited bottling of unfiltered Hetch Hetchy water. The SFPUC has thoroughly researched and explored the suggestion of selling Hetch Hetchy bottled water on the open market, and initiated the pilot project as the first phase of a multi-faceted venture.

However, under the Raker Act, a federal law granting the City and County of San Francisco limited rights of way on public lands to build the Hetch Hetchy Project, the City is prohibited from selling Hetch Hetchy water to a private corporation or individual for resale (i.e., there can be no "middleman" in any given transaction). This leaves the City with very few outlets to market Hetch Hetchy bottled water. These include the four locations where the water is currently sold (the stores located in San Francisco City Hall, Pier 45, the Beach Chalet, and the SFPUC Customer Service Bureau).

In addition to these legal restrictions, the City lacks the requisite infrastructure to support a large water bottling operation. It does not own trucks to transport the water from its source, a plant to process and bottle the water or a warehouse to store and distribute the water. In order to compete in the bottled water business, the City would need to produce huge volumes of the product. Only mass production would yield a low enough unit price for venues like the Airport to be interested in purchasing the water.

The SFPUC has also considered the idea of supplying Hetch Hetchy water for City office use and canceling the existing contract for this service with Alhambra Water. The SFPUC researched potential outlets for selling SFPUC water and found that other city departments purchased approximately $850,000 of bottled water products (approximately $450,000 on bottled water and $450,000 on coolers, cups, etc.) annually from an outside vendor. Additionally, over 300 vending machines located on city property sell bottled water products.

As a result, the SFPUC initiated a request for proposals from private companies to provide cost-competitive bottled water products containing SFPUC water for city departments, retail outlets and vending machines. Despite conducting extensive outreach, the SFPUC received no bids. The SFPUC continues to seek a bottler to transport, treat, bottle, and sell SFPUC water to City departments and in other locations.