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8e Page 19 ability to modify the Recycled Water Project so that SBSA can increase its delivery of recycled water to the City to 3,238 acre feet of recycled water per annum, consistent with the certified CEQA Mitigated Negative Declaration for the Recycled Water Project. Under the Lease, which is scheduled to expire December 31, 2056, the City is leasing the real property from SBSA on which the disinfection facility and storage and pumping facilities described above of the Recycled Water Project will be constructed. The City expects that in addition to landscape irrigation users, some industrial users and commercial facilities will utilize the recycled water. In the Greater Bayfront area of the City these include concrete plants, materials recycling businesses and port-related activities, such as dust control. Additionally, the City Council anticipates that it will, in accordance with California law, be adopting a "dual plumbing" ordinance for certain new commercial construction, such as office buildings, for internal toilet-flushing and self-contained cooling systems. The proceeds of the 2005 Bonds were used to finance (i) the accrued costs to date relating to the Recycled \Nater Project and which have been paid out of cash reserves of the Enterprise, and (ii) the additional costs of the portion of the Recycled Water Project located on the site of the SBSA treatment facility. The proceeds of the 2006 Bonds were used to finance (i) the first two of three pipelines that will distribute recycled water to the Redwood Shores area of the City, (ii) retrofits for certain landscape irrigation customers, (Hi) one-half of the artificial turf installations and (iv), as needed, system-wide repair and replacement of the Enterprise's facilities. The proceeds of the Bonds will be used to finance, in part or in whole; (i) the last six distribution pipeline bid packages that will distribute recycled water in the Bayfront and Seaport areas, (ii) retrofits for landscape irrigation customers in Redwood Shores and the Seaport area, (iii) final portions of the artificial turf installations and (iv), as needed, system-wide repair and replacement of the Enterprise's facilities. The portion of the Recycled Water Project constructed on the site of SBSA treatment facility was substantially completed in January 2007 and is currently undergoing testing. The City expects that the remainder of Phase 1 of the Recycled Water Project, other than customer site retrofitting, will be completed by December 2008. The City expects customer site retrofitting to be completed in March 2009. The Authority and the City anticipate that, by utilizing the proceeds of the Bonds, the 2005 Bonds, the 2006 Bonds and certain capital and operating reserves of the Enterprise, the Authority will be able to fully finance Phase 1 of the Recycled Water Project. The total costs of Phase 1 of the Recycled Water Project will be approximately $72.4 million, with $24.9 million being required to construct the facilities located at the SBSA site, $38.7 million being required to complete the planning, design and installation of the distribution system, $5 million being required for the installation of the artificial surfaces at the athletic playing fields, and $3.8 million required for customer retrofits. The City will proceed with Phase 2 of the Recycled Water Project, with an estimated cost of approximately $12.8 million if it is determined there is sufficient demand for recycled water west of Highway 101. No decision has been made regarding how to finance Phase 2 if the City decides to proceed with Phase 2. The City has received all permits and approvals necessary for the Recycled Water Project. 4