Restore Hetch Hetchy and legislate that San Francisco may not have an alternate water supply -- the best of both worlds.
There are a lot of people, towns and farms that get water from that reservoir. Not to mention at least 5 hydroelectric plants. That billion dollars won't come anywhere near to compensate the people and businesses of California of their losses if that reservoir is "restored".
An interesting note, Hetch Hetchy is a natural reservoir and for millions of years was full of water due to a glacial moraine. The area had been drained for only about 20,000 years when John Muir saw it. If they really really wanted Hetchy Hetchy in its most natural state, they'd leave water in it.