Norton Rose Fulbright US LLP draft 7/3/24
139448934.5
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
PRELIMINARY OFFICIAL STATEMENT DATED ________, 2024
NEW ISSUE–BOOK-ENTRY ONLY Credit Ratings: S&P: “___”
Fitch: “___”
(See “CREDIT RATINGS”)
In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, under existing law, interest on the 2024- A Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the 2024-A Bonds will be excludable from the gross income of the owners thereof for federal income tax purposes and will not be treated as an item of tax preference for purposes of the federal alternative minimum tax on individuals. See “TAX MATTERS” herein.
$[SERIES A PAR]*
ANAHEIM HOUSING AND PUBLIC IMPROVEMENTS AUTHORITY
Revenue Refunding Bonds, Series 2024-A
(Electric Utility Distribution System Improvements)
Dated: Date of Delivery Due: As shown on the inside front cover pages This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information essential to making an informed investment decision. Capitalized terms used on this cover page and not otherwise defined shall have the meanings set forth herein.
The Anaheim Housing and Public Improvements Authority (the “Authority”) is issuing its Revenue Refunding Bonds, Series 2024- A (Electric Utility Distribution System Refunding) (the “2024-A Bonds”) to (i) pay the purchase price of certain maturities of the California Municipal Finance Authority Revenue Refunding Bonds, Series 2015-B (City of Anaheim Electric Utility Distribution System Refunding and Improvements) (the “2015-B Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Bonds, Series 2020-A (Electric Utility Distribution System Improvements) (the “2020-A Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2020-B (Electric Utility Distribution System Refunding) (Taxable) (the “2020-B Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2020-C (Electric Utility Distribution System Refunding) (the “2020-C Bonds”) and the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2022-D (Electric Utility Distribution System Refunding) (Taxable) (the “2022-D Bonds” and such maturities of the 2015-B Bonds, the 2020-A Bonds, the 2020-B Bonds and the 2020-C Bonds referred to herein as the “Target Bonds”), in each case, that are accepted for tender for cash, if any and (ii) pay costs of issuance of the 2024-A Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.”
The 2024-A Bonds are being issued pursuant to an Indenture of Trust, dated as of [____] 1, 2024 (the “Indenture”), by and among the Authority, the City and U.S. Bank Trust Company, National Association, as trustee. Interest on the 2024-A Bonds is payable on April 1 and October 1 of each year, commencing [October 1, 2024]. The 2024-A Bonds are special, limited obligations of the Authority, payable solely from Project Revenues which consist primarily of purchase payments (the “Purchase Payments”) to be made by the City under an Installment Purchase Agreement, dated as of [____] 1, 2024 (the “Installment Purchase Agreement”), by and between the Authority and the City, and other sources described herein. Pursuant to the Installment Purchase Agreement, the City’s obligation to make Purchase Payments is payable from and secured by Surplus Revenues of the City’s Electric System in the Qualified Obligations Account of the Surplus Revenue Fund, all as defined herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2024- A BONDS.”
The Purchase Payments are payable from Surplus Revenues on a parity with each other and with the City’s purchase payments in connection with other Qualified Obligations, outstanding in the aggregate principal amount of $______ as of [Tender Invitation Date], 2024 (including the Qualified Obligations to be refunded with proceeds of the 2024-A Bonds), and any other Qualified Obligations payable from Surplus Revenues on a parity therewith that may hereafter be incurred by the City. The Purchase Payments and the purchase payments relating to such Qualified Obligations are payable from the net revenues of the Electric System on a basis junior and subordinate to (i) any voter-approved electric revenue bonds, notes or other evidences of indebtedness of the City that may be issued in the future pursuant to the City Charter (“Senior Bonds”) and (ii) maintenance and operation expenses of the Electric System, including the City’s take-or-pay obligations with respect to certain joint powers agency contracts. There are no Senior Bonds currently authorized or outstanding. The City has no ability to issue Senior Bonds (other than bonds issued to refund any Senior Bonds) without authorization by the electorate of the City. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2024-A BONDS.” The 2024-A Bonds are being issued in fully registered form, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the 2024-A Bonds. Purchases of beneficial ownership interests in the 2024-A Bonds will be made in book-entry form only, in denominations of $5,000 principal amount or any integral multiple thereof. Purchasers (“Beneficial Owners”) of 2024-A Bonds will not receive physical certificates representing their ownership interests in the 2024-A Bonds purchased. So long as Cede & Co. is the registered owner of the 2024-A Bonds, references herein to Bondholders or registered owners shall mean Cede & Co. and shall not mean the Beneficial Owners of the 2024-A Bonds.
See “DESCRIPTION OF THE 2024-A BONDS – General” and APPENDIX F – “BOOK-ENTRY ONLY SYSTEM AND GLOBAL CLEARANCE PROCEDURES.”
The 2024-A Bonds are subject to redemption prior to maturity as described herein. See “DESCRIPTION OF THE 2024- A BONDS.”
THE 2024-A BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM THE
PROJECT REVENUES, CONSISTING PRIMARILY OF THE PURCHASE PAYMENTS MADE BY THE CITY UNDER THE INSTALLMENT PURCHASE AGREEMENT, AND SUCH OTHER AMOUNTS AS PROVIDED IN THE INDENTURE. THE 2024-A BONDS SHALL NOT IN ANY WAY BE CONSTRUED AS A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR * Preliminary, subject to change. The principal amount of 2024-A Bonds will be determined by the principal amount of Target Bonds (defined herein), if any, tendered for purchase and accepted. See “PLAN OF FINANCE.”
ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT
LIMITATION, NOR SHALL ANYTHING CONTAINED IN THE INSTALLMENT PURCHASE AGREEMENT OR THE
INDENTURE BE CONSTRUED AS A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY OR THE
AUTHORITY OR AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER.
The 2024-A Bonds are offered by the Underwriter when, as and if issued by the Authority, subject to approval of legality by Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, and subject to certain other conditions. Norton Rose Fulbright US LLP is also serving as Disclosure Counsel to the Authority and the City in connection with the 2024-A Bonds. Certain legal matters will be passed upon for the Authority and the City by the City Attorney of the City of Anaheim, and for the Underwriter by Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, Underwriter’s Counsel. It is expected that the 2024-A Bonds in definitive form will be available for delivery through the DTC book-entry system by Fast Automated Securities Transfer (FAST) on or about ______, 2024.
Goldman Sachs & Co. LLC
The date of this Official Statement is ______, 2024.
MATURITY SCHEDULES*
$________*
Revenue Refunding Bonds, Series 2024-A
(Electric Utility Distribution System Refunding)
$__________ Serial 2024-A Bonds
Maturity
Date
(October 1)
Principal
Amount
Interest
Rate Yield CUSIP†
$ % % $_______ ____% Term 2024-A Bonds maturing on October 1, 20__ – Yield ____%; CUSIP†: ______ $_______ ____% Term 2024-A Bonds maturing on October 1, 20__ – Yield ____%; CUSIP†: ______ _____________________
* Preliminary, subject to change. The principal amount of 2024-A Bonds, if any, will be determined by the principal amount of Target Bonds (defined herein), if any, tendered for purchase and accepted. See “PLAN OF FINANCE.” † CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed by FactSet Research Systems Inc. on behalf of the American Bankers Association. CUSIP numbers have been assigned by an independent company not affiliated with the Authority or the City and are included solely for the convenience of the holders of the 2024-A Bonds. The Authority and the City are not responsible for the selection or use of these CUSIP numbers and no representation is made as to their correctness on the 2024-A Bonds or as indicated above. The CUSIP number for a specific bond is subject to being changed after the issuance of the bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of such bonds.
GENERAL INFORMATION
No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the City’s Public Utilities Department (the “Department”) to give any information or to make any representations, other than as contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the City or the Department. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the 2024-A Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2024-A Bonds. Statements contained in this Official Statement which involve estimates, forecasts, or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representation of facts.
All other information set forth herein has been furnished by the Authority, the City and the Department, and includes information obtained from other sources which are believed to be reliable. The information and expressions of opinion contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the City or the Department since the date hereof. This Official Statement is delivered for use in connection with the sale of the 2024- A Bonds and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the Authority, the City and the Department. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.
The Underwriter has provided the following two paragraphs for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2024-A BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “project,” “expect,” “anticipate,” “intend,” “believe,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Except as specifically set forth herein, the City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur.
This Official Statement, including any supplement or amendment hereto, is intended to be deposited with the Municipal Securities Rulemaking Board through the Electronic Municipal Market Access (EMMA) website. The City also maintains a website. However, the information presented therein is not part of this Official Statement and must not be relied upon in making an investment decision with respect to the 2024-A Bonds.
References to website addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such websites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, SEC Rule 15c2-12.
CITY OF ANAHEIM
CITY COUNCIL
Ashleigh Aitken
Mayor
Norma Campos Kurtz, Mayor Pro Tem Natalie Rubalcava, Council Member Jose Diaz, Council Member Stephen Faessel, Council Member Carlos A. Leon, Council Member Natalie Meeks, Council Member
CITY PUBLIC UTILITIES BOARD
John Seymour, Chairperson
Abdulmageed Abdulrahman, Vice Chairperson Talab Ibrahim, Member Anh Pham, M.Ed., Member Mitch Lee, Member
Albert McMenamin, Member Tanya Bilezikjian, PE, Member
OFFICIALS OF THE CITY
James Vanderpool, City Manager
Deborah A. Moreno, Finance Director/City Treasurer
Robert Fabela, City Attorney
Theresa Bass, City Clerk
CITY PUBLIC UTILITIES DEPARTMENT
Dukku Lee, General Manager
Brian Beelner, Assistant General Manager–Finance & Energy Resources Janet Lonneker, Assistant General Manager–Electric Services Craig Parker, Assistant General Manager–Water Services
Janis G. Lehman, Assistant General Manager–Administration & Risk Services
BOND COUNSEL AND DISCLOSURE COUNSEL
Norton Rose Fulbright US LLP
Los Angeles, California
MUNICIPAL ADVISOR
PFM Financial Advisors LLC
Los Angeles, California
TRUSTEE
U.S. Bank Trust Company, National Association
Los Angeles, California
TABLE OF CONTENTS
Page
i
INTRODUCTION ........................................................................................................................................1 Purpose ............................................................................................................................................1 Plan of Finance ................................................................................................................................1 Security and Sources of Payment for the 2024-A Bonds ................................................................2 Continuing Disclosure .....................................................................................................................3 Other Information and Definitions ..................................................................................................3 THE CITY AND THE ELECTRIC SYSTEM.............................................................................................3 PLAN OF FINANCE ...................................................................................................................................4 ESTIMATED SOURCES AND USES OF FUNDS ....................................................................................9 DESCRIPTION OF THE 2024-A BONDS..................................................................................................9 General.............................................................................................................................................9 Redemption of the 2024-A Bonds .................................................................................................10 SECURITY AND SOURCES OF PAYMENT FOR THE 2024-A BONDS ............................................12 General; Background.....................................................................................................................12 Pledge Under the Indenture ...........................................................................................................12 Limited Obligation of the Authority..............................................................................................12 Purchase Payments ........................................................................................................................13 Electric System Flow of Funds......................................................................................................14 Electric System Funds and Accounts ............................................................................................14 Electric System Surplus Revenues ................................................................................................15 Rate Covenants ..............................................................................................................................17 No Debt Service Reserve Funds for the 2024-A Bonds................................................................17 Insurance........................................................................................................................................17 Additional Qualified Obligations ..................................................................................................18 Take-or-Pay Obligations................................................................................................................18 Limited Recourse on Default.........................................................................................................19 DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS ........................................................19 State Legislation and Regulatory Proceedings ..............................................................................19 Impact of California Energy Markets Developments on the City .................................................26 OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY ..........................................26 Federal Energy Legislation............................................................................................................26 Federal Regulation of Transmission Access..................................................................................27 Federal Policy on Cybersecurity....................................................................................................27 Environmental Issues.....................................................................................................................28 Changing Laws and Requirements Generally ...............................................................................30 Other Factors .................................................................................................................................31 CONSTITUTIONAL AND CHARTER LIMITATIONS..........................................................................32 Constitutional Limitations on Governmental Spending ................................................................32 Proposition 218 and Proposition 26...............................................................................................32 Future Initiatives............................................................................................................................33 City Charter Revenue Bond Limitations .......................................................................................34
TABLE OF CONTENTS
(continued)
Page
ii
THE AUTHORITY ....................................................................................................................................34 LITIGATION .............................................................................................................................................34 The Authority.................................................................................................................................34 The City .........................................................................................................................................35 CREDIT RATINGS....................................................................................................................................35 TAX MATTERS ........................................................................................................................................35 CERTAIN LEGAL MATTERS .................................................................................................................38 MUNICIPAL ADVISOR ...........................................................................................................................38 FINANCIAL STATEMENTS....................................................................................................................38 UNDERWRITING .....................................................................................................................................38 CERTAIN RELATIONSHIPS ...................................................................................................................39 CONTINUING DISCLOSURE..................................................................................................................39 MISCELLANEOUS .....................................................................................................................................1 APPENDIX A – THE CITY OF ANAHEIM ELECTRIC SYSTEM .................................................A-1 APPENDIX B – CITY OF ANAHEIM ELECTRIC UTILITY FUND – AUDITED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
JUNE 30, 2023 ..........................................................................................................B-1 APPENDIX C – GENERAL INFORMATION REGARDING THE CITY OF ANAHEIM..............C-1 APPENDIX D – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ..........................................D-1 APPENDIX E – FORM OF CONTINUING DISCLOSURE AGREEMENT ....................................E-1 APPENDIX F – BOOK-ENTRY ONLY SYSTEM AND GLOBAL CLEARANCE PROCEDURES .........................................................................................................F-1 APPENDIX G – FORM OF OPINION OF BOND COUNSEL..........................................................G-1 APPENDIX H – DEBT SERVICE SCHEDULE.................................................................................H-1 1 OFFICIAL STATEMENT
$[SERIES A PAR]*
ANAHEIM HOUSING AND PUBLIC IMPROVEMENTS AUTHORITY
Revenue Refunding Bonds, Series 2024-A
(Electric Utility Distribution System Improvements)
INTRODUCTION
This Introduction is not a summary of this Official Statement, and is qualified by more complete and detailed information contained in the entire Official Statement. A full review should be made of the entire Official Statement, including the cover page, inside cover pages and attached appendices. The offering of the 2024-A Bonds to potential investors is made only by means of the entire Official Statement.
Capitalized terms used in this Introduction but not defined shall have the meanings given such terms elsewhere in this Official Statement.
Purpose
This Official Statement, which includes the cover page, inside cover pages and attached appendices, provides certain information in connection with the issuance and sale of $[SERIES A PAR]* in aggregate principal amount of Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2024-A (Electric Utility Distribution System Refunding) (the “2024-A Bonds”).
The 2024-A Bonds are being issued pursuant to an Indenture of Trust, dated as of [____] 1, 2024 (the “Indenture”), by and among the Anaheim Housing and Public Improvements Authority (the “Authority”), the City of Anaheim, California (the “City” or “Anaheim”) and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).
Plan of Finance
Tender for Purchase. On [Tender Invitation Date], 2024, the Authority and the City, with the assistance of Goldman Sachs & Co. LLC, as dealer manager (the “Dealer Manager”), released an “Invitation to Tender Bonds made by the Anaheim Housing and Public Improvements Authority and the City of Anaheim” (the “Invitation to Tender”) inviting owners of certain maturities of the California Municipal Finance Authority Revenue Refunding Bonds, Series 2015-B (City of Anaheim Electric Utility Distribution System Refunding and Improvements) (the “2015-B Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Bonds, Series 2020-A (Electric Utility Distribution System Improvements) (the “2020-A Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2020-B (Electric Utility Distribution System Refunding) (Taxable) (the “2020- B Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2020-C (Electric Utility Distribution System Refunding) (the “2020-C Bonds”) and the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2022-D (Electric Utility Distribution System Refunding) (Taxable) (the “2022-D Bonds” and such maturities of the 2015-B Bonds, the 2020-A Bonds, the 2020-B Bonds and the 2020-C Bonds referred to herein as the “Target Bonds”) to tender such bonds for purchase by the Authority. See “PLAN OF FINANCE – Tender for Purchase.” Any such purchase will be funded by the Authority from a portion of the proceeds of the 2024-A Bonds, as described herein. See “ESTIMATED SOURCES AND USES FUNDS.” * Preliminary, subject to change. The principal amount of 2024-A Bonds will be determined by the principal amount of Target Bonds (defined herein), if any, tendered for purchase and accepted. See “PLAN OF FINANCE.” 2 Application of Proceeds. The proceeds of the 2024-A Bonds will be used to (i) pay the purchase price of certain maturities of the Target Bonds that are accepted for tender for cash, if any and (ii) pay costs of issuance of the 2024-A Bonds.
See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.” Security and Sources of Payment for the 2024-A Bonds
The 2024-A Bonds are special, limited obligations of the Authority, payable solely from Project Revenues which consist primarily of purchase payments (the “Purchase Payments”) to be made by the City pursuant to an Installment Purchase Agreement, dated as of [____] 1, 2024 (the “Installment Purchase Agreement”), by and between the Authority and the City, and other sources described herein. Pursuant to the Installment Purchase Agreement, the Authority will acquire certain assets of the City’s Electric System, and will simultaneously sell such assets to the City. In consideration for the Electric System assets, the City will be obligated to make the Purchase Payments and certain Additional Purchase Payments (as hereinafter defined) to the Authority or its assignee pursuant to the Installment Purchase Agreement.
Pursuant to the Indenture, the Authority will assign and transfer in trust to the Trustee substantially all of its rights in and to the Installment Purchase Agreement, including the right to receive the Purchase Payments.
The Purchase Payments are payable by the City from Surplus Revenues of the Electric System on a parity with each other and the City’s purchase payments in connection with other Qualified Obligations, outstanding in the aggregate principal amount of $________ as of [Tender Invitation Date], 2024 (of which up to $_________* in aggregate principal amount will be purchased with the proceeds of the 2024- A Bonds), and any other Qualified Obligations payable from Surplus Revenues on a parity therewith that may hereafter be incurred by the City. The Purchase Payments and the purchase payments relating to such parity Qualified Obligations are payable from the net revenues of the Electric System on a basis junior and subordinate to (i) any voter-approved Senior Bonds of the City that may be issued in the future pursuant to the City Charter and (ii) maintenance and operation expenses of the Electric System, including the City’s take-or-pay obligations with respect to certain joint powers agency contracts. There are no Senior Bonds currently authorized or outstanding. The City has no ability to issue Senior Bonds (other than bonds issued to refund any Senior Bonds) without authorization by the electorate of the City. The City has, and may in the future, incur additional Qualified Obligations payable on a parity with the Purchase Payments. The City currently has no outstanding Second Lien Qualified Obligations, payable by the City from Net Surplus Revenues (remaining after payment of any Qualified Obligations), as well as certain other obligations payable from Net Surplus Revenues subordinate thereto. The City may in the future incur Second Lien Qualified Obligations and other subordinate obligations.
The 2024-A Bonds will also be secured by all moneys deposited and held from time to time by the Trustee in the funds and accounts established under the Indenture and the investment earnings thereon. No Debt Service Reserve Fund is being funded in connection with the 2024-A Bonds.
The 2024-A Bonds are special, limited obligations of the Authority payable solely from the Project Revenues, consisting primarily of the Purchase Payments made by the City under the Installment Purchase Agreement, and such other amounts as provided in the Indenture. The 2024- A Bonds shall not in any way be construed as a debt of the City, the State of California or any political subdivision thereof in contravention of any constitutional or statutory debt limitation, nor shall anything contained in the Installment Purchase Agreement or the Indenture be construed as a pledge of general revenues, funds or moneys of the City or the Authority or an obligation of the City for * Preliminary, subject to change.
3 which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The Authority has no taxing power.
See “SECURITY AND SOURCES OF PAYMENT FOR THE 2024-A BONDS.” Continuing Disclosure
Pursuant to a Continuing Disclosure Agreement for the 2024-A Bonds, dated the date of delivery of the 2024-A Bonds (the “Continuing Disclosure Agreement”), between the City and the Trustee, the City will covenant for the benefit of the registered owner and the Beneficial Owners of the 2024-A Bonds, to provide certain financial information and operating data relating to the City and the Electric System annually and to provide notices of certain events. See “CONTINUING DISCLOSURE.” Other Information and Definitions
This Official Statement includes brief descriptions of the 2024-A Bonds and the City’s Electric System and summaries of the Indenture, the Installment Purchase Agreement, certain provisions of the City Charter and other agreements for the supply of power and energy and the collection of revenues for the payment of the 2024-A Bonds and other indebtedness related to the Electric System. The summaries of and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definite, and each such summary and reference is qualified in its entirety by reference to each such document, statute, report or instrument.
Forward-looking statements in this Official Statement are subject to risks and uncertainties, including particularly those relating to the cost and availability of coal and natural gas, wholesale and retail electric energy and capacity prices, federal and State legislation and regulations, competition and industry restructuring, and the economy of the Electric System’s service area.
Terms capitalized but not defined herein have the meanings set forth in the Indenture or the Installment Purchase Agreement. See APPENDIX D – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Definitions for the Indenture” and “– Definitions for the Installment Purchase Agreement.”
THE CITY AND THE ELECTRIC SYSTEM
The City is a chartered city of the State of California. The City encompasses approximately 50 square miles and is located in the northern portion of Orange County, about 28 miles southeast of downtown Los Angeles and about 90 miles north of San Diego. The City operates under the City Charter and with a Council-Manager form of government, whereby policies of the City Council are administered by a City Manager, who is appointed by the City Council. Municipal departments operate under the supervision of the City Manager and/or City Council. Under the provisions of the California Constitution, the City Charter and Title 10 of the Municipal Code of the City, the City owns and operates both the Electric System and a water system for the citizens of the City. The Public Utilities Department of the City (the “Department” or the “Public Utilities Department”) exercises jurisdiction over both the Electric System and the water system and is under the supervision of the Public Utilities General Manager (the “General Manager”).
The Anaheim Electric System was established in 1894. The Electric System serves the entire area of the City. The Electric System includes generation, transmission and distribution facilities. The City also purchases power and transmission service from others. In the Fiscal Year ended June 30, 2023, the City generated and purchased a total of approximately 2,721,712 megawatt-hours (“MWh”) of electricity and sold approximately 2,694,915 MWh of electricity. Combined customer electric requirements created the historic distribution system peak demand of 593 megawatts (“MW”) on July 24, 2006. For the Fiscal Year 4 ended June 30, 2023, the Electric System served an average of 123,333 customers and had an estimated distribution system peak demand of approximately 566 MW. Additional information concerning the City, the Public Utilities Department, the Electric System of the City and its finances and operations are set forth in APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM.” General information regarding the City and its governance and City demographic and economic information may be found in APPENDIX C – “GENERAL INFORMATION REGARDING THE CITY OF ANAHEIM.” The audited Financial Statements of the City Electric Utility Fund as of and for the year ended June 30, 2023 are set forth in APPENDIX B – “CITY OF ANAHEIM ELECTRIC UTILITY FUND – AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2023.”
PLAN OF FINANCE
The Authority intends through this transaction to (i) refinance, through a tender invitation, the Target Bonds (defined below), and (ii) pay costs of issuance for the 2024-A Bonds, as described further below.
General. The 2024-A Bonds are being issued to: (i) pay the purchase price of certain maturities of the California Municipal Finance Authority Revenue Refunding Bonds, Series 2015-B (City of Anaheim Electric Utility Distribution System Refunding and Improvements) (the “2015-B Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Bonds, Series 2020-A (Electric Utility Distribution System Improvements) (the “2020-A Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2020-B (Electric Utility Distribution System Refunding) (Taxable) (the “2020-B Bonds”), the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2020-C (Electric Utility Distribution System Refunding) (the “2020-C Bonds”) and the Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2022-D (Electric Utility Distribution System Refunding) (Taxable) (the “2022-D Bonds” and such maturities of the 2015-B Bonds, the 2020-A Bonds, the 2020-B Bonds and the 2020-C Bonds referred to herein as the “Target Bonds”) in each case, that are accepted for tender for cash, if any, and (ii) pay the costs of issuance of the 2024- A Bonds.
The Target Bonds. The 2015-B Bonds were issued by the California Municipal Finance Authority (“CMFA”) on July 21, 2015, in the aggregate principal amount of $92,865,000, pursuant to an indenture of trust, dated as of June 1, 2015 (the “2015-B Indenture”), by and among the CMFA, the City and U.S. Bank Trust Company, National Association, as successor trustee. The 2015-B Bonds were issued primarily for the purpose of financing the acquisition of certain improvements to the Electric System. As of [Tender Invitation Date], 2024, $________ aggregate principal amount of the 2015-B Bonds remained outstanding.
The 2015-B Bonds are payable from project revenues of the CMFA pledged therefor, consisting primarily of the 2015-B Purchase Payments to be made by the City to the CMFA under an installment purchase agreement dated as of June 1, 2015, between the CMFA and the City.
The 2020-A Bonds, the 2020-B Bonds and the 2020-C Bonds were issued by the Authority on March 4, 2020, pursuant to an indenture of trust, dated as of March 1, 2020 (the “2020 Indenture”), by and among the Authority, the City and U.S. Bank Trust Company, National Association, as successor trustee.
The 2020-A Bonds were issued primarily for the purpose of financing the acquisition of certain improvements to the Electric System. The 2020-B Bonds were issued primarily for the purpose of refunding a portion of the Authority’s outstanding Revenue Bonds, Series 2016-A (Electric Utility Distribution System Refunding and Improvements). The 2020-C Bonds were issued primarily for the purpose of refunding a portion of the California Municipal Finance Authority Revenue Bonds, Series 2015- A (City of Anaheim Electric System Distribution Facilities) (Second Lien Qualified Obligations). As of [Tender Invitation Date], 2024, $________ aggregate principal amount of the 2020-A Bonds remained outstanding, $_________ aggregate principal amount of the 2020-B Bonds remained outstanding and $_________ aggregate principal amount of the 2020-C Bonds remained outstanding. The 2020-A Bonds, 5 the 2020-B Bonds and the 2020-C Bonds are payable from project revenues of the Authority pledged therefor, consisting primarily of the 2020 Purchase Payments to be made by the City to the Authority under an installment purchase agreement dated as of March 1, 2020, between the Authority and the City.
The 2022-D Bonds were issued by the Authority on March 4, 2020, in the aggregate principal amounts of $79,855,000 pursuant to an indenture of trust, dated as of April 1, 2022 (the “2022 Indenture”), by and among the Authority, the City and U.S. Bank Trust Company, National Association, as successor trustee. The 2022-D Bonds were issued primarily for the purpose of refunding a portion of the Revenue Refunding Bonds, Series 2017-B (Electric Utility Distribution System Refunding). As of [Tender Invitation Date], 2024, $________ aggregate principal amount of the 2022-D Bonds remained outstanding.
The 2022-D Bonds are payable from project revenues of the Authority pledged therefor, consisting primarily of the 2022 Purchase Payments to be made by the City to the Authority under an installment purchase agreement dated as of April 1, 2022, between the Authority and the City, which 2022 Purchase Payments also secure the Authority’s outstanding Revenue Bonds, Series 2022-A (Electric Utility Distribution System Refunding and Improvement), Revenue Bonds, Series 2022-B (Electric Utility Generation System Improvements), Revenue Refunding Bonds, Series 2022-D (Electric Utility Distribution System Refunding) (Taxable) and Revenue Refunding Bonds, Series 2022-E (Electric Utility Distribution System Refunding) (Forward Delivery).
The 2015-B Purchase Payments, the 2020 Purchase Payments and the 2022-D Purchase Payments constitute Qualified Obligations payable by the City from Surplus Revenues on a parity with any other Qualified Obligations heretofore or hereafter incurred by the City. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2024-A BONDS – Electric System Surplus Revenues.” Upon payment of the purchase price thereof when accepted for tender, the tendered Target Bonds will be cancelled and the liability of the City with respect to the tendered Target Bonds and the related portion of the 2015-B Purchase Payments, the 2020 Purchase Payments and the 2022-D Purchase Payments, as applicable, will cease and such tendered Target Bonds will no longer be outstanding under the applicable indenture.
Tender for Purchase of Target Bonds. On [Tender Invitation Date], 2024, the Authority and the City with the assistance of Goldman Sachs & Co. LLC (the “Dealer Manager”) released an “Invitation to Tender Bonds Made by the Anaheim Housing and Public Improvements Authority and the City of Anaheim” (the “Tender Invitation”), inviting owners of the bonds listed and maturing on the dates set forth in the tables below (the “Target Bonds”) to tender such bonds for purchase by the Authority and cancellation of such Target Bonds. Any purchase of Target Bonds will be funded by the Authority from the proceeds of the 2024-A Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS.” 6 California Municipal Finance Authority
Revenue Refunding Bonds, Series 2015-B
(City of Anaheim Electric Utility Distribution System Refunding and Improvements) Maturity Date
(October 1)
Interest
Rate
Par Amount
Outstanding
CUSIP
(Base No. 13048T)
2026 5.000% $11,945,000 WY5
2027 5.000 5,690,000 WZ2
2028 5.000 1,825,000 XA6
2029 5.000 1,915,000 XB4
2030 5.000 2,010,000 XC2
2031 5.000 2,110,000 XD0
2032 5.000 2,215,000 XE8
2033 5.000 2,330,000 XF5
2034 4.000 1,105,000 XG3
2034 5.000 1,340,000 XL2
2035 4.000 800,000 XH1
2035 5.000 1,755,000 XM0
[Remainder of Page Intentionally Left Blank.]
7 Anaheim Housing and Public Improvements Authority
Revenue Bonds, Series 2020-A
(Electric Utility Distribution System Improvements)
Maturity Date
(October 1)
Interest
Rate
Par Amount
Outstanding
CUSIP
(Base No. 032556)
2026 5.000% $ 1,120,000 HG0
2027 5.000 1,175,000 HH8
2028 5.000 1,240,000 HJ4
2029 5.000 1,300,000 HK1
2030 5.000 1,370,000 HL9
2031 5.000 1,435,000 HM7
2032 5.000 1,510,000 HN5
2033 5.000 1,590,000 HP0
2034 5.000 1,670,000 HQ8
2035 5.000 1,755,000 HR6
2036 5.000 1,845,000 HS4
2037 5.000 1,940,000 HT2
2038 5.000 2,040,000 HU9
2039 5.000 2,145,000 HV7
2040 5.000 2,255,000 HW5
2045 (term) 5.000 13,130,000 HX3
2050 (term) 5.000 16,865,000 HY1
Anaheim Housing and Public Improvements Authority
Revenue Refunding Bonds, Series 2020-B
(Electric Utility Distribution System Refunding) (Taxable) Maturity
Date
(October 1)
Interest
Rate
Par Amount
Outstanding
CUSIP
(Base
No. 032556)
ISIN (Base
No. US032556)
Common
Code
2024 1.791% $3,965,000 GQ9 GQ96 212241938
2025 1.861 5,485,000 GR7 GR79 212241946
2026 2.064 4,140,000 GS5 GS52 212241954
2027 2.214 7,545,000 GT3 GT36 212241962
2028 2.292 8,405,000 GU0 GU09 212241989
2029 2.392 10,780,000 GV8 GV81 212241997
2030 2.542 11,060,000 GW6 GW64 212242004
2031 2.642 11,365,000 GX4 GX48 212242012
2032 2.792 16,720,000 GY2 GY21 212242039
2033 2.892 17,205,000 GZ9 GZ95 212242047
2034 2.992 11,295,000 HA3 HA36 212242055
[Remainder of Page Intentionally Left Blank.]
8 Anaheim Housing and Public Improvements Authority
Revenue Refunding Bonds, Series 2020-C
(Electric Utility Distribution System Refunding)
Maturity Date
(October 1)
Interest
Rate
Par Amount
Outstanding
CUSIP
(Base No. 032556)
2036 5.000% $ 3,595,000 HZ8
2037 5.000 3,725,000 JA1
2038 5.000 3,860,000 JB9
2039 5.000 3,995,000 JC7
2040 5.000 4,135,000 JD5
2045 (term) 5.000 23,030,000 JE3
Anaheim Housing and Public Improvements Authority
Revenue Refunding Bonds, Series 2022-D
(Electric Utility Distribution System Refunding) (Taxable) Maturity Date
(October 1)
Interest
Rate
Par Amount
Outstanding
CUSIP
(Base No. 032556)
2024 2.938% $ 11,160,000 LQ3
2025 3.092 12,580,000 LR1
2030 3.876 13,190,000 LS9
2031 3.926 13,730,000 LT7
2032 4.026 16,755,000 LU4
2033 4.126 4,335,000 LV2
Owners of the Target Bonds must review the Invitation to Tender for further information regarding the Authority’s offer. The Invitation to Tender provides that all tenders for purchase must be made on or before [______ __, 2024] (the “Expiration Date”). Following the Expiration Date, on [______ __, 2024], the Authority will determine whether to accept the Target Bonds tendered for purchase. The Authority and the City anticipate that, subject to market conditions, all Target Bonds that are not tendered for purchase will remain outstanding.
[Remainder of Page Intentionally Left Blank.]
9 ESTIMATED SOURCES AND USES OF FUNDS
The estimated sources and uses of funds in connection with the 2024-A Bonds, rounded to the nearest dollar, are as follows:
2024-A Bonds Total(1)
Sources:
Principal Amount of 2024-A Bonds $ $
[Net] Original Issue Premium
Total Sources(1) $ $
Uses:
Purchase Price Upon Tender $ $
Costs of Issuance(2) ......................
Total Uses(1) $ $
__________________
(1) Totals may not add due to rounding.
(2) Includes Underwriter’s discount, legal fees, fees of the Trustee, municipal advisory fees, rating agency fees, printing costs and other miscellaneous expenses.
DESCRIPTION OF THE 2024-A BONDS
General
The 2024-A Bonds will be issued in the form of fully registered bonds, without coupons, in Authorized Denominations of $5,000 and any integral multiple thereof. The 2024-A Bonds will be dated their date of delivery and will bear interest at the respective rates per annum and will mature (subject to redemption provisions set forth below), on the respective dates and in the principal amounts, all as set forth on the inside cover pages hereof.
Interest on the 2024-A Bonds will be payable semiannually on April 1 and October 1 of each year (each, an “Interest Payment Date”), commencing [October 1, 2024]. Interest on the 2024-A Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months.
The 2024-A Bonds will be registered in the name of Cede & Co., as initial nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as Depository for the 2024- A Bonds. Ownership interests in the 2024-A Bonds may be purchased by the purchasers thereof (“Beneficial Owners”) in book-entry form only, in the denominations hereinabove set forth. In the event (i) DTC determines not to continue to act as Depository for the 2024-A Bonds, or (ii) the Authority determines that DTC is unable to discharge its responsibilities with respect to the 2024-A Bonds or that continuation of the book-entry system is not in the best interest of the Beneficial Owners and the Authority elects to terminate the services of DTC, then the use of the DTC book-entry system with respect to the 2024-A Bonds will be discontinued. The Authority may replace DTC with another qualified Depository.
If another qualified Depository is not identified to replace DTC, then the 2024-A Bonds will be registered in whatever name or names the Owners transferring or exchanging such Bonds shall designate, in accordance with the provisions of the Indenture and the 2024-A Bonds. See APPENDIX F – “BOOK- ENTRY ONLY SYSTEM AND GLOBAL CLEARANCE PROCEDURES.”
Notwithstanding the foregoing, so long as records of ownership of the 2024-A Bonds are maintained through the DTC book-entry system described above, all payments to the Beneficial Owners of the 2024-A Bonds will be made in accordance with the procedures described in Appendix F hereto. 10 Redemption of the 2024-A Bonds
Optional Redemption On or After October 1, 20__. The 2024-A Bonds maturing on or prior to October 1, 20__ are not subject to optional redemption prior to maturity. The 2024-A Bonds maturing on and after October 1, 20__ are subject to redemption, at the option of the City, in whole or in part in integral multiples of $5,000, on any date on or after ________, 20__, from funds provided by the City for such purpose, upon notice as provided in the Indenture, at a price equal to the principal amount to be redeemed, plus accrued but unpaid interest to the redemption date, without premium.
Mandatory Sinking Account Redemption. The 2024-A Bonds maturing on October 1, 20__ are subject to redemption prior to maturity from mandatory sinking account installments due on October 1 of each of the years set forth in the following table in the respective redemption amounts set forth opposite such years in said table (together with accrued interest thereon), without premium:
2024-A Bonds maturing October 1, 20__
Redemption Date
(October 1)
Redemption
Amount
$
†
______________
† Final Maturity.
The 2024-A Bonds maturing on October 1, 20__ are subject to redemption prior to maturity from mandatory sinking account installments due on October 1 of each of the years set forth in the following table in the respective redemption amounts set forth opposite such years in said table (together with accrued interest thereon), without premium:
2024-A Bonds maturing October 1, 20__
Redemption Date
(October 1)
Redemption
Amount
$
†
_______________
† Final Maturity.
Extraordinary Redemption. The 2024-A Bonds are subject to extraordinary redemption prior to maturity, at the option of the Authority at the direction of the City, in whole or in part on any date, at the principal amount of such 2024-A Bonds to be redeemed, without premium, plus accrued but unpaid interest to the redemption date, (i) from the net proceeds of insurance received by the City in the event of damage to or destruction of the Electric System, if the City determines, in accordance with the Installment Purchase Agreement, not to apply such proceeds of insurance to the Electric System, and/or (ii) from the net proceeds of any condemnation award or proceeds received in lieu of condemnation if the City determines, in accordance with the Installment Purchase Agreement, not to apply such proceeds to the Electric System. 11 Notice of Redemption. The Trustee on behalf and at the expense of the Authority shall give notice of any redemption to the Owners of any 2024-A Bonds designated for redemption, at their respective addresses appearing on the Registration Books under the Indenture, and to the Securities Depositories and to the Information Services, at least twenty (20) but not more than sixty (60) days prior to the date fixed for redemption. So long as DTC is acting as Depository for the 2024-A Bonds, such notice of redemption will be given to DTC in accordance with DTC procedures, and not to the Beneficial Owners of the 2024- A Bonds. Neither failure to receive any such notice nor any defect therein shall affect the validity of the proceedings for the redemption of such 2024-A Bonds or the cessation of the accrual of interest thereon.
Such notice shall state the date of the notice, the redemption date, the redemption place and the redemption price and shall designate the 2024-A Bonds to be redeemed, the CUSIP numbers, the bond numbers (but only if less than all of the Outstanding 2024-A Bonds are to be redeemed) and the maturity or maturities being redeemed in the event of redemption of less than all of the 2024-A Bonds, giving notice also that further interest on such 2024-A Bonds will not accrue from and after the redemption date, and with regard to optional redemption, in the event that funds required to pay the redemption price are not on deposit under the Indenture at the time the notice of redemption is sent, a statement to the effect that the redemption is conditioned upon the receipt of the appropriate funds required to pay the redemption price by the Trustee on or prior to the redemption date. Any such notice may be rescinded by the City, in which case the Trustee shall notify the Owners of the affected 2024-A Bonds of such rescission.
Selection of Bonds for Redemption. Whenever provision is made for the redemption of less than all of the 2024-A Bonds, the 2024-A Bonds to be redeemed shall be selected to correspond to the Principal Components of the Purchase Payments prepaid by the City in accordance with the Installment Purchase Agreement; provided, that in the case of any redemption of any 2024-A Bond, or portion thereof, prior to its maturity, the Trustee shall first select those 2024-A Bonds previously acquired by the City which the City has delivered to the Trustee and designated as satisfying Purchase Payments, in lieu of making such redemption, and then the Trustee shall select the other 2024-A Bonds within a maturity to be redeemed.
If less than all of the 2024-A Bonds of a maturity are called for prior redemption, the particular 2024-A Bonds or portions thereof to be redeemed shall be selected by the Trustee in such manner as the Trustee in its discretion may deem appropriate. For purposes of such selection, the 2024-A Bonds shall be deemed to be comprised of separate $5,000 portions and such portions shall be treated as separate 2024- A Bonds which may be separately redeemed.
Any selection by the Trustee of 2024-A Bonds for redemption shall be binding upon the Owners.
Partial Redemption of Bonds. In the event only a portion of any 2024-A Bond is called for redemption, then upon surrender of such 2024-A Bond, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new 2024-A Bond or Bonds of the same maturity date, of Authorized Denominations in an aggregate principal amount equal to the unredeemed portion of the 2024-A Bond to be redeemed.
Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on 2024-A Bonds called for redemption shall have been duly provided, the 2024-A Bonds so called shall cease to be entitled to any benefit under the Indenture other than the right to receive payment of the principal, interest accrued to the redemption date, and premium, if any, and no interest shall accrue thereon from and after the redemption date specified in such notice.
12 SECURITY AND SOURCES OF PAYMENT FOR THE 2024-A BONDS General; Background
As described herein, the 2024-A Bonds are being issued pursuant to the Indenture, by and among the Authority, the City and the Trustee. The 2024-A Bonds, when issued, will be special, limited obligations of the Authority, payable solely from Project Revenues which consist primarily of Purchase Payments to be made by the City pursuant to the Installment Purchase Agreement, and other sources described herein. The Purchase Payments will initially constitute Qualified Obligations (as defined herein) pursuant to the Installment Purchase Agreement and will initially be payable from certain amounts in the Qualified Obligations Account of the Electric System Surplus Revenue Fund (a special fund of the City held by the Treasurer of the City and created pursuant to Ordinance No. 5032 of the City Council) as described herein. See “– Purchase Payments” below.
The City has previously executed and delivered, and has outstanding, a number of other installment purchase agreements (which installment purchase agreements are substantially similar to the Installment Purchase Agreement), with the Authority, with the Anaheim Public Financing Authority (“APFA”), and with the California Municipal Finance Authority (“CMFA”), the purchase payments under which installment purchase agreements constitute Qualified Obligations of the Electric System payable on a parity with the Purchase Payments and are referred to under “– Electric System Surplus Revenues” below. See also APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Indebtedness; Joint Powers Agency Obligations – Direct Obligations.”
Pledge Under the Indenture
Pursuant to the Indenture, the 2024-A Bonds are secured by a pledge, charge and lien upon Project Revenues, including all amounts derived from the investment of such moneys, and a pledge of the rights of the Authority set forth in the Installment Purchase Agreement. Project Revenues consist primarily of the Purchase Payments to be made by the City to the Authority under the Installment Purchase Agreement.
The 2024-A Bonds are also secured by (i) all moneys deposited and held from time to time in the funds and accounts established under the Indenture; and (ii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established under the Indenture. Pursuant to the Indenture, the Authority transfers in trust and assigns for security purposes to the Trustee, for the benefit of the Owners from time to time of the 2024-A Bonds, all of the Project Revenues and substantially all of its rights in and to the Installment Purchase Agreement (other than certain Unassigned Rights), including the right to receive the Purchase Payments thereunder. Pursuant to the Indenture, the Trustee is entitled to take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the City under the Installment Purchase Agreement.
Limited Obligation of the Authority
None of the Authority, any Authority member or any person executing the 2024-A Bonds is liable personally on the 2024-A Bonds or subject to any personal liability or accountability by reason of their issuance. The 2024-A Bonds are limited obligations of the Authority, payable solely from and secured by the pledge of Project Revenues and such other amounts as provided under the Indenture. Neither the Authority, its members, the State, nor any of its political subdivisions shall be directly, indirectly, contingently or morally obligated to use any other moneys or assets to pay all or any portion of the debt service due on the 2024-A Bonds, to levy or to pledge any form of taxation whatsoever therefor or to make any appropriation for their payment. The 2024-A Bonds are not a pledge of the faith and credit of the Authority, its members, the State or any of its political subdivisions nor do they constitute indebtedness within the meaning of any constitutional or statutory debt limitation. The Authority has no taxing power. 13 Purchase Payments
Pursuant to the Installment Purchase Agreement, the City is obligated to make Purchase Payments solely from Surplus Revenues in the Qualified Obligations Account of the Electric System Surplus Revenue Fund (a special fund of the City held by the Treasurer of the City and created pursuant to Ordinance No. 5032 of the City Council). The Purchase Payments are payable from Surplus Revenues on a parity with each other and with the purchase payments relating to other Qualified Obligations (as hereinafter defined) that are currently outstanding and that may be issued in the future. See “– Electric System Surplus Revenues” below. See also APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Indebtedness; Joint Powers Agency Obligations – Direct Obligations.” The Purchase Payments are junior and subordinate in priority of payment to (i) any Senior Bonds (of which none are currently outstanding) and (ii) the City’s take-or-pay obligations with respect to certain joint powers agency contracts (see “– Take-or-Pay Obligations” below and APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Indebtedness; Joint Powers Agency Obligations – Joint Powers Agency Obligations”). Nothing in the Installment Purchase Agreement precludes the City from making Purchase Payments from other lawfully available moneys of the City.
Under the Installment Purchase Agreement, the Purchase Payments in the aggregate will be in an amount sufficient for the payment in full of all obligations to the Owners of the 2024-A Bonds from time to time Outstanding under the Indenture, less the amount of other funds available for such payment as provided in the Indenture.
Subject to the limitations set forth in the preceding paragraph, the obligation of the City to make the Purchase Payments required by the Installment Purchase Agreement is absolute and unconditional, and is not to be abated, rebated, set-off, reduced, abrogated, terminated, waived, diminished, postponed or otherwise modified in any manner or to any extent whatsoever while any Purchase Payments remain unpaid, regardless of any contingency, act of God, event or cause whatsoever, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, taking by eminent domain of or destruction of or damage to the Electric System Assets purchased under the Installment Purchase Agreement or the commercial frustration of purpose, any change in the laws of the United States or the State of California or any political subdivision of either or the rules or regulations of any governmental authority or any failure of the Authority or the Trustee to perform and observe any agreement, duty, liability or obligation arising out of or connected with the Installment Purchase Agreement or Indenture. The Installment Purchase Agreement is deemed to constitute a “net contract” pursuant to which the City will pay absolutely net amounts of the Purchase Payments payable thereunder and all other payments required thereunder, regardless of any rights of set-off, recoupment, abatement or counterclaim the City might otherwise have against the Authority, the Trustee or any other party.
The City has covenanted in the Installment Purchase Agreement to take such action as may be necessary to include and maintain the Purchase Payments due thereunder in its budget for the appropriate Fiscal Year or pursuant to a separate resolution of the City Council and to make the appropriations necessary for the payment of all such Purchase Payments required under the Installment Purchase Agreement. The performance of this covenant by the City is to be deemed and understood under the Installment Purchase Agreement to be a ministerial duty.
THE OBLIGATION OF THE CITY TO MAKE PURCHASE PAYMENTS UNDER THE
INSTALLMENT PURCHASE AGREEMENT IS PAYABLE SOLELY FROM SURPLUS REVENUES
IN THE QUALIFIED OBLIGATIONS ACCOUNT, UNLESS OTHERWISE PAID FROM OTHER SOURCES OF LEGALLY AVAILABLE FUNDS. THE 2024-A BONDS SHALL NOT IN ANY WAY
BE CONSTRUED AS A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL
SUBDIVISION THEREOF IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR 14 STATUTORY DEBT LIMITATION OR RESTRICTION, NOR SHALL ANYTHING CONTAINED IN
THE INSTALLMENT PURCHASE AGREEMENT OR THE INDENTURE BE CONSTRUED AS A
PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY OR AN OBLIGATION
OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
Electric System Flow of Funds
The City is required by the Installment Purchase Agreement to pay, on or before each Purchase Payment Date, from the Qualified Obligations Account of the Surplus Revenue Fund to the Trustee for deposit in the Purchase Payment Fund, the amount of the Purchase Payments due thereunder on the next succeeding Interest Payment Date. For a description of the Surplus Revenue Fund and other funds and accounts relating to the City’s Electric System, see “– Electric System Funds and Accounts” below.
See also APPENDIX D – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – The Installment Purchase Agreement – Flow of Gross Revenues” and “– Flow of Surplus Revenues.” Electric System Funds and Accounts
Pursuant to the Installment Purchase Agreement and the proceedings of the City relating to its Senior Bonds, all rates, fees and charges for providing electric service to persons and real property and all other fees, rents and charges and other income derived by the City from the ownership, operation, use or services of the Electric System (the “Gross Revenues”) are to be deposited as received by the City to the Revenue Account in the Electric Revenue Fund held by the Treasurer of the City (the “Treasurer”).
On or before the 20th day of each calendar month, the Finance Director of the City is required, so long as any Senior Bonds or Qualified Obligations remain Outstanding, to withdraw the entire amount on deposit in the Revenue Account and allocate and deposit such amount in the funds and accounts, in the order of priority listed below.
First, to the Bond Service Account, one-sixth of the interest which will become due and payable (less any interest which has already been provided for) on the Outstanding Senior Bonds within the next six month period and one-twelfth of the principal amount which will mature and be payable on the Outstanding Senior Bonds within the next twelve month period and, to the Bond Sinking Account, the amount required with respect to any term Senior Bonds to provide for mandatory sinking fund installments. “Senior Bonds” means any voter-approved revenue bonds, revenue notes or other similar evidences of indebtedness of the City heretofore or hereafter issued pursuant to the City Charter for the acquisition, construction and financing or refinancing of extensions of, additions to, repairs and replacements to, renewals of, and improvements of the Electric System, payable out of Gross Revenues on a basis senior to the Qualified Obligations. At present, there are no Senior Bonds outstanding and no authorized but unissued Senior Bonds.
Second, to the Maintenance and Operation Account, an amount sufficient for the payment of the Maintenance and Operation Expenses of the Electric System as said expenses become due and payable. “Maintenance and Operation Expenses” means the reasonable and necessary current expenses of maintaining, repairing and operating the Electric System, including City administrative expenses directly attributable to Electric System functions, but excluding depreciation, interest and amortization, all computed in accordance with sound accounting principles and consistent with existing accounting practices of the City. Included in this definition are the City’s take-or-pay 15 obligations with respect to certain joint powers agency contracts. See “– Take-or-Pay Obligations” below.
Third, to the extent any Senior Bonds are Outstanding, to the Reserve Fund, the amount required, if any, for such Fund to equal the Maximum Annual Debt Service as defined in Resolution No. 86R-89 of the City Council, adopted October 31, 1986 (the “1986 Bond Resolution”) with respect to the Senior Bonds.
At present, there are no Senior Bonds outstanding and no authorized but unissued Senior Bonds.
Fourth, so long as any of the Senior Bonds or Qualified Obligations are Outstanding, to the Renewal and Replacement Account, an amount equal to one percent of the Gross Revenues received in the preceding calendar month until a balance is established or reestablished therein equal to two percent of the depreciated book value of the land, general plant and equipment which constitute the net utility plant of the Electric System. The moneys contained in the Renewal and Replacement Account may be used for extraordinary maintenance and repairs, renewals and replacements to the Electric System, but not for additions to or extensions of the Electric System. As of June 30, 2021, the Renewal and Replacement Account is fully funded in an amount equal to a maximum of two percent of the depreciated book value of the land, general plant and equipment which currently constitute the net utility plant of the Electric System.
Fifth, so long as any of the Senior Bonds or Qualified Obligations are Outstanding, to the Rebate Account, the amount required with respect to Senior Bonds in accordance with the Internal Revenue Code of 1986.
Sixth, to the Surplus Revenue Fund, all moneys in the Revenue Account remaining after the above transfers have been made and all covenants required by the resolutions relating to the Senior Bonds have been performed. The moneys in the Surplus Revenue Fund constitute the Surplus Revenues.
Electric System Surplus Revenues
So long as any Qualified Obligations (including the Purchase Payments) are outstanding, promptly after the deposit in any month to the Surplus Revenue Fund, the entire amount of the Surplus Revenues in the Surplus Revenue Fund shall be transferred to the following accounts in the order of priority listed below.
First, to the Qualified Obligations Account, the amount of Qualified Obligation Service with respect to such calendar month (to the extent not already transferred to such Account in such month) or, if less, the entire amount of Surplus Revenues then available for transfer to such Account. “Qualified Obligation Service” means, with respect to any period, the amount of principal and interest or other payments accrued or to accrue in such period with respect to all outstanding Qualified Obligations (excluding the amount of proceeds of Qualified Obligations held in any fund or account for the payment of Qualified Obligation Service accrued or to accrue during such period). For purposes of accrual under this definition, all payments with respect to Qualified Obligations due in a calendar month are to be deemed due on the first day of such calendar month. “Qualified Obligations” means, without duplication, (i) the Purchase Payments; (ii) the 2014-A Purchase Payments; (iii) the 2015-B Purchase Payments (to the extent not prepaid in connection with the issuance of the 2024-A Bonds); (vi) the 2017 Purchase Payments; (iv) the 2020 Purchase Payments (to the extent not prepaid in connection with the issuance of the 2024-A Bonds); (v) the 2022 Purchase Payments (to the extent not prepaid in connection with the issuance of the 2024- A Bonds); and (vi) additional bonds and obligations payable from Surplus Revenues in the Qualified Obligations Account which at the time of initial delivery thereof satisfy the requirements set forth in any installment purchase agreement or similar instrument for the issuance of additional Qualified Obligations (see “– Additional Qualified Obligations” below). As of [Tender Invitation Date], 2024, the aggregate principal amount of Qualified Obligations outstanding was $________ 16 (including the purchase payments being prepaid in connection with the issuance of the 2024- A Bonds). See APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Indebtedness; Joint Powers Agency Obligations – Direct Obligations.” See also “PLAN OF FINANCE.”
Second, to the Second Lien Qualified Obligations Account the amount of Second Lien Qualified Obligation Service with respect to such calendar month (to the extent not already transferred to such Account in such month), or the entire amount of Net Surplus Revenues then available for transfer to the Second Lien Qualified Obligations Account, whichever is less. “Second Lien Qualified Obligation Service” (as defined in the instruments pursuant to which Second Lien Qualified Obligations are incurred) means, with respect to any period, the amount of principal and interest or other payments accrued or to accrue in such period with respect to all outstanding Second Lien Qualified Obligations (excluding the amount of proceeds of Second Lien Qualified Obligations held in any fund or account for the payment of Second Lien Qualified Obligation Service accrued or to accrue during such period). For purposes of accrual under this definition, all payments with respect to Second Lien Qualified Obligations due in a calendar month are to be deemed due on the first day of such calendar month. “Second Lien Qualified Obligations” means, without duplication, additional bonds and obligations payable from Net Surplus Revenues in the Second Lien Qualified Obligations Account which at the time of initial delivery thereof satisfy the requirements set forth in any installment purchase agreement or similar instrument for the issuance of additional Second Lien Qualified Obligations. Currently, there are no outstanding Second Lien Qualified Obligations. See APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Indebtedness; Joint Powers Agency Obligations – Direct Obligations.” Third, to the ERAN Account, the amount required to be transferred thereto in such month for the payment of the principal of and interest on the Electric Revenue Anticipation Notes to the extent required by the ordinance(s) and resolution(s) pursuant to which the Electric Revenue Anticipation Notes are issued (to the extent not already transferred to such Account in such month), or, if less, the entire amount of Net Surplus Revenues then available for transfer to such Account.
Pursuant to the City’s Ordinance No. 5032, the principal amount of Electric Revenue Anticipation Notes which may be outstanding at any time shall not exceed 25% of the gross revenue earned by the Electric System during the immediately preceding Fiscal Year as set forth in the audited financial statements of the Electric System for such year or the maximum aggregate amount of the revolving Electric System Credit available to the City as described in such a revolving credit agreement or other loan agreement, whichever is less. The City has entered into a revolving credit agreement under which it may borrow up to $100,000,000 for purposes of the Electric System, the repayment obligation of the City under which is evidenced by Electric Revenue Anticipation Notes.
As of [Tender Invitation Date], 2024, the City has [no] outstanding obligations evidenced by Electric Revenue Anticipation Notes under the revolving credit agreement. The City may incur additional obligations evidenced by Electric Revenue Anticipation Notes in the future. See also APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Indebtedness; Joint Powers Agency Obligations – Direct Obligations.”
Fourth, to the Remaining Surplus Account, all remaining Net Surplus Revenues, to be used for any lawful purpose of the City, provided, however, that in the event of any deficiency in the Qualified Obligations Account, the Second Lien Qualified Obligations Account or the ERAN Account, moneys in the Remaining Surplus Account shall be transferred to such Accounts in the order of priority indicated above to cover such deficiency.
17 Pursuant to the Installment Purchase Agreement, the City is obligated to make certain additional purchase payments (the “Additional Purchase Payments”) for the payment of certain taxes and assessments, costs, fees and expenses of the Authority, the Trustee and any accountants, consultants, attorneys and other experts engaged by the Authority or the Trustee to perform services required in connection with the Installment Purchase Agreement and the Indenture and any rebate amounts. Such Additional Purchase Payments are required to be made by the City from Surplus Revenues in the Remaining Surplus Account.
As described above, (i) the payment of Qualified Obligations, including Purchase Payments, ranks junior to payment of the Senior Bonds and the City’s take-or-pay obligations with respect to certain joint powers agency contracts; (ii) the payment of Qualified Obligations, including Purchase Payments, ranks senior to the payment of Second Lien Qualified Obligations and Electric Revenue Anticipation Notes; and (iii) the payment of Additional Purchase Payments ranks junior to the payment of Electric Revenue Anticipation Notes.
Rate Covenants
Pursuant to the Installment Purchase Agreement, the City has agreed to prescribe, revise and collect such charges for the services and facilities of the Electric System so that, in each Fiscal Year, the Surplus Revenues shall at least equal the sum of (i) 1.10 times the amount of Qualified Obligation Service with respect to such Fiscal Year; (ii) 1.00 times the principal of and interest on the outstanding Electric Revenue Anticipation Notes due and payable and to be paid from Surplus Revenues in such Fiscal Year; and (iii) 1.00 times all other payments required to be made from Surplus Revenues in such Fiscal Year.
In connection with Qualified Obligations other than the Purchase Payments, the City has agreed to prescribe, revise and collect such charges for the services and facilities of the Electric System so that, in each Fiscal Year, the Surplus Revenues shall at least equal the sum of 1.25 times the amount of Qualified Obligation Service with respect to such Fiscal Year. Such agreements by the City were not made for the benefit of holders of the 2024-A Bonds. Agreements in connection with Qualified Obligations other than the Purchase Payments may be modified or terminated without the consent of holders of the 2024-A Bonds.
No Debt Service Reserve Funds for the 2024-A Bonds
The Authority is not funding a debt service reserve fund for any of the 2024-A Bonds. Amounts held in any debt service reserve fund established in connection with the City’s outstanding Qualified Obligations do not secure, and are not available for, the payment of the Purchase Payments or the 2024- A Bonds.
Insurance
The City agrees in the Installment Purchase Agreement to maintain at all times with responsible insurers all such insurance on the Electric System as is customarily maintained by similar utilities systems with respect to works and properties of like character against accident to, loss of, or damage to, such works or properties and against loss of revenues.
The City further agrees that any useful parts of the Electric System that are damaged or destroyed shall be restored to use. Proceeds of insurance against accident, loss or damage shall be used for repairing or rebuilding the lost, damaged or destroyed works and properties, and, to the extent not so used, shall be applied, to the retirement of outstanding Senior Bonds and Qualified Obligations. Moneys collected from any loss of revenues insurance shall be deposited in the Revenue Account. 18 The City is permitted under the Installment Purchase Agreement to satisfy the foregoing covenant through a self-insurance program or to provide such insurance as part of any blanket coverages maintained by the City.
Additional Qualified Obligations
The City has agreed pursuant to the Installment Purchase Agreement, not to issue, incur or deliver any Bonds or Obligations payable from the Surplus Revenues in the Qualified Obligations Account unless, at the initial delivery thereof, the Surplus Revenues, calculated on sound accounting principles, as shown by the books of the City for each of the last two completed Fiscal Years prior to the adoption of the resolution approving the delivery of such Bonds or Obligations (as shown by an audit certificate or opinion of an independent certified public accountant or firm of certified public accountants employed by the City), plus, at the option of the City, the allowance for earnings described in the following paragraph, shall have amounted to at least 1.10 times the Maximum Annual Qualified Obligation Service on all Qualified Obligations to be outstanding immediately subsequent to the initial delivery of such Bonds or Obligations.
Notwithstanding the foregoing, the City may issue Bonds or Obligations to refund outstanding Qualified Obligations if, after giving effect to the application of the proceeds thereof, either (i) total Qualified Obligation Service will not be increased in any Fiscal Year in which Qualified Obligations (outstanding on the date of issuance or incurrence of such refunding Bonds or Obligations, but excluding such refunding Bonds or Obligations) not being refunded are outstanding, or (ii) the Surplus Revenues, calculated on sound accounting principles, as shown by the books of the City for each of the last two completed Fiscal Years prior to the adoption of the resolution approving the delivery of such Bonds or Obligations (as shown by an audit certificate or opinion of an independent certified public accountant or firm of certified public accountants employed by the City), plus, at the option of the City, the allowance for earnings described in the following paragraph, shall have amounted to at least 1.10 times total Qualified Obligation Service in the Fiscal Year next succeeding the Fiscal Year in which such Bond or Obligation is initially delivered.
For the purpose of applying the restrictions set forth in the preceding paragraph, the following allowance may be added to the Surplus Revenues: an allowance for earnings arising from any increase in the charges made for service from the Electric System which has become effective prior to the initial delivery of such Bonds or Obligations but which, during all or any part of said last two completed Fiscal Years, was not in effect, in an amount equal to 95% of the amount by which the Surplus Revenues would have been increased if such increase in charges had been in effect during the whole of said last two completed Fiscal Years, as shown by the certificate or opinion of an independent certified accountant or firm of certified public accountants employed by the City.
The City has also agreed pursuant to the Installment Purchase Agreement that the Surplus Revenues will not be mortgaged, encumbered, sold, leased, pledged, any charge placed thereon, or disposed of or used except as permitted by such Installment Purchase Agreement.
Take-or-Pay Obligations
The City has entered into certain power sales and transmission service contracts and other agreements for the payment of its share of the costs of certain projects in which it participates. See APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Power Supply Resources – Non- City Owned Resources” and “– Indebtedness; Joint Powers Agency Obligations – Joint Powers Agency Obligations.” The City’s obligations under certain of these contracts constitute a portion of the Maintenance and Operations Expenses of the Electric System and thus are payable from Gross Revenues prior to the payment of Qualified Obligations (including the Purchase Payments) or Second Lien Qualified Obligations.
The City may enter into additional contracts the obligations under which constitute Maintenance and Operation Expenses, subject to the rate covenants described above. 19 Limited Recourse on Default
If the City defaults under the Installment Purchase Agreement, the Trustee, as assignee of the Authority pursuant to the Indenture, may exercise any right to enforce such Installment Purchase Agreement provided therein or by law. In the event of such default, the Installment Purchase Agreement does not provide any remedy of acceleration of the Purchase Payments due over the term of the Installment Purchase Agreement, and the Trustee is not empowered to sell the Electric System Assets or any portion thereof and use the proceeds of such sale to prepay any obligations in respect of the 2024-A Bonds. The City will only be liable for Purchase Payments on an annual basis, and the Trustee would be required to seek a separate judgment for each year’s defaulted Purchase Payments. Any such suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds and property needed to serve the public welfare and interest.
DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS
State Legislation and Regulatory Proceedings
A number of bills affecting the electric utility industry have been introduced or enacted by the California Legislature in recent years. In general, these bills regulate greenhouse gas emissions and provide for greater investment in energy efficiency and environmentally friendly generation and storage alternatives, principally through more stringent renewable resource portfolio standard requirements and more aggressive emissions reduction programs to combat the effects of climate change. More recently enacted legislation has also focused on addressing issues relating to wildfire risks and occurrences in California, including imposing certain requirements on electric utilities in connection with planning for and mitigating such occurrences and risks. The following is a brief summary of certain of these bills that have been enacted. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof.
Greenhouse Gas Emissions – Background; Global Warming Solutions Act. In September 2006, then-Governor Schwarzenegger signed into law Assembly Bill 32, the Global Warming Solutions Act of 2006 (hereinafter, the “GWSA”), which became effective on January 1, 2007. The GWSA prescribed a statewide cap on global warming pollution with a goal of returning to 1990 greenhouse gas emission levels by 2020 as prescribed by Executive Order S-3-05 of the Governor issued on June 1, 2005. In September 2016, then-Governor Brown signed into law Senate Bill 32 (“SB 32”), an amendment to the Global Warming Solutions Act. SB 32, which became effective as law on January 1, 2017, codified a new interim statewide greenhouse gas emission reduction target, consistent with Executive Order B-30-15, signed by Governor Brown on April 29, 2015. SB 32 requires the California Air Resources Board (“CARB”), which, pursuant to the GWSA, is the designated state agency charged with monitoring and regulating sources of emissions of greenhouse gases, to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level no later than December 31, 2030.
Senate Bill 350 (“SB 350”), signed by then-Governor Brown in October 2015 (and additionally discussed under “– Renewables Portfolio Standard” below), requires CARB, in consultation with the California Public Utilities Commission (the “CPUC”) and the California Energy Commission, to establish 2030 greenhouse gas emission targets for each electric utility in the State. At present, these targets are non- binding, and primarily intended to help the State measure progress toward the 2030 statewide goal outlined in SB 32. The targets, however, are an input to the integrated resource plans that are required of the State’s 16 largest local publicly-owned electric utilities (“POUs”), including the Anaheim Electric System. See “– – Renewables Portfolio Standard” below.
The GWSA also established an annual mandatory reporting requirement for all IOUs, POUs, and other load-serving entities (electric utilities providing energy to end-use customers) to inventory and report 20 greenhouse gas emissions to CARB, required CARB to adopt regulations for significant greenhouse gas emission sources (allowing CARB to design a “cap-and-trade” program) and gave CARB the authority to enforce such regulations beginning in 2012. The City is complying with the applicable reporting requirements under the GWSA.
Assembly Bill 1279 (“AB 1279”) established additional greenhouse-gas emission reduction goals.
AB 1279 declares the policy of the State both to achieve net-zero greenhouse gas emissions as soon as possible, but no later than 2045, and achieve and maintain net negative greenhouse gas emissions thereafter, and to ensure that by 2045, Statewide anthropogenic greenhouse gas emissions are reduced to at least 85% below the 1990 levels. Under AB 1279, “net zero greenhouse gas emissions” means emissions of greenhouse gases to the atmosphere are balanced by removals of greenhouse gas emissions over a period of time. At present, these targets are non-binding, and primarily intended to help the State progress toward the 2045 Statewide goal outlined in AB 1279.
Greenhouse Gas Emissions – Cap-and-Trade Program. Pursuant to the GWSA, CARB has adopted a series of regulations implementing a cap-and-trade program. The initial cap-and-trade regulation became effective on January 1, 2012. Emission compliance obligations under the regulation began on January 1, 2013. The cap-and-trade program covers sources accounting for 85% of California’s greenhouse gas emissions, the largest program of its type in the United States.
The cap-and-trade regulations impose aggregate emissions limitations on the electricity generation industry in California. The cap-and-trade regulations require all regulated entities to obtain and submit to CARB compliance instruments (allowances and/or offsets) with respect to greenhouse gas emissions relating to its State generation activities, as well as for imported electricity from dedicated out-of-state resources. The cap-and-trade program includes the distribution of carbon allowances equal to the annual emissions cap. The City, like other electric utilities, receives administrative allocations of allowances for some of its expected greenhouse gas emissions. Additional allowances are auctioned quarterly. Entities that emit greenhouse gases at levels above those for which they receive administrative allocations, if any, must purchase the additional allowances they require at the CARB auctions or on the secondary market from other covered entities with surplus allowances. IOUs are required to auction the allowances they received for free from CARB. This requirement also applies to POUs that sell electricity into the California Independent System Operator Corporation (“CAISO”) markets, other than sales of electricity from resources funded by municipal tax-exempt debt where the POU makes a matched purchase to serve its traditional retail customers. Utilities required to sell their allowances in the auctions are then required to purchase allowances to meet their compliance obligations, and use any remaining proceeds from the sale of their allocated allowances for the benefit of their ratepayers and to meet the goals of the GWSA. POUs that do not sell into the CAISO markets, and those that sell into the CAISO markets only electricity from resources funded by municipal tax-exempt debt, have three options (which are not mutually exclusive) once their allocated allowances have been distributed to them. They can (i) place allowances in their compliance accounts to meet compliance obligations, (ii) place allowances in the compliance account of a joint powers agency or public power utility that generates power on their behalf, and/or (iii) auction the allowances and use the proceeds to benefit their ratepayers and meet the goals of the GWSA.
The cap-and-trade program also allows covered entities to use offset credits for compliance (initially not exceeding 8% of a covered entity’s compliance obligation through the end of 2020). Offsets can be generated by emission reduction projects in sectors that are not regulated under the cap-and-trade program. CARB has approved the following types of offset projects: urban forest projects, reforestation projects, destruction of ozone-depleting substances, livestock methane management projects, destruction of fugitive coal mine methane and rice cultivation practices. CARB will continue to consider additional and updated offset protocols, including international, sector-based offsets; CARB is also required to reform the offset program pursuant to AB 398 as discussed below.
21 On July 17, 2017, the California Legislature passed AB 398, extending the cap-and-trade program from 2021 to 2030. AB 398 passed both houses with a 2/3 supermajority vote, which protects the legislation from certain legal challenges. Under AB 398, the distribution of free carbon allowances is continued for certain industrial sectors. However, AB 398 imposes stricter limits on the use of offset credits for compliance, with 4% of a covered entity’s compliance obligation to be allowed to be satisfied with offsets from 2021 through 2025, and 6% thereafter. In addition, one-half of any such offsets will be required to be in California. Under AB 398, CARB was directed to address the following: establish a price ceiling, offer non-tradeable allowances at two price containment points below the price ceiling, transfer current vintages unsold for more than 24 months to the allowance price containment reserve, evaluate and address allowance over-allocation concerns, set industry assistance factors for allowance allocation, and establish allowance banking rules. Under AB 398, CARB was directed to include cost containment provisions to keep allowance prices from rising too high and pushing business expansion outside of the state (referred to as “leakage”). AB 398 was passed in conjunction with AB 617, which strengthens the monitoring of criteria air pollutants and toxic air contaminants in local communities. Amendments to the cap-and-trade regulations to reflect the requirements of AB 398 have been adopted by CARB and went into effect on April 1, 2019.
California’s cap-and-trade program is linked to the equivalent program in Quebec, Canada. The program may in future years be linked to additional Canadian provincial cap-and-trade programs, and possibly other U.S. state cap-and-trade programs. The Authority and the Project Participants are unable to predict at this time the full impact of the cap-and-trade program over the long-term on the Project Participants’ respective electric utilities or on the electric utility industry generally or whether any additional changes to the adopted program will be made.
Since the advent of the cap-and-trade program in 2012, regulations by the CARB have provided the electric sector, including the Electric System, with sufficient allocated greenhouse gas allowances or credits to cover existing operations in meeting retail load obligations. As a result, there have been minimal additional costs to Anaheim in managing the need for additional allowances required for retail obligations.
Wholesale transactions utilizing carbon-based generation have included greenhouse gas adders as part of the transaction price and hence, no significant additional expenses for greenhouse gas emission management have been incurred under those transactions. The City may bank allocated allowances in its compliance account to satisfy a portion of its ongoing compliance obligations. The City may also buy or sell allowances in the quarterly auctions or on the bi-lateral market to meet its additional compliance obligations. The City could be adversely affected by future changes in the allowance allocation methodology or by future reductions in the quantity of allowances allocated to it under CARB regulations, if the greenhouse gas emissions of its resource portfolio are in excess of the allowances administratively allocated to it and it is required to purchase compliance instruments on the market to cover its emissions.
Greenhouse Gas Emissions – Emissions Performance Standard. Senate Bill 1368 (“SB 1368”) became effective as law on January 1, 2007. SB 1368 provided for an emission performance standard (“EPS”), restricting new investments in baseload fossil fuel electric generating resources that exceed a specified rate of greenhouse gas emissions. SB 1368 allows the CEC to establish a regulatory framework to enforce the EPS for POUs such as the City’s Electric System. The CEC regulations prohibit any investment in baseload generation that does not meet the EPS of 1,100 pounds of carbon dioxide (“CO2”) per MWh of electricity produced, with limited exceptions for routine maintenance, requirements of pre- existing contractual commitments, or threat of significant financial harm.
As modified, the EPS regulations require a POU to post a notice of a public meeting at which its governing board will consider any expenditure over $2.5 million to meet environmental regulatory requirements at a non-EPS compliant baseload facility. In addition, each POU is required to file an annual notice identifying all investments over $2.5 million that it anticipates making during the subsequent 12 months on non-EPS compliant baseload facilities to comply with environmental regulatory 22 requirements. This requirement is waived for any POU that has entered into a binding agreement to divest within five years of all baseload facilities exceeding the EPS. CEC staff has confirmed that the $2.5 million threshold applies to an individual investment by each utility, and not the combined investment of all participants in a project.
Energy Procurement and Efficiency Reporting. Senate Bill 1037 (“SB 1037”) was signed by then Governor Schwarzenegger on September 29, 2005. It requires that each POU, including the City, prior to procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and renewable resources that are cost-effective, reliable and feasible. SB 1037 also requires each POU to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction programs. The City has complied with such reporting requirements.
Assembly Bill 2021 (“AB 2021”), signed by then Governor Schwarzenegger on September 29, 2006, requires that POUs establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a ten-year horizon. A subsequent amendment, Assembly Bill 2227, extended the time interval for establishing annual targets from every three years to every four years. The City has complied with this reporting requirement under AB 2021. The information obtained from the POUs from these reporting requirements is utilized by the CEC to present the progress made by the POUs towards the statewide goal to double energy efficiency savings in electricity and natural gas final end uses by 2030, to the extent doing so is cost effective, feasible, and does not adversely impact public health and safety, as prescribed in SB 350. In addition, the CEC can provide recommendations for improvement to assist each POU in achieving cost-effective, reliable, and feasible savings in conjunction with the established targets for reduction. See “– Renewables Portfolio Standard” below.
SB 350 further requires the CEC to establish annual targets for statewide energy efficiency savings and demand reduction that will achieve a cumulative doubling of statewide energy efficiency savings in electricity and natural gas final end uses of retail customers by January 1, 2030. The CPUC is required to establish energy efficiency targets for electrical and gas corporations consistent with this goal, and specify programs that may be used to achieve the goal. POUs are required to establish annual targets for energy efficiency savings and demand reduction consistent with the goal and to report those targets to the CEC every four years for the next 10-year period. The bill provides guidance as to what measures qualify and requires an evaluation of feasibility and cost effectiveness in setting annual targets for those savings.
Biomass Legislation. Senate Bill 859 (“SB 859”), signed by then-Governor Brown in September 2016, requires IOUs and POUs that serve more than 100,000 customers, to procure, through financial commitments of five years, their proportionate shares (based on the ratio of the utility’s peak demand to the total statewide peak demand), of 125 MW of cumulative rated capacity from existing bioenergy projects that generate energy from (a) a byproduct of sustainable forestry management and (b) high fire-hazard zones. Senate Bill 901 (“SB 901”), signed into law in September 2018, requires POUs with certain biomass contracts to seek to extend their term five years past the original expiration date.
Through the Southern California Public Power Authority, the City has contracted for the purchase of bioenergy to satisfy a portion of its procurement requirements under SB 859 and SB 901. See APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Power Supply Resources – Renewable Energy Resources – ARP-Loyalton Biomass Project.” Senate Bill 1109 (“SB 1109”) signed into law by Governor Newsom on September 16, 2022 (and effective on January 1, 2023) modified SB 859’s requirement, instead requiring IOUs and POUs that serve more than 100,000 customers to procure, by December 1, 2023, through financial commitments of five to 15 years, their proportionate shares (based on the ratio of the utility’s peak demand to the total statewide peak demand), of 125 MW of cumulative rated capacity from existing bioenergy projects that generate energy from (a) a byproduct of sustainable forestry management and (b) high fire-hazard zones. However, such modified requirements under SB 1109 do not apply to a POU if it, either directly or through a joint powers authority, entered into 23 the five-year financial commitments as previously required pursuant to SB 859 and those commitments include (1) a contract with a facility operator that was, on June 1, 2022, in bankruptcy or (2) a contract for a project that does not deliver energy to the POU. The requirements of SB 1109 do not apply to the City because the City, either directly or through the Authority, entered into the five-year financial commitments as previously required pursuant to SB 859 and the ARP-Loyalton Biomass Project was in bankruptcy on June 1, 2022, and the Roseburg Biomass Project does not deliver energy to the City. SB 1109 also modified SB 901’s contract extension requirement instead requiring POUs with certain biomass contracts that expire before December 31, 2028, to seek to extend their term five years past the expiration date operative in 2022.
These contract extension requirements, similarly, do not apply to the City under SB 1109.
Renewables Portfolio Standard. Senate Bill X1-2 (“SBX1-2”), the California Renewable Energy Resources Act, was signed into law by Governor Brown on April 12, 2011. SBX1-2 required each POU to adopt and implement a renewable energy resource procurement plan and established targets for three compliance periods for the procurement of at least the following amounts of electricity products from eligible renewable energy resources, which could include renewable energy certificates (“RECs”), as a proportion of total kilowatt hours sold to the utility’s retail end-use customers: (i) over the 2011-2013 compliance period, an average of 20% of retail sales from January 1, 2011 to December 31, 2013, inclusive; (ii) over the 2014-2016 compliance period, a total equal to 20% of 2014 retail sales, 20% of 2015 retail sales, and 25% of 2016 retail sales; and (iii) over the 2017-2020 compliance period, a total equal to 27% of 2017 retail sales, 29% of 2018 retail sales, 31% of 2019 retail sales, and 33% of 2020 retail sales. The governing boards of POUs are responsible for implementing the requirements of SBX1-2, rather than the CPUC, as is the case for the IOUs. In addition, the CEC was given certain enforcement authority for POUs and CARB was given the authority to set penalties. The CEC has developed detailed rules to implement SBX1-2, and has adopted regulations for the enforcement of the RPS program requirements for POUs, which regulations have been subsequently amended from time to time.
SB 350, the Clean Energy and Pollution Reduction Act of 2015, was signed into law by then-Governor Brown on October 7, 2015. SB 350, as enacted, establishes an RPS target of 50% by December 31, 2030 for the amount of electricity generated and sold to retail customers from eligible renewable energy resources for retail sellers and POUs, including interim targets of (i) 40% by the end of the 2021-2024 compliance period, (ii) 45% by the end of the 2025-2027 compliance period and (iii) 50% by the end of the 2028-2030 compliance period.
SB 350 requires each retail seller of electricity (including IOUs, most POUs above a certain size threshold, community choice aggregators and energy service providers) to provide a renewable energy procurement plan on an annual basis, and to file an integrated resource plan (“IRP”) at least once every five years, commencing no later than January 1, 2019, for CEC review. POUs with an annual electrical demand exceeding 700 gigawatt hours (as determined on a three-year average commencing January 1, 2013) are subject to this requirement, which applies to the State’s 16 largest POUs, including the Anaheim Electric System. The governing body of the POU is responsible for adopting the IRP, subject to review by the CEC, which can recommend modifications to correct any shortcomings. This IRP is required to include the affected utility’s plans to meet the 2030 interim emissions reductions goal set by CARB. As discussed below, Senate Bill 100 (“SB 100”), enacted on September 10, 2018, expanded the renewable procurement target from 50% to 60% by 2030. The City’s final 2023 IRP was approved and adopted by the Anaheim City Council in May 2023. [The IRP was submitted to the CEC for review in June 2023.] [Update?] SB 100, the 100 Percent Clean Energy Act of 2018, was signed into law by then-Governor Brown in September 2018. SB 100 accelerates the State’s RPS target as established by SB 350 from 50% by 2030 to 60% by 2030 and sets a goal of 100% “clean energy” by the year 2045. SB 100 requires retail electric sellers and local publicly-owned electric utilities to procure a minimum quantity of electric products from eligible renewable energy resources so that the total kWhs of those products sold to retail end-use customers achieve 44% of retail sales by December 31, 2024, 52% of retail sales by December 31, 2027 and 60% of 24 retail sales by December 31, 2030. SB 100 further establishes a State policy that eligible renewable energy resources and zero-carbon resources supply 100% of retail sales of electricity to California end-use customers by December 31, 2045. On the last day of the legislative session, after the passage of SB 100 in both the State Assembly and the State Senate, the bill’s author, Senator Kevin de Leon, filed a “Letter to the Journal” clarifying the intent of SB 100, stating that “SB 100 does not seek to require retail sellers of electricity to default on existing contractual obligations to deliver electricity to California customers from existing zero-carbon generating facilities.” This clarification allows existing nuclear resources and large hydropower resources (such as Hoover Dam) to help meet the policy standard set forth in SB 100 that eligible renewable and zero-carbon resources supply 100% of retail sales of electricity by December 31, 2045.
In December 2020, the CEC adopted regulations to update the RPS Enforcement Procedures for Publicly Owned Utilities, including to update regulations amended by both SB 350 and SB 100, among other enacted bills. This includes implementing a major provision from SB 350, pertaining to long-term procurement of renewable resources, which requires, beginning January 1, 2021, that at least 65% of renewables procurement must be for a duration of 10 years or more. The regulations implement the new RPS procurement requirements for the compliance periods between 2021 and 2030, establish soft procurement targets for the intervening years of the compliance periods to demonstrate reasonable progress in meeting the RPS procurement target for the compliance periods, and establish three-year compliance periods beginning after 2030. The regulations also specify standards for 10-year procurement contracts to meet the long-term procurement requirement.
Senate Bill 1020 (“SB 1020”), the Clean Energy, Jobs, and Affordability Act of 2022, signed into law by Governor Newsom on September 16, 2022 (and effective on January 1, 2023), revises SB 100’s State policy on eligible renewable energy resources and zero-carbon resources supply. Under the revised State policy, eligible renewable energy resources and zero-carbon resources would supply (i) 90% of all retail sales of electricity to California end-use customers by December 31, 2035, (ii) 95% of all retail sales of electricity to California end-use customers by December 31, 2040, (iii) 100% of all retail sales of electricity to California end-use customers by December 31, 2045, (iv) and 100% of electricity procured to serve all state agencies by December 31, 2035. SB 100 had expressly excluded consideration of the energy, capacity, or any attribute from the Diablo Canyon Unit 1 and Unit 2 nuclear generating facilities in meeting the State’s eligible renewable and zero-carbon resources supply policies. SB 1020 eliminates that exclusion.
Legislation Relating to Wildfires; Related Risks. Senate Bill 1028 (“SB 1028”) was signed into law by then-Governor Brown in September 2016. SB 1028 requires that each POU and each electric cooperative in the State construct, maintain, and operate its electrical lines and equipment in a manner that will minimize the risk of catastrophic wildfire posed by those electrical lines and equipment. SB 1028 requires the governing board of each POU to determine, based on historical fire data and local conditions, and in consultation with the fire departments or other entities responsible for the control of wildfires within the geographical area where the utility’s overhead electrical lines and equipment are located, whether any portion of that geographical area has a significant risk of wildfire resulting from those electrical lines and equipment, and if so, to present for board approval wildfire mitigation measures the utility intends to undertake to minimize the risk of its overhead electrical lines and equipment causing a catastrophic wildfire.
SB 901, signed into law by then-Governor Brown in September 2018, amends certain provisions of SB 1028 requiring POUs and electric cooperatives to prepare wildfire mitigation measures if the utilities’ overhead electrical lines and equipment are located in an area that has a significant risk of wildfire resulting from those electrical lines and equipment. Under SB 901, each POU or electric cooperative was required to prepare a wildfire mitigation plan before January 1, 2020. SB 901 requires the wildfire mitigation plan to be updated annually thereafter. SB 901 requires specified information and elements to be considered as necessary, at minimum, in the wildfire mitigation plan. The POU or electric cooperative is required to 25 present each wildfire mitigation plan in an appropriately noticed public meeting, and to accept comments on its wildfire mitigation plan from the public, other local and state agencies, and interested parties. In addition, SB 901 requires the POU or electric cooperative to contract with a qualified independent evaluator with experience in assessing the safe operation of electrical infrastructure to review and assess the comprehensiveness of its wildfire mitigation plan. The report of the independent evaluator is to be made available to the public and to be presented at a public meeting of the POU’s governing board.
Assembly Bill 1054 (“AB 1054”) was signed into law by Governor Newsom on July 12, 2019.
AB 1054 was enacted as an urgency statute to take effect immediately. AB 1054 establishes a Wildfire Fund of approximately $21 billion to provide liquidity for IOUs to facilitate payment of eligible, uninsured third-party damage claims resulting from future catastrophic wildfires. POUs, including the City’s Electric System, are not eligible to receive funding from the Wildfire Fund. AB 1054 revises the cost recovery review of wildfire costs and expenses for IOUs before the CPUC, and establishes safety certification protocols that IOUs must meet in order to participate in the Wildfire Fund. AB 1054 provides for a cap on an IOU’s obligations to reimburse the Wildfire Fund and a presumption of reasonableness if a utility develops and maintains a valid safety certification. To receive the safety certification from the CPUC, the IOU must develop and implement an approved wildfire mitigation plan, implement the findings of its safety culture assessments, establish a safety committee of its board of directors, establish board level reporting to the CPUC on safety issues, and adopt a compensation structure tied to safety performance, among other requirements. The major IOUs in California are participants in the Wildfire Fund.
AB 1054 expands on the existing requirements established under SB 901 for POUs to develop and implement wildfire mitigation plans. AB 1054 also establishes the California Wildfire Safety Advisory Board (the “Wildfire Advisory Board”), a seven member board appointed by the Governor (five members), the Speaker of the State Assembly (one member) and the State Senate Committee on Rules (one member).
The Wildfire Advisory Board advises the Office of Energy Infrastructure Safety on electrical corporations’ wildfire mitigation plans, requirements for these plans, and other wildfire safety matters. Additionally, the Wildfire Advisory Board reviews the wildfire mitigation plans submitted by POUs and electrical corporations as discussed in more detail below. The Wildfire Advisory Board also serves as an additional forum for the public to provide input on the important topic of wildfire safety. AB 1054 requires each POU to update its plan annually and to comprehensively revise its plan at least once every three years. Under AB 1054, the Wildfire Advisory Board is required to provide comments and an advisory opinion regarding the content and sufficiency of plans and to make recommendations on how to mitigate wildfire risks. The City has prepared and submitted wildfire mitigation plans in accordance with the provisions of SB 901 and AB 1054 as required. See also APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Wildfire Mitigation Measures.”
A number of significant wildfires have occurred in California every year since 2017. Under the doctrine of inverse condemnation (a legal concept that entitles property owners to just compensation if their property is damaged by a public use), California courts have imposed liability on utilities in legal actions brought by property holders for damages caused by the utility’s infrastructure. Thus, if the facilities of a utility, such as its electric distribution and transmission lines, are determined to be the substantial cause of a fire, and the doctrine of inverse condemnation applies, the utility could be liable for damages without having been found negligent. In August 2019, in its decision in the case of City of Oroville v. Superior Court of Butte County (2019) 7 Cal.5th 1091, 446 P.3d 304, involving damages related to sewage overflows from a city sewer system, the California Supreme Court held that to succeed on an inverse condemnation claim, a property owner must demonstrate that the property damage was the probable result or necessary effect of an inherent risk associated with the design, construction or maintenance of the relevant public improvement. None of SB 1028, SB 901 or AB 1054 addresses the existing legal doctrine relating to utilities’ liability for wildfires. How any future legislation or judicial decisions addresses California’s inverse condemnation and liability issues for utilities in the context of wildfires in particular could be significant for the electric utility industry, including the City and the Electric System. 26 Impact of California Energy Markets Developments on the City The effect of the developments in the California energy markets described above on the City’s Electric System cannot be fully ascertained at this time. Also, volatility in energy prices in California may return due to a variety of factors that affect both the supply and demand for and cost of electric energy in the western United States. These factors include, but are not limited to, the adequacy of generation resources to meet demand at all hours, the availability and cost of renewable energy, the impact of economy-wide greenhouse gas emission legislation and regulations, fuel costs and availability, weather effects on customer demand, the impacts of climate change, wildfire mitigation and potential liability cost recovery, insurance costs, transmission congestion, the strength of the economy in California and surrounding states and levels of hydroelectric generation within the region (including the Pacific Northwest). See “OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY.” This price volatility may contribute to greater volatility in the revenues of the Electric System from the sale (and purchase) of electric energy and, therefore, could materially affect the financial condition of the City’s Electric System. The Department undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure.
OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY
Federal Energy Legislation
Energy Policy Act of 2005. Under the federal Energy Policy Act of 2005 (“EPAct 2005”), FERC was given refund authority over POUs if they sell into short-term markets, like the CAISO markets, and sell eight million MWhs or more of electric energy on an annual basis. In addition, FERC was given authority over the behavior of market participants. Under FERC’s authority it can impose penalties on any seller for using a manipulative or deceptive device, including market manipulation, in connection with the purchase or sale of energy or of transmission service. The Commodity Futures Trading Commission also has jurisdiction to enforce certain types of market manipulation or deception claims under the Commodity Exchange Act.
EPAct 2005 authorized FERC to issue permits to construct or modify transmission facilities located in a national interest electric transmission corridor if FERC determines that the statutory conditions are met.
EPAct 2005 also required the creation of an Electric Reliability Organization (“ERO”) to establish and enforce, under FERC supervision, mandatory reliability standards (“Reliability Standards”) to increase system reliability and minimize blackouts. Failure to comply with such Reliability Standards exposes a utility to significant fines and penalties by the ERO.
NERC Reliability Standards. As described above, EPAct 2005 required FERC to certify an ERO to develop mandatory and enforceable Reliability Standards, subject to FERC review and approval. The Reliability Standards apply to users, owners and operators of the Bulk-Power System, as more specifically set forth in each Reliability Standard. On February 3, 2006, FERC issued Order 672, which certified the North American Electric Reliability Corporation (“NERC”) as the ERO. Many Reliability Standards have since been approved by FERC. Such standards pertain not only to the planning, operations, and maintenance of Bulk-Power System facilities, but also to the cyber and physical security of certain critical facilities.
The ERO or the entities to which NERC has delegated enforcement authority through an agreement approved by FERC (“Regional Entities”), such as the WECC, may enforce the Reliability Standards, subject to FERC oversight, or FERC may independently enforce them. Potential monetary sanctions include fines of up to $1 million per violation per day. FERC Order 693 further provided the ERO and Regional Entities with the discretion necessary to assess penalties for such violations, while also having discretion to calculate a penalty without collecting the penalty if circumstances warrant. 27 Federal Regulation of Transmission Access
EPAct 2005 authorizes FERC to compel “open access” to the transmission systems of certain utilities that are not generally regulated by FERC, including municipal utilities if the utility sells more than four million MWhs of electricity per year. Under open access, a transmission provider must allow all customers to use the system under standardized rates, terms and conditions of service.
FERC Order No. 888 requires the provision of open access transmission services on a nondiscriminatory basis by all “jurisdictional utilities” (which, by definition, does not include municipal entities like the City) by requiring all such utilities to file Open Access Transmission Tariffs (“OATTs”).
Order No. 888 also requires “non-jurisdictional utilities” (which, by definition, does include the City) that purchase transmission services from a jurisdictional utility under an open access tariff and that owns or controls transmission facilities to provide open access service to the jurisdictional utility under terms that are comparable to the service that the non-jurisdictional utility provides itself. Section 211A of EPAct 2005 authorizes, but does not require, FERC to order unregulated transmission utilities to provide transmission services. Specifically, FERC may require an unregulated transmitting utility to provide access to their transmission facilities (1) at rates that are comparable to those that the unregulated transmitting utility charges to itself; and (2) on terms and conditions (not relating to rates) that are comparable to those under which the unregulated transmitting utility provides transmission services to itself that are not unduly discriminatory or preferential.
On February 16, 2007, FERC issued Order 890, which concluded that reform of its pro forma OATT was necessary to reduce the potential for undue discrimination and provide clarity in the obligations of transmission providers and customers. Significantly, in Order 890 FERC stated that it will implement its authority under Section 211A with respect to unregulated transmitting utilities on a case-by-case basis and retain the current reciprocity provisions.
On July 21, 2011, FERC issued Order 1000, which among other things requires public utility (jurisdictional) transmission providers to participate in a regional transmission planning process that produces a regional transmission plan and that incorporates a regional and inter-regional cost allocation methodology. Further, FERC states that it has the authority to allocate costs to beneficiaries of transmission services, even in the absence of a contractual relationship between the owner of the transmission facilities and the beneficiary. Under EPAct 2005, FERC may not require municipal utilities to join regional transmission organizations, in which participating utilities allow an independent entity to oversee operation of the utilities’ transmission facilities. FERC has stated, however, that FERC expects such utilities to participate in the regional processes for transmission planning and that FERC will pursue associated complaints against such utilities on a case-by-case basis.
At its April 2022 meeting, the FERC issued a Notice of Proposed Rulemaking that would, if adopted, result in reforms to the planning of the nation’s transmission system as well as the allocation of costs for new transmission projects. The Notice follows input FERC sought from interested parties on a variety of reforms aimed at expanding the nation’s transmission grid to accommodate the surge of renewable generation expected in the next two decades to achieve aggressive decarbonization goals of the Biden Administration and many states. The Notice addresses reforms to transmission planning and cost allocation.
Federal Policy on Cybersecurity
On February 13, 2013, then President Obama issued the Executive Order “Improving Critical Infrastructure Security” (the “Infrastructure Security Executive Order”). Among other things, the Infrastructure Security Executive Order called for improved information sharing and processing of security clearances for owners and operators of critical infrastructure. The Infrastructure Security Executive Order 28 further required the Secretary of Commerce to direct the National Institute of Standards and Technology (“NIST”) to lead the development of a framework (“Framework”) to reduce cyber risks to critical infrastructure. The voluntary Framework will continue to be updated and improved as industry provides feedback on implementation.
The Cybersecurity Information Sharing Act of 2015 was signed into law on December 18, 2015 as part of the year-end Omnibus Appropriations Act. It creates an industry-supported, voluntary cybersecurity information sharing program that will encourage both public and private sector entities to share cyber- related threat information.
In September 2018, then President Trump signed the “National Cyber Strategy,” which sought to update the nation’s cybersecurity strategy for the first time in 15 years and identified “energy and power” as one of the seven key areas for protection. FERC has also sought to expand reporting rules for incidents involving attempts to compromise operation of the electric grid and address supply chain cybersecurity risks.
In March of 2023, the Biden administration adopted the 2023 National Cybersecurity Strategy. The 2023 National Cybersecurity Strategy replaces but continues momentum on many of the priorities of the 2018 National Cyber Strategy. The 2023 National Cybersecurity Strategy seeks to build and enhance collaboration around five pillars: (1) Defend Critical Infrastructure; (2) Disrupt and Dismantle Threat Actors; (3) Shape Market Forces to Drive Security and Resilience; (4) Invest in a Resilient Future; and (5) Forge International Partnerships to Pursue Shared Goals.
Environmental Issues
General. Electric utilities are subject to continuing environmental regulation. Federal, State and local standards and procedures that regulate the environmental impact of electric utilities are subject to change. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. Consequently, there is no assurance that any facilities or projects of the City will remain subject to the laws and regulations currently in effect, will always be in compliance with future laws and regulations or will always be able to obtain all required operating permits. In addition, the election of new administrations, including the President of the United States, could impact substantially the current environmental standards and regulations and other matters described herein. For example, President Biden issued an executive order requiring agencies to consider suspending, revising or rescinding multiple environmental standards and regulations imposed during the prior administration. An inability to comply with environmental standards could result in, for example, additional capital expenditures, reduced operating levels or the shutdown of individual units not in compliance. In addition, increased environmental laws and regulations may create certain barriers to new facility development, may require modification of existing facilities and may result in additional costs for affected resources.
Greenhouse Gas Regulations Under the Clean Air Act. The United States Environmental Protection Agency (the “EPA”) regulates greenhouse gas emissions under existing law by imposing monitoring and reporting requirements, and through its permitting programs. Like other air pollutants, greenhouse gases are regulated under the Clean Air Act through the Prevention of Significant Deterioration (“PSD”) Permit Program and the Title V Permit Program. A PSD permit is required before commencement of construction of new major stationary sources or major modifications of a major stationary source and requires best available control technologies (“BACT”) to control emissions at a facility. Title V permits are operating permits for major sources that consolidate all Clean Air Act requirements (arising, for example, under the Acid Rain, New Source Performance Standards, National Emission Standards for Hazardous Air Pollutants, and/or PSD programs) into a single document and the permit process provides for review of the documents by the EPA, state agencies and the public. Greenhouse gases from major natural gas-fired facilities are 29 regulated under both permitting programs through performance standards imposing efficiency and emissions standards.
In May 2023, the EPA proposed new regulations under the Clean Air Act that would establish greenhouse gas emission limits, based on pollution control technology or lower-carbon fuels, for new gas plants, existing gas plants, and existing coal plants, as specified. In February 2024, the EPA announced that it will remove the elements that would have applied to existing natural gas-fired power plants from the final version of the rule. Instead, the EPA stated that it will commence a new rulemaking process that will apply to natural gas-fired plants and regulate additional pollutants. The rule relating to new gas plants and existing coal plants was finalized on April 25, 2024.
Air Quality – National Ambient Air Quality Standards. The Clean Air Act requires that the EPA establish National Ambient Air Quality Standards (“NAAQS”) for certain air pollutants. When a NAAQS has been established, each state must identify areas in its state that do not meet the EPA standard (known as “non-attainment areas”) and develop regulatory measures in its state implementation plan to reduce or control the emissions of that air pollutant in order to meet the applicable standard and become an “attainment area.” The EPA periodically reviews the NAAQS for various air pollutants and has in recent years increased, or proposed to increase, the stringency of the NAAQS for certain air pollutants. These developments may result in stringent permitting processes for new sources of emissions and additional state restrictions on existing sources of emissions, such as power plants.
In addition, the U.S. Supreme Court found in its review of EPA v. EME Homer City Generation, LP that the EPA has authority to impose a Cross-State Air Pollution Rule (the “Transport Rule”) which curbs air pollution emitted in upwind states to facilitate downwind attainment of three NAAQS. On November 26, 2014, the EPA proposed to strengthen the stringency of the NAAQS for ozone by lowering the existing ozone standard of 75 parts per billion (“ppb”) to between 65 and 70 ppb, although the EPA also sought public comment on a standard as low as 60 ppb. On October 1, 2015, the EPA issued its final rule, lowering the ozone standard to 70 ppb. Legal challenges to the final rule were filed by a number of states and industry groups. On March 12, 2018, a federal district judge in Northern California ordered the EPA to complete the strengthened 2015 ozone standard designations later in 2018. The EPA noticed a final rule on December 6, 2018 implementing ozone NAAQS for non-attainment areas and addressing state implementation plan requirements. That rule became effective on February 4, 2019.
On July 15, 2020, the EPA announced a proposed decision to retain the existing 70 ppb ozone standard. The decision was finalized on December 7, 2020. In August 2023, the EPA announced a new review of the ozone NAAQS to support consideration of new information and advice.
On June 10, 2021, the EPA announced that it will reconsider the previous administration’s decision to retain the particulate matter NAAQS, which were last strengthened in 2012. The EPA stated that it is reconsidering the previous administration’s December 2020 decision to retain existing standards because available scientific evidence and technical information indicate that the current standards may not be adequate to protect public health and welfare, as required by the Clean Air Act. While some particulate matter is emitted directly from sources such as construction sites, unpaved roads, fields, smokestacks or fires, most particles form in the atmosphere as a result of complex reactions of chemicals such as sulfur dioxide and nitrogen oxides, which are pollutants emitted from power plants and other sources. On January 6, 2023, the EPA proposed regulations imposing tighter limits on particulate matter emissions. The proposed rule is not yet final.
Mercury and Air Toxics Standards. The Clean Air Act provides for a comprehensive program for the control of hazardous air pollutants, including mercury. On February 16, 2012, the EPA finalized a rule, the Mercury and Air Toxics Standards (“MATS”), establishing new standards to reduce air pollution from coal- and oil-fired power plants under sections 111 (new source performance standards, or “NSPS”) and 30 112 (toxics program) of the Clean Air Act. The rule was subsequently amended in 2013 and 2014. Under Section 111 of the Clean Air Act, the MATS rule revised the standards that new and modified facilities, including coal- and oil-fired power plants, must meet for particulate matter, sulfur dioxide, and nitrogen oxide. Under Section 112, the MATS rule set new toxics standards limiting emissions of heavy metals, including mercury, arsenic, chromium, and nickel; and acid gases, including hydrochloric acid and hydrofluoric acid, from existing and new power plants larger than 25 MW that burn coal or oil. Power plants would have up to four years to meet these standards. While many plants already meet some or all of these revised standards, some plants would be required to install new equipment to meet the standards. The rule has minimal impact to the City. IPP, which has coal-fired power plants, did not have to install control technology and the EPA has deemed the IPP units as low-emitting units. IPP is subject to periodic testing, work practice standards and recordkeeping requirements as a result of the rule. On July 17, 2020, the EPA finalized revisions to the electronic reporting requirements for MATS that revised and streamlined the reporting requirements and provided enhanced access to MATS data, without imposing new monitoring requirements. In April 2023, the EPA published a proposed rule that would modify regulation of coal- and oil-fired power plants, including further restricting their emissions and changing emissions monitoring requirements. The rule was finalized on April 25, 2024.
Effluent Limitations Guidelines and Standards. On June 7, 2013, the EPA proposed to set technology-based effluent limitations guidelines and standards for metals and other pollutants in wastewater discharged from steam electric power plants. The proposal would cover wastewater associated with several types of equipment and processes, including flue gas desulfurization, fly ash, bottom ash, flue gas mercury control and gasification of fuels. The EPA considered best management practices for surface impoundments containing coal combustion residuals. The EPA proposed four preferred alternatives for regulating wastewater discharges. The stringency of controls, types of waste streams covered, and the costs varied among the four alternatives. On September 30, 2015, the EPA announced its final Steam Electric Effluent Limitation Guidelines to update the federal limits on toxic metals in discharge wastewater. On June 6, 2017, the Trump Administration announced that it was postponing certain compliance dates in the effluent limitation guidelines and standards for the new, more stringent steam electric point source category under the Clean Water Act until the EPA completes reconsideration of the 2015 rule. On May 2, 2018, the EPA noticed the Final 2016 Effluent Guidelines Program Plan, which identified one new rulemaking (and the associated schedule) for the steam electric power generating point source category. The proposed rule was published in November 2019, a public hearing on the proposed rule was held on December 19, 2019, and the final rule for steam electric power generation point source was published on August 31, 2020. On August 3, 2021, the EPA announced a planned-rulemaking to strengthen certain discharge limits in the steam electric power generating category. The EPA published a proposed rule in March 2023. The rule was finalized in May 2023. On April 24, 2024, the EPA finalized a supplemental rulemaking for coal-fired plants to strengthen certain wastewater discharge limits.
Changing Laws and Requirements Generally
Congress has considered and is considering numerous bills addressing domestic energy policies and various environmental matters, including bills relating to energy supplies and financial incentives for development, climate change and reduction or elimination of net carbon dioxide emission attributable to the electricity grid and the economy more generally. Many of these bills, if enacted into law, could have a material impact on the City’s Electric System and the electric utility industry generally. In light of the variety of issues affecting the utility sector, federal energy legislation in other areas such as reliability, transmission planning and cost allocation, operation of markets, environmental requirements, and cybersecurity is also possible. However, the City is unable to predict the outcome or potential impacts of any possible legislation on the Electric System at this time. 31 Other Factors
The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. In addition to the factors discussed above, such factors include, among others, (a) effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements other than those described above (including those affecting nuclear power plants or potential new energy storage requirements), (b) changes resulting from conservation and demand-side management programs on the timing and use of electric energy, (c) effects on the integration and reliability of power supply from the increased usage of renewables, (d) changes resulting from a national energy policy, (e) effects of competition from other electric utilities (including increased competition resulting from a movement to allow direct access or expanded community choice aggregation or from mergers, acquisitions, and “strategic alliances” of competing electric and natural gas utilities and from competitors transmitting less expensive electricity from much greater distances over an interconnected system) and new methods of, and new facilities for, producing low-cost electricity, (f) the repeal of certain federal statutes that would have the effect of increasing the competitiveness of many IOUs, (g) increased competition from independent power producers and marketers, brokers and federal power marketing agencies, (h) ”self-generation” or “distributed generation” (such as microturbines, fuel cells and solar installations) by industrial and commercial customers and others, (i) issues relating to the ability to issue tax-exempt obligations, including restrictions on the ability to sell to nongovernmental entities electricity from generation projects and transmission service from transmission line projects financed with outstanding tax-exempt obligations and, as of January 1, 2018, the loss of the ability to undertake tax- exempt advance refundings, (j) effects of inflation on the operating and maintenance costs of an electric utility and its facilities, (k) changes from projected future load requirements, (l) increases in costs and uncertain availability of capital, (m) shifts in the availability and relative costs of different fuels (including the cost of natural gas and nuclear fuel), (n) changes in the electric market structure for neighboring electric grids, such as the energy imbalance market operated by the CAISO, (o) sudden and dramatic increases in the price of energy purchased on the open market that may occur in times of high peak demand in an area of the country experiencing such high peak demand, such as has occurred in the past in California, (p) issues relating to risk management procedures and practices with respect to, among other things, the purchase and sale of natural gas, energy and transmission capacity, (q) other legislative changes, voter initiatives, referenda and statewide propositions, (r) effects of the changes in the economy, population and demand of customers within a utility’s service area, (s) effects of possible manipulation of the electric markets, (t) acts of terrorism or cyber-terrorism impacting a utility and/or significant load customers, (u) changes to the climate; (v) natural disasters or other physical calamities, including, but not limited to, earthquakes, droughts, severe weather, floods and wildfires, and potential liabilities of electric utilities in connection therewith, and (w) adverse impacts to the market for insurance relating to recent wildfires and other calamities, leading to higher costs or prohibitively expensive coverage, or limited or unavailability of coverage for certain types of risk. Any of these factors (as well as other factors) could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways.
The City is unable to predict what impacts such factors will have on the business operations and financial condition of the Electric System, but the impact could be significant. Although this Official Statement includes a brief discussion of certain of these factors, this discussion does not purport to be comprehensive or definitive; and these matters are subject to change subsequent to the date hereof.
Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the 2024-A Bonds should obtain and review such information.
32 CONSTITUTIONAL AND CHARTER LIMITATIONS
Constitutional Limitations on Governmental Spending
Article XIIIA of the California Constitution limits the taxing powers of California public agencies.
Article XIIIA provides that the maximum ad valorem tax on real property cannot exceed one percent of the “full cash value” of the property. “Full cash value” is defined as “the County Assessor’s valuation of real property as shown on the 1975-76 tax bill under ‘full cash value’ or, thereafter, the appraisal value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The “full cash value” is subject to annual adjustment to reflect inflation at a rate not to exceed two percent or a reduction in the consumer price index or comparable local data, or declining property value caused by damage, destruction or other factors.
The foregoing limitation does not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any indebtedness approved by the voters before July 1, 1978 or any bonded indebtedness for the acquisition or improvement of real property approved by two-thirds of the votes cast by the voters voting on the proposition.
Under Article XIIIB of the California Constitution, state and local government entities have an annual “appropriations limit” which limits their ability to spend certain moneys called “appropriations subject to limitation,” which consist of tax revenues, certain state subventions and certain other moneys, including user charges to the extent they exceed the costs reasonably borne by the entity in providing the service for which it is levying the charge. The City is of the opinion that the electric service and use charges imposed by the City do not exceed the costs the City reasonably bears in providing the electric service. In general terms, the “appropriations limit” is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population, and services provided by these entities. Among other provisions of Article XIIIB, if an entity’s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.
Proposition 218 and Proposition 26
Proposition 218, a State ballot initiative known as the “Right to Vote on Taxes Act,” was approved by the voters of the State of California on November 5, 1996. Proposition 218 added Articles XIIIC and XIIID to the State Constitution. Article XIIIC imposes a majority voter approval requirement on local governments (including the City) with respect to taxes for general purposes, and a two-thirds voter approval requirement with respect to taxes for special purposes. Article XIIID creates additional requirements for the imposition by most local governments of general taxes, special taxes, assessments and “property- related” fees and charges. Article XIIID explicitly exempts fees for the provision of electric service from the provisions of such article.
Article XIIIC expressly extends the people’s initiative power to the reduction or repeal of local taxes, assessments, and fees and charges imposed prior to its effective date (November 1996). The California Supreme Court held in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006) that, under Article XIIIC, local voters by initiative may reduce a public agency’s water rates and delivery charges, as those are property-related fees or charges within the meaning of Article XIIID, and noted that the initiative power described in Article XIIIC may extend to a broader category of fees and charges than the property-related fees and charges governed by Article XIIID. Moreover, in the case of Bock v. City Council of Lompoc, 109 Cal.App.3d 52 (1980), the Court of Appeal determined that an electric rate ordinance was not subject to the same constitutional restrictions that are applied to the use of the initiative process for tax measures so as to render it an improper subject of the initiative process. Thus, electric service charges (which are expressly exempted from the provisions of Article XIIID) may be subject to the 33 initiative provisions of Article XIIIC, thereby subjecting such fees and charges to reduction by the electorate. The City has been advised by outside counsel that even if the electric rates of the City are subject to the initiative power, under Article XIIIC or otherwise, the electorate of the City would be precluded from reducing electric rates and charges in a manner materially and adversely affecting the payment of the 2024- A Bonds by virtue of the “impairments clause” of the United States Constitution.
The California electorate approved Proposition 26 at the November 2, 2010 election, amending Article XIIIC of the California Constitution. Proposition 26 was designed to supplement tax limitations California voters adopted when they approved Proposition 13 in 1978, and Proposition 218 in 1996.
Proposition 26 applies by its terms to any levy, charge or exaction imposed, increased or extended by a local government on or after November 3, 2010. Proposition 26 deems any such levy, charge or fee to be a “tax”, requiring voter approval unless it comes within one of the listed exceptions. Proposition 26 expressly excludes from its definition of a “tax,” among other things, a “charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.” Proposition 26 is subject to interpretation by California courts, including the extent to which it is applicable to pre-existing electric rates and general fund transfers. A number of lawsuits have been filed against public agencies in California relating to electric utility fund transfers. In Citizens for Fair REU Rates v. City of Redding (filed on January 20, 2015 and modified on February 19, 2015), for example, the California Court of Appeal considered a ratepayer challenge to a “payment in lieu of taxes” (or “PILOT”) required by the City of Redding to be made by its electric utility as an annual budgetary transfer amount without voter approval. The city’s PILOT was designed to compensate the general fund for the costs of services that other city departments provide to the electric utility. The amount of the PILOT was equivalent to the ad valorem taxes the electric utility would have had to pay if the electric utility were privately owned.
The suits alleged that the PILOT was passed through to the city’s electric utility customers as part of the rates and charges for electric service in excess of the reasonable costs to the city of providing electric service. The Court of Appeal determined that Proposition 26 has no retroactive effect as to local taxes that existed prior to November 3, 2010, but found that since the PILOT was subject to the City Council’s recurring discretion, the PILOT did not escape the purview of Proposition 26. The Court of Appeal concluded that the PILOT constituted a “tax” under Proposition 26 for which the city must secure voter approval unless the city proved that the amount collected was necessary to cover the reasonable costs to the city of providing electric service. On April 29, 2015, the California Supreme Court granted review of the decision of the Court of Appeal. The California Supreme Court rendered its decision on August 27, 2018, reversing the judgment of the Court of Appeal. The California Supreme Court determined that the budgetary transfer from the City of Redding electric utility to the city’s general fund, calculated by using the PILOT, itself is not the type of exaction that is subject to Article XIIIC of the California Constitution. The court reasoned that it is only the City of Redding electric utility rate, not the PILOT, that is imposed on customers for electric service. The California Supreme Court concluded that because the total retail rate revenue of the electric utility was insufficient to cover the electric utility’s uncontested operating expenses (other than the PILOT) in the years at issue, the challenged rate did not exceed the reasonable costs of providing electric service, and therefore did not constitute a tax.
The City is unable to predict at this time how Propositions 218 and 26 will ultimately be interpreted by the courts in the context of electric system rates or what their ultimate impact will be.
Future Initiatives
Article XIIIA, Article XIIIB and Articles XIIIC and XIIID were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time, other initiatives have been, and could be, proposed, and if qualified for the ballot, could be adopted affecting the City’s revenues or the City’s ability to expend revenues. The City is unable to predict either the likelihood of qualification 34 for ballot or passage of these measures or the nature and impact of these measures on the finances or operations of the Electric System.
City Charter Revenue Bond Limitations
Section 1210 of the City Charter provides that bonds of the City that are payable out of revenues specified in such bonds may be issued when the City has established by ordinance a procedure for the issuance of such bonds, provided that such bonds cannot be issued without the assent of a majority of the voters voting upon the proposition for the issuance of such bonds at an election at which such proposition has been submitted to the qualified voters. The City Charter also provides for the issuance of certain revenue anticipation notes to be issued in anticipation of any electric revenue bonds authorized by the voters.
In addition, the City Charter makes provision for the issuance of certain revenue anticipation notes in anticipation of the receipt of revenues of the Electric System; provided that the aggregate principal amount of such revenue anticipation notes outstanding in accordance with their terms at any one time cannot exceed an amount equal to 25% of the gross revenue earned by the Electric System during the immediately preceding Fiscal Year as set forth in the audited financial statements of the Electric System for such year.
The City has no outstanding or authorized but unissued voter-approved electric revenue bonds (also defined herein as “Senior Bonds”).
THE AUTHORITY
The Authority was created pursuant to a Joint Exercise of Powers Agreement, dated as of July 1, 2014 (the “Joint Powers Agreement”), by and between the City and the Anaheim Housing Authority.
Pursuant to the Joint Powers Agreement, the Authority may exercise all powers granted or otherwise available to it as a separate public entity pursuant to the Joint Exercise of Powers Act, Section 6500-6599.3 of the California Government Code, as amended (the “Joint Powers Act”) or any other applicable law, including, without limitation, powers with respect to financing, refinancing, development, provision and support of infrastructure facilities and programs, facilities and services relating to any of the foregoing. The Authority also has the power to acquire, construct, manage or operate any buildings, works or improvements, to issue bonds and to incur indebtedness.
The members of the City Council of the City serve as the members of the Board and Directors of the Authority. See APPENDIX C – “GENERAL INFORMATION REGARDING THE CITY OF ANAHEIM – City Council.” The City Manager serves as the Executive Director of the Authority and the City Clerk serves as Secretary of the Authority. The Anaheim City Attorney serves as Authority Counsel.
Under the Joint Powers Agreement, the Authority is a public entity, separate from the City and the Anaheim Housing Authority. The debts, liabilities and obligations of the Authority do not constitute debts, liabilities or obligations of the City or the Anaheim Housing Authority.
The Authority shall continue in effect so long as any bonds of the Authority remain outstanding or any material contracts to which the Authority is a party remain in effect.
LITIGATION
The Authority
There is no action, suit, proceeding, inquiry or investigation at law or in equity or before or by any court, public board or body pending or, to the knowledge of the Authority, threatened, against the Authority (i) questioning the corporate existence of the Authority, or the title of the officers of the Authority to their 35 respective offices, (ii) seeking to restrain or enjoin the issuance or delivery of any of the 2024-A Bonds or the power and authority of the Authority to issue the 2024-A Bonds, or (iii) contesting or adversely affecting the validity of the 2024-A Bonds, the Indenture or the Installment Purchase Agreement.
The City
There is no action, suit, proceeding, inquiry or investigation at law or in equity or before or by any court, public board or body pending or, to the knowledge of the City, threatened, against the City (i) questioning the corporate existence of the City, or the title of the officers of the City to their respective offices, (ii) seeking to restrain or enjoin the issuance or delivery of any of the 2024-A Bonds or the collection of Project Revenues pledged under the Indenture or the payment of the Purchase Payments by the City under the Installment Purchase Agreement, (iii) contesting or adversely affecting the validity of the 2024-A Bonds, the Indenture, the Installment Purchase Agreement or the Continuing Disclosure Agreement, or (iv) challenging the authority of the City to fix, charge and collect rates as provided in the Installment Purchase Agreement.
The City has pending against it a number of claims and lawsuits arising out of matters usually incidental to the operation of a utility such as the Electric System. The City is of the view that, if determined adversely to the City, the actual damage awards likely to be ultimately paid with respect to such claims and lawsuits would not, in the aggregate, materially impair the City’s ability to make Purchase Payments and Additional Purchase Payments when due.
For a discussion of certain pending litigation challenging the City’s electric rates and other litigation involving resources of the City’s Electric System, see also APPENDIX A – “THE CITY OF ANAHEIM ELECTRIC SYSTEM – Litigation Affecting the Electric System.”
CREDIT RATINGS
S&P Global Ratings (“S&P”) and Fitch Ratings, Inc. (“Fitch”) have assigned their respective municipal bond ratings of “___” and “___” to the 2024-A Bonds. No application has been made to any other rating agency in order to obtain additional credit ratings on the 2024-A Bonds. Any desired explanation as to the significance of the above ratings should be obtained from the applicable rating agency furnishing the same. Each such rating should be evaluated independently of any other rating. The above described ratings are not recommendations to buy, sell or hold the 2024-A Bonds, and each such rating may be subject to revision or withdrawal at any time by the applicable rating agency. Any downward revision or withdrawal of any of the ratings may have an adverse effect on the market price of the 2024-A Bonds.
TAX MATTERS
The Internal Revenue Code of 1986 (the “Code”) imposes certain requirements that must be met subsequent to the issuance and delivery of the 2024-A Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the 2024-A Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issue of the 2024-A Bonds. The Authority and the City have covenanted in the Indenture and the Installment Purchase Agreement not to take any action or omit to take any action which, if taken or omitted, respectively, would adversely affect the exclusion of the interest on the 2024-A Bonds from the gross income of the owners thereof for federal income tax purposes.
In the opinion of Norton Rose Fulbright US LLP, Bond Counsel, under existing law, interest on the 2024-A Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenants, interest on the 2024-A Bonds is excluded pursuant to 36 section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes.
Bond Counsel is of the further opinion that interest on the 2024-A Bonds is not an item of tax preference for purposes of the federal alternative minimum tax. The Code contains other provisions that could result in tax consequences, upon which no opinion will be rendered by Bond Counsel, as a result of ownership of the 2024-A Bonds or the inclusion in certain computations of interest that is excluded from gross income.
In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the Authority and the City made in certificates, dated the date of delivery of the 2024-A Bonds, pertaining to the use, expenditure, and investment of the proceeds of the 2024-A Bonds.
The initial public offering price of certain of the 2024-A Bonds (the “Discount Bonds”) may be less than the amount payable on such 2024-A Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the 2024-A Bonds described above. Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year.
However, such interest may be required to be taken into account in determining the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a financial asset securitization investment trust, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on such Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds.
The purchase price of certain 2024-A Bonds (the “Premium Bonds”) paid by an owner may be greater than the amount payable on such 2024-A Bonds at maturity. An amount equal to the excess of a purchaser’s tax basis in a Premium Bond over the amount payable at maturity constitutes premium to such purchaser. The basis for federal income tax purposes of a Premium Bond in the hands of such purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium that is amortizable each year by a purchaser is determined by using such purchaser’s yield to maturity (or, in some cases with respect to a callable 2024-A Bond, the yield based on a call date that results in the lowest yield on such 2024-A Bond). Purchasers of Premium Bonds should consult with their tax advisors with respect 37 to the determination of amortizable bond premium on such Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of such Premium Bonds.
The Code imposes a minimum tax of 15% on the adjusted financial statement income of certain large corporations, generally consisting of corporations (other than S corporations, regulated investment companies and real estate investment trusts) with more than $1 billion in average annual adjusted financial statement income, determined over a three-year period. For this purpose, adjusted financial statement income generally consists of the net income or loss of the taxpayer set forth on the taxpayer’s applicable financial statement for the taxable year, subject to various adjustments, but is not reduced for interest earned on tax-exempt obligations, such as the 2024-A Bonds. Prospective purchasers that could be subject to this minimum tax should consult with their own tax advisors regarding the potential consequences of owning the 2024-A Bonds.
Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the 2024-A Bonds may affect the tax status of interest on such 2024-A Bonds or the tax consequences of the ownership of the 2024-A Bonds. No assurance can be given that pending or future legislation, or amendments to the Code, if enacted into law, or any proposed legislation or amendments to the Code, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of interest on the 2024-A Bonds from personal income taxation by the State of California or of the exclusion of the interest on the 2024-A Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Bond Counsel will express no opinion as to the effect on the exclusion from gross income of interest on the 2024-A Bonds of any action taken or not taken after the date of such opinion without the approval of Bond Counsel.
Except as described above, Bond Counsel will express no opinion with respect to any federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the 2024-A Bonds. Prospective purchasers of the 2024- A Bonds should be aware that the ownership of tax-exempt obligations such as the 2024-A Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a financial asset securitization investment trust, corporations subject to the alternative minimum tax on adjusted financial statement income, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances.
Bond Counsel’s opinions are not a guarantee of a result, but represent its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the covenants of the Authority and the City described above. No ruling has been sought from the Internal Revenue Service (the “Service”) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the 2024-A Bonds is commenced, under current procedures the Service is likely to treat the Authority as the “taxpayer,” and the owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the 2024-A Bonds, the Authority may have different or conflicting interests from the owners of such 2024-A Bonds. Public awareness of any future audit of the 2024-A Bonds could adversely affect the value and liquidity of such 2024-A Bonds during the pendency of the audit, regardless of the ultimate outcome.
38 Existing law may change so as to reduce or eliminate the benefit to holders of the 2024-A Bonds of the exclusion of interest thereon from gross income for federal income tax purposes. Proposed legislative or administrative action, whether or not taken, could also affect the value and marketability of the 2024- A Bonds. Prospective purchasers of the 2024-A Bonds should consult with their own tax advisors with respect to any proposed changes in tax law.
A copy of the form of opinion of Bond Counsel relating to the 2024-A Bonds is included in Appendix G hereto.
CERTAIN LEGAL MATTERS
Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, will render its opinion with respect to the validity and enforceability of the 2024-A Bonds, the Indenture and the Installment Purchase Agreement, substantially in the form set forth in Appendix G hereto. Norton Rose Fulbright US LLP is also serving as Disclosure Counsel to the Authority and the City in connection with the 2024- A Bonds. Certain legal matters will be passed upon for the Authority and the City by the City Attorney of the City of Anaheim, and for the Underwriter by Stradling Yocca Carlson & Rauth LLP, Newport Beach, California, Underwriter’s Counsel.
MUNICIPAL ADVISOR
The City has retained PFM Financial Advisors LLC as municipal advisor (the “Municipal Advisor”) in connection with the preparation of this Official Statement and with respect to the issuance of the 2024-A Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. PFM Financial Advisors LLC is an independent municipal advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.
FINANCIAL STATEMENTS
The audited financial statements of the City of Anaheim Electric Utility Fund as of and for the Fiscal Year ended June 30, 2023, included in Appendix B to this Official Statement, have been audited by KPMG LLP, independent accountants (the “Auditor”), as stated in their report appearing in Appendix B.
The City has not requested, nor has the Auditor given, the Auditor’s consent to the inclusion in Appendix B of its report on such financial statements. The Auditor’s review in connection with the audited financial statements included in Appendix B included events only as of June 30, 2023, and no review or investigation with respect to subsequent events has been undertaken in connection with such financial statements by the Auditor.
UNDERWRITING
The 2024-A Bonds are being purchased for reoffering by Goldman Sachs & Co. LLC, as underwriter (the “Underwriter”).
The Underwriter has agreed, pursuant to a purchase contract (the “Purchase Contract”), to purchase the 2024-A Bonds at a purchase price of $_______ (which represents the aggregate principal amount of the 2024-A Bonds, plus [net] bond premium of $_______, less an underwriter’s discount of $_______). The Purchase Contract provides that the Underwriter will purchase all of the 2024-A Bonds, if any are 39 purchased, and that the obligation of the Underwriter to purchase such 2024-A Bonds is subject to certain terms and conditions, including the approval of certain legal matters by counsel.
The Underwriter may offer and sell the 2024-A Bonds to certain dealers and others at prices lower than the initial public offering prices stated on the inside cover page hereof. The offering prices may be changed from time to time by the Underwriter.
Certain of the Target Bonds may be tendered for purchase (as described under the caption “PLAN OF FINANCE”) through the Dealer Manager under the terms of the Invitation to Tender.
The following information has been provided by the Underwriter for inclusion in this Official Statement:
[insert underwriter distribution language, if applicable]
CERTAIN RELATIONSHIPS
The Underwriter and its affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. The Underwriter and its affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the Authority and/or the City for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the Underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Authority and the City.
CONTINUING DISCLOSURE
Pursuant to a Continuing Disclosure Agreement for the 2024-A Bonds, dated the date of delivery of the 2024-A Bonds (the “Continuing Disclosure Agreement”), between the City and the Trustee, the City will covenant for the benefit of the registered owner and the Beneficial Owners of the 2024-A Bonds, to provide certain financial information and operating data relating to the City and the Electric System by not later than six months after the end of each of the City’s Fiscal Years (presently, by each December 31), commencing with the respective report for the 2023-24 Fiscal Year (the “Annual Reports”), and to provide notices of the occurrences of certain enumerated events. The Annual Reports and notices of enumerated events will be filed by the Dissemination Agent on behalf of the City with the Municipal Securities Rulemaking Board. The Municipal Securities Rulemaking Board has made such information available to the public without charge through its EMMA system. The specific nature of information to be contained in each Annual Report or notice of enumerated event is set forth in APPENDIX E – “FORM OF CONTINUING DISCLOSURE AGREEMENT.” These covenants have been made by the City in order to assist the Underwriter in complying with Rule 15c2-12 promulgated by the SEC.
The City failed to timely file notice of an unscheduled draw on or about March 1, 2021, made on a reserve fund supporting certain APFA lease revenue bonds. The City filed such notice thereafter on April 23, 2021. The City has adopted disclosure policies and procedures in an effort to formalize its disclosure practices and implement additional procedures to timely file complete annual reports and event notices in the future.
40 The Authority has determined that no financial or operating data concerning the Authority is material to an evaluation of the offering of the 2024-A Bonds or to any decision to purchase, hold or sell the 2024-A Bonds, and the Authority will not provide any such information. The City has undertaken all responsibilities for any continuing disclosure to Owners as described above, and the Authority shall have no liability to the Owners of the 2024-A Bonds or any other person with respect to the Rule.
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MISCELLANEOUS
The execution and delivery of this Official Statement have been duly authorized by the City.
CITY OF ANAHEIM, CALIFORNIA
By
Public Utilities General Manager
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APPENDIX A
THE CITY OF ANAHEIM ELECTRIC SYSTEM
Organization
The City of Anaheim (the “City” or “Anaheim”) is a chartered city of the State of California. Under the provisions of the California Constitution, the Charter of the City of Anaheim (the “Charter”) and Title 10 of the Municipal Code of the City, the City owns and operates both an electric system (the “Electric System”) and a water system (the “Water System”) for the citizens of the City. The Public Utilities Department of the City (“APU,” the “Department” or the “Public Utilities Department”) exercises jurisdiction over both the Electric System and the Water System and is under the supervision of the Public Utilities General Manager (the “General Manager”). The General Manager supervises the design, construction, maintenance and operation of both the Electric System and the Water System. The Finance Director/City Treasurer oversees the accounting and administration of the financial affairs of the City. The Anaheim City Council (the “City Council”) appoints the City Manager, who provides direction to the General Manager and Finance Director/City Treasurer.
The Electric System and the Water System provide services to virtually all residential, commercial, and industrial customers within City limits. The funds and accounts of the Electric System and the Water System are held separately, and the funds and accounts of one system are not pledged to the other system’s obligations.
Management of Anaheim Public Utilities
The following are biographical summaries of the executive management team of Anaheim Public Utilities with responsibility for the Electric System:
Dukku Lee, Public Utilities General Manager, has served Anaheim Public Utilities since November 1999 and was appointed as its General Manager in November 2013. He has full management responsibility to plan, direct, and manage APU’s day-to-day activities and operations. Mr. Lee began his career in the utility industry in 1993. Prior to his appointment as General Manager, Mr. Lee held the position of Assistant General Manager–Electric Services with responsibility for managing the engineering, construction, operation and maintenance of the utility generation, transmission, and distribution system.
Mr. Lee previously worked for Southern California Edison (“Edison”) and Paragon Consulting Services.
Mr. Lee holds a Bachelor of Science degree in Electrical Engineering from California State Polytechnic University, Pomona and a Master of Science degree in Engineering Management from California State University, Long Beach and is a registered Professional Engineer in the State of California. Mr. Lee is on the Board of Directors of the Southern California Public Power Authority (“SCPPA”) and the Board of Governors of the California Municipal Utilities Association (“CMUA”).
Brian Beelner, Assistant General Manager–Finance & Energy Resources, has served Anaheim Public Utilities since 2005. He is responsible for multiple aspects of APU including accounting, budget development, financial planning, rate design, long-term forecasting, debt administration, warehousing and supply chain, power supply, and information technology. Prior to joining the City, Mr. Beelner worked for Gursey, Schneider & Co., LLP as a municipal utility accounting and finance consultant. Mr. Beelner graduated from the University of California, Riverside with a Bachelor of Arts degree in Business Economics and currently holds an active Certified Public Accountant license in the State of California. He is a member of the SCPPA Finance Committee and an alternate member of SCPPA’s Board of Directors, a member of the Coordinating Committee for the Intermountain Power Project (“IPP”), and a member of the San Onofre Nuclear Generating Station Decommissioning Executive Committee.
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Janet Lonneker, Assistant General Manager-Electric Services, joined Anaheim Public Utilities in May 2014, and is responsible for directing, managing, supervising, and coordinating the activities and operations of the Electric Services Division, including electrical engineering, electric operations, system planning, substations, and power generation. Ms. Lonneker has over 25 years of electric utility industry experience, most recently before joining Anaheim as a Customer Solutions Manager for San Diego Gas and Electric (“SDG&E”) where she worked within the Smart Grid Division. Prior to her employment at SDG&E, she was General Manager for the City of Forest Grove’s Department of Light and Power for six years, where she was responsible for leadership, management, and oversight of all divisions of the utility. Ms. Lonneker holds a Bachelor of Science degree and a Master of Science degree in Electrical Engineering from the University of the Pacific and the University of Southern California, respectively.
Janis G. Lehman, Assistant General Manager-Administration & Risk Services, has been with Anaheim Public Utilities since 1990. She currently leads the Administration and Risk Services Division which is responsible for enterprise risk management, environmental and regulatory compliance, safety services, legislative and regulatory affairs, and customer service including credit collections and billing.
She has experience in all key aspects of the water and electric utility industry. She started her career at APU managing transmission line and power generation projects, as well as developing water programs.
Her career path has included working as a hazardous materials design specialist for water and soil projects, a first responder on hazardous materials emergency response teams, and as an engineer at Bechtel Engineering before coming to APU. She has taught several courses on regulatory compliance through California State University. Ms. Lehman currently serves as an alternate on the CMUA Board of Governors. She is a member and past chair of the CMUA Legislative Committee and the Regulatory committee. She is also a member and past chair of the SCPPA Risk Management Committee, a member of the Credit Working Group of the California Independent System Operator Corporation (“CAISO”), and has testified as an expert witness at the California Public Utilities Commission (“CPUC”). Ms. Lehman has a Bachelor of Science degree in Geophysics from University of California, Riverside, and a Master of Business Administration degree from the University of Southern California.
Public Utilities Board
The City Council, by Ordinance No. 3557 approved July 6, 1976, established a Public Utilities Board (the “Public Utilities Board” or the “Board”) with the power and duty to make recommendations to the City Council for consideration by the City Council in its determinations concerning (i) the operation and conduct of the Water System and the Electric System, (ii) the establishment of rules and regulations and rates for the operation of the Water System and the Electric System, (iii) the duties and qualifications of the General Manager and other employees of the Department, (iv) the acquisition, construction, improvement, extension, enlargement, diminution or curtailment of all or any part of the Water System and the Electric System, (v) the annual budget of the Department, and (vi) financing, including the issuance of bonds for the Water System and the Electric System. On June 3, 2014, Anaheim voters approved Measure C which, among other things, adds Section 909 to the Charter specifying the powers and duties of the seven- member Public Utilities Board. The Board may also exercise such other powers and duties as may be prescribed by ordinance not inconsistent with the Charter.
The Board consists of seven members, none of whom may hold any paid office or employment in the City government. The members of the Board are appointed by the City Council and may be removed by a majority vote of the City Council. Board members serve four-year overlapping terms and are limited to serving two consecutive four-year terms.
The present members of the Board and their terms of appointment are:
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John Seymour, Chairperson, term expires December 31, 2026. Mr. Seymour joined the Board in April 2017, and was reappointed in January 2023. He is a retired telecommunications executive with a Bachelor’s degree from Whittier College in Economics and Business Administration with an emphasis in Accounting. Mr. Seymour previously served on the City’s Planning Commission (2010-2017), and is a former member and chair of the Public Utilities Board’s Underground Conversion Subcommittee. He served on the board for the Anaheim Regional Medical Center for over twenty years, and served as a board member for Memorial Health Services.
Abdulmageed Abdulrahman, Vice Chairperson, term expires December 31, 2024.
Mr. Abdulrahman joined the Board in July 2015, and was reappointed in January 2021. He holds a Bachelor’s degree in Mechanical Engineering from Khartoum University, Sudan and a Master’s degree in Industrial Management from the University of Central Missouri. He is a licensed Professional Engineer, works as an associate oil and gas engineer with the State of California, and has served on the City’s Budget, Investment & Technology Commission (2013-2015), and the City’s Ad Hoc Housing Element Committee (2013-2014). Mr. Abdulrahman is also a member of the American Society of Mechanical Engineers and the Society of Petroleum Engineers. He is currently serving as the chairperson of the Public Utilities Board’s Underground Conversion Subcommittee.
Anh Pham, M.Ed., term expires December 31, 2025. Mr. Pham joined the board in February 2022. He is a policy analyst for the University of California, Irvine and prior to that spent a decade working for the University of California, Riverside. He earned a Bachelor of Arts degree in public policy as well as a Master of Education in Higher Education Administration and Policy from University of California, Riverside. Mr. Pham’s community involvement includes roles with organizations such as AnaheI’M First, UC Riverside Orange County Alumni Association, West Anaheim Organization and the West Anaheim Neighborhood Development Council.
Albert McMenamin, term expires December 31, 2026. Mr. McMenamin joined the Board in January 2023. He began his career with the City. During his 36-year career, he worked in the water services division and held the positions of Equipment Operator, Maintenance Pipefitter and Senior Water Utility Inspector. Mr. McMenamin has also worked part time with the Los Angeles Angels since 2001.
Talab Ibrahim, term expires December 31, 2024. Mr. Ibrahim joined the Board in February 2023.
He attended California State University, Fullerton where he earned his Bachelor of Science degree in Civil Engineering. Throughout his college career he joined the American Society of Civil Engineers and Institute of Transportation Engineers. Additionally, he co-founded and served as president of the Palestinian American student body at California State University, Fullerton, volunteering, serving locals and collaborating with other non-profit organizations. His involvement continued through the AnaheI’M First community meetings and volunteering at events at local mosques. Currently, he manages a family business in Anaheim and serves as a property manager at family-owned properties in Orange County.
Mitch Lee, term expires December 31, 2024. Mr. Lee joined the Board in August 2021. He retired from the Boeing Company after 20 years as a Deputy Project Manager. Previously, Mr. Lee worked at Northrop Grumman Corporation for 13 years as an engineer. Throughout his career, he worked on several U.S. and international government and commercial programs. Currently, he is a consultant for MEI Machine Company regarding business/product strategy development and an advisory board member for Theory Seventy Three Corp.
Tanya Bilezikjian, PE, term expires December 31, 2026. Ms. Bilezikjian joined the Board in January 2023. Ms. Bilezikjian is a California registered civil engineer, currently working for MNS Engineers as its Chief of Staff. During her technical career she specialized in clean water program management for large scale utilities and transportation agencies. She attended UC Irvine with a Bachelor’s A-4
degree in chemical engineering and a Master’s degree in environmental engineering. Ms. Bilezikjian also serves on the Board of Directors for WTS-IE, a nationwide organization that promotes women in the transportation field, and is the 2023 Conference Co-Chair for the California Storm Water Quality Association’s annual conference.
History of the Electric System
The Electric System was established in 1894. The original City-owned generating plant was placed in service in 1895 and consisted of a steam-driven generator of 500 lights capacity. By 1896, the maximum capacity of the original generating plant had been reached and City voters authorized bonds for the combined rebuilding of both the electric light plant and the City’s water system. In 1916, the City negotiated to purchase all of its power from Edison. In the years that followed, the City challenged rate increases and other measures undertaken by Edison, ultimately resulting in a settlement between Edison and the City in 1972 that permitted the City to take advantage of lower cost power resources.
From 1976 to 1983, the City continued to purchase a majority of its power supply from Edison.
During that span, the City also purchased energy from Nevada Power and other utilities in the western United States. Also during this period, the City voters supported a series of revenue bond issues and other financing options to allow the utility to participate in a power diversification process. Included in this process was the City joining SCPPA, a joint exercise of powers authority created for planning, financing, developing, acquiring, constructing, improving, operating, and maintaining electric generating and transmission projects for participation by some or all of its members.
By the late 1980s and early 1990s, the City received power from a variety of sources, including contractual arrangements for capacity and energy, a 40 MW share of power generated at the Hoover Dam, and ownership interests in projects such as the San Juan Generating Station (“SJGS” or “San Juan”) in New Mexico. As a result of the City’s efforts to diversify its electric generating power resources, the City purchased less than 2% of its energy from Edison in 1997, and by 2002, the City did not purchase any of its energy requirements from Edison.
During this period, the City also began developing a project to remove overhead power lines and poles on major public roads. The City Council approved a recommendation from the Public Utilities Board to establish an underground utility conversion program in 1991, which aimed to improve the Electric System’s reliability by hardening the system against outages caused by weather, metallic balloons, and vehicle accidents, while also beautifying the City’s streets and enhancing property values.
Today, the City’s power is produced at generating plants in or near the City and at locations across the western United States. The Electric System serves the entire area of the City, covering approximately 50 square miles of the northern portion of Orange County, which is about 28 miles southeast of downtown Los Angeles, and about 90 miles north of San Diego. The City lies on a coastal plain which is bordered by the Pacific Ocean to the west and the Santa Ana Mountains to the east. For the Fiscal Year ended June 30, 2023, the Electric System served an average of 123,333 customers and sold approximately 2,694,915 megawatt-hours (“MWh”) of energy to retail customers.
The table below sets forth historical Electric System resources:
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TABLE 1
HISTORICAL RESOURCES
CAPACITY (MW)
Fiscal Year Ended June 30
2023 2022 2021 2020 2019
Previous City-Owned Resources
Kraemer CT Plant(1) - - - - 45
Non-City Owned Resources
Hoover 40 40 40 40 40
IPP 236 236 236 236 236
Magnolia 118 118 118 118 118
Canyon Power Project(2) 200 200 200 200 200
Non-City Owned Renewable Resources
Ormat Technologies – 8 8 8 8
PPM Energy 32 32 32 32 32
Brea Power Partners 27 27 27 27 27
Cyrq Energy, Inc. subsidiary(2) 7 7 7 7 7
San Gorgonio Farm 31 31 31 31 31
MWD Hydro 10 10 10 10 10
Bowerman Power 20 20 20 20 20
Westlands (Westside Solar, LLC) 2 2 2 2 2
Loyalton (ARP Loyalton Cogen, LLC)(4) – 1 1 1 1
Desert Harvest II 36 36 36 – –
Total Resources 759 768 768 732 777
__________________
(1) The City ceased operation of the Kraemer CT Plant as of December 31, 2019. (2) Cyrq Energy, Inc.’s former name was Raser Technologies. (3) See “ - Power Supply Resources - Non-City Owned Resources – Canyon Power Project” below. (4) The City last received power from the Loyalton Project in calendar year 2020; the 1 MW shown under Fiscal Year 2022 and 2021 represents the project nameplate capacity before the City terminated its purchase power agreement on April 19, 2023.
Source: Anaheim.
The City’s power supply is derived from a variety of electric generating resources in order to provide lower rates and reliable service to its customers. The City supports environmentally sound energy generation, and continues to increase renewable resources as part of its overall power portfolio. See “Power Supply Resources – Renewable Energy Resources” below.
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Principal Facilities
The Electric System includes generation, transmission and distribution facilities. As of June 30, 2023, the Electric System’s principal facilities consisted of approximately 1,247 circuit miles of transmission and distribution lines, and 14 distribution substations. As noted above, the City ceased operation of the Kraemer Combustion Turbine (“CT”) Power Plant (the “Kraemer CT Plant”) as of December 31, 2019.
The City also purchases power and transmission service from other entities. See “Power Supply Resources” below.
The following table sets forth information relating to the assets, production capacity, and production costs, per category of resource, of the Electric System for the five fiscal years shown:
TABLE 2
ELECTRIC SYSTEM STATISTICS
(Dollars in Thousands)
Fiscal Year Ended June 30,
2023 2022 2021 2020 2019
Investment in Utility Plants:
Production $ 46,103 $ 46,103 $ 46,103 $ 46,103 $ 46,103 Transmission 113,886 113,823 109,011 101,149 97,371
Distribution 1,292,161 1,262,770 1,194,849 1,067,042 1,020,429 General 163,076 161,162 154,792 151,076 147,295
Right to use asset - Land 3,200 3,200 - - -
Subscription base assets (SBITA) 658 658 - - - Gross utility plant 1,619,084 1,587,716 1,504,755 1,365,370 1,311,198 Less–accumulated depreciation (737,607) (693,299) (649,346) (607,682) (569,045) Net plant in service 881,477 894,417 855,409 757,688 742,153 Land 34,243 34,243 34,243 34,243 34,243
Construction work in progress 134,139 99,346 123,368 210,135 208,060 Total utility plant $1,049,859 $1,028,006 $1,013,020 $1,002,066 $ 984,456 Production Costs
Owned Generation(1) $ 265 $ 399 $ 68 $ 805 $ 8,613 Purchased Power(2) 232,720 208,152 192,618 201,180 220,342 Total Production Costs $ 232,985 $ 208,551 $ 192,686 $ 201,985 $ 228,995 Transmission-69 kV Circuit Miles 89 89 89 88 90
Distribution Overhead Circuit Miles 389 389 391 393 394 Underground Circuit Miles 769 769 764 742 738
Transformer Capacity (in kVA)
220 kV to 69 kV 1,808,000 1,808,000 1,808,000 1,808,000 1,808,000 69 kV to 12 kV 1,325,800 1,325,800 1,325,800 1,325,800 1,325,800 12 kV to Customer 1,832,239 1,832,239 1,910,561 1,856,413 1,854,555 _____________________________
(1) Cost information includes debt service on facilities during the fiscal period. See “ - Power Supply Resources” for discussion of reduction in City-owned generation.
(2) Excludes transmission costs and gas sold.
Source: Anaheim.
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In the Fiscal Year ended June 30, 2023, the City generated and purchased approximately 2,721,712 MWh of electricity. Combined customer electric requirements created the historic distribution system peak demand of 593 MW on July 24, 2006. The following table sets forth the total Electric System gigawatt-hours (“GWh”) of energy generated and purchased and electric distribution system peak demand during the five fiscal years shown:
TABLE 3
TOTAL GIGAWATT HOURS (GWh) GENERATED
AND PURCHASED AND PEAK DEMAND (MW)
Fiscal Year Ended June 30,
2023 2022 2021 2020 2019
Previously Owned Generation:
Kraemer CT(1) 0 0 0 0 58
Subtotal 0 0 0 0 58
Firm Purchases:
Intermountain Power Project 761 805 1,063 1,005 1,305
Hoover 30 38 41 36 37
Magnolia 580 553 418 549 602
Canyon Power Project(2) 127 99 99 93 179
Renewable Resources(3) 666 732 696 693 677
Subtotal 2,165 2,227 2,317 2,377 2,800
Non-Firm Purchases 557 554 429 384 387
System Total Energy Generated and
Purchased, GWh(4)
2,722 2,780 2,746 2,761 3,245
Distribution System Peak Demand, MW 566 487 559 530 554 _________________________
(1) The City ceased operation of the Kraemer CT Plant in March 2019. (2) Canyon Power Project is a peaking unit, and total generation each year varies based on demand and market prices. See “ - Power Supply Resources - Non-City Owned Resources – Canyon Power Project” below. (3) Renewable resources vary by year, but meet the RPS requirements, sometimes supplemented with renewable energy credits (“RECs”).
(4) Includes energy purchased that was ultimately sold to other utilities. Also includes RECs purchased. Totals may not add due to rounding.
Source: Anaheim.
Power Supply Resources
The City’s electric resources currently consist of power from firm purchases with entitlements in the IPP of the Intermountain Power Agency (“IPA”), in the Hoover Uprating Project of the federal government, in SCPPA’s Magnolia Power Project and Canyon Power Project (in which the City has an entitlement to 100% of the capacity and energy thereof), and firm power purchases and non-firm energy purchases from other utilities, which can include a number of renewable energy resources. Each of these resources is more fully described below. The City’s resources previously included the City-owned Kraemer CT Plant and ownership interests in the SJGS and the San Onofre Nuclear Generating Station (“SONGS”).
The City has retired the Kraemer CT Plant from operation and divested its ownership interests in the latter two resources but retains certain environmental and decommissioning obligations, which are described in more detail below.
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Previous City Resources
Kraemer Combustion Turbine (CT) Plant. The City owns 100% of the Kraemer CT Plant, a natural gas-fired combustion turbine plant located in the northeast part of the City, adjacent to the City’s Dowling Substation. The Kraemer CT Plant began operation in May 1991 and ceased operations in March 2019 due to required turbine repairs. The City permanently ceased operation of the Kraemer CT Plant as of December 31, 2019 because the repair of the turbine was impractical and cost prohibitive due to the scarcity of repair parts for the turbine’s model. Furthermore, there appeared to be only one vendor who could service and repair the turbine and that vendor was expected to cease depot repair of this turbine model on or about December 31, 2022. The City will incur costs to decommission this unit and has set aside funding for that purpose.
San Juan Generating Station Unit 4. In April 1991, the City purchased a 10.04% (50 MW) undivided ownership interest in Unit 4 of the San Juan Generating Station (“SJGS”), located in San Juan County in northwestern New Mexico, near Farmington, New Mexico. The SJGS is a four-unit coal-fired steam electric generating plant. Unit 4 had a rated net generating capability of 507 MW (as of December 31, 2017). Public Service Company of New Mexico constructed Unit 4 and manages its operations. The City purchased its 50 MW share in Unit 4 for a price of $55 million, which the City financed through revenue bonds of the Electric System. The City ceased to have an ownership interest in the SJGS effective December 31, 2017; approximately 182 GWh of energy was provided to the City from its San Juan Unit 4 ownership interest in the Fiscal Year ended June 30, 2018, prior to such date.
In connection with divestiture by the City and other participants from the plant and a restructuring thereof, the City (along with the other exiting participants) retains certain liabilities for its respective share of the costs of the SJGS decommissioning and pre-exit date mine reclamation costs. The City’s exact proportionate share of such costs cannot yet be determined and will depend on a number of factors, including, among other things, the date the SJGS is ultimately retired from service. Required contributions by the City to the mine reclamation trust funds have been made and a SJGS decommissioning trust fund has been funded for the decommissioning of the plant.
San Onofre Nuclear Generating Station. Until 2007, the City’s interest in the San Onofre Nuclear Generating Station (“SONGS”) was the most significant City-owned generation resource in its portfolio.
Under agreements with Edison, the City acquired a 3.16% ownership interest in SONGS Units 2 and 3, totaling 1,070 MW and 1,080 MW of capacity, respectively. Maintenance and operation of SONGS remained the responsibility of Edison under an operating agreement with the City (the “SONGS Operating Agreement”) and other agreements with various participants. As a result of the transfer of the City’s ownership interest in SONGS to Edison at the end of 2006, none of the City’s firm power supply has been obtained from SONGS since 2007.
After a number of developments at the plant and numerous meetings in the public sphere and with the United States Nuclear Regulatory Commission (the “NRC”), Edison announced on June 7, 2013 its intention to permanently cease power generation operations and shut down Units 2 and 3. On September 23, 2014, Edison submitted a decommissioning cost analysis study to the NRC. Based upon Edison’s most recent decommissioning cost study, amounts previously funded by the City and held in trust are expected to fully fund the City’s share of SONGS decommissioning costs; however, until the actual total overall decommissioning costs are finally determined, no assurance can be given that additional contributions will not be required by the City. A decommissioning general contractor was selected in December 2016 to decontaminate and dismantle the facility. The decommissioning work is scheduled to be completed by the end of 2028, and full site restoration is expected to be completed by the end of 2049.
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Non-City Owned Resources
The City purchases power from other sources pursuant to contracts. These contracts provide generally for the City to pay costs associated with the firm purchase of power (fixed costs) as well as operations, maintenance and administrative expense (variable costs). Information regarding the total cost of power purchased from these facilities is set forth in the table captioned “Electric System Statistics.” With respect to each of the facilities discussed herein other than the Canyon Power Project, the City is one of several purchasers of such power and does not control the operations or management of such facility.
Intermountain Power Project. IPA constructed and placed into operation the IPP. The IPP consists of: (a) a two-unit, coal-fired, steam-electric generating plant with a net rating of 1,800 MW (the “Intermountain Generating Station”) and a switchyard (the “Switchyard”), located near Lynndyl, in Millard County, Utah; (b) a ±500 kV direct current (“DC”) transmission line approximately 490 miles in length from and including the Intermountain Converter Station (an alternating current (“AC”)/DC converter station adjacent to the Switchyard) to and including a corresponding converter station at Adelanto, California (collectively, the “Southern Transmission System” or “STS”) (see “Transmission Resources – Southern Transmission System” below); (c) two 50-mile, 345-kV AC transmission lines from the Switchyard to the Mona Switchyard in the vicinity of Mona, Utah, and a 144-mile, 230-kV AC transmission line from the Switchyard to the Gonder Switchyard near Ely, Nevada (collectively, the “Northern Transmission System” or “NTS”); (d) a microwave communications system; (e) a rail car service center located in Springville, in Utah County, Utah (the “Railcar Service Center”); and (f) certain water rights and coal supplies. Such water rights and coal supplies, together with the Intermountain Generating Station, the Switchyard and the Railcar Service Center, are referred to herein collectively as the “Generation Station.” Thirty-five utilities (collectively, the “IPP Purchasers”) purchase the Generation Station’s output.
The IPP Purchasers include the City, and the California cities of Los Angeles, Riverside, Burbank, Glendale and Pasadena (the “IPP California Participants”); 23 members of IPA (collectively, the “Utah Municipal Purchasers”); and six rural electric cooperatives serving loads in the States of Utah, Arizona, Colorado, Nevada and Wyoming (collectively, the “Cooperative Purchasers”). Pursuant to a construction management and operation agreement between IPA and the Los Angeles Department of Water and Power (“LADWP”), LADWP acts as project manager and operating agent of the IPP, responsible for, among other things, administering, operating and maintaining the IPP. The facilities of the IPP have been in commercial operation since May 1987.
The City contracted with IPA to purchase a 236 MW (13.2259%) entitlement in the capacity of the IPP plant through mid-2027. This contract obligates the City to pay in proportion to its entitlement share the costs of producing and delivering electricity (including debt service and other fixed expenses) as a cost of purchased capacity, regardless of the amount of energy scheduled to the City.
In the Fiscal Year ended June 30, 2022, the Intermountain Generating Station operated at a net plant capacity factor of approximately 37.8%. In the Fiscal Year ended June 30, 2023, the Intermountain Generating Station operated at a net plant capacity factor of approximately 35.5%. The Intermountain Generating Station’s annual coal requirement is approximately 3.1 million tons.
IPA possesses coal supply agreements to fulfill the supply requirement of approximately
4.0 million tons per year. The coal is purchased under a portfolio of fixed price contracts that are of short and long-term in duration. However, supply chain issues have dramatically reduced coal supply beginning in the later months of 2021 and are expected to impact coal supply for the remaining life of the coal plant.
The largest coal producer in Utah experienced a fire in September 2022. By the end of the year the fire was reportedly extinguished but the impact to the mine is still undetermined. The loss of the largest mine, A-10
combined with the logistics challenges in Utah, has dramatically reduced supply in the region including to IPA.
The cost of coal delivered to the Intermountain Generating Station is substantially lower than current market prices for the region. IPA expects that the costs to fulfill IPP’s annual coal supply requirements will increase due to the scarcity of coal in the Western United States, if IPA is able to secure any additional coal.
Transportation of coal to the Intermountain Generating Station is provided primarily by rail under agreements between IPA and the Union Pacific Railroad Company, and the coal is transported, in part, in IPA-owned railcars. Coal is also transported to IPP, to some extent, in commercial trucks. Both rail service and trucking services have suffered greatly due to a lack of human resources. Neither network is capable of supporting industrial demand; and IPA, like all coal-fired utilities in the United States, has seen large systemic failures in the transportation system.
Historically, IPP was able to maintain a minimum of 60 days of coal in inventory in the event of a coal supply disruption. However, due to the recent challenges in the coal supply chain, the number of days of coal in inventory has periodically declined below that level. As of the end of June 2023, IPP maintained 68 days of coal in inventory.
LADWP, as operator of the facility, has operational flexibility with respect to its use of IPP and the impact of the supply chain issues referenced above on LADWP’s operations is expected to be minimal.
The Southern Transmission System provides transmission of IPP’s output to the City and the other IPP California Participants. The City and SCPPA have entered into a transmission service contract to provide for transmission of the City’s entitlement between the Generation Station and Adelanto. See “– Transmission Resources – Southern Transmission System” below. Transmission service from Adelanto to the City is provided under transmission service agreements with LADWP and transmission service under the CAISO tariff.
The current power purchase agreements with IPA are in effect until mid-2027. IPP’s operations are affected by California Senate Bill 1368, which became effective in January 2007, and prohibits any investment in baseload generation that does not meet specific emissions performance standards, subject to certain exceptions. In light of that restriction and as a result of strategic discussions concerning the existing contracts’ expiration, IPA developed a plan to convert the coal-fired facility to a combined-cycle natural gas-fired resource. In order to facilitate the continued participation of the IPP California Participants, the IPA Board and the IPP Participants, including the City, executed individual Second Amendatory Power Sales Contracts that allow the plant to replace the coal units with combined cycle natural gas units before 2027. The City will exit IPP upon the expiration of the current power purchase agreement in mid-2027, and does not expect to incur material costs associated with the construction of the proposed natural gas- fired units beyond 2027. Pursuant to the Second Amendatory Power Sales Contract, to the extent the existing coal units are replaced with natural gas-fired units as proposed, the City will not be responsible for future decommissioning costs associated with the IPP when the power purchase agreement expires in mid- 2027. In the event that financing of the proposed natural gas-fired renewal project is not undertaken as currently proposed, the allocation of decommissioning costs to IPP Purchasers (including the City) may vary depending on the date the IPP is ultimately retired from service, what alternative project or use, if any, is instituted at the site, the level and type of remediation and/or restoration undertaken or required, and the financing options and amortization schedule for decommissioning costs.
The Utah Legislature enacted Utah Senate Bill 161 (“Utah S.B. 161”) in its 2024 General Session, which reportedly induces IPA to amend IPA’s environmental permits to provide for the operation of at least A-11
one of the IPP coal-fired units after July 1, 2025, the date by which IPA has committed to cease operation of the IPP coal units permanently. Utah S.B. 161 also requires IPA to grant an option to the State of Utah for the purchase of at least one of the IPP coal-fired units with such option to be effective for two years starting on July 2, 2025. IPA has stated that Utah S.B. 161 purports to create obligations for IPA that are inconsistent with IPA’s obligations under federal regulations and the IPP construction and operating permits issued under federal law; and that if IPA complies with the new legislation as currently enacted, IPA may be subject to enforcement actions that could result in IPA being required to cease operation of the IPP coal units prior to the scheduled commercial operation date of the IPP repowering project and that may interfere with the construction and operation of the IPP repowering project. IPA has indicated it is working to determine the appropriate course of action in response to the new law.
On June 21, 2024, the Utah Legislature, in a special legislative session, modified Utah S.B. 161 through enactment of Utah House Bill 3004 (“H.B. 3004”), extending an air quality permit deadline (required as part of Utah S.B. 161) from July 1, 2024 to December 31, 2024, but still allowing the State of Utah to purchase, assume control of assets intended for decommissioning, or evaluate purchase offers for at least one of the IPP coal-fired units. Utah lawmakers supporting H.B. 3004 have stated additional changes may be enacted to the policy during the 2025 legislative general session. The City cannot predict the outcome or what impacts the new legislation will ultimately have on the operation of IPP or the construction and operation of the IPP repowering project.
Hoover Uprating Project. The Hoover Uprating Project consists primarily of the uprating of the 17 generating units at Hoover Dam’s hydroelectric power plant, located approximately 25 miles from Las Vegas, Nevada. The City’s entitlement in the Hoover Uprating Project was approximately 40 MW. A portion of the City’s Hoover entitlement became available in June 1987 and the full entitlement became available in June 1993. The Hoover Uprating Project was substantially completed on September 30, 1995.
The City originally assigned its entitlement to capacity and energy of the Hoover Uprating Project to SCPPA (in return for which SCPPA financed the advancement of funds to the United States Bureau of Reclamation for costs of the Hoover Uprating Project) and executed a power sales contract with SCPPA under which the City agreed to make monthly payments on a “take-or-pay” basis for its share of SCPPA’s proportionate share of Hoover capacity and allocated energy. These agreements expired on September 30, 2017.
The City renegotiated and executed replacement agreements directly with the Western Area Power Administration (“Western”) and the United States Bureau of Reclamation, which became effective on October 1, 2017 and extend until September 30, 2067. The City’s entitlement under the new agreements remains at approximately 40 MW. Western delivers the City’s entitlement at the Mead Substation.
Magnolia Power Project. The Magnolia Power Project is a natural gas-fired, combined cycle electric generating unit with a nominally rated net capacity of 242 MW and auxiliary facilities located in Burbank, California. The Magnolia Power Project is owned by SCPPA and is operated by the City of Burbank electric utility. The Magnolia Power Project was placed in service in September 2005 and operates in a base-load mode (8,000 hours per year or more) with staffing on a 24-hour basis. The City acquired a 38% (92 MW base capacity and 26 MW peaking capacity) entitlement in the project through a long-term power purchase agreement with SCPPA. Under its power sales agreement with SCPPA, the City is obligated to pay, on a “take-or-pay” basis, its share of the costs of the Magnolia Power Project (including operating and maintenance costs and the costs of debt service on bonds issued by SCPPA for the project) as an operating expense of the Electric System.
Canyon Power Project. The Canyon Power Project consists of a simple cycle, natural gas-fired power generating plant comprised of four General Electric LM 6000PC Sprint combustion turbines, with a combined nominally rated net peaking capacity of 200 MW, and auxiliary facilities located on A-12
approximately 10 acres of land within an industrial area of the City. The Project is owned by SCPPA and operated and maintained by the City. The Canyon Power Project was constructed for the primary purpose of providing the City with firm capacity and energy to meet its current and future capacity and energy requirements and to satisfy certain ancillary services requirements. The Canyon Power Project achieved full commercial operation in 2011. The City entered into a power sales agreement with SCPPA pursuant to which the City acquired an entitlement to 100% of the capacity and energy of the Canyon Power Project and is obligated to pay, on a “take-or-pay” basis, 100% of the costs of the project, including all operating and maintenance costs and the costs of debt service on bonds issued by SCPPA in connection with the Canyon Power Project as an operating expense of the Electric System.
The Canyon Power Project is subject to the New Source Review (“NSR”) air quality permitting program promulgated by the Southern California Air Quality Management District (“SCAQMD”), the agency responsible for developing and enforcing air quality requirements in the South Coast Air Basin (the “Basin”), which includes Los Angeles, Riverside, San Bernardino and Orange Counties. The SCAQMD’s NSR program is required to comply with certain provisions and requirements established pursuant to federal and State law, including the federal Clean Air Act. The federal Clean Air Act sets standards for different types of air pollutants and allows states to create plans to address pollution in areas with unclean air. These programs may include emission offset trading programs that require new sources to obtain emission reduction credits (“ERCs”) for every pound of new pollution that they propose to emit.
On June 21, 2024, Canyon Power Plant Unit 1 experienced a significant mechanical failure while in full operation. The unit suffered a compressor stall, an event where high-pressure air builds up in the compressor and is redirected in the opposite direction, causing a high-pressure air explosion. This was caused when one of the compressor blades broke off from the rotor, damaging all the other blades in the compressor. As a result, the unit requires extensive repairs that are estimated to take 7 to 9 months to complete due to industry-wide supply constraints for gas turbine parts. The estimated cost for the repair is approximately $3.3 million, which includes an engineering report identifying replacement parts, turbine transportation to a depot facility, labor costs for tear-down, inspection, and analysis. Additionally, the failure of Canyon Unit 1 impacts APU’s generation capacity and poses a resource adequacy (RA) issue, with an anticipated shortfall of 10 MW for September. APU anticipates the need to procure capacity at spot market prices, currently estimated at $95/KW-month. Excluding the cost of repairs, APU estimates the loss of Unit 1 for the currently expected period of 7 to 9 months will reduce net revenue by approximately $1.7 million in total, factoring in lost wholesale revenue, the cost of procuring capacity on the wholesale market, and reduced fuel expenditures.
Given that the incident occurring in June 2024 to Canyon Unit 1 is linked to a known issue with GE turbines, there is a high likelihood of similar failures occurring in the remaining three units. GE has issued a service bulletin recommending the replacement of Stage 3 through Stage 5 blades after 1,500 starts.
However, Canyon Unit 1 suffered the casualty at approximately 1,000 starts, implying an immediate need to implement this service bulletin across all units. APU projects the cost of implementing this service bulletin at approximately $300,000 per unit, totaling nearly $1.0 million for the remaining three units.
Currently, all other units are below the critical number of starts but require proactive maintenance to mitigate the likelihood of a similar incident.
Participation of Other Parties in Generation Resources
Each of the projects (other than the Canyon Power Project and the Hoover Uprating Project described above under “– Non-City Owned Resources”) is subject to the other parties involved in those projects meeting their respective payment obligations with respect to such projects. If a party defaults on its payment obligations, then the non-defaulting parties, subject to the utilization of any reserves, may be required to expend additional funds with respect to such project. If a non-defaulting party does step-up to A-13
the payment obligation of a defaulting party, the non-defaulting party will ultimately have a right to the capability or output of the defaulting party’s share of the project. See also “Indebtedness; Joint Powers Agency Obligations” below.
Renewable Energy Resources
Consistent with State legislation, the City first adopted a Renewables Portfolio Standard (“RPS”) on December 16, 2011 that set a target of increasing its purchases of eligible renewable energy resources to 33% within three multi-year compliance periods though 2020. Since the adoption of the City’s first RPS, Senate Bill 350, the Clean Energy and Pollution Reduction Act of 2015, signed into law in October 2015, increased the statewide RPS targets to 40% by December 31, 2024, 45% by December 31, 2027, and 50% by December 31, 2030. Senate Bill 100, the 100 Percent Clean Energy Act of 2018, signed into law by the Governor on September 10, 2018, further increased statewide RPS targets by requiring retail electric sellers and local publicly-owned electric utilities, such as the City, to procure a minimum quantity of electricity products from eligible renewable energy resources so that the total kWhs of those products sold to retail end-use customers achieve 44% of retail sales by December 31, 2024, 52% of retail sales by December 31, 2027 and 60% of retail sales by December 31, 2030. Senate Bill 100 established the policy of the State that eligible renewable energy resources and zero-carbon resources supply 100% of retail sales of electricity to California end-use customers by December 31, 2045. The City met all RPS compliance targets for Compliance Period 1 (covering calendar years 2011 through 2013), Compliance Period 2 (covering calendar years 2014 through 2016), and Compliance Period 3 (covering calendar years 2017 through 2020).
The City is on track to meet RPS requirements for the current compliance period (Compliance Period 4) covering calendar years 2021 through 2024 (i.e., the procurement of eligible renewable energy resources equal to at least a total of 35.75% of calendar year 2021 retail sales, 38.50% of calendar year 2022 retail sales, 41.25% of calendar year 2023 retail sales and 44% of calendar year 2024 retail sales).
The City’s current renewable energy resources are described below. As a component of the Electric System rates and charges, the City implemented an Environmental Mitigation Adjustment which provides a mechanism for the recovery of the marginal cost differential between the utility’s renewable power supply and its traditional carbon-based power supply that are not otherwise recovered in its rates. See “Electric Rates and Charges” below.
PPM Wind Contracts. The City purchased 32 MW of wind generated energy from PPM Energy under two separate contracts. Wind energy typically comes with a 33% load factor, so the PPM Energy contracts effectively represent 12 MW of resources. The first contract provides for delivery of 2 MW of energy 24 hours-a-day at a fixed price of $53.50 per MWh over the 20-year term of the contract, which began July 1, 2004. The second contract provides 30 MW (effectively 10 MW) at a fixed price of $55 per MWh over the 20-year term of the contract, which began July 1, 2005. The City receives energy under this contract over the Northern Transmission System at the Mona interconnection tie in the LADWP control area. The City pays for energy only when the units are operating. The 2 MW contract expired December 31, 2023, but the remaining 12 MW contract remains in place.
Brea Landfill Contracts. The City executed two power purchase agreements with Brea Power Partners, LP to deliver landfill gas renewable energy. The first short-term contract was for 5 MW with a start date of April 1, 2007 (with power received commencing July 9, 2007) from an existing facility at the Olinda Landfill through (i) the commercial operation date of a second unit or (ii) December 31, 2013. The price for energy from the Olinda Landfill project remained at $69.00 per MWh through December 31, 2008 and then increased to $71.00 per MWh on January 1, 2009, with an annual price escalation thereafter of 2% commencing January 1, 2010. In November 2012, a second long-term contract superseding the original contract was executed, which provides for a total of 27 MW from the new unit at the Olinda Landfill project upon commercial operation of the second unit, which occurred in November 2012. The term of the 27 MW A-14
contract is 33 years. The price is $112.50 per MWh with no escalation over the term of the contract. See “ - Future Power Supply; Cost of Power and Non-Firm Power - Clean Energy Project” below.
Raser Geothermal Contract (Cyrq Energy). The City executed a power purchase agreement with a Raser Technologies subsidiary corporation for energy from an 11 MW geothermal project located in central Utah, at an initial cost of $78 per MWh with a 2% annual escalation factor for a term of 20 years.
The energy is delivered to the City over the Northern Transmission System at the Mona interconnection tie in the LADWP control area, at an additional transmission cost of $2.98 per MWh. The project began commercial operation in April 2009. On or about April 29, 2011, Raser Technologies, Inc. and its Affiliated Debtors filed voluntary petitions for relief under the Bankruptcy Code. On August 30, 2011, the Bankruptcy Court confirmed the Third Amended Plan of Raser Technologies, Inc. and its Affiliated Debtors with a Plan effective date of September 9, 2011. Raser Technologies changed its name to Cyrq Energy, Inc. The Bankruptcy Court approved the reorganized subsidiary corporation’s assumption of its power purchase agreement with the City. Upon the completion of a generator upgrade on November 1, 2013, an amendment to the power purchase agreement was entered into by the City with the new Cyrq Energy subsidiary to include the Ormat Energy Converter with a nameplate capacity of 14,000 gross kW. The amended agreement provides for up to 11 MW of energy for a 20-year term, expiring in 2033, with an energy cost of $98.50 per MWh and a 2% annual escalation factor, and transmission costs of $3.13 per MWh.
Metropolitan Water District Hydroelectric Contract. The City has contracted with The Metropolitan Water District of Southern California, through SCPPA, for 10 MW of hydroelectricity from a variety of small power plants located at various sites within the Los Angeles Basin. The plants operate as run-of-the-river hydro (in contrast to storage hydro) and as such, energy under the contract is “as available,” much like wind. Power deliveries began November 1, 2008, at a price of $94.83 per MWh. An amendment to the agreement occurred in November 2016, reducing the purchase price to $54.71 per MWh beginning July 1, 2017. The contract expired on December 31, 2023.
San Gorgonio Wind Contract. The City executed a power purchase agreement with San Gorgonio Farms, Inc. for 31 MW of wind energy from the existing San Gorgonio Farms Wind Farm located in Whitewater, California. This facility reached commercial operation in 1983 and was originally under contract to Edison. The price for power is split between the environmental attributes and energy.
Environmental attributes are priced at $38.50 per MWh with no escalation and the energy price equals the revenue paid by the CAISO for delivery of the project’s energy less all CAISO charges, fees, debits, costs, penalties, and interest assigned to the project. In April 2023, the City approved an amendment to the agreement with San Gorgonio Farms, Inc. resulting in an updated price of $22 per MWh and a 20-year term extension through December 31, 2033.
Bowerman Power Landfill Contract. The City executed a power purchase agreement with Bowerman Power, LLC for the purchase of 19.6 MW of energy generated from landfill gas from the Frank R. Bowerman Landfill in Irvine, California. Commercial operations began on April 27, 2016. The term of the agreement is 20 years. The generating facility is expected to produce 154 GWh annually. The annual total cost for the renewable energy and RECs is approximately $13.5 million with a 2.5% escalator during the first 10 years, 1.5% for the next five years, and no escalator thereafter. The initial price under the agreement amounts to $87.40 per MWh less all CAISO charges, fees, debits, costs, penalties, and interest assigned to the project. See “ - Future Power Supply; Cost of Power and Non-Firm Power - Clean Energy Project” below.
Westside Assets Solar Contract. The City executed a power purchase agreement with Westside Assets, LLC for 2 MW of solar energy in Kings County, California. On December 23, 2014, an amendment to the agreement clarified language and allowed for a revision to the construction schedule. This project A-15
reached commercial operation on May 9, 2016. The term of the agreement is 25 years. Power under the agreement is priced at $91.00 per MWh fixed for the term less all CAISO charges, fees, debits, costs, penalties, and interest assigned to the project.
ARP-Loyalton Biomass Project. Through SCPPA, the City contracted for the purchase of 0.81 MW of energy from the 18 MW Loyalton Biomass Project over a five-year term. American Renewable Power owned and operated the project, located in the City of Loyalton, in Sierra County, California. The project reached commercial operation on April 20, 2018. Under the agreement, the City received its proportionate share of the energy output, capacity, and associated environmental attributes from the project at an estimated cost of $638,000 per year. The agreement assisted the City towards its compliance with Senate Bill 859, passed in 2016, which requires local publicly-owned electric utilities in California that serve more than 100,000 customers to procure a proportionate share of a cumulative total of 125 MW of electric generating capacity fueled from high hazard forest materials. Calendar year 2020 marked the last year that the City received power from the Loyalton Biomass Project. In February 2020, the operator of the project, ARP-Loyalton Cogen LLC, and its parent company American Renewable Power LLC, filed petitions for relief under Chapter 11 of the Bankruptcy Code. Both cases were converted to Chapter 7 liquidation proceedings shortly thereafter and a Chapter 7 trustee was appointed. On April 23, 2020, the Chapter 7 trustee entered into an agreement for the sale of the ARP-Loyalton Biomass Project to Sierra Valley Enterprises LLC, a California limited liability company, which sale included substantially all real property and personal property used in the operation of the project. The Bankruptcy Court subsequently approved the sale pursuant to an order entered on May 7, 2020. Prior to the termination of the power purchase agreement on April 19, 2023, counsel for SCPPA worked with counsel for the Chapter 7 trustee to negotiate a mutually agreeable settlement of any claims for damages and reimbursement of the legal costs incurred by SCPPA and the other power purchase agreement buyers. The parties entered into a proposed settlement agreement (the “ARP Loyalton Settlement Agreement”), which was approved by SCPPA and the other power purchase agreement buyers and submitted to the Bankruptcy Court for its approval on April 2, 2024. On May 6, 2024, the Bankruptcy Court entered an order approving the ARP Loyalton Settlement Agreement.
Desert Harvest II Solar Project. Through SCPPA, the City has contracted for the purchase of 36 MW of energy from the 70 MW Desert Harvest II Solar Facility, owned by Desert Harvest II, LLC and operated by EDF Renewable Services, Inc. and located near the town of Desert Center in Riverside County, California. The project reached commercial operation on December 17, 2020. The term of the agreement is twenty-five years. Under the agreement, the City receives its proportionate share of the facility energy output and associated environmental attributes from the project at an estimated cost of $1,851,000 per year.
Haypress Hydroelectric Contract. The City has contracted with EIF Haypress for 12.5 MW of hydroelectricity from 2 small power plants located in Sierra County, California. The plants operate as run-of-river hydro and as such, energy under the contract is “as available,” similar to wind. Power deliveries began January 1, 2024, at a price of $60 per MWh with an annual escalator of 2.5% beginning in the second contract year. The contract expires on December 31, 2039.
Distributed Generation; Net Metering
The City’s Net Energy Metering (“NEM”) Program includes 43.9 MW of participating solar capacity installed to date, which represents 7.4% of the Electric System’s peak aggregated load. Under the City’s NEM Program, customers are able to receive either the full retail value credit shown in energy on their bill or cash compensation for the excess energy their system generates based on the City’s avoided cost of renewable electricity. The City’s NEM program includes a legislative goal of 29.6 MW, 5% of the City’s peak aggregated load, which was reached in May 2019. Beginning on January 1, 2021, the City launched its successor NEM Program (known as NEM 2.0), which also compensates customers for A-16
providing excess energy from their distributed energy resources, but with compensation adjusted based on the time, day, and season that the energy was supplied to Anaheim’s electric grid, reflecting the dynamics of the wholesale energy market’s supply and demand.
Future Power Supply; Cost of Power and Non-Firm Power
As described above, the City currently has several contracts for firm purchases of power. These contracts accounted for approximately 80% of the City’s total energy resources in the Fiscal Year ended June 30, 2023. In addition, the City can replace some of the energy otherwise available from its firm resources with energy purchased from other suppliers throughout the West. These short-term purchases are made under the Western Systems Power Pool Agreement and under bilateral agreements between the City and various suppliers. The City does this when the delivered cost of such energy is less than the variable cost of energy from its long-term resources or when additional energy is needed to meet the City’s load. In the Fiscal Year ended June 30, 2023, the City purchased 557 GWh of short-term energy (about 20% of its total energy).
With the City’s executed and planned divestiture of its interests in coal facilities, SJGS in 2017 and IPP expected in 2027, and the retirement of its Kraemer CT Plant at the end of 2019, the need for additional energy and capacity will be mostly offset by renewable resources as a result of California’s Senate Bill 100 RPS legislation, requiring 60% of retail sales to be derived directly from renewable energy by 2030. The small amount of capacity required to ensure the City’s energy needs are met in the future, and to optimize its resource portfolio, will be met largely by short and mid-term bilateral agreements. These types of agreements will provide the City with added flexibility to better manage its Electric System resource portfolio as its load profile changes over time.
The City anticipates fulfilling its customers’ energy needs through dispatching power from generating plants in which it has acquired (or may in the future acquire) an ownership share, from power sales agreements, or from short-term (monthly, weekly, daily or hourly) purchases it makes on the spot market. The cost of obtaining the necessary energy will depend upon contract requirements and the current market price for energy. Spot market prices are dependent upon such factors as the availability of generating resources in the region and weather conditions such as ambient temperatures and the amount of rainfall or snowfall. Generating unit outages, dry weather, hot or cold temperatures and time of year can all adversely impact the supply and price of energy. There is no assurance that low cost energy will be available to the City in the future, though as a participant in the Western Systems Power Pool the City will have access to market priced power. The City currently has no authority to hedge pricing for either electricity or fuel utilizing financial products. However, given that the City is fully resourced to meet its retail obligations, the amount of energy procured through market mechanisms is restricted to short durations, exclusively transacted on a spot market basis where the risk exposure for price variances is limited and can be remedied almost immediately. With respect to fuel, as described under “Fuel Supply” below, the City has procured a number of resources for long-term supplies for a portion of the natural gas requirements for the Electric System that act as a hedge against short-term price variances by providing a guaranteed supply source with a fixed known price.
Clean Energy Project. On May 20, 2024, the City entered into an electricity supply agreement with SCPPA (the “Clean Energy Purchase Contract”) for the purchase of renewable energy and related attributes pursuant to SCPPA’s Clean Energy Project, which is structured to assist the City with obtaining a long-term supply of power at favorable prices. Under the Clean Energy Project, SCPPA issued its $592,270,000 Southern California Public Power Authority Clean Energy Project Revenue Bonds, Series 2024A to finance the prepayment of approximately thirty years of electricity deliveries, which SCPPA will sell to the City over the term of such deliveries, in amounts and at prices as set forth in the Clean Energy Purchase Contract. The total quantity of prepaid electricity expected to be delivered during the initial A-17
delivery period, which commences on October 1, 2024 and ends on August 31, 2030 or upon earlier termination of the Clean Energy Purchase Contract, is an estimated 1.9 million MWh of electricity. The electricity that SCPPA will be selling to the City during the initial delivery period will be obtained through the assignment of two existing power purchase agreements of the City: a Renewable Power Purchase and Sale Agreement, between the City and Bowerman Power LFG, LLC, executed by the City in March 2014, and a Consolidated, Amended, and Restated Power Purchase Agreement, dated as of December 15, 2009, among the City, Brea Power Partners, L.P. and Brea Power II, LLC. The City is the only participant in the Clean Energy Project, and the City’s payment obligations under the Clean Energy Purchase Contract are payable only for electricity actually received thereunder, solely from Electric System revenues.
Fuel Supply
The SCPPA Magnolia Power Project and Canyon Power Project are primarily fueled by natural gas. The City is a participant in SCPPA’s Natural Gas Reserves Project and SCPPA’s Prepaid Natural Gas Project, which provide the City with approximately 1,500 MMBtu of natural gas daily (or approximately 21% of the City’s average daily baseload natural gas consumption).
Natural Gas Reserves Project. Through its participation in the SCPPA Natural Gas Reserves Project, the City has joined several members of SCPPA in acquiring natural gas reserves as a source of long-term supply of gas at a levelized price to provide fuel for the Magnolia Power Project. As a base-load combined-cycle facility, the City’s share of fuel requirements for operating the Magnolia Power Project amounts to approximately 4.5 billion cubic feet of natural gas per year. Part of the City’s overall natural gas portfolio strategy is to provide a portion of that natural gas through long-term, fixed price, gas supplies, either through long-term gas supply contracts or gas reserve field acquisitions. The SCPPA Natural Gas Reserves Project includes SCPPA’s leasehold interests in (i) certain natural gas resources, reserves, fields, wells and related facilities located near Pinedale, Wyoming (the “Wyoming Subproject”) and (ii) certain natural gas resources, reserves, fields, wells and related facilities in (or near) the Barnett Shale geological formation in Texas (the “Texas Subproject”). On June 7, 2005, the City entered into a gas sales agreement with SCPPA pursuant to which the City purchased on a “take-or-pay” basis its entitlement share of the production capacity of the related leasehold interests in the gas reserve fields and related facilities. Pursuant to the gas sales agreement, the City’s entitlement share in the Wyoming Subproject was acquired at a cost of approximately $16.4 million. The City has taken delivery of this gas since July 2005. The City’s entitlement share in the Texas Subproject, which was subsequently acquired at a cost of approximately $18.6 million, also aids in supplying the City’s gas needs for the Magnolia Power Project. On February 6, 2008, SCPPA issued revenue bonds for the benefit of the City and two of the other Natural Gas Reserves Project participants in simultaneous financings in order to finance their respective shares of the acquisition costs of the Natural Gas Reserves Project.
Prepaid Natural Gas Project. The City and several members of SCPPA completed a prepaid natural gas financing to secure another source of long-term supply of gas to provide fuel for the Magnolia Power Project and other gas-fired generation stations. In connection with the prepaid natural gas financing, the City purchases on a “take-and-pay” basis natural gas acquired by SCPPA pursuant to the terms of a prepaid natural gas sales agreement between SCPPA and J. Aron & Company (“J. Aron”) at a discount from the spot price over a term of approximately 27 years (as a result of restructuring as described below) beginning on July 1, 2008. On October 22, 2009, the Prepaid Natural Gas Sales Agreements between SCPPA and J. Aron were restructured to provide an acceleration of a portion of the long-term savings, reduce the remaining volumes of gas to be delivered and shorten the overall duration of the agreements. As a result of the restructuring, a portion of the bonds issued by SCPPA with respect to the Prepaid Natural Gas Project was discharged. On September 19, 2013, the transaction was further restructured, as a result of which approximately $561,000 was remitted to the City from a lump sum payment received by SCPPA A-18
from the gas supplier. The City’s restructured natural gas supply agreement with SCPPA is expected to provide approximately 13% of the City’s gas requirements for the Magnolia Power Project.
Renewable Biomethane. The City has executed a renewable Biomethane Purchase and Sale Agreement with SoCal Biomethane (the “Biomethane Agreement”), a subsidiary of Anaergia, Inc., to purchase renewable biomethane derived from food waste, which has been diverted from landfills to a digestions and gas production facility outside of the City. The Biomethane Agreement was assigned from SoCal Biomethane to Rialto Bioenergy Facility, LLC (“RBF”) pursuant to the Assignment and Assumption Agreement dated November 13, 2018, by and among SoCal Biomethane, RBF, and the City. Under the Biomethane Agreement, RBF has the option to produce the renewable biomethane at one of two sites located in either Bloomington or Victorville, California. Once produced, the biomethane would be delivered to the City’s power generation facilities through the Southern California Gas Company’s pipeline system. Electricity produced using renewable biomethane qualifies as renewable energy under California Energy Commission regulations and helps the City meet its greenhouse gas reduction goals and comply with Senate Bill 350. The renewable Biomethane Agreement provides for the purchase of up to 210,240 MMBtu per year at an initial price of $12.74/MMBtu starting in the Fiscal Year ending June 30, 2021, which escalates annually by an average of 1.4% over the 20-year term of the agreement. Delivery of biomethane from the facility continues to be delayed due to lack of adequate feedstock to produce the biomethane.
Transmission Resources
Southern Transmission System. The City is a participant in SCPPA’s Southern Transmission Project. The Southern Transmission System (“STS”) is an approximately 490 mile, ±500 kV DC transmission line that extends from IPP near Delta, Utah to the Adelanto Substation in Southern California, together with an AC/DC converter station at each end of the transmission line. The STS is owned by IPA and is one of three major components of IPP. LADWP operates and maintains the STS under contract with IPA. In connection with its entitlement to IPP, the City assigned its entitlement to capacity of the STS to SCPPA, in exchange for which SCPPA agreed to make payments-in-aid of construction of the STS and issued revenue bonds to finance the costs thereof. Pursuant to a transmission service contract with SCPPA, the City acquired a contractual entitlement to 17.647% of the transfer capability of the STS which obligates the City to pay the costs of its share of the transfer capability (including operating costs and debt service costs on bonds issued by SCPPA for the project) on a “take-or-pay” basis as an operating expense of the Electric System. The transfer capability of the STS is currently approximately 2,400 MW (as a result of upgrades completed in December 2010). The City’s entitlement in SCPPA’s share of the transfer capability of the STS is approximately 423.5 MW. The City’s contractual entitlement and obligation extends until 2027, consistent with the timeframe of the current power purchase agreements with IPA.
Mead-Adelanto Project, Authority Interest (Multiple Members). The City is a participant in SCPPA’s member-related interest in the Mead-Adelanto Project. The City entered into a transmission service contract with SCPPA that provides the City with an entitlement share (approximately 118 MW) of SCPPA’s member-related ownership interest (the “Authority Interest (Multiple Members)”) in the Mead- Adelanto Project and obligates the City to pay for its share of the costs of SCPPA’s Authority Interest (Members) in the Mead-Adelanto Project (including operating costs and debt service costs on bonds issued by SCPPA for the project) on a “take-or-pay” basis as an operating expense of the Electric System. The City’s entitlement share is 9.1666% of SCPPA’s 67.9167% Authority Interest (Multiple Members) in the project. The City uses the Mead-Adelanto Project for the transmission of energy purchased by the City.
Mead-Phoenix Project, Authority Interest (Multiple Members). The City is a participant in SCPPA’s member-related interest in the Mead-Phoenix Project. The Mead-Phoenix Project is an approximately 256-mile, 500-kV AC transmission line that extends from the Westwing Substation (in the A-19
vicinity of Phoenix, Arizona), connects with the Mead substation near Boulder City, Nevada and terminates at the Marketplace Substation nearby. SCPPA executed an ownership agreement providing it with an
18.3077% member-related ownership share in the Westwing-Mead project component, a 17.7563% member-related ownership share in the Mead Substation project component, and a 22.4082% member- related ownership share in the Mead-Marketplace project component (collectively, the “Authority Interest (Multiple Members)”) in the Mead-Phoenix Project. The Mead-Phoenix Project has an estimated transfer capability of 1,923 MW (as a result of certain upgrades completed in 2009). The City entered into a transmission service contract with SCPPA that provides the City with an entitlement to approximately 47 MW of transfer capability of the Mead-Phoenix Project and obligates the City to pay for its share (approximately 24.2%) of the costs of SCPPA’s Authority Interest (Members) in the Mead-Phoenix Project (including operating costs and debt service costs on bonds issued by SCPPA for the project) on a “take-or- pay” basis as an operating expense of the Electric System. The City’s entitlement shares in the three components of the Mead-Phoenix Project are as follows: 3.615% of the Westwing-Mead project component, 8.8781% of the Mead Substation project component and 5.9395% of the Mead-Marketplace project component, respectively, of the Authority Interest (Multiple Members) in the project. The City uses the Mead-Phoenix Project for the transmission of energy purchased by the City.
Anaheim’s CAISO Arrangements
The CAISO began operations on March 31, 1998. The fundamental purpose of the CAISO is to operate the transmission system in a manner that is independent of the interests of the owners of the transmission facilities to buy or sell energy. The CAISO provides transmission service and related ancillary services to all users, including the City, on a non-discriminatory basis.
In June 2002, the City notified the CAISO of its intent to become a Participating Transmission Owner (“PTO”) by turning over operational control of the City’s transmission entitlements. In November 2002, the City executed the Transmission Control Agreement between the CAISO and the PTOs.
On January 1, 2003, the City became a PTO under the CAISO tariff by turning over operational control of its transmission entitlements to the CAISO. In return, the City receives payment of its revenue requirement for such facilities from the CAISO. The City now obtains all of its transmission scheduling requirements from the CAISO, and it procures additional required ancillary services from the CAISO or from the open competitive market. On May 1, 2020, APU submitted a proposal to the Federal Energy Regulatory Commission (“FERC”) to revise its transmission revenue requirement. Effective July 1, 2020, FERC issued an order accepting APU’s proposed transmission revenue requirement. [Remainder of page intentionally left blank.]
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Customers and Energy Sales
The Electric System serves the entire area within the City limits (an area of approximately 50 square miles) as well as small portions of unincorporated Orange County adjacent to the City. Tables 4 and 5 below set forth the average number of customers and total electrical energy sold (in GWh) during the five fiscal years shown.
TABLE 4
AVERAGE NUMBER OF CUSTOMERS(1)
Fiscal Year Ended June 30,
2023 2022 2021 2020 2019
Residential 105,422 104,561 103,666 103,366 102,567
Commercial 17,500 17,557 17,466 17,446 17,415
Industrial 290 273 271 290 297
Other 110 112 112 113 112
Other Utilities 11 11 11 11 12
Total – All Classes 123,333 122,514 121,526 121,226 120,403 _______________________
(1) Average number of meters as a proxy for number of customers.
Source: Anaheim.
TABLE 5
TOTAL ENERGY SOLD
(GWh)
Fiscal Year Ended June 30
2023 2022 2021 2020 2019
Residential 637 600 630 578 598
Commercial 731 706 660 716 758
Industrial 856 851 739 882 933
Other(1) 1 1 1 1 1
Other Utilities(2) 470 524 622 510 819
Total – All Classes(3) 2,695 2,682 2,652 2,687 3,109
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(1) This category includes streetlights (which comprise 91% of this category) as well as outdoor lights. (2) Reflects wholesale sales activity under prevailing market conditions. (3) The difference between the total GWh generated and purchased shown in Table 3 captioned “Total Gigawatt Hours (GWh) Generated and Purchased and Peak Demand (MW)” and total energy sold as shown in this Table 5 is due to transmission and distribution system losses, wholesale transactions, and renewable energy credits (“RECs”).
Source: Anaheim.
During the Fiscal Year ended June 30, 2023, the City satisfied 100% of its power requirements for serving retail customers from its own generation projects and through firm power purchases.
Wholesale Power
From time to time, the City has the opportunity to purchase power from and sell power to a number of power marketing firms, independent power producers, and other electric utilities, and to enter into contracts for the forward purchase and sale of electricity. The City recognizes that its wholesale market activities give rise to certain risks and has committed resources to mitigate them through the establishment of a formal risk management program. Wholesale power trading optimizes the value of the utility’s assets to cost-effectively serve its retail load. The City Council approved a risk management policy (the “Policy”) A-21
to provide policy guidance with respect to its wholesale trading activities. Pursuant to the Policy, the City established a Risk Management Committee (composed of the Public Utilities General Manager, the City Finance Director, the City Attorney, the Public Utilities Assistant General Managers of Finance & Energy Resources and Administration & Risk Services, the Integrated Resources Manager, the Financial Services Manager, and the Chief Risk Manager) to oversee the City’s Wholesale Energy Risk Management Program (the “Program”) which governs all proposed power purchase agreements, whether for retail or wholesale purposes. Pursuant to the Policy, the Program approved by the Risk Management Committee governs the various functions of the trading operations. The Policy and Program are intended to: (a) provide a common risk management infrastructure to facilitate management control and reporting; (b) create a procedure to evaluate the creditworthiness of the counterparties, and to monitor and manage the aggregate credit exposure; (c) establish a corporate culture exemplifying best practices in risk management; (d) create a mechanism to identify market-related opportunities within the City’s overall exposure balance or “book”; and (e) develop an effective, streamlined ability to timely commit to transactions. The Program establishes guidelines for, among other things, authorized transaction limits, acceptable counterparty creditworthiness standards and requirements for limits on credit exposure to any individual counterparty. Most of the short- term purchase and sale transactions entered into by the utility for wholesale power opportunities are for 30 days or less.
Major Customers and Economic Conditions
APU serves a diverse customer base from a variety of industries, including tourism, hospitality, medical facility, aerospace, and telecom sectors. For the Fiscal Year ended June 30, 2023, the top 10 largest power customers of the Electric System, in terms of kilowatt hour (“kWh”) sales, accounted for approximately 21% of the Electric System’s total energy sales.
A major development project occurring in Anaheim is OCVibe, a planned 95-acre development that includes new homes, shopping, dining, entertainment, hotels, office space, and parks adjacent to the Honda Center. This $4-billion expansion proposes to add 1,500 apartments with affordable housing options; four parking structures and surface lots to add more than 11,000 parking spaces; 20 acres of publicly accessible parks, trails, plazas, and other spaces; a new 5,700-seat concert venue; more than 35 restaurants with 170,000 square feet of indoor and outdoor dining space; two new hotels collectively adding 550 rooms; 1.2 million square feet of office space; and more than 80,000 square feet of shopping options.
A phased opening is planned for 2028, when the Honda Center is slated to host indoor volleyball for the 2028 Summer Olympics.
Another major project is DisneylandForward, a multiyear public planning effort to expand and update Disneyland theme parks, hotel offerings, entertainment, parking, restaurants, and more. The project proposes a $1.9 billion plus investment in Anaheim over 10 years. It includes updating land use approvals from the 1990s to allow Disneyland Resort to build attractions or hotels on land originally designated for parking or other purposes.
Electric Rates and Charges
Description of Rates and Charges. The City is obligated by the Charter and by certain resolutions of the City Council under which it has electric revenue bonds outstanding to establish rates and collect charges in an amount sufficient to service the City’s Electric System indebtedness, to meet its expenses of operation and maintenance and to pay other obligations payable from gross revenues, with specified requirements as to priority and coverage. The City Council establishes electric rates, which are not subject to regulation by the CPUC or by any other state agency.
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The rates charged by the City to its customers are also not subject to approval by any federal agency; however, the Public Utility Regulatory Policies Act (“PURPA”) requires state regulatory authorities and nonregulated electric utilities, including the City, to consider certain rate-making standards and to make certain determinations in connection therewith. The City believes that it is operating in compliance with PURPA.
The Charter requires that electric rates be based upon the cost of service to the various customer classes. As provided in Section 909 of the Charter, the City’s Public Utilities Board has the power and duty to conduct all public hearings for the electric utility, including those for the consideration of utility rates and to make recommendations to the City Council concerning electric rates adopted by the City Council.
The Electric System has a number of base rate schedules. Generally, all costs of the Electric System, including power supply costs, are recovered through the application of these base rates. The City’s customer rates also include a Rate Stabilization Adjustment (“RSA”) that increases or decreases specifically for the recovery of the respective fluctuations in power supply, relevant operational costs, and environmental mitigation costs to meet specified financial performance indicators and goals. The goals stated within the rate schedule include the maintenance of debt service coverage ratios no less than 1.5 times and a balance in the account for deferred inflows (RSA collections) equal to approximately $50 million.
The RSA contains two components: the Power Cost Adjustment (“PCA”) and the Environmental Mitigation Adjustment (“EMA”). The PCA can increase up to 1/2¢ per kWh in any 12-month period to collect for changes in power production costs, purchased power costs, regulatory compliance costs, debt service and any other costs involved in delivering energy. Additionally, if the Electric System’s power supply or fuel costs increase by more than 10% over originally budgeted levels for a period of one month or longer or if the Electric System loses a major resource, such as a generation or transmission unit, then the PCA may increase by an additional 1¢ per kWh over and above the current 1/2¢ limit until all associated costs are collected at which time the PCA will be reduced to its previous level. This provision recovered costs related to an outage at IPP. The second component of the RSA, the EMA, allows for the recovery of environmental mitigation costs, such as projected greenhouse gas emissions costs, the marginal cost differential between renewable power and traditional carbon-based power, and environmental mitigation costs imposed by regulatory bodies, legislative mandates or judicial settlements, orders or decrees. The EMA is structured similarly to the PCA in that the annual limit of the increase is 1/2¢ per kWh unless costs increase by more than 10% of projections, at which point the EMA’s limit on annual increases may be increased by an additional 1¢ per kWh until all associated costs are collected, and at that time the EMA will be reduced to its previous level.
The RSA collections are treated as deferred inflows for accounting purposes and are used by management to mitigate material fluctuations in the cost of energy, loss of revenues or unbudgeted costs including the unexpected long-term loss of a generating facility, unplanned limits on the ability to transmit energy to the City, or disasters that could otherwise negatively affect the revenue stream. At management’s discretion, amounts in the RSA accounts may be withdrawn and recognized as gross revenues of the Electric System in order to maintain sufficient debt service coverage ratios. As of June 30, 2023, the balance in the RSA regulatory credit account, after recognition of RSA revenue for the fiscal year ending on that day, was approximately $95 million.
The RSA provides the City with operational and billing flexibility. With respect to any RSA adjustment, the City first considers the result on customer bills with a goal of maintaining total electric charges that are competitive with those of other utilities in the region. Any change indicated by the RSA calculation is reviewed against other known long-term factors prior to any automatic implementation of rate changes. This allows the City to blend forecasted increases or decreases in the projected power supply A-23
or operational costs to meet the financial requirements of the City and mitigate future fluctuations in electrical costs to customers. The General Manager has the authority to adjust the RSA within prescribed guidelines.
Effective May 1, 2024, the City updated its electric rate schedule, lowering certain variable rate components with corresponding increases to base rates to better align with current costs. The PCA charge has been set to zero for all customer classes, and the EMA charge is 0.0005¢ per kWh for all customer classes. While these adjustments have been incorporated into the existing base rates, the PCA and EMA charges remain available for potential future adjustments when needed. In addition, all classes pay an undergrounding surcharge equal to 4% of base rate charges (exclusive of RSA) in order to fund the conversion of overhead power lines into underground lines throughout the City. The City does not impose a utilities’ user tax.
The City’s current primary rate schedules for residential, commercial and industrial customers of the Electric System are set forth in Table 6 below.
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TABLE 6
PRIMARY RATE SCHEDULES FOR RESIDENTIAL, COMMERCIAL
AND INDUSTRIAL CUSTOMERS
(As of May 1, 2024)
Type and Description of Service
Domestic Services Single Family Customers (Basic):
Customer Charge, per meter, per month $ 8.00
Energy Charge (added to Customer Charge):
First 10 kWh per day, cents per kWh 14.00
All Excess kWh, cents per kWh 21.49
General Service Small Commercial Customers:
Customer Charge, per meter, per month $ 24.00
Energy Charge (to be added to Customer Charge):
All kWh, cents per kWh 19.60
General Service Medium Commercial Customers:
Customer Charge $ 56.00
Demand Charge (added to Customer Charge)
First 15 kW or less of billing demand 166.00
All excess kW of billing demand per kW 17.13
Energy Charge (added to Demand Charge)
All kWh, cents per kWh 13.78
General Service Large Commercial and Industrial Customers:
Customer Charge, per meter, per month $ 370.00
Demand Charge (to be added to Customer Charge):
First 200 kW or less of billing demand 3,726.00
All excess kW of billing demand, per kW 21.10
Energy Charge (to be added to Demand Charge):
For the first 540 kWh per kW of billing demand, cents per kWh 13.03 All excess kWh, cents per kWh 9.00
Summer Winter
Commercial Optional Time of Use Rate:
Customer Charge, per meter, per month: $350.00 $350.00
Demand Charge (added to Customer Charge):
Non-Time related Maximum Demand, per kW 11.00 11.00
Plus all on-peak billing demand, per kW 19.95 N/A
Plus all mid-peak billing demand, per kW 6.98 10.93
Plus all off-peak billing demand, per kW N/A N/A
Energy Charge (added to Demand Charge):
All on-peak energy, cents per kWh 17.32 N/A
Plus all mid-peak energy, cents per kWh 13.60 14.56
Plus all off-peak energy, cents per kWh 9.20 9.20
_______________
Source: Anaheim.
Average Billing Price. The table below sets forth the average billing price per kWh for the various customer classes during the five fiscal years shown (taking into account the PCA, the EMA and the 4.00% undergrounding surcharge).
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TABLE 7
AVERAGE BILLING PRICE (CENTS) PER KILOWATT-HOUR
(RETAIL SALES)
Fiscal Year Ended June 30,
2023 2022 2021 2020 2019
Residential 19.16 18.28 18.13 17.46 16.99
Commercial 19.86 19.61 19.38 18.69 18.15
Industrial 17.00 16.59 16.49 15.89 15.22
Other 19.44 16.70 16.63 15.84 15.43
System Averages 18.56 18.05 17.94 17.23 16.65
________________________
Source: Anaheim.
Cost Recovery and Reserves. APU’s electric rates include components that largely decouple revenues from sales and allow for the timely recovery of costs and achievement of financial goals. The City Council authorized APU to employ this rate mechanism when needed, allowing for timely cost recovery, customer bill stability, and the ability to raise approximately $65 million per year without requiring a vote. These rate mechanisms, coupled with financial reserves equal to approximately 200 days of operating expenses and a $100 million revolving line of credit with Wells Fargo Bank, N.A., provide APU with the means to offset potential lost revenue from reduced retail sales and/or increased costs.
Capital Improvements Plan
As part of its planning process, the City identified the following Electric System capital improvement projects through the Fiscal Year ending June 30, 2028 (the “Five-Year Plan”), totaling approximately $479.2 million:
Five-Year Plan
2023-24 through 2027-28
(In Thousands)
Transmission & Distribution $ 94,700
Substation Improvements 85,100
System Undergrounding 82,900
Electric Facilities & Streetlights 75,200
Direct Buried Cable & System Expansion 62,500
Transformer Replacement 51,800
System Protection, Automation, Telecom 27,000
Total $479,200
________________________
(1) The five-year plan shown represents projected capital expenditures only, not City Council adopted budgets. As such, figures may change based on timing of projects and expenditures, and re-prioritization of projects.
The electric capital programs aim to improve electric service reliability, enhance system resiliency, improve operational efficiencies, support system growth, and integrate renewable resources. Transmission and distribution projects replace aging overhead electrical and communication facilities with new underground facilities to improve overall system reliability, public safety, and aesthetics. Projects involving the Electric System’s distribution substations include enhancements to existing substations that will improve reliability and provide sufficient flexibility and capacity for future electric load growth.
System undergrounding projects place overhead electrical and communication infrastructure along Anaheim’s major thoroughfares underground, including in high fire threat zone areas for wildfire A-26
mitigation. Electric facilities and streetlights include construction of a backup operations and crew quarters facility and street light additions and upgrades. Direct buried cable projects replace aged and deteriorated cable with more resilient conduit. The transformer replacement program repairs and replaces existing overhead transformers to reduce the likelihood of emergency repairs. System Protection and Automation includes the electric system automation, protection, and Supervisory Control and Data Acquisition (“SCADA”) upgrades to enhance the resiliency and flexibility of the electric distribution system, while telecommunication projects upgrade and expand the fiber optic infrastructure to enable automation.
The City funds its capital plan through a combination of long-term financing, pay-as-you-go, and other resources. The City is in the bond market on a periodic basis to fund appropriate capital projects based on its planning models. The City currently anticipates it will finance approximately 31% of the capital costs identified in the Five-Year Plan through existing and new bond proceeds. These projections may change based on deferrals of Electric System capital improvement projects or changes in the mix of financial resources used to fund capital projects.
Insurance
The Electric System participates in the City’s self-insured workers’ compensation and general liability program. The liability for such claims, including claims incurred but not reported, is transferred to the City in consideration of self-insurance premiums paid by the Electric System. Premiums for workers’ compensation and general liability programs are charged to the Electric System by the City based on various allocation methods that include actual cost, trends in claims experience, exposure base, and number of participants. Premiums charged and paid totaled $3,546,000 and $4,065,000 for the years ended June 30, 2022 and June 30, 2023, respectively.
As of June 30, 2023, the City was fully funded for self-insured workers’ compensation and general liability claims (self-insured retention levels of $2,000,000 per occurrence for workers’ compensation claims and $1,000,000 per occurrence for general liability claims). Above these self-insured retention levels, the City’s potential liability is covered through various commercial insurance and intergovernmental risk pooling programs. Settled claims have not exceeded total insurance coverage in any of the past three years, nor does management believe that there are any pending claims that will exceed total insurance coverage.
Wildfire Mitigation Measures
A portion of the Electric System service area encompasses geographical areas classified by the CPUC’s Fire Threat Map as a “Tier 2” or “Tier 3” fire-threat area (i.e., an area of elevated or extreme risk from utility-associated wildfires). Within the four Tier 3 fire-threat zones within the City’s boundaries (representing 13.86% of the City), approximately 98% of City-owned power lines are currently underground, and the remaining above-ground power lines in Tier 3 fire-threat zones are de-energized unless needed to be utilized for the distribution of electricity to the City. These factors significantly reduce the risk of electric infrastructure being a contributing factor to the ignition of a wildfire in extreme fire-risk areas. Approximately 0.61% of the geographical area served by the Electric System is identified as a Tier 2 fire threat zone. The City currently has in place a number of wildfire prevention strategies and emergency response measures. APU conducts routine inspections of distribution equipment, which includes the overhead system (poles and associated overhead conductors and equipment), as well as underground substructures and above surface equipment. APU performs ongoing vegetation clearance and management activities, with increased clearances established for overhead power lines in high risk fire areas. The City also has instituted emergency preparedness and response measures and protocols, including annual workforce emergency response training, the flexibility to de-energize overhead lines and re-route power during outages and emergencies with limited disruption in service, and the ability to eliminate the automatic A-27
reclosing capability of protective relays on certain transmission lines located with a Tier 3 fire-threat zone during dangerous weather conditions to require that power to a tripped line is only restored after manual inspection and confirmation that it may be operated safely. Pursuant to the California legislative requirements, the City Council approved and adopted the Anaheim Public Utilities 2023 Wildfire Mitigation Plan on June 13, 2023. Additionally, a qualified independent evaluator with experience in assessing the safe operation of electrical infrastructure reviewed Anaheim’s 2023 plan, finding it comprehensive and satisfying the statutory requirements in compliance with California Public Utilities Code Section 8387. See also “DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS – State Legislation – Legislation Relating to Wildfires; Related Risks” in the front part of this Official Statement.
Transfers to the General Fund
Transfers of Electric System funds to the City’s General Fund occur on a semi-annual basis. Under the Charter, annual transfers may not exceed 4% of gross revenues of the electric utility for the prior fiscal year.
Indebtedness; Joint Powers Agency Obligations
Direct Obligations. As of June 30, 2024, in addition to its obligations under its joint powers agency contracts (see “– Joint Powers Agency Obligations” below), the City had outstanding $641,505,000 principal amount of long-term obligations payable from Electric System revenues, consisting of installment purchase payments (“Qualified Obligations”) payable by the City under installment purchase agreements with the Anaheim Housing and Public Improvements Authority (“AHPIA”), the Anaheim Public Financing Authority (“APFA”), or the California Municipal Finance Authority (“CMFA”) relating to bonds issued by AHPIA, APFA, or CMFA for the benefit of the Electric System, which are payable from surplus Electric System revenues after payment of maintenance and operations expenses of the Electric System and the replenishment of certain reserves and other funds.
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The outstanding Qualified Obligations are summarized in the table below.
TABLE 8
OUTSTANDING QUALIFIED OBLIGATIONS
(as of June 30, 2024)
Issue
Date of Installment
Purchase Agreement
Principal Amount
Outstanding
California Municipal Finance Authority Revenue Refunding Bonds, Series 2014-A (City of Anaheim Electric Utility
Distribution System Refunding)
10/01/14 $19,660,000
California Municipal Finance Authority Revenue Refunding Bonds, Series 2015-B (City of Anaheim Electric Utility
Distribution System Refunding and Improvements) (1)
06/01/15 49,115,000
Anaheim Housing and Public Improvements Authority
Revenue Refunding Bonds, Series 2017-A (Electric Utility Distribution System Refunding)
12/01/17 30,005,000
Anaheim Housing and Public Improvements Authority
Revenue Bonds, Series 2020-A (Electric Utility Distribution System Improvements) (1)
03/01/20 56,465,000
Anaheim Housing and Public Improvements Authority
Revenue Refunding Bonds, Series 2020-B (Electric Utility Distribution System Refunding) (1)
03/01/20 107,965,000
Anaheim Housing and Public Improvements Authority
Revenue Refunding Bonds, Series 2020-C (Electric Utility Distribution System Refunding) (1)
03/01/20 42,340,000
Anaheim Housing and Public Improvements Authority
Revenue Bonds, Series 2022-A (Electric Utility Distribution System)
04/01/22 155,855,000
Anaheim Housing and Public Improvements Authority
Revenue Bonds, Series 2022-B (Electric Utility Generation System)
04/01/22 74,255,000
Anaheim Housing and Public Improvements Authority
Revenue Refunding Bonds, Series 2022-D (Electric Utility Distribution System Refunding) (Federally Taxable) (1)
04/01/22 71,750,000
Anaheim Housing and Public Improvements Authority
Revenue Refunding Bonds, Series 2022-E (Electric Utility Distribution System Refunding) (Forward Delivery)
04/01/22 34,095,000
_______________________
(1) Target Bonds proposed to be refinanced with the 2022 Bonds. See “PLAN OF FINANCE” in the Official Statement.
Source: Anaheim.
The City has entered into an Amended and Restated Revolving Credit Agreement, dated as of December 7, 2023 (the “Revolving Credit Agreement”) with Wells Fargo Bank, National Association (the “Credit Bank”), under which the City may borrow up to $100,000,000 for purposes of the Electric System.
The repayment obligation of the City for amounts borrowed under the Revolving Credit Agreement for the Electric System is evidenced by Electric Revenue Anticipation Notes of the City, which are payable from A-29
and secured by surplus Electric System revenues on a basis that is junior and subordinate to the payment of the Qualified Obligations.
Any outstanding Electric System borrowings of the City under the Revolving Credit Agreement that have not been paid (which borrowings may be paid from, among other sources, proceeds of future long-term financings of the City) on or prior to the facility maturity date of the Revolving Credit Agreement (i.e., currently December 6, 2028, unless extended) will be automatically converted to term loans on such date, so long as no default or event of default by the City shall have occurred and be continuing, and all representations and warranties of the City under the Revolving Credit Agreement are true and correct in all material respects as of such date.
The Revolving Credit Agreement is also available for Water System borrowings. Borrowings for the Water System will reduce the commitment available under the Revolving Credit Agreement by an amount corresponding to such Water System borrowing.
Joint Powers Agency Obligations. As described herein, the City participates in or contracts with several joint powers agencies, including IPA and SCPPA. Obligations of the City under the agreements with IPA and SCPPA constitute maintenance and operation expenses of the Electric System payable prior to any of the payments required to be made with respect to the City’s outstanding direct Electric System obligations (including the Qualified Obligations and Electric Revenue Anticipation Notes). Agreements between the City and IPA and the City and SCPPA (other than the agreement relating to SCPPA’s Prepaid Natural Gas Project bonds and Clean Energy Project bonds) are on a “take-or-pay” basis, which requires payments to be made whether or not applicable projects are completed or operable, or whether output from such projects is suspended, interrupted or terminated. All of these agreements (other than the agreements relating to SCPPA’s Prepaid Natural Gas Project bonds, the Natural Gas Reserves Project bonds, the Canyon Power Project bonds and the Clean Energy Project bonds) contain “step-up” provisions obligating the City to pay a share of the obligations of a defaulting participant. The City’s participation and share of debt service obligation (without giving effect to any “step-up” provisions) for each of the joint powers agency projects in which it participates are shown in the following table. [Remainder of page intentionally left blank.]
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TABLE 9
OUTSTANDING DEBT OF JOINT POWERS AGENCIES AND ANAHEIM’S SHARE (as of June 3, 2024)
Principal Amount
of Outstanding
Debt
Anaheim’s
Participation(1)
Anaheim’s Share of
Principal Amount
of Outstanding
Debt(2)
Intermountain Power Agency
Intermountain Power Project(2)...................... $ 101,675,000 13.225% $ 13,446,519 Southern California Public Power Authority
Southern Transmission System ..................... 125,655,000 17.647 22,174,338 Magnolia Power Project(3) ............................. 210,150,000 39.683 83,394,245 Prepaid Natural Gas Project(4) ....................... 247,210,000 16.500 40,789,650 Natural Gas Reserves .................................... 17,815,000 100.000 17,815,000 Canyon Power Project ................................... 254,540,000 100.000 254,540,000 Clean Energy Project(5).................................. 592,270,000 100.000 592,270,000 Subtotal ............................................... 1,447,640,000 1,010,983,233 Total $1,549,315,000 $1,024,429,752
____________________
(1) Obligation is subject to increase upon default of another project participant (other than with respect to SCPPA’s Prepaid Natural Gas Project bonds, the Natural Gas Reserves Project bonds, the Canyon Power Project bonds and the Clean Energy Project bonds).
(2) Reflects outstanding bonds.
(3) Excludes bonds relating solely to City of Cerritos. (4) Not a “take-or-pay” obligation; the City must pay for contracted natural gas only to the extent delivered. (5) Not a “take-or-pay” obligation; the City must pay for contracted electricity only to the extent delivered.
Source: Anaheim.
For the Fiscal Year ended June 30, 2023, the City estimates that payments of debt service on its joint powers agency obligations totaled approximately $51.2 million. Annual debt service on the City’s joint powers agency obligations is expected to decrease from this level to approximately $49.5 million in the Fiscal Year ending June 30, 2040. This projection assumes no future debt issuances and further assumes that the annual interest rate on unhedged variable rate joint powers agency debt obligations (i.e., joint powers agency obligations not otherwise fixed through interest rate swap agreements) will be 2.25%.
Currently, all joint powers agency debt that Anaheim is a participant in is either fixed or fully-hedged if variable. Unreimbursed draws under liquidity arrangements supporting joint powers agency variable rate debt obligations bear interest at a maximum rate substantially in excess of the assumed rates stated above and may be subject to repayment to the liquidity provider over a significantly shorter period than the originally scheduled payment of principal on the related bonds. Interest rate swap agreements entered into by joint powers agencies in connection with hedged variable rate joint powers agency obligations may be subject to early termination. In the event of early termination of a joint powers agency interest rate swap agreement, the joint powers agency could be obligated to make a substantial payment to the applicable swap provider, a corresponding amount of which termination payment (proportionate to each project participants’ participation share in the related project) could be due from the applicable project participants.
Accounting Policies
The Electric System’s accounting records, financial transactions and billing are computerized. The City’s independent auditor performs an audit of the Electric Utility Fund of the Electric System at the same time as the other financial statements of the City are audited.
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Funds of the Electric System are separated from the General Fund of the City, and the books and records are maintained separate and apart from all other funds and accounts of the City.
For further information concerning the Electric System’s financial position, see the audited financial statements of the Anaheim Electric Utility Fund for the Fiscal Year ended June 30, 2023 in APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE ANAHEIM ELECTRIC UTILITY FUND FOR THE FISCAL YEAR ENDED JUNE 30, 2023.”
KPMG LLP, certified public accountants, audited the City’s Electric Utility Fund financial statements for the Fiscal Year ended June 30, 2023, included in Appendix B to this Official Statement. The City did not request the consent of KPMG LLP to include its report in Appendix B, and KPMG LLP has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by KPMG LLP with respect to any event subsequent to the date of its report.
Historical Financial Results
The following table shows a summary of the financial results of the Electric System for the five Fiscal Years ended June 30, 2019 through June 30, 2023, and a 9-month period for Fiscal Years 2024 and 2023. The table also sets forth the calculation of debt service coverage of outstanding Electric System obligations for these periods.
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TABLE 10
CITY OF ANAHEIM
ELECTRIC UTILITY FUND, FINANCIAL RESULTS OF THE ELECTRIC SYSTEM (Dollars in Thousands)
Nine Months ended
March 31, Fiscal Year Ended June 30,
2024(1) 2023 2023 2022 2021 2020 2019
Unaudited Unaudited
Revenues
Sale of electricity:
Residential $ 77,521 $ 87,252 $ 106,124 $ 100,861 $ 99,110 $ 95,299 $ 99,321 Commercial 95,112 93,659 122,100 124,625 116,632 125,383 131,998 Industrial 90,146 97,625 120,366 122,338 112,698 130,767 131,553 Other 3,506 3,089 3,094 3,216 3,568 3,867 4,092
Other Utilities (wholesale) 13,542 33,888 35,320 20,640 27,286 14,498 38,138 Total revenue from sale of electricity $279,827 $315,513 $387,004 $371,680 $359,294 $369,813 $405,103 RSA revenue - 30,000 58,637 40,000 35,000 17,250 15,000 Other (including general interest income)(2) 35,465 39,099 43,081 33,503 40,937 39,673 48,973 Total gross revenues $315,292 $384,612 $488,722 $445,183 $435,231 $426,736 $469,076 Expenses (excluding depreciation
and amortization)
Cost of purchased power(3) $180,172 $250,598 $300,004 $271,293 $250,867 $265,626 $295,540 Fuel and generation(4) 110 286 265 399 68 805 8,613
Operations & Maintenance 56,892 53,745 56,883 46,052 57,909 67,526 56,260 Right of way fee 4,814 4,922 6,227 5,042 5,530 5,668 5,570 Total expenses $241,988 $309,551 $363,411 $322,786 $314,374 $339,625 $365,983 Net revenues $73,304 $75,061 $125,311 $122,398 $120,857 $ 87,111 $103,093 Deposits to Renewal and Replacement Account - - (246) 478 1,954 (397) (244) Surplus Revenues (a) 73,304 75,061 125,557 121,920 118,903 87,508 103,337 Qualified Obligations purchase
payments (b)(5) 50,259 48,311 64,414 60,840 58,765 50,335 50,410 Second Lien Qualified Obligations (c)(6) - - - - - 815 951 Net revenues after debt service payments 23,045 26,750 61,143 61,080 60,138 36,358 51,975 Transfers (to) Anaheim General Fund (12,286) (12,746) (16,994) (15,239) (16,667) (18,322) (17,444) Transfers (to) from other Anaheim funds 592 190 253 1,422 179 277 227 Balance for other purposes $ 11,351 $ 14,194 $ 44,402 $ 47,264 $ 43,650 $ 18,313 $ 34,758 Qualified Obligation (incl. Second Lien) debt
service coverage (a/(b+c)) 1.5x 1.6x 1.9x 2.0x 2.0x 1.7x 2.0x _______________________
(1) The decrease in electric revenue and supply costs for the 9-month stub period in 2024 compared to 2023 is primarily due to less demand stemming from cooler temperatures, reducing both revenue and costs related to generation, transmission, and wholesale energy purchases; additionally, no RSA revenue has been recognized through the end of 9-month period ending March 31, 2024. (2) The other revenues include transmission revenues, natural gas sales and interest income. Other revenue was restated to exclude capital grants from operation revenue based on GASB 34.
(3) Includes take-or-pay obligations with joint powers agencies. Cost of Purchased Power includes transmission costs and natural gas costs. Cost of Purchased Power reflects use of carbon allowance credits from the CARB to reduce renewable energy expenses. (4) Fuel and generation includes all expenses associated with the operation of the Kraemer CT Plant and the SJGS Unit 4, which are no longer in operation. (5) Refer to Table 8 in this Appendix A for Qualified Obligations outstanding at June 30, 2023. (6) Second Lien Qualified Obligations outstanding at June 30, 2019 include $50,000,000 CMFA Revenue Bonds, Series 2015-A which were refunded in full on March 4, 2020.
Source: Anaheim.
Management’s Discussion of Fiscal Year 2022-23 Operating Results Gross revenues for the Fiscal Year ended June 30, 2023 were approximately $488.7 million, an increase of $43.5 million or 9.8% from the prior fiscal year, mainly due to higher retail and wholesale sales.
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Total retail sales increased by $.6 million or 0.2% for the Fiscal Year ended June 30, 2023 compared to the prior fiscal year. Residential sales increased by approximately $5.3 million or 5.2%, primarily as a result of higher than average temperatures. Commercial and industrial sales decreased approximately $4.5 million or 1.8% compared to the previous fiscal year primarily as a result of the end of the state’s stay-at-home orders which closed many businesses. Continued adoption of solar and energy efficiency measures by commercial and industrial customers also contributed to lower retail sales. APU expects to recognize approximately $58.6 million in RSA revenues to partially offset the lower sales revenues. The RSA component of APU’s rate structure provides flexibility to recover costs and manage fluctuations in revenues. See also “– Electric Rates and Charges” for a discussion of the City’s electric rate structure.
Wholesale sales increased approximately $14.7 million or 71.1% for the Fiscal Year ended June 30, 2023 compared to the prior fiscal year, primarily because of more wholesale energy sold.
Other revenues, comprised mainly of surplus natural gas sales, transmission revenue, and interest income, decreased by approximately $9.6 million or 28.5% for the Fiscal Year ended June 30, 2023 compared to the prior fiscal year in which transmission revenues were abnormally high due to congestion fees resulting from fires and transmission outages.
Total operating expenses for the Fiscal Year ended June 30, 2023 were approximately $363.4 million, an increase of $40.6 million or 12.6% from the prior fiscal year. Cost of purchased power was approximately $300.0 million for the Fiscal Year ended June 30, 2023, an increase of approximately $28.7 million or 10.6% from the prior fiscal year[, reflecting the increased cost of power versus the prior fiscal year.
Labor Relations
As of June 30, 2023, APU has a total of 353 full-time and 52 part-time authorized positions. Of this total: the International Brotherhood of Electrical Workers (“IBEW”) Local 47 represents, approximately, 222 full-time and 28 part-time employees; the American Federation of State, County, and Municipal Employees District Council 36 (“AFSCME”) represents approximately 122 full-time and 15 part-time employees; and the Anaheim Municipal Employees Association (“AMEA”) represents 8 full-time and 1 part-time employee. The City of Anaheim and IBEW, Local 47 established a memorandum of understanding for the general unit effective January 1, 2023 through January 1, 2026, for the part time customer service unit effective January 1, 2023 through December 31, 2025, and for the professional management and part-time management units effective January 20, 2023 through January 16, 2026. The memorandum of understanding with AMEA expires July 3, 2025. The City also approved a memorandum of understanding with AFSCME effective July 1, 2023 through June 30, 2027. The City has not experienced any strike, work stoppage or other labor action by APU’s employees in the last five years.
Retirement Programs
Pension Plans. The City’s permanent employees, including APU’s Electric System employees, are covered by the California Public Employees Retirement System (“CalPERS”) through agent multiple- employer defined benefit plans administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website at www.calpers ca.gov. The foregoing internet address is included for reference only, and the information on the internet site is not incorporated by reference herein.
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The City’s defined benefit pension plans, the Miscellaneous Plan, Police Safety Plan and Fire Safety Plan, provide retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members (who must be public employees) and beneficiaries. No employees assigned to the Electric System participate in the Police Safety Plan or Fire Safety Plan. Benefit provisions and all other requirements of the plans are established by State statute and City ordinance. California legislation, the Public Employee’s Pension Reform Act (“PEPRA”) of 2013, implemented certain limits on the amount and types of compensation that may be included in calculating pension benefits and new formulas for the calculation of pension benefits, as well as certain contribution requirements for the sharing of pension benefit costs, for new employees hired on or after January 1, 2013 who meet the definition of a new member under PEPRA.
The cost of the Miscellaneous Plan is funded through bi-weekly contributions from employees and from employer contributions by the City. Miscellaneous Plan employees hired prior to January 1, 2013 are generally required to contribute 8.00% of their annual covered salary. Miscellaneous Plan members hired on or after January 1, 2013 and who have no prior membership in any California public employee retirement system are required to contribute 6.75% of their annual covered salary. The member contribution can be paid by the employee or by the City on the employee’s behalf in accordance with applicable labor agreements. The majority of Miscellaneous Plan employees hired prior to January 1, 2013 contribute the full 8.00% employee contribution plus 4.00% of the employer contribution, for a total of 12.00%. For employees hired on and after January 1, 2013 that are required to contribute at an employee rate of 6.75% of annual covered salary, the entire 6.75% is paid by such employees. In accordance with applicable State law, the contribution rate for all public employers is determined annually by the actuary and is effective on the July 1 following notice of a change in rate. Funding contribution amounts are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate applied to annual payroll is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members, using the actuarial basis recommended by CalPERS actuaries and actuarial consultants and adopted by the CalPERS Board of Administration. CalPERS establishes and amends the employer contribution rates. Beginning with Fiscal Year 2017-18, CalPERS began collecting employer contributions toward the plan’s unfunded liability as dollar amounts rather than percentage of active payroll. Miscellaneous Plan provisions and benefits in effect at June 30, 2023 are as follows: the City’s required employer contribution rate for the normal cost component of required contributions for the Miscellaneous Plan was approximately 11.75% of annual covered payroll for employees hired prior to January 1, 2013, and 11.75% of annual covered payroll for employees hired after January 1, 2013; the City’s contribution to the unfunded accrued liability was approximately $40,545,000.
The table below shows the recent history of the actuarial accrued liability, the market value of assets, the funded ratio and the annual covered payroll for the City’s Miscellaneous Plan.
Valuation
Date
Accrued
Liability
Market Value of
Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
06/30/18 $1,455,035,000 $1,014,034,000 $441,001,000 69.7% $120,194,000 06/30/19 1,502,706,000 1,057,123,000 445,583,000 70.3 124,366,000 06/30/20 1,543,927,000 1,084,188,000 459,739,000 70.2 124,700,000 06/30/21 1,619,285,000 1,308,881,000 310,404,000 80.8 111,733,000 06/30/22 1,644,875,000 1,183,393,000 461,482,000 71.9 114,862,000 Beginning with the June 30, 2013 valuation, CalPERS no longer uses an actuarial value of assets and instead uses the market value of assets to determine contribution rates per CalPERS’ direct rate A-35
smoothing policy. Under its direct rate smoothing policy, CalPERS employs an amortization and smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a 5-year period.
The PERS Board adopted a new amortization policy effective with the June 30, 2019 actuarial valuation. The new policy shortens the period over which actuarial gains and losses are amortized from 30 years to 20 years with the payments computed using a level dollar amount. In addition, the new policy removes the five-year ramp-up and ramp-down on unfunded accrued liability bases attributable to assumption changes and non-investment gains/losses. The new policy removes the five-year ramp-down on investment gains/losses. These changes will apply only to new unfunded accrued liability bases established on or after June 30, 2019.
The City’s required contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. Many assumptions are used to estimate the ultimate liability of pensions and the contributions that will be required to meet those obligations. The CalPERS Board of Administration has adjusted and may in the future further adjust certain assumptions used in the CalPERS actuarial valuations, which adjustments may increase the City’s required contributions to CalPERS in future years. One of the most significant factors used in determining the liability and the funding requirements is the rate of return that investments will yield prior to making payments, known as the discount rate. CalPERS approved an incremental reduction in the discount rate to be used in its actuarial valuation from 7.5% to 7.0% over the three Fiscal Years 2018-19 to 2020-21. The discount rate was automatically lowered in July 2021, from 7.0% to 6.8%, due to the CalPERS investment return for Fiscal Year 2020-21. A lower discount rate is expected to result in an increase in the unfunded liability and the contributions required to meet those obligations. Accordingly, the City cannot provide any assurances that the City’s required contributions to CalPERS in future years will not significantly increase (or otherwise vary) from any past or current projected levels of contributions.
The table below sets forth certain information regarding the electric utility’s portion of the City’s required contributions to its CalPERS Miscellaneous Plan for the Fiscal Years ended June 30, 2019 through June 30, 2023, which amounts were paid in full by the Electric System in each of such fiscal years.
City of Anaheim
Schedule of Electric Utility Pension Plan Contributions Fiscal Year
Contribution
Funded by Electric
Utility
Actuarially
Determined
Contribution
Amount by
Electric Utility
Electric Utility
Contribution
Deficiency (Excess)
to Actuarially
Determined
Contribution
Electric Utility
Contribution as a
% of Covered
Payroll
2018-19 $ 9,005,000 $ 9,005,000 -- 32.83%
2019-20 10,285,000 10,285,000 -- 36.19
2020-21 11,089,000 11,089,000 -- 41.49
2021-22 11,318,000 11,318,000 -- 39.06
2022-23 11,925,000 11,925,000 -- 43.28
Source: Anaheim.
Effective for the Fiscal Year ended June 30, 2015, the City adopted Governmental Accounting Standards Board (“GASB”) Statement No. 68, affecting the reporting of pension liabilities for accounting purposes. Under GASB Statement No. 68, the City is required to report the Net Pension Liability (i.e., the difference between the Total Pension Liability and the Pension Plan’s Net Position or market value of assets) in its financial statements.
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The table below summarizes certain information relating to the electric utility fund’s proportionate share of the Net Pension Liability of the City’s Miscellaneous Plan for the measurement periods ended June 30, 2018 through June 30, 2022 (as reported in the City’s electric utility fund audited financial statements as of the succeeding fiscal year). The electric utility’s proportion of the Net Pension Liability was based on a projection of its long-term share of contributions to the pension plan relative to the projected contributions of all participating funds of the City.
City of Anaheim Electric Utility Fund Proportionate Share of the Net Pension Liability – Miscellaneous Plan
Measurement
Period(1)
Proportionate
Share of the Net
Pension Liability(2)
Electric Utility
Share of the Net
Pension Liability(2)
Net Position as a
% of Share of
Total Pension
Liability
Share of Net
Pension Liability
as a % of Its
Covered Payroll
2017-18 21.2297% $87,747,000 71.03% 333.14%
2018-19 22.2088 94,322,000 71.33 343.89
2019-20 22.2428 98,035,000 71.16 344.91
2020-21 22.6166 58,177,000 83.58 200.76
2021-22 21.9206 101,160,000 71.94 401.77
(1) Measured using prior fiscal year annual actuarial valuation rolled forward to measurement date. (2) Reflects the electric utility’s share of the City’s Miscellaneous Plan Net Pension Liability of $425,587,000, $413,322,000, $424,705,000, $440,748,000, $342,652,000 and $358,109,000 for the five Fiscal Year measurement periods of 2017-18, 2018- 19, 2019-20, 2020-21 and 2021-22, respectively.
Source: Anaheim.
Retiree Health Benefits. In addition to the defined benefit pension plan described above, the City also maintains a program providing “other post-employment benefits” (“OPEB”) to eligible retirees, including health care and disability coverage and death benefits. The City made significant changes to its OPEB program during Fiscal Year ended June 30, 2006. For City employees hired prior to January 1, 1996 (other than those represented by the Anaheim Police Association, the Anaheim Fire Association or the IBEW), the length of service credit was frozen for all employees eligible for the benefit. Length of service, a factor in determining the amount of the benefit earned, will not accrue beyond December 31, 2005.
Employees hired on or after January 1, 1996 (other than those represented by the Anaheim Police Association or the Anaheim Fire Association) are no longer eligible for City funding of all or a portion of post-employment medical benefits. For City employees represented by the IBEW who had not retired as of October 15, 2005, medical benefits only for future retirees are to be provided through a trust established by the IBEW. Benefits are determined by the trustees of the trust and the City’s liability is limited to specified percentages of employee pay.
City employees hired on or after January 1, 1996 and before January 1, 2002 (other than those represented by the Anaheim Police Association, the Anaheim Fire Association or the IBEW) were transitioned from the former defined benefit OPEB medical plan to a defined contribution OPEB medical plan. The City made a one-time contribution of $1,685,000 to a newly established retiree health savings account for those eligible employees. Participation in the retiree health savings account is mandatory for this transitional group of employees.
Based on eligibility status, retirees may participate in any health plan made available to active City employees. The City has several plans with different contribution levels and benefit provisions. The City’s contributions vary up to 100% of annual premium cost, depending on the employee’s Medicare eligibility, year of hire, age and employee group. At June 30, 2023, 1,331 retirees or surviving spouses met the various eligibility requirements and were receiving medical benefits.
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The City’s contributions toward the cost of its OPEB program are generally advance funded on an actuarial basis to a dedicated reserve, but annual contributions are not required. To pre-fund OPEB liabilities, the City participates in the California Employers’ Retiree Benefit Trust, an agent multiple employer plan consisting of an aggregation of single-employer plans, with pooled administrative and investment functions that are administered by CalPERS. As of the actuarial valuation date of June 30, 2022, the unfunded liability for the City’s Post-Employment Medical Benefits Program was $122,722 or 47% funded.
For Fiscal Years prior to Fiscal Year 2017-18, the City’s reported annual OPEB cost (expense) was determined in accordance with the parameters of GASB Statement No. 45. The electric utility paid its allocated share of the City’s annual full cost for current premiums.
Effective for Fiscal Year 2017-18, the City follows the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (“GASB No. 75”) affecting the reporting of OPEB liabilities for accounting purposes. GASB No. 75 replaces the requirements of GASB Statement No. 45. GASB No. 75 establishes standards for employers with other postemployment liabilities for recognizing and measuring net OPEB liabilities, along with deferred inflows and outflows of resources, and expenses/expenditures related to the other postemployment liability. GASB No. 75 does not establish requirements for funding.
City contributions to the OPEB Plan occur as benefits are paid to retirees or contributions to the OPEB Trust. The City contributes an amount not less than the annual actuarially determined contribution measured in accordance with the parameters of GASB No. 75. The table below sets forth certain information regarding the electric utility’s allocated share of the City’s annual contributions to the OPEB Plan for the Fiscal Years ended June 30, 2019 through June 30, 2023, including the relation of such contributions to the actuarially determined contribution amount for such fiscal year. [Remainder of page intentionally left blank.]
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City of Anaheim
Schedule of Electric Utility OPEB Plan Contributions
Fiscal Year
Contribution
Funded by Electric
Utility
Actuarially
Determined
Contribution
Amount by
Electric Utility
Electric Utility
Contribution
Deficiency (Excess)
to Actuarially
Determined
Contribution
Electric Utility
Contribution as a
% of Covered
Payroll
2018-19 $2,109,000 $2,109,000 -- 7.64%
2019-20 2,153,000 2,153,000 -- 7.86
2020-21 1,773,000 1,773,000 (275,000) 8.04
2021-22 1,970,000 1,781,000 (189,000) 7.61
2022-23 1,774,000 1,774,000 -- 6.48
Source: Anaheim.
The table below summarizes certain information relating to the electric utility fund’s proportionate share of the City Net OPEB Liability for the measurement periods ended June 30, 2018 and June 30, 2022 (as reported in Anaheim’s electric utility fund audited financial statements as of the succeeding fiscal year).
City of Anaheim Electric Utility Fund
Proportionate Share of the Net OPEB Liability
Measurement
Period(1)
Proportionate
Share of the Net
OPEB Liability(2)
Electric Utility
Share of the Net
OPEB Liability(2)
Net Position as a
% of Share of
Total OPEB
Liability
Share of Net
OPEB Liability as
a % of Its Covered
Payroll
2017-18 12.6460% $23,376,000 32.86% 88.26%
2018-19 13.1411 21,224,000 37.15 76.93
2019-20 13.0617 20,912,000 37.91 76.36
2020-21 12.5016 13,395,000 53.77 52.59
2021-22 12.2649 15,052,000 46.79 58.12
(1) Measured using actuarial valuation as of the measurement date. (2) Reflects the electric utility’s share of the City’s Net OPEB Liability of $184,851,000, $161,507,000, $160,100,000, $107,149,000 and $122,722,000 for the fiscal year measurement periods of 2017-18, 2018-19, 2019-20, 2020-21 and 2021-22, respectively
Source: Anaheim.
Additional information regarding the City’s retirement plans and OPEB, including information regarding the assumptions used to determine the pension and OPEB liabilities and the funding requirements therefor, can be found in Notes 10 and 11 and the Required Supplementary Information to the City’s audited financial statements included in the City’s comprehensive annual financial report, which may be obtained on the City’s website at http://www.anaheim.net. See also APPENDIX B – “AUDITED FINANCIAL
STATEMENTS OF THE ANAHEIM ELECTRIC UTILITY FUND FOR THE FISCAL YEAR ENDED JUNE 30, 2023.”
Litigation Affecting the Electric System
General. At any given time, the City has pending against it a number of claims and lawsuits arising out of matters usually incidental to the operation of a utility such as the Electric System. The City is of the view that, if determined adversely to the City, the actual damage awards likely to be ultimately paid with respect to any such current claims and lawsuits would not, in the aggregate, materially impair the City’s ability to pay its Electric System obligations.
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In addition, there are various ongoing proceedings to which the City is not a party that involve projects in which the City has an interest and which comprise a portion of the current resource portfolio of the Electric System; although the City is not a party to these such proceedings, their outcome may impact the costs and operations of the affected project.
Federal Prosecution. On August 16, 2023, former Anaheim mayor, Harry Sidhu, agreed to plead guilty to four felony charges consisting of obstruction of justice, wire fraud, and two counts of making false statements to the Federal Bureau of Investigation (“FBI”) and Federal Aviation Administration (“FAA”).
In his plea agreement with federal prosecutors, Mr. Sidhu admitted that he sought to become a member of the City’s negotiating team and provided confidential information related to the sale of Angel Stadium of Anaheim to people working for the Angels. Mr. Sidhu’s sentencing is currently scheduled for June 14, 2024.
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APPENDIX B
CITY OF ANAHEIM ELECTRIC UTILITY FUND –
AUDITED FINANCIAL STATEMENTS FOR THE
FISCAL YEAR ENDED JUNE 30, 2023
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APPENDIX C
GENERAL INFORMATION REGARDING THE CITY OF ANAHEIM
The economic and demographic information provided in this Appendix C is presented as general background data and has been collected from sources which the City deems to be reliable. The General Fund of the City is not liable for the payment of the 2024-A Bonds, any premium thereon upon redemption prior to maturity or their interest, nor is the credit or taxing power of the City pledged for the payment of the 2024-A Bonds, any premium thereon upon redemption prior to maturity or their interest. The principal of and interest on any 2024-A Bonds and any premiums upon redemption thereof prior to maturity are not a debt of the City nor a legal or equitable pledge, charge, lien or encumbrance upon any of its property or upon any of its income, receipts or revenues. The 2024-A Bonds are payable from and secured by the Purchase Payments to be made by the City under the Installment Purchase Agreement solely from Surplus Revenues of the Electric System of City and other funds which are pledged to the payment of the 2024- A Bonds, interest thereon and any premiums upon redemption pursuant to the Indenture. See the section in the Official Statement entitled “SECURITY AND SOURCES OF PAYMENT FOR THE 2024 Bonds.” General Overview
The City of Anaheim (the “City”) was founded and incorporated in 1857, disincorporated in 1872, reincorporated in 1876, and reorganized in 1888. No change in organization took place until June 1964, when the local voters approved a City Charter. The City operates under the Charter and with a Council- Manager form of government.
The City covers 50 square miles and is located in the northern portion of Orange County, about 28 miles southeast of downtown Los Angeles and about 90 miles north of San Diego. The City lies on a coastal plain which is bordered by the Pacific Ocean on the west and the Santa Ana Mountains on the east.
Full-time equivalent employees of the City numbered 2,061 as of June 30, 2023, of whom 617 were assigned to the Police Department and 334 to the Fire Department. The latter has 11 stations. The City is assigned a Class I fire insurance rating by Insurance Services Office, Inc., which is the highest rating possible for a municipality.
City Council
The City has a seven-member City Council (the “City Council”), comprised of a Mayor, elected at large, and six other City Council members elected by districts. Anaheim’s first district-based election occurred in 2016, electing four district City Council members (Districts 1, 3, 4 and 5); District 3 to serve a two-year term and Districts 1, 4 and 5 to serve a four-year term. In 2018, voters residing in Districts 2, 3 and 6 elected their City Council members. The current members of the City Council are set forth below.
Ashleigh Aitken, Mayor, was elected mayor of Anaheim in November 2022, representing the City at large. Mayor Aitken previously served two terms on the Anaheim Community Services Board including as chairwoman from 2011-2013. A trial lawyer for more than 20 years, Mayor Aitken is of counsel at Santa Ana-based Aitken Aitken Cohn, a boutique personal injury firm. She is a former federal prosecutor in the Central District of California. In 2015, she was elected president of the Orange County Bar Association, where she established a veterans committee to expand free legal support for veterans and military families.
From 2012 to January 2023, Mayor Aitken served on the board of directors of the OC Fair & Events Center, including as chairwoman in 2015. Mayor Aitken holds a bachelor’s in secondary education and history from Boston College. She has her law degree from the University of Southern California, Gould School of Law.
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Norma Campos Kurtz, Mayor Pro Tem, joined the City Council representing District 4 in February 2023. She currently serves as mayor pro tem, representing the City at large at community and other events. Before joining the City Council, Ms. Campos Kurtz served on the Anaheim Public Utilities Board from 2021 up to her appointment. Ms. Campos Kurtz also served for eight years as a commissioner on Housing and Community Development Commission, served as director of workforce and economic development for the Orange County Labor Federation from 2010 to 2014, served as vice president of the California Medical Association from 2007 to 2009 and served as district director for former California Senator Joe Dunn from 1998 to 2006. Most recently, Ms. Campos Kurtz served as district director for former California Assemblymember Tom Daly. She is currently a board member for nonprofit Anaheim Beautiful. Ms. Campos Kurtz’s current City Council term is through November 2024.
Jose Diaz, Council Member, was elected to the City Council in November 2020, representing District 1 in west Anaheim. Mr. Diaz is manager of the City of Orange’s water division, which manages ground and imported water for residents and businesses in Anaheim’s neighboring city. Mr. Diaz earned his master’s in public administration from California State University, Long Beach. His current City Council term expires in December 2024.
Carlos A. Leon, Council Member, was elected to the City Council in November 2022, representing District 2 in west Anaheim. Mr. Leon serves as a board member and vice president of community and youth engagement at Anaheim-based Youth Leadership America, a nonprofit focused on youth leadership and development. Mr. Leon holds a bachelor’s in public policy and political science from the University of California, San Diego, with a minor in business from the Rady School of Management at UC San Diego.
Mr. Leon’s current City Council term expires in December 2026.
Natalie Rubalcava, Council Member, was elected to the City Council in November 2022, representing District 3 in central Anaheim. In 2023, Ms. Rubalcava served as mayor pro tem, representing the city at large at community and other events. Before joining the City Council, Ms. Rubalcava served on the Anaheim Housing and Community Development Commission from June to December 2022. Earlier, she served on the City’s Community Services Board from 2004 to 2014, including as chair in 2009. She currently serves on the OC Fair & Event Center board of directors and on the boards of OneOC, Concordia University Irvine’s Hispanic Leadership Advisory Board and the Chrysalis Orange County Advisory Council. Ms. Rubalcava earned her bachelor’s in political science from California State University, Fullerton, and her law degree from the University of La Verne College of Law. Ms. Rubalcava’s current City Council term expires in December 2024.
Stephen Faessel, Council Member, was elected to the City Council in November 2016, representing District 5 in east-central Anaheim. He was appointed Mayor Pro Tem in December 2019.
Mr. Faessel represents the City on the board of directors of the Metropolitan Water District of Southern California. He has previously served on the Anaheim Public Utility Board, Anaheim Planning Commission, Budget, Investment and Technology Commission, and on the City’s General Plan Advisory Committee.
Mr. Faessel graduated from California State University, Fullerton, with a degree in marketing. He is retired from a 50-year career in the retail hardware industry as merchandise manager for the 16-store Crown ACE Hardware chain. His current City Council term expires in December 2024.
Natalie Meeks, Council Member, was elected to the City Council in November 2022, representing District 6 in east Anaheim. Before joining the City Council, Ms. Meeks served on Anaheim’s Planning Commission from 2019 to late 2022, including as chair in 2021 and 2022. Ms. Meeks has dedicated her career to public service, most recently serving as Public Works director of the City from 2007 to 2016. In 2015, she was named a Top Ten Leader by the American Public Works Association. Ms. Meeks earned a bachelor’s in civil engineering from California State University, Fullerton, and a master’s in organizational leadership from Chapman University. Her current City Council term expires in December 2026.
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City Management
The City Council appoints the City Manager, who heads the executive branch of government, implements City Council directives and policies, and manages the administrative and operational functions through the various departmental heads, who are appointed by the City Manager. Key administrative personnel of the City are as follows:
James Vanderpool, City Manager, has been City Manager since September 2020. Prior to joining the City, Mr. Vanderpool served as neighboring Buena Park’s city manager since 2012 and previously served as Buena Park’s deputy city manager and assistant city manager. He started at Buena Park in the Public Works Department. As Anaheim’s City Manager, Mr. Vanderpool is responsible for the daily operations of a full service city supporting the City’s residents, approximately 20,000 businesses, and over 25 million annual visitors. He also oversees 11 city departments, including Anaheim Public Utilities, the Anaheim Police Department, Anaheim Fire & Rescue and Convention, Sports & Entertainment, the operator of the Anaheim Convention Center. He holds a bachelor’s degree in public administration from Purdue University and a master’s degree in business administration from the University of Phoenix.
Greg Garcia, Assistant City Manager, was appointed Assistant City Manager in January 2019. He has served the City since 2005. In his current role, Mr. Garcia oversees the departments of Community and Economic Development, Community Services and Convention, Sports & Entertainment, as well as the communications office and handles government affairs for the City. In addition to administering the Mayor and City Council’s policies, Mr. Garcia also provides policy support for the Mayor and City Council. Prior to his current position, Garcia held the positions of Government Affairs Manager and Budget Analyst.
Mr. Garcia earned a bachelor’s degree in political science from the University of California, San Diego, and his Juris Doctorate from the University of Notre Dame Law School.
Deborah A. Moreno, Finance Director/City Treasurer, was appointed to her position as Finance Director in July 2012, and became the City Treasurer on December 22, 2016, after the duties of City Treasurer and Finance Director were consolidated. Ms. Moreno oversees the City department that is responsible for the City’s $2.0 billion budget, accounting, procurement, and technology services. As City Treasurer, Ms. Moreno is also responsible for central cashiering and management of the City’s cash and investments. Ms. Moreno previously served as the City’s Acting Finance Director, a position she held since November 2011. Ms. Moreno initially joined the City in February 2001 as Financial Accounting Manager.
In January 2006, Ms. Moreno briefly left the City to be the City of La Palma Director of Finance, but returned to Anaheim in August 2007 as Deputy Finance Director. Prior to her work in local government, Ms. Moreno was in public practice at Ernst and Young LLP and is a certified public accountant (inactive).
She earned a bachelor’s degree in administration from California State University, San Bernardino.
Ms. Moreno also lectures for the California State University, Fullerton Extended Education.
Robert Fabela, City Attorney, was appointed City Attorney in April 2018. Mr. Fabela’s previous positions during his 30-year career include General Counsel for the Santa Clara Valley Transportation Authority, Senior Deputy City Attorney for the City of San Jose and Associate for Wilson, Sonsini, Goodrich & Rosati. He leads the department providing legal advice and services to the City Council, City officials, staff, departments, boards, commissions and related City entities and enterprises. Mr. Fabela earned a bachelor’s degree in political science with an emphasis in international relations and obtained a law degree from the University of California, Los Angeles.
Theresa Bass, City Clerk, originally joined the City in December 2007 and served as Assistant City Clerk until her appointment as City Clerk in March 2019. As City Clerk, Ms. Bass leads a department that is responsible for administrating the democratic process by conducting local elections, developing and maintaining the City’s records management program, providing access to City records and all legislative C-4
actions, and ensuring transparency to the public. Ms. Bass earned a bachelor’s degree from the University of California, Los Angeles and attained her Certified Municipal Clerk designation from the International Institute of Municipal Clerks in 2009. Her professional memberships include the International Institute of Municipal Clerks, the City Clerk’s Association of California and the Southern California City Clerk’s Association.
Labor Relations
Various unions represent the majority of City employees, including the Anaheim Municipal Employees Association, the Anaheim Police Association, the Anaheim Firefighters Association, the International Brotherhood of Electrical Workers, Local 47 (“IBEW”), the Service Employees International Union, Local 1877; and the Teamsters, Local 952. The preceding are designated representatives under the Meyer-Milias-Brown Act (Section 3500 et seq. of the Government Code of California). The expiration dates of current memoranda of understanding are as follows: IBEW (full-time employees), January 1, 2026; IBEW (part-time customer service employees), December 31, 2025; IBEW (professional management and part-time management units), January 16, 2026; Anaheim Municipal Employees Association General Employees, July 3, 2025; Anaheim Municipal Employees Association Clerical Employees, July 3, 2025; Anaheim Municipal Employees Association Part-Time Unit, July 3, 2025; Anaheim Police Association, July 3, 2025; Anaheim Firefighters Association, June 19, 2025; the Service Employees International Union, Local 1877, December 19, 2025; American Federation of State, County, and Municipal Employees, June 30, 2027; and the Teamsters, Local 952, December 19, 2024.
Retirement Plans
Pensions. All full-time and certain part-time City personnel belong to the California Public Employees’ Retirement System (“CalPERS”). As of June 30, 2023, 1,556 public agency contracts provided retirement, death, and survivor benefits for participants of 57 county offices of education; 4 school district offices; 452 cities and towns; 37 counties; the State of California; and 1,005 districts and other public agencies. A copy of CalPERS’ annual financial report may be obtained from its website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference into this Remarketing Statement. Neither the City nor the Authority can guarantee the accuracy of such information. Actuarial assessments are “forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or may be changed in the future. Actuarial assessments will change with the future experience of the pension plans.
The City provides pension benefits to eligible full-time employees in three separate pension plans:
the Miscellaneous Plan, the Police Safety Plan, and the Fire Safety Plan. These plans are agent multiple- employer employee defined benefit plans and are administered through CalPERS, which acts as a common investment and administrative agent for participating public agencies within the State of California. State statues and City ordinances establish the benefits provisions of these plans and all other requirements. With respect to the City’s three pension plans administered through CalPERS, the net actuarial value of assets available for benefits, as of the most recent actuarial valuation date, June 30, 2022, was $2,215,640,000 with an unfunded accrued liability of $980,396,000.
The table below shows the funding progress of the three plans and is based on a June 30, 2022 actuarial valuation date ($ in thousands).
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Plan
Fair
Value of
Assets
(FVA)
Accrued
Liability
(AL)
Unfunded
Accrued
Liability
(UAL) Funded Ratio
Annual
Covered
Payroll
UAL as a %
of Payroll
Miscellaneous $1,183,362 $1,681,617 $498,255 70.4% $119,690 416.3% Police Safety 675,666 985,062 309,396 68.6 53,517 578.1 Fire Safety 356,612 529,357 172,745 67.4 28,129 614.1
Total $2,215,640 $3,196,036 $980,396 69.3% $201,336 486.9% __________________
Source: City of Anaheim Annual Comprehensive Financial Report for Year Ended June 30, 2023.
The table below shows the funding progress of the three plans and is based on a June 30, 2021 actuarial valuation date ($ in thousands).
Plan
Fair
Value of
Assets
(FVA)
Accrued
Liability
(AL)
Unfunded
Accrued
Liability
(UAL) Funded Ratio
Annual
Covered
Payroll
UAL as a %
of Payroll
Miscellaneous $1,308,881 $1,619,285 $310,404 80.8% $111,733 277.8% Police Safety 742,705 943,632 200,927 78.7 52,861 380.1 Fire Safety 395,894 510,417 114,523 77.6 26,393 433.9
Total $2,447,480 $3,073,334 $625,854 79.6% $190,987 327.7% __________________
Source: City of Anaheim Annual Comprehensive Financial Report for Year Ended June 30, 2023.
The table below shows the funding progress of the three plans and is based on a June 30, 2020 actuarial valuation date ($ in thousands).
Plan
Fair
Value of
Assets
(FVA)
Accrued
Liability
(AL)
Unfunded
Accrued
Liability
(UAL) Funded Ratio
Annual
Covered
Payroll
UAL as a %
of Payroll
Miscellaneous $1,084,188 $1,543,927 $459,739 70.2% $124,700 368.7% Police Safety 612,525 882,257 269,732 69.4 53,243 506.6 Fire Safety 330,503 485,339 154,836 68.0 26,055 594.3
Total $2,027,216 $2,911,523 $884,307 69.6% $203,998 433.5% __________________
Source: City of Anaheim Annual Comprehensive Financial Report for Year Ended June 30, 2023.
Annual actuarial valuations, based on the benefit formula and the number of employees and their respective salary schedules, determine the City’s contribution rate. For the Fiscal Year ended June 30, 2023, the City’s contribution rate as a percentage of covered payroll was 43.29% for miscellaneous C-6
employees, 59.48% for police safety employees, and 56.51% for fire safety employees. For the Fiscal Year ended June 30, 2023, the City’s actuarially determined contribution for the 2022‐23 measurement period was $107,170,000. At June 30, 2023, the City reported a payable of $1,174,000 for the outstanding amount of contributions to the pension plans required for the Fiscal Year ended June 30, 2023.
Effective January 1, 2013, the Public Employees’ Pension Reform Act of 2013 (“PEPRA”) established significant changes including mandatory costs sharing by employees, reducing the overall benefit level (e.g., percentage of pay), increasing the retirement age, and placing a cap on the salary used to determine retirement benefits. Employees hired on or after January 1, 2013 who were not already a member of a pension system are subject to PEPRA. PEPRA’s effect on the City’s rates and benefit provisions began with the June 30, 2013 valuation, which impacted the rates for the Fiscal Year ended June 30, 2016.
Effective for the Fiscal Year ended June 30, 2015, the City adopted Governmental Accounting Standards Board (“GASB”) Statement No. 68, affecting the reporting of pension liabilities for accounting purposes. Under GASB Statement No. 68, the City must report the Net Pension Liability (i.e., the difference between the Total Pension Liability and the Pension Plan’s Net Position or market value of assets) in its financial statements. As of June 30, 2022, the City’s aggregate Net Pension Liabilities of $915,828,000 (an increase of $405,722,000 over the prior Fiscal Year) representing a Net Pension Liability of $461,482,000 for the Miscellaneous Plan (an increase of $204,252,000 over the prior Fiscal Year), $292,262,000 for the Police Safety Plan (an increase of $134,434,000 from the prior Fiscal Year) and $162,084,000 for the Fire Safety Plan (an increase of $67,036,000 from the prior Fiscal Year), measured as of June 30, 2022 and based on the results of the actuarial calculations performed as of June 30, 2021 and rolled forward to determine the June 30, 2022 total pension liability. The aggregate Plan Net Pension Liabilities as a percentage of covered-employee payroll was 466.46%. The aggregate Plan Net Positions as a percentage of the Total Pension Liabilities for the three plans was 70.75%.
Changes in Net Pension Liabilities are recorded as pension expenses or as deferred inflows of resources or deferred outflows of resources depending on the nature of the change. The changes in Net Pension Liability that are recorded as deferred inflows of resources or deferred outflows of resources that arise from changes in actuarial assumptions or other inputs and differences between expected or actual experience are amortized over the weighted average remaining service life of all participants in the respective pension plan and are recorded as a component of pension expense beginning with the period in which the difference occurred. Projected earnings on pension investments are recognized as a component of pension expense. Differences between projected and actual investment earnings are reported as deferred inflows of resources or deferred outflows of resources and are amortized as a component of pension expense on a closed basis over a five-year period beginning with the period in which the difference occurred.
For the Fiscal Year ended June 30, 2023, the City recognized pension expenses of $108,029,000, and reported pension-related deferred outflows of resources of $296,293,000, including $107,170,000 of pension contributions made subsequent to the measurement date, which will be recognized as a reduction of the Net Pension Liabilities in the Fiscal Year ending June 30, 2024. At June 30, 2023, the City reported deferred inflows of resources of $22,968,000, including $16,791,000 representing amounts related to differences between expected and actual experience and projected and actual earnings on plan investments, which will be recognized as a component of pension expense in each of the four Fiscal Years 2023-24 through 2026-27.
To estimate the liability of pensions and the contributions that will be required to meet those obligations, many assumptions are made, including the rate of return that investments will yield prior to making payments, known as the discount rate, which is used to compute actual contribution requirements for a given Fiscal Year as well as determining the unfunded pension liability. A determination to employ C-7
a lesser rate of return may result in a significant increase in the unfunded liability and contributions required to meet such obligations.
CalPERS approved an incremental reduction in the discount rate to be used in its actuarial valuation from 7.5% to 7.0% over the three Fiscal Years 2018-19 to 2020-21. The discount rate was automatically lowered in July 2021, from 7.0% to 6.8%, due to the CalPERS investment return for Fiscal Year 2020-21.
The City’s required contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. Many assumptions are used to estimate the ultimate liability of pensions and the contributions that will be required to meet those obligations. The CalPERS Board of Administration has adjusted and may in the future further adjust certain assumptions used in the CalPERS actuarial valuations, which adjustments may increase the City’s required contributions to CalPERS in future years. Accordingly, the City cannot provide any assurances that the City’s required contributions to CalPERS in future years will not significantly increase (or otherwise vary) from any past or current projected levels of contributions.
Post-Employment Medical Benefits. In addition to the contributions to CalPERS, the City provides post-employment medical benefits for certain of its retired employees (the “Post-Employment Benefits Program”). Active employees (hired prior to January 1, 1996, July 6, 2001 for the Anaheim Police Association employees and November 9, 2001 for Anaheim Fire Association employees) are eligible to receive post-retirement medical benefits from the City. The City’s contributions to post-employment health benefits for the Fiscal Year ended June 30, 2021 were $16,393,000. The City’s contribution to post- employment health benefits for the Fiscal Year ended June 30, 2022 was $16,065,000. The City’s Fiscal Year ending June 30, 2023 contributions to post-employment health benefits were $14,765,000. Additional information regarding the post-retirement benefits offered by the City to its employees and its obligations therefor may be found in the Annual Comprehensive Financial Report of the City for the Fiscal Year ended June 30, 2023, which is available on the City’s website at http://www.anaheim.net. Such information is not incorporated herein by reference.
On June 30, 2008, the City transferred $63,223,656 to an irrevocable trust with CalPERS to prefund the City’s Post-Employment Benefits Program obligation. As of the actuarial valuation date of June 30, 2021, the unfunded liability for the City’s Post-Employment Benefits Program was $121,379,000, or 47.6% funded.
Additional information regarding the City’s pension and Post-Employment Benefits Program obligations may be found in the Annual Comprehensive Financial Report of the City for the Fiscal Year ended June 30, 2023, which is available on the City’s website at http://www.anaheim.net. Such information is not incorporated herein by reference.
Area and Population
From 1900 through 1940, the City land area remained at 3.7 square miles. From 1940 to 2020, that area increased to 50.8 square miles. The City’s population has also grown from 14,556 in 1950 to 328,580 in 2023, making Anaheim California’s tenth most populous city. The following chart includes the growth in the population of the City since 2014 as well as the growth in the population of Orange County.
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CITY OF ANAHEIM AND ORANGE COUNTY
Population
Calendar Year
Year(1)
City
Population
Orange County
Population
2015 352,807 3,144,663
2016 353,284 3,160,401
2017 355,719 3,180,125
2018 356,147 3,186,254
2019 356,618 3,185,378
2020 357,059 3,180,491
2021 344,504 3,167,783
2022 335,946 3,151,946
2023 339,175 3,141,065
2024 340,160 3,150,835
__________________
(1) All data as of January 1 of indicated year.
Source: State of California Department of Finance.
Building Activity
The total valuation of all building permits issued by the City Building Division was approximately $628.4 million in 2023, representing a 53.1% increase from the total valuation of $410.4 million in 2022.
The total permits issued in 2023 were 2,122, representing a 1.2% increase from the 2,096 permits issued in 2022. The following table presents building permit activity and valuation for the calendar years 2019-2023. [Remainder of Page Intentionally Left Blank.]
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CITY OF ANAHEIM
BUILDING ACTIVITIES
CALENDAR YEARS 2019-2023
2023 2022 2021 2020 2019
Total Valuation (thousands) $628,389 $410,387 $445,434 $208,845 $466,015 Total Permits Issued 2,122 2,096 2,061 3,011 3,341
New Construction
Residential (thousands) $191,618 $139,226 $173,546 $95,701 $142,546 Permits 155 84 149 108 108
Non-Residential (thousands) $90,541 $60,278 $134,045 $24,395 $75,075 Permits 28 27 24 36 58
Additions and Alterations:
Residential (thousands) $37,151 $34,812 $27,970 $40,718 $41,613 Permits 1,149 1,146 1,113 2,031 2,080
Other (thousands) $309,079 $176,071 $109,872 $120,031 $206,781 Permits 790 839 775 836 1,095
New Dwelling Units:
Total New Residential Units 850 672 905 460 684
____________________________
Source: City of Anaheim Planning Department, Building Division.
Employment
No annual information is regularly compiled on employment and unemployment for the City alone, though monthly estimates are made by the State of California Employment Development Department. Employment in the Anaheim-Santa Ana-Irvine Metropolitan Division, a census-designated region, decreased from approximately 1,568,000 in 2019 to approximately 1,532,000 in 2023. The unemployment rate in the Anaheim-Santa Ana-Irvine Metropolitan Division has been lower than that in the State in each of the past five years. For 2023, the unemployment rate in the Anaheim-Santa Ana-Irvine Metropolitan Division was
3.6%, while California’s unemployment rate was 4.8%. The mobile resident labor force of Orange County is employed not only in the County but also in adjacent counties, such as Los Angeles, San Bernardino and Riverside.
ORANGE COUNTY
(ANAHEIM-SANTA ANA-IRVINE METROPOLITAN DIVISION)
Employment, Unemployment and Labor Force(1)
Calendar Year Averages: 2019-2023
(000s except for Unemployment Rates)
2023 2022 2021 2020 2019
Employment................................ 1,532 1,529 1,464 1,424 1,568 Unemployment ........................... 56 51 93 139 46 Civilian Labor Force................... 1,589 1,579 1,557 1,564 1,614 Unemployment Rate ................... 3.6% 3.2% 6.0% 9.0% 2.8% State Unemployment Rate .......... 4.8% 4.3% 7.3% 10.2% 4.1% _______________________
(1) Data not seasonally adjusted
Source: State of California Employment Development Department.
The table below lists the major manufacturing and non-manufacturing employers within the City for 2023.
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CITY OF ANAHEIM
TOP TEN PRIVATE EMPLOYERS
Company
Approximate
Number of
Employees Products/Purpose
Disneyland Resort 35,000 Theme Park
Kaiser Permanente Anaheim Medical Center 10,000 Medical Facilities Northgate Market 1,000 Retail Grocery
L3Harris Technologies Inc. 885 Aerospace and Defense
Anaheim Regional Medical Center 880 Medical Facilities
Hilton Anaheim 850 Lodging
West Anaheim Medical Center 850 Medical Facilities
Angels Baseball LP 800 Sports and Entertainment Venue
Ganahl Lumber Co. 660 Lumber and Hardware Supplier
Anaheim Marriott 550 Lodging
____________________
Source: City of Anaheim Annual Comprehensive Financial Report for year ended June 30, 2023; City of Anaheim. [Remainder of Page Intentionally Left Blank.]
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Income
The following table summarizes the most recent available data from the U.S. Census Bureau on median household income for the City and the State between 2018 to 2022.
CITY OF ANAHEIM
MEDIAN HOUSEHOLD INCOME
CALENDAR YEARS 2018 THROUGH 2022
Year and Area
Median
Household Income(1)
2018 City of Anaheim $76,154
California 75,277
2019 City of Anaheim $76,075
California 80,440
2020 City of Anaheim $76,723
California 78,672
2021 City of Anaheim $81,747
California 84,907
2022 City of Anaheim $85,133
California 91,551
____________________________
(1) All income amounts are in inflation adjusted dollars.
Source: U.S. Census Bureau, 2018-2022 American Community Survey (1-year estimates for years 2018, 2019, 2021 and 2022; 5-year estimates for year 2020).
Tourism and Community and Recreational Facilities
A major tourist center of Southern California, Orange County – with its forty-four miles of shorelines and more than 20 publicly maintained beach areas – provides year-round aquatic activities attracting over 50 million annual visitors. With an average annual temperature of approximately 68 degrees Fahrenheit, Orange County is the third most populous county in California and the sixth-most populous county in the country according to the 2020 census.
Tourism is a major industry in Anaheim, and a focal point of tourism in the City is the Anaheim Resort Area, 2.2 square miles of land that includes Disneyland Park, Disney’s California Adventure, the Anaheim Convention Center, and a majority of the City’s approximately 22,000 hotel and motel rooms.
Overall, the City boasts over 180 lodging establishments and 600 restaurants in a broad range of styles, flavors, and price ranges.
Recreational and amusement facilities in Anaheim include Disneyland, Disney’s California Adventure, Downtown Disney, Anaheim GardenWalk, House of Blues-Anaheim, the Anaheim Convention Center, Angel Stadium of Anaheim, the Honda Center, and the Anaheim Packing House. Within one hour’s drive from the City are Knott’s Berry Farm in the adjacent City of Buena Park, the Los Alamitos Race Course, the renowned Spanish Mission of San Juan Capistrano, and the Art Colony at Laguna Beach. The Newport Harbor area, a few miles south of the City, provides anchorage facilities for approximately 4,600 C-12
private boats; boat launching ramps, deep sea fishing, scuba diving, and other aquatic activities are readily accessible in this area. Within a two-hour drive are numerous summer and winter resort areas in the San Bernardino and San Jacinto mountains.
Increased development activity in the Anaheim Resort and Platinum Triangle areas, as well as innovative capital projects to link visitors to the entertainment centers, have kept tourism thriving in Anaheim. Some of the notable improvements and expansion plans in the last ten years include the following: in 2012, Disney’s California Adventure completed a $1.1 billion expansion and opened its Cars Land attraction; in 2014, the Anaheim Regional Transportation Intermodal Center (ARTIC), a transportation gateway and mixed-use activity center, was officially opened, allowing visitors to seamlessly move between transit services to reach Southern California activity centers and businesses; in 2019, Disneyland Park opened Star Wars: Galaxy’s Edge, a 14-acre expansion, making it the largest since its opening in 1955; and in 2021, Disney’s California Adventure completed its five-acre Marvel’s Avengers Campus featuring new attractions and dining options. In the last few years, hotel projects such as the 174- room Element Hotel, the 12-story Cambria Hotel & Suites, which features 352 guestrooms and 15,000 square feet of casual dining restaurant space, the 12-story, 466-room JW Marriott, which was built adjacent to the Anaheim GardenWalk, and a 618-room Westin Hotel with 42,000 square feet of meeting space and 30,000 square feet of restaurant, spa, and retail space have been completed.
The Anaheim Convention Center provides over one million square feet of prime exhibit space and 130,000 square feet of meeting and ballroom space and continues to be a sought-after meeting, event and entertainment destination. Boasting a Gold LEED certification for its sustainable site design, water savings, energy efficiency, and environmentally friendly practices, this world-class venue hosts large annual events that have included NAMM, Natural Products, Medical Design Wondercon, D23, and Blizzcon, as well as a multitude of trade shows, educational events, consumer shows, and conventions. In January 2013, the Anaheim Convention Center dedicated the opening of the Grand Plaza, a 100,000-square-foot pedestrian plaza that includes a 45-foot lighted entry monument, more than 80,000 square feet of colored concrete and pavers, 153 palm trees, and 60 citrus trees. In September 2017, the Anaheim Convention Center’s largest and most significant expansion was unveiled to the public, a 200,000-square-foot expansion of flexible space for trade shows, conventions, meetings, galas, and more. The expansion solidified the Anaheim Convention Center as the largest convention center on the West Coast of the United States with 1.8 million square feet.
The City National Grove of Anaheim, an indoor, live music venue that was built in 1998, was purchased by the City of Anaheim in 2002, and is currently operated by Nederlander Concerts. The venue boasts a 1,700 seat capacity and is located adjacent to the Stadium. Annually, the venue hosts more than 250 events by world class music performers and legendary recording artists.
In Anaheim, there are two 18-hole golf courses, eleven community parks containing major athletic facilities, over 55 neighborhood parks and special-use facilities, three youth centers with gymnasiums, a nature center, and three community centers that include senior citizen centers or programming. Other Anaheim facilities include a main public library; six branch libraries and a bookmobile; the MUZEO museum and cultural arts center; Anaheim Ice, the practice rink for National Hockey League’s Anaheim Ducks; and the American Sports Center, the largest indoor sports complex in the world.
Planned developments and planning efforts in Anaheim include the Beach Boulevard revitalization, OCVibe, and DisneylandForward. Anaheim is in the process of rebuilding Beach Boulevard, which runs
1.5 miles through Anaheim, to help address day-to-day public safety and quality of life issues. Project plans include new homes, stores, restaurants, and other businesses to create a walkable street for residents and visitors. The street is currently managed by the California Department of Transportation because it is a state route, Highway 39, spanning several cities before reaching the beach. In the next few years, Anaheim C-13
plans to take over managing the section of Beach Boulevard that runs through Anaheim to make it easier for businesses and developers to improve their properties by only having to deal with Anaheim.
OCVibe is a planned 95-acre development proposing new homes, shopping, dining, entertainment, hotels, office space, and parks adjacent to the Honda Center. This $4-billion expansion proposes to add 1,500 apartments with affordable housing options; four parking structures and surface lots to add more than 11,000 parking spaces; 20 acres of publicly accessible parks, trails, plazas, and other spaces; a new 5,700- seat concert venue; more than 35 restaurants with 170,000 square feet of indoor and outdoor dining space; two new hotels collectively adding 550 rooms; 1.2 million square feet of office space; and more than 80,000 square feet of shopping options. A phased opening is planned for 2028, when the Honda Center is slated to host indoor volleyball for the 2028 Summer Olympics.
DisneylandForward is a multiyear public planning effort to expand and update Disneyland theme parks, hotel offerings, entertainment, parking, restaurants, and more. The project proposes a $1.9 billion plus investment in Anaheim over 10 years. It includes updating land use approvals from the 1990s to allow Disneyland Resort to build attractions or hotels on land originally designated for parking or other purposes. [Remainder of Page Intentionally Left Blank.]
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Retail Sales
The following table set forth the taxable transactions for the City for calendar years 2019 through 2023 by type of business.
CITY OF ANAHEIM
TAXABLE TRANSACTION BY TYPE OF BUSINESS
Calendar Years 2019-2023
($000)
2023 2022 2021 2020 2019
Motor Vehicle and Parts Dealers $843,588 $877,484 $830,272 $651,279 $665,977 Home Furnishings and Appliance Stores 197,169 213,529 203,663 184,501 212,748 Bldg. Materials/Garden Equip & Supply 596,884 647,530 586,106 531,485 505,028 Food and Beverage Stores 256,966 251,856 226,751 211,097 206,053 Gasoline Stations 566,795 624,328 463,574 305,912 492,374 Clothing/Clothing Accessories Stores 158,161 135,688 127,235 87,553 121,982 General Merchandise 249,495 252,654 235,564 231,080 230,243 Food Services and Drinking Places 1,196,342 1,118,518 856,924 558,415 948,601 Other Retail Stores 490,996 507,392 431,874 355,698 395,891 Total Retail and Food Services $4,556,396 $4,628,978 $3,961,962 $3,117,023 $3,778,901 All Other Outlets 4,265,313 4,433,589 3,285,879 2,383,875 3,492,724 Total All Outlets $8,821,709 $9,062,567 $7,247,841 $5,500,899 $7,271,625 _________________________
Sources: California Department of Tax and Fee Administration. Totals may not add due to rounding.
Assessed Valuation and Tax Collections
Taxes are levied each Fiscal Year on taxable real and personal property that is situated within the City as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State assessed public utilities property and real property, the taxes on which a lien is deemed sufficient (in the opinion of the County Assessor) to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each Fiscal Year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty applies to any delinquent payment. Delinquent taxes must be paid by June 30 to avoid additional penalties, which are equal to 1.5% per month on the unpaid base tax amount for each June 30th delinquent amount, plus a redemption fee. Taxpayers may elect to pay delinquent taxes in installments of 1/5 (20%) of the redemption amount over a five-year period. In June of the fifth year anniversary of original delinquency, those parcels still unpaid are officially processed for Power to Sell (i.e., for Tax Action sale).
Consequently, sometime in the 6th year of delinquency, if still unpaid, the property is officially offered at tax sale by the Orange County Tax Collector’s office.
Property taxes on the unsecured roll are mailed between March and July of each Fiscal Year and are due upon receipt. If unpaid, such taxes become delinquent after August 31 and a 10% penalty plus a collection fee attaches to any delinquent payment. Delinquent taxes must be paid by October 31 to avoid the filing of a tax lien and additional penalties, which are equal to 1.5% per month until paid. The Orange County Tax Collector further has the right to enforce tax collection through seizure and sale or a suit in court.
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Assessed valuations include secured and unsecured properties assessed by the Orange County Assessor, and secured utility properties assessed by the State Board of Equalization. Such assessed valuations exclude business inventory exemptions and exclude veterans, religious, charitable, and other such non-recoverable exemptions.
The table below shows the total assessed valuations, total City tax levies, total current tax levy collections, collection percentage, and per capita assessed valuation for the most recent ten Fiscal Years ending with June 30, 2023. The assessed valuation for Fiscal Year 2022-23 is $56,535,417,000.
CITY OF ANAHEIM
ASSESSED VALUATION AND TAX COLLECTION RECORD ($000)
Fiscal Year
Ended
June 30
Assessed
Valuation
Total City
Tax Levy
Total
Current
Tax Levy
Collections
Percent of
Current Tax
Levy
Collected
Population
(000s)
Per Capita
Assessed
Valuation
2014 $36,385,768 $36,293 $35,558 98.0% 348 $103
2015 38,402,322 38,365 37,456 97.6 351 109
2016 39,815,177 40,026 38,832 97.0 358 112
2017 41,363,369 40,787 39,710 97.4 359 116
2018 43,277,778 42,432 41,578 98.0 357 121
2019 45,731,391 44,588 43,630 97.9 357 127
2020 48,851,453 47,082 46,223 98.2 357 137
2021 51,098,596 49,162 48,306 98.3 345 144
2022 53,036,797 51,577 50,270 97.5 341 158
2023 56,535,417 55,336 54,065 97.7 329 172
___________________
Sources: City of Anaheim Annual Comprehensive Financial Report for year ended June 30, 2023; City of Anaheim. [Remainder of Page Intentionally Left Blank.]
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Largest Property Taxpayers
The following table shows the ten largest secured property taxpayers in the City and their 2022-23 assessed valuations.
CITY OF ANAHEIM
2022-23 LARGEST LOCAL SECURED TAXPAYERS
(IN THOUSANDS)
Property Owner
Primary Land
Use
Assessed
Valuation
Percentage of
Total
Walt Disney World Company Theme Park $5,966,927 11.05%
HHC HA Investments II Inc. Commercial 228,063 0.42
FJS Inc. Commercial 213,487 0.40
Anaheim Concourse ILP LLC Commercial 205,845 0.38
C3J LP Commercial 198,623 0.37
PR 1910 Union LLC Apartments 193,990 0.36
Gelt Oasis Exchange LLC Apartments 146,359 0.27
US REIF MG Madison Park CA LLC Apartments 138,169 0.26
Dynamic Campus LLC Commercial 127,549 0.24
Irvine Company LLC Apartments 127,482 0.24
Total $7,546,494 13.98%
_______________________
Source: City of Anaheim Annual Comprehensive Financial Report for year ended June 30, 2023; City of Anaheim.
Education
Fourteen public high schools, nine public junior high schools and 47 public elementary schools serve Anaheim. Almost all of the City lies within eight school districts: the Anaheim City, Magnolia, Savanna and Centralia Elementary School Districts, the Anaheim Union High School District, the Placentia and Orange Unified School Districts, and the North Orange County Community College District.
There are 11 institutions of higher learning in Orange County and an additional 15 in adjacent areas of southern Los Angeles County and the Inland Empire. Within Orange County, there are three universities:
University of California, Irvine; California State University, Fullerton; and Chapman University.
Transportation
The City lies in the center of an area containing 20.5 million people who reside or work in Orange, San Diego, Los Angeles, Riverside and San Bernardino counties. Major freeways in and through the City provide convenient access for labor markets, recreation, and commerce to consumers of an even broader area. The Santa Ana Freeway (Interstate 5) connecting Los Angeles and San Diego, is the main artery traversing the City and connects, in or near the City, with the Artesia/Riverside (State Route 91), the Garden Grove (State Route 22), the Orange (State Route 57), and the Costa Mesa (State Route 55) freeways.
The Anaheim Regional Transportation Intermodal Center (“ARTIC”) opened in December 2014.
Situated along the LOSSAN corridor (Los Angeles-San Diego), which is the second most traveled rail corridor in the country, ARTIC is a central transportation hub within Orange County. ARTIC provides 10 modes of transportation for daily commuters, visitors and leisure travelers, including Amtrak, Metrolink, public and charter bus services, taxi service, carpooling and service for bicyclists utilizing the adjacent Santa Ana River Trail, and can accommodate future modes of transportation.
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The Orange County Transportation Authority, Metropolitan Transportation Authority, Greyhound Lines and Valen Transportation Services provide daily bus service for residents and the 20 million tourists and conventioneers who visit Orange County and Anaheim annually.
The major airports in the area include John Wayne (14 miles southwest), LA/Ontario International (20 miles northeast), Los Angeles International (30 miles northwest) and Long Beach (14 miles west).
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APPENDIX D
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
E-1
APPENDIX E
FORM OF CONTINUING DISCLOSURE AGREEMENT
This Continuing Disclosure Agreement (the “Disclosure Agreement”) is executed and delivered by the City of Anaheim, California (the “City”) and U.S. Bank Trust Company, National Association, as agent (“U.S. Bank”), in connection with the issuance of $________ aggregate principal amount of Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2024-A (Electric Utility Distribution System Refunding) (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of [____] 1, 2024 (the “Indenture”), by and among the Anaheim Housing and Public Improvements Authority, the City and U.S. Bank Trust Company, National Association, as Trustee. The City and U.S. Bank covenant and agree as follows:
SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City and U.S. Bank for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with SEC Rule 15c2-12.
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
“Beneficial Owner” shall mean any person that (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.
“Business Day” shall mean a day other than (a) Saturday or Sunday, (b) a day on which banking institutions in the city in which the Principal Corporate Trust Office is located are authorized or required by law to be closed, and (c) a day on which the New York Stock Exchange is authorized or obligated by law or executive order to be closed.
“Dissemination Agent” shall mean initially, the City, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City, which may be U.S.
Bank, and which has filed with U.S. Bank a written acceptance of such designation. “EMMA” shall mean the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for Municipal Securities disclosures, maintained on the internet at http://emma.msrb.org. “Financial Obligation” shall mean a (a) debt obligation; (b) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (c) guarantee of a debt obligation or any such derivative instrument; provided that “financial obligation” shall not include municipal securities as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule.
“Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next succeeding June 30, or any twelve-month or fifty-two week period hereafter selected by the City, with notice of such selection or change in fiscal year to be provided as set forth herein.
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“Holder” shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any applicable participant in such depository system.
“Listed Events” shall mean any of the events listed in Section 5 of this Disclosure Agreement. “MSRB” shall mean the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 or any other entity designated or authorized by the SEC to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the SEC, filings with the MSRB are to be made through the EMMA website of the MSRB, currently located at http://emma.msrb.org.
“Official Statement” shall mean the Official Statement, dated _______, 2024, relating to the Bonds. “Participating Underwriter” shall mean the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Repository” shall mean, until otherwise designated by the SEC, EMMA. “Rule” shall mean Rule 15c2-12 adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time.
“SEC” shall mean the U.S. Securities and Exchange Commission. “State” shall mean the State of California.
SECTION 3. Provision of Annual Report.
(a) So long as any Bonds remain outstanding pursuant to the Indenture, the City shall, or shall cause the Dissemination Agent to, not later than six months after the end of each Fiscal Year (presently by each December 31), commencing with the report for the 2023-24 Fiscal Year, provide to the MSRB, through EMMA, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report must be submitted in electronic format, accompanied by such identifying information as provided by the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City Electric Utility Fund may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the Fiscal Year changes for the City, the City shall give notice of such change in the manner provided under Section 5(e) hereof.
(b) Not later than five (5) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, through EMMA, the City shall provide the Annual Report to the Dissemination Agent and U.S. Bank (if U.S. Bank is not the Dissemination Agent). If by such date, U.S. Bank has not received a copy of the Annual Report, U.S. Bank shall contact the City and the Dissemination Agent to determine if the City is in compliance with the first sentence of this subsection (b).
The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent (if the City is not the Dissemination Agent) and U.S. Bank to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and U.S. Bank may conclusively rely upon such certification of the City and shall have no duty or obligation to review such Annual Report.
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(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A.
(d) The Dissemination Agent shall:
(i) determine the electronic filing address of, and then-current procedures for submitting Annual Reports to, the MSRB each year prior to the date for providing the Annual Report; and (ii) to the extent known to the Dissemination Agent file a report with the City (if the City is not the Dissemination Agent) and U.S. Bank (if U.S. Bank is not the Dissemination Agent) certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, and stating the date it was provided.
SECTION 4. Content of Annual Reports.
(a) The City’s Annual Report shall contain or include by reference the-following:
(i) The audited financial statements of the City’s Electric Utility Fund for the most recently completed Fiscal Year, prepared in accordance with generally accepted accounting principles for governmental enterprises as prescribed from time to time by any regulatory body with jurisdiction over the City and by the Governmental Accounting Standards Board; (ii) Updated information comparable to the information in the chart entitled “ELECTRIC SYSTEM STATISTICS” as it appears in Table 2 in Appendix A to the Official Statement; (iii) Updated information comparable to the information on the chart entitled “TOTAL GIGAWATT HOURS (GWh) GENERATED AND PURCHASED AND PEAK DEMAND (MW)” as it appears in Table 3 in Appendix A to the Official Statement; (iv) Updated information comparable to the information in the chart entitled “AVERAGE NUMBER OF CUSTOMERS” as it appears in Table 4 in Appendix A to the Official Statement;
(v) Updated information comparable to the information in the chart entitled “TOTAL ENERGY SOLD” as it appears in Table 5 in Appendix A to the Official Statement; (vi) Updated information comparable to the information in the chart entitled “PRIMARY RATE SCHEDULES FOR RESIDENTIAL, COMMERCIAL AND INDUSTRIAL CUSTOMERS” as it appears in Table 6 in Appendix A to the Official Statement; (vii) Updated information comparable to the information in the chart entitled “AVERAGE BILLING PRICE CENTS PER KILOWATT-HOUR (RETAIL SALES)” as it appears in Table 7 in Appendix A to the Official Statement; and
(viii) Updated information comparable to the information in the chart entitled “CITY OF ANAHEIM ELECTRIC UTILITY FUND, FINANCIAL RESULTS OF THE ELECTRIC SYSTEM” as it appears in Table 10 in Appendix A to the Official Statement. (b) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or public entities related thereto, available to the public on EMMA or filed with the SEC. The City shall clearly identify each such other document so included by reference.
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SECTION 5. Reporting of Listed Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, in a timely manner not more than ten (10) Business Days after the event:
(1) principal and interest payment delinquencies;
(2) defeasances;
(3) tender offers;
(4) rating changes;
(5) adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax- status of the Bonds;
(6) unscheduled draws on the debt service reserves reflecting financial difficulties;
(7) unscheduled draws on credit enhancements reflecting financial difficulties;
(8) substitution of credit or liquidity providers or their failure to perform; (9) bankruptcy, insolvency, receivership or similar proceedings; or (10) default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the City, any of which reflect financial difficulties.
(b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:
(1) mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated persons or their termination; (2) appointment of a successor or additional trustee or the change of the name of a trustee;
(3) non-payment related defaults;
(4) modifications to the rights of Holders;
(5) optional, contingent or unscheduled Bond calls; or
(6) release, substitution or sale of property securing repayment of the Bonds; or
(7) incurrence of a Financial Obligation of the City, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the City, any of which affect holders of the Bonds.
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(c) For these purposes (i) an event described in item (9) of Section 5(a) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of said party, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of said party; and (ii) the City intends to comply with the provisions hereof for the Listed Events described in items (10) of Section 5(a) and item (7) of Section 5(b) above, and the definition of “Financial Obligation” in Section 1, with reference to the Rule, any other applicable federal securities laws and the guidance provided by the SEC in its Release No. 34-83885 dated August 20, 2018 (the “2018 Release”), and any further amendments or written guidance provided by the SEC or its staff with respect to the amendments to the Rule effected by the 2018 Release.
(d) Whenever the City obtains knowledge of the occurrence of a Listed Event, described in subsection (b) of this Section 5, the City shall as soon as possible determine if such event would be material under applicable federal securities law.
(e) If the City determines that knowledge of the occurrence of a Listed Event described in subsection (b) of this Section 5 would be material under applicable federal securities law, the City shall promptly notify the Dissemination Agent in writing and instruct the Dissemination Agent to report the occurrence to the Repository in a timely manner not more than ten (10) Business Days after the event. (f) If the Dissemination Agent has been instructed by the City to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB.
SECTION 6. Filings with the MSRB. All information, operating data, financial statements, notices and other documents provided to the MSRB in accordance with this Disclosure Agreement shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB.
SECTION 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Agreement with respect to the Bonds shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. In addition, in the event that the Rule shall be amended, modified or repealed such that compliance by the City with Section 3, 4, 5 and/or 6 hereof shall no longer be required in any or all respects, then the City’s obligations hereunder shall terminate to a like extent.
SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing’ a successor Dissemination Agent.
The initial Dissemination Agent shall be the City.
SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement, provided no amendment increasing or affecting the obligations or duties of the Dissemination Agent shall be made without the consent of such party, and any provision of this Disclosure Agreement may be waived if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to the City to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule.
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SECTION 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
SECTION 11. Default. In the event of a failure of the City or the Dissemination Agent (if the Dissemination Agent is other than the City) to comply with any provision of this Disclosure Agreement, U.S. Bank Trust Company, National Association as Trustee may (and, at the request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of outstanding Bonds with indemnification satisfactory to it, shall), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or the Dissemination Agent (if the Dissemination Agent is other than the City), as the case may be, to comply with its obligations under this Disclosure Agreement. The sole remedy under this Disclosure Agreement in the event of any failure of the City or the Dissemination Agent (if the Dissemination Agent is other than the City) to comply with this Disclosure Agreement shall be an action to compel performance. U.S. Bank shall not owe any fiduciary duty to the Participating Underwriter nor shall its failure to comply with the request of any Participating Underwriter result in a breach of any of its fiduciary duties owed to the Holders.
SECTION 12. Duties, Immunities and Liabilities of U.S. Bank and Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. If U.S. Bank performs the duties assigned to it hereunder, U.S. Bank shall not be responsible to any person for any failure by the City or the Dissemination Agent (if other than U.S. Bank) to perform duties or obligations imposed hereby.
SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. No person shall have any right to commence any action against U.S. Bank or the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. Neither U.S. Bank nor the Dissemination Agent shall be liable under any circumstances for monetary damages to any person for any breach of this Disclosure Agreement.
SECTION 14. Notices. All written notices to be given hereunder shall be given in person or by mail to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely:
To the City: City of Anaheim
200 South Anaheim Boulevard
Anaheim, California 92805
Attention: City Clerk
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and: City of Anaheim
Public Utilities Department
201 South Anaheim Boulevard
Anaheim, California 92805
Attention: Public Utilities General Manager
To U.S. Bank: U.S. Bank Trust Company, National Association 633 West Fifth Street, 24th Floor
Los Angeles, California 90071
Attention: Corporate Trust Services
U.S. Bank and the City may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Unless specifically otherwise required by the context of this Disclosure Agreement, any notices required to be given hereunder to U.S.
Bank or the City may be given by any form of electronic transmission capable of producing a written record.
Each such party shall file with U.S. Bank information appropriate to receiving such form of electronic transmission.
SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
Dated: ________, 2024
CITY OF ANAHEIM
By
Brian Beelner
Public Utilities Assistant General Manager –
Finance and Energy Resources
ATTEST:
City Clerk
U.S. BANK TRUST COMPANY, NATIONAL
ASSOCIATION,
as agent
By
Authorized Officer
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EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: ANAHEIM HOUSING AND PUBLIC IMPROVEMENTS AUTHORITY Name of Issue: REVENUE REFUNDING BONDS, SERIES 2024-A
(ELECTRIC UTILITY DISTRIBUTION SYSTEM REFUNDING)
Date of Issuance: ________, 2024
NOTICE IS HEREBY GIVEN that the City of Anaheim, California (the “City”) has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated ________, 2024, between the City and U.S. Bank Trust Company, National Association, as agent. The City anticipates that the Annual Report will be filed by _________________________.
Dated: _________________________
[_________________________, as Dissemination
Agent, on behalf of the City of Anaheim]
By:
Title:
[cc: City of Anaheim]
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APPENDIX F
BOOK-ENTRY ONLY SYSTEM
The information in this Appendix F under the caption “General” concerning The Depository Trust Company, New York, New York (“DTC”), and DTC’s book-entry system has been obtained from DTC and the Authority and the City take no responsibility for the completeness or accuracy thereof. The Authority and the City cannot and do not give any assurances that DTC, Direct Participants (as defined below) or Indirect Participants (as defined below) will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the 2024-A Bonds, (b) certificates representing ownership interest in or other confirmation of ownership interest in the 2024-A Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the 2024-A Bonds, or that they will do so on a timely basis, or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Appendix F. The Authority and the City are not responsible or liable for the failure of DTC or any DTC Direct or Indirect Participant to make any payment or give any notice to a Beneficial Owner with respect to the 2024-A Bonds or an error or delay relating thereto. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC’s Direct and Indirect Participants are on file with DTC.
General
DTC will act as securities depository for the 2024-A Bonds. The 2024-A Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued for each maturity of the 2024-A Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to DTC’s Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information on such web site is not incorporated herein by reference.
Purchases of 2024-A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2024-A Bonds on DTC’s records. The ownership interest of each actual F-2
purchaser of each 2024-A Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase.
Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2024- A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 2024-A Bonds, except in the event that use of the book-entry system for the 2024-A Bonds is discontinued.
To facilitate subsequent transfers, all 2024-A Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2024-A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the 2024-A Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2024-A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the 2024-A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2024-A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2024-A Bond documents. For example, Beneficial Owners of the 2024-A Bonds may wish to ascertain that the nominee holding the 2024- A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the 2024-A Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2024-A Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures.
Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts 2024-A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Payments of principal of, premium, if any, and interest on the 2024-A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of such principal, premium, if any, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the F-3
Authority or Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the 2024-A Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, 2024-A Bond certificates are required to be printed and delivered as described in the Indenture.
The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered.
Discontinuance of DTC Services
In the event that that DTC shall discontinue providing its services as depository with respect to the 2024-A Bonds or the Authority shall discontinue the use of a book-entry system of transfers through DTC (or a successor securities depository), the following provisions would apply: (i) the principal of the 2024- A Bonds will payable upon presentation of such 2024-A Bonds by the registered owners thereof at the Corporate Trust Office of the Trustee; (ii) interest on the 2024-A Bonds will be payable on each Interest Payment Date by check mailed by the Trustee on the date on which interest is due to the registered owners of the 2024-A Bonds on the close of business on the fifteenth (15th) calendar day of the month preceding such Interest Payment Date (the “Record Date”) at the addresses of the registered owners as they appear on the registration books maintained by the Trustee, except that for registered owners of more than $1,000,000 in principal amount of 2024-A Bonds who, prior to the Record Date preceding any Interest Payment Date, have provided the Trustee with wire transfer instructions, interest payable on such 2024-A Bonds will be paid in accordance with the wire transfer instructions provided by such registered owners; (iii) 2024-A Bonds may be exchanged for an equal aggregate principal amount of 2024-A Bonds of other Authorized Denominations and of the same tenor and maturity upon surrender thereof at the Corporate Trust Office of the Trustee upon payment by the registered owner of any charges the Trustee may make; and (iv) any 2024-A Bond may, in accordance with its terms, be transferred, upon the Registration Books under the Indenture, by the person in whose name it is registered, in person or by his attorney duly authorized in writing, upon surrender of such 2024-A Bond for cancellation at the Corporate Trust Office of the Trustee, accompanied by delivery of a written instrument of transfer in a form approved by the Trustee, duly executed by the registered owner or his duly authorized attorney and upon payment by the registered owner of any charges the Trustee may make under the Indenture; provided, that the Trustee will not be required to transfer any 2024-A Bonds during the period established by the Trustee for the selection of such 2024-A Bonds for redemption or any 2024-A Bonds that have been selected for redemption pursuant to the Indenture.
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APPENDIX G
FORM OF OPINION OF BOND COUNSEL
[Closing Date]
Anaheim Housing and Public Improvements Authority
200 South Anaheim Boulevard
Anaheim, California 92805
City of Anaheim
200 South Anaheim Boulevard
Anaheim, California 92805
Re: $________ Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2024-A (Electric Utility Distribution System Refunding) Ladies and Gentlemen:
We have acted as bond counsel to the Anaheim Housing and Public Improvements Authority, a joint exercise of powers entity established under the Constitution and laws of the State of California (the “Authority”), in connection with the issuance by the Authority of $________ aggregate principal amount of Anaheim Housing and Public Improvements Authority Revenue Refunding Bonds, Series 2024-A (Electric Utility Distribution System Refunding) (the “Bonds”).
The Bonds are being issued pursuant to Article 4 of Chapter 5 of Division 7 of Title 1 of the California Government Code and an Indenture of Trust, dated as of [____] 1, 2024 (the “Indenture”), by and among the Authority, the City of Anaheim, California (the “City”) and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The Bonds are payable from Project Revenues, as defined in the Indenture, consisting primarily of Purchase Payments to be made by the City pursuant to an Installment Purchase Agreement, dated as of [____] 1, 2024 (the “Installment Purchase Agreement”), by and between the Authority and the City.
As bond counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the Authority and the City in connection with the issuance of the Bonds. We have also examined such certificates of officers of the Authority and the City and others as we have considered necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Bonds constitute valid and binding limited obligations of the Authority as provided in the Indenture, and are entitled to the benefits of the Indenture. The Bonds are payable from Project Revenues (as such term is defined in the Indenture), which Project Revenues include Purchase Payments under the Installment Purchase Agreement.
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2. The Indenture has been duly and validly authorized, executed and delivered by the Authority and the City and, assuming the enforceability thereof against the Trustee, constitutes the legally valid and binding obligation of the Authority and the City, enforceable against the Authority and the City in accordance with its terms. The Indenture creates a valid pledge, to secure the payment of principal of and interest on the Bonds, of the Project Revenues and other amounts held by the Trustee in the funds and accounts established pursuant to the Indenture, subject to the provisions of the Indenture permitting the application thereof for other purposes and on the terms and conditions set forth therein.
3. The Installment Purchase Agreement has been duly and validly authorized, executed and delivered by the Authority and the City, and constitutes the legally valid and binding obligation of the Authority and the City, enforceable against the Authority and the City in accordance with its terms. The Installment Purchase Agreement creates a valid pledge, to secure the payment of Purchase Payments by the City of Surplus Revenues of the Electric System, on the terms and conditions set forth therein.
4. Under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenants described below, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the “Code”) from the gross income of the owners thereof for federal income tax purposes. Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax on individuals.
The Code contains other provisions that could result in tax consequences, upon which we render no opinion, as a result of ownership of the Bonds or the inclusion in certain computations (including, without limitation, those related to the alternative minimum tax on the adjusted financial statement income of certain corporations) of interest that is excluded from gross income.
The Code establishes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Non- compliance with such requirements could cause the interest on the Bonds to fail to be excluded from the gross income of the owners thereof retroactive to the date of issuance of the Bonds. The Authority and the City have covenanted in the Indenture and the Installment Purchase Agreement not to take any action or omit to take any action which, if taken or omitted, respectively, would adversely affect the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Except as stated in the preceding paragraph, we express no opinion as to any federal, state or local tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to the effect on the exclusion from gross income of interest on the Bonds of any action taken or not taken after the date of this opinion without our approval.
The opinions expressed in paragraphs 1 through 3 above are qualified to the extent the enforceability of the Bonds, the Indenture and the Installment Purchase Agreement may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally or as to the availability of any particular remedy. The enforceability of the Bonds, the Indenture and the Installment Purchase Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against municipal corporations and charter cities in the State of California.
G-3
No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds.
Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any fact or circumstance that may hereafter come to our attention or to reflect any change in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.
Respectfully submitted,
H-1
APPENDIX H
DEBT SERVICE SCHEDULE
The following table indicates the debt service requirements on the outstanding Electric System Qualified Obligations of the City and the debt service requirements on the 2024-A Bonds through the Fiscal Year ending June 30, 2050. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2024- A BONDS” and “PLAN OF FINANCE.”
For Year
Ending
June 30
Outstanding
Qualified
Obligations(2)
2024-A Bonds
Debt Service
Total 2024-
A Bonds Debt
Service(1)
Total Qualified
Obligations
Debt Service(1)
Principal Interest
2024 $
2025
2026
2027
2028
2029
2030
2021
2032
2033
2034
2035
2036
2037 -
2038 -
2039 -
2040 -
2041 -
2042 -
2043 -
2044 -
2045 -
2046 -
2047 -
2048 -
2049 -
2050 -
Total(1) $ $ $ $ $ ______________________________________
(1) Totals may not add due to rounding.
(2) Qualified Obligations debt service excludes the Target Bonds to be purchased upon acceptance of tender with a portion of the proceeds of the 2024-A Bonds. Also excludes subordinate obligations.