AGENDA ITEM
Public Utilities Commission
City and County of San Francisco
APPROVAL:
COMMISSION
SECRETARY
Donna Hood
DEPARTMENT:
Financial Services
AGENDA NO. 15
MEETING DATE
April 12, 2022
Wastewater Revenue Refunding Bond Authorization: Regular Calendar Project Manager: Charles Perl
Authorize the Issuance of up to $ 475 million of 2022 Series AB Wastewater Refunding Bonds and Series CD Taxable Wastewater Refunding Bonds to Refund Outstanding Wastewater Revenue Bonds to Achieve Debt Service Savings
Summary of
Proposed
Commission
Action:
Authorize the Issuance of up to $ 475 million of the 2022 Series AB Tax-Exempt Wastewater Refunding Bonds to refund all or a portion of the outstanding Series 2013A, 2013B, and the 2022 Series CD Taxable Wastewater Refunding Bonds to advance refund all or a portion of the outstanding Series 2016A and 2016B. The Commission resolution will approve the issuance of the 2022 Series AB Wastewater Refunding Bonds, consisting of two separate sub-series of bonds (Sub-Series A (Refunding - SSIP, Green Bonds), and Sub-Series B (Refunding – Non-SSIP; and 2022 Series CD, Taxable Wastewater Refunding bonds consisting of two separate sub- series of bonds (Sub- Series C (Refunding- Federally Taxable- SSIP, Green Bonds) and Sub- Series D (Refunding- Federally Taxable- Non-SSIP)), approve the form of, and authorize the execution and delivery of, related documents; authorize the General Manager to sell the bonds in one or more series on either a competitive or negotiated basis, as the General Manager determines is in the best financial interest of the San Francisco Public Utilities Commission (SFPUC); and delegate to the General Manager , authorization to award each series of bonds to the highest bidder (lowest cost).
Background: 2022 Series AB Wastewater Refunding Bonds and 2022 Series CD Taxable Wastewater Refunding Bonds : The 2022 Sub-Series A B Bonds and Sub-Series C D Taxable Refunding Bonds (collectively, the “2022 Wastewater Refunding Bonds”) will be issued pursuant to San Francisco City Charter Section 9.109 which authorizes the issuance of refunding bonds that are expected to result in debt service savings calculated on a present value basis.
Staff regularly monitors outstanding debt to identify refunding opportunities. Based on the current low interest rate env ironment, the 2022 Wastewater Refunding Bonds will refund or advance refund all or a portion of the outstanding Series 2013A, 2013B, 2016A Execute Agreement: Authorize the Issuance of up to $475M of Tax-Exempt and Taxable Wastewater Refunding Bonds
Commission Meeting Date: April 12, 2022
2 and 2016B Wastewater Revenue Bonds. The Series 2022 Wastewater Refunding Bonds are to be authorized at an aggregate not- to-exceed par amount of $ 450 million .
Collectively, the 2022 Wastewater Refunding Bonds would generate debt service savings benefiting all Wastewater Enterprise ratepayers. Given current market rates, estimated present value debt service savi ngs are in excess of $55 million or approximately
12.9% of the amount of refunded bonds. Actual savings may increase or decrease depending on changes in interest rates on the day of sale.
The sale and issuance of the 2022 Wastewater Refunding Bonds is being done in compliance with the SFPUC’s “Debt Management Policies & Procedures”, including meeting the minimum 3% present value savings threshold and minimum 50% refunding efficiency threshold.
Overview of the Transaction: Municipal bonds are often issued with optional redemption” provisions which provide for the refunding of outstanding debt. A refunding executed on or within 90 days after the first optional redemption date of the bonds is referred to as a “current refunding” and a transaction executed before such period is referred to as an “advance refunding.” The use of revenue bond advance refundings is an effective way to optimize their debt portfolios and achieve debt service savings. Such transactions allow issuers to lock in lower interest rates rather assume interest rate risk by waiting until the first optional redemption date.
The 2022 Series AB Wastewater Refunding Bonds will be issued on a tax-exempt basis and the 2022 Series CD advance refunding bonds will be sold on a taxable basis.
Historically the SFPUC has sold its advance refunding bonds on a tax- exempt basis to take advantage of lower interest rate s generally prevailing on tax-exempt bonds .
However, the 2017 Tax Cuts and Jobs Act federal tax l aw, which became effective January 1, 2018, prohibits the issuance by municipal agencies of tax-exempt advance refunding bonds. The proposed 2022 Series AB Wastewater Refund ing bonds are expected to be issued on a current refunding basis on the optional redemption (call) date of the 2013 Series AB Wastewater Revenue Bonds. However, if market conditions are advantageous for the SFPUC to price earlier than the current refunding window, the 2022 Series AB Wastewater Refunding Bonds may be delivered on forward delivery basis whereby the tax-exempt bonds would be priced on a date more than 90 days prior to the call date. The SFPUC would be required to pay a premium of approximately five to six basis points per month from bond pricing to July 2022 (90 days prior to the optional redemption date of the 2013 Series A B Wastewater bonds) when the tax- exempt refunding bonds would be delivered. Like taxable advance refundings, numerous other agencies in the United States have issued forward delivery bonds to realize savings, including Office of Public Finance and BAWSCA.
Forward delivery bonds and taxable advance refunding bonds (if they are issued) are not prohibited by tax-law and w ith current low interest rates across the fixed income bond markets. Staff and its municipal advisors have identified a potential opportunity to issue 2022 R efunding Bonds that c ould result in significant debt service savings to the ratepayers. Numerous other agencies throughout the United States have issued refunding bonds and taxable advance refunding bonds to take advantage of these low interest rate market conditions. T he SFPUC successfully issued its first taxable advance refunding bonds (the 2019 Series ABC Water Revenue Bonds) in December 2019 and then again in October 2020 (the 2020 Series EFGH Water Revenue Bonds.) Execute Agreement: Authorize the Issuance of up to $475M of Tax-Exempt and Taxable Wastewater Refunding Bonds
Commission Meeting Date: April 12, 2022
3 The use of refundings and advance refundings has been an important debt management tool for the SFPUC, allowing it to execute refundings that have resulted in significant debt service savings to the ratepayers. Since 2015, the SFPUC has executed the following advance refundings that have resulted in significant present value (PV) debt service savings to the ratepayers ( PV savings are expressed both on a dollar basis and as a percentage of refunded bonds):
• $429.6 million Series 2015 A Water Revenue Bonds (tax-exempt):
Savings: $48.6 million; 10.3%
• $893.8 million Series 2016 AB Water Revenue Bonds (tax-exempt):
Savings: $107.2 million; 11.5%
• $442.2 million Series 2017 DEFG Water Revenue Bonds (tax-exempt):
Savings: $51 million; 10.7%
• $656.9 million Series 2019 ABC Water Revenue Bonds (taxable):
Savings: $86.6 million; 14.0%
• $664.4 million Series 2020 EFGH Water Revenue Bond (taxable):
Savings: $75.2 million; 12.0%
The most recent refunding executed for the Wastewater Enterprise was 2013 Series A:
• $193.4 million Series 2013 A Wastewater Revenue Bonds (tax-exempt) Savings: $32.8 million; 15.4%
Method of Sale/Underwriting: Staff recommend s that the transaction be sold on a negotiated basis given the structuring considerations and the desire to maximize refunding savings. In addition, staff believes investor outreach will be cr itical for these transactions. . On December 7, 2021, a Request for Proposals to select underwriters was sent to pre-qualified firms in the Controller’s Office of Public Finance Underwriter Pool.
On December 21, 2021, 13 proposals were received. After review and scoring of the proposals by SFPUC debt m anagement staff and its independent municipal advisors, Citigroup achieved the highest score. Consequently, staff is recommending that Citigroup be selected as the most responsive and cost-effective proposal to serve as Senior Manager for the transaction. Also, to a ssist in the marketing and sale of the 2022 W astewater Refunding Bonds, staff is recommending a syndicate of other underwriters as follows: JP Morgan serving as Co-Senior Manager, and BofA Securities, Barclays, Goldman Sachs & Co. LLC serving as Co-Managers.
Bonds t o Be Sold With “Green Bond ” Designation : SFPUC staff has previously received a certification from an independent consultant confirming that bonds issued to fund SSIP (whether they are new money or refunding bonds) qualify for “Green Bond” designation. The 2022 Sub-Series A Bonds, which refunds bonds related to past SSIP funding, will be designated as “Green Bonds” . The SFPUC has previously issued the 2016 Series A Wastewater Revenue Bonds , 2018 Sub- Series A and Sub -Series C Wastewater Revenue Bonds, 2021 Sub-Series A Wastewater Revenue Bonds, and 2021 Sub-Series A and B Wastewater Revenue Notes each of which were sold to fund the SSIP, as “Green Bonds”. The issuance of Green Bonds allows the SFPUC to demonstrate to interested stakehold ers and investors that it is a sensitive environmental steward . In addition, Green Bonds are in high demand by certain types of investors that seek to hold bonds with positive environmental impacts in their portfolios. By offering Green Bonds, the SFPUC can increase its bond investor base, which in turn can potentially increase demand in its bonds.
Execute Agreement: Authorize the Issuance of up to $475M of Tax-Exempt and Taxable Wastewater Refunding Bonds
Commission Meeting Date: April 12, 2022
4 Analysis of Financing Alternatives: As part of the 10-Year Financial Plan, the SFPUC conducts market analysis for funding of the capital program, taking into consideration capital project funding needs and timing, available financing alternatives, market conditions and impacts on our ratepayers. For each financing, SFPUC Finance staff examines the most cost -effective financing structure within the context of the overall capital plan and capital market dynamics at the time of issuance.
SFPUC Finance staff has reviewed the Wastewater Enterprise’s outstanding debt portfolio and capital financing needs and recommends primary funding through revenue bonds low- cost State Revolving Fund (SRF) loans, and low -cost Federal Water Infrastructure Finance and Innovation Act (WIFIA) Loans. When interest rates are at low levels, such as they are currently, SFPUC Finance staff also recommends low -cost refunding of outstanding revenue bonds. Based on this review, staff has determined that this refunding transaction will result in significant savings to Wastewater Enterprise ratepayers.
Transaction Schedule: Depending on market conditions, it is expected that the 2022 Wastewater Refunding Bonds will be sold on a negotiated basis , with pricing in mid- to late May and closing in July. Subject to market conditions and i f determined to be advantageous, the SFPUC may enter into a forward delivery agreement earlier than the current refunding window to lock in market interest rates.
SB 450 Legislation Compliance: In 2017, Senate Bill 450 (SB 450) was enacted. The law requires the governing body of a local public body to obtain and disclose, prior to authorization of a new bond issue, good faith estimates of the following financing-related information:
1. True Interest Cost (TIC) of the bonds.
2. Finance charge of the bonds: Representing the sum of all fees and charges paid to third parties.
3. Amount of proceeds received: Representing proceeds of the bonds net of fees and charges paid to third parties and any reserves or capitalized interest funded by the bonds.
4. Total payment amount: The sum of all debt service payments on the bonds calculated to the final maturity of the bonds.
SB 450 requires that the good faith estimates be obtained from either the issuer’s municipal advisor, underwriter or third-party lender. The Commission has been presented with this inf ormation in past staff reports requesting approval of bonds issued or loans executed since the enactment of SB 450.
The following represent s a good faith reasonable estimate of certain cost s of the 2022 Wastewater Refunding Bonds for purposes of complianc e with SB 450 and based upon information as of March 11, 2022. Staff has consulted with its municip al advisor, Montague DeRose & Associates, and obtained estimates reflecting the expected closing date with regard to the 2022 Wastewater Refunding Bonds. Actual results may vary.
Execute Agreement: Authorize the Issuance of up to $475M of Tax-Exempt and Taxable Wastewater Refunding Bonds
Commission Meeting Date: April 12, 2022
5 1. True Interest Cost (TIC): 2.82%1
2. Finance Charge of the Bonds: $ 1,555,760 (reflects both costs of issuance and underwriter’s discount).
3. Amount of Proceeds Received by the Public Body for Sale of the Bonds: $453,619,960
4. Total Payment Amount: Total Net Debt Service of $605,104,687 (represents total estimated debt service, net of capitalized interest, if any).
Bond Documents: The Commission is being asked to approve the form and authorize the execution of documents relating to the 2022 W astewater Refunding Bonds, as described below.
1) Official Statement (Preliminary/Final) – This document is the primary potential investor disclosure document that describes the terms of the bonds, source of repayment, risk factors, financial and operating results and projections, and the most current background information of the Wastewater Enterprise and the SFPUC. The document will be provided to rating agencies and prospective investors. The preliminary official statement contains all material information about the Wastewater Enterprise and is intended to be substantially final (except for certain pricing information and update s that may occur prior to sale), and through the authorizing resolution, the General Manager is permitted to make such changes as are necessary to make such document complete and accurate.
2) Indenture (as amended by the Fourteenth and Fifteenth Suppl emental Indentures) – The Indenture is an agreement between the SFPUC and the Trustee which sets forth the contractual terms for the bonds , including pledge of revenues, flow of funds, covenants, defaults and remedy provisions, and provisions to issue additional debt.
The Supplemental Indentures set forth the terms of each individual series of bonds, including maturities, interest rates and terms of early redemption. 3) Continuing Disclosure Certificate – Agreement between the Trustee and the SFPUC setting forth (in this case, for the Wastewater Enterprise) the SFPUC’s commitment to providing annual financial and operating data disclosure, and the ongoing disclosure of certain enumerated material events as set forth by the Securitie s and Exchange Commission’s (SEC) Rule 15c2-12. It is required that the SFPUC execute a continuing disclosure certificate (CDC) to enable the underwriters to underwrite the bonds. The Continuing Disclosure Certificate is contained as an appendix within the Official Statement.
4) Bond Purchase Contract – Related to a negotiated sale, it is the agreement between the SFPUC and the Underwriters setting forth conditions upon which the bonds will be offered and underwritten by the Underwriters, including provisions allowing the Underwriters to not underwrite the bonds in the event of certain circumstances. 5) Forward Delivery Bond Purchase Contract- Same as Bond Purchase Contract above but includes provisions for bonds to be sold on a forward delivery basis, if needed. 6) Escrow Agreement – Related to an advance refunding, it is the agreement with the
1 The estimated TIC of 2.40% for the refunding bonds is lower than the estimated TIC of 3.28% for the proposed 2020 ABCD New Money Bonds due to the shorter average life of the refunding bonds.
Execute Agreement: Authorize the Issuance of up to $475M of Tax-Exempt and Taxable Wastewater Refunding Bonds
Commission Meeting Date: April 12, 2022
6 escrow agent (typically the Trustee) to hold the escrow securities that are purchased with proceeds of the advance refunding bonds and used to legally defease the refunded bonds through the bonds’ first optional redemption date. The agreement also outlines the roles and responsibilities of the escrow agent to pay debt service on the refunded bonds until their redemption date.
Legal and Advisory Team: SFPUC Fin ance worked collaboratively with outside financial advisors, the Office of the City Attorney , and outside bond, disclosure, and underwriters’ counsel, to develop all aspects of the documents associated with the sale of the 2022 Wastewater Refunding Bonds, including all attachments. The parties working with the SFPUC on this financing are as follows:
• City Attorney’s Office of the City and County of San Francisco • Disclosure Counsel: Orrick, Herrington & Sutcliffe LLP • Co-Bond Counsel: Kutak Rock LLP; Curls Bartling P.C.
• Co-Municipal Advisors: Montague DeRose & Associates ; Backstrom McCarley Berry
• Trustee: U.S. Bank National Association
• Escrow Verification Agent: Gary Kitahata & Company
• Independent Pricing Verification Agent [TO COME]
Because this transaction will be sold on a negotiated basis, per the SFPUC’s debt policies, an Independent pricing verification agent —a f inancial advisor not involved in the transaction—will be engaged to provide an independent pricing report and comparati ve sales details to reassure that the sale provided best possible pricing for the rate payers.
Disclosure Considerations: Under federal securities laws, the SFPUC must disclose the financial and operating condition of the Wastewater Enterprise to prospective investors, and that such information be included in the Preliminary Official Statement and the final Official Statement for the bonds, and such disclosure must be complete and accurate with no material misstatements or material omissions. [The following sets forth the disclosure considerations related to the Preliminary Official Statement.] The preparation of the Preliminary Official Statement reflects a rigorous and iterative drafting and review process including subject matter experts and senior management within the Wastewater Enterprise, Infrastructure and Wastewater Capital Improvement program managers, the City Attorney’s Office and the SFPUC’s financing team . In
addition, the SFPUC has been assisted in the preparation of the document by Orrick, Herrington & Sutcliffe LLP, disclosure counsel.
Prior to distribution to investors, the Preliminary Official Statement will be updated to reflect the most current information of the W astewater Enterprise. The final Official Statement will be distributed subsequent to the sale of the bonds and will include relevant pricing-related information.
Counsel has advised that prior to approval of the form of Preliminary Official Statement, Commissioners should review the attached documents and be satisfied that:
1) They understand the key terms of the bond transaction, including commitments undertaken by the SFPUC.
2) The process followed in the preparation of the Preliminary Official Statement Execute Agreement: Authorize the Issuance of up to $475M of Tax-Exempt and Taxable Wastewater Refunding Bonds
Commission Meeting Date: April 12, 2022
7 and final Official Statement is adequate.
3) SFPUC officers or the City Attorney’s Office are aware of all matters important to the financial condition of the SFPUC and the Wastewater Enterprise of which Commissioners have personal knowledge.
A summary level bond disclosure “Questions and Answers” is set forth below:
Q. What is the size of the bond issue?
A. The SFPUC expects to issue an aggregate principal amount not-to-exceed $475 million of the 2022 Wastewater Refunding Bonds.
Q. Why are bonds being issued?
A. The 2022 Wastewater Refunding Bonds are being issued a current refunding and advance refunding bonds to provide debt service savings to the ratepayers.
Q. What is the bond structure?
A. The 2022 Wastewater Revenue Bonds will consist of up to two series of senior lien, fixed rate tax -exempt bonds and up to two series of taxable bonds having maturities equal to the maturities of the bonds being refunded. The 2022 Wastewater Refunding Bonds will not fund a debt service reserve fund.
Q. How will the bonds be sold?
A. The 2022 Wastewater Refunding Bonds will be sold through a negotiated sale where the pricing terms of the bonds are set after negotiating with the underwriters based on investor demand and market conditions.
Q. How will debt service on the bonds be paid?
A. The 2022 Wastewater Refunding Bonds will be repaid from the “net revenues” of the Wastewater Enterprise, in accordance with the Wastewater Indenture, the source of which is rates and charges. Net revenues are those revenues remaining after the payment of Operating and Maintenance Expenses of the Wastewater Enterprise.
Q. What impact will the issuance of the bonds have on Wastewater Enterprise rates?
A. Debt service and debt service coverage requirements have been included in the current Wastewater Enterprise 10-Year Financial Plan, which projects average annual retail rate increases of 6.6% for the period of FY 2022-23 through FY 2031-32. However, the projected savings related to the
2022 Wastewater
Refunding Bonds have not yet been included in the 10-Year Financial Plan.
Q. Will issuance of the bonds have a negative impact on the SFPUC credit ratings?
A. The SFPUC will apply for ratings for the 2022 Wastewater Refunding Bonds.
Staff does not anticipate any negative rating action from the issuance of the 2022 Wastewater Refunding Bonds.
If there is any information Commissioners believe they need to understand of the transaction as presented for approval , or to evaluate the adequacy of disclosure , or if Commissioners have important information concerning the Wastewater Enterprise of which they are not sure the SFPUC is aware, Commissioners are encouraged to contact Execute Agreement: Authorize the Issuance of up to $475M of Tax-Exempt and Taxable Wastewater Refunding Bonds
Commission Meeting Date: April 12, 2022
8 SFPUC finance staff or the City Attorney’s Office.
Result of
Inaction:
A delay or denial in approving this agenda item will potentially result in not achieving debt service savings for ratepayers.
Environmental
Review:
The Environmental Review Officer has previously issued the certificates required by subsection (b) of Section 8B.124 of the Charter with respect to the projects financed with the proceeds of the bonds to be refinanced with 2022 Wastewater Refunding Bonds. All projects listed in these certificates that proceeded to construction have undergone any applicable California Environmental Quality Act review.
Recommendation: SFPUC staff recommends that the Commission adopt the attached resolution.
Attachments: 1) Form of Preliminary Official Statement (POS) and Form of Continuing Disclosure Certificate (POS Appendix)
2) Forms of Fourteenth and Fifteenth Supplemental Indentures 3) Form of Bond Purchase Contract
4) Forward Delivery Bond Purchase Contract
5) Form of Escrow Agreements
PUBLIC UTILITIES COMMISSION
City and County of San Francisco
RESOLUTION NO.:
WHEREAS, At a duly called and held election on November 5, 2002, a majority of voters voting on the measure approved Proposition E (“Proposition E of 2002”), which, among other things, authorized the Public Utilities Commission (the “Commission”) of the City and County of San Francisco ( “City”) to issue its revenue bonds, including notes, commercial paper or other forms of indebtedness, when authorized by ordinance approved by a two-thirds vote of the Board of Supervisors of the City (the “Board”), for the purpose of reconstructing, replacing, expanding, repairing or improving water facilities or clean water facilities, or combinations of water and clean water facilities under the jurisdiction of the Commission, subject to the satisfaction of certain conditions; and
WHEREAS, Pursuant to Section 9.109 of the Charter of the City (“Charter”) (as supplemented by California Government Code Sections 53580 et seq.), the Board is authorized to provide for the issuance of revenue refunding bonds, for which no voter approval is required, for the purpose of refunding any outstanding revenue bonds of the City provided such refunding bonds are expected to result in net debt service savings to the City on a present value basis, calculated as provided by ordinance; and
WHEREAS, The Commission has previously issued a series of bonds under that certain Indenture, dated as of January 1, 2003, by and between the Commission and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee thereunder (“Trustee”), as amended and supplemented ( “Indenture”), designated the “Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2013 Series A (Refunding)” (“2013 Series A Bonds”), in the original principal amount of $193,400,000, as more specifically described in that certain Second Supplemental Indenture, dated as of January 1, 2013, by and between the Commission and the Trustee, relating to the 2013 Series A Bonds; and
WHEREAS, The Commission has previously issued a series of bonds under the Indenture designated the “Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2013 Series B” (“2013 Series B Bonds”, and together with the 2013 Series A Bonds, the “2013AB Bonds”), in the original principal amount of $331,585,000, as more specifically described in that certain Third Supplemental Indenture, dated as of February 1, 2013, by and between the Commission and the Trustee, relating to the 2013 Series B Bonds; and WHEREAS, The Commission has previously issued two series of bonds under the Indenture designated the “Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2016 Series A (Green Bonds)” (“2016 Series A Bonds”), in the original principal amount of $240,580,000 and “Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2016 Series B” (the “2016 Series B Bonds”, and together with the 2016 Series A Bonds, the “2016AB Bonds”)), in the original principal amount of $67,820,000, as more specifically described in that certain Fourth Supplementa l Indenture, dated as of May 1, 2016, by and between the Commission and the Trustee, relating to the 2016AB Bonds; and,
WHEREAS, On September 29, 2020, the Board adopted Ordinance No. 173-20, signed by the Mayor of the City on October 1, 2020, approving, among other things, the issuance and sale of wastewater revenue bonds, pursuant to Article VIIIB of the Charter of the City, in an aggregate principal amount not to exceed $349,919,252, to finance capital projects benefiting the Wastewater Enterprise, and further authorized the approval of the issuance of wastewater revenue refunding bonds, to refund any outstanding obligations of the Wastewater Enterprise, subject to the limitations set forth therein (referred to herein as “Ordinance No. 173-20”); and WHEREAS, Under the authority granted under Section 9.109 of the Charter (as supplemented by California Government Code Sections 53580 et seq.), and the various ordinances and resolutions adopted by the Board and this Commission thereunder, it is proposed that t he Commission issue (i) one or more series of wastewater revenue refunding bonds (together, the “2022AB Bonds”), in an aggregate principal amount not to exceed $325,000,000, for the principal purpose of current refunding all or a portion of the outstanding 2013AB Bonds and paying costs of issuance related thereto, and (ii) one or more series of wastewater revenue refunding bonds (together, the “2022CD Bonds”), in an aggregate principal amount not to exceed $150,000,000, for the principal purpose of advance refunding all or a portion of the outstanding 2016AB Bonds and paying costs of issuance related thereto, pursuant to the Indenture and the applicable Supplemental Indentures (as defined herein); and
WHEREAS, The refunding of all or a portion of the Commission’s outstanding 2013AB Bonds and 2016AB Bonds is proposed to be accomplished by depositing proceeds of the 2022AB Bonds and 2022CD Bonds, respectively, and certain other amounts, if any, in the applicable irrevocable escrow funds, each established and held in trust by the trustee for the bonds to be refunded pursuant to one or more escrow agreements between the Commission and said trustee (each an “Escrow Agreement”, and together, the “Escrow Agreements”), which moneys and the investment income thereon are to be applied to pay the principal of and the interest and redemption premium, if any, on the bonds to be refunded as provided therein; and WHEREAS, The 2022AB Bonds will be issued such that interest on such bonds will be, excludable from gross income of the recipients thereof under the provisions of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder or related thereto (collectively, the “Code”), subject to the limitations set forth in the Code, pursuant to the 2022AB Bonds Supplemental Indenture (as defined herein); and
WHEREAS, The 2022CD Bonds will be issued such that interest on such bonds will be, included in gross income of the recipients thereof under the provisions of Code, subject to the limitations set forth in the Code, pursuant to the 2022CD Bonds Supplemental Indenture (as defined herein); and
WHEREAS, It is proposed that one or more preliminary official statements for the 2022AB Bonds and the 2022CD Bonds (each, a “Preliminary Official Statement”) and one or more official statements (each, an “Official Statement”) will be used in connection with the offering and sale of the 2022AB Bonds and the 2022CD Bonds, from time to time; and WHEREAS, It is proposed that the 2022AB Bonds be sold, on one or more dates, in a negotiated sale pursuant to one or more forward delivery bond purchase contract(s), if necessary (defined herein as, the “2022AB Bond Purchase Contract”) and the 2022CD Bonds be sold, on one or more dates, in a negotiated sale pursuant to one or more bond purchase contract(s), if necessary (defined herein as, the “2022CD Bond Purchase Contract”); and
WHEREAS, It is proposed that one or more continuing disclosure certificate(s) with respect to the 2022CD Bonds, if necessary, and one or more continuing disclosure certificate(s) with respect to the 2022AB Bonds, if necessary (together, the “Continuing Disclosure Certificates”) be executed and delivered by the Commission in order to assist the underwriters thereof in complying with Securities and Exchange Commission Rule 15c2-12 (“Rule 15c2-12”); and
WHEREAS, Pursuant to Article IX of the Indenture, the Indenture may be amended from time to time upon compliance with the terms and conditions provided in said Article IX; and WHEREAS, The Commission has been presented with and has examined the proposed forms of the 2022AB Bonds Supplemental Indenture, the 2022CD Bonds Supplemental Indenture, the 2022AB Bond Purchase Contract, the 2022CD Bond Purchase Contract, the Escrow Agreements, the Preliminary Official Statement, and the Continuing Disclosure Certificates; and WHEREAS, The Commission is duly authorized and empowered, pursuant to each and every requirement of law, to authorize the foregoing transactions and issue the 2022AB Bonds and the 2022CD Bonds and to authorize the execution and delivery, as applicable, of the Supplemental Indentures, the 2022AB Bond Purchase Contract, the 2022CD Bond Purchase Contract, the Preliminary Official Statement, the Official Statement, the Escrow Agreements, the Continuing Disclosure Certificates and related documents, for the purposes described herein and in the manner and upon the terms provided herein; and
WHEREAS, Senate Bill 450 (Chapter 625 of the 2017- 2018 Session of the California Legislature) (“SB 450”) requires that t he governing body of a public body obtain from an underwriter, municipal advisor or private lender and disclose, prior to authorizing the issuance of bonds with a term of greater than 13 months, good faith estimates of the following information in a meeting open to the public: (a) the true interest cost of the bonds, (b) the sum of all fees and charges paid to third parties with respect to the bonds, (c) the amount of proceeds of the bonds expected to be received net of the fees and charges paid to third pa rties and any reserves or capitalized interest paid or funded with proceeds of the bonds, and (d) the sum total of all debt service payments on the bonds calculated to the final maturity of the bonds plus the fees and charges paid to third parties not paid with the proceeds of the bonds; and WHEREAS, The Environmental Review Officer has previously issued the certificates required by subsection (b) of Section 8B.124 of the Charter with respect to the projects financed with the proceeds of the bonds to be refunded with the 2022AB Bonds and the 2022CD Bonds, and all projects listed in these certificates that proceeded to construction have undergone any applicable California Environmental Quality Act (“CEQA”) review; now, therefore, be it RESOLVED by the Public Utilities Commission of the City and County of San Francisco, as follows:
Section 1. Issuance of the 2022AB Bonds and 2022CD Bonds. The issuance of the 2022AB Bonds, on one or more date(s), and in such amount(s) and at such time(s) as the Commission may determine, in an aggregate principal amount not to exceed $325,000,000, is hereby authorized and approved by the Commission, pursuant to Ordinance No. 173-20, Section 9.109 of the Charter (as supplemented by California Government Code Sections 53580 et seq.), and subject to the limitations and conditions provided herein. The 2022AB Bonds may be issued for the purpose of:
(a) current refunding all or a portion of the Commission’s outstanding 2013AB Bonds, provided
that such 2022AB Bonds (i) satisfy the applicable requirements of the Indenture and the City’s policies and procedures for refunding bonds, and (ii) are authorized to be issued under Section
9.109 of the Charter (as supplemented by California Government Code Sections 53580 et seq.) (including any related ordinances and resolutions); and (b) paying costs of issuance of the 2022AB Bonds.
The issuance of the 2022CD Bonds, on one or more date(s), and in such amount(s) and at such time(s) as the Commission may determine, in an aggregate principal amount not to exceed $150,000,000, is hereby authorized and approved by the Commission, pursuant to Ordinance No. 173-20, Section 9.109 of the Charter (as supplemented by California Government Code Sections 53580 et seq.), and subject to the limitations and conditions provided herein. The 2022CD Bonds may be issued for the purpose of: (a) advance refunding all or a portion of the Commission’s outstanding 2016AB Bonds, provided that such 2022CD Bonds (i) satisfy the applicable requirements of the Indenture and the City’s policies and procedures for refunding bonds, and (ii) are authorized to be issued under Section 9.109 of the Charter (as supplemented by California Government Code Sections 53580 et seq.) (including any related ordinances and resolutions); and (b) paying costs of issuance of the 2022CD Bonds.
If determined to be beneficial to the Commission by the General Manager, with the advice of Montague DeRose and Associates, LLC and Backstrom McCarley Berry & Co., LLC, the Commission’s municipal advisors (the “Municipal Advisors”) with respect to the 2022AB Bonds and the 2022CD Bonds, 2022AB Bond and 2022CD Bond proceeds, as applicable, may also be applied to costs associated with (i) the provision of credit enhancement of any 2022AB Bonds and 2022CD Bonds, as applicable (including without limitation, bond insurance policies and/or reserve fund surety bonds or insurance policies), and (ii) the funding of a debt service reserve for one or more series of 2022AB Bonds and 2022CD Bonds, if any, as applicable.
The 2022AB Bonds and the 2022CD Bonds shall be issued in accordance with the above- mentioned ordinance, this resolution, the Indenture and the Charter (as supplemented by California Government Code Sections 53580 et seq.). The General Manager is hereby authorized and directed to determine the aggregate principal amount(s) of 2022AB Bonds and the 2022CD Bonds to be issued from time to time ( subject to the maximum amount and further limitations and conditions set forth herein) and to determine the various titles and series designations of the 2022AB Bonds and the 2022CD Bonds.
The 2022AB Bonds and the 2022CD Bonds will be issued as tax- exempt and taxable bonds, respectively. The forms of the 2022AB Bonds and the 2022CD Bonds, in substantially the forms set forth in the forms of the Supplemental Indentures (as defined below) and presented to this meeting, are hereby approved. The General Manager (or their designee) of the Commission is hereby authorized and directed to approve and to execute the 2022AB Bonds and the 2022CD Bonds by manual or facsimile signature, and the Secretary (or their designee) of the Commission is hereby authorized and directed to attest, by manual or facsimile signature, with such changes, additions, amendments or modifications thereto which they may approve with the advice of the City Attorney, such approval to be conclusively evidenced by the execution and delivery of the 2022AB Bonds and the 2022CD Bonds, subject to the limitations set forth in Section 2 hereof.
Section 2. Sale of the 2022AB Bonds and the 2022CD Bonds . The sale of the 2022AB Bonds and the 2022CD Bonds, in one or more series and on one or more date(s), is hereby authorized and approved by the Commission, pursuant to the Charter (as supplemented by
California Government Code Sections 53580 et seq.), the above -mentioned ordinance, this resolution, and subject to the limitations and conditions provided herein. The sale of the 2022AB Bonds and the 2022CD Bonds through negotiated sale(s) to the underwriters of the applicable 2022AB Bonds and the 2022CD Bonds, with the advice of the Municipal Advisors, provided that (i) the sale(s) of the 2022AB Bonds and the 2022CD Bonds through negotiated process(es) is likely to enhance the ability of the Commission to timely sell the 2022AB Bonds and the 2022CD Bonds or to achieve a lower overall cost to the Commission, or both, and (ii) the requirements of Section VIII of the Commis sion’s Debt Management Policies and Procedures, as the same may have been amended and in effect at the time of such determination, have been satisfied. The interest rate or rates on the 2022AB Bonds and the 2022CD Bonds shall not exceed twelve percent (12%) and the final maturity of any 2022AB Bonds and 2022CD Bonds shall not be extended beyond the final maturity date of the applicable series of bonds to be refunded, except as otherwise provided in Ordinance No. 173-20.
Section 3. Escrow Agreements. The proposed for ms of Escrow Agreements submitted to this Commission, and the terms and conditions thereof, are hereby approved. In order to implement the refunding and defeasance of the outstanding Wastewater Enterprise revenue bonds being refunded with the 2022AB Bonds and 2022CD Bonds, as applicable, the General Manager (or their designee) is hereby authorized to enter into one or more Escrow Agreements with the Trustee, as escrow agent for the outstanding Wastewater Enterprise revenue bonds being refunded with the 2022AB Bonds and 2022CD Bonds, as applicable, substantially in the forms presented to this meeting and on file with the Secretary of the Commission, with such changes and additions as the General Manager may approve upon consultation with the City Attorney, each such approval to be evidenced conclusively by the delivery to the trustee of such Escrow Agreements. The Secretary of the Commission is directed to file a copy of said form of Escrow Agreements with the minutes of this meeting.
Section 4. Disposition of Revenues; Pledge of Net Revenues; Rate Covenant.
Section 5.01(b) of the Indenture, which sets forth the disposition of Revenues (as defined in the Indenture) applicable to the 2022AB Bonds and the 2022CD Bonds relating to the Wastewater Enterprise is hereby confirmed by the Commission and the Commission further confirms, pledges and covenants with the holders of the 2022AB Bonds and the 2022CD Bonds that the Revenues shall be appropriated and expended in the order of priority set forth in Section 5.01(b) of the Indenture and the 2022AB Bonds and the 2022CD Bonds shall be subject to the pledge of Net Revenues (as defined in the Indenture) as set forth in Section 5.01(c) of the Indenture, as the same may be amended from time to time. This Commission also declares that the Commission will comply with all of the terms, provisions and covenants contained in the Indenture, as the same may be amended from time to time, including the covenants to establish, fix and prescribe, rates, fees and charges sufficient to enable the Commission to comply with the terms, conditions and covenants of the Indenture.
Section 5. Supplemental Indentures. The proposed form of the Supplemental Indenture for the 2022AB Bonds (the “2022AB Bonds Supplemental Indenture”) and the Supplemental Indenture for the 2022CD Bonds (the “2022CD Bonds Supplemental Indenture” and together with the 2022AB Bonds Supplemental Indenture, the “Supplemental Indentures”), submitted to this Commission, and the terms and conditions thereof, are hereby approved. The General Manager (or their designee) is authorized and directed to execute and deliver and the Secretary of the
Commission (or their designee) is authorized to attest to the Supplemental Indentures in such form, with such additions thereto or changes therein which they may approve with the advice of the City Attorney, such approval to be conclusively evidenced by the execution and delivery of such Supplemental Indenture. The Secretary of the Commission is directed to file a copy of the form of the Supplemental Indentures with the minutes of this meeting. Subject to the further limitations hereof, the principal amount, date, maturity date or dates, maximum interest rate, series designation, interest payment dates, forms, registration privileges, place or places of payment, terms of redemption, insurance provisions and other terms of the 2022AB Bonds and the 2022CD Bonds shall be as provided in the 2022AB Bonds Supplemental Indenture and the 2022CD Bonds Supplemental Indenture, respectively.
Section 6. Preliminary Official Statement and Official Statement. The proposed form of the Preliminary Official Statement for the 2022AB Bonds and the 2022CD Bonds (with any supplement(s) thereto, the “Preliminary Official Statement”), in substantially the form submitted to the Commission, is hereb y approved, and the General Manager (or their designee) is hereby authorized to certify from time to time, for and on behalf of the Commission, that such Preliminary Official Statement, with such changes, additions and supplements, including the creation of a separate Preliminary Official Statement for the 2022AB Bonds and the 2022CD Bonds, as they may deem necessary or appropriate in the interest of the Commission, in consultation with the City Attorney, are each deemed final as of their date, within the m eaning of Rule 15c2-12 (except for the omission of certain final pricing, rating and related information as permitted by Rule 15c2-12).
The Preliminary Official Statement is hereby authorized to be used from time to time in connection with the marketing of the 2022AB Bonds and the 2022CD Bonds. In connection with the sale of the 2022AB Bonds and the 2022CD Bonds, the General Manager (or their designee) is hereby authorized and directed, for and on behalf of the Commission, to execute an Official Statement for such 2022AB Bonds and 2022CD Bonds, in substantially the form of the Preliminary Official Statement for the 2022AB Bonds and 2022CD Bonds, and to cause the delivery of such Official Statement to the purchasers of the 2022AB Bonds and 2022CD Bonds.
Section 7. 2022AB Bond Purchase Contract . The proposed form of the 2022AB Bond Purchase Contract for the 2022AB Bonds, submitted to this Commission, is hereby approved. The General Manager is authorized to select and appoint one or more underwriters (each, an “Underwriter” and, collectively, the “Underwriters”) from the Commission’s or the City’s pool of pre-qualified underwriters subject to a competitive procurement process and in accordance with the City’s policies and procedures with respect thereto, subject to the limits on Underwriters’ compensation set forth below. The General Manager is hereby authorized and directed, for and on behalf of and in the name of the Commission, to sell in a negotiated sale with such Underwriter or Underwriters, the 2022AB Bonds, in such aggregate principal amount as the General Manager may determine, subject to the further limitations and conditions hereof. The General Manager is hereby authorized to enter into the 2022AB Bond Purchase Contract with one or more of the Underwriters, individually or collectively as the General Manager deems appropriate, substantially in the form presented at this meeting, with such changes and additions as the General Manager may approve upon consultation with the City Attorney, such approval to be evidenced conclusively by the execution and delivery of such 2022AB Bond Purchase Contract; provided, however, that the total compensation to the Underwriter(s) with respect to the 2022AB Bonds shall not exceed
1.0% of the par value of the 2022AB Bonds to be sold pursuant to the 2022AB Bond Purchase Contract. The 2022AB Bonds sold in such negotiated sale shall be delivered to the Underwriter(s)
upon payment of the purchase price agreed upon in the 2022AB Bond Purchase Contract. The Secretary of the Commission is directed to file a copy of said form of 2022AB Bond Purchase Contract with the minutes of this meeting.
Section 8. 2022CD Bond Purchase Contract. The proposed form of the 2022CD Bond Purchase Contract for the 2022CD Bonds, submitted to this Commission, is hereby approved. The General Manager is authorized to select and appoint an Underwriter or Underwriters from the Commission’s or the City’s pool of pre -qualified underwriters subject to a competitive procurement process and in accordance with the City’s policies and procedures with respect thereto, subject to the limits on Underwriters’ compensation set forth below. The General Manager is hereby authorized and directed, for and on behalf of and in the name of the Commission, to sell in a negotiated sale with such Underwriter or Underwriters, the 2022CD Bonds, in such aggregate principal amount as the General Manager may determine, subject to the further limitations and conditions hereof. The General Manager is hereby authorized to enter into the 2022CD Bond Purchase Contract with one or more of the Underwriters, individually or collectively as the General Manager deems appropriate, substantially in the form presented at this meeting, with such changes and additions as the General Manager may approve upon consultation with the City Attorney, such approval to be evidenced conclusively by the execution and delivery of such 2022CD Bond Purchase Contract; provided, however, that the total compensation to the Underwriter(s) with respect to the 2022CD Bonds shall not exceed 1.0% of the par value of the 2022CD Bonds to be sold pursuant to the 2022CD Bond Purchase Contract. The 2022CD Bonds sold in such negotiated sale shall be delivered to the Underwriters upon payment of the purchase price agreed upon in the 2022CD Bond Purchase Contract. The Secretary of the Commission is directed to file a copy of said form of 2022CD Bond Purchase Contract with the minutes of this meeting.
Section 9. Continuing Disclosure Certificates . The proposed forms of the Continuing Disclosure Certificat es, submitted to this Commission, are hereby approved. The General Manager (or their designee) is hereby authorized and directed to execute the Continuing Disclosure Certificates substantially in the forms submitted to this Commission, with such additions, changes and corrections thereto as the General Manager (or their designee) shall approve with the advice of the City Attorney, such approval to be conclusively evidenced by the execution and delivery of such Continuing Disclosure Certificates. The Secre tary of the Commission is directed to file a copy of said forms of Continuing Disclosure Certificates with the minutes of this meeting.
Section 10. General Authority. The General Manager, the Deputy General Manager and Chief Operating Officer, and Chief Financial Officer and Assistant General Manager, Business Services, and the Deputy Chief Financial Officer of the Commission and the officers of the City are hereby authorized and directed, each acting alone, for and in the name and on behalf of this Commission, to e xecute and deliver any and all documents, certificates and representations, including, but not limited to, signature certificates, no-litigation certificates, tax certificates, letters of representation relating to book entry registration, custody agreements, filing agent agreements, and certificates concerning the contents of the Preliminary Official Statement and the Official Statement, to contract for municipal bond insurance for all or a portion of the 2022AB Bonds and the 2022CD Bonds if determined by the General Manager, with the advice of the Municipal Advisors, to be beneficial to the Commission, to contract for one or more surety bonds or insurance policies for the debt service reserves, if any, for the 2022AB Bonds and the 2022CD Bonds if determined by the General Manager, with the advice of the Municipal Advisors, to be beneficial
to the Commission, to designate all or a portion of the 2022AB Bonds and the 2022CD Bonds as “green bonds” (if applicable), to sell and issue the 2022AB Bonds pursuant to a current delivery basis (rather than on a forward delivery basis), to do any and all things and take any and all actions which may be necessary or advisable, in their discretion, to effectuate the issuance and sale of the 2022AB Bonds and the 2022CD Bonds, the refinancing of the capital projects benefiting the Wastewater Enterprise, the refunding of the outstanding Wastewater Enterprise revenue bonds with the proceeds of the 2022AB Bonds and the 2022CD Bonds, as applicable, and the other actions which the Commission has approved in this resolution. Furthermore, if determined by the General Manager, with the advice of the Municipal Advisors, to be beneficial to the Commission, the Commission is authorized to provide for the execution and delivery, as applicable, of one or more additional supplemental indenture(s), one or more additional preliminary official statement(s) and official statement(s), one or more additional escrow agreement(s), one or more additional bond purchase contract(s) and one or more additional continuing disclosure certificate(s), at such time(s) as the Commission may determine, for the purposes set forth herein and subject to the limitations set forth herein. The General Manager (or their designee) is authorized to delegate any of the responsibilities or duties set forth in this resolution to the Deputy General Manager and Chief Operating Officer, the Chief Financial Officer and Assistant General Manager, Business Services, or the Deputy Chief Financial Officer, of the Commission.
Section 11. SB 450 Compliance . The Commission acknowledges that the good faith estimates required by Section 5852.1 of the California Government Code are disclosed in the staff report and are available to the public at the meeting at which this resolution is approved.
Section 12. Ratification. All actions heretofore taken by the officials, employees and agents of the Commission with respect to the authorization, sale and issuance of the 2022AB Bonds and the 2022CD Bonds are hereby approved, confirmed and ratified; and be it further RESOLVED, this resolution shall take effect from and after its adoption.
I hereby certify that the foregoing resolution was adopted by the Public Utilities Commission at its meeting of April 12, 2022.
Secretary, Public Utilities
Commission
DRAFT
4/4/22
4151-5403-8838.1
PRELIMINARY OFFICIAL STATEMENT DATED ________,2022
NEW ISSUE – Book-Entry Only Ratings:
S&P: “__”
Moody’s: “___”
See “RATINGS.”
In the opinion of Kutak Rock LLP and Curls Bartling P.C., Co-Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the 2022AB Bonds (including any original issue discount properly allocable to the owner of a 2022AB Bond) is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. In the opinion of Co-Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the 2022CD Bonds is included in gross income for federal income tax purposes. Co -Bond Counsel is also of the opinion that interest on the 2022ABCD Bonds is exempt from State of California personal income taxes. For a more detailed description of such opinions of Co-Bond Counsel, see “TAX MATTERS” herein.
$_____________*
Public Utilities Commission of the
City and County of San Francisco
Wastewater Revenue Bonds
$_________*
2022 Series A
(Refunding) (SSIP)
(Green Bonds)
$_________*
2022 Series B
(Refunding) (Non-SSIP)
$_________*
2022 Series C
(Refunding – Federally
Taxable) (SSIP)
(Green Bonds)
$_________*
2022 Series D
(Refunding – Federally
Taxable) (Non-SSIP)
Dated: Date of Delivery or Forward Delivery Date, as applicable Due: As shown on inside front cover General. This cover page contains certain information for quick reference only. It is not intended to be a summary of the security or terms of the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2022 Series A (Refunding) (SSIP) (Green Bonds) (the “2022A Bonds”), the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2022 Series B (Refunding) (Non-SSIP) (the “2022B Bonds” and, together with the 2022A Bonds, the “2022AB Bonds”), the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds , 2022 Series C (Refunding – Federally Taxable) (SSIP) (Green Bonds ) (the “2022C Bonds”), or the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds , 2022 Series D (Refunding – Federally Taxable) (Non-SSIP) (the “2022D Bonds” and, together with the 2022C Bonds, the “2022CD Bonds”, and together with the 2022AB Bonds and the 2022C Bonds, the “2022ABCD Bonds”). Investors are instructed to read the entire Official Statement, including the appendices hereto, to obtain information essential to making an informed investment decision. Capitalized terms not otherwise defined on this cover shall have the meanings ascribed to such terms herein.
Authority for Issuance. The Public Utilities Commission of the City and County of San Francisco (the “ SFPUC”) is issuing the 2022AB CD Bonds pursuant to authority granted by the Charter of the City and County of San Francisco (the “City”), under Proposition E approved by voters of the City on November 5, 2002. The 2022AB Bonds will be issued under a Fourteenth Supplemental Indenture, dated as of _________ 1, 2022 (the “Fourteenth Supplemental Indenture”), by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The 2022CD Bonds will be issued under a Fifteenth Supplemental Indenture, dated as of _______ 1, 2022 (the “ Fifteenth Supplemental Indenture”), by and between the SFPUC and the Trustee. The Fourteenth Supplemental Indenture and the Fifteenth Supplemental Indenture supplement the Indenture, dated as of January 1, 2003, by and between the SFPUC and the Trustee (the “ Original Indenture”) (as supplemented and amended, including as amended and supplemented by the Fourteenth Supplemental Indenture and the Fifteenth Supplemental Indenture, the “Indenture”). See “SECURITY FOR THE BONDS.” All bonds, notes and other obligations of the SFPUC issued and outstanding at any given time under the Indenture, including the Bonds and the hereinafter defined Parity Notes as the context requires , are referred to collectively in this Official Statement as the “Bonds.”
* Preliminary, subject to change
This Preliminary Official Statement and the information contained herein are subject to completion and amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the 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 the registration or qualification under the securities laws of such jurisdiction. 4151-5403-8838.1
Plan of Refunding. The 2022ABCD Bonds are being issued to (i) refund and defease all or a portion of certain outstanding wastewater revenue bonds of the SFPUC, as applicable, and (ii) pay the costs of issuance of the 2022ABCD Bonds. See “PLAN OF REFUNDING” and “ESTIMATED SOURCES AND USES OF FUNDS.”
Denominations and Interest . The 2022ABCD Bonds will be available in denominations of $5,000 or any integral multiple thereof and will mature in the year and amount and accrue interest from the appliable date of delivery. Interest on the 2022ABCD Bonds is payable semiannually on April 1 and October 1 of each year, commencing on October 1, 2022. See “THE 2022ABCD BONDS.” Book-Entry Only. The 2022ABCD Bonds will be issued as fully registered bonds, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( “DTC”), and will be available to ultimate purchasers (the “Beneficial Owners”) under the book-entry only system maintained by DTC . Beneficial Owners will not receive physical certificates representing their interests in the 2022ABCD Bonds. The principal of, premium, if any, and interest on the 2022ABCD Bonds are payable to DTC by the Trustee, and, so long as DTC is acting as securities depository for the 2022ABCD Bonds, disbursements of such payments to DTC Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC Participants. See “THE 2022ABCD BONDS.” Redemption. The 2022ABCD Bonds are subject to redemption prior to maturity as described herein . See “THE 2022ABCD BONDS – Redemption.”
Security. Under the Indenture, the SFPUC has irrevocably pledged the Net Revenues of its Wastewater Enterprise to the punctual payment of principal of, premium, if any, and interest on all outstanding parity revenue bonds, which include WIFIA Bonds, issued under the Indenture , including Parity Loans, subject to the allocation of funds provided in the Indenture. The 2022ABCD Bonds are payable on a parity with certain Outstanding Bonds previously issued by the SFPUC under the Indenture and certain Parity Loans. No Reserve Account will be established f or the 2022ABCD Bonds. See “SECURITY FOR THE BONDS.”
Limited Obligation. The SFPUC is not obligated to pay the principal of, premium, if any, or interest on the Bonds from any source of funds other than Net Revenues of the Wastewater Enterprise. The SFPUC has no taxing power . The General Fund of the City is not liable for the payment of the principal of, premium, if any, or interest on the Bonds , and neither the credit nor the taxing power of the City is pledged to the payment of the principal of, premium, if any, or interest on the Bonds. The Bonds are not secured by a legal or equitable pledge of, or charge, lien, or encumbrance upon, any of the property of the Cit y or of the SFPUC or any of its income or receipts, except Net Revenues. See “SECURITY FOR THE BONDS.” The 2022ABCD Bonds are offered when, as and if issued by the SFPUC and received by the Underwriters, subject to the approval of validity by Kutak Rock LLP, Denver, Colorado, and Curls Bartling P.C., Oakland, California , Co -Bond Counsel to the SFPUC, and to certain other conditions. Certain matters will be passed upon for the SFPUC and the City by Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Disclosure Counsel, and by the City Attorney of the City and County of San Francisco. Montague DeRose and Associates, LLC, Walnut Creek, California, and Backstrom McCarley Berry & Co., LLC, Sa n Francisco, California , Co-Municipal Advisors to the SFPUC, assisted in the structuring of this financing . C ertain matters will be passed upon for the underwriters by Stradling Yocca Carlson & Rauth, A Professional Corporation, Sacramento, California. It is expected that the 2022CD Bonds in fully registered form will be available for delivery in book-entry form through the facilities of DTC on or about __________ , 2022 (the “Date of Delivery ”) and that the 2022AB Bonds will be available for delivery in book-entry form through the facilities of DTC on or about _______, 2022 (the “Forward Delivery Date”).
The date of this Official Statement is __________, 2022.
Citigroup J.P. Morgan
BofA Securities Barclays Goldman Sachs & Co. LLC
4151-5403-8838.1
MATURITY SCHEDULES*
Wastewater Revenue Bonds
2022 Series A (Refunding) (SSIP) (Green Bonds)
$___________ Serial Bonds
Maturity
(O ctober 1)
Principal
Amount
Interest
Rate Price† Yield†
CUSIP‡
Base
Number
79771F
ISIN‡
Base
Number
Common
Code§
$_________ _____% Term Bonds due October 1, ____ Price† ______ Yield† CUSIP‡ _______; ISIN‡ ________; Common Code§ ________
$_________ ____% Term Bonds due October 1, ____ Price† ______ Yield † CUSIP‡ _______; ISIN‡ ________; Common Code§ ________ Wastewater Revenue Bonds
2022 Series B (Refunding) (Non-SSIP)
$__________ Serial Bonds
Maturity
(October 1)
Principal
Amount
Interest
Rate Price† Yield†
CUSIP‡
Base
Number
79771F
ISIN‡
Base
Number
Common
Code§
$_________ _____% Term Bonds due October 1,____ Price †______ Yield † CUSIP‡ _______; ISIN‡ ________; Common Code§ ________
* Preliminary, subject to change.
† Reoffering prices and yields have been provided by the Underwriters. See “UNDERWRITING.” ‡ CUSIP is a registered trademark of the American Bankers Association. CUSIP and ISIN data herein are provided by CUSIP Global Services (“CGS”), which is managed on behalf of the American Bankers Association by FactSet Research Systems Inc.
This data is not intended to create a database and does not serve in any way as a substitute for the CGS data base. Neither the SFPUC nor the Underwriters assume any responsibility for the accuracy of the CUSIP or ISIN data. § The Common Codes are provided herein by Euroclear Bank S.A./N.V. Common Codes are provided for convenience of reference only. Neither the SFPUC nor the Underwriters assume any responsibility for the accuracy of the Common Codes data. 4151-5403-8838.1
$_________ ____% Term Bonds due October 1, ____ Price†______ Yield† CUSIP‡ _______; ISIN‡ ________; Common Code§ ________
Wastewater Revenue Bonds
2022 Series C (Refunding – Federally Taxable) (SSIP) (Green Bonds) $___________ Serial Bonds
Maturity
(October 1)
Principal
Amount
Interest
Rate Price*†
CUSIP‡
Base
Number
79771F
ISIN‡
Base
Number
Common
Code§
$_________ _____% Term Bonds due October 1, ____ Price† ______ CUSIP‡ _______; ISIN‡ ________; Common Code§ ________
$_________ ____% Term Bonds due October 1, ____ Price† ______ CUSIP‡ _______; ISIN‡ ________; Common Code§ ________
Wastewater Revenue Bonds
2022 Series D (Refunding – Federally Taxable) (Non-SSIP) $__________ Serial Bonds
Maturity
(October 1)
Principal
Amount
Interest
Rate Price†
CUSIP‡
Base
Number
79771F
ISIN‡
Base
Number
Common
Code§
† Reoffering prices and yield have been provided by the Underwriters. See “UNDERWRITING.” ‡ CUSIP is a registered trademark of the American Bankers Association. CUSIP and ISIN data herein are provided by CGS, which is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CGS data base. Neither the SFPUC nor the Underwriters assume any responsibility for the accuracy of the CUSIP or ISIN data. § The Common Codes are provided herein by Euroclear Bank S.A./N.V. Common Codes are provided for convenience of reference only. Neither the SFPUC nor the Underwriters assume any responsibility for the accuracy of the Common Codes data. 4151-5403-8838.1
$_________ _____% Term Bonds due October 1,____ Price †______ CUSIP‡ _______; ISIN‡ ________; Common Code§ ________
$_________ ____% Term Bonds due October 1, ____ Price†______ CUSIP‡ _______; ISIN‡ ________; Common Code§ ________
4151-5403-8838.1
SFPUC WASTEWATER ENTERPRISE AND MAJOR FACILITIES
Figure 1-1 – SFPUC Wastewater Enterprise and Major Facilities (Not to Scale) The SFPUC Wastewater Enterprise operates and maintains the City’s combined sewer system, which collects and treats both sewage and stormwater . The map above shows the geographical boundaries of the combined sewer system, major facilities of the combined sewer system and the ridge separating the Bayside from the Westside facilities.
The system consists of approximately 1,011 miles of sewer lines that collect sanitary sewage from homes, businesses and stormwater runoff; large transport storage box facilities; 29 pump stations that transport sewage and stormwater; and three treatment plants that discharge treated water into the San Francisco Bay and Pacific Ocean. San Francisco has eight distinct urban watersheds: five on the Bayside (North Shore ; Channel; Islais; Sunnydale; and Yosemite) and three on the Westside (Richmond; Sunset; and Lake Merced). The three treatment plants treat sewage and stormwater based on whether the collection point is on the Bayside or the Westside . The Oceanside Treatment Plant is not connected to the Bayside treatment systems , and the Southeast Tre atment Plant and N orth Point We t- Weather Facility are not connected to the Westside treatment system. See “THE WASTEWATER ENTERPRISE.” The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the SFPUC or of its income or receipts, except the Net Revenues of its Wastewater Enterprise . See “SECURITY FOR THE BONDS.”
ii
4151-5403-8838.1
GENERAL INFORMATION
No dealer, broker, salesperson or other person has been authorized by the SFPUC to give any information or to make any representation other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the SFPUC.
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 2022ABCD Bonds, by any person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the initial purchasers of the 2022ABCD Bonds. Any statement made in this Official Statement involving any forecast or matter of estimates or opinion, whether or not expressly so stated, is intended solely as such and not as a representation of fact .
The information set forth herein other than that provided by the SFPUC, although obtained from sources which are believed to be reliable, is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither 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 SFPUC or the City since the date hereof.
The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.
The City maintains a website at http://www.sfgov.org an d t he SFPUC maintains a website at
https://www.sfpuc.org. In addition, certain information and reports found on other websites and other information and reports are referred to in this Official Statement. The information and reports available on such websites, and the other referenced information and reports, are not incorporated by reference into this Official Statement and should not be relied upon in making an investment in the 2022ABCD Bonds.
The issuance and sale of the 2022ABCD B onds have not been registered under the Securities Act of 1933 in reliance upon the exemption provided thereunder by Section 3(a)(2) for the issuance and sale of municipal securities.
IN CONNECTION WITH THE OFFERING OF THE 2022ABCD BONDS, AN INITIAL PURCHASER
MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2022ABCD BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME .
CONSEQUENTLY, THE MARKET PRICE PAID BY AN INVESTOR DURING THE STABILIZATION PERIOD MAY BE HIGHER THAN THE PREVAILING MARKET PRICE.
This Official Statement is delivered for use in connection with the issuance, sale and delivery of the 2022ABCD Bonds and may not be reproduced or used, in whole or in part, for any other purpose.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND “ FORWARD-LOOKING STATEMENTS. ” ALL FORWARD -
LOOKING STATEMENTS ARE PREDICTIONS AND ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES . NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED
HEREIN WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN . IN THIS RESPECT, THE WORDS “ ESTIMATE,” “ PROJECT,” “ANTICIPATE,” “ EXPECT,” “ INTEND,” “ BELIEVE” AND SIMILAR EXPRES SIONS ARE INTENDED TO IDENTIFY FORWARD- LOOKING STATEMENTS . ALL PROJECTIONS, FORECASTS, ASSUMPTIONS,
EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD- LOOKING STATEMENTS ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT . GIVEN THEIR UNCERTAINTY, INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH STATEMENTS.
iii
4151-5403-8838.1
INFORMATION CONCERNING OFFERING RESTRICTIONS IN
CERTAIN JURISDICTIONS OUTSIDE THE UNITED STATES
REFERENCES HEREIN TO THE “ISSUER” MEAN THE PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO AND REFERENCES TO “BONDS” OR “SE CURITIES” MEAN THE 2022ABCD BONDS OFFERED HEREBY. NEITHER THE SFPUC NOR THE UNDERWRITERS ASSUME ANY RESPONSIBILITY FOR THIS SECTION.
COMPLIANCE WITH ANY RULES OR RESTRICTIONS OF ANY JURISDICTION RELATING TO THE OFFERING, SOLICITATION AND/OR SALE OF THE 2022ABCD BONDS IS THE RESPONSIBILITY OF THE
UNDERWRITERS, AND THE SFPUC SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY IN CONNECTION THEREWITH. NO ACTION HAS BEEN TAKEN BY THE SFPUC THAT WOULD PERMIT THE OFFERING OR SALE OF THE 2022ABCD BONDS, OR POSSESSION OR DISTRIBUTION OF THIS OFFICIAL STATEMENT OR ANY OTHER OFFERING OR PUBLICITY MATERIAL RELATING TO THE 2022ABCD BONDS, OR ANY INFORMAT ION RELATING TO THE PRICING OF THE 2022ABCD BONDS, IN ANY NON- U.S.
JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED.
Minimum Unit Sales
THE BONDS WILL TRADE AND SETTLE ON A UNIT BASIS (ONE UNIT EQUALING ONE BOND OF $5,000 PRINCIPAL AMOUNT). FOR ANY S ALES MADE OUTSIDE THE UNITED STATES, THE MINIMUM PURCHASE AND TRADING AMOUNT IS 30 UNITS (BEING 30 BONDS IN AN AGGREGATE PRINCIPAL AMOUNT OF $150,000). FOR ANY SALES MADE IN KOREA, THE BONDS WILL TRADE AND SETTLE ON A UNIT BASIS (ONE UNIT EQUALING ONE BOND OF $2,500,000 PRINCIPAL AMOUNT) AND THERE IS NO MINIMUM PURCHASE OR TRADING AMOUNT.
Notice to Prospective Investors in the European Economic Area and United Kingdom
THE BONDS ARE NOT INTENDED TO BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO
AND SHOULD NOT BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO ANY RETAIL INVESTOR IN THE EEA. FOR THESE PURPOSES, A “RETAIL INVESTOR” MEANS A PERSON WHO IS ONE (OR MORE) OF: (I) A RETAIL CLIENT AS DEFINED IN POINT (11) OF ARTICLE 4(1) OF DIRECTIVE 2014/65/EU (AS AMENDED, “MIFID II”); (II) A CUSTOMER WITHIN THE MEANING OF DIRECTIVE (EU) 2016/97 (THE “INSURANCE DISTRIBUTION DIRECTIVE”), WHERE THAT CUSTOMER WOULD NOT QUALIFY AS A PROFESSIONAL CLIENT AS DEFINED IN POINT (10) OF ARTICLE 4(1) OF MIFID II; OR (III) N OT A QUALIFIED INVESTOR AS DEFINED IN REGULATION (EU) 2017/1129 (THE “PROSPECTUS REGULATION”). CONSEQUENTLY, NO KEY INFORMATION DOCUMENT REQUIRED BY REGULATION (EU) NO. 1286/2014 (AS AMENDED, THE “PRIIPS REGULATION”) FOR OFFERING OR SELLING THE BONDS OR OT HERWISE MAKING THEM AVAILABLE TO
RETAIL INVESTORS IN THE EEA HAS BEEN PREPARED AND THEREFORE OFFERING OR SELLING THE
BONDS OR OTHERWISE MAKING THEM AVAILABLE TO ANY RETAIL INVESTOR IN THE EEA MAY BE UNLAWFUL UNDER THE PRIIPS REGULATION.
THE BONDS ARE NOT INTENDED TO BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO
AND SHOULD NOT BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO ANY RETAIL INVESTOR IN THE UNITED KINGDOM. FOR THESE PURPOSES, A “RETAIL INVESTOR” MEANS A PERSON WHO IS ONE (OR MORE) OF: (I) A RETAI L CLIENT, AS DEFINED IN POINT (8) OF ARTICLE 2 OF REGULATION (EU) NO 2017/565 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 (“EUWA”); (II) A CUSTOMER WITHIN THE MEANING OF THE PROVISIONS OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (THE “FSMA”) AND ANY RULES OR REGULATIONS MADE UNDER THE FSMA TO IMPLEMENT DIRECTIVE (EU) 2016/97, WHERE THAT CUSTOMER WOULD NOT QUALIFY AS A PROFESSIONAL CLIENT, AS DEFINED IN POINT (8) OF ARTICLE 2(1) OF REGULATION (EU) NO 600/2014 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUWA; OR (III) NOT A QUALIFIED INVESTOR AS DEFINED IN ARTICLE 2 OF REGULATION (EU) 2017/1129 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUWA. CONSEQUENTLY NO KEY INFORMATION DOCUMENT REQUIRED BY REGULATION (EU) NO 1286/2014 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUWA (THE “UK PRIIPS REGULATION”) FOR OFFERING OR SELLING THE BONDS OR OTHERWISE MAKING THEM AVAILABLE TO
RETAIL INVESTORS IN THE UNITED KINGDOM HAS BEEN PREPARED AND THEREFORE OFFERIN G OR
SELLING THE BONDS OR OTHERWISE MAKING THEM AVAILABLE TO ANY RETAIL INVESTOR IN THE UNITED KINGDOM MAY BE UNLAWFUL UNDER THE UK PRIIPS REGULATION. iv
4151-5403-8838.1
THIS OFFICIAL STATEMENT HAS BEEN PREPARED ON THE BASIS THAT ALL OFFERS OF THE
BONDS TO ANY PERSON THAT IS LOCATED WITHIN A MEMBER STATE OF THE EEA OR THE UNITED KINGDOM WILL BE MADE PURSUANT TO AN EXEMPTION UNDER ARTICLE 1(4) OF THE PROSPECTUS REGULATION OR SECTION 86 OF THE FSMA (IN EACH CASE AS APPLICABLE) FROM THE REQUIREMENT TO PRODUCE A PROSPECTUS FOR OFFERS OF THE BONDS. ACCORDINGLY, ANY PERSON MAKING OR
INTENDING TO MAKE ANY OFFER IN THE EEA OR THE UNITED KINGDOM OF THE BONDS SHOULD ONLY
DO SO IN CIRCUMSTANCES IN WHICH NO OBLIGATION ARISES FOR THE ISSUER OR ANY OF THE UNDERWRITERS TO PROVIDE A PROSPECTUS FOR SUCH OFFER. NEITHER THE ISSUER NOR THE
UNDERWRITERS HAVE AUTHORIZED, NOR DO THEY AUTHORIZE, THE MAKING OF ANY OFFER OF BONDS
THROUGH ANY FINANCIAL INTERMEDIARY, OTHER THAN OFFERS MADE BY THE UNDERWRITERS,
WHICH CONSTITUTE THE FINAL PLACEMENT OF THE BONDS CONTEMPLATED IN THIS OFFICIAL STATEMENT.
FOR THE PURPOSES OF THIS PROVISION, THE EXPRESSION AN “OFFER OF SECURITIES TO THE PUBLIC” IN RELATION TO THE BONDS IN ANY MEMBER STATE OF THE EEA OR THE UNITED KINGDOM
MEANS THE COMMUNICATION IN ANY FORM AND BY ANY MEANS OF SUFFICIENT INFORMATION ON
THE TERMS OF THE OFFER AND THE BONDS TO BE OFFERED SO AS TO ENABLE AN INVESTOR TO DECIDE TO PURCHASE THE BONDS OR SUBSCRIBE FOR THE BONDS.
EACH SUBSCRIBER FOR OR PURCHASER OF THE BONDS IN THE OFFERING LOCATED WITHIN A
MEMBER STATE OF THE EEA OR THE UNITED KINGDOM WILL BE DEEMED TO HAVE REPRESENTED, ACKNOWLEDGED AND AGREED THAT IT IS A “QUALIFIED INVESTOR” AS DEFINED IN THE PROSPECTUS REGULATION AND IN ARTICLE 2 OF REGULATION (EU) 2017/1129 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUWA. THE ISSUER AND EACH UNDERWRITER AND OTHERS WILL RELY ON THE
TRUTH AND ACCURACY OF THE FOREGOING REPRESENTATION, ACKNOWLEDGEMENT AND AGREEMENT.
Notice to Prospective Investors in United Kingdom
THIS OFFICIAL STATEMENT HAS NOT BEEN APPROVED FOR THE PURPOSES OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (“FSMA”) AND DOES NOT CONSTITUTE AN OFFER TO THE PUBLIC IN ACCORDANCE WITH THE PROVISIONS OF SECTION 85 OF THE FSMA. THIS OFFERING
MEMORANDUM IS FOR DISTRIBUTION ONLY TO, AND IS DIRECTED SOLELY AT, PERSONS WHO (I) ARE
OUTSIDE THE UNITED KINGDOM, (II) ARE INVESTMENT PROFESSIONALS, AS SUCH TERM IS DEFINED IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AS AMENDED (THE “FINANCIAL PROMOTION ORDER”), (III) ARE PERSONS FALLING WITHIN ARTICLE 49(2)(A) TO (D) OF THE FINANCIAL PROMOTION ORDER, OR (IV) ARE PERSONS TO WHOM AN
INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FSMA) IN CONNECTION WITH THE ISSUE OR SALE OF ANY SECURITIES MAY
OTHERWISE BE LAWFULLY COMMUNICATED OR CAUSED TO BE COMMUNICATED (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS “RELEVANT PERSONS”). THIS OFFERING MEMORANDUM IS
DIRECTED ONLY AT RELEVANT PERSONS AND MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS
OFFERING MEMORANDUM RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. ANY PERSON WHO IS NOT A RELEVANT PERSON SHOULD NOT ACT OR RELY ON THIS OFFICIAL STATEMENT OR ANY OF ITS CONTENTS.
Notice to Prospective Investors in Switzerland
THIS OFFICIAL STATEMENT IS NOT INTENDED TO CONSTITUTE AN OFFER OR SOLICITATION TO PURCHASE OR INVEST IN THE BONDS. THE BONDS MAY NOT BE PUBLICLY OFFERED, SOLD OR
ADVERTISED DIRECTLY OR INDIRECTLY, IN, INTO OR FROM SWITZERLAND WITHIN THE MEANING OF THE SWISS FINANCIAL SERVICES ACT (“FINSA”) AND NO APPLICATION HAS OR WILL BE MADE TO ADMIT
THE BONDS TO TRADING ON ANY TRADING VENUE (EXCHANGE OR REGULATED TRADING FACILITY) IN SWITZERLAND. NEITHER THIS OFFICIAL STATEMENT NOR ANY OTHER OFFERING OR MARKETING
MATERIAL RELATING TO THE BONDS CONSTITUTES A PROSPECTUS OR A KEY INFORMATION
DOCUMENT PURSUANT TO THE FINSA OR A LISTING PROSPECTUS WITHIN THE MEANING OF THE LISTING RULES OF THE SIX SWISS EXCHANGE LTD. OR ANY REGULATED TRADING FACILITY IN
SWITZERLAND, AND NEITHER THIS OFFICIAL STATEMENT NOR ANY OTHER OFFERING OR MARKETING v
4151-5403-8838.1
MATERIAL RELATING TO THE BONDS MAY BE PUBLICLY DISTRIBUTED OR OTHERWISE MADE PUBLICLY AVAILABLE IN SWITZERLAND.
ACCORDINGLY, THIS OFFICIAL STATEMENT IS COMMUNICATED IN OR FROM SWITZERLAND TO A LIMITED NUMBER OF SELECTED INVESTORS ONLY. NEITHER THIS OFFICIAL STATEMENT NOR ANY
OTHER OFFERING OR MARKETING MATERIAL RELATING TO THE OFFERING, NOR THE ISSUER, NOR THE BONDS HAVE BEEN OR WILL BE FILED WITH OR APPROVED BY ANY SWISS REGULATORY AUTHORITY.
THE BONDS ARE NOT SUBJECT TO SUPERVISION BY ANY SWISS REGULATORY AUTHORITY, AN
INVESTOR IN THE BONDS WILL NOT BENEFIT FROM PROTECTION OR SUPERVISION BY SUCH AUTHORITY.
THE BONDS DO NOT CONSTITUTE COLLECTIVE INVESTMENTS WITHIN THE MEANING OF THE SWISS FEDERAL ACT ON COLLECTIVE INVESTMENT SCHEMES (“CISA”). ACCORDINGLY, HOLDERS OF
THE BONDS DO NOT BENEFIT FROM PROTECTION UNDER THE CISA OR FROM THE SUPERVISION OF THE SWISS FINANCIAL MARKET SUPERVISORY AUTHORITY. INVESTORS ARE EXPOSED TO THE DEFAULT RISK OF THE ISSUER.
Notice to Prospective Investors in Hong Kong
THE BONDS MAY NOT BE OFFERED OR SOLD IN HONG KONG BY MEANS OF ANY DOCUMENT
OTHER THAN (I) IN CIRCUMSTANCES WHICH DO NOT CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE (CAP. 32 OF THE LAWS OF HONG KONG) (“COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE”) OR WHICH DO NOT CONSTITUTE AN INVITATION TO THE PUBLIC WITHIN THE MEANING OF THE SECURITIES AND FUTURES ORDINANCE (CAP. 571 OF THE LAWS OF HONG KONG) (“SECURITIES AND FUTURES ORDINANCE”), OR (II) TO "PROFESSIONAL INVESTOR S" AS DEFINED IN THE SECURITIES
AND FUTURES ORDINANCE AND ANY RULES MADE THEREUNDER, OR (III) IN OTHER CIRCUMSTANCES WHICH DO NOT RESULT IN THE DOCUMENT BEING A "PROSPECTUS" AS DEFINED IN THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE, AND NO ADVERTISEMENT, INVITATION
OR DOCUMENT RELATING TO THE BONDS MAY BE ISSUED OR MAY BE IN THE POSSESSION OF ANY
PERSON FOR THE PURPOSE OF ISSUE (IN EACH CASE WHETHER IN HONG KONG OR ELSEWHERE), WHICH
IS DIRECTED AT, OR THE CONTENTS OF WHICH ARE LIKELY TO BE ACCESSED OR READ BY, THE PUBLIC
IN HONG KONG (EXCEPT IF PERMITTED TO DO SO UNDER THE SECURITIES LAWS OF HONG KONG) OTHER
THAN WITH RESPECT TO BONDS WHICH ARE OR ARE INTENDED TO BE DISPOSED OF ONLY TO PERSONS OUTSIDE HONG KONG OR ONLY TO "PROFESSIONAL INVESTORS" IN HONG KONG AS DEFINED IN THE SECURITIES AND FUTURES ORDINANCE AND ANY RULES MADE THEREUNDER.
Notice to Prospective Investors in Singapore
THIS OFFICIAL STATEMENT HAS NOT BEEN REGISTERED AS A PROSPECTUS WITH THE MONETARY AUTHORITY OF SINGAPORE. ACCORDINGLY, THIS OFFICIAL STATEMENT AND ANY OTHER
DOCUMENT OR MATERIAL IN CONNECTION WITH THE OFFER OR SALE, OR INVITATION FOR
SUBSCRIPTION OR PURCHASE, OF THE BONDS MAY NOT BE CIRCULATED OR DISTRIBUTED, NOR MAY
THE BONDS BE OFFERED OR SOLD, OR BE MADE THE SUBJECT OF AN INVITATION FOR SUBSCRIPTION
OR PURCHASE, WHETHER DIRECTLY OR INDIRECTLY, TO PERSONS IN SINGAPORE OTHER THAN (I) TO AN INSTITUTIONAL INVESTOR (AS DEFINED IN SECTION 4A OF THE SECURITIES AND FUTURES ACT, CHAPTER 289 OF SINGAPORE (THE "SFA")) UNDER SECTION 274 OF THE SFA, (II) TO A RELEVANT PERSON (AS DEFINED IN SECTION 275(2) OF THE SFA ) PURSUANT TO SECTION 275(1) OF THE SFA, AND IN ACCORDANCE WITH THE CONDITIONS SPECIFIED IN SECTION 275 OF THE SFA OR (III) OTHERWISE
PURSUANT TO, AND IN ACCORDANCE WITH THE CONDITIONS OF, ANY OTHER APPLICABLE PROVISION OF THE SFA, IN EACH CASE SUBJECT TO CONDITIONS SET FORTH IN THE SFA.
WHERE THE BONDS ARE SUBSCRIBED OR PURCHASED UNDER SECTION 275 OF THE SFA BY A
RELEVANT PERSON WHICH IS A CORPORATION (WHICH IS NOT AN ACCREDITED INVESTOR (AS DEFINED IN SECTION 4A OF THE SFA)) THE SOLE BUSINESS OF WHICH IS TO HOLD INVESTMENTS AND THE ENTIRE
SHARE CAPITAL OF WHICH IS OWNED BY ONE OR MORE INDIVIDUALS, EACH OF WHOM IS AN ACCREDITED INVESTOR, THE SECURITIES (AS DEF INED IN SECTION 239(1) OF THE SFA) OF THAT CORPORATION SHALL NOT BE TRANSFERABLE FOR 6 MONTHS AFTER THAT CORPORATION HAS ACQUIRED THE BONDS UNDER SECTION 275 OF THE SFA EXCEPT: (1) TO AN INSTITUTIONAL INVESTOR vi
4151-5403-8838.1
UNDER SECTION 274 OF THE SFA OR TO A RELEVANT PERSON (AS DEFINED IN SECTION 275(2) OF THE SFA), (2) WHERE SUCH TRANSFER ARISES FROM AN OFFER IN THAT CORPORATION’S SECURITIES PURSUANT TO SECTION 275(1A) OF THE SFA, (3) WHERE NO CONSIDERATION IS OR WILL BE GIVEN FOR THE TRANSFER, (4) WHERE THE TRANSFER IS BY OPERATION OF LAW, (5) AS SPECIFIED IN SECTION 276(7) OF THE SFA, OR (6) AS SPECIFIED IN REGULATION 32 OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 OF SINGAPORE (“REGULATION 32”).
WHERE THE BONDS ARE SUBSCRIBED OR PURCHASED UNDER SECTION 275 OF THE SFA BY A
RELEVANT PERSON WHICH IS A TRUST (WHERE THE TRUSTEE IS NOT AN ACCREDITED INVESTOR (AS DEFINED IN SECTION 4A OF THE SFA)) WHOSE SOLE PURPOSE IS TO HOLD INVESTMENTS AND EACH
BENEFICIARY OF THE TRUST IS AN ACCREDITED INVESTOR, THE BENEFICIARIES' RIGHTS AND INTEREST (HOWSOEVER DESCRIBED) IN THAT TRUST SHALL NOT BE TRANSFERABLE FOR 6 MONTHS AFTER THAT TRUST HAS ACQUIRED THE BONDS UNDER SECTION 275 OF THE SFA EXCEPT: (1) TO AN INSTITUTIONAL INVESTOR UNDER SECTION 274 OF THE SFA, (2) WHERE SUCH TRANSFER ARISES FROM AN OFFER THAT
IS MADE ON TERMS THAT SUCH RIGHTS OR INTEREST ARE ACQUIRED AT A CONSIDERATION OF NOT LESS THAN S$200,000 (OR ITS EQUIVALENT IN A FOREIGN CURRENCY) FOR EACH TRANSACTION (WHETHER SUCH AMOUNT IS TO BE PAID FOR IN CASH OR BY EXCHANGE OF SECURITIES OR OTHER ASSETS), (3) WHERE NO CONSIDERATION IS OR WILL BE GIVEN FOR THE TRANSFER, (4) WHERE THE TRANSFER IS BY OPERATION OF LAW, (5) AS SPECIFIED IN SECTION 276(7) OF THE SFA, OR (6) AS SPECIFIED IN REGULATION 32.
IN CONNECTION WITH SECTION 309B OF THE SFA AND THE SECURITIES AND FUTURES (CAPITAL MARKETS PRODUCTS) REGULATIONS 2018 OF SINGAPORE (THE “CMP REGULATIONS 2018”), THE ISSUER HAS DETERMINED, AND HEREBY NOTIFIES ALL RELEVANT PERSONS (AS DEFINED IN SECTION 309A(1) OF THE SFA), THAT THE BONDS ARE ‘PRESCRIBED CAPITAL MARKETS PRODUCTS’(AS DEFINED IN THE CMP REGULATIONS 2018) AND ARE EXCLUDED INVESTMENT PRODUCTS (AS DEFINED IN MAS NOTICE SFA 04-N12: NOTICE ON THE SALE OF INVESTMENT PRODUCTS AND MAS NOTICE FAA -N16: NOTICE ON RECOMMENDATIONS ON INVESTMENT PRODUCTS).
Notice to Prospective Investors in Japan
THE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE FINANCIAL INSTRUMENTS AND EXCHANGE ACT OF JAPAN (ACT NO. 25 OF 1948, AS AMENDED, THE “FIEA”). NEITHER
THE BONDS NOR ANY INTEREST THEREIN MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO, OR FOR THE BENEFIT OF, ANY “RESIDENT” OF JAPAN (AS DEFINED UNDER ITEM 5, PARAGRAPH 1, ARTICLE 6 OF THE FOREIGN EXCHANGE AND FOREIGN TRADE ACT (ACT NO. 228 OF 1949,
AS AMENDED)), OR TO OTHERS FOR RE-OFFERING OR RESALE, DIRECTLY OR INDIRECTLY, IN JAPAN OR
TO, OR FOR THE BENEFIT OF, ANY RESIDENT OF JAPAN, EXCEPT PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF, AND OTHERWISE IN COMPLIANCE WITH, THE FIEA AND ANY OTHER APPLICABLE LAWS, REGULATIONS AND MINISTERIAL GUIDELINES OF JAPAN.
THE PRIMARY OFFERING OF THE BONDS AND THE SOLICITATION OF AN OFFER FOR ACQUISITION THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER PARAGRAPH 1, ARTICLE 4 OF THE FIEA. AS IT IS A PRIMARY OFFERING, IN JAPAN, THE BONDS MAY ONLY BE OFFERED,
SOLD, RESOLD OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY TO, OR FOR THE BENEFIT OF CERTAIN QUALIFIED INSTITUTIONAL INVESTORS AS DEFINED IN THE FIEA (“QIIS”) IN RELIANCE ON THE QIIS-ONLY PRIVATE PLACEMENT EXEMPTION AS SET FORTH IN ITEM 2(I), PARAGRAPH 3, ARTICLE 2 OF THE FIEA. A QII WHO PURCHASED OR OTHERWISE OBTAINED THE BONDS CANNOT RESELL OR OTHERWISE TRANSFER THE BONDS IN JAPAN TO ANY PERSON EXCEPT ANOTHER QII.
Notice to Prospective Investors in Taiwan
THE OFFER OF THE BONDS HAS NOT BEEN AND WILL NOT BE REGISTERED OR FILED WITH, OR
APPROVED BY, THE FINANCIAL SUPERVISORY COMMISSION OF TAIWAN AND/OR OTHER REGULATORY
AUTHORITY OF TAIWAN PURSUANT TO RELEVANT SECURITIES LAWS AND REGULATIONS OF TAIWAN,
AND THE BONDS, INCLUDING ANY COPY OF THIS OFFICIAL STATEMENT OR ANY OTHER DOCUMENTS
RELATING TO THE BONDS, MAY NOT BE OFFERED, ISSUED, SOLD, DELIVERED OR DISTRIBUTED IN
TAIWAN THROUGH A PUBLIC OFFERING OR IN CIRCUMSTANCES WHICH CONSTITUTE AN OFFER WITHIN
THE MEANING OF THE SECURITIES AND EXCHANGE ACT OF TAIWAN THAT REQUIRES THE vii
4151-5403-8838.1
REGISTRATION OR FILING WITH OR APPROVAL OF THE FINANCIAL SUPERVISORY COMMISSION OF TAIWAN. THE BONDS MAY BE MADE AVAILABLE OUTSIDE TAIWAN FOR PURCHASE BY INVESTORS
RESIDING IN TAIWAN (EITHER DIRECTLY OR THROUGH PROPERLY LICENSED TAIWAN
INTERMEDIARIES), BUT MAY NOT BE OFFERED OR SOLD IN TAIWAN EXCEPT TO QUALIFIED INVESTORS VIA A TAIWAN LICENSED INTERMEDIARY. ANY SUBSCRIPTIONS OF BONDS SHALL ONLY BECOME
EFFECTIVE UPON ACCEPTANCE BY THE ISSUER OR THE RELEVANT DEALER OUTSIDE TAIWAN AND
SHALL BE DEEMED A CONTRACT ENTERED INTO IN THE JURISDICTION OF INCORPORATION OF THE
ISSUER OR RELEVANT DEALER, AS THE CASE MAY BE, UNLESS OTHERWISE SPECIFIED IN THE SUBSCRIPTION DOCUMENTS RELATING TO THE BONDS SIGNED BY THE INVESTORS.
(Remainder of Page Intentionally Left Blank)
viii
4151-5403-8838.1
SAN FRANCISCO PUBLIC UTILITIES COMMISSION
Anson Moran, President
Newsha Ajami, Vice President
Tim Paulson, Commissioner
Sophie Maxwell, Commissioner
PUBLIC UTILITIES COMMISSION OFFICIALS
Dennis J. Herrera, General Manager
Michael Carlin, Deputy General Manager and Chief Operating Officer Gregory J. Norby, Assistant General Manager, Wastewater Enterprise Masood Ordikhani, Assistant General Manager, External Affairs and Chief Strategy Officer Barbara Hale, Assistant General Manager, Power Enterprise Alan Johanson, Acting Assistant General Manager, Infrastructure Division Steven R. Ritchie, Assistant General Manager, Water Enterprise
The position Assistant General Manager, Business Services and Chief Financial Officer is currently vacant.
CITY AND COUNTY OF SAN FRANCISCO
MAYOR
London Breed
BOARD OF SUPERVISORS
Shaman Walton, Board President, District 10
Connie Chan, District 1 Aaron Peskin, District 3
Matt Haney, District 6 Dean Preston, District 5
Gordon Mar, District 4 Hillary Ronen, District 9
Rafael Mandelman, District 8 Ahsha Safaí, District 11
Myrna Melgar, District 7 Catherine Stefani, District 2
CITY ATTORNEY
David Chiu
CITY TREASURER
José Cisneros
OTHER CITY AND COUNTY OFFICIALS
Benjamin Rosenfield, Controller
Carmen Chu, City Administrator
SPECIAL SERVICES
Co-Bond Counsel Co-Municipal Advisors
Kutak Rock LLP
Denver, Colorado
Montague DeRose and Associates, LLC
Walnut Creek, California
Curls Bartling P.C.
Oakland, California
Backstrom McCarley Berry & Co., LLC
San Francisco, California
Disclosure Counsel Trustee
Orrick, Herrington & Sutcliffe LLP
San Francisco, California
U.S. Bank Trust Company, National Association
San Francisco, California
Verification Agent
TABLE OF CONTENTS
Page Page
ix
4151-5403-8838.1
INTRODUCTION .............................................................. 1 General ........................................................................... 1 Authority for Issuance .................................................... 1 Plan of Refunding .......................................................... 2 The SFPUC and the Wastewater Enterprise ................... 2 Security for the 2022ABCD Bonds ................................ 2 No Reserve Account for 2022ABCD Bonds .................. 3 Outstanding and Future Parity Bonds and Other
Indebtedness.............................................................. 3 Risk Factors ................................................................... 3 Continuing Disclosure .................................................... 4 Other Matters ................................................................. 4 THE 2022ABCD BONDS .................................................. 4 General ........................................................................... 4 Securities Depository and Book-Entry System .............. 4 Redemption .................................................................... 4 Defeasance ................................................................... 12 PLAN OF REFUNDING .................................................. 12 General ......................................................................... 12 Refunded Bonds ........................................................... 13 Escrow Fund ................................................................ 14 ESTIMATED SOURCES AND USES OF FUNDS ......... 15
GREEN BONDS DESIGNATION AND CLIMATE
CERTIFICATION ................................................. 16 Management of Proceeds ............................................. 17 Green Bond Reporting ................................................. 17 SECURITY FOR THE BONDS ....................................... 17 Pledge of Net Revenues ............................................... 17 Flow of Funds .............................................................. 19 Rate Covenants ............................................................ 20 No Reserve Account for 2022ABCD Bonds ................ 22 Additional Series of Bonds .......................................... 22 Additional Parity Loans ............................................... 23 Refunding Bonds ......................................................... 24 Subordinate Obligations; Obligations Not Payable
from Revenues ........................................................ 24 Investments .................................................................. 24 OBLIGATIONS PAYABLE FROM NET REVENUES .. 25
Authority for Issuance of Revenue Bonds and Other
Obligations Payable from Net Revenues ................. 25 Outstanding Parity Revenue Bonds .............................. 25 Additional Bonds ......................................................... 26 Parity Loans ................................................................. 26 Water Infrastructure Finance and Innovation Act
Loans....................................................................... 28 Contingent Payment Obligations ................................. 29 Subordinate Debt and Interim Funding Program ......... 30 Other Subordinate Obligations Payable from Net
Revenues ................................................................. 30 Revenue Bond Oversight Committee ........................... 30 Debt Service Requirements .......................................... 31 THE CITY AND COUNTY OF SAN FRANCISCO ....... 33
THE PUBLIC UTILITIES COMMISSION ..................... 34 General ......................................................................... 34 Organization, Purposes and Powers ............................. 35 Commission Members ................................................. 35 Management ................................................................. 36 Ongoing Investigation .................................................. 38 COVID-19 Pandemic ................................................... 38 Employee Relations ..................................................... 40 Employee Benefit Plans............................................... 42 THE WASTEWATER ENTERPRISE ............................. 46 Background and History .............................................. 46 Service Area ................................................................ 46 Customer Base ............................................................. 47 Combined Sewage and Stormwater System ................ 47 Wastewater Treatment ................................................. 49 System Capacity .......................................................... 52 Current System Demands ............................................ 52 Projected Future Demand ............................................ 53
WASTEWATER ENTERPRISE CAPITAL
PROGRAM ........................................................... 53 Capital and Financial Planning Process ....................... 53 Sewer System Improvement Program ......................... 54 Renewal and Replacement ........................................... 54 Wastewater Facilities and Infrastructure ..................... 54 Environmental Planning Considerations...................... 55 SEWER SYSTEM IMPROVEMENT PROGRAM ......... 56
Program Summary ....................................................... 56 SSIP Program Development and Chronology ............. 56 Program Objectives ..................................................... 57 Program Goals ............................................................. 57 Program Scope ............................................................ 57 Program Budget ........................................................... 58 Program Schedule ........................................................ 59 Management Approach................................................ 59 Potential Changes to SSIP Projects ............................. 59
FINANCING PLAN FOR WASTEWATER
ENTERPRISE CAPITAL PROGRAM ................. 60
Long Term Financing of Capital Program ................... 60 Interim Funding Program Facilities ............................. 60 Sources and Uses of Funding the Capital Program ...... 61 FINANCIAL OPERATIONS ........................................... 61 General ........................................................................ 61 Wastewater Enterprise Rates and Charges .................. 63 Revenues ..................................................................... 68 Operating and Maintenance Expenses ......................... 70 Financial Management Policies ................................... 71 Investment of SFPUC Funds ....................................... 72 Risk Management and Insurance ................................. 73 HISTORICAL OPERATING RESULTS......................... 74 Summary of Historical Operating Results and Debt
Service Coverage .................................................... 74 PROJECTED OPERATING RESULTS .......................... 76 Assumptions Used in Projections ................................ 78 RISK FACTORS .............................................................. 78 General ........................................................................ 79 Limited Obligation ...................................................... 79 No Reserve Account .................................................... 79 Access to Capital Markets ........................................... 79 Interim Funding Program Facilities ............................. 80 Limitations on Rate-Setting ......................................... 80 Initiative, Referendum and Charter Amendments
and Future Legislation ............................................ 80 Risks Related to Wastewater Enterprise Facilities
and Operation ......................................................... 80 Cybersecurity............................................................... 83 Cost of the SSIP; Timely Completion of the SSIP ...... 84 TABLE OF CONTENTS (Continued)
Page Page
x
4151-5403-8838.1
Construction Related Risks .......................................... 85 Climate Change, Risk of Sea Level Rise and
Flooding Damage .................................................... 86 Pandemics; COVID-19 Pandemic ................................ 88 Green Bonds ................................................................ 88 Inverse Condemnation ................................................. 88 Economic, Political, Social and Environmental
Conditions ............................................................... 89 Bankruptcy ................................................................... 89 Limitations on Remedies.............................................. 90 Failure to Maintain Credit Ratings ............................... 90 Secondary Market ........................................................ 90 Uncertainties of Projections, Forecasts and
Assumptions............................................................ 90 Other Risks .................................................................. 90 REGULATORY MATTERS ............................................ 91 History and Background .............................................. 91 Federal and State Clean Water Act Permits ................. 91 Combined Sewer Overflow Control Policy .................. 92 Stormwater Regulations ............................................... 92 Regulatory Trends ........................................................ 92 Other Regulatory Agencies with Jurisdiction Over
the Wastewater Enterprise....................................... 94 Other Laws Affecting the Wastewater Enterprise ........ 94
CONSTITUTIONAL, STATUTORY AND CHARTER
LIMITATIONS ..................................................... 94 State Law Limitations .................................................. 94 Initiative and Referendum ........................................... 96 Charter Limitations ...................................................... 97 Future Charter Amendments........................................ 97 LITIGATION ................................................................... 97 TAX MATTERS .............................................................. 97 2022AB Bonds ............................................................ 97 2022CD Bonds (Federally Taxable) ............................ 99 2022ABCD Bonds ..................................................... 102 CERTAIN LEGAL MATTERS ..................................... 102 RATINGS ...................................................................... 103 UNDERWRITING ......................................................... 103 FINANCIAL STATEMENTS........................................ 104 CONTINUING DISCLOSURE ..................................... 104 CO-MUNICIPAL ADVISORS ...................................... 104
VERIFICATION OF MATHEMATICAL
ACCURACY ...................................................... 105
CERTAIN FORWARD DELIVERY
CONSIDERATIONS,
ACKNOWLEDGEMENTS AND RISKS WITH
RESPECT TO THE SERIES 2022AB BONDS .. 105
Forward Delivery Date .............................................. 105 Additional Risks Related to the Delayed Delivery
Period ................................................................... 107 MISCELLANEOUS....................................................... 108 APPROVAL AND EXECUTION ................................. 109
APPENDIX A — SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE APPENDIX B — SFPUC WASTEWATER ENTERPRISE FINANCIAL STATEMENTS APPENDIX C — PROPOSED FORM OF OPINION OF CO-BOND COUNSEL APPENDIX D — FORM OF CONTINUING DISCLOSURE CERTIFICATE
APPENDIX E — SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM AND GLOBAL CLEARANCE
PROCEDURES
AP
PENDIX F — FORM OF FORWARD DELIVERY CONTRACT
1 4151-5403-8838.1
OFFICIAL STATEMENT
$____________*
Public Utilities Commission of the
City and County of San Francisco
Wastewater Revenue Bonds
$_________*
2022 Series A
(Refunding) (SSIP)
(Green Bonds)
$_________*
2022 Series B
(Refunding) (Non-SSIP)
$_________*
2022 Series C
(Refunding – Federally
Taxable) (SSIP)
(Green Bonds)
$_________*
2022 Series D
(Refunding – Federally
Taxable) (Non-SSIP)
INTRODUCTION
This Introduction is qualified in its entirety by reference to the more detailed information included and referred to elsewhere in this Official Statement. The offering of the hereinafter defined 2022ABCD Bonds to potential investors is made only by means of the entire Official Statement. Terms used in this Introduction and not otherwise defined have the respective meanings assigned to them elsewhere in this Official Statement, including “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
General
This Official Statement, including the cover page and Appendices hereto, is provided to furnish certain information in connection with the offering by the Public Utilities Commission of the City and County of San Francisco (the “SFPUC”) of its Wastewater Revenue Bonds, 2022 Series A (Refunding) (SSIP) (Green Bonds) (the “2022A Bonds ”), Wastewater Revenue Bonds, 2022 Series B (Refunding) (Non-SSIP) (the “ 2022B Bonds ” and, together with the 2022A Bonds , the “ 2022AB Bonds”), Wastewater Revenue Bonds , 2022 Series C (Refunding – Federally Taxable) (SSIP) (Green Bonds) (the “2022C Bonds”), an d Wastewater Revenue Bonds , 2022 Series D (Refunding – Federally Taxable) (Non-SSIP) (the “2022D Bonds” and, together with the 2022C Bonds, the “2022CD Bonds, and together with the 2022AB Bonds and the 2022C Bonds, the “2022ABCD Bonds”). All bonds, notes and other obligations of the SFPUC issued and outstanding at any given time under the hereinafter defined Indenture, including the 2022AB CD Bonds and the hereinafter defined Parity Loans as the context requires, are referred to collectively in this Official Statement as the “Bonds.” Authority for Issuance
The SFPUC is issuing the 2022AB CD Bonds pursuant to authority granted by the Charter (the “ Charter”) of the City and County of San Francisco (the “ City”), under Proposition E, approved by the voters of the City on November 5, 2002.
The 2022AB Bonds will be issued under a Fourteenth Supplemental Indenture, dated as of _______ 1, 2022 (the “Fourteenth Supplemental Indenture”), by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The 2022CD Bonds will be issued under a Fifteenth Supplemental Indenture, dated as of _______ 1, 2022 (the “Fifteenth Supplemental Indenture”), by and between the SFPUC and the Trustee.
The Fourteenth Supplemental Indenture and the Fifteenth Supplemental Indenture supplement the Indenture, dated as of January 1, 2003, by and between the SFPUC and the Trustee , as successor trustee (the “Original Indenture”) (as supplemented and amended, including as amended and supplemented by the Fourteenth Supplemental Indenture and Fifteenth Supplemental Indenture, the “Indenture”).
* Preliminary, subject to change.
2 4151-5403-8838.1
The 2022ABCD Bonds are being issued pursuant to Ordinance No. 1 73-20, adopted by the Board of Supervisors of the City (the “Board of Supervisors”) on September 29, 2020, and under a resolution adopted by the SFPUC governing body (the “Commission”) on April 12, 2022.
See “OBLIGATIONS PAYABLE FROM NET REVENUES – Authority for Issuance of Revenue Bonds and Other Obligations Payable from Net Revenues.”
Plan of Refunding
The 2022AB Bonds are being issued to (i) refund and defease all or a portion of the SFPUC’s o utstanding Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2013 Series A and 2013 Series B , and (ii) pay th e costs of issuance of the 2022AB Bonds. The 2022CD Bonds are being issued to (i) refund and defease all or a portion of the SFPUC’s outstanding Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2016 Series A (Green Bonds) and 2016 Series B, and (ii) pay the costs of issuance of the 2022CD Bonds. See “PLAN OF REFUNDING,” “ESTIMATED SOURCES AND USES OF FUNDS – 2022ABCD Bonds” and “OBLIGATIONS PAYABLE FROM REVENUES – Outstanding Parity Revenue Bonds.”
The SFPUC and the Wastewater Enterprise
The SFPUC is a department of the City responsible for the maintenance, operation and development of three utility enterprises. See “THE PUBLIC UTILITIES COMMISSION.” The Wastewater Enterprise provides sewage and stormwater collection, treatment and disposal services to residential, commercial and industrial customers in San Francisco, as well as three municipal sewer service providers that serve residents and businesses in northern San Mateo County. The Wastewater Enterprise’s services are provided through (i) a combined system that collects sewage and stormwater, (ii) three wastewater treatment plants and (iii) effluent outfalls to the San Francisco Bay and Pacific Ocean. See “THE WASTEWATER ENTERPRISE.” The other two enterprises of the SFPUC deliver retail water services to the City and wholesale water to users in three other Bay Area counties, and power, mainly hydroelectric, for City government operations and to other users.
The revenues of these other two enterpris es are not available for, and do not secure, payment of the principal of, premium, if any, or interest on the Bonds, including the 2022ABCD Bonds.
Security for the 2022ABCD Bonds
Under the Indenture, the SFPUC has irrevocably pledged the Net Revenues of the Wastewater Enterprise to the punctual payment of principal of, premium, if any, and interest on Bonds, which consist of any parity revenue bonds, notes and other obligations issued under the Indenture, including the 2022ABCD Bonds and the outstanding bonds described below, subject to the flow of funds contained in the Indenture . The 2022ABCD Bonds and all other Bonds are secured by a parity lien on Net Revenues. Under the Indenture, Parity Loans (as defined herein) are treated as “Bonds” for certain purposes and are therefore secured by a pledge of Net Revenues on a parity with the 2022ABCD Bonds. See “SECURITY FOR THE BONDS” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – ________________________.”
The Indenture defines “Net Revenues” as all “Revenues ” less all “Operation and Maintenance Costs of the Enterprise” (each as defined herein). Revenues are generated principally from the sewer service charges to customers for the sanitary wastewater and stormwater collection, treatment and disposal services of the Wastewater Enterprise.
Wastewater rates are set by the SFPUC, subject to rejection by resolution of the Board of Supervisors . See “FINANCIAL OPERATIONS.”
The SFPUC is not obligated to pay the principal of, premium, if any, or interest on the Bonds from any source of funds other than Net Revenues of the Wastewater Enterprise. The SFPUC has no taxing power.
The General Fund of the City is not liable for the payment of the principal of, premium, if any, or interest on the Bonds, and neither the credit nor the taxing power of the City is pledged to the payment of the principal of,
3 4151-5403-8838.1
premium, if any, or interest on the Bonds. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the City or of the SFPUC or any of its income or receipts, except Net Revenues. See “SECURITY FOR THE BONDS.” No Reserve Account for 2022ABCD Bonds
No Reserve Account will be established for the 2022ABCD Bonds.
Outstanding and Future Parity Bonds and Other Indebtedness Parity Bonds . The SFPUC has previously issued thirteen series of outstanding Bonds , including Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Notes , 2021 Series A (Green Notes) (the “2021A Notes”), and Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Notes, 2021 Series B (Green Notes) (the “2021B Notes”), which were outstanding in the aggregate principal amount of $2,087,525,000 as of April 2 , 20 22. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Outstanding Parity Revenue Bonds.”
The Indenture permits, upon the satisfaction of certain conditions, the issuance of additional bonds secured by a pledge of Net Revenues (the “Additional Bonds ”) on a parity with the Outstanding Bonds and the 2022ABCD Bonds. See “SECURITY FOR THE BONDS – Additional Series of Bonds.” Parity Loans. Under the Indenture, the SFPUC may enter into loan agreements with the State of California (the “State”), and any board, department or agency thereof, or the federal government, and any board, department and agency thereof, to finance certain categories of projects relating to the facilities of the Wastewater Enterprise . These loans (referred to herein as the “Parity Loans ”) are payable from Net Revenues on a parity with the Bonds . In accordance with the Fifth Supplemental Indenture , dated as of September 14, 2017, Parity Loans are treated as “Bonds” for certain purposes under the Indenture. See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
As of the date of this Official Statement, the SFPUC has entered into seven Parity Loans with the State. The maximum aggregate amount that may be disbursed under such existing Parity Loans is approximately $400.5 million.
See “SECURITY FOR THE BONDS – Parity Loans,” “OBLIGATIONS PAYABLE FROM NET REVENUES – Parity Loans” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” WIFIA Bonds. The SFPUC has also issued two parity Bonds (the “WIFIA Bonds”) under the Indenture to evidence its repayment obligation to the United States Environmental Protection Agency (the “ EPA”), acting by and through the Administrator of the EPA (the “WIFIA Lender ”), under the WIFIA Loan Agreement s (as defined and further described herein). Pursuant to the BDFP WIFIA Loan Agreement (as defined and further described herein) , the WIFIA Lender agreed to make the BDFP WIFIA Loan to the SFPUC in an amount not to exceed $699,242,023 to finance 49% of the Biosolids Digester Facilities Project plus certain eligible expenses . Pursuant to the STPI WIFIA Loan Agreement (as defined and further described herein), the WIFIA Lender agreed to make the STPI WIFIA Loan to the SFPUC in an amount not to exceed $513,861,981 to finance 49% of the Southeast Treatment Plant Improvements Project plus certain eligible expenses. The WIFIA Bonds are payable from and secured by a pledge of Net Revenues on a parity with the Bonds. As of the date of this Official Statement, no draws have been made on the BDFP WIFIA Loan or the STPI WIFIA Loan and the principal amount of the WIFIA Bonds is $0. See “OBLIGATIONS PAYBLE FROM NET REVENUES – Water Infrastructure Finance and Innovation Act Loans” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” Risk Factors
Investment in the 2022ABCD Bonds is subject to material risks. For a g eneral overview of certain risk factors which should be considered, in addition to other matters set forth in this Official Statement, in evaluating an investment in the 2022ABCD Bonds, see “RISK FACTORS.”
4 4151-5403-8838.1
Continuing Disclosure
The SFPUC has covenanted for the benefit of the Owners and Beneficial Owners of the 2022ABCD Bonds to provide certain financial information and operating data not later than March 31 following the end of its Fiscal Year (presently June 30), beginning on March 31, 2023, with the report for Fiscal Year 2021-22, and to provide notices of the occurrence of certain enumerated events. These covenants have been made to assist the underwriters in complying with Rule 15c2- 12(b)(5) of the Securities and Exchange Commission (the “ Rule”). See “CONTINUING DISCLOSURE” and “APPENDIX D – FORMS OF CONTINUING DISCLOSURE CERTIFICATE.” Other Matters
Brief descriptions of the 2022ABCD Bonds, the security and sources of payment for the 2022ABCD Bonds, the SFPUC, and the Wastewater Enterprise are provided herein. Such descriptions do not purport to be comprehensive or definitive. Definitions of certain capitalized terms used herein may be found in “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” All references made to various documents herein are qualified in their entirety by reference to the forms thereof, all of which are available for inspection at the office of the SFPUC at:
San Francisco Public Utilities Commission
525 Golden Gate Avenue, 13th Floor
San Francisco, CA 94102
Attention: Assistant General Manager, Business Services and Chief Financial Officer (415) 554-3155
THE 2022ABCD BONDS
General
The 2022ABCD Bonds will be date d as of the Delivery D ate or the Forward Delivery Date, as applicable, and will accrue interest from the ir date at the rate s per annum set forth on the inside cover pages of this Official Statement. Interest on the 2022ABCD Bonds will be calculated based on a 360-day year composed of twelve 30-day months. Interest on the Series 2022AB Bonds is payable on April 1 and October 1 each year, commencing April 1, 2023. Interest on the 2022CD Bonds is payable on April 1 and October 1 of each year, beginning October 1, 2022.
The 2022ABCD Bonds will mature on the date s and in the principal amount s set forth on the inside cover pages of this Official Statement. The 2022ABCD Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple of $5,000. Under the Indenture, the record date with respect to the payment of principal of and interest on the 2022ABCD Bonds is the 15th day of the month immediately preceding an in terest payment date, whether such day is a Business Day.
Securities Depository and Book-Entry System
The 2022ABCD Bonds will be issued in fully registered form, registered in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”), New York, New York, as the Owner of the 2022ABCD Bonds.
So long as DTC, or its nominee, Cede & Co., is the Owner of the 2022ABCD Bonds, all payments on the 2022ABCD Bonds will be made directly to DTC . Disbursement of such payments to the DTC Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners of the 2022ABCD Bonds will be the responsibility of the DTC Participants . See “APPENDIX E – SECURITIES DEPOSITORY AND THE BOOK- ENTRY SYSTEM.”
Redemption
*
Redemption of 2022A Bonds
* Preliminary, subject to change.
5 4151-5403-8838.1
Optional Redemption of 2022A Bonds . The 2022A Bonds are subject to redemption prior to their stated maturity, at the option of the SFPUC, from and to the extent of any source of available funds, as a whole or in part, on any date on or after April 1, ____, at a redemption price equal to 100% of the principal amount of the 2022A Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium. If 2022A Bonds are to be optionally redeemed in part, the SFPUC shall direct the maturities, or portions thereof, to be redeemed, and, if less than all of the 2022A Bonds of a particular maturity are to be redeemed, the 2022 A Bonds shall be redeemed by lot within any such maturity.
Mandatory Sinking Fund Redemption of 2022A Bonds . The 2022A Bonds maturing on October 1, ____ (the “2022A Term Bonds (____) ”), and payable from the 2022 Series A Sinking Fund Account, are further subject to redemption prior to their stated maturity , from the 2022 Series A Sinking Fund, on any October 1 on and after October 1, ____, and October 1, [____], respectively, by lot within any such maturity if less than all of the 2022A Term Bonds (____) of such maturity and tenor are then being redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, in accordance with the following schedule (such schedule subject to adjustment as directed by the SFPUC in the event of optional redemption of any portion of such 2022A Term Bonds (____) prior to maturity as described above):
Redemption Date
(October 1) Principal Amount
$
____________________
*Maturity.
The 2022A Bonds maturing on October 1, ____ (the “2022A Term Bonds (____) ”), and payable from the 2022 Series A Sinking Fund Account, are further subject to redemption prior to their stated maturity, from the 2022 Series A Sinking Fund, on any October 1 on and after October 1, ____, and October 1, [____], respectively, by lot within any such maturity if less than all of the 2022A Term Bonds (____) of such maturity and tenor are then being redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, in accordance with the following schedule (such schedule subject to adjustment as directed by the SFPUC in the event of optional redemption of any portion of such 202 2A Term Bonds ( ____) prior to maturity as described above):
6 4151-5403-8838.1
Redemption Date
(October 1) Principal Amount
$
____________________
*Maturity.
Redemption of 2022B Bonds
Optional Redemption of 2022B Bonds . The 2022B Bonds are subject to redemption prior to their stated maturity, at the option of the SFPUC, from and to extent of any source of available funds, as a whole or in part, on any date on or after April 1, ____, at a redemption price equal to 100% of the principal amount of the 2022B Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium. If 2022 B Bonds are to be optionally redeemed in part, the SFPUC shall direct the maturities, or portions thereof, to be redeem ed, and, if less than all of the 2022 B Bonds of a particular maturity are to be redeemed, the 2022 B Bonds shall be redeemed by lot within any such maturity.
Mandatory Sinking Fund Redemption of 2022B Bonds . The 2022B Bonds maturing on October 1, ____ (the “2022B Term Bonds (____)”), and payable from the 2022 Series B Sinking Fund Account, are further subject to redemption prior to their stated maturity, from the 2022 Series B Sinking Fund, on any October 1 on and after October 1, ____, and October 1, [____], respectively, by lot within any such maturity if less than all of the 2022B Term Bonds (____) of such maturity and tenor are then being redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, in accordance with the following schedule (such schedule subject to adjustment as directed by the SFPUC in the event of optional redemption of any portion of such 2022B Term Bonds (____) prior to maturity as described above):
Redemption Date
(October 1) Principal Amount
$
*
____________________
*Maturity.
The 2022B Bonds maturing on October 1, ____ (the “ 2022B Term Bonds (____) ”), and payable from the 2022 Series B Sinking Fund Account, are further subject to redemption prior to their stated maturity, from the 2022 Series B Sinking Fund, on any October 1 on and after October 1, ____, and October 1, [____], respectively, by lot within any such maturity if less than a ll of the 2022B Term Bonds (____) of such maturity and tenor are then being redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, in accordance with the following schedule (such schedule subject to adjustment as directed by the SFPUC in the event of optional redemption of any portion of such 2022B Term Bonds (____) prior to maturity as described above):
7 4151-5403-8838.1
Redemption Date
(October 1) Principal Amount
$
*
____________________
*Maturity.
Redemption of 2022C B onds
Optional Redemption of 2022C Bonds at Par. On and after ______ 1, 20__, t he 2022C Bonds maturing on and after October 1, ____ are subject to redemption prior to their stated maturity, at the option of the SFPUC, from any moneys that may be provided for such purpose, in whole or in part, on any date , at a redemption price equal to 100% of the principal amount of the 2022C Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium.
Make-Whole Optional Redemption of 2022C Bonds. Prior to ______ 1, ____, the 2022C Bonds are subject to redemption prior to their respective stated maturity dates, at the option of the SFPUC, from any source of available funds, as a whole or in part, at in Authorized Denominations, on any Business Day. The redemption price of such 2022C Bonds called for redemption shall be equal to the greater of (i) 100% of principal of the 2022C Bonds called for redemption, together with accrued interest to the date fixed for redemption, and (ii) 100% of the principal amount of the 2022C Bonds called for redemption, plus the Make -Whole Premium (as defined below), if any, together with accrued interest to the date fixed for redemption. plus the Make-Whole Premium (as defined below), if any, together with accrued interest to the date fixed for redemption. “Make-Whole Premium” means, with respect to any 2022C Bond to be redeemed, an amount calculated by an Independent Banking Institution (as defined in “– Definitions for Make-Whole Optional Redemption”) equal to the positive difference, if any, between:
(1) The sum of the present values, calculated as of the date fixed for redemption of:
(a) Each interest payment that, but for the redemption, would have been payable on the 2022C Bond or portion thereof being redeemed on each regularly scheduled Interest Payment Date occurring after the date fixed for redemption through the maturity date of such 2022C Bond (excluding any accrued interest for the period prior to the date fixed for redemption); plus (b) The principal amount that, but for such redemption, would have been payable on the maturity date of the 2022C Bond or portion thereof being redeemed; minus (2) The principal amount of the 2022C Bond or portion thereof being redeemed.
The present values of the interest and principal payments referred to in (1) above will be determined by discounting the amount of each such interest and principal payment from the date that each such payment would have been payable but for the redemption to the date fixed for redemption on a semiannual basis (assuming a 360-day year consisting of twelve (12) 30-day months) at a discount rate equal to the Comparable Treasury Yield (as defined in “ – Definitions for Make -Whole Optional Redemption”) plus: (i) _____ basis points for the 2022C Bonds maturing in years 20__-20__, and (ii) _____ basis points for the 2022C Bonds maturing in years 20__-20__.
The 2022C Bonds may be redeemed in any order of maturity and in any principal amount within a maturity as selected by the SFPUC in its sole discretion
8 4151-5403-8838.1
Mandatory Sinking Fund Redemption of 2022C Bonds. The 2022C Bonds maturing on October 1, ____ (the “ 2022C Term Bonds ( ____)”), and payable from the 2022 Series C Sinking Fund, are further subject to redemption prior to their stated maturity, from the 2022 Series C Sinking Fund, on any October 1, ____ on and after October 1, ____, and October 1, _____, on a pro-rata pass through distribution of principal basis if less than all of the 2022C Term Bonds (____) of such maturity are then being redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, in accordance with the following schedule:
Redemption Date
(October 1) Principal Amount
$
____________________
*Maturity.
The 2022C Bonds maturing on October 1, ____ (the “2022C Term Bonds (____)”), and payable from the 2022 Series C Sinking Fund, are further subject to redemption prior to their stated maturity, from the 2022 Series C Sinking Fund, on any October 1, ____ on and after October 1, ____, and October 1, _____, on a pro-rata pass through distribution of principal basis if less than all of the 2022C Term Bonds ( ____) of such maturity are then being redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, in accordance with the following schedule:
Redemption Date
(October 1) Principal Amount
$
____________________
*Maturity.
9 4151-5403-8838.1
Redemption of 2022D Bonds
Optional Redemption of 2022D Bonds at Par. On and after ______ 1, 20__, the 2022D Bonds maturing on and after October 1, ____ are subject to redemption prior to their stated maturity, at the option of the SFPUC, from any moneys that may be provided for suc h purpose, in whole or in part, on any date , at a redemption price equal to 100% of the principal amount of the 2022D Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium.
Make-Whole Optional Redemption of 2022D Bonds. Prior to ______ 1, ____, the 2022D Bonds are subject to redemption prior to their respective stated maturity dates, at the option of the SFPUC, from any source of available funds, as a whole or in part, at in Authorized Denominations, on any Business Day. The redemption price of such 2022D Bonds called for redemption shall be equal to the greater of (i) 100% of principal of the 2022D Bonds called for redemption, together with accrued interest to the date fixed for redemption, and (ii) 100% of the principal amount of the 2022D Bonds called for redemption, plus the Make -Whole Premium (as defined below), if any, together with accrued interest to the date fixed for redemption. plus the Make-Whole Premium (as defined below), if any, together with accrued interest to the date fixed for redemption. “Make-Whole Premium” means, with respect to any 2022D Bond to be redeemed, an amount calculated by an Independent Banking Institution (as defined in “– Definitions for Make-Whole Optional Redemption”) equal to the positive difference, if any, between:
(1) The sum of the present values, calculated as of the date fixed for redemption of:
(a) Each interest payment that, but for the redemption, would have been payable on the 2022D Bond or portion thereof being redeemed on each regularly scheduled Interest Payment Date occurring after the date fixed for redemption through the maturity date of such 2022D Bond (excluding any accrued interest for the period prior to the date fixed for redemption); plus (b) The principal amount that, but for such redemption, would have been payable on the maturity date of the 2022D Bond or portion thereof being redeemed; minus (2) The principal amount of the 2022D Bond or portion thereof being redeemed.
The present values of the interest and principal payments referred to in (1) above will be determined by discounting the amount of each such interest and principal payment from the date that each such payment would have been payable but for the redemption to the date fixed for redemption on a semiannual basis (assuming a 360-day year consisting of twelve (12) 30-day months) at a discount rate equal to the Comparable Treasury Yield (as defined in “ – Definitions for Make -Whole Optional Redemption”) plus: (i) _____ basis points for the 2022D Bonds maturing in years 20__-20__, and (ii) ____ basis points for the 2022D Bonds maturing in years 20__-20__.
The 2022D Bonds may be redeemed in any order of maturity and in any principal amount within a maturity as selected by the SFPUC in its sole discretion.
Mandatory Sinking Fund Redemption of 2022D Bonds. The 2022D Bonds maturing on October 1, ____ (the “ 2022D Term Bonds (____) ”), and payable from the 2022 Series D Sinking Fund, are further subject to redemption prior to their stated maturity, from the 2022 Series D Sinking Fund, on any October 1, ____ on and after October 1, ____, and October 1, _____, on a pro-rata pass through distribution of principal basis if less than all of the 2022D Term Bonds (____) of such maturity are then being redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, in accordance with the following schedule:
Redemption Date
(October 1) Principal Amount
$
10 4151-5403-8838.1
*
____________________
*Maturity.
The 2022D Bonds maturing on October 1, ____ (the “2022D Term Bonds (____)” and, together with the 2022A Term Bonds (____) , the 2022A Term Bonds (____) , the 2022B Term Bonds (____) , the 2022C Term Bonds (____), the 2022C Term Bonds (____) and the 2022D Term Bonds (____), the “2022ABCD Term Bonds ”), and payable from the 2022 Series D Sinking Fund, are further subject to redemp tion prior to their stated maturity, from the 2022 Series D Sinking Fund, on any October 1, ____ on and after October 1, ____, and October 1, _____, on a pro-rata pass through distribution of principal basis if less than all of the 2022D Term Bonds (____) of such maturity are then being redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, in accordance with the following schedule :
Redemption Date
(October 1) Principal Amount
$
*
____________________
*Maturity.
Definitions for Make-W hole Optional Redemption
“Comparable Treasury Yield” means the yield which represents the weekly average yield to maturity for the preceding week appearing in the most recently published statistical release designated “H.15(519) Selected Interest Rates” under the heading “Treasury Constant Maturities,” or any successor publication selected by the Independent Banking Institution that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity, for the maturity corresponding to the remaining term to maturity of the 2022C Bonds or the 2022D Bonds, as applicable, being redeemed. The Comparable Treasury Yield will be determined as of the 10th Business Day immediately preceding the applicable date fixed for redemption. If the H.15(519) statistical release sets forth a weekly avera ge yield for United States Treasury securities that have a constant maturity that is the same as the remaining term to maturity of the 2022C Bonds or the 2022D Bonds, as applicable, being redeemed, then the Comparable Treasury Yield will be equal to such weekly average yield. In all other cases, the Comparable Treasury Yield will be calculated by interpolation on a straight-line basis, between the weekly average yields on the United States Treasury securities that have a constant maturity (a) closest to an d greater than the remaining term to maturity of the 2022C Bonds or the 2022D Bonds, as applicable, being redeemed; and (b) closest to and less than the remaining term to maturity of the 2022C Bonds or the 2022D Bonds, as applicable, being redeemed. Any w eekly average yields calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200th of 1% or above being rounded upward.
If, and only if, weekly average yields for United States Treasury securities for the preceding week are not available in the H.15(519) statistical release or any successor publication, then the Comparable Treasury Yield will be the rate of interest per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price (each as defined herein) as of the date fixed for redemption.
“Comparable Treasury Issue” means the United States Treasury security selected by the Independent Banking Institution as having a maturity comparable to the remaining term to maturity of the 2022C Bonds or the
11 4151-5403-8838.1
Series 2022D Bonds, as applicable, being redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in p ricing new issues of corporate debt securities of comparable maturity to the remaining term to maturity of the 2022C Bonds or the 2022D Bonds, as applicable, being redeemed. “Independent Banking Institution” means an investment banking institution of national standing which is a primary United States government securities dealer in the City of New York designated by the SFPUC (which may be one of the Underwriters). If the SFPUC fails to appoint an Independent Banking Institution at least 30 days prior to the date fixed for redemption, or if the Independent Banking Institution appointed by the Commission is unwilling or unable to determine the Comparable Treasury Yield, the Comparable Treasury Yield will be determined by an Independent Banking Institution designated by the Trustee in consultation with the SFPUC. “Comparable Treasury Price” means, with respect to any date on which a 2022C Bond or the 2022D Bonds, as applicable, or portion thereof is being redeemed, either (a) the average of five Reference Treasury Dealer quotations for the date fixed for redemption, after excluding the highest and lowest such quotations, and (b) if the Independent Banking Institution is unable to obtain five such quotations, the average of the quotations that are obtained. The quotations will be the average, as determined by the Independent Banking Institution, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of principal amount) quoted in writing to the Independent Banking Institution, at 5:00 p.m. New York City time on the 10th Business Day preceding the date fixed for redemption.
“Reference Treasury Dealer ” means a primary United States Government securities dealer in the United States appointed by the Commission and reasonably acceptable to the Independent Banking Institution (which may be one of the Underwriters). If the Commission fails to select the Reference Treasury Dealers within a reasonable period of time, the Trustee will select the Reference Treasury Dealers in consultation with the SFPUC .
General
Purchase In Lieu of Mandatory Sinking Fund Redemption . In lieu of mandatory sinking fund redemption of the 2022ABCD Bonds as described above, the SFPUC may satisfy, in whole or in part, the related minimum Sinking Fund Account payment amounts and redemption of 2022ABCD Term Bonds of the respective Series by depositing with the Trustee 2022ABCD Term Bonds of the respective Series for cancellation prior to the Trustee’s selection of the 2022ABCD Term Bonds of such Series for redemption, or may request the Trustee to purchase 2022ABCD Term Bonds of the respective Series, at public or private sale as and when and at such prices (including brokerage and other charges and including accrued interest) as the SFPUC may direct, not to exceed the principal amount thereof. The par amount of any of such 2022ABCD Bonds so deposited or purchased in any twelve -month period ending on August 15 in any year will be credited towards and will reduce the par amount of such 2022ABCD Bonds required to be redeemed as described above on the next succeeding October 1.
Selection of Series 2022AB Bonds for Redemption . Whenever less than all of the 2022AB Bonds, of any one tenor and maturity are called for redemption and those 2022AB Bonds are redeemable by lot, the Trustee will select the 2022AB Bonds of the tenor and maturity to be redeemed from the Outstanding 2022AB Bonds of that tenor and maturity, by lot or by any other manner the Trustee deems fair and equitable. For purposes of such selection, 2022AB Bonds will be deemed to be made up of $5,000 portions of principal, any of which may be redeemed separately.
Selection of Series 2022AB Bonds for Redemption . Redemption of the 2022CD Bonds will only be in authorized denominations. The 2022CD Bonds are subject to redemption in such order of maturity as the SFPUC may direct (except mandatory sinking fund payments on the 2022CD bonds that are terms bonds). If less than all of the 2022CD Bonds of a maturity are redeemed prior to their stated maturity date, the particular 2022CD Bonds to be redeemed will be selected on a pro -rata pass-through distribution of principal basis in accordance with the rules and procedures of DTC. It is the Commission’s intent that redemption allocations made by DTC, the DTC Participants or such other intermediaries that may exist between the Commission and the beneficial owners of the 2022CD Bonds will be made on a pro- rata pass-through distribution of principal basis. However, so long as the 2022CD Bonds are held in book- entry form, the selection for redemption of such 2022CD Bonds shall be made in accordance with the operational arrangements of DTC then in effect. Neither the SFPUC nor the Trustee will provide any assurance or shall have any responsibility or obligation to ensure that DTC, the DTC Participants or any other intermediaries
12 4151-5403-8838.1
allocate redemptions of the 2022CD Bonds among beneficial owners on a pro- rata pass -through distribution of principal basis. If the DTC operational arrangements do not allow for the redemption of the 2022CD Bonds on a pro- rata pass-through distribution of principal basis, the 2022CD Bonds shall be selected for redemption, in accordance with DTC procedures, by lot.
If the 2022CD Bonds are not held in book -entry form and less than all of the 2022CD Bonds of a maturity are to be redeemed, the 2022CD Bonds to be redeemed will be selected by the Trustee on a pro- rata pass-through distribution o f principal basis among all of the Bondowners of the 2022CD Bonds of that maturity based on the principal amount of 2022CD Bonds of that maturity owned by such Bondowners .
Notice of Redemption for 2022ABCD Bonds. Notice of redemption will be mailed by the Trustee at least 30 days but not more than 60 days prior to the redemption date to DTC (so long as the DTC Book- Entry System is used). The actual receipt by the owner of any 2022ABCD Bonds of notice of such redemption is not a condition precedent to redemption, and failure to receive a redemption notice or any defect in a redemption notice will not affect the validity of the proceedings for the redemption of such 2022ABCD Bonds or the cessation of the accrual of interest on the date fixed for such redemption. See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – GENERAL REDEMPTION PROVISIONS – Notice of Redemption” and “APPENDIX E – SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM.”
Rescission of Notice of Redemption for 2022ABCD Bonds. The SFPUC may, at its option, on or prior to the date fixed for redemption in any notice of redemption of 2022ABCD Bonds, rescind and cancel such notice of redemption by written request to the Trustee and the Trustee will mail notice of such cancellation to the recipients of the notice of redemption being cancelled.
Effect of Redemption for 2022ABCD Bonds. When notice of redemption has been duly given as described above, and moneys for payment of the redemption price are held by the Trustee, the 2022ABCD Bonds so called for redemption will, on the redemption date designated in such notice, become due and payable at the redemption price specified in such notice; and from and after the date so designated, interest on the 2022ABCD Bonds so called for redemption will cease to accrue, those 2022ABCD Bonds will cease to be entitled to any benefit or security under the Indenture, and the Owners of those 2022ABCD Bonds will have no rights in respect thereof except to receive payment of the redemption price thereof. The Trustee will, upon surrender for payment of any of said 2022ABCD Bonds, pay such 2022ABCD Bonds at the redemption price, together with accrued interest thereon. All 2022ABCD Bonds redeemed will be cancelled upon surrender and no 2022ABCD Bonds will be issued in place thereof.
Defeasance
The obligations of the SFPUC and the pledge, lien, covenants and agreements of the SFPUC made or provided for in the Indenture as to any 2022ABCD Bonds will be fully discharged and satisfied and will no longer be deemed outstanding thereunder if certain conditions set forth in the Indenture are satisfied. See “APPENDIX A –
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
—DEFEASANCE.”
PLAN OF REFUNDING*
General
The proceeds of the 2022A B Bonds, together with certain other moneys available for such purpose, will be applied to (i) refund all or a portion of the SFPUC’s outstanding Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2013 Series A and 2013 Series B (such refunded bonds are referred to herein as the “Refunded 2013A Bonds ” and “Refunded 2013B Bonds, ” respectively, and together the “ Refunded 2013AB Bonds”), and (ii) pay the costs of issuance of the 2022AB Bonds.
The proceeds of the 202 2CD Bonds, together with certain other moneys available for such purpose, will be applied to (i) refund all or a portion of the SFPUC’s outstanding Public Utilities Commission of the City and County
* Preliminary, subject to change.
13 4151-5403-8838.1
of San Francisco Wastewater Revenue Bonds, 2016 Series A (Green Bonds) and 2016 Series B (such refunded bonds are referred to herein as the “Refunded 2016A Bonds” and “Refunded 2016B Bonds,” respectively, and together the “Refunded 2016AB Bonds”), and (ii) pay the costs of issuance of the 2022CD Bonds.
See “OBLIGATIONS PAYABLE FROM NET REVENUES – Outstanding Parity Revenue Bonds.” Refunded Bonds
The following tables detail the Refunded 2013A Bonds, the Refunded 2013B Bonds, the Refunded 2016A Bonds and the Refunded 2016B Bonds, their respective maturity dates, and principal amounts of such Bonds which are expected to be refunded with proceeds of the applicable 2022ABCD Bonds (the Refunded 2013A Bonds, the Refunded 2013B Bonds, the Refunded 2016A Bonds and the Refunded 2016B Bonds, are collectively referred to herein as the “Refunded Bonds”).
Public Utilities Commission of the City and County of San Francisco, Wastewater Revenue Bonds, 2013 Series A (Refunding)
Maturity
Outstanding
Principal
Amount
Interest
Rate
CUSIP*
(Base No.
79768H)
Principal
Amount to be
Refunded
Payment or
Redemption
Date
October 1, 2023 $ 575,000 5.00% BD9 $ 575,000 October 1, 2022 October 1, 2024 610,000 4.00% BE7 610,000 October 1, 2022 October 1, 2025 1,260,000 4.00% BF4 1,260,000 October 1, 2022 Total $7,445,000 $2,445,000
Public Utilities Commission of the City and County of San Francisco, Wastewater Revenue Bonds, 2013 Series B
Maturity
Outstanding
Principal
Amount
Interest
Rate
CUSIP*
(Base No.
79768H)
Principal
Amount to be
Refunded
Payment or
Redemption
Date
October 1, 2023 $ 8,835,000 5.00% BR8 $ 8,835,000 October 1, 2022 October 1, 2024 9,280,000 5.00% BS6 9,280,000 October 1, 2022 October 1, 2025 9,130,000 5.00% BT4 9,130,000 October 1, 2022 October 1, 2026 10,915,000 5.00% BU1 10,915,000 October 1, 2022 October 1, 2027 11,475,000 5.00% BV9 11,475,000 October 1, 2022 October 1, 2028 12,065,000 5.00% BW7 12,065,000 October 1, 2022 October 1, 2029 12,680,000 5.00% BX5 12,680,000 October 1, 2022 October 1, 2030 13,330,000 5.00% BY3 13,330,000 October 1, 2022 October 1, 2031 14,015,000 5.00% BZ0 14,015,000 October 1, 2022 October 1, 2032 14,735,000 5.00% CA4 14,735,000 October 1, 2022 October 1, 2033 15,415,000 4.00% CB2 15,415,000 October 1, 2022 October 1, 2034 16,045,000 4.00% CC0 16,045,000 October 1, 2022 October 1, 2035 16,695,000 4.00% CD8 16,695,000 October 1, 2022 October 1, 2036 17,375,000 4.00% CE6 17,375,000 October 1, 2022 October 1, 2039 56,500,000 4.00% CF3 56,500,000 October 1, 2022
14 4151-5403-8838.1
October 1, 2042 93,095,000 4.00% CG1 93,095,000 October 1, 2022 Total: $331,585,000 $331,585,000
Public Utilities Commission of the City and County of San Francisco, Wastewater Revenue Bonds, 2016 Series A (Green Bonds)
Maturity
Outstanding
Principal
Amount
Interest
Rate
CUSIP*
(Base
No.
79768H)
Principal
Amount to be
Refunded
Payment or
Redemption Date
October 1, 2028 $7,035,000 5.00% CN6 $7,035,000 October 1, 2025 October 1, 2029 7,395,000 5.00% CP1 7,395,000 October 1, 2025 October 1, 2030 7,775,000 5.00% CQ9 7,775,000 October 1, 2025 October 1, 2031 8,170,000 5.00% CR7 8,170,000 October 1, 2025 October 1, 2032 8,590,000 5.00% CS5 8,590,000 October 1, 2025 October 1, 2033 9,030,000 5.00% CT3 9,030,000 October 1, 2025 October 1, 2034 9,495,000 5.00% CU0 9,495,000 October 1, 2025 October 1, 2035 9,980,000 5.00% CV8 9,980,000 October 1, 2025 October 1, 2036 10,495,000 5.00% CW6 10,495,000 October 1, 2025 Total: $77,965,000 $77,965,000
Public Utilities Commission of the City and County of San Francisco, Wastewater Revenue Bonds, 2016 Series B
Maturity
Outstanding
Principal
Amount
Interest
Rate
CUSIP*
(Base
No.
79768H)
Principal
Amount to
be
Refunded
Payment or
Redemption Date
October 1, 2028 $1,980,000 5.00% DJ4 $1,980,000 October 1, 2025 October 1, 2029 2,085,000 5.00% DK1 2,085,000 October 1, 2025 October 1, 2030 2,190,000 5.00% DL9 2,190,000 October 1, 2025 October 1, 2031 2,305,000 5.00% DM7 2,305,000 October 1, 2025 October 1, 2032 2,420,000 5.00% DN5 2,420,000 October 1, 2025 October 1, 2033 2,545,000 5.00% DP0 2,545,000 October 1, 2025 October 1, 2034 2,675,000 5.00% DQ8 2,675,000 October 1, 2025 October 1, 2035 2,815,000 5.00% DR6 2,815,000 October 1, 2025 October 1, 2036 2,960,000 5.00% DS4 2,960,000 October 1, 2025 Total: $19,015,000 $19,015,000
Escrow Fund
The Refunded 2013A Bonds were issued pursuant to, and will be refunded in accordance with, the terms of the Original Indenture and a Second Supplemental Indenture, dated as of January 1, 2013 (the "Second Supplemental Indenture"), by and between the SFPUC and the Trustee. The Refunded 2013B Refunded Bonds were issued pursuant to, and will be refunded in accordance with, the terms of the Original Indenture and a Third Supplemental Indenture, dated as of February 1, 2013 (the "Third Supplemental Indenture"), by and between the SFPUC and the
15 4151-5403-8838.1
Trustee. A port ion of the proceeds of the 2022A Bonds, together with certain other available moneys (the "2022A Escrow Proceeds"), and a portion of the proceeds of the 2022B Bonds, together with other available moneys (the "2022B Escrow Proceeds"), will be delivered to U .S. Bank Trust Company, National Association, as escrow agent (the "Escrow Agent"), under that certain Escrow Agreement, dated as of its date (the "2013AB Escrow Agreement"), by and between the SFPUC and the Escrow Agent. The Escrow Agent will deposit the 2022A Escrow Proceeds and the 2022B Escrow Proceeds in accordance with the 2013AB Escrow Agreement in the respective irrevocable escrow funds for the benefit of the owners of the Refunded 2013A Bonds and Refunded 2013B Bonds, respectively, to be invested in the respective Initial Government Securities (as defined in the 2013AB Escrow Agreement and referred to herein as the "2013AB Initial Government Securities"), plus amounts held in cash (if any). The 2013AB Initial Government Securities, together with earnings thereon, plus the amounts held in cash (if any), will be used to redeem the Refunded 2013A Bonds and the Refunded 2013B Bonds, as applicable, on October 1, 2022 (the " Refunded 2013AB Bonds Redemption Date "), at the redemption price of 100% of the principal amount of the Refunded 2013AB Bonds, together with interest accrued thereon to the Refunded 2013AB Bonds Redemption Date. As a result of the deposit and application of funds as provided in the 2013AB Escrow Agreement, the 2013AB Refunded Bonds will be defeased pursuant to the Original Indenture and the Second Supplemental Indenture and the Third Supplemental Indenture, as applicable, as of the date of issuance of the 2022AB Bonds.
The Refunded 2016AB Bonds were issued pursuant to, and will be refunded in accordance with, the Original Indenture and a Fourth Supplemental Indenture, dated as of May 1, 2016 (the " Fourth Supplemental Indenture ") by and between the SFPUC and the Trustee, Upon the forward delivery of the 2022CD Bonds on or about [________], a portion of the proceeds of the 2022C Bonds, together with certain other available moneys (the " 2022C Escrow Proceeds"), and a portion of the proceeds of the 2022D Bonds, [together with other available moneys] (the " 2022D Escrow Proceeds"), will be delivered to the Escrow Agent, under that certain Escrow Agreement, dated as of its date (the "2016AB Escrow Agreemen t"), by and between the SFPUC and the Escrow Agent. The Escrow Agent will deposit the 2022C Escrow Proceeds and the 2022D Escrow Proceeds in accordance with the 2016AB Escrow Agreement in the respective irrevocable escrow funds for the benefit of the owners of the Refunded 2016A Bonds and Refunded 2016B Bonds, respectively, to be invested in the respective Initial Government Securities (as defined in the 2016AB Escrow Agreement and referred to herein as the " 2016AB Initial Government Securities "), plus amounts held in cash (if any). The 2016AB Initial Government Securities, together with earnings thereon, plus the amounts held in cash (if any), will be used to pay principal and interest due up through and including May 1, 2025 on the applicable principal and interest payment dates and then redeem the remaining Refunded 2016A Bonds and the Refunded 2016B Bonds, as applicable, on October 1, 2025 (the " Refunded 2016AB Bonds Redemption Date "), at the redemption price of 100% of the principal amount of the Refunded 2016AB Bonds, together with interest accrued thereon to the Refunded 2016AB Bonds Redemption Date. As a result of the deposit and application of funds as provided in the 2016AB Escrow Agreement, the 2016AB Refunded Bonds will be defeased pursuant to the Original Indenture and the Fourth Supplemental Indenture, as of the date of issuance of the 2022CD Bonds.
Sufficiency of the deposits in the various irrevocable escrow funds described above (collectively, the “Escrow Funds”) for the purposes described in the previous paragraph will be verified by ___________, _____________. See “VERIFICATION OF MATHEMATICAL ACCURACY.”
ESTIMATED SOURCES AND USES OF FUNDS
The proceeds of the 2022ABCD Bonds are expected to be applied as follows:
2022A Bonds 2022B Bonds 2022C Bonds 2022D Bonds
Total
2022ABCD
Bonds
Sources of Funds
Par Amount
Principal Fund &
Interest Fund Releases
Total Sources
Uses of Funds
Deposit to Escrow Fund(1)
16 4151-5403-8838.1
Series 2013A Escrow Fund
Series 2013B Escrow Fund
Series 2016A Escrow Fund
Series 2016B Escrow Fund
Underwriters’ Discount
Costs of Issuance(2)
Total Uses
____________________
(1) Represents deposits to the applicable Escrow Fund established under the applicable Escrow Agreement. See “PLAN OF REFUNDING” and “OBLIGATIONS PAYABLE FROM REVENUES – Outstanding Parity Revenue Bonds.” (2) The costs of issuance include amounts for legal fees, Trustee and Escrow Agent fees, municipal advisor fees, Verification Agent fees, [escrow bidding agent fees ], rating agency fees, printing costs, and other costs relating to the issuance of the 2022ABCD Bonds.
GREEN BONDS DESIGNATION AND CLIMATE CERTIFICATION
The 2022AC Bonds are being designated by the SFPUC as “Green Bonds.” The purpose of designating the 2022AC Bonds as “Green Bonds” is to allow investors to invest directly in notes and bonds that fi nance environmentally beneficial projects (“ Green Projects”). For purposes of such determination, the SFPUC considers the projects included in the SSIP, including the Biosolids Digester Facilities Project and the Southeast Treatment Plant Improvements Project, to be Green Projects . See “PLAN OF FINANCE,” “ESTIMATED SOURCES AND USES OF FUNDS,” and “SEWER SYSTEM IMPROVEMENT PROGRAM.”
The Climate Bonds Initiative (the “ CBI”) is an international, investor -focused non- profit organization working to focus the global bond market on climate change solutions through the development and promotion of an efficient green bond market. The CBI has established and manages the Climate Bonds Standard (the “Climate Bonds Standard”) under which the 2022AC Bonds have been certified . All projects funded by the 2022AC Bonds have been certified under the Climate Bonds Standard Water Sector Criteria. The certification of the 2022AC Bonds reflects only the views of the third -party verifier report approved by the Climate Bonds Standard Board. The explanation of the significance of this certification may be obtained from the CBI . The SFPUC has provided a third- party verified report to the Climate Bonds Standard Board, including information concerning prior and anticipat ed capital project expenditures related to the SSIP (some of which does not appear in this Official Statement) . As part of the certification process, the SFPUC retained Sustainalytics U.S., Inc., a subsidiary of Sustainalytics Holding, B.V., Netherlands (collectively, (“Sustainalytics”) to provide a third-party verification that the 2022AC Bonds are aligned with the Climate Bonds Standard.
The certification of the 2022AC Bonds as “Climate Bonds” by the CBI is based solely on the Climate Bonds Standard and does not and is not intended to make any representation or give any assurance with respect to any other matter relating to the 2022AC Bonds or any SSIP project, including but not limited to this Official Statement, the transaction documents, the SFPUC or the management of the SFPUC.
The certification of the 2022AC Bonds by the CBI was addressed solely to the SFPUC and is not a recommendation to any person to purchase, hold or sell the 2022AC Bonds and such certification does not address the market price or suitability of the 2022AC Bonds for an investor. The certification also does not address the merits of the decision by the SFPUC or any third party to participate in any SSIP Green Project and does not express and should not be deemed to be an expression of an opinion as to the SFPUC or any aspect of any SSIP project (including but not limited to the financial viability of any SSIP Green Project ) other than with respect to conformance with the C limate Bonds Standard.
In issuing or monitoring, as applicable, the certification, the CBI has assumed and relied upon and will assume and rely upon the accuracy and completeness in all material respects of the information supplied or otherwise made available to the CBI . The CBI does not assume or accept any responsibility to any person for independently verifying (and it has not verified) such information or to undertake (and it has not undertaken) any independent evaluation of any Green Project or the SFPUC. In addition, the CBI does not assume any obligation to conduct (and it has not conducted) any physical inspection of a SSIP Green Project . The certification may only be used with the 2022AC Bonds and may not be used for any other purpose without the CBI’s prior written consent.
17 4151-5403-8838.1
The certification does not and is not in any way intended to address the likelihood of timely payment of interest when due on the 2022AC Bonds and/or the payment of principal at maturity or any other date.
The certification may be withdrawn at any time in the CBI’s sole and absolute discretion and there can be no assurance that such certification will not be withdrawn.
The CBI is not a licensed broker -dealer or a nationally recognized statistical ratings organization .
Certification by the CBI is not a recommendation to buy, sell or hold securities, and such certification may be subject to revision or withdrawal, including, without limitation, if the SFPUC’s future capital expenditures from the proceeds of the 2022AC Bonds vary from the anticipated expenditures reviewed by the CBI . The SFPUC will undertake reasonable efforts to ensure that any adjustment of capital expenditures or other actions taken with respect to the 2022AC Bonds will not result in revision or withdrawal of the CBI’s certification; however, there can be no guarantee that such adjustment or other action or a future revision to the CBI’s criteria for certifying bonds will not result in a withdrawal or revision of the CBI’s certification . The SFPUC expects to post information reflecting the expenditure of the proceeds of the 2022AC Bonds on its website.
The Indenture does not restrict the use of proceeds of future issuances of Bonds to the financing of Green Projects and in the future the SFPUC may issue Additional Bonds which are not designated as green bonds or certified by the CBI.
The repayment obligations of the SFPUC with respect to the 2022AC Bonds are not conditioned on the completion of any particular project or the satisfaction of any condition relating to the status of the 2022AC Bonds or the certification of such bonds by the CBI . The SFPUC assumes no obligation to ensure compliance with any legal or other principles of green bonds, as such principles may evolve over time. See “SECURITY FOR THE BONDS.” The terms “Climate Bond” and “green bonds” are neither defined in, nor related to the Indenture, and their use herein is for identification purposes only and is not intended to provide or imply that a holder of the 2022AC Bonds is entitled to any additional security other than as provided in the Indenture. The SFPUC has no continuing legal obligation to maintain the Climate Bond certification of the 2022AC Bonds.
Management of Proceeds
The proceeds of the ______________ to be refunded with the proceeds of the 2022AC Bonds have all been expended on projects the SFPUC considers to be “Green Projects.” Green Bond Reporting
As part of the certification process, the SFPUC will provide a post-issuance verification of compliance to the CBI. The SFPUC will also provide an annual report to bondholders of the 2022AC Bonds regarding the projects financed and refinanced by proceeds of the 2022AC Bonds and make the report available at https://sfpuc.org/about - us/reports/debt-management-and-disclosure-reports. The information available on such website is not incorporated by reference into this Official Statement and should not be relied upon in making an investment in the 2022AB CD Bonds.
SECURITY FOR THE BONDS
Pledge of Net Revenues
General. Under the Indenture, the SFPUC has irrevocably pledged the Net Revenues of the Wastewater Enterprise to the punctual payment of principal of, premium, if any, and interest on the Bonds, which consist of any parity revenue bonds issued under the Indenture, including the 2022AB CD Bonds, and Parity Loans. This pledge is subject to the flow of funds contained in the Indenture, as described below . See “– Flow of Funds.” The facilities comprising the Wastewater Enterprise have not been pledged or mortgaged and do not otherwise secure payment of the Bonds.
18 4151-5403-8838.1
Pursuant to Section 5451 of the California Government Code, the pledge of, lien on and security interest in Net Revenues and certain other funds granted by the Indenture is valid and binding in accordance with the terms thereof from the time of issuance of the 2022AB CD Bonds; the Net Revenues and such other funds will be immediately subject to such pledge; and such pledge will constitute a lien and security interest which will immediately attach to such Net Revenues and other funds and will be effective, binding and enforceable against the SFPUC, its successors, purchasers of the Net Revenues, creditors, and all others asserting rights therein to the extent set forth and in accordance with the terms of the Indenture irrespective of whether those parties have notice of such pledge and without the need for any physical delivery, recordation, filing or other further act . Such pledge, lien and security interest are not subject to the provisions of Article 9 of the California Uniform Commercial Code.
For definitions of capitalized terms used herein and not otherwise defined, see “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – THE INDENTURE – DEFINITIONS; EQUAL SECURITY:
CERTIFICATES AND OPINIONS.”
Limited Obligation. THE SFPUC IS NOT OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF
ANY, OR INTEREST ON THE BONDS EXCEPT FROM NET REVENUE S OF THE WASTEWATER ENTERPRISE. THE SFPUC HAS NO TAXING POWER. THE GENERAL FUND OF THE CITY IS NOT LIABLE
FOR THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS , AND
NEITHER THE CREDIT NOR THE TAXING POWER OF THE CITY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS . THE BONDS ARE NOT SECURED
BY A LEGAL OR EQUITABLE PLEDGE OF, OR CHARGE, LIEN, OR ENCUMBRANCE UPON, ANY OF THE
PROPERTY OF THE CITY OR OF THE SFPUC OR ANY OF ITS INCOME OR RECEI PTS, EXCEPT NET REVENUES.
Wastewater Enterprise. The Indenture defines “Enterprise” (referred to in this Official Statement as the “Wastewater Enterprise”) as the whole and each and every part of the municipal sanitary waste and storm water collection, treatment and disposal system and auxiliary or related facilities of the SFPUC, including all of the presently existing system of the SFPUC for the collection, treatment and disposal of sanitary waste and storm water and all future additions, betterments, and extensions to the system or any part thereof.
Net Revenues. The Indenture defines “Net Revenues” as all Revenues, less all Operation and Maintenance Costs of the Wastewater Enterprise.
The Indenture defines “Revenues” as all gross revenues of the Wastewater Enterprise, including all charges received for and all other income and receipts derived by the SFPUC from the operation of the Wastewater Enterprise, or arising from the Wastewater Enterprise, including connection and installation charges, but excluding:
(a) any money received by or for the account of the SFPUC from the levy or collection of taxes; (b) moneys received from the State of California and the United States of America and required to be deposited in restricted funds;
(c) refundable deposits made to establish credit;
(d) advances and contributions made to the SFPUC to be applied to construction; (e) moneys received constituting casualty insurance proceeds with respect to all or any part of the Wastewater Enterprise (which shall be received and di sposed of pursuant to the Indenture) and moneys received constituting other insurance proceeds;
(f) moneys received from the sale or disposition of all or any part of the Wastewater Enterprise (which shall be received and disposed of pursuant to the Indenture); (g) moneys received upon the taking by or under the threat of eminent domain of all or any part of the Wastewater Enterprise (which moneys shall be received and disposed of pursuant to the Indenture);
19 4151-5403-8838.1
(h) proceeds from Bonds issued by the SFPUC or proceeds from loans or other indebtedness obtained by the SFPUC; and
(i) moneys or securities received by the SFPUC as gifts or grants the use of which is restricted by the donor or grantor.
The term “Revenues” also includes (i) all interest or other income (excluding profits or losses from the sale or disposition of Permitted Investments or other securities owned by or on behalf of the SFPUC) derived from the deposit or investment of any moneys in any fund or account established under the Indenture (excluding any Rebate Fund and any escrow fund pledged for the payment of defeased bonds) or in any fund or account of the Wastewater Enterprise and legally available to pay Debt Service, and (ii) any other moneys, proceeds and other amounts that the SFPUC determines should be “Revenues” under the Indenture.
The Indenture defines “Operation and Maintenance Costs of the Enterprise ” (referred to in this Official Statement as the “Operation and Maintenance Costs of the Wastewater Enterprise”) as the reasonable and necessary costs of operating and maintaining the Wastewater Enterprise, calculated on the basis of generally accepted accounting principles, including (among other things) salaries and wages, fees for services, costs of materials, supplies and fuel, reasonable expenses of management, legal fees, accounting fees, repairs and other expenses necessary to maintain and preserve the Wastewater Enterprise in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any), and the payment of pension charges and proportionate payments to such compensation and other insurance or outside reserve funds as the SFPUC may establish or the Board of Supervisors may require with respect to employees of the SFPUC, as provided in the Charter .
However, the term “ Operation and Maintenance Costs of the Wastewater Enterprise” excludes in all cases (a) depreciation and obsolescence charges or reserves therefor, (b) amortization of intangibles or other bookkeeping entries of a similar nature, (c) costs of capital additions, replacements, betterments, extensions or improvements to the Wastewater Enterprise, which under generally accepted accounting principles are chargeable to a capital account or to a reserve for depreciation, (d) charges for the payment of principal of and interest on any revenue bonds or other indebtedness issued before or after the date of the Indenture for Wastewater Enterprise purposes and (e) such costs as are scheduled to be paid by the SFPUC from moneys other than Revenues, such moneys to be clearly available for such purpose.
Flow of Funds
The Indenture provides that all Revenues must be paid into the Revenue Fund, which must be maintained in the City Treasury . Moneys in the Revenue Fund, including earnings thereon, are required by the Indenture to be applied for the following purposes and only in the following order of priority:
(a) payment of Operation and Maintenance Costs of the Wastewater Enterprise; (b) payment of Bonds, Parity Loans, Policy Costs and amounts due as reimbursement under any Letter of Credit Agreement, as provided in the Indenture; and
(c) any other lawful purpose of the SFPUC.
Net Revenues deposited in the Revenue Fund, as described in (b) above, will be applied to pay interest and principal on the Bonds (which include Parity Loans ) and to make deposits to the Bond Reserve Fund if the amounts therein are less than the Required R eserve. See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
The Indenture defines “Refundable Credits” as (a) with respect to a Series of Bonds issued as Build America Bonds under Section 54AA of the Code, the amounts which are payable by the Federal government under Section 6431 of the Code, which the SFPUC has elected to receive under Section 54AA(g)(1) of the Code, and (b) with respect to a Series of Bonds issued as Build America Bonds under any other provision of the Code that creates a substantially
20 4151-5403-8838.1
similar direct-pay subsidy program, the amounts which are payable by the Federal government under the applicable provisions of the Code, which the SFPUC has elected to receive under the applicable provisions of the Code .
The Indenture defines “ Build America Bonds” as any bonds or other obligations issued as Build America Bonds under Section 54AA of the Code, or under any other provision of the Code that creates a substantially similar direct-pay subsidy program.
The Indenture provides that a ll of the Refundable Credits received by the SFPUC shall be deposited immediately upon receipt in the Interest Fund, and such Refundable Credits are irrevocably pledged to the punctual payment of the interest on the Bonds issued as Build America Bonds, and the Refundable Credits shall not be used for any other purpose while any of the Bonds issued as Build America Bonds remain Outstanding.
Rate Covenants
Sufficiency of Revenues . The SFPUC has covenanted in the Indenture that it will, to the fullest extent permitted by law, establish, fix and prescribe prior to the commencement of e ach Fiscal Year, fees and charges in connection with the sanitary waste and storm water collection, treatment and disposal services and facilities furnished by the Wastewater Enterprise so as to yield Revenues at least sufficient, after making reasonable allowances for contingencies and error in the estimates, to pay the following amounts:
(a) the interest on and principal of the Bonds (which include Parity Loans) as they become due and payable (but not including any interest for which moneys have been deposited in the Interest Fund from the proceeds of any Series of Bonds or from any other source); (b) all other payments required for compliance with the terms of the Indenture and of any Supplemental Indenture providing for the issuance of Additional Bonds pursuant to the Indenture; (c) all other payments to meet any other obligations of the SFPUC which are charges, liens or encumbrances upon, or payable from, Revenues; and
(d) all current Operation and Maintenance Costs of the Wastewater Enterprise (but not including such Operation and Maintenance Costs of the Was tewater Enterprise as are scheduled to be paid by the SFPUC from moneys other than Revenues, such moneys to be clearly available for such purpose).
Debt Service Coverage. In addition to the requirements set forth under “– Sufficiency of Revenues” above, the Indenture provides that the SFPUC will, to the fullest extent permitted by law, establish, fix, and prescribe, prior to the commencement of each Fiscal Year, rates, fees and charges in connection with the sanitary waste and storm water collection, trea tment and disposal services and facilities furnished by the Wastewater Enterprise, which are reasonably expected to be at least sufficient to yield during such Fiscal Year Net Revenues (together with any fund balances of the SFPUC which are available for payment of Debt Service, but excluding the Bond Reserve Fund), equal to 1.25 times the Annual Debt Service payable in such Fiscal Year.
The SFPUC may make adjustments from time to time in such rates, fees and charges and may make such classification thereof as it deems necessary, but is obligated not to reduce such rates, fees and charges below those in effect unless the Revenues resulting after such reduced rates are put into effect will at all times be sufficient to meet the requirements described in this section, “Rate Covenants.” So long as the SFPUC has complied with its obligations described under “ - Sufficiency of Revenues” above and the first paragraph under this “ - Debt Service Coverage” subsection, the failure to yield the amount of Revenues as described under “- Sufficiency of Revenues” above, or the failure of Net Revenues to equal 1.25 times Annual Debt Service as set forth in the first paragraph under this “- Debt Service Coverage” subsection at the end of a Fiscal Year, will not constitute a default or an Event of Default under the Indenture so long as the SFPUC has complied with its obligations described under “ - Sufficiency of Revenues ” above and the first paragraph under this “ - Debt Service Coverage” subsection at the commencement of the succeeding Fiscal Year.
21 4151-5403-8838.1
“Annual Debt Service ” is defined in the Indenture as the sum of principal and interest on all Outstanding Bonds and Parity Loans as computed for the twelve -month period ending June 30 to which reference is made, and calculated by the SFPUC using the following assumptions:
(a) in determining the principal amount due for such twelve -month period ending June 30, payment will (unless a different subsection of this definition applies for purposes of determining principal maturities or amortization) be assumed to be made in accordance with the amortization schedule established for such debt, including any Minimum Sinking Fund Account Payments or any scheduled redemption or payment of Bonds on the basis of Accreted Value, and for such purpose, the redemption payment or payment of Accreted Value will be deemed a principal payment and interest that is compounded and paid as Accreted Value will be deemed due on the scheduled redemption or Payment Date of such Capital Appreciation Bond, but excluding Excluded Principal.
(b) if any Outstanding Bonds constitute Variable Rate Indebtedness, the interest rate will, as of the date of calculation, be: (i) the greater of (a) the average SIFMA rate over the past 3 years times 150% or (b) 4 percent or (ii) if, designated in writing by the SFPUC in the Supplemental Indenture authorizing such Bonds (which the SFPUC must certify, in the case of obligations interest on which is not excluded from gross income for federal income tax purposes under the Code), a fixed rate of interest reasonably determined by the SFPUC for obligations with similar duration, which interest rate has been certified by a Qualified Financial Advisor as reasonable concurrent with the execution and delivery of such Supplemental Indenture.
(c) if Defeasance Obligations have been deposited with and are held by the Trustee or another fiduciary to be used to pay principal and/or interest on specified Bonds, or any amounts have been deposited in the Interest Fund from the proceeds of any Series of Bonds or from any other source to pay interest on such Bonds, then the principal and/or interest to be paid from such Defeasance Obligations or from the earnings thereon, or from such amounts in the Interest Fund, shall be disregarded and not included in calculating Annual Debt Service.
(d) in determining the amount of interest coming due during any twelve -month period ending June 30 on any Series of Bonds that are issued as Build America Bonds or obligations issued under any future program similar to Build America Bonds, amounts equal to the Refundable Credits the SFPUC is scheduled to receive during each twelve-month period ending June 30 will be deducted from such interest.
See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” The SFPUC has determined that the principal of the 2021AB Notes will qualify as “Excluded Principal” under the Indenture. As a result of this determination, the principal of the 2021AB Notes will be excluded from the calculation of Annual Debt Service for purposes of the rate covenant described above and the requirements for issuing Additional Bonds under the Indenture. See “ - Debt Service Coverage,” “- Additional Series of Bonds – Indenture Requirements,” and “APPENDIX A – SUMMARY OF CERTAIN PROVISONS OF THE INDENTURE.’ Pursuant to Federal sequestration legislation passed by Congress in 2011 and 2013, Federal subsidy payments for direct pay bonds, including Build America Bonds, have been reduced (by formula) from the original funding subsidy level of 35% of interest costs on direct pay bonds, including Build America Bonds. The current sequestration reduction rate of the Federal subsidy payment for Build America Bonds is 5.7 %, which rate will remain in effect through September 30, 2030 unless changed by legislation ; refundable credits sought by the SFPUC for its Build America Bonds will be reduced by this percentage . This reduction will increase the SFPUC’s net interest cost. The SFPUC can give no assurance regarding the le vel of subsidy payments or changes in the sequestration rate, if any, in the future. In Fiscal Years 2019-20 and 2020-21, the SFPUC received approximately $ 3.5 million and $3.5 million, respectively in Refundable Credits for the Wastewater Enterprise.
22 4151-5403-8838.1
No Reserve Account for 2022ABCD Bonds
The Indenture requires that the Bond Reserve Fund be established with the Trustee and funded in an amount equal to the “Required Reserve,” if any, applicable to each series of Bonds . If the Required Reserve for a Series of Bonds is greater than zero, the Indenture requires the establishment of a bond reserve account (each, a “ Reserve Account”) within the Bond Reserve Fund for such Series of Bonds, and requires the deposit in that bond reserve account of an amount equal to the Required Reserve for the related Series of Bonds.
The Fourteenth Supplemental Indenture does not require the establishment of a Reserve Account for the 2022A Bonds or the 2022B Bonds and the Fifteenth Supplemental Indenture does not require the establishment of a Reserve Account for the 2022C Bonds or the 2022D Bonds . The Reserve Accounts established with respect to the 2010 Series B Bonds does not secure the 2022ABCD Bonds. No Reserve Account has been established with respect to the 2013 Series AB Bonds, the 2016 Series AB Bonds, the 2018 Series ABC Bonds, the 2021AB Notes or the 2021AB Bonds.
Additional Series of Bonds
The Charter and the Indenture authorize the issuance of Additional Bonds payable from Net Revenues on a parity with Outstanding Bonds and the 2022ABCD Bonds, upon satisfaction of the conditions set forth therein.
The SFPUC expects to issue Additional Bonds , which may includ e Bonds evidencing obligations to repay the WIFIA Lender in connection with additional WIFI A loans, to finance the costs of additional improvements included in the SSIP and other portions of the Wastewater Enterprise’s capital program. See “FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM” and “RISK FACTORS – Costs of the SSIP; Timely Completion of the SSIP.”
Charter Requirements. Under the Charter, the SFPUC may issue revenue bonds (including Additional Bonds) relating to the Wastewater Enterprise without voter approval in the following circumstances, among others:
(a) to issue revenue bonds (including Additional Bonds) approved by an affirmative vote of two- thirds of the members of the Board of Supervisors for the purpose of reconstructing, replacing, expanding, repairing or improving the Wastewater Enterprise;
(b) to issue bonds (including Additional Bonds) approved by an affirmative vote of three-fourths of the members of the Board of Supervisors if the bonds are to finance buildings, fixtures or equipment which are deemed necessary by the Board of Supervisors to comply with an order of a duly constituted state or federal authority having jurisdiction over the Wastewater Enterprise; and (c) to issue refunding bonds which are expected to result in net debt service savings to the City on a present value basis, calculated as described in the SFPUC ’s Debt Management Policies and Procedures.
The Charter also generally authorizes the SFPUC to issue revenue bonds upon the approval of a majority of the voters voting on the proposition at a general or special election.
Notwithstanding any other provision of the Charter or of any ordinance of the City, the Board of Supervisors may, in connection with the issuance of additional bonds as described under paragraph (a) above, take any and all actions necessary to authorize, issue and repay such bonds, including, but not limited to, modifying schedules of rates and charges to provide for the payment and retirement of such bonds, subject to the following conditions:
(1) Certification by an independent engineer retained by the SFPUC that:
(1) the projects to be financed by the additional b onds, including the prioritization, cost estimates and scheduling, meet utility standards; and
23 4151-5403-8838.1
(2) that estimated net revenue after payment of operating and maintenance expenses will be sufficient to meet debt service coverage and other indenture or resolution requirements, including debt service on the bonds to be issued, and estimated renewal and repl acement costs.
(2) Certification by the City Planning Department that facilities under the jurisdiction of the SFPUC funded with such Bonds will comply with applicable requirements of the California Environmental Quality Act (“CEQA”).
Indenture Requirements. The Indenture provides that Additional Bonds secured on a parity with the Bonds may be issued for any lawful purpose if no Event of Default has occurred and is continuing under the Indenture or any Supplemental Indenture and no event has occurred which, but for the passage of time or the giving of notice, would constitute an Event of Default under the Indenture or any Supplemental Indenture . Prior to the issuance of such Additional Bonds, the SFPUC is required to file with the Trustee, among other docu ments, the following:
(a) a Certificate of the SFPUC setting forth for each of the next three Fiscal Years estimates of (A) Revenues, (B) Operation and Maintenance Costs of the Enterprise and (3) Net Revenues; and (b) A Certificate of the SFPUC demonstrating that (1) the ratio of (A) Net Revenues for the most recent Fiscal Year for which audited financial statements are available, or any consecutive twelve calendar month period during the eighteen calendar month period prior to the issuance of such additional Series of Bonds, to (B) Annual Debt Service for the current Fiscal Year, calculated as of the date of sale of, and including such additional Series of Bonds, will not be less than 1.25:1; or (2) the ratio of (A) Net Revenues projected by the SFPUC for each of the next three Fiscal Years as determined in the Indenture, and including in such projections amounts projected to be received from any adopted rate increases and fund balances of the SFPUC which are projected to be available for the payment of Debt Service (but excluding the Bond Reserve Fund), to (B) Annual Debt Service in each of such three Fiscal Years, calculated as of the date of sale of and including such additional Series of Bonds, will not be less than 1.25:1 in each of such Fiscal Years.
See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – THE INDENTURE – DEFINITIONS; EQUAL SECURITY: CERTIFICATES AND OPINIONS ” and “– ISSUANCE OF ADDITIONAL SERIES OF BONDS.”
The Indenture provides the SFPUC with flexibility as to the nature and terms of any Additional Bonds issued with a lien and charge on Net Revenues on a parity with the Outstanding Bonds. Such Additional Bonds may: mature over any period of time; bear interest at a fixed, variable or zero rate; be in any denominations; be in any for m (including registered, coupon or book -entry); include or exclude redemption provisions; be subject to optional or mandatory tender for purchase; be sold at such price or prices; be further secured by any separate and additional security; and otherwise in clude such additional terms and provisions as the SFPUC may determine, consistent with the Indenture and applicable provisions of the Charter.
Additional Parity Loans
Pursuant to the Charter, the SFPUC can incur indebtedness, including additional State and federal loans, without voter approval, but subject to Board of Supervisors’ approval . In addition, the Indenture permits the SFPUC to enter into Parity Loans or loans on a subordinated lien basis relative to the Bonds, as determined by the SFPUC.
Under the Indenture, the SFPUC may only enter into additional Parity Loans if no Event of Default has occurred and is continuing under the Indenture or any Supplemental Indenture (and no event has occurred which, but for the passage of time or the giving of notice, would constitute an Event of Default under the Indenture or any Supplemental Indenture).
24 4151-5403-8838.1
In addition, in connection with the execution and delivery of such Parity Loans, the SFPUC is required to deliver a Certificate to the Trustee setting forth, for each of the next three Fiscal Years after the delivery of the Parity Loans:
(a) the Revenues and Operation and Maintenance Costs of the Wastewater Enterprise and Net Revenues; and
(b) the Annual Debt Service assuming delivery of the Parity Loans; demonstrating that the estimated Net Revenues (together with any fund balances of the SFPUC which are available for Debt Service, but excluding the Bond Reserve Fund), in each of such three Fiscal Years is at least equal to 1.25 times the Annual Debt Service.
Pursuant to the State’s Revolving Fund Loan program (the “SRF Loan Program”), the SFPUC has entered into seven State Revolving Fund Loans that fund certain capital projects of the Wastewater Enterprise (each an “SRF Loan”) with a maximum principal amount authorized to be disbursed thereunder of approximately $400.5 million.
The SFPUC plans to apply for additional SRF Loans over the next several years to obtain long -term financing for a portion of the SSIP. However, the SFPUC can give no assurance that it will receive additional SRF Loans. The SRF Loans constitute “Parity Loans” under the Indenture. The SFPUC may also enter into additional WIFIA loans constituting “Parity Loans.” See “OBLIGATIONS PAYABLE FROM NET REVENUES – Parity Loans ” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” Refunding Bonds
City Charter Requirements. The Charter allows refunding bonds to be issued without voter approval if such refunding results in net debt service savings on a present value basis, calculated as provided by ordinance .
Indenture Requirements. The Indenture provides that Additional Bonds may be issued to refund any Bonds without meeting the test for the issuance of Additional Bonds described above, if the SFPUC delivers to the Trustee (among other documents) a certificate of a Qualified Financial Advisor to the effect that after giving effect to the application of the proceeds of the additional Series of Bonds, either (i) Annual Debt Service will not be increased in any Fiscal Year (excluding Debt Service on the Outstanding Bonds to be refunded) in an amount in excess of 5% or (ii) the Average Annual Debt Service for the Bonds of such additional Series will be equal to or less than the Average Annual Debt Service on the Bonds to be refunded (during the period from the issuance of the additional Series to the last maturity date of the Outstanding Bonds to be refunded).
Subordinate Obligations; Obligations Not Payable from Revenues The Indenture permits the SFPUC to authorize and issue bonds, notes, warrants, certificates or other obligations or evidences of indebtedness, the principal of or interest on which would be payable either (i) from Net Revenues after and subordinate to the payment from Net Revenues of the principal of and interest on the Bonds, or (ii) from moneys which are not Revenues . The SFPUC may issue bonds or incur other indebtedness secured by a pledge of Net Revenues on a basis subordinate to the pledge thereof securing the Bonds without limitation.
Investments
The Indenture provides that moneys in all funds and accounts held by the Trustee under the Indenture shall be invested upon receipt in Permitted Investments as directed by the SFPUC and all accounts funds and accounts held by the Treasurer shall be invested in Legal Investments . “Legal Investments” means any bonds, notes, certificates of indebtedness, bills, acceptances or other securities in which the Treasurer may legally invest the SFPUC ’s funds.
For information regarding the investment of moneys held in the various funds and accounts of the SFPUC, see “FINANCIAL OPERATIONS
– Investment of SFPUC Funds.”
25 4151-5403-8838.1
OBLIGATIONS PAYABLE FROM NET REVENUES
Authority for Issuance of Revenue Bonds and Other Obligations Payable from Net Revenues The Charter authorizes the SFPUC to issue revenue bonds and commercial paper notes and to incur other obligations payable from or secured by a pledge of r evenues. The 2022ABCD Bonds are being issued pursuant to Ordinance No. 173-20, adopted by the Board of Supervisors on September 29, 2020, and under a resolution adopted by the Commission on ________, 2022. See “SECURITY FOR THE BONDS – Additional Series of Bonds,” “– Additional Parity Loans” and “– Refunding Bonds.”
Outstanding Parity Revenue Bonds
The following O utstanding Bonds have been issued pursuant to the Indenture and are secured by a parity pledge of Net Revenues on a parity with the 2022ABCD Bonds and the Parity Loans.
Series of Bonds Purpose
Original Principal
Amount
Principal Amount
Outstanding as of
April 2, 2022
2010 Series B Bonds(1) Finance and refinance SSIP and
other capital program costs
$ 192,515,000 $ 192,515,000
2013 Series A Bonds Refund 2003 Clean Water Bonds
and refund SRF Loans
193,400,000 15,535,000(2)
2013 Series B Bonds Finance and refinance SSIP and
other capital program costs
331,585,000 331,585,000(2)
2016 Series A Bonds Finance and refinance SSIP and
other capital program costs
240,580,000 240,580,000(3)
2016 Series B Bonds Finance and refinance capital
program costs
67,820,000 67,820,000(3)
2018 Series A Bonds Finance and refinance SSIP and
other capital program costs
229,050,000 229,050,000
2018 Series B Bonds Finance capital program costs
185,950,000 185,950,000
2018 Series C Bonds Finance SSIP and other capital
program costs
179,145,000 179,145,000
2021 Series A Notes Finance SSIP costs 218,355,000 218,355,000 2021 Series B Notes Finance SSIP costs 129,110,000 129,110,000 2021 Series A Bonds Finance SSIP costs 260,835,000 260,835,000 2021 Series B Bonds Finance capital program costs 37,045,000 37,045,000 Total: $2,265,390,000 $2,087,525,000
____________________
(1) Issued as Build America Bonds.
(2) All or a portion of such amount is expected to be refunded by the 2022AB Bonds. (3) All or a portion of such amount is expected to be refunded by the 2022CD Bonds.
The 2021A Notes mature on October 1, 2025 and the 2021 B Notes mature on October 1, 2026. Although the 2021A Notes and the 2021B Notes are secured by a pledge of Net Revenues of the Wastewater Enterprise, the SFPUC does not expect that Net Revenues will be sufficient to pay the principal of the 2021A Notes or the 2021B Notes at maturity. The SFPUC intends to pay interest on the 2021A Notes from Net Revenues of the Wastewater
26 4151-5403-8838.1
Enterprise and to pay principal of the 2021A Notes from the proceeds of one or more draws under the BDFP WIFIA Loan Agreement (as defined herein) or from the proceeds of additional notes, revenue bonds or other revenue secured obligations (referred to herein as the “Take-Out Obligations”) to be issued by the SFPUC on or prior to the maturity of the 2021A Notes and/or the 2021B Notes, as applicable. The SFPUC intends to pay interest on the 2021B Notes from Net Revenues of the Wastewater Enterprise and to pay principal of the 2021B Notes from the proceeds of one or more draws under the ST PI WIFIA Loan Agreement (as de fined herein) or from the proceeds of Take -Out Obligations. Disbursements under the BDFP WIFIA Loan Agreement and the STPI WIFIA Loan Agreement are subject to various conditions (as further described herein). If the SFPUC is unable to fully draw under the BDFP WIFIA Loan Agreement or the STPI WIFIA Loan Agreement or issue Take -Out Obligations, no assurance can be given that the SFPUC will have sufficient funds on hand to pay the principal of the 2021A Notes and/or the 2021B Notes on their maturity date. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Water Infrastructure Finance and Innovation Act Loans” and “RISK FACTORS – Access to Capital Markets.” Additional Bonds
General. The SFPUC intends to issue Additional Bonds under the Indenture to finance select capital program projects, including SSIP projects. See “WASTEWATER ENTERPRISE CAPITAL PROGRAM,” “ SEWER SYSTEM IMPROVEMENT PROGRAM ” and “FINANCING PLAN WASTEWATER ENTERPRISE CAPITAL PROGRAM.”
Parity Loans
The SFPUC has entered into seven Parity Loans with the State and plans to apply for additional Parity Loans with the State over the next several years to obtain long- term financing for a portion of the SSIP . Such Parity Loans are low-cost SRF Loans provided and administered by the State Water Resources Control Board on a project -by- project basis. The State’s current SRF Loan Program provides favorable terms to the SFPUC, including up to 30-year amortizing loan terms which commence one year following project completion, an interest rate on each SRF Loan that is equal to one-half of the true interest cost for the State of California’s most recent general obligation bond issue at the time such loan is entered into, and repayment of the SRF Loans on a parity with the Bonds rather than on a basis senior to the Bonds ( as had been the case in connection with certain loans entered into under the prior version of the program). The SRF Loan Program offers loans to applicant entities based on available moneys and placement on a statewide priority list. SRF Loan Program moneys are disbursed on a cost -incurred basis pursuant to disbursement requests submitted by the SFPUC under the SRF Loan documents. Although placement on the priority list is a necessary condition to receiving SRF Loan Program moneys, such placement does not create an obligation on the part of the applicant to accept SRF Loan Program moneys.
In connection with the SFPUC’s Wastewater Enterprise, the following table sets forth the SRF Loans that the SFPUC has entered into pursuant to the State’s SRF Loan Program, the SRF Loan commitment amount, the disbursement amount requested as of February 28, 2022, the interest rate, the estimated/actual project completion date and the estimated loan repayment commencement date.
27 4151-5403-8838.1
Project
SRF Loan
Commitment
Amount
Disbursement
Amount
Requested as of
February 28,
2022 (1)
Interest
Rate
Estimated/Actual
Project
Completion
Date(2)(3)
Estimated Loan
Repayment
Commencement
Date(2)(3)
Lake Merced Green
Infrastructure Project $ 7,435,000 $ 6,261,946 1.6% December 31, 2019 July 31, 2021 Southeast Treatment Plant
Primary/Secondary Clarifier
Upgrade Project 34,445,778 30,494,680 1.8 March 30, 2018 March 30, 2019 Southeast Treatment Plant
521/522 and Disinfection
Upgrade Project 40,006,740 39,777,650 1.8 July 18, 2019 July 18, 2020 North Point Facility Outfall
Rehabilitation Project 20,199,435 17,713,411 1.8 July 19, 2018 February 28, 2019 Southeast Water Pollution
Control Plant Biosolids
Digester Facilities Project 132,000,000 132,000,000 1.4 May 1, 2026 May 1, 2027 OSP Digester Gas Utilization
Upgrade Project 54,387,969 22,663,406 1.4 August 22, 2021 August 22, 2022 Southeast Plant New
Headworks (Grit)
Replacement 112,036,181 61,299,173 1.1 March 1, 2024 March 1, 2025 Total: $400,511,103 $310,210,266
____________________
(1) SRF Loan Program moneys are disbursed on a cost-incurred basis pursuant to disbursement requests submitted by the SFPUC. (2) SRF Loans amortize over a 30-year term commencing one year following completion of the project. The North Point Facility Outfall Rehabilitation Project was completed on July 19, 2018; however, loan repayment for such project commenced February 28, 2019.
(3) Actual project completion date as of February 28, 2022 , for the Lake Merced Green Infrastructure Project , Southeast Treatment Plant 521/522 and Disinfection Upgrade Project, Southeast Treatment Plant Primary/Secondary Clarifier Upgrade Project and North Point Facility Outfall Rehabilitation Project. Projected project completion date for the Southeast Water Pollution Control Plant Biosolids Digester Facilities Project, OSP Digester Gas Utilization Upgrade Project , and Southeast Plant New Headworks (Grit) Replacement.
The SFPUC is obligated to repay an SRF Loan only after it has submitted a disbursement request and received SRF Loan Program moneys from the State. As of February 28, 2022 , the SFPUC has received SRF Loan Program moneys for the Lake Merced Green Infrastructure Project SRF Loan in the approximate amount of $ 6.1 million, the North Point Facility Outfall Rehabilitation Project SRF Loan in the approximate amount of $ 17.7 million, the Southeast Treatment Plant Primary/Secondary Clarifier Upgrade Project in the amount of $29.2 million, the Southeast Treatment Plant 521/522 and Disinfection Upgrade Project in the amount of $39.7 million and the OSP Digester Gas Utilization Upgrade Project in the amount of $22 .4 million. Disbursement requests have not been submitted for the SEP Biosolids Digester Facilities project and the SEP New Headworks (Grit) Replacement project as of February 28, 2022.
The SFPUC had previously entered into 13 SRF Loans totaling an aggregate principal amount of $280 million during the period from 1991 to 2001 under the State’s original SRF Loan Program, including certain loans that were payable on a basis senior to repayment of the Bonds . As of February 2013, the SFPUC had paid in full all such prior SRF Loans.
The SFPUC has covenanted in the Twelfth Supplemental Indenture and the Thirteenth Supplemental Indenture not to enter into state loans payable on a basis senior to the Bonds.
28 4151-5403-8838.1
Water Infrastructure Finance and Innovation Act Loans
Biosolids Digester Facilities Project. In July 2018, the SFPUC entered into the WIFIA Loan Agreement, dated as of July 27, 2018 (the “ Original BDFP WIFIA Loan Agreement ”), with the United States Environmental Protection Agency (the “EPA”), acting by and through the Administrator of the EPA (the “WIFIA Lender”), pursuant to which the WIFIA Lender agreed to make a loan to the SFPUC in an amount not to exceed $699,242,023 to finance 49% of eligible costs of the $1.27 billion Biosolids Digester Facilities Project to be located at the Southeast Treatment Plant (the “BDFP WIFIA Loan”). The BDFP WIFIA Loan does not constitute a “Parity Loan” under the Indenture.
Instead, to evidence its repayment obligation pursuant to the BDFP WIFIA Loan to the EPA, the SFPUC issued a parity Bond under the Ninth Supplemental Indenture, dated as of July 27, 2018 (the “ Ninth Supplemental Indenture”), between the SFPUC and U.S. Bank Trust Company, National Association, as trustee. In June 2020, the SFPUC and the WIFIA Lender agreed to make administrative revisions to the Original BDFP WIFIA Loan Agreement and to enter into a new loan agreement (the “Revised BDFP WIFIA Loan Agreement”). The Original BDFP WIFIA Loan Agreement has been terminated and is no longer in full force and effect, and the Ninth Supplemental Indenture has been surrendered and cancelled by the SFPUC and the WIFIA Lender. Pursuant to the Revised BDFP WIFIA Loan Agreement, the BDFP WIFIA Loan bears interest at a fixed rate of 1.45% and will mature no later than April 1, 2059. To evidence its repayment obligation pursuant to the BDFP WIFIA Loan to the EPA, the SFPUC issued a parity Bond (the “BDFP Bond”) under the Eleventh Supplemental Indenture, dated as of June 12, 2020, between the SFPUC and U.S. Bank Trust Company, National Association, as trustee. The SFPUC has not yet drawn under the Revised BDFP WIFIA Loan Agreement and no principal amount of BDFP Bonds is currently outstanding.
No payment of principal or interest on the BDFP WIFIA Loan is anticipated to be made prior to April 1, 2026. Prior to April 1, 2026, interest on the BDFP WIFIA Loan is expected to accrete and will be added to the outstanding principal balance of the BDFP Bond. From April 1, 2026 through April 1, 2043, only interest is expected to be payable on the BDFP WIFIA Loan. Principal of the BDFP WIFIA Loan is expected to be amortized commencing on April 1, 2043 and to continue through the final maturity date of the BDFP WIFIA Loan .
Southeast Treatment Plant Improvements Project. In June 2020, the SFPUC entered into the WIFIA Loan Agreement, dated as of June 12, 2020 (the “ STPI WIFIA Loan Agreement ” and, together with the Revised BDFP WIFIA Loan Agreement , the “ WIFIA Loan Agreements ”), with the EPA, pursuant t o which the WIFIA Lender agreed to make a loan to the SFPUC in an amount not to exceed $513,861,981 to finance 49% of eligible costs of the $1.05 billion Southeast Treatment Plant Improvements Project (the “ STPI WIFIA Loan ” and, together with the BDFP WIFIA Loan, the “ WIFIA Loans”). Pursuant to the STPI WIFIA Loan Agreement , the STPI WIFIA Loan bears interest at a fixed rate of 1.45% and will mature no later than April 1, 2062. The STPI WIFIA Loan does not constitute a “Parity Loan” under the Indenture. Instead , to evidence its repayment obligation pursuant to the STPI WIFIA Loan to the EPA, the SFPUC issued a parity Bond (the “STPI Bond” and, together with the BDFP Bond, the “WIFIA Bonds”) under the Tenth Supplemental Indenture, dated as of June 12, 2020 between the SFPUC and U.S.
Bank Trust Company, National Association, as trustee. The SFPUC has not yet drawn on the STPI WIFIA Loan Agreement and no principal amount of STPI Bonds is currently outstanding.
No payment of principal or interest on the STPI WIFIA Loan is anticipated to be made prior to April 1, 2032.
Prior to April 1, 2032, interest on the STPI WIFIA Loan is expected to accrete and will be added to the outstanding principal balance of the STPI Bond. From April 1, 2032 through April 1, 2043, only interest is expected to be payable on the STPI WIFIA Loan . Principal of the STPI WIFIA Loan is expected to be amortized commencing on April 1, 2043 and to continue through the final maturity date of the STPI WIFIA Loan.
WIFIA Bonds. The WIFIA Bonds will be payable from and secured by a pledge of Net Revenues on a parity with the Bonds.
The WIFIA Loan Agreements permit the SFPUC to draw under the WIFIA Loans from time to time, provided that such loans must be disbursed no later than one year following the substantial completion date of each project (currently estimated to be May 1, 2024, for the Biosolids Digester Facilities Project, and July 26, 2027, for the Southeast Treatment Plant Improvements Project ). Each draw is subject to the satisfaction of conditions, including without limitation, the delivery to the EPA of financial projections evidencing that the SFPUC will be able to satisfy its rate covenant for the current fiscal year and each of the next 10 fiscal years.
29 4151-5403-8838.1
If an event of default occurs under a WIFIA Loan Agreement, the EPA may elect to suspend future disbursements of such WIFIA Loan, to terminate the capitalized interest period (thus causing interest to be payable on a current basis), to require the payment of a default interest r ate (equal to such WIFIA Loan rate plus 200 basis points) and to institute legal action to enforce the provisions of such WIFIA Loan Agreement. However, the EPA cannot take any action, in law or in equity, which would affect the application of the Net Revenues of the Wastewater Enterprise or to accelerate the payment obligations under such WIFIA Bond except pursuant to the EPA’s rights as a parity Bondholder under the Indenture.
No reserve account was established to secure the WIFIA Loans.
Conditions to D isbursements under WIFIA Loan Agreements. The ability of the SFPUC to obtain disbursements from the EPA under the WIFIA Loan Agreements is subject to several conditions, including the payment of certain fees, if applicable, and the delivery of certain documentation, including an updated financial plan, copies of financing and project documents, proof of insurance required under the respective WIFIA Loan Agreements and a requisition that contains certain representations of the SFPUC as of the disbursement date. The EPA is permitted refuse to disburse amounts under the WIFIA Loan Agreements if the SFPUC fails to expend the proceeds of the 2021A Notes or the 2021B Notes on eligible costs and to deliver the appropriate documentation in connection with such expenditures.
In addition, the EPA is permitted to refuse disbursement upon t he occurrence and continuance of certain events of default under the WIFIA Loan Agreement s or the occurrence and continuance of events that would be an event of default with the passage of time and/or giving of notice. Such events include, among others (i) failure of the SFPUC to diligently pursue work on the applicable p roject or to achieve substantial completion of the appl icable project by July 26, 2029; with respect to the STPI WIFIA Loan, or by May 1, 2026, with respect to the BDFP WIFIA Loan Agreement; (ii) a default by the SFPUC under any of the principal contracts relating to the applicable project and the SFPUC fails to cure the default or replace the contract; (iii) the occurrence of a Bankruptcy Related Event (as defined in the WIFIA Loan Agreement s) with respect to the counterparty to any of the principal contract s relating to the applicable project, unless such contract is replaced; (iv) abandonment of the applicable p roject by the SFPUC ; (v) failure of the SFPUC to operate the applicable p roject for a continuous period of at least 180 days unless the cessation in operations is excused pursuant to the respective WIFIA Loan Agreements; (vi) a covenant default under the respective WIFIA Loan Agreement s; (vii) misrepresentations made by the SFPUC under the respective WIFIA Loan Agreement s or a document delivered in connection with the respective WIFIA Loan Agreement s, ( viii) acceleration of parity debt or a default under documents relating to the SFPUC ’s parity debt ; (ix) one or more judgments for the payment of money that in the aggregate exceed $50 million or would cause a Material Adverse Effect (as defined under the WIFIA Loan Agreement s) are rendered against the SFPUC , and such judgment(s) are unpaid for a period of 30 consecutive days or for which an action has been legally taken by a judgment creditor to attach or levy upon the SFPUC’s assets for the enforcement of such judgment(s); (x) the SFPUC fails to maintain its existence; (xi) a Bankruptcy Related Event (as defined under the WIFIA Loan Agreements) with respect to the SFPUC occurs; (xii) the respective WIFIA Loans or documents related to the respective WIFIA Loans are no longer valid ; (xiii) failure to comply with the rate covenant set forth in the Indenture ; (xiv) failure by the SFPUC to construct the respective p rojects consistent with government approvals or good engineering practices or fail ure to comply with applicable federal or local law ; (xv) occurrence o f a Material Adverse Effect (as defined in the WIFIA Loan Agreement), or an event or condition that could reasonably be expected to result in a Mater ial Adverse Effect; or (xvi) failure to comply with certain other provisions of the WIFIA Loan Agreement (such as the maintenance of insurance).
Contingent Payment Obligations
The Wastewater Enterprise has no interest rate swaps, caps or hedges or other contingent payment obligations payable from Net Revenues. The Wastewater Enterprise may in the future, however, incur contingent payment obligations payable from Net Revenues. Such contingent payment obligations may be payable on a parity with the Bonds if the conditions for the issuance of parity debt under the Indenture are met . See “SECURITY FOR THE BONDS – Additional Series of Bonds; – Additional Parity Loans.”
30 4151-5403-8838.1
Subordinate Debt and Interim Funding Program
No Limits on Subordinate Debt . The SFPUC may issue bonds or incur other indebtedness secured by a pledge of Net Revenues on a basis subordinate to the pledge thereof securing the Bonds, without limitation.
Interim Funding Program. The SFPUC has established an Interim Funding Program (the “ Interim Funding Program”) (formerly known as the “Commercial Paper Program”) to fund construction costs relating to Wastewater Enterprise capital projects.
The Interim Funding Program is authorized for the Wastewater Enterprise in the amount of $750 million. Of this amount, $675 million is authorized for the SFPUC to issue commercial paper notes (the “Commercial Paper Notes”) secured by six bank credit facilities, as set forth below . The remaining $ 75 million of the Interim Funding Program is in the form of a bank revolving credit agreement with U.S. Bank Trust Company, National Association .
The revolving credit agreement permits the SFPUC to make draws directly on the bank, with the SFPUC’s payment obligation evidenced by a tax-exempt revolving note (the “Revolving Notes”).
The Commercial Paper Notes are secured by: (a) a Letter of Credit with Sumitomo Mitsui Bank ing Corporation, acting through its New York Branch, in the amount of $15 0 million and a stated expiration date of March 7, 2024; (b) a Letter of Credit of Credit with Bank of America, N.A. in the amount of $150 million and a stated expiration date of April 24, 2023, (c) a Revolving Credit and Term Loan Agreement with The Toronto- Dominion Bank, New York Branch, in the amount of $75 million and a stated expiration date of July 8, 2022; ( d) a Revolving Credit and Term Loan Agreement with State Street Bank and Trust Company in the amount of $200 million and a stated expiration date of October 13, 2023; and (e) a Letter of Credit with Sumitomo Mitsui Ban king Corporation, acting through its New York Branch, in the amount of $100 million and a stated expiration date of June 2, 2022. The Revolving Notes may be issued pursuant to a $75 million Revolving Credit and Term Loan Agreement with U.S.
Bank Trust Company, National Association [U.S. Bank National Association?] with a stated expiration date of July 18, 2024.
The Commercial Paper Notes and the Revolving Notes are payable from Net Revenues, and are secured on a parity lien basis with each other . The Commercial Paper Notes and the Revolving Notes, collectively, are secured on a basis subordinate to the payment of debt service on the Bonds, the Parity Loans and the WIFIA Bonds.
As of January 31, 2022, the SFPUC had approximately $299 million principal amount of Commercial Paper Notes outstanding and no outstanding principal balance on any of the Revolving Notes.
Other Subordinate Obligations Payable from Net Revenues The SFPUC completed the construction of a 13- story office building at 525 Golden Gate Avenue in San Francisco to house the administrative offices of the SFPUC ’s three utility enterprises and moved into the building in July 2012. Total project costs were approximately $202 million and were financed with land and property sale proceeds, fund balances, grants and the proceeds of certificates of participation (the “ 2009 Golden Gate COPs ”), representing interests in a City General Fund lease, executed and delivered in two series (one of which constitutes Build America Bonds) on October 7, 2009, in the aggregate principal amount of $167,670,000. Pursuant to a Memorandum of Understanding between the City and the SFPUC, the SFPUC will reimburse the City General Fund for all debt service in connection with this City financing (ne t of Refundable Credits received) . The final maturity date on the 2009 Golden Gate COPs is November 1, 2041. As of October 2, 2021, the principal amount outstanding of the 2009 Golden Gate COPs was $138,085,000. The SFPUC allocates such payment obligations internally among its three utility enterprises based on percentage usage. The Wastewater Enterprise is currently responsible for 18.88% of such obligations, payable from Net Revenues on a basis subordinate to the payment of principal of and interest on the Bonds.
Revenue Bond Oversight Committee
On November 5, 2002, the voters of the City adopted Proposition P, an ordinance that established the Public Utilities Revenue Bond Oversight Committee ( “RBOC”) to report publicly to the Mayor, the SFPUC and the Board
31 4151-5403-8838.1
of Supervisors regarding the expenditure of revenue bond proceeds on the repair, replacement, upgrading and expansion of the Wastewater Enterprise, the Water Enterprise, and the Power Enterprise (each as defined herein) .
The RBOC has seve n members appointed as follows: two by the Mayor, two by the Board of Supervisors, one by the City Controller, one by the Bay Area Water Users Association under the auspices of the Bay Area Water Supply and Conservation Agency. The seventh member is the City’s Budget Analyst or his or her representative. The work of the RBOC is funded by 1/20th of 1% of the gross bond proceeds of new money revenue bond issuances or sales to the extent permitted by law. The 2022ABCD Bonds are refunding bonds and will not provide RBOC funding.
The RBOC’s current term expires on January 1, 2025.
The RBOC may, by majority vote of all its members, prohibit the issuance or sale of authorized SFPUC revenue bonds which have yet to be issued or sold if, after reviewing materials provided by the SFPUC and conducting its own independent audit, and after consultation with the City Attorney, the RBOC determines that revenue bond proceeds have been or are being spent on purposes not authorized by the authorizing bond resolution or otherw ise in a manner amounting to an illegal expenditure or illegal waste of such revenue bond proceeds. The SFPUC may appeal such a decision to the Board of Supervisors within 30 days. The Board of Supervisors may overturn such a decision by the RBOC by a two -thirds vote of all members of the Board of Supervisors with evidence from the SFPUC of corrective measures satisfactory to the Board of Supervisors or may remand the decision to the RBOC for further consideration. To date, the RBOC has not prohibited the issuance or sale of any authorized SFPUC revenue bonds.
Debt Service Requirements
Set forth in the following table are debt service requirements for the Outstanding Bonds and the 2022ABCD Bonds assuming no early redemptions.
32 4151-5403-8838.1
DEBT SERVICE REQUIREMENTS ON
OUTSTANDING BONDS AND 2022ABCD BONDS
Fiscal
Year
(ending
June 30)
Outstanding
Bonds(1)(2)
Parity
Loans(3)
2022A Bonds 2022B Bonds 2022C Bonds 2022D Bonds
Total Bond
Debt
Service(4)
Total
Debt Service
including
Parity Loans(4)
2022A
Bonds
Interest
2022A
Bonds
Principal
2022B
Bonds
Interest
2022B
Bonds
Principal
2022C
Bonds
Interest
2022C
Bonds
Principal
2022D
Bonds
Interest
2022D
Bonds
Principal
2022 $87,911,325 $4,004,851
2023 100,315,222 4,004,851
2024 102,820,577 4,004,851
2025 114,316,577 4,004,851
2026 114,826,313 4,004,851
2027 112,984,068 4,004,851
2028 112,183,158 4,004,851
2029 112,018,848 4,004,851
2030 111,844,803 4,004,851
2031 111,664,793 4,004,851
2032 111,469,827 4,004,851
2033 111,263,233 4,004,851
2034 111,059,721 4,004,851
2035 110,840,077 4,004,851
2036 110,616,346 4,004,851
2037 110,383,102 4,004,851
2038 110,131,125 4,004,851
2039 109,869,514 4,004,851
2040 109,602,280 4,004,851
2041 109,329,781 4,004,851
2042 109,182,325 4,004,851
2043 109,188,350 4,004,851
2044 97,932,450 4,004,851
2045 97,931,675 4,004,851
2046 97,934,875 4,004,851
2047 97,929,600 4,004,851
2048 77,357,500 4,004,851
2049 77,361,650 1,979,553
2050 39,882,650 1,979,553
2051 39,886,775 265,078
2052 39,886,525 0
TOTAL(4) $3,069,925,063 $112,355,166
_______
(1) Includes the 2010 Series B Bonds, 2013 Series AB Bonds, the 2016 Series AB Bonds, the 2018 Series ABC Bonds, the Series 2021AB Bonds and interest on the 2021 Series AB Notes. [Assumes the 2018 Series C Bonds bear interest at a rate of 4% per annum after the Initial Term Rate Period.] Does not include debt service relating to the WIFIA Bonds, any Parity Loans, subordinate Commercial Paper Notes or Revolving Notes. Does not include principal on 2021AB Notes. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Parity Loans – Parity Loans” and “– Subordinate Debt and Commercial Paper.” (2) Calculation of interest due on Outstanding Bonds shown without an offset for Refundable Credits. (3) Does not include debt service relating to Parity Loans for which a payment schedule has not been established. (4) Totals may not add due to independent rounding.
33 4151-5403-8838.1
THE CITY AND COUNTY OF SAN FRANCISCO
THE FOLLOWING INFORMATION IS PROVIDED FOR CONVENIENCE ONLY. THE GENERAL
FUND OF THE CITY IS NOT LIABLE FOR THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE 2022ABCD BONDS, AND NEITHER THE CREDIT NOR THE TAXING POWER OF THE
CITY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE 2022ABCD BONDS. THE 2022ABCD BONDS ARE NOT SECURED BY A LEGAL OR EQUITABLE PLEDGE OF, OR CHARGE, LIEN, OR ENCUMBRANCE UPON, ANY OF THE PROPERTY OF THE CITY.
General. The City is the economic and cultural center of the San Francisco Bay Area and northern California.
The limits of the City encompass over 93 square miles, of which 49 square miles are land, with the balance consisting of tidelands and a portion of the San Francisco Bay (the “Bay”). The City is located at the northern tip of the San Francisco Peninsula, bounded by the Pacific O cean to the west, the Bay and the San Francisco -Oakland Bay Bridge to the east, the entrance to the Bay and the Golden Gate Bridge to the north, and San Mateo County to the south.
Silicon Valley is about a 40-minute drive to the south, and the Napa-Sonoma wine country is about an hour’s drive to the north. The City estimates the City’s population in fiscal year 2020- 21 was 851,916.
The San Francisco Bay Area consists of the nine counties contiguous to the Bay: Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano and Sonoma Counties (collectively, the “Bay Area”).
The economy of the Bay Area includes a wide range of industries, supplying local needs as well as the needs of national and international markets. Major business se ctors in the Bay Area include technology, retail, entertainment and the arts, conventions and tourism, service businesses, banking, professional and financial services, corporate headquarters, international and wholesale trade, multimedia and advertising, healthcare and higher education. The California State Supreme Court is also based in San Francisco.
The COVID- 19 pandemic is a significant development that materially adversely affected the City’s population, finances and outlook. Many aspects of the City’s finances and operations and the local economy have been and may continue to be materially adversely impacted by the COVID-19 pandemic. To date, City economic and tax revenue losses associated with the COVID-19 pandemic have been significant. While COVID-19 case rates have significantly declined, certain emergency orders have been lifted, and the national and local economy has been improving, the situation is still developing and the resulting impact on the City’s local economy, finances and operations remains unknown. The projections and other forward- looking statements in this Official Statement are based on current expectations and are not intended as representations of fact or guarantees of results. Any such forward-looking statements inherently are subject to a variety of risks and uncertainties that could cause actual results or performance to differ materially from those that have been forecast, estimated or projected.
The City has historically been a major convention and tourist destination. However, the COVID-19 pandemic has significantly adversely impacted, and may continue to adversely impact tourism and convention activities in the City. According to the San Francisco Travel Association, a nonprofit membership organization (“SFTA”), during the calendar year 2020, approximately 10.2 million tourists visited the City, with total spending estimated at $2.3 billion, including spending from meetings and conventions. In calendar year 2019, SFTA reports that approximately 26.2 million tourists visited the City, with total spending estimated at $10.2 billion, including spending from conventions, trade shows and group meetings.
The City is also a leading center for financial activity in the State. The headquarters of the Twelfth Federal Reserve District and the Eleventh District Federal Home Loan Bank are located in the City.
The City benefits from a highly skilled, educated and professional labor force. The City estimates the per - capita personal income of the City for fiscal year 2020- 21 was $173,097. The San Francisco Unified School District (“SFUSD”), which is a separate legal entity from the City, operates 64 elementary schools serving grades TK -5, 8 alternative configured schools serving grades TK -8, 13 middle schools serving grades 6 -8, 14 high schools serving grades 9 -12, 12 early education schools, 3 continuation/alternative schools, and 5 County and Court Schools in academic year 2021 -22. There are also 11 active charter schools authorized by SFUSD and operating within the boundaries of SFUSD. Higher education institutions located in the City include the University of San Francisco, California State University – San Francisco, University of California – San Francisco (a medical school and health science campus), UC Hastings Law, the University of the Pacific’s School of Dentistry, Golden Gate University, City
34 4151-5403-8838.1
College of San Francisco (a public community college), the San Francisco Art Institute, the San Francisco Conservatory of Music, and the Academy of Art University.
San Francisco International Ai rport (“SFO”), located 14 miles south of downtown San Francisco in an unincorporated area of San Mateo County, is owned by the City and is operated by the San Francisco Airport Commission (the “Airport Commission”), and is the principal commercial service airport for the Bay Area and one of the nation’s principal gateways for Pacific Rim traffic. In fiscal year 2020-21 SFO serviced approximately 13.7 million passengers (compared to approximately 40.5 million passengers in fiscal year 2019- 20 and 57 million passengers in fiscal year 2018-19) and handled 471,793 metric tons of cargo (compared to 490,073 metric tons in fiscal year 2019- 20 and 564,485 metric tons in fiscal year 2018- 19). The City is also served by the Bay Area Rapid Transit District (“BART,” an electric rail commuter service linking the City with the East Bay and the San Francisco Peninsula, including SFO), Caltrain (a conventional commuter rail line linking the City with the San Francisco Peninsula), and bus and ferry services between the City and residential areas to the north, east and south of the City. San Francisco Municipal Railway (“Muni”), operated by the San Francisco Municipal Transportation Agency (“SFMTA”), provides bus and streetcar service within the City. The Port of San Francisco (the “Port”), which administers 7.5 miles of Bay waterfront held in “public trust” by the Port on behalf of the people of the State, promotes a balance of maritime - related commerce, fishing, recreational, industrial and commercial activities, and natural resource protection.
Government. San Francisco is a city and county chartered pursuant to Article XI, Sections 3, 4, 5 and 6 of the Constitution of the State of California and is the only consolidated city and county in the State. Voters approved the City’s current Charter at the November 1995 election. The City is governed by a Board of Supervisors elected from 11 districts to serve four -year terms, and a Mayor who serves as chief executive officer, elected citywide to a four-year term. The City’s fina l adopted budget for fiscal years 2020 -21 and 2021-22 totals $13.6 billion and $12.4 billion, respectively. The General Fund portion of each year’s final adopted budget is $6.2 billion in fiscal year 2020- 21 and $5.8 billion in fiscal year 2021- 22, with th e balance allocated to all other funds, including enterprise fund departments, such as the Airport Commission, SFMTA, the Port Commission and the SFPUC. According to the City’s Treasurer and Tax Collector, at the start of fiscal year 2021 -22, total net assessed valuation of taxable property in the City was approximately $312 billion, which represents an increase of 3.5% over fiscal year 2020- 21.
THE PUBLIC UTILITIES COMMISSION
General
The SFPUC is a department of the City responsible for the maintenance, operation and development of three utility enterprises: the Wastewater Enterprise, the Water Enterprise and the Power Enterprise (which is a component of Hetch Hetchy Water and Power). The SFPUC’s enterprises are operated and managed as separate financial entities with separate enterprise funds.
• The Wastewater Enterprise provides wastewater and stormwater collection, treatment and disposal services for the City.
• The Water Enterprise provides drinking water to Retail Customers in the City, to certain Retail Customers outside the City and to Wholesale Customers in three other Bay Area counties (the “Water Enterprise”).
• Hetch Hetchy Water and Power operates dams (including O’Shaughnessy Dam), reservoirs (including Hetch Hetchy Reservoir), hydroelectric generati on and transmission facilities and water transmission facilities from Hetch Hetchy Valley to the connection with the Water Enterprise (collectively, the “Hetch Hetchy Project”). In addition, Hetch Hetchy Water and Power provides hydroelectric, solar and other power for municipal and public infrastructure, services and facilities (the “ Power Enterprise”). CleanPowerSF, managed by the Power Enterprise, is a Community Choice Aggregation program.
The revenues of the Water Enterprise , the Power Enterprise and Cl eanPowerSF are not available for payment of the principal of, premium, if any, or interest on the Bonds . See “SECURITY FOR THE BONDS – Pledge of Net Revenues.”
35 4151-5403-8838.1
Organization, Purposes and Powers
Wastewater Enterprise . The Wastewater Enterprise’s collection and treatment system consists of a combined sewer collection system conveying sewage and stormwater flows within the City to three water pollution control plants, also located within San Francisco . Treated effluent f lows are then discharged through deep- water outfalls into the San Francisco Bay and Pacific Ocean . The Wastewater Enterprise also currently provides sewage treatment service on Treasure Island pursuant to contract, and operates an onsite sewage and stormwater reclamation and treatment facility at the SFPUC headquarters at 525 Golden Gate Avenue, San Francisco, California. See “THE WASTEWATER ENTERPRISE.”
Water Enterprise. Nearly 2.7 million people rely on water supplied by the SFPUC to meet their daily water needs through its Water Enterprise. The SFPUC serves as the retail water supplier for the City and is responsible for water deliveries to residents and institutions within the City limits, as well as to a number of retail accounts outside of the City limits . In addition, the SFPUC sells water to 27 Wholesale Customer entities in San Mateo, Alameda and Santa Clara Counties under contractual agreements.
The revenues of the Water Enterprise are not “Revenues” under the Indenture and do not secure the payment of the principal of, premium, if any, or interest on the Bonds . See “SECURITY FOR THE BONDS - Pledge of Net Revenues.”
Hetch Hetchy – Water and Power Operations. Hetch Hetchy Water and Power operates the dams (among them O’Shaughnessy Dam being the largest), reservoirs (among them Hetch Hetchy Reservoir being the largest), hydroelectric generation and transmission facilities and water transmission facilities from Hetch Hetchy Valley to the connection with the Water Enterprise (collectively, the “ Hetch Hetchy Project ”), which provides water for distribution through the Water Enterprise and hydroelectric, solar and other power for municipal and public infrastructure, services and facilities of the City (the “ Power Enterprise”) . The Power Enterprise, which is a component of the Hetch Hetchy Project, was created in February 2005 as a separate system within Hetch Hetchy Water and Power . The Power Enterprise provides electric power to meet the municipal requirements of the City, including power to operate municipal streetcars and electric buses, street and traffic lights, municipal buildings and other City facilities, including SFO . Additionally, the Power Enterprise provides power to the Modesto Irrigation District and Turlock Irrigation District, located in the central valley of California, and to certain commercial customers consistent with prescribed contractual obligations and federal law and to certain retail customers in the City .
CleanPowerSF, managed by the Power Enterprise , is a Community Choice Aggregation program, pursuant to which the SFPUC pools the electricity demands of CleanPowerSF customers, including certain of the City’s residents and businesses, for the purpose of buying electricity on behalf of such customers. CleanPowerSF provides San Francisco with new clean energy alternatives at competitive rates.
In September 2019, in connection with the bankruptcy of Pacific Gas & Electric Company (“ PG&E”) and PG&E Corporation, the City submitted a non-binding indication of interest to pu rchase substantially all of PG&E’s electric distribution and transmission assets needed to provide retail electric service to all electricity customers within the geographic boundaries of San Francisco. PG&E emerged from bankruptcy on July 1, 2020. The City subsequently submitted a second non- binding indication of interest in September 2020. The City remains interested in acquiring these assets from PG&E, and on July 27, 2021, submitted a request to the California Public Utilities Commission to establish the value of PG&E’s assets the City intends to acquire. A transaction has not been consummated, and t he City and the SFPUC are unable to predict whether a transaction will be consummated or the final terms thereof if consummated.
The revenues of the Power Enterprise and the revenues of CleanPowerSF are not “Revenues” under the Indenture and do not secure the payment of the principal of, premium, if any, or interest on the Bonds . See “SECURITY FOR THE BONDS – Pledge of Net Revenues.”
Commission Members
Under the Charter, the SFPUC is given exclusive charge of the operation and management of all water, wastewater and municipal customers’ energy supplies and utilities of the City as well as the real, personal and financial assets under the SFPUC’s jurisdiction. The SFPUC is governed by the Commission.
36 4151-5403-8838.1
In June 2008, an initiative measure amended the Charter, changing the process for Commission appointments, and establishing qualifications for commissioners, as follows:
• The Commission consists of five members appointed by the Mayor, subject to confirmation by a majority of the Board of Supervisors.
• Seat 1 is designated for a member with experience in environmental policy and an understanding of environmental justice issues.
• Seat 2 is designated for a member with experience in ratepayer or consumer advocacy . • Seat 3 is designated for a member with experience in project finance. • Seat 4 is designated for a member with expertise in water systems, power systems, or public utility management.
• Seat 5 is designated for an at-large member.
• Members are appointed for four-year terms and are eligible for reappointment. • Members may be suspended by the Mayor and may be removed by a three-fourths vote of the Board of Supervisors for official misconduct.
The current members of the Commission and the appointment and expiration dates of their terms are:
Name and Title Seat Originally Appointed Term Expires
Anson Moran, President 4 July 15, 2009 August 1, 2022
Newsha Ajami, Vice President 5 February 4, 2021 August 1, 2024 Tim Paulson 3 April 29, 2019 August 1, 2024
Sophie Maxwell 2 April 29, 2019 August 1, 2022
Seat 1 is currently vacant.
Management
Management of the SFPUC is led by the General Manager. The General Manager is appointed by the Mayor from candidates submitted by the Commission . Once appointed by the Mayor, the General Manager serves at the pleasure of the Commission; however, the Commission also has Charter authority to employ the General Manager under an individual contract.
Brief biographies of the General Manager and principal members of the senior management of the SFPUC are set forth below.
Dennis J. Herrera . Dennis J. Herrera commence d serving as the General Manager of the SFPUC on November 1, 2021. Prior to his appointment, Mr. Herrera had been re -elected in November 2019 to a four-year term as City Attorney for the City and County of San Francisco. Mr. Herrera was first elected City Attorney in December 2001. Before becoming City Attorney, Mr. Herrera had been a partner in a private law firm and had served in the Clinton Administration as Chief of Staff of the U.S. Maritime Administration. He also served as president of the San Francisco Police Commission and was a member of the San Francisco Public Transportation Commission. Mr.
Herrera earned a B.A. from Villanova University and a J.D. from George Washington School of Law.
Michael Carlin . Michael Carlin is the SFPUC Deputy General Manager and Chief Operating Officer, reporting directly to the General Manager. He was appointed in 2009. As the Deputy General Manager and Chief Operating Officer, Mr. Carlin supervises the SFPUC’s efforts in cap ital planning, emergency response, asset management, and other functions across the three business lines – water, power and wastewater. Prior to this position, Mr. Carlin served as the Assistant General Manager for the Water Enterprise where he led the eff ort to diversify the
37 4151-5403-8838.1
water supply portfolio. He continues in that role leading many of the environmental initiatives including addressing the impact of climate change on the organization. Mr. Carlin joined the SFPUC in 1996 as the Water Resources Planning Manager where he led the effort to develop comprehensive capital plans. That effort led to the establishment and execution of the Water System Improvement Program. Prior to joining the City, Mr. Carlin worked for more than a decade at the San Francisco Bay Regional Water Quality Control Board where he was the Planning Chief. Mr. Carlin holds a B.A. in Biology from San Francisco State University and an M.P.A. with an emphasis in Environmental Management from Golden Gate University.
Gregory J. Norby. Gregory J. Norby was appointed in April 2018 to serve as Assistant General Manager of the Wastewater Enterprise, effective July 2, 2018. Mr. Norby has over 20 years of experience in private sector water infrastructure engineering and public utility management, most recently as General Manager of the Ross Valley Sanitary District. He also previously served as General Manager of the Mammoth Community Water District. He is a licensed professional engineer with a B.S. in Civil Engineering California State University, Chico, and an M.S. in Civil Engineering from Utah State University.
Masood Ordikhani. Masood Ordikhani serves as the Assistant General Manager, External Affairs and Chief Strategy Officer for the SFPUC. Previously, he served as the SFPUC’s first Chief Equity and Innovation Officer, leading the agency’s racial equity work. Prior to that role, he was the Director of Workforce and Economic Program Services within the SFPUC’s Infrastructure Division. During his tenure in that role, Mr. Ordikhani and his team have developed and delivered several nationally-recognized programs. Prior to joining the SFPUC, Mr. Ordikhani was the Deputy Director of the City’s Human Rights Commission. In addition, prior to his more than 14 years of public service, he was an attorney in private practice. He is a graduate of the University of California, Berkeley and the University of California, Hastings College of the Law.
Barbara Hale. Barbara Hale is Assistant General Manager of the Power Enterprise. Ms. Hale oversees the Power Enterprise, including Power Retail Services, Utilities Services, Regulatory Affairs, Infrastructure Development and Power Purchasing and Scheduling. She is responsible for the development of a strategic business plan for the organization, setting out priorities, objectives, schedules and policy issues. Ms. Hale oversees all power-related inter- governmental relations, works directly with the Commission on policy and capital matters, and provides direction and leadership to a multi-discipline staff at remote and downtown locations. Ms. Hale provides strategic advice on energy policy matters to the General Manager and manages a staff responsible for developing specific energy efficiency projects and renewable and other advanced sources of electrical generation. Ms. Hale also acts as liaison between the SFPUC and State and federal agencies responsible for energy policy, such as the California Public Utilities Commission, the California Energy Commission, the California Power Authority, the Federal Energy Regulator y Commission, and the United States Department of Energy. Ms. Hale graduated cum laude from San Francisco State University with a B.A. in Economics, receiving special recognition for high achievement with the Department Honors Award. Ms. Hale has pursued extensive graduate coursework in Applied Economics.
Alan Johanson. Alan Johanson is the Acting Assistant General Manager for Infrastructure, responsible for overseeing the administration, planning, design, and construction of the SFPUC water, wastewater, and power capital programs and projects, including the Water System Improvement Program, the Sewer System Improvement Program, the Hetch Hetchy Improvement Program, and the annual Water and Wastewater Renewal and Replacement Programs.
He is a licensed gener al building contractor and a licensed professional engineer with a B.A. in Anthropology from the University of Chicago and an M.S. in Civil Engineering from San Jose State University.
Steven R. Ritchie. Steven Ritchie is the Assistant General Manager of the Water Enterprise, responsible for overseeing water system operations and planning from the Hetch Hetchy Project through the Regional Water System to the City Distribution Division. He is also responsible for the management of the SFPUC’s lands and natur al resources. Mr. Ritchie was the Manager of Planning at the SFPUC from 1995 to 1998. Prior to his current assignment, he managed the South Bay Salt Pond Restoration Project, a multi -agency effort to restore 15,100 acres of valuable habitat in South San Francisco Bay, while providing for flood risk management and public access. In addition, Mr.
Ritchie has worked at management positions at the San Francisco Bay Regional Water Quality Control Board (1987- 1995), the CalFed Bay Delta Program (1998- 2000), and U RS consultants (2000- 2004). He has a B.S. and M.S. in Civil Engineering from Stanford University.
The position of Assistant General Manager, Business Services and Chief Financial Officer is currently vacant.
38 4151-5403-8838.1
Ongoing Investigation
On January 28, 2020, the City’s former Director of Public Works, Mohammad Nuru, was indicted on federal criminal charges of public corruption, including honest services wire fraud and lying to Federal Bureau of Investigation officials. Mr. Nuru resigned from employment with the City two weeks after his arrest.
On February 4, 2020, then- City Attorney Dennis Herrera and Controller Ben Rosenfield announced a joint investigation that was underway, stemming from federal criminal charges filed against Mr. Nuru. The City Attorney’s Office, in conjunction with the Controller’s Office, is seeking to identify officials, employees and contractors involved in schemes relating to Mr. Nuru or other related conduct, and to identify contracts, grants, gifts, and other government decisions possibly tainted by conflicts of interest and other legal or policy violations. On June 29, 2020, the Controller released its preliminary assessment of Citywide procurement practices, focused on City laws, practices and policies.
The preliminary assessment also included recommendations to make improvements on such City laws and policies to improve transparency and reduce the risk of loss and abuse in City contracting in the future. To date, the City Attorney’s investigation has led to the release of four City employees (including the Director of Public Works and the Director of Building Inspection) from their City positions. There can be no assurance regarding when the City’s investigation will be completed or what the outcome will be of such investigation.
In connection with the federal criminal charges, the U.S. Attorney’s Office issued a subpoena on June 15, 2020, for the SFPUC to produce certain documents, communications, contracts and records, including the complete personnel file of the SFPUC’s former General Manager, Harlan L. Kelly, Jr.
On November 30, 2020, Mr. Kelly was charged in a federal criminal complaint with one count of honest services wire fraud. The complaint alleges that Mr. Kelly engaged in a long -running bribery scheme and corrupt partnership with Walter Wong, a San Francisco construction company executive and permit expediting consultant, who ran or controlled multiple entities doing business with the City. The complaint further alleges that as part of the scheme, Mr. Wong provided items of value to Mr. Kelly in exchange for official acts by Mr. Kelly that benefited or attempted to benefit Mr. Wong’s business ventures. Earlier criminal charges filed against Mr. Wong alleged that Mr.
Wong conspired with multiple City officials, including Mr. Nuru, in a conspiracy and money laundering scheme. Mr.
Wong pled guilty in July 2020 and is cooperating with the ongoing federal investigation. Mr. Kelly resigned from employment with the City, effective November 30, 2020. The original federal criminal complaint was amended on October 19, 2021 to include additional charges of bank fraud and bank fraud conspiracy against Mr. Kelly and Victor Makras, a San Francisco real estate broker and property developer.
From November 30, 2020 through October 31, 2021, Michael Carlin, Deputy General Manager of the SFPUC, served as the Acting General Manager. In April 2021, Mayor London Breed nominated City Attorney Dennis Herrera to serve as the next General Manager of the SFPUC. On September 28, 2021, the Commission approved the appointment of City Attorney Herrera to serve as the SFPUC’s next General Manager. Mr. Herrera began serving on November 1, 2021.
The criminal investigation by the Federal Bureau of Investigation and the U.S. Attorney’s office is ongoing.
The City Attorney’s Office, together with the Controller’s Office, continues to pursue an internal investigation of City contracting policies and procedures originally initiated when federal charges filed against Mr. Nuru were announced in January 2020.
COVID-19 Pandemic
The outbreak of a highly transmissible strain of coronavirus (“COVID -19”) in 2020 spread to numerous countries across the globe, including the United States. The World Health Organization characterized the spread of COVID-19 as a pandemic, and states of emergency were declared in the United States, California and the City. The State and the City have, from time to time since March 2020, issued and revised directives for all people to stay at home except to meet essential needs or to work to provide essential services (“stay-at-home orders”). The Wastewater Enterprise continued to operate during the stay- at-home orders as an essential service and the City’s stay -at-home orders have not impaired the SFPUC’s ability to provide wastewater services to its customers. On June 15, 2021, all businesses and activities within the City were permitted to be reopened, as the State removed capacity limits and physical distancing requirements. Certain safety related requirements have subsequently been reint roduced and
39 4151-5403-8838.1
remain in effect. The SFPUC remains committed to ensuring safe operations, while continuing to follow local, state and federal health guidelines as they evolve.
Operations. The SFPUC has established and implemented programs, policies and protocols to help ensure the health and safety of its employees and to maintain its operations since March 2020, including but not limited to:
establishing enhanced cleaning and disinfecting procedures and social distancing protocols for all occupied SFPUC buildings, facilities and vehicles; mandating health screenings for, and providing personal protective equipment to, essential on-site staff; providing training and support to telecommuting staff to work remotely; and requiring public works construction contractors to submit health and safety plans addressing COVID -19 safety and protective work practices and inspecting worksites to ensure compliance with such plans.
Financial Impact
Decline in Water Usage. The responses of governmental entities, business and individuals to COVID -1 9 resulted in a moderate decline in water usage, which in turn has resulted in a moderate decline in Wastewater Enterprise Revenues . The impact on the water usage of particular Wastewater Enterprise customers varied considerably. Wa ter usage by residential customers was only modestly affected, for example, while monthly usage by commercial users were as much as 37% below pre -pandemic levels. Water usage has varied and has been influenced by other factors such as weather and seasonality, and has increased since May 2020. Retail w ater usage has not yet, however, risen to pre -pandemic levels, with aggregate retail water usage in June 2021 13% lower than pre-pandemic levels. Retail water usage for Fiscal Year 2019-20 was 1% lower and retail water usage for Fiscal Year 2020-21 was 11% lower than water usage for Fiscal Year 2018-2019. The SFPUC does not anticipate that water usage will return to pre -pandemic levels. The SFPUC expects, however, that water volume usage reductions related to pandemic impacts will have largely passed by Fiscal Year 2023-24.
Collections and Delinquencies. S ince March 2020, the number of delinquent SFPUC accounts, among residential customers in particular , has grown significantly. As of June 2021, Wastewater Enterprise customers with delinquent amounts for more than 90 days total ed approximately $8.1 million, including approximately $1.8 million in outstanding tax liens and balances forwarded to the City’s Bureau of Delinquent Revenue . In anticipation that an increased number of its customers would face financial challenges in paying their utility bills, the SFPUC developed a series of emergency response measures to provide relief to customers, including suspending wate r shutoffs due to late payments through June 2022 for nonresidential customers and July 2022 for certain residential customers , postponing liens and collections, waiving late fees and providing rental payment deferments for tenants of its facilities.
In addition, the SFPUC established its Temporary Emergency Customer Assistance for COVID -19 Relief Program (the “Customer Relief Pr ogram”) for account holders whose income has been impacted by COVID -19 or the City’s stay-at-home orders. The Customer Relief Program provides eligible residential and small business customers a 35 % utility bill credit for the Wastewater Enterprise. The Customer Relief Program is time -limited. Approximately $ 4.2 million in COVID-19 emergency discounts were provided to Wastewater Enterprise customers for Fiscal Year 2020-
21. These discounts were funded from various sources, including a transfer from the City’s General Fund and a variety of small sources of revenue, including customer donations and close-outs of unclaimed customer balances, to support more customers enrolled in the Customer Relief Program.
Operations and Maintenance Costs. C
OVID-19 has had a negative, although modest, impact on the operation and maintenance costs of the Wastew ater Enterprise. The direct impacts of COVID-19 on the operations and maintenance costs of the Wastewater Enterprise in Fiscal Year 2020 -21 were approximately $ 1.13 m illion of additional salary and fringe benefit expenses and approximately $541 ,500 for PPE supplies and other expenses. As of February 2022, th e Wastewater Enterprise has incurred approximately $189 ,000 of salary and fringe benefit expenses in Fiscal Year 2021-22 due to COVID-19 and such costs are expected to be lower than Fiscal Year 2020-21.
Financial Response. I mmediately after a State of Emergency was declared in San Francisco in March 2020, it was clear that significant changes to the budget would be needed to rebalance the budget based on reduced revenue projections and to respond to the crisis . The SFPUC formed a Financial Resiliency Team to respond to the financial impacts of the COVID-19 pandemic. This team worked quickly to rebalance the Fiscal Year 2019-20 budget as well as the Fiscal Year 2020-21 and Fiscal Year 2021-22 budgets in light of reduced revenue projections. While reserves were used as a strategy to rebalance the budget in response to COVID-19 related revenue shortfalls, the vast majority of the deficit was met through agency-wide expenditure reductions in order to protect reserves and maintain financial strength and sustainability in the face of continued uncertainty. The SFPUC has submitted several applications with
40 4151-5403-8838.1
the State for grant funds to fund a portion of customer arrearages, which will require customers to enter into payment plans with the SFPUC for balances due in order to use the grant funds.
Impact on Net Revenues. The Net Revenues of the Was tewater Enterprise have been influenced by a variety of factors, only some of which have been attributable to COVID -19. The overall Net Revenues of the Wastewater Enterprise, however, have declined since March 2020. Net Revenues in Fiscal Year 2018- 19, for example, were $150,365,000, Net Revenues in Fiscal Year 2019 -20 were $166,082,000 and Net Revenues for Fiscal Year 2020 -21 were $108,399,000. While sewer service revenues were impacted by decreases in sanitary flows (approximately 6% below budget in Fiscal Year 2020-21) as a result of COVID -19, these were mostly offset by previously adopted rate increases. Other factors affecting Net Revenues include a decrease in interest earnings and higher expenses from projects entering constructions in Fiscal Year 2020- 21. See “HISTORICAL OPERATING RESULTS.” On February 8, 2022, the SFPUC updated the 10-year financial plan projections and Fiscal Year 2022-23 and Fiscal Year 2023-24 budgets for the Water Enterprise, which incorporated macro economic recovery projections consistent with the City economist’s view. See “PROJECTED OPERATING RESULTS.” Other I mpacts . Although COVID-19 and the City’s stay-at-home orders have not had a materially adverse effect on the Wastewater Enterprise’s operations and finances in Fiscal Years 2019- 20 and 2020-21, the full impact of the pandemic is difficult to predict due to the evolving nature of COVID -19 and uncertainties relating thereto. In addition to certain direct impacts on the opera tions and finances of the Wa stewater Enterprise, COVID -19 has had significant and varied impacts on general economic activity at the local, national and global levels, including supply chain and labor market disruptions. Such disruptions have, among other effects, resulted in increases in materials, labor, transportation and other costs across a wide number of sectors, as well as delays in delivery of projects and equipment. For example, the W astewater Enterprise has experienced, and may in the future experience, increases in certain costs, such as for bulk chemical supplies, and delays in the delivery of equipment as a result of COVID -19’s disruption of supply chains. Additionally, such disruptions may result in schedule delays for the W astewater Enterprise’s capital projects or increased costs for such projects.
The full extent of the fiscal impacts of COVID-19 on the Wastewater Enterprise may depend on, among other things, (i) the extent of the disruption to or decline in the local and global economies and financial markets; (ii) the ramifications of future actions that may be taken or required by governmental authorities to contain and respond to the pandemic; and (iii) the speed of the recovery from the economic effects of the epidemic. If the COVID -19 pandemic and/or the economic recovery is prolonged, the likelihood or magnitude of potential adverse impacts to the Wastewater Enterprise’s finances or operations from the factors discussed herein or from other factors, could be increased. No assurances can be given that the Wastewater Enterprise’s financial results or operations will not be materially and adversely affected by the COVID-19 pandemic and its consequences in the future.
Employee Relations
San Francisco. The City’s budget for fiscal years 2020- 21 and 2021-22 included 38,267 and 38,308 full- time and part -time budgeted and funded City positions, respectively. City workers are represented by 37 different labor unions. The largest unions in the City include the International Federation of Professi onal and Technical Engineers, Local 21 (“IFPTE”), which represent Wastewater Enterprise employees.
Wages, hours and working conditions of City employees, including employees of the SFPUC, are determined by collective bargaining pursuant to State law (the Meyers-Milias-Brown Act, California Government Code Sections 3500-3511) and the City Charter. San Francisco is unusual among California’s cities and counties in that nearly all of its employees, including managerial and executive-level employees, are represented by labor organizations.
Further, the City Charter requires binding arbitration to resolve negotiations in the event of impasse. If impasse occurs, the parties are required to convene a tripartite arbitration panel, chaired by an impartial third -party arbitrator, which sets the disputed terms of the new agreement. The award of the arbitration panel is final and binding.
This process applies to almost all City employees. Since 1976, no City employees have participated in a union- authorized strike, which is prohibited by the City Charter. See “RISK FACTORS – Risks Related to Wastewater Enterprise Facilities and Operation – Labor Actions.”
The City’s employee selection procedures are established and maintained through a civil service system. In general, selection procedures and other merit system issues, with the exception of discipline, are not subject to
41 4151-5403-8838.1
arbitration. Disciplinary actions are generally subject to grievance arbitration, with the exception of sworn police officers and fire fighters.
In May 2019, the City negotiated three-year agreements (for fiscal years 2019-20 through 2021-22) with 27 labor unions, including IFPTE, Laborers Internationals, Local 261, which represent s Wastewater Enterprise employees. For fiscal year 2019-20, the parties agreed to wage increases of 3% on July 1, 2019 and 1% on December 28, 2019. For fiscal year 2020-21, the parties agreed to a wage increase schedule of 3% on July 1, 2020 and 0.5 % on December 26, 2020, with a provision to delay the fiscal year 2020- 21 adjustment by six months if the City’s deficit for fiscal year 2020-21, as projected in the March 2020 update to the five -year financial plan, exceeds $200 million.
Because the March 2020 update to the five-year financial plan projected a deficit for fiscal year 2020- 21 in excess of $200 million, the scheduled wage increases as described above were delayed by approximately six months. For fiscal year 2021-22, the parties agreed to a wage increase schedule of 3% on July 1, 2021 and 0.5% on January 8, 2022, with a provision to delay the fiscal year 2021- 22 increase by six months if the City’s deficit for fiscal year 2021- 22, as projected in the March 2021 update to the five -year financial plan, exceeds $200 million. Because the March 2021 update to the five-year financial plan did not project a $200 million deficit, the 3% and 0.5% wage increases for Fiscal Year 2021-22 occurred on schedule. Such higher labor costs were included in the budget for Fiscal Year 2021-22.
SFPUC. The SFPUC currently employs approximately 2, 300 of the City’s workers. The Charter governs the SFPUC’s employment policies and authorizes the San Francisco Civil Service Commission to establish rules and procedures to implement those policies. Of the 37 labor unions representing City workers more broadly, 1 3 presently represent SFPUC employees.
Over the next five years, approximately 40.9% of the SFPUC workforce agency -wide will be eligible for retirement. A new generation of jobs will require workers with specialized training, skills and experience, while local hiring requirements will need to be observed. The SFPUC’s 2020 Strategic Sustainability Plan includes an “effective workforce” goal, which focuses on a number of workforce development and sustainabi lity initiatives. The SFPUC also provides ethics training, diversity training, management training, environmental management system training, as well as fraud prevention and awareness training.
The following table summarizes the number of SFPUC and Wastewater Enterprise employees covered by a memorandum of understanding (similar to a collective bargaining agreement), each of which expire on June 30, 2022.
42 4151-5403-8838.1
TABLE 1
WASTEWATER ENTERPRISE
MEMORANDA OF UNDERSTANDING
Employee Bargaining Unit
SFPUC
Full-Time
Equivalent
Employment(1)
Wastewater
Enterprise
Full-Time
Equivalent
Employment(1)
International Association of Machinists, Lodge 1414 55 5 Carpenters, Local 22 21 3
International Brotherhood of Electrical Workers, Local 6 134 23 Laborers, Local 261 163 36
Municipal Executives Association 190 18
Operating Engineers, Local 3 25 1
Plumbers, Local 38 239 36
International Federation of Professional and Technical Engineers, Local 21 1,069 175 Service Employees International Union, Local 790 349 44 San Francisco City Workers United 14 5
Stationary Engineers, Local 39 306 190
Teamsters, Local 853 36 13
Transport Workers Union Local 250-A, Automotive Service Workers 6 1 Unrepresented Employees(2) 1 0
Total 2,608 551
____________________
(1) Represents budgeted numbers as of July 1, 2021, which remained in effect until the City’s fiscal year 2020 -21 and fiscal year 2021-22 budget adopted on October 1, 2020. Actual full -time equivalent employment totals will differ from the number of positions budgeted by the SFPUC for a variety of reasons, including certain requirements in the respective memoranda of understanding (similar to collective bargaining agreements). See “FINANCIAL OPERATIONS – General – City Budget Process.
(2) Not covered by a memorandum of understanding (similar to a collective bargaining agreement).
Source: SFPUC Human Resource Services.
The SFPUC is in the process of negotiating new Memoranda of Understanding. Successor Memoranda of Understanding are required to be filed with the Board of Supervisors by May 15, 2022 for approval by June 30, 2022.
Employee Benefit Plans
Retirement System Plan Description. The San Francisco City and County Employees’ Retirement System (the “Retirement System ” or “ SFERS”) is charged with administering a defined- benefit pension plan that covers substantially all City employees, including SFPUC employees, and certain other employees. The Retirement System was initially established by approval of City voters on November 2, 1920 and the State Legislature on January 12, 1921, and is currently codified in the Charter. The Charter provisions governing the Retirement System may be revised only by a Charter amendment, which requires an affirmative public vote at a duly called election. The Retirement System is administered by the Retirement Board. The Pla n provides basic service retirement, disability and death benefits based on specified percentages of final average salary and provides cost -of-living adjustments after retirement. The Plan also provides pension continuation benefits to qualified survivors .
Funding Practices. Employer and employee (member) contributions are mandated by the Charter.
Sponsoring employers, including the SFPUC, are required to contribute 100% of the actuarially determined contribution approved by the Retirement Board. The Charter specifies that employer contributions consist of the normal cost (the present value of the benefits that SFERS expects to become payable in the future attributable to a current year’s employment) plus an amortization of the unfunded liability over a pe riod not to exceed 20 years. The Retirement Board sets the funding policy subject to the Charter requirements.
43 4151-5403-8838.1
The Retirement Board adopts the economic and demographic assumptions used in the annual valuations.
Demographic assumptions such as retirement, termination and disability rates are based upon periodic demographic studies performed by the consulting actuarial firm approximately every five years. Economic assumptions are reviewed each year by the Retirement Board after receiving an economic experien ce analysis from the consulting actuarial firm.
At the December 9, 2020 Retirement Board meeting, the Retirement Board adopted all recommended demographic assumptions from the experience study dated August 12, 2020, including, among others, updates to public plan mortality tables, lower price and wage inflation rates, from 2.75% to 2.50% and from 3.50% to 3.25%, respectively, effective for the July 1, 2020 actuarial valuation. The Retirement Board had previously voted to lower the assumed long-term investment earnings assumption from 7.50% to 7.40% at its November 2018 meeting, effective for the July 1, 2018 actuarial valuation.
While employee contribution rates are mandated by the Charter, sources of payment of employee contributions may be the subject of collective bargaining agreements with each union or bargaining unit. Since July 1, 2011, substantially all employee groups have agreed through collective bargaining for employees to contribute all employee contributions through pre-tax payroll deductions.
The following table shows total Retirement System liabilities, assets and percent funded for the last four actuarial valuations with respect to all C ity employees, as well as contributions for the fiscal years 2016-17 through 2020-21.
TABLE 2
CITY AND COUNTY OF SAN FRANCISCO
EMPLOYEES’ RETIREMENT SYSTEM
FISCAL YEARS 2016-17 THROUGH 2020-21
(IN THOUSANDS)
As of
Ju
ly
1st
Actuarial
Liability
Market
Value of
Assets
Actuarial
Value of
Assets
Market
Percent
Funded
Actuarial
Percent
Funded
Employee
and
Employer
Contribution
in Prior
Fiscal Year
Employer
Contribution
Rates in
Prior Fiscal
Year(1)
2017 $25,706,090 $22,410,350 $22,185,244 87.2% 86.3% $ 868,653 21.40% 2018 27,335,417 24,557,966 23,866,028 89.8 87.3 983,763 23.46 2019 28,798,581 26,078,649 25,247,549 90.6 87.7 1,026,036 23.31 2020 29,499,918 26,620,218 26,695,844 90.2 90.5 1,143,634 25.19 2021 31,905,275 35,673,834 30,043,222 111.8 94.2 1,245,957 26.90 ____________________
(1) Employer contribution rates are shown before required employer/employee cost-sharing provisions. Employer contribution rates for fiscal years 2020-21 and 2021-22 are 26.90% and 24.41%, respectively.
Source: SFERS Actuarial Valuation reports as of July 1, 2017, July 1, 2018, July 1, 2019, July 1, 2020 and July 1, 2021.
Note: Information above reflects entire Retirement System, not just the City and County of San Francisco.
The City’s net pension liability was approximately $5.3 billion for Fiscal Year 2020-21. The amount allocable to the Wastewater Enterprise, as of June 30, 2021, was approximately $103.7 million.
The SFPUC is required to contribute at an actuarially determined rate and allocates the applicable portions of such contribution to the separate e nterprises, including the Wastewater Enterprise. For Fiscal Years 201 6-17 through 2020 -21, the SFPUC’s employee contribution rates varied from 7.5% to 13 .0% as a percentage of gross covered salary. For Fiscal Years 201 6-17 through 2021-22, the Wastewater Enterprise has paid 100% of its required contributions. The contributions by the Wastewater Enterprise required for Fiscal Years 2016-17 through 2020-21 are summarized in the following table:
44 4151-5403-8838.1
TABLE 3
WASTEWATER ENTERPRISE RETIREMENT SYSTEM CONTRIBUTION
FISCAL YEARS 2016-17 THROUGH 2020-21
(IN THOUSANDS)
Fiscal Year
Employer
Contribution
Rates
Wastewater
Enterprise
Contribution
2016-17 21.4% $11,270
2017-18 23.5 12,523
2018-19 23.3 12,816
2019-20 25.2 14,352
2020-21 26.9 16,083
_______________
Source: SFERS Actuarial Valuation reports as of July 1, 2018, July 1, 2019, July 1, 2020 and July 1, 2021, and SFPUC audited financial statements.
Plan Financial Reports and Funded Status. The Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for the Plan. That report may be obtained by writing to the San Francisco City and County Employees’ Retirement System, 1145 Market Street, 5th Floor, San Francisco, CA 94103, or by calling (415) 487-7000.
Health Care Benefits. The SFPUC participates in the City’s agent multiple employer defined benefit plan, which operates as a cost -sharing multiple employer defined benefit plan for the SFPUC (the “OPEB Plan ”). The OPEB Plan is maintained by the City and is administered through the City’s Health Service System and provides postemployment medical, dental and vision insurance benefits to eligible employees, retired employees, and surviving spouses. Health benefit provisions are established and may be amended through negotiations between the City and the respective bargaining units. The City does not issue a separate report on its other post -employment benefit plan.
As prescribed under GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, net OPEB liability, deferred outflows/inflows of resources related to OPEB, and OPEB expense are actuarially determined on a citywide basis. Net OPEB liability is measured as the portion of the present value of projected benefit payments to be provided to current active and inactive employees attributed to those employees’ past service, less the amount of the Retiree Healthcare Trust Fund investments measured at fair value.
The provisions of GASB Statement No. 75 are effective for the Wastewater Enterprise beginning in Fiscal Year 2017-18. The following table shows the components of the City’s annual OPEB allocations for the Wastewater Enterprise for Fiscal Years 2018-19 through 2020-21, for the amount contributed to the plan, and changes in the City’s net OPEB obligation:
TABLE 4
ANNUAL OPEB OBLIGATION
FOR FISCAL YEARS 2018-19 TO 2020-21
(IN THOUSANDS)
2018-19 2019-20 2020-21
City’s reported net OPEB liabilities $3,600,967 $3,915,815 $3,823,336 Wastewater Enterprise’s proportionate share of City’s
contribution 3,252 3,506 3,263
Wastewater Enterprise’s proportionate share of City’s OPEB liability 53,567 58,183 50,711
_______________
Source: SFPUC
The City’s OPEB net position liability was approximately $3.8 billion for Fiscal Year 2020-21. The amount allocable to the Wastewater Enterprise, as of June 30, 2021, was approximately $50.7 million.
45 4151-5403-8838.1
The City issues a publicly available financial report on a City-wide level that includes the complete note disclosures and required supplementary information related to the City’s post-retirement health care obligations. The report may be obtained by writing to the City and County of San Francisco, Office of the Controller, 1 Dr. Carlton B.
Goodlett Place, Room 316, San Francisco, CA 94102, or by calling (415) 554-7500.
Pension and Health Care Cost Reforms. Voters implemented City employee pension and health care cost reforms to help mitigate future cost increases. These include the following propositions:
Proposition B. Proposition B was a Charter amendment approved by voters in June 2008 that increased the years of service required to qualify for employer- funded retiree health benefits for City employees who retire under SFERS and were hired on or after January 10, 2009. Previously, employees became eligible to participate in the retirement health care system after five years of service and the employer paid 100% of the contribution. Beginning with employees hired on or after January 10, 2009, employees remain eligibl e to participate in the retirement health care system after five years of service, however, no employer contributions are required until 10 years of service.
From 10 to 15 years of service, employers pay 50% of the contribution, from 15 to 20 years of service 75%, and for employees with 20 years or more of service, 100%.
Proposition B also established a health care trust fund to pay for future costs related to retiree health care.
E
mployees hired on or after January 10, 2009, contribute up to 2% of their pre- tax pay, with employers contributing an additional 1%, to the health care trust fund. Proposition B also increased maximum pension benefits for employees retiring at and after age 60 and enhances cost of living increases for pensions.
Proposition C.
Proposition C was a Charter amendment approved by voters in November 2011 that changed the way the City and current and future employees share in funding SFERS pension and health benefits.
With regard to pension benefits, the base employee contribution rate remains at 7.5% for most employees w
hen the City contribution rate is between 11% and 12% of City payroll. Employees making at least $50,000 will pay an additional amount up to 6% of compensation when the City contribution rate is over 12% of City payroll. When the City contribution rate falls below 11%, employee contributions will be decreased proportionately.
Proposition C creates new retirement plans for employees hired on or after January 7, 2012 that: (1) for miscellaneous employees, increased the mini mum retirement age to 53 with 20 years of service or 60 with 10 years; (2) for safety employees, kept the minimum retirement age at 50 with five years of service, but increased the age for maximum benefits to 58; (3) for all employees, limited covered compensation, calculated final compensation from a three year average, and changed the multipliers used to calculate pension benefits; and (4) for miscellaneous employees, raised the age of eligibility to receive vesting allowance to 53 and reduced by half the City’s contribution to vesting allowances.
With regard to health benefits, elected officials and employees hired on or before January 9, 2009, contribute up to 1% of compensation toward their retiree health care, with matching contribution by the City. For employees or elected officials who left the City workforce before June 30, 2001, and retire after January 6, 2012, Proposition C requires that the City contributions toward retiree health benefits remain at the same levels they were when the employee left the City workforce.
Proposition C also limits cost of living adjustments for SFERS retirees; however, in 2015, the Court of Appeals held in a suit against the City brought by a retiree organization, Protect Our Benefits v. City and County of San Francisco, 235 Cal. App. 4th 619 (2015) that certain changes to payment of supplemental cost of living allowances imposed by Proposition C could not be applied to current City employees and those who retired after November 1996 when the supplemental cost of living allowance provisions were originally adopted, but could be applied to SFERS members who retired before November 1996. This decision is now final and its implementation increased the July 1, 2016 unfunded actuarial liability by $429.3 million for Supplemental COLAs granted retroactive to July 1, 2013 and July 1, 2014.
On July 13, 2016, the Retirement Board adopted a resolution to exempt members who retired before November 6, 1996, from the “fully funded” provision related to payment of Supplemental COLAs under Proposition C. The resolution directed that retroactive payments for Supplemental COLAs be made to these retirees. After the Retirement Board adopted said resolution, the Retirement System published an actuarial study on the cost to the fund
46 4151-5403-8838.1
of payments to the pre ‐1996 retirees. The study reports that the two retroactive supplemental payments will trigger immediate payments of $34 million, create additional liability for continuing payments of $114 million, and cause a new unfunded liability of $148 million. This liability does not include the Supplemental COLA payments that may be triggered in the future. Under the cost sharing formulas in Proposition C, the City and its employees will pay for these costs in the form of higher yearly contribution rates. The City Controller has projected the future cost to the City and its employees to be $260 million, with over $200 million to be paid in the next five fiscal years. The City obtained a permanent injunction to prevent SFERS from making Supplemental COLA payments to these membe rs who retired before November 6, 1996. The Superior Court’s injunction was affirmed by the Court of Appeal.
THE WASTEWATER ENTERPRISE
Background and History
Initial development of the City’s combined system dates back to the second half of the 19th centur y. In accordance with common engineering practice of that period, the combined system collected both sewage and stormwater runoff and transported them to a large number of discharge points on the shoreline of San Francisco Bay.
Now all municipal wastewater treatment providers nationally are required to provide some level of urban stormwater treatment.
Today, the Wastewater Enterprise provides sewage and stormwater collection, treatment and disposal services through the operation of combined sewage and stormwater system. The Wastewater Enterprise provides such sanitary wastewater and stormwater services across eight distinct urban watersheds, with the Southeast Treatment Plant (defined herein) providing all -weather wastewater treatment and the North Point Facility (defined herein) providing wet-weather treatment, serving the North Shore, Channel, Islais, Sunnydale, and Yosemite urban watersheds with effluent outfalls to the San Francisco Bay (the “ Bayside Watersheds”), and the Oceanside Treatment Plant (defined herein) providing all -weather wastewater treatment serving the Richmond, Sunset, and Lake Merced urban watersheds with an effluent outfall to the Pacific Ocean (the “Westside Watersheds ”).
Of an estimated total combined wastewater flow of 40 billion gallons per year throughout the entire system, aggregating both watersheds, approximately 34 billion gallons per year receive full secondary treatment, 4.5 billion gallons per year receive primary or decant treatment and are discharged to deep-water outfalls, and 1.5 billion gallons per year receive the equivalent to wet weather primary treatment and are discharged through nearshore outfalls .
In separate sewer areas of San Francisco , new multi- phase revitalization projects such as Mission Bay, Treasure Island and the Hunter’s Point Naval Shipyard are implementing green infrastructure or low -impact design elements that allow for the treatment of stormwater by natural techniques such as vegetated swales, infiltration and other approved methods prior to discharge into the receiving waters.
The Wastewater Enterprise was operated by the City’s Department of Public Works until July 1996, when then Mayor Willie Brown Jr. transferred its operation to the SFPUC.
Service Area
The service area of the Wastewater E nterprise encompasses approximately 29,773 acres and includes residents of San Francisco and of northern San Mateo County through arrangements with three municipal sewer service providers: North San Mateo County Sanitation District, the Bayshore Sanitary District and the City of Brisbane (collectively, the “ Municipal Customers”). The SFPUC also currently provides wastewater treatment service on Treasure Island and Yerba Buena Island pursuant to contract, and expects eventually to expand its service area to include Treasure Island . See “
– Wastewater Treatment – Contract Services,” “WASTEWATER ENTERPRISE CAPITAL PROGRAM – Treasure Island” and “FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM.”
The Wastewater Enterprise serves residential, commercial and industrial users, making up a daytime “population equivalent” of approximately 1.1 million in 2019. The United States Census Bureau estimates of the total daytime and nighttime populations of the City from calendar years 2015 to 2019 (most recent data available) are reflected in the table below.
47 4151-5403-8838.1
TABLE 5
CITY AND COUNTY OF SAN FRANCISCO POPULATION
CALENDAR YEARS 2015 TO 2019
2015 2016 2017 2018 2019
Daytime(1) 1,081,092 1,121,225 1,125,330 1,132,295 1,150,041 Nighttime 864,816 870,887 884,363 883,305 881,549
____________________
(1) Includes the estimated number of people who work, but do not live, within the City.
Source: United States Census Bureau, American Community Survey.
Customer Base
As of June 30, 2021, the SFPUC has 174,352 active retail wastewater accounts . Of these, approximately 85% are residential accounts, with the remainder being commercial, industrial, or municipal . Major non- residential customer categories include retail, offices, restaurants, and services, which together account for approximately 9% of all customers. The remaining accounts are primarily accounts associated with fire suppression water accounts. The total number of customer accounts has increased by a total of 6. 6% sinc e Fiscal Year 20 15-16. Although San Francisco’s population is generally increasing, the SFPUC anticipates similarly modest growth in the total number of customer accounts over the next several years, as the majority of new customer accounts opened in San Francisco are for urban infill construction replacing previously-existing buildings and the SFPUC’s multifamily residential accounts comprise multiple dwelling units. In addition to its retail customers, the SFPUC provides wholesale sewage treatment services to three customers located in northern San Mateo County, and operates wastewater treatment facilities on Treasure Island and Yerba Buena Island. See “– Wastewater Treatment – Contract Services.” The following table sets forth a five -year history of the number of customer accounts served by the Wastewater Enterprise, grouped by user type.
TABLE 6
SUMMARY OF ACTIVE SEWER ACCOUNTS BY USER TYPE
FISCAL YEARS 2016-17 TO 2020-21
User Type 2016-17 2017-18 2018-19 2019-20 2020-21
Multi-Family Residential(1) 36,323 36,326 36,387 36,467 36,528 Single-Family Residential 111,268 111,385 111,681 111,869 111,398 Subtotal Residential 147,591 147,711 148,068 148,336 147,926
Commercial(1) 15,388 15,494 24,802 24,721 24,937
Municipal Customers 751 763 772 1,150 1,182
Unmetered Properties 0 0 306 302 300
Suburban (watershed keepers)(2) 8 8 8 7 7
Total 163,738 163,979 173,956 174,516 174,352
____________________
(1) Includes Presidio Trust Wastewater Accounts, which consist of one multi-family residential, one mixed -use (residential and commercial), and three commercial customer accounts. Large increase in commercial customers in fiscal year 2019 is due to new requirements that all water accounts for fire-fighting purposes have a corresponding sewer account. (2) In addition to suburban customers, service is provided to North San Mateo County Sanitation District, Bayshore Sanitary District and the City of Brisbane.
Source: SFPUC.
Separate rate schedules apply to single- family residential, multi- family residential, and non- residential customers. See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges.” Combined Sewage and Stormwater System
History and Background Regarding Combined System. On average, over three quarters of San Francisco’s annual rainfall occurs between November and March . Depending on the duration, intensity and storm pattern,
48 4151-5403-8838.1
combined flows of sewage and stormwater can exceed the collection and treatment system hydraulic capacity, resulting in combined sewer discharges.
To reduce the number and volume of combined sewer discharges during wet-weather events, the City built a series of large underground transport/storage structures (box sewers and tunnels) around the perimeter of San Francisco to intercept, temporarily store and transport the mixture of storm runoff and sewage to new or upgraded treatment facilities. When the storage capacity of transport/storage structures and the wet weather capacity of their associated treatment plants are exceeded during large storms, combined wastewater is discharged through one or more combined sewer discharge outfalls. The Oceanside system has 7 combined sewer discharge outfalls to the Pacific Ocean, and the Bayside system has 29 combined sewer discharge outfalls to San Francisco Bay. The primary purpose of this system is to maximize treatment and discharge at the wastewater treatment plants and minimize the incidence and volume of discharge from the combined sewer outfall.
With these improvements, the fa cilities of the Wastewater Enterprise are designed to minimize the number of wet-weather combined sewer discharge events. In all methods of discharge, the combined wastewater receives the level of treatment prescribed by federal and state law.
Sewer Lines. The Wastewater Enterprise’s collection and transport system currently has a storage capacity of approximately 200 million gallons, and includes approximately 1,011 miles of sewer lines of which 802 miles is made up of collecting sewers of 36 inches or less in diameter.
TABLE 7
SEWER SYSTEM BY PIPE LENGTH IN MILES AND AGE
Year Built
Gravity Pipe
≤ 36” Diameter All Other Pipe(1) Total Pipe Percent of Total 1860 – 1900 56 35 92 9%
1901 – 1940 305 65 370 37%
1941 – 1980 161 57 217 21%
1981 – present 259 52 310 31%
Unknown 21 1 22 2%
Total(2) 802 210 1,011 100%
____________________
(1) Includes gravity pipe greater than 36” in diameter, tunnels, force mains, transport/storage, effluent outfall and overflow discharge.
(2) Totals may not add due to independent rounding.
Source: SFPUC, Wastewater Enterprise.
Transport/Storage Structures. In addition to sewer lines, the Wastewater Enterprise maintains 24 miles of underground transport/storage structures that are located around the perimeter of San Francisco to intercept, temporarily store and transport the mix of stormwater runoff and sewage to treatment plants. These structures, which operate in both dry and wet weather, were built between 1979 and 1997. The largest of these structures, the Westside Transport structure, is approximately two miles long, 45 feet deep and 25 feet wide. The transport/storage structures were designed with sufficient storage to reduce combined sewer discharges and protect beneficial uses of receiving waters for the San Francisco Bay and Pacific Ocean . The transport/storage and collection system provides approximately 200 million gallons worth of storage (approximately three days of dry weather flow) .
The performance of the transport/storage structures and treatment facilities complies with the requirements of the National Combined Sewer Overflow Control Policy, as implemented by discharge permits issued on behalf of the EPA by the San Francisco Bay Regional Water Quality Control Board (the “ Regional Water Quality Control Board”). See “REGULATORY MATTERS.” By providing both storage volume and detention time, t he transport/storage structures allow for delayed treatment of combined sewage and stormwater flows at the treatment plants at the conclusion of a wet weather event. They also provide a “buffer” for dry weather flows in the event of an unplanned outage.
49 4151-5403-8838.1
Pump Stations. The Wastewater Enterprise has 29 pump stations, which include six major all-weather pump stations, four major wet -weather pump stations, 18 minor pump stations and one major effluent pump station for bayside effluent discharge.
Outfalls and Nearshore Discharge Structures. The Wastewater Enterprise currently has three offshore outfalls that discharge to deep waters – Southeast Bay Outfall, Northpoint Outfall, and Southwest Ocean Outfall. In addition to these outfalls, 36 combined sewer discharge structures, or near -shore outfalls, serve as relief points of the combined sewer system . These structures operate infrequently, and only during large storm events . Discharges through these permitted sites receive the equivalent of wet weather primary treatment .
Urban Watershed Management . The SFPUC is working to improve the system’s stormwater drainage performance and its sewage treatment efficiency . The SFPUC Stormwater Program complies with regulatory requirements and is designed to maximize sewer system performance, engage community members in its work, improve watershed function, enhance the environmental quality of San Francisco ’s neighborhoods, and protect the water quality of the San Francisco Bay and Pacific Ocean. To achieve these goals, the SFPUC has adopted regulations that require new and redevelopment projects in San Francisco to install and operate green technologies for managing stormwater runoff.
Useful Life. The average useful life of typical collecting sewers (i.e., gravity pipes 36 inches or less in diameter) is approximately 110 years . The average useful life for other sewer pipes/infrastructure (such as tunnels, force mains, transport/storage boxes) is 50 years, while large outfalls have a typical useful life ranging from 50 to 100 years. However, many conditions, including pipe material and soil conditions, affect actual pipe lifespan. The approximate ages of the various components of the Wastewater Enterprise’s sewer lines are set forth in Table 7 above.
The historical rate of replacement for the Wastewater Enterprise’s sewer pipes (less than 36 -inch diameter) has been at a 200 -year replacement cycle. Aging sewers, if left unaddressed, c ould potentially result in increased leakage, sinkholes, sewer line failures, reduced system reliability and possibly public health and safety risks . The SFPUC has developed its capital program, including SSIP and the Renewal and Replacement program in part to address the aging infrastructure, with the objective of ultimately returning to a 110-year replacement cycle, and in part to upgrade other critical infrastructure . Replacement of specific sewer sections will be prioritized under an asset management approach which considers the current condition of the section in question and applicable risks of failure.
The sewers will be inspected through closed- circuit television and the likelihood of failure will be calculated based on a condition scoring algorithm taking into account the severity and quantity of defects identified in each inspection.
The consequence of failure is calculated based on level of service, including protection of the public, preservation and improvement of quality of life, cost efficiency, customer service, and environmental responsibility. To implement this R enewal and Replacement program, the SFPUC has divided San Francisco into 182 individual grids for the purpose of scheduling inspections for all gravity sewer mains on a five -year cycle. These grids are prioritized by predicted total risk, using age of sew er as the main factor . The goal is to inspect the sewers predicted to be in the worst condition and in highly sensitive locations first . As the inspections proceed, each surveyed sewer receives a risk score and sewers identified for replacement are scheduled based on risk scores, proximity, and utility coordination.
See “WASTEWATER ENTERPRISE CAPITAL PROGRAM” and “SEWER SYSTEM IMPROVEMENT PROGRAM.”
Wastewater Treatment
Wastewater Treatment Plants . The Wastewater Enterprise operates three major wastewater treatment facilities (in addition to the transport/storage structures that provide the equivalent of wet weather primary treatment), two serving the Bayside Watersheds and one serving the Westside Watersheds:
• Southeast Water Pollution Control Plant (the “Southeast Treatment Plant”), which treats dry and wet weather flows collected from the Bayside Watersheds (18,597 acres, or 63% of the total city service area) as well as the Municipal Customers;
• North Point Wet Weather Facility (the “ North Point Facilit y”), which treats a portion of wet - weather flows collected from the north Bayside Watersheds; and
50 4151-5403-8838.1
• Oceanside Water Pollution Control Plant (the “Oceanside Treatment Plant”), which treats dry and wet weather flows collected from the Westside Watersheds (11, 176 acres, or 37% of the total city service area) and minor flows from northern San Mateo County.
The Oceanside Treatment Plant and related collection facilities in the Westside Watersheds are not interconnected with the Southeast Treatment Plant or the North Point Facility and the collection facilities in the Bayside Watersheds.
Southeast Treatment Plant . The Southeast Treatment Plant is an all- weather secondary wastewater treatment plant serving the sewage and stormwater treatment needs for nearly tw o-thirds of San Francisco in the Bayside Watersheds, which consists of 18,587 acres including the Marina, Downtown, South of Market Area, Mission, Hunters Point, and Visitacion Valley neighborhoods, plus 1.65 million gallons per day (“mgd”) of dry weather flows from North San Mateo County Sanitation District, Bayshore Sanitary District and the City of Brisbane . Land uses in the Bayside Watersheds are a mixture of residential, commercial, light industrial and heavy industrial. The Southeast Treatment Plant, as the only Bayside dry- weather facility, is a critical component of the system that must meet high availability requirements. The Bayside Watersheds wastewater flow is collected by the combined sewer system and conveyed to the Southeast Treatment Plant via gravity sewers, tunnels, transport/storage structures, pump stations and force mains.
The Southeast Treatment Plant provides preliminary, primary and secondary treatment using a high- purity- oxygen activated sludge process prior to effluent disinfect ion. Sludge treatment consists of gravity- belt thickening, anaerobic digestion, chemical conditioning and dewatering . The Plant’s treated effluent is discharged during dry weather into the San Francisco Bay through a deep-water outfall near Pier 80. During wet weather, treated effluent is discharged through the Pier 80 outfall and through an additional outfall at the shoreline of Islais Creek.
The Southeast Treatment Plant was planned and designed in the 1940s and commenced operations in 1951 as a primary treatment facility. To meet the mandates of the federal Clean Water Act, the Southeast Treatment Plant was expanded in the early 1980s to provide secondary treatment of all Bayside Watersheds’ dry-weather flows with a daily average design capacity of approximately 85 mgd and peak-hour design flow of 142 mgd. In 1996, the Southeast Treatment Plant’s wet weather capacity was increased to 250 mgd, with 150 mgd receiving secondary treatment prior to disinfection and discharge . During wet weather, additiona l wet-weather facilities are operated at the Southeast Treatment Plant to provide primary treatment and disinfection to the remaining 100 mgd of combined wastewater flow.
The Southeast Treatment Plant operates every day of the year in both wet weather and dry weather conditions.
Many of its critical systems have operated past their expected useful life and replacement facilities are needed to ensure reliability requirements are met, including seismic upgrades . At the start of SSIP, the Program Management Consultant (the “ Program Management Consultant ”) conducted a full condition ass essment of the Southeast Treatment Plant and the highest priority needs were identified for both the liquid treatment and solids treatment facilities. The assessment considered current maintenance records, remaining life and compliance with levels of service. Projects have been identified for all of the major treatment processes , and for various support, monitoring and control systems . Maintenance and repair projects, including repairs to digester roofs and existing biosolids treatment and storage equipment, have been undertaken to bolster some of the facilities considered to be the most vulnerable so that they function until the new facilities are completed. See “SEWER SYSTEM IMPROVEMENT PROGRAM.” Because the Southeast Treatment Plant is not interconnected with the other treatment plants, it cannot be shut down during construction of such projects as there would be no substitute wastewater treatment option.
Instead, the Southeast Treatment Plant will remain in service during construction . See “RISK FACTORS – Risks
Related to Wastewater Enterprise Facilities and Operation – Aging Facilities” and “– Limited Redundancy.” North Point Wet-Weather Facility. The North Point Facility is a wet-weather primary wastewater treatment plant serving the northeast quadrant of the Bayside Watersheds, an area comprising of predominantly commercial and residential land uses. The North Point Facility was originally constructed in 1951 as an all-weather primary treatment facility, but did not incorporate digesters and so sludge was pumped to the digesters at the newly constructed Southeast Treatment Plant for treatment . In response to the mandates of the federal Clean Water Act, the North Point Facility was converted into a strictly wet-weather treatment plant in 1983, providing up to 150 mgd of primary treatment .
The North Point Facility provides preliminary, primary and disinfection treatment . Effluent from the North Point Facility is discharged into the San Francisco Bay through a deep water outfall system at Piers 33 and 35. At the
51 4151-5403-8838.1
conclusion of each wet -weather event, grit and solids are flushed out of the sedimentation tanks and directed to the Channel Pump Station, which pumps them to the Southeast Treatment Plant for treatment .
Oceanside Treatment Plant . Cons tructed in 1993, the Oceanside Treatment Plant is an all -weather secondary wastewater treatment plant that provides the wastewater treatment and stormwater treatment needs for the Westside Watersheds and San Mateo County flows that drain to the Westside Watersheds. Land uses in the Westside Watersheds are primarily residential.
The Oceanside Treatment Plant’s dry weather capacity is up to 43 mgd of secondary treatment . The Oceanside Treatment Plant’s wet -weather capacity is up to 65 mgd of primary and 43 mgd of secondary treatment using the high-purity-oxygen activated sludge process. Sludge treatment consists of gravity belt thickening, anaerobic digestion, chemical conditioning and dewatering. The Oceanside Treatment Plant began operations in September 1993 and complies with all dry- and wet -weather discharge requirements . Up to 195 mgd of plant effluent and decanted wet weather flow is discharged approximately four miles offshore into the Pacific Ocean through a deep ocean outfall.
Emergency Operations. The Wastewater Enterprise maintains up -to-date contingency plans in the event of an unplanned outage or failure of a treatment facility, process unit, pump station, sewer pipeline or other infrastructure element. The wastewater collection and treatment system is designed with some redundancy and flexibility in order to facilitate responses to emergency events, though the Westside Watershed and Bay side Watershed are not interconnected. The collection system is equipped with pump stations and isolation valves so that flows can be redirected to help mitigate impacts in the event of a failure.
If an unplanned shutdown of critical treatment facilities were to occur, the transport/storage structures and collection system pipes provide approximately 200 million gallons of storage (providing up to several days of storage in some portions of the system, depending on the inflow). The wastewater treatment facilities and major pump stations are also built with some redundancy, and in some instances may continue operation with select equipment outages .
Critical infrastructure elements with higher failure risk or for which adequate redundancy is not available have been identified as projects in the SSIP to increase system flexibility and the ability to respond to unplanned events . See “RISK FACTORS
– Risks Related to Wastewater Enterprise Facilities and Operations.” Biosolids Management. The Southeast Treatment Plant and the Oceanside Treatment Plant produce approximately 55,000 wet tons of biosolids per year, which are highly treated and anaerobically digested sewer sludge that are then utilized as soil fertilizer on farmland. During dry -weather months, biosolids are trucked to various ranches in Solano County and applied directly as a soil amendment for farming to enhance pasture productivity and capture carbon in soil. Throughout the year, a portion of the SFPUC’s biosolids are sent to a ranch in Sacramento County for use as a soil amendment and a portion of biosolids are trucked to Lystek, a facility which processes “Class B” biosolids into a “Class A” liquid fertilizer. Approximately 44% of SFPUC’s nutrient -rich biosolids are applied on Solano County farms, 47% are sent to Lystek, 3% are applied on a Sacramento County ranch, and 5% are sent to Oro Loma to be dried and applied on farms the following season to be beneficially reused and to improve soil health and sequester carbon.
The W astewater Enterprise coordinates the application, testing and sampling procedures for biosolids as required by the applicable regulatory agencies. Because current beneficial use options may not offer a long- term solution (due to more stringent regulations and encroaching suburban development in currently agricultural use areas), the SFPUC plans to implement technology at the Southeast Treatment Plant to produce a high- quality “Class A” biosolids as part of a major capital upgrade of the plant. The Biosoli ds Digester Facilities Project will replace aging infrastructure in order to maintain long -term regulatory compliance and system reliability. The new facilities are expected to promote sustainability and full beneficial use of biosolids and renewable biogas, in addition to reducing negative impacts to the neighborhood with respect to aesthetics, odors and noise.
See “SEWER SYSTEM IMPROVEMENT PROGRAM” and “REGULATORY MATTERS” below.
Contract Services. The Wastewater Enterprise provides wastewater treatment service on Treasure Island and Yerba Buena Island , located in the San Francisco Bay between San Francisco and Oakland, by agreement with the Treasure Island Development Authority (“ TIDA”), a non -profit public benefit agency vested with the rights to administer municipal services to Treasure Island and Yerba Buena Island during interim reuse of the property. Such
52 4151-5403-8838.1
wastewater treatment service is provided at a wastewater treatment plant currently owned by TIDA . The wastewater system serving Treasure Island and Yerba Buena Island, located in the San Francisco Bay between San Francisco and Oakland, currently relies on pumping to convey sewage to a secondary facility for treatment and discharge . The treatment plant is designed to provide secondary treatment of an average of 2.0 mgd and can provide secondary treatment of up to 4.4 mgd during wet weather. The wastewater collection system consists of 10 miles of sewers and 29 wastewater pump stations. In addition, a stormwater collection system includes six stormwater pump stations and several shallow water outfalls. These facilities are not interconnected with the wastewater infrastructure in San Francisco.
In connection with ongoing redevelopment activities on Treasure Island, the SFPUC anticipates that the Treasure Island facilities, including collection and other facilities being built by the developer as part of the project, will eventually be transferred to the SFPUC and integrated into the Wastewater Enterprise’s overall system asset s.
Following such transfer, the SFPUC would provide sewer discharge service and impose rates and charges directly on customers on Treasure Island, and payments the SFPUC receives from such customers would constitute Revenues as and to the extent provided under the Indenture. The SFPUC would also be responsible for operation and maintenance, and such costs would constitute Operation and Maintenance Costs of the Wastewater Enterprise as and to the extent provided under the Indenture . Finally, the SFPUC wou ld be responsible for the future repair and replacement of all facilities transferred to it, including collection and treatment facilities. The SFPUC expects that it will need to replace the existing treatment plant on Treasure Island, and has included preliminary projected costs of such project in its 10- year capital plan. See “
– Projected Future Demand,” “WASTEWATER ENTERPRISE CAPITAL PROGRAM – Treasure Island” and “FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM.” System Capacity
When the thr ee treatment facilities and other elements of the collection system are fully operational, the Wastewater Enterprise can provide up to 575 mgd of combined wastewater and stormwater treatment, including 193 mgd of secondary treatment, 272 mgd of primary treatment and 110 mgd of equivalent -to-primary treatment provided by the transport/storage structures located around the perimeter of the City.
TABLE 8
TREATMENT PLANT MAXIMUM CAPACITY
(MILLION GALLONS PER DAY)
Plant Dry Weather Peak Wet Weather
Southeast Treatment Plant 105 250
Oceanside Treatment Plant 43 65
North Point Facility N/A 150
Total 148 465
____________________
Source: SFPUC, Wastewater Enterprise.
The three treatment plants discharge up to 365 mgd through deep- water outfalls. Another 100 mgd of secondary treated effluent with disinfection can be discharged through a shallow water outfall to Islais Creek during peak wet -weather events . The combined sewer system is designed to handle wet weather events and its permits explicitly authorizes combined sewer discharges from the system ’s 36 combined sewer discharge outfalls when a storm exceeds the capacity of the system.
Current System Demands
Wastewater Enterprise facilities collected, treated and discharged an average of approximately 65. 1 mgd of sanitary wastewater during dry-weather periods between calendar years 2016 to 2021.
53 4151-5403-8838.1
TABLE 9
AVERAGE DRY WEATHER TREATMENT
CALENDAR YEARS 2016 TO 2021
(MILLION GALLONS PER DAY)
Plant 2017 2018 2019 2020 2021
Southeast Treatment Plant 56.4 51.4 52.6 48.3 48.1
Oceanside Treatment Plant 13.2 12.9 12.4 11.6 12.6
Total 69.6 64.3 65.0 59.9 60.7
____________________
Source: SFPUC, Wastewater Enterprise.
Projected Future Demand
The SFPUC’s 2018 wastewater rate study projected that in -City sanitary wastewater discharge will remain at its current levels through 2022, even though the total number of wastewater accounts are projected to grow at 0.1% annually during the same period. See “– Service Area” and “– Customer Base.” This differential is attributable to decreases in average per capita water usage due to ongoing conservation initiatives, including plumbing codes which apply to all new development . This forecast translates to flat projections of influent flow and solids to the treatment plants. The proposed new Housing Element in the City’s general plan, however, will result in the need for a significant dry weather treatment capacity expansion at one or more of the Wastewater Enterprise’s treatment plants.
The Wastewater Enterprise’s existing treatment plants have sufficient excess capacity to address the projected demand, therefore no significant expansion is expected to be required to meet the needs of the City based upon these population growth projections alone . However, the SFPUC expects to provide a new treatment plant at Treasure Island with additional capacity and associated infrastructure to meet the needs at full build- out of the proposed conversion of the former Treasure Island Naval Station to residential and commercial uses, though agreements for the provision and construction of the treatment plant have not yet been finalized. See “– Contract Services.” Because the SFPUC maintains a combined sewer system, there may be other factors in the future, including environmental changes and regulatory developments, that could require expanded collection or treatment capacity .
WASTEWATER ENTERPRISE CAPITAL PROGRAM
Capital and Financial Planning Process
The SFPUC’s long -term capital and financial planning is performed on an annual rolling 10- year forward looking basis. The SFPUC prepares a 10-year capital plan for each of its enterprises, as required by the Charter. The 10-year capital plan serves as the basis for the development of the annual 10-year financial plan. Proposed long-term capital programs, projects and investments, and related costs are included in the 10 -year financial plan. Consistent with the Charter, updates to the 10-Year Capital and Financial Plans are annually reviewed and adopted by the SFPUC Commission each February. The 10-year financial plan provides estimated rate impacts of projected capital and operating spending and assures compliance with its adopted financial policies, including its debt service coverage and fund balance reserve policy requirements.
The 10-year capital plan is not a budget and is not “appropriated” like a budget. The annual capital programs can be revised during the development of the budget, and final projects, costs and totals for the capital programs can change. Consequently, even though the annual capital programs are based on the 10 -year capital plan , they may occasionally differ from it.
The Wastewater Enterprise 10-year capital plan for Fiscal Years 2022-23 to 2031-32, adopted by the SFPUC Commission on February 8, 2022 (the “2023 Capital Plan”), totals approximately $ 6.127 billion, which includes approximately $68 7 m illion budgeted for Fiscal Year 20 22-23. See “FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM.” The 2023 Capital Plan includes projects in three categories: (i) the SSIP; (ii) Renewal and Replacement; and (iii) Wastewater Facilities and Infrastructure.
54 4151-5403-8838.1
Sewer System Improvement Program
The SSIP is a citywide investment to upgrade the SFPUC’s aging infrastructure to ensure a reliable, sustainable and seismically safe sewer system. The SSIP contains a series of major capital improvement projects that are necessary to maintain the City’s wastewater and stormwater system in a state of good repair, as well as to meet Commission-endorsed goals and levels of service. The SSIP capital improvement projects are designed to address specific infrastructure challenges and deficiencies facing the Wastewater Enterprise, maximize system reliability and flexibility, improve operational and seismic reliability, and promote current and future regulatory compliance. The SSIP project development will also consider environmental benefits, sustainability and community benefits in addressing the long-term wastewater needs. SSIP projects make up approximately $3.550 billion of the 2023 Capital Plan. Additional information on the SSIP may be found under “SEWER SYSTEM IMPROVEMENT PROGRAM.” Renewal and Replacement
The Wastewater Enterprise undertakes renewal and replacement projects to improve performance or extend the service life of an existing asset. These projects are typically annual ongoing projects and fall into two categories:
(i) Renewal and Replacement Collection System and (ii) Renewal and Replacement Treatment Plants . Renewal and replacement projects make up approximately $2.1 billion of the 2023 Capital Plan.
The Renewal and Replacement Collection System category includes the following pro jects: condition assessment projects to clean, video inspect and perform condition assessment of sewer facilities; sewer improvement projects to maintain the existing functionality of the collection system and repair and replace structurally inadequate sewers; spot sewer repair projects which consist of as -needed repair of localized failed sections of existing sewer facilities; hydraulic improvement projects to upgrade sewers with hydraulic deficiencies; and salt water intrusion projects to prevent San Francisco Bay water from entering the wastewater collection system, which can be detrimental to the treatment plant’s biological system , result in corrosion of exposed metal and reduce the reliability of recycled water.
The Renewal and Replacement Treatment Plants category includes projects to maintain the capacity and reliable performance, and extend the useful life, of aging assets such as transport/storage boxes, discharge structures, pump stations, force mains, tunnels and treatment plants . The Wastewater Enterprise sewer system consists of three wastewater treatment plants (Southeast, Oceanside, and North Point) with North Point operating as a wet weather facility, 29 pump stations, eight transport storage boxes, and 36 combined sewer discharges. Priority lists are maintained for both collection and treatment projects, with collection system projects identified using an asset management approach which considers the current condition of the section in question and applicable risks of failure.
See “THE WASTEWATER ENTERPRISE
– Combined Sewage and Stormwater System – Useful Life.” Wastewater Facilities and Infrastructure
There are seven projects in the category of Wastewater Facilities and Infrastructure: (i) the Ocean Beach Climate Change Adaptation Project, (ii) the Collection System Division Consolidation Project (Wastewater Enterprise Facilities Plant), (iii) the Southeast Community Center Improvements Project, (iv) the Southwest Ocean Outfall Condition Assessment and Rehabilitation Project, (v) the Southeast Outfall Condition Assessment and Rehabilitation Project, (vi) the New Treasure Island Wastewater Treatment Plant and (vii) the Islais Creek Crossing Project.
Wastewater Facilities and Infrastructure projects make up approximately $ 334 million of the 2023 Capital Plan.
Ocean Beach Climate Change Adaptation Project. The Ocean Beach Climate Change Adaptation project is necessary to protect the integrity of wastewater assets built to protect public health and the environment, including the Lake Merced Tunnel, the Westside Pump Station and the Oceanside Treatment Plant. The project is one of the first City Climate Change Adaptation projects which is being led by the SFPUC. The Lake Merced Transport Tunnel has a storage capacity of up to 10 million gallons for combined sewage and stormwater flows and is located closest to the section of Ocean Beach most severely impacted from, and most vulnerable to, continued bluff erosion. The tunnel could become structurally compromised if sudden bluff retreat is experienced during a design storm event, resulting in significant environmental and public health impacts. This project will facilitate the development of a comprehensive shoreline management and protection plan in partnership with relevant stakeholders and regulatory agencies to provide a long-term solution to the erosion issue along Ocean Beach, and to mitigate potential impacts to the Lake Merced Tunnel and other critical wastewater assets at this location.
55 4151-5403-8838.1
Collection System Division Consolidation Project ( Wastewater Enterprise Facilities Plan) . The Wastewater Enterprise Facilities Plan project will address the need for a comprehensive master plan for Wastewater Enterprise facilities to meet the present and future needs of the Wastewater Enterpr ise. The effort will include an assessment of current facilities, a plan for current and future staffing needs, and site planning to determine the best utilization of Wastewater Enterprise property to accommodate the Wastewater Enterprise over the next 50 years. The Wastewater Enterprise Facilities Plan will focus on the consolidation of operations, maximizing the operational efficiency and functionality of the Wastewater Enterprise, and best approach to maximize the value of the Wastewater Enterprise’s assets. The outcome will result in a plan for prioritization of capital improvement projects over the next two decades essential to supporting the Wastewater Enterprise’s delivery of services for the next generation.
Southeast Community Center Improvements Pr oject. The Southeast Community Center at 1550 Evans project will serve to address the SFPUC ’s commitment to the mitigation measure for the expansion of the Southeast Treatment Plant by constructing a new community center. The project will include a childc are center, café, multipurpose space for meetings, events and workshops, and co- working office and classroom space for community- based organizations providing workforce development services. It will also include parking and over two acres of landscaped open space, with play areas, an amphitheater, picnic areas and gardens. The new center will provide a wide range of social services supporting workforce development and education for Southeast residents of all ages. The Community Center is scheduled to open by mid-2022.
Southwest Ocean Outfall Condition Assessment and Rehabilitation Project. The Southwest Ocean Outfall Condition Assessment and Rehabilitation Project will provide improvements and modifications to the Southwest Ocean Outfall, which is part of the Oceanside Treatment Plant . The Oceanside Treatment Plant and the associated westside facilities provide all- weather wastewater collection and treatment of flows from the westside of San Francisco. This project will include condition assessment of the outfall, as well as an allowance to perform repairs .
These improvements and modifications are expected to ensure that the Oceanside Treatment Plant and Southwest Ocean Outfall will remain operationally compliant with State and Federal regulatory requi rements.
Southeast Outfall Condition Assessment and Rehabilitation Project. The Southeast Outfall Condition Assessment and Rehabilitation Project is a condition assessment to determine the pipeline condition of Reach 2 (Onshore Force Main) and Reach 3 (Offshore Outfall) and to evaluate if it can provide reliable service until the outfall is replaced. These improvements and modifications are expected to ensure that the Southeast Treatment Plant and Southeast Bay Outfall will remain operationally compliant with State and Federal regulatory requirements.
New Treasure Island Wastewater Treatment Plant . The Wastewater Enterprise provides wastewater treatment service on Treasure Island and Yerba Buena Island by agreement with TIDA and the SFPUC expects eventually to expand its service area to include Treasure Island and Yerba Buena Island. See “– Wastewater Treatment – Contract Services.” In connection with such expansion, the SFPUC anticipates constructing a new treatment plant with additional capacity and a ssociated infrastructure to meet the needs at full build -out of the proposed conversion of the former Treasure Island Naval Station to residential and commercial uses . The SFPUC has issued an RF P for design build contracting proposals. Although agreements for the provision and construction of the treatment plant have not yet been finalized, the projected costs of such project, are included in the 2023 Capital Plan. The SFPUC has also applied for an SRF Loan and is in the process of applying for a WIFA Loan for the project.
Islais Creek Crossing Project. The Islais Creek Crossing P roject involves replacing the portion of the Southeast Outfall that crosses Islais Creek, replacing effluent pipelines and rehabilitating the existing upstream, on - shore pipelines, booster pump station, pump manifold and isolation valves. This project was included in the capital program following a determination by the SFPUC in 2015 that one of the two pipelines had extensive corrosion and a risk of pipeline failure would continue to exist until the issue could be addressed.
Environmental Planning Considerations
Projects undertaken by the SFPUC are generally subject to CEQA and certain projects involving the participation of federal agencies, including projects on federal land, are also subject to the National Environmental Policy Act.
Under CEQA, a project that may have a significant effect on the environment and is to be carried out or approved by a public agency must comply with a comprehensive environmental review process, including the
56 4151-5403-8838.1
preparation of an Environmental Impact Report (“EIR”). The EIR reflects not only an independent technical analysis of the project’s potential impacts, but also the comments of other agencies with some form of jurisdiction over the project and the comments of interested members of the public . Contents of the EIR include a detailed statement of the project’s significant environmental effects; any such effects that cannot be avoided if the project is implemented; mitigation measures proposed to minimize such effects; alternatives to the proposed project; the relationship between local and short-term uses and long- term productivity; any significant irreversible environmental changes that would result from the project; the project’s growth-inducing impacts; and a brief statement setting forth the agency’s reasons for determining that certain effects are not significant and hence do not require discussion in the EIR .
Prior to the sale of bonds, the San Francisco Planning Department Envir onmental Review Officer will issue a “Planning Certificate” required under Proposition E approved by the voters of San Francisco at the November 5, 2002 General Election. The Planning Certificate will identify the status of environmental review for each c apital project to be funded under the proposed bond sale and the type of CEQA document either completed or to be completed for each project. CEQA compliance must be completed for each project prior to project approval or approval to award a construction contract to implement any project to be funded by the proposed bond sale.
Any action or proceeding challenging the SFPUC’s determination must be brought within 30 days following the filing of such notice. Actions have been, and in the future may be, filed against the SFPUC challenging a project’s compliance with CEQA, including the adequacy of the EIR and other environmental documents for particular projects.
If an action challenging the SFPUC’s compliance with CEQA is successful, the particular project co uld be delayed, revised, suspended or canceled. CEQA also contains several exemptions, which the SFPUC uses for its projects when appropriate.
As part of its regular planning and budgetary process, the San Francisco Planning Department gives careful attention to environmental considerations . All projects are evaluated under the SFPUC’s environmental evaluation procedures, developed in compliance with federal and State laws and regulations, and City ordinances and Administrative Code procedures.
SEWER SYSTEM IMPROVEMENT PROGRAM
Program Summary
The Sewer System Improvement Program is a citywide investment to upgrade the SFPUC’s aging infrastructure to ensure a reliable, sustainable and seismically safe sewer system. The SSIP contains a series of major capital improvement projects that are necessary to bring the City’s wastewater and stormwater system into a state of good repair, as well as to meet Commission- endorsed goals and levels of service. The Commission’s original authorization of the SSIP in August 2012 contemplated a three-phase implementation approach over a 20-year period to manage rate impacts, consider construction sequencing impacts and maintain existing operations and permit compliance. The highest priority and best -defined projects, which focused on ensuring regulatory compliance, enhancing process reliability and redundancy, improving plant odor control and replacing antiquated biosolids and headworks facilities with state-of-the-art technology, were included in the first phase (“Phase 1”). However, pursuant to the 2020 Re-Baseline (as defined and further described herein), the SFPUC is in the process of revising the original three-phase implementation approach over a 20-year period to implementing Phase 1 projects (the “Phase 1 Projects”) and initiating projects originally identified for the second and third phases of the SSIP as part of its rolling 10- year capital plan. New SSIP projects are now expected to be initiated based on priority and schedule through the SFPUC’s budget process.
SSIP Program Development and Chronology
In February 2010, the Commission directed the SFPUC to proceed with the procurement of a program management consultant to assist with implementing the SSIP. AECOM -Parsons Joint Venture was selected and the program management consultant team began work in September 2011 to validate the scope, schedule and budget of the SSIP.
In August 2012, the Commission endorsed specific goals and levels of service, validated the scope and a three-phase implementation approach for the SSIP, and authorized the SFPUC to proceed with planning and development on a proposed set of Phase 1 Projects. The total SSIP budget was approximately $6.9 billion, which included approximately $2.7 billion for Phase 1 Projects.
57 4151-5403-8838.1
Between October 2015 and February 2016, the SFPUC set out to “baseline” the SSIP, which included re - prioritizing projects, refining the scope and budget, and realigning the schedule. The SFPUC then provided recommendations to the Commission to revise the SSIP.
In March 2016, based on recommendations from the SFPUC, the Commission approved the March 2016 SSIP Baseline, Scope, Budget and Schedule (the “2016 Baseline”). The total SSIP budget remained at approximately $6.900 billion; however, the budget for Phase 1 Projects increased to $2.910 billion, due primarily to the addition of flood resilience projects. The Commission also endorsed updated levels of service in March 2016.
In April 2018, the Commission approved the 2018 Revised Baseline Scope, Schedule and Budget for the SSIP Phase 1 Projects (the “2018 Re-Baseline”), which revised the 2016 Baseline. Pursuant to the 2018 Re-Baseline, the budget for Phase 1 Projects increased to $2.979 billion, and four other projects totaling $0.430 billion originally identified for later phases of the SSIP (the “Other SSIP Projects”) were initiated.
In December 2020, the Commission approved the 2020 Revised Baseline Scope, Schedule and Budget for SSIP Projects (the “ 2020 Re-Baseline”), which revised the 2018 Re -Baseline. Pursuant to the 2020 Re -Baseline, (i) the budget for Phase 1 Projects increased to $3.655 billion, due in part to a $0.404 billion increase for the Biosolids Digester Facilities Project and a $0.200 billion increase for the Southeast Plant New Headworks Project, (ii) the budget for the four original Other SSIP Projects increased to $0.513 billion, and 31 other projects originally identified for later phases of the SSIP totaling $0.684 billion were initiated as part of the category of Other SSIP Projects, increasing the budget for Other SSIP Projects to $1.197 billion, totaling $4.853 billion in total SSIP projects initiated . The total SSIP cost is now projected to be approximately [$6.765] billion.
Subsequent to the 2020 Re -Baseline, SFPUC has revised the original three -phase implementation approach and will initiate projects originally identified for the second and third phases of the SSIP as part of its rolling 10 -year capital plan. New SSIP projects are now expected to be initiated based on priority and schedule through the SFPUC’s budget process. The total SSIP cost is now projected to be approximately $8.145 billion as of the approved 2023 Capital Plan.
Program Objectives
The SSIP capital improvement projects are designed to address specific infrastructure challenges and deficiencies facing the Wastewater Enterprise, maximize system reliability and flexibility, improve operational and seismic reliability, and promote current and future regulatory compliance. The SSIP project development will also consider environmental benefits, sustainability and community benefits in addressing the long-term wastewater needs.
Program Goals
The program goals for the SSIP, as endorsed by the Commission in August 2012, include the following: (1) provide a compliant, reliable, r esilient and flexible system that can respond to catastrophic events; (2) integrate grey and green infrastructure to manage stormwater and minimize flooding; (3) provide benefits to impacted communities; (4) modify the system to adapt to climate change; (5) achieve economic and environmental sustainability; and ( 6) maintain ratepayer affordability. The 2016 Baseline, the 2018 Re-Baseline and the 2020 Re-Baseline did not change these program goals.
Program Scope
The SSIP is currently broken into four major subprograms: (i) Program Management, (ii) Treatment Facilities, (iii) Sewer/Collection System and (iv) Stormwater Management/Flood Control.
Program Management. This subprogram includes overall program management for SSIP and also includes associated land reuse projects. The SFPUC aims to identify the best utilization of the Southeast Treatment Plant land development and building assets to develop the most efficient and economic approach to transform an aging wastewater plant into an integrated, well- connected campus that fulfills operation needs while prioritizing public safety and cultivating a healthy and inspired workforce. Forthcoming conceptual design efforts will create a site-wide prioritized vision of how the Southeast Treatment Plant campus will fu nction and develop for the next generation. In alignment with the SFPUC’s commitment as a leading environmental steward in resource recovery, design efforts for
58 4151-5403-8838.1
the Southeast Treatment Plant campus will embrace opportunities to create regenerative energy, such as “Class A” biosolids compost and biogas power processes, maximize use of renewable resources, implement green building concepts, maximize energy savings and address issues of climate change.
Treatment Facilities. Phase 1 focused mainly on improvements to Treatment Plants. Proposed treatment plant projects at the Southeast Treatment Plant, Oceanside Treatment Plant and North Point Facility will address aging infrastructure and outdated technologies, increase seismic and operational reliability, and reduce odors, noise, visual and other public impacts. These projects will also address long- term regulatory compliance by ensuring continued performance that is aimed at meeting current and future regulatory mandates.
A majority of the SSIP improvements will occur at the Southeast Treatment Plant to upgrade the building and systems that were planned, designed and constructed in the 1940s and early 1950s. See “WASTEWATER ENTERPRISE – Wastewater Treatment – Southeast Treatment Plant.” The Biosolids Digester Facilities Project, which consists of new digester and solids handling facilities to replace the aging facilities at the Southeast Treatment Plant, will include more modern treatment processes designed to produce “Class A” biosolids. Biosolids treatment processes are expected to include solids thickening, screening, dewatering, thermal hydrolysis pretreatment, digestion, gas handling, energy generation and reuse, and odor control. Eight other SSIP projects are scheduled to be constructed at the Southeast Treatment Plant during the same timeframe, which will require careful logistical and space planning and scheduling of key project interfaces. These other projects focus on liquid treatment and basic infrastructure, including construction of a new all -weather 250 mgd headworks facility, improvements to oxygen generation, clarifiers, gas handling, disinfection, facility -wide distributed control systems and power feed and switchgear. The Southeast Treatment Plant will be operational throughout the construction of these capital improvements. See “WASTEWATER ENTERPRISE – Wastewater Treatment – Southeast Treatment Plant” and “RISK FACTORS – Risks Related to Wastewater Enterprise Facilities and Operation – Limited Redundancy.” In addition to the work at Southeast Treatment Plant, treatment plant projects will also include reliability improvements to both the Oceanside Treatment Plant and the North Point Facility, including seismic, electric and general reliability improvements.
Sewer/Collection System. Proposed collection system projects will increase the ability of the sewer system to collect and convey wastewater and stormwater and will address aging infrastructure, including large diameter sewers, pump stations, transport/storage boxes and combined sewer di scharge structures. The collection system projects also include interdepartmental projects that capture sewer improvement opportunities arising from capital projects initiated by other City agencies.
Stormwater Management/Flood Control . This subprogram includes projects focused on stormwater management and control, including addressing flood resilience in low lying areas subject to flood risk in the SFPUC’s design storm through grey and green infrastructure.
Specific improvements for the collection syste m have been prioritized through the SFPUC’s “Collection System Strategy: Using an Urban Watershed Approach.” The strategy involved balancing the needs of the collection system for system reliability and stormwater management. Project prioritization and ph asing was guided by the Commission-endorsed levels of service, the timing of critical needs and opportunities for capital investments.
Program Budget
As described above, the SFPUC is revising the SSIP three -phase implementation approach to initiating projects as part of its 10-year capital plan based on priority and schedule. The Commission adopted the 2023 Capital Plan on February 8, 2022. The Commission has approved SSIP projects that will have a total cost of approximately $8.145 billion with $3,550 billion planned for Fiscal Year 2021 -22 through 2031 -32 in the 2023 Capital Plan, as shown in the following table.
59 4151-5403-8838.1
TABLE 10
SUMMARY OF APPROVED SSIP TOTAL PROJECT BUDGETS
Subprograms Approved Project Budget
Program Management $ 432,312,037
Treatment Facilities 4,900,792,779
Sewer/Collection System 1,585,889,294
Stormwater Management/Flood Control 1,227,170,907
Total $8,145,165,013
Additional SSIP projects may be approved in the future.
Program Schedule
Pursuant to the 2020 Re-Baseline, the expected completion date for the Phase 1 Projects is August 2027, and the expected completion date for the 35 Other SSIP Pr ojects is December 2029. As of Dec ember 31, 2021, approximately 48.0% of Phase 1 Projects and approximately 2.2% of Other SSIP Projects had been completed.
Management Approach
The development and implementation of the projects in the capital program, including SSIP projects, are led by SFPUC staff, with oversight and ultimate responsibility by the General Manager, Assistant General Manager of the Wastewater Enterprise, and Assistant General Manager of the Infrastructure Division.
Consultants are employed to support several programmatic functions, such as strategic program development, risk assessment and mitigation, program controls, various independent technical reviews, construction planning and management, communications and community relations. The services of consultants are also used on an as -needed or project-specific basis to assist SFPUC staff with functions such as engineering design, environmental review, right- of-way engineering and surveying, and construction management.
Potential Changes to SSIP Projects
Unforeseen uncertainties may result in changes to the scope, schedule and budget of the SSIP. Such factors include, without limitation, the following:
• market conditions and the bidding environment for construction costs, which could worsen over time due to external factors including, but not limited to, the COVID-19 pandemic; • market conditions for financing the SSIP, which could worsen over time; • changes in the legal and regulatory requirements affecting the Wastewater Enterprise and the SSIP (see “REGULATORY MATTERS”);
• the discovery of unforeseen underground/geotechnical conditions, particularly for projects with tunneling activities and extensive earthwork;
• the discovery of unforeseen site conditions associated with existing infrastructure; many of the SSIP projects involve upgrades to existing structures and facilities that were built a very long time ago and accurate as-built records are not always available;
• the discovery of unforeseen site conditions associated with utility conflicts; • unexpected failure of aging infrastructure or major equipment that warrant expedited repair or replacement;
60 4151-5403-8838.1
• unexpected environmental discoveries that may impact construction activities; those may include the discovery of protected species, archaeological artifacts, contaminated soil or hazardous material at project sites;
• contractor claims, contractor non-performance, failure of contractors to execute within contract price, or failure of contractors to meet schedule terms;
• errors or omissions in contract documents (e.g., drawings and specifications) that may result in change orders;
• equipment and material vendors' lack of compliance with quality and schedule requirements; • inclement weather affecting contractor performance and timeliness of completion; • labor issues involving work stoppages or slowdowns;
• the occurrence of a major seismic or other natural or man-made catastrophic event; or • unforeseen public opposition to projects or elements of projects.
See “RISK FACTORS.”
FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM Long Term Financing of Capital Program
Pursuant to the Wastewater Enterprise’s 10-y ear financial plan for Fiscal Years 2022-23 to 2031-32 (the “2023-32 Financial Plan”) , which is based on the 202 3 Capital Plan , and which was adopted by the SFPUC Commission in February 202 2, it is projected that long -term debt financing will fund approximately $ 3.9 billion of the 2023 Capital Plan. Revenue (pay-as-you-go) funding is projected to provide approximately $1. 2 billion of funds and capacity fees is projected to provide approximately $ 67.0 million of the remaining portion of the 202 3 Capital Plan. The remaining $967 million of the 2023 Capital Plan from Fiscal Year 2023-24 through Fiscal Year 2031-32 is unfunded. Over the next year the SFPUC will review project scopes, schedules, and costs to tie the capital plan to the resources to execute i t prior to the 2024 10- year Capital Plan adoption. Long-term debt financing is expected to be comprised primarily of Additional Bonds , Parity Loans and the WIFIA Loans . See “PLAN OF FINANCE,” “SECURITY FOR THE BONDS AND REPAYMENT OF THE 2022ABCD Bonds – Anticipated Repayment of Principal of 2022AB CD Bonds,” “OBLIGATIONS PAYABLE FROM NET REVENUES – Water Infrastructure Finance and Innovation Act Loans” and “RISK FACTORS – Access to Capital Markets.” Interim Funding Program Facilities
The SFPUC utilizes the Interim Funding Program to meet the expenditure and encumbrance needs of capital projects on an interim basis through design and into the early project construction phase. The Interim Funding Program is authorized for the Wastewater Enterprise in the amount of $750 million. Of this amount, $675 million is authorized for the SFPUC to i ssue Commercial Paper Notes and the remaining $75 million is in the form of a bank revolving credit agreement with U.S. Bank Trust Company, National Association [U.S. Bank National Association?] (the “U.S.
Bank Trust Company, Credit Facility ”), which permits the SFPUC to make draws directly on the bank, with the SFPUC’s payment obligation evidenced by the Revolving Notes.
Interim funding program obligations are then refunded and consolidated into either long- term revenue bond issues or a Parity Loan when the outstanding and encumbered amount of the interim funding obligations approaches authorized limits. This approach allows the SFPUC to take advantage of lower short -term interest rates, and to size and closely time long-term financings with projected need.
As of January 31, 2022, the SFPUC had approximately $299 million principal amount of Commercial Paper Notes outstanding and no Revolving Notes outstanding. The SFPUC anticipates issuing additional Commercial Paper Notes and making draws directly on the U.S. Bank Trust Company, Credit Facility to provide interim financing for
61 4151-5403-8838.1
Wastewater Enterprise capital projects . See “OBLIGATIONS PAYABLE FROM NET REVENUES – Subordinate Debt and Interim Funding Program.”
Sources and Uses of Funding the Capital Program
The table below sets forth the projected sources and uses of funds for the Wastewater Enterprise’s capital program, including the SSIP . Non -SSIP capital program categories include Renewal and Replacement projects, Wastewater Facilities and Infrastructure projects, and Treasure Island projects. The projected repayment of principal and interest on these future debt financings has been incorporated into the SFPUC’s projected rates for the remaining projection period set forth in the 2023-32 Financial Plan.
The SFPUC approved a four -year retail sewer rate package beginning in Fiscal Year 2018 -19, with rates increasing by approximately 7.7% during each of the four years . In addition, the SFPUC projects that retail sewer rates will increase annually by an a verage of approximately 5 .0% to 6.0% from Fiscal Year 2022 -23 to Fiscal Year 2028-29. There is no rate increase planned for Fiscal Year 2022 -23. A rate study is expected to be completed in Fiscal Year 2022 -23 to inform future rate proposals. Any future rate increases are subject to future Commission approval (and subject to the Board of Supervisor’s ability to reject rate increases). See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges.”
TABLE 11
WASTEWATER ENTERPRISE CAPITAL PROGRAM
FINANCING PLAN FOR FISCAL YEARS 2022-23 TO 2026-27
(IN THOUSANDS)(1)
2022-23 2023-24 2024-25 2025-26 2026-27
USES OF FUNDS
SSIP $583,124 $703,253 $686,309 $647,454 $322,337
Renewal and Replacement 103,036 145,097 210,073 235,924 237,207 Wastewater Facilities &
Infrastructure and Treasure Island 1,214 104,783 118,432 51,065 21,123 Total Uses $687,374 $953,133 $1,014,814 $934,443 $580,666
SOURCES OF FUNDS
Revenue Bonds/Parity
Loans/WIFIA Loans $598,569 $658,379 $682,792 $618,998 $344,576 Wastewater Revenues 83,005 93,048 122,657 125,111 127,613 Capacity Charge Revenues 5,800 5,319 5,695 5,695 5,695 Future Funding Consideration(2) 0 196,387 203,669 184,640 102,783 Total Sources $687,374 $953,133 $1,014,814 $934,443 $580,666 ____________________
(1) Amounts set forth are projections. Actual results may differ materially from these projections. See “FORWARD-LOOKING STATEMENTS” above.
(2) A portion of the 10-year Capital Improvement Plan from FY2024 to FY2033, is under further consideration for future funding.
Source: SFPUC, Financial Services.
FINANCIAL OPERATIONS
General
The SFPUC is a department of the City and, as such, the financial operations of the SFPUC’s three enterprises are included in the Comprehensive Annual Financial Report of the City and shown as enterprise funds . The City’s Comprehensive Annual Financial Report is not incorporated by reference herein.
The following information is provided with respect to the Wastewater Enterprise only and does not purport to reflect the financial position of the SFPUC or the City as a whole.
62 4151-5403-8838.1
Basis of Accounting. The accounts of the Wastewater Enterprise are organized based on a proprietary fund type, specifically an enterprise fund. The financial activities of the Wastewater Enterprise are accounted for on a flow of economic resources measurement focus, using the accrual basis of accounting. Under this method, all assets and liabilities associated with its operations are included on the statement of net assets; revenues are recorded when earned, and expenses are recorded when liabilities are incurred.
The SFPUC applies all applicable GASB pronouncements.
City Budget Process. The SFPUC’s operating and capital budget preparation and approval is a part of a City- wide process. The SFPUC is one of several departments that prepares biannual budgets. The Commission reviews and approves the SFPUC’s two- year budget, which is then submitted to the Mayor’s Office for review . The Mayor then incorporates the proposed budget, with amendments, into the City- wide budget that is submitted to the Board of Supervisors for approval . Under the Charter, the Board of Supervisors may increase or decrease any proposed expenditure in the Mayor’s budget so long as the aggregate changes do not cause the expenditures to exceed the total amount of expenditures proposed by the Mayor. The Charter further provides that the Mayor may reduce or reject any expenditure authorized by the Board of Supervisors except appropriations for bond interest, redemption or other fixed charges, subject to reinstatement of any such expenditure by a two-thirds vote of the Board of Supervisors.
City Services Auditor. On November 4, 2003, voters in the City adopted Proposition C, an ordinance that established the City Services Auditor (“ CSA”), an audit function within the Office of the City Controller. Pursuant to the provisions of this ordinance, which have been incorporated into the Charter, the CSA has broad oversight authority and responsibilities including, but not limited to, (i) reporting upon level of effectiv eness for City public services, (ii) auditing financial and management performance of City departments and functions, (iii) ensuring the financial integrity and improving the overall performance and efficiency of City government, and (iv) maintaining a whistleblower hotline to investigate upon reports of fraud, waste and abuse .
The CSA published a performance audit of the Wastewater Enterprise in June 2017. The report focused on workorder processes, premium pay, overtime and sick leave. The SFPUC has implemented or closed all of the report’s recommendations.
On February 9, 2022, the CSA issued an audit report of the SFPUC’s revenue bond program. The RBOC engaged CSA, which, in turn, engaged HKA Global, Inc. ( “HKA”) and, as its subcontractor, Yano Accountancy Corporation (“YAC”) to conduct the audit to determine whether revenue bond funds were spent in accordance with the stated purposes and permissible use of such bonds. The audit concluded that revenue bond expenditures were spent appropriately. The report includes two recommendations for SFPUC to coordinate with RBOC to determine the most effective method to comprehensively report project expenditures by funding source and uses of revenue bond proceeds, as well as to comply with its policies regarding quality assurance audits. The SFPUC will work with the RBOC to implement the two recommendations of the audit report by calendar year end 2022 and fiscal year end 2022, respectively.
Financial Management Policies . To support sound financial management practices during periods of instability, ensure organizational accountability and disciplined decision making, and maintain the highest practical credit ratings, the SFPUC conducted an extensive peer review study to compare the financial policies of other United States municipal utilities, analyze rating agency evaluations of financial policies and recommend changes to the SFPUC’s existing financial policies . Based on this study, the Commission adopted in February and March 2017 a Debt Service Coverage Policy, a Capital Financing Policy and a Fund Balance Reserve Policy . Such new policies replaced the SFPUC’s existing Fund Balance Reserve Policy. The SFPUC subsequently revised its Debt Management Policies and Procedures, which the Commission adopted in November 2019. See “– Financial Management Policies.” In addition, the Commission adopted a Ratepayer Assurance Policy to address the prudent use of ratepayer funds and the establishment of rates and charges and to ensure process transparency.
Financial Reporting System. The City implemented a new financial and procurement system in July 2017.
Trained City staff have been using the system to report accounting, procurement and financial information, starting with the information for Fiscal Year 2017-18.
63 4151-5403-8838.1
Wastewater Enterprise Rates and Charges
General. Sewer service charges are the primary funding source for the payment of costs associated with the Wastewater Enterprise’s sanitary wastewater and stormwater collection, treatment and disposal services . Pursuant to the Charter, an independent consultant prepares an analysis of projected revenues and revenue requirements of the Wastewater Enterprise at least once every five years . Based on this analysis, the SFPUC sets rates projected to be sufficient to fund the proposed budget, to maintain an adequate operating reserve and to comply with Indenture requirements. In addition to meeting the SFPUC’s capital financing, debt service coverage and reserve policy minimums, the rates must also comply with regulations or policies promulgated by the EPA, the State Water Resources Control Board and the Board of Supervisors and with the requirements of the City’s Charter and the State Constitution; however, the SFPUC’s sewer service rates are not s ubject to any approval proceedings by the California Public Utilities Commission or any other State or federal agencies . See “CONSTITUTIONAL, STATUTORY AND
CHARTER LIMITATIONS
– State Law Limitations.”
Federal and State Requirements. Under federal clean water laws and regulations, entities accepting federal grant funds and loans (such as the SFPUC) must comply with certain requirements related to the sufficiency of revenues and system operations, maintenance and replacement . Federal and state requiremen ts related to grant and loan funding are administered and enforced by the State Water Resources Control Board. See “REGULATORY MATTERS” for a more detailed discussion of State and Federal regulations affecting the Wastewater Enterprise.
Summary of Charter Rate-Setting Requirements. Pursuant to certain provisions of Proposition E, which became effective with respect to the Wastewater Enterprise on January 3, 2003, the Charter was amended to authorize the Commission to set rates, fees and other charges in connection with providing Wastewater Enterprise services .
These rate changes are subject to rejection, within 30 days of submission, by the Board of Supervisors . If the Board of Supervisors does not act within 30 days, the rates become effective without f urther action.
In setting Wastewater Enterprise rates, fees and charges, the Commission must:
(a) Establish rates, fees and charges at levels sufficient (i) to improve or maintain financial condition and bond ratings at or above levels equivalent to highly rated utilities (see “RATINGS”), (ii) to meet requirements and covenants under all bond resolutions and indentures (including the Indenture) and (iii) to provide sufficient resources for the continued financial health (including appropriate reserves), operation, maintenance and repair, consistent with good utility practice; (b) Retain an independent rate consultant to conduct rate and cost of service studies at least every five years;
(c) Set retail rates, fees and charges based on the cost of service; (d) Conduct all studies mandated by applicable State or f ederal law to consider implementing connection fees servicing new development;
(e) Conduct studies of rate-based conservation incentives and/or lifeline rates and similar rate structures to provide assistance to low income users, and to take the results of each study into account when establishing rates, fees and charges, in accordance with State and federal laws; and (f) Adopt annually a rolling five-year forecast of rates, fees and charges.
Rate Setting Process. The Wastewater Enterprise periodically adjusts rates based on a comprehensive cost of service analysis and the resulting revenue requirement analysis, as required by the Charter . The biannual budget submitted to the Commission, the Mayor and the Board of Supervisors for approval, along with the long- term projections in the 10-year financial plan adopted by the Commission, are used as the basis for determining annual revenue requirements . The Wastewater Enterprise projects revenues under the existing schedule of ra tes for sufficiency. If additional revenues are required to meet budgetary sufficiency or if the cost structure of the Wastewater Enterprise has changed, recommended rate schedule increases are submitted to the Commission for its consideration.
After rec eiving public comment, the Commission adopts a rate resolution and transmits its recommended rate schedules to the Board of Supervisors . Once submitted, the Board of Supervisors has authority under the Charter to
64 4151-5403-8838.1
vote to reject the proposed rate schedules within 30 days. If rejected, the existing rate schedules remain in effect until a new rate schedule is resubmitted by the Commission and not rejected by the Board of Supervisors.
Whenever rates are revised, costs are allocated to pollutant parameters, vo lume, suspended solids, oil and grease, and chemical oxygen demand, and any costs are then allocated to each of the rate categories . See “– Wastewater Enterprise Rates and Charges – Rate Categories.” As part of the annual 10-year financial plan process, the Wastewater Enterprise develops a ten -year rate forecast using projected revenues under existing rates plus additional revenues from projected rate increases, as required, to meet the projected revenue requirements during the forecast period. This forecast is updated each year resulting in a “rolling” rate forecast that is intended to moderate the effects of any significant changes in revenue requirements in any year.
In addition to complying with the requirements of the Charter, the rate-setting process must comply with the requirements of the State Constitution. See “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS – State Law Limitations.”
SFPUC Citizens Advisory Committee and Rate Fairness Board. The Public Utilities Commission Citizens’ Advisory Committee (“ CAC”), established by a Charter amendment in 2002, provides recommendations to the SFPUC’s General Manager and the Board of Supervisors regarding the SFPUC’s long- term strategic, financial and capital improvement plans. The CAC is comprised of 17 appointees. Each member of the Board of Supervisors may appoint one member who must be a resident of his or her supervisory district . Candidates must demonstrate one or more of the following qualifications: represent a community, business, environmental, or environmental justice organization, or have demonstrated knowledge, skill or experience in a field related to public utilities, environmental justice or environmental science. Two additional members of the CAC are appointed by the President of the Board of Supervisors, one of whom represents a small business and the other of whom represents an environmental justice organization. Four members are appointed by the Mayor and must include one member who represents regional water customers o f the SFPUC, one who represents a large City water user, one who has knowledge of engineering or financial management and one who represents a regional or statewide environmental organization.
Proposition E, approved by voters in 2002, directed the establishment of a Rate Fairness Board to advise the SFPUC on water, sewer and power rate matters . The Rate Fairness Board consists of seven members: the City Administrator or his or her designee; the Controller or his or her designee; the Director of the Mayor’s Office of Public Finance or his or her designee; two residential City retail customers, consisting of one appointed by the Mayor and one by the Board of Supervisors; and two City retail business customers, consisting of a large business customer appointed by the Mayor and a small business customer appointed by the Board of Supervisors . Specific powers for the Rate Fairness Board include the authority to: (1) annually review the five- year rate forecasts produced by the SFPUC enterprises, including the Wastewater Enterprise; (2) hold one or more public hearings on annual rate recommendations before the SFPUC adopts rates; (3) provide a report and recommendations to the SFPUC on any rate proposal; and (4) in connection with periodic rate studies, submit to the SFPUC rate policy recommendations for the Commission’s consideration, including recommendations to reallocate costs among various retail utility customer classifications, subject to any outstanding bond requirements. The Rate Fairness Board is not authorized, however, to reject proposed rates approved by the Commission.
Currently Approved Four- Year Rate Schedule. In April 2018, the Commission approved four years of annual retail water and sewer service rate increases beginning July 1, 2018 and applicable to Fiscal Years 2018 -19 through 2021 -22. Separate rate schedules apply to single -family residential, multi- family residential and non - residential customers . In November 2021, the Commission declared a Water Shortage Emergency for the San Francisco Pub lic Utilities Commission (SFPUC) and adopted, among other thing a systemwide 10% water use reduction target from Fiscal 2019- 20 baselines (consisting of a 5% retail customer water use reduction and 13.7% wholesale water use reduction, for a collective syst emwide water-use reduction of 10%), and confirmed an effective date of April 1, 2022 for the mandatory Temporary Drought Surcharge not -to-exceed a 5% increase of current volumetric water and wastewater rates for retail water and wastewater customers. The Water Shortage Emergency will remain in effect until rescinded by the Commission, based on drought conditions, state actions related to curtailments, and customer response to calls for water use reductions . See “THE WASTEWATER ENTERPRISE –
Customer Base.” Under State law, all sewer rates reflect cost of service by customer class.
65 4151-5403-8838.1
Prior to June 30, 2018, 100% of the Wastewater Enterprise’s customer bills were calculated based on metered water volumes, with a per -customer “flow factor” adjustment to estimate the percentage of water that does not enter the system as sewage. Beginning July 1, 2018, in addition to the monthly discharge volume charge, a flat monthly service charge is billed to all wastewater customers. Wastewater service charges recover a portio n of fixed costs associated with customer service and billing, which are the same for all customers . See “– Residential Users and “– Non-Residential Users.”
There is no rate increase planned for Fiscal Year 2022-23. A rate study is expected to be completed in Fiscal Year 2022-23 to inform future rate proposals.
Residential Users. Residential users are charged a fixed monthly service charge and volumetric charges based on discharge units . Monthly discharge units are determined for residential customer accounts by multiplying an account’s total monthly water consumption by the “flow factor” applicable to such account, which calculation is designed to approximate that portion of the account’s total water use returned to the sewer system as wastewater. For example, a customer using 10 units of water and having a flow factor of 90% would be billed for 9 discharge units .
Each discharge unit represents 100 cubic feet of water discharged as approximated by this calculation. The standard flow factor for single -family residential accounts is 90% . The standard flow factor for multi -family residential accounts is 95% . All residential discharge is assumed to be of a standard strength . Multi -family residential water rates have a multiplier based on the number of dwelling units at the service address and sewer service charges are assessed on the basis of water use as billed by the Water Enterprise multiplied by a flow factor.
Prior to June 30, 2017, single and multi-family residential wastewater rates had two tiers. Beginning July 1, 2017, single and multi-family residential wastewater rates have a uniform, single rate for all discharge units.
66 4151-5403-8838.1
TABLE 12
HISTORICAL SINGLE-FAMILY RESIDENTIAL SEWER RATES
FOR FISCAL YEARS 2014-15 TO 2019-20
Fiscal Year
Tier One(1)
Additional
Discharge Units(1)
Estimated Average
Monthly Bill(2)
2014-15 9.06 11.23 $44.89
2015-16 9.82 11.34 $45.97
2016-17 10.84 11.66 $50.24
2017-18 12.40 12.40 $56.92
____________________
(1) Prior to June 30, 2014, the first 300 cubic feet of water consumption was billed at the Tier One rate and all additional discharge units was billed at the single family residential wastewater rate per month. Between July 1, 2014 and June 30, 2016, the firs t 400 cubic feet of water consumption was billed at the Tier One rate and all additional discharge units was billed at the single family residential wastewater rate per month. Effective July 1, 2017, single family residential wastewater billing is based o n a single tier.
(2) Between July 1, 2010 and June 30, 2014, the average water consumption for single family residential customers was assumed to be 600 cubic feet of water per dwelling unit per month. From July 1, 2014 to June 30, 2015, the average water consumption for single family residential customers was assumed to be 530 cubic feet of water per dwelling unit per month. Between July 1, 2015 and June 30, 2018, the average water consumption for single family residential customers was assumed to be 510 cubic feet of water per dwelling unit per mo nth. Effective July 1, 2018, the average water consumption for single family residential customers is 530 cubic feet of water per dwelling unit per month.
Source: SFPUC, Financial Services.
TABLE 13
HISTORICAL MULTI-FAMILY RESIDENTIAL SEWER RATES
FOR FISCAL YEARS 2014-15 TO 2017-18
Fiscal Year
Tier One(1)
Additional
Discharge Units(1)
Estimated Average
Monthly Bill Per
Dwelling Unit(2)
2014-15 9.24 11.48 $36.90
2015-16 9.95 11.51 $37.91
2016-17 10.91 11.75 $40.96
2017-18 12.40 12.40 $45.88
____________________
(1) Prior to June 30, 2016, the first 300 cubic feet of water consumption was billed at the Tier One rate and all additional discharge units was billed at the multi-family residential wastewater rate per month. Effective July 1, 2017, multi-family residential wastewater billing is based on a single tier.
(2) Between July 1, 2010 and June 30, 2014, the average water consumption for multi-family residential customers was assumed to be 1,200 cubic feet of water per month for 3 dwelling units. From July 1, 2014 to June 30, 2018, the average water consumption for multi -family residential customers was assumed to be 1,100 cubic feet of water per month for 3 dwelling units. Effective July 1, 2018, the average water consumption for single -family residential customers is assumed to be 5,300 cubic feet of water per month. Multi-family residential customers is assumed to be 1,250 cubic feet of water per month for 3 dwelling units.
Source: SFPUC, Financial Services.
67 4151-5403-8838.1
TABLE 14
ADOPTED SINGLE-FAMILY AND MULTI-FAMILY RESIDENTIAL SEWER RATES FOR FISCAL YEARS 2018-19 TO 2022-23
Fiscal Year
Monthly
Service
Charge
All Discharge
Units
Projected
Average
Monthly Bill
(Single-Family)
Projected Average
Monthly Bill Per
Dwelling Unit(1)
(Multi-Family)
2018-19 $0.98 $13.06 $61.84 $52.02
2019-20 $2.19 $13.88 $65.76 $55.67
2020-21 $3.60 $14.89 $75.37 $60.14
2021-22 $5.21 $15.97 $75.48 $71.75
2022-23(2) $5.21 $15.97 $75.48 $71.75
________________
(1) Multi-family residential customers is assumed to be 1,250 cubic feet of water per month for 3 dwelling units. (2) Temporary Drought Surcharge in effect as of April 1, 2022 projected to remain in effect through Fiscal Year 2023 -24 is expected to be bill neutral for customers that meet established conservation targets.
Source: SFPUC, Financial Services.
Non-Residential Users . Non -residential wastewater rates include a fixed monthly service charge and a uniform rate for volume plus per pound strength charges. Non-residential users are charged the cost for each parameter according to the schedule of rates in the table below. Customers whose parameter loadings are not based on periodic sampling are charged based on standard parameter loadings established by the General Manager for each Standard Industrial Classification code in accordance with applicable state and federal laws and regulations .
TABLE 15
HISTORICAL AND ADOPTED NON-RESIDENTIAL DISCHARGE RATES
(PER DISCHARGE UNIT)
F
iscal Year
Volume charge
(per 100 cubic
feet)
Suspended solids
(per pound)
Oil/Grease
(per pound)
Chemical Oxygen
Demand
(per pound)
2014-15 6.1450 0.8280 0.8670 0.4400
2015-16 6.4530 0.8700 0.8670 0.4400
2016-17 6.9040 0.9310 0.9740 0.4940
2017-18 7.6640 1.0330 1.0820 0.5480
2018-19(1) 7.8400 1.3200 1.3310 0.5190
2019-20(1) 8.2900 1.4120 1.4240 0.5550
2020-21(1) 8.8600 1.5250 1.5380 0.5990
2021-22(1) 9.4600 1.6470 1.6610 0.6470
____________________
(1) Rates approved on April 10, 2018. Non-residential users are billed a fixed monthly service charge: these rates for Fiscal Years 2018-19, 2019-20, 2020-21 and 2021-22 were $0.98, $2.19, $3.60 and $5.21 per month, respectively.
Source: SFPUC, Financial Services.
On July 24, 2018, the Commission adopted rules for billing stormwater -related sewer service charges for Unmetered Properties. Non-residential owners of vacant lots, parking lots, and other properties in the City that do not have water or wastewater service (i.e., “unmetered properties”) that are determined to be “Low Runoff” or “Standard Runoff” under the adopted rules are charged the following monthly sewer service charges. These charges are derived from the same adopted rates for the portion attributable to the disposal of stormwater runoff from properties with existing water and wastewater accounts, therefore no new rates were adopted as a result of the Commission’s actions.
68 4151-5403-8838.1
TABLE 16
SFPUC WASTEWATER ENTERPRISE
HISTORICAL AND ADOPTED SEWER RATES
FOR NON-METERED PARCELS
(MONTHLY SEWER SERVICE ATTRIBUTABLE TO STORMWATER RUNOFF)
Fiscal Year Low Runoff Standard Runoff
2018-19(1) $19.83 $32.49
2019-20(1) $20.47 $33.56
2020-21(1) $21.31 $34.93
2021-22(1) $22.16 $36.31
(1) Rates approved on April 10, 2018. This is a monthly sewer service charge attributable to stormwater runoff for property owners who do not have water and wastewater accounts with the SFPUC.
Appeals. While most customers are billed for sewer usage based on standard flow factor assumptions, customers may appeal this determination . For example, it is assumed that 90% of the volume of water measured at the customer meter for a single- family residential user is discharged to the sewer system as wastewater requiring treatment. Customers who can demonstrate higher rates of consumptive use than that reflected in the applicable flow factor, such as irrigation, can apply to the Residential Users Appeals Board for a lower flow factor (i.e., percentage of metered water returned to the sewage system).
Revenues
Sewer Service Charges. Sewer service charges are imposed based on discharge volume estimates and, in the case of non-residential users, suspended solids, oil and grease and chemical oxygen demand. See “WASTEWATER ENTERPRISE – Rates and Charges.” The following tables show billed discharge by category and annual sewer billings by customer class for Fiscal Years 2016-17 to 2020-21.
TABLE 17
ANNUAL BILLED DISCHARGE BY CATEGORY
FOR FISCAL YEARS 2016-17 TO 2020-21
Fiscal Year
Volume
(Hundred Cubic
Feet)
Suspended Solids
(Thousand
Pounds)
Oil and Grease
(Thousand
Pounds)
Chemical Oxygen
Demand
(Thousand
Pounds)
2016-17 23,819,100 41,455 12,630 101,631
2017-18 24,344,842 42,370 12,908 103,874
2018-19 23,869,718 41,543 12,656 101,847
2019-20 23,671,422 41,198 12,551 101,001
2020-21 21,242,770 36,971 11,264 90,638
____________________
Source: SFPUC, Financial Services.
69 4151-5403-8838.1
TABLE 18
ANNUAL SEWER BILLINGS BY USER TYPE
FOR FISCAL YEARS 2016-17 TO 2020-21
(IN THOUSANDS)
User Type 2016-17 2017-18 2018-19 2019-20
2020-21
Multi-Family Residential $110,829 $126,789 $133,454 $146,630 $153,697 Single-Family Residential 66,661 76,534 79,971 89,688 95,297 Subtotal Residential $177,490 $203,323 $213,425 $236,318 $248,994
Commercial(1) $80,968 $89,802 $90,781 $86,237 $60,490 Municipal Customers 7,586 7,163 7,517 7,400 6,114
Suburban 2 4 3 3 3
Total $266,046 $300,292 $311,726 $329,958 $315,601
(1) Decrease in Fiscal Year 2020-21 primarily due to decrease in sanitary flow related to the effects of the COVID-19 pandemic.
Source: SFPUC, Financial Services.
Sewer Account Billing and Delinquencies. Sewer service charges are billed on a combined water and sewer utility bill on either a monthly or bi-monthly basis. Payments are due 15 days after the bill date. If payments are not made, late payment charges are assessed 15 days from the due date or 30 days from the bill date . Accounts are considered delinquent 15 days after a second unpaid bill. Water service may be disconnected, or a lien may be assessed against the property for non-payment of water and sewer services.
Since March 2020, the number of delinquent SFPUC accounts has grown significantly due to the COVID - 19 pandemic. See “THE PUBLIC UTILITIES COMMISSION – COVID-19 Pandemic – Financial Impact.” Current accounts receivables are shown in the following table. These amounts exclude receivables from municipal customers.
TABLE 19
ACCOUNTS RECEIVABLES AGING REPORT
AS OF JUNE 30, 2021
Period Amount Percent of Total
Percent of Total
Fiscal Year 2020-21
Revenues(1)
Current $13,282,929 53.71% 4.20%
31 – 60 Days 2,149,645 8.69 0.68
61 – 90 Days 1,243,135 5.03 0.39
Over 90 Days(2) 8,053,791 32.57 2.55
Total $24,729,500 100.00%
Credit Balances (958,595)
Total Aged Receivables $23,770,905
Less Allowance For Doubtful Accounts (5,937,718)
Accounts Receivable, Net of Allowance $17,833,187
____________________
(1) Revenues consists of sewer service charges only.
(2) Includes approximately $1.8 million in outstanding tax liens and balances forwarded to the City Treasurer’s Bureau of Delinquent Revenue for collection.
Source: SFPUC, Financial Services.
70 4151-5403-8838.1
Once an account is delinquent, a series of notices are sent to the customer and if payment is still not made, action to shut -off the water supply is initiated . However, if the delinquent account is in the name of the property owner and payment is still not made despite such notices, the customer will receive a lien warning notice. After a lien notice is delivered, a lien hearing is held and, if the bill still remains outstanding, the lien is recorded and can only be removed upon full payment of all unpaid charges, plus administrative fees and interest . Liens not paid during the Fiscal Year in which they are recorded are transferred to the City Tax Collector’s Office, Bureau of Delinquent Revenues for collection as a lien against the property. Accounts for which property transfers occurred prior to recording the lien and closed accounts with amounts less than $25 are normally written off as uncollectible .
Because of these collections processes, the SFPUC’s annual write-offs for wastewater accounts remain relatively low. There is, however, currently a moratorium on water disconnections and collection activities, set to expire in June 2022 for nonresidential customers and July 2022 for certain residential customers, due to the COVID - 19 Emergency. See “THE PUBLIC UTILITIES COMMISSION – COVID-19 Pandemic.” The following table shows a five-year history of write-offs for uncollectible accounts, excluding municipal customers:
TABLE 20
WRITE-OFFS FOR UNCOLLECTIBLE ACCOUNTS
FISCAL YEARS 2015-16 TO 2020-21
Fiscal Year Amount
2015-16 $10,390
2016-17 43,552
2017-18(1) 132,589
2018-19 2,232
2019-20 1,631
2020-21(2) 1,801
____________________
Source: SFPUC, Financial Services.
(1) In Fiscal Year 2017-18, the Bureau of Delinquent Revenues reported uncollectible amounts of approximately $130,000 written off.
(2) In Fiscal Year 2021, SFPUC eliminated account balances written off from prior to Fiscal Year 2015-16 through 2020-21 totaling $1,930,864.
Capacity Charges. Effective July 1, 2005, any customer requesting a new connection to the sewer system or requiring additional collection or treatment capacity because of any addition, improvement, modification or change in use of an existing connection as determined solely by the General Manager must pay a capacity charge for the new or additional capacity required to serve the customer. The capacity charge is site specific and may not be sold, traded or conveyed in a manner to another site or customer . The capacity charge does not convey or imply ownership in or of any facilities of the Wastewater Enterprise.
Effective July 1, 2014, capacity charges are assessed based on water meter equivalents, which provide a direct estimate of wastewater flow to the system, and Standard Industrial Classification code, which accounts for wastewater strength. For a singl e residential customer with a 5/8” water meter, the wastewater capacity charge fee for Fiscal Year 2021-22 is $5,068. The capacity charge is adj usted on July 1 of each subsequent year by the annual change in the 20-City Average Construction Cost Index published by Engineering News Record Magazine .
Capacity charges have averaged approximately 1.8% of revenues over the past three years.
Operating and Maintenance Expenses
“Operating and Maintenance Expenses” cover the general operational expenses of the W astewater Enterprise. These expenses include labor and employment benefits, contractual services, materials and supplies, depreciation, general and administrative, services from other departments and other miscellaneous costs . See “HISTORICAL OPERATING RESULTS” and “THE PUBLIC UTILITIES COMMISSION – Employee Relations.”
Services from other departments include payment for services from other City departments, such as the City Attorney’s Office and the General Services Agency.
71 4151-5403-8838.1
Allocation of Costs . Various common costs incurred by the SFPUC are allocated among the Wastewater Enterprise, the Water Enterprise and the Power Enterprise. Allocations are based on the SFPUC management’s best estimate and may change from year to year depending on activities underta ken by each enterprise and information available.
For Fiscal Years 2019-20 and 2020-21, the SFPUC allocated $27.9 million and $29.5 million respectively, in administrative costs to the Wastewater Enterprise. For Fiscal Year 2021-22, the SFPUC has budgeted $36.4 million in administrative costs to the Wastewater Enterprise. Administrative costs are recorded as personal service expenses and also in other various operating expenses in the Wastewater Enterprise financial statements.
Payments to/from the City. The SFPUC receives payments from other agencies of the City for their share of the proportionate cost of the service provided to them . For Fiscal Years 2019 -20 and 2020- 21, t hese service deliveries generated approximately $ 5.8 million and $5.1 million in revenues, respectively. Over the past five Fiscal Years, including Fiscal Year 2020- 21, revenues from service deliveries have averaged approximately 1. 6% of Wastewater Enterprise revenues. For Fiscal Year 2021 -22, the SFPUC has budgeted $7.8 million in revenues from service deliveries.
A variety of City departments provide services such as engineering, purchasing, legal, data processing, telecommunications and human resources to the Wastewater Enterprise, and charge amounts designed to recover those costs. For Fiscal Years 2019 -20 and 2020-21, these charges totaled approximately $37.3 million and $38.3 million, respectively. For Fiscal Year 2021-22, the SFPUC has budgeted $37.7 million for such charges.
The SFPUC makes payments to the City relating to the financing of the SFPUC’s headquarters at 525 Golden Gate Avenue, San Francisco, California. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Other Obligations Payable from Net Revenues.”
Financial Management Policies
The SFPUC makes no representation that the following policies will not be revised or amended and, except to the extent required for compliance with the terms of the Indenture, makes no representation that these policies will be followed by the SFPUC.
Debt Management Policies and Procedures . The SFPUC has established “Debt Management Policies and Procedures” (the “Debt Policies”) for debt financing under its jurisdiction. The SFPUC has also established separate “SFPUC Bond Disclosure Policies and Procedures” (the “Disclosure Policies ”) which are appended to the Debt Policies. The Debt Policies, including the appended Disclosure Policies, apply to all SFPUC enterprises, including the Wastewater Enterprise, and are intended to enable the SFPUC to effectively manage its debt issuance and administration practices and comply with all debt issuance and administration rules and regulations. The Debt Policies are reviewed bi-annually and revised, as necessary, with Commission approval.
Revisions to the Debt Policies were most recently adopted by the Commission on November 26, 2019. This included revisions to three key areas:
(1) Disclosure – The Disclosure Policies now cover two amendments that were made to Rule 15c2 -12, effective February 27, 2019 (the “Rule 15c2-12 Amendments”). See the Listed Events 15 and 16 in “APPENDIX D – FORMS OF CONTINUING DISCLOSURE CERTIFICATE.” In addition, pursuant to the Disclosure Policies, the SFPUC developed a Disclosure Practices Working Group (the “DPWG”). The DPWG will meet at least semiannually to better and more effectively administer the SFPUC’s continuing disclosure requirements, particularly to monitor the SFPUC’s financial obligations and financial difficulties, if any, in light of the Rule 15c2-12 Amendments. The DPWG is comprised of the Assistant General Manager, Business Services and Chief Financial Officer, two Deputy Chief Financial Officers and the Debt Manager of the SFPUC, with legal consultation from the City Attorney’s Office and the SFPUC’s outside disclosure counsel.
(2) Variable Rate Obligations – The Debt Policies, which set forth and describe various types of debt obligations that the SFPUC may issue, now allow the SFPUC to issue variable rate obligations of the Wastewater Enterprise with more market-standard provisions.
72 4151-5403-8838.1
(3) WIFIA Loans –The Debt Policies were revised to add WIFIA loans as a permitted form of low-cost debt financing instrument, comparable to the low-cost State Revolving Fund loans that the SFPUC has, from time-to- time, executed with the S tate. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Water Infrastructure Finance and Innovation Act Loans.”
Debt Service Coverage Policy. The Commission adopted a debt service coverage policy (the “Debt Service Coverage Policy”) on March 28, 2017, which applies to all SFPUC enterprises, including the Wastewater Enterprise.
Pursuant to the Debt Service Coverage Policy, to ensure that the SFPUC maintains access to low -cost capital and retains financial flexibility for contingencie s, the SFPUC will aim to adopt budgets, rates and financial plans that generate revenues such that debt service coverage on an Indenture basis (including certain available fund balances) will be at least 1.35 times and debt service coverage on a current basis will be at least 1.10 times.
The Indenture includes a rate covenant of 1.25 times coverage (including certain available fund balances) .
See “SECURITY FOR THE BONDS – Rate Covenants – Debt Service Coverage.” Capital Financing Policy . The Commission adopted a capital financing policy (the “Capital Financing Policy”) on March 28, 2017, which applies to all SFPUC enterprises, including the Wastewater Enterprise . The SFPUC relies mainly on current revenue and debt financing to pay for capital assets or im provements. According to the Capital Financing Policy, the appropriate mix of current revenues versus debt financing depends, in part, on the capital investment lifecycle of the Wastewater Enterprise. Accordingly, the SFPUC has determined that over the 1 0- year financial planning horizon, the SFPUC will aim to pay for a minimum ranging between 15% and 30% of the Wastewater Enterprise’s capital budget from current revenues.
Fund Balance Reserve Policy. The Commission adopted a fund balance reserve policy (the “Fund Balance Reserve Policy”) on February 28, 2017, which applies to all SFPUC enterprises, including the Wastewater Enterprise.
Pursuant to the Fund Balance Reserve Policy, for the time period covered in the 10 -year financial plan, the SFPUC will aim to propose operating and capital budgets and rates for adoption such that the Fund Balance Reserve totals a minimum of 90 days or 25% of operations and maintenance expenses (including programmatic projects and excluding debt service and revenue-funded capital) throughout the forecast period. Amounts in excess of such minimum will be considered for contingencies and rate stabilization.
The SFPUC makes no representation that this policy will not be revised or amended and, except to the extent required for compliance with the terms of the Indenture, makes no representation that this policy will be followed by the SFPUC.
Investment of SFPUC Funds
The SFPUC’s pooled deposits and investments are invested pursuant to State law and the investment policy established from time to time by the City Treasurer and overseen by the Treasury Oversight Committee . The current policy seeks the preservation of capital, liquidity and yield, in that order of priority. Under the City Treasurer’s current investment procedures, the SFPUC’s pooled deposits and investments are invested in the City’s larger pooled investment fund (the “City Pool”). Among other purposes, the City Pool serves in effect as a disbursement account for expenditures from the City’s various segregated and pooled funds . Investments are generally made so that securities can be held to maturity. The City Treasurer calculated the weighted average maturity of these investments as of January 31, 2022, to be 631 days.
The following table sets forth the approximate book values of the investments held in the City Pool reported by the City Treasurer as of January 31, 2022. The Wastewater Enterprise’s pooled deposits and investments accounted for approximately $[ ___] million, or approximate ly [___]%, of such amounts . The Water Enterprise and the Power Enterprise each have their own pooled deposits and investments that are separate from the Wastewater Enterprise.
73 4151-5403-8838.1
TABLE 21
CITY POOLED INVESTMENT FUND
(AS OF JANUARY 31, 2022)
Investments
Book Value
(millions)
U.S. Treasuries $ 4,747.8
Federal Agencies 4,874.1
Public Time Deposits 40.0
Negotiable CDs 2,195.0
Commercial Paper 533.2
Money Market Funds 814.1
Supranationals 496.7
Total $13,701.9
____________________
Source: Office of the Treasurer and Tax Collector of the City and County of San Francisco.
The SFPUC’s non -pooled deposits and investments consist primarily of funds related to the SFPUC’s Outstanding Bonds, which are invested pursuant to policy established by the SFPUC, subject to the restrictions contained in the applicable bond documentation.
Risk Management and Insurance
The SFPUC’s risk management program encompasses both self -insured and insured coverage . Risk assessments and coverage are coordinated by the SFPUC Enterprise Risk Manager through the City Office of Risk Management. With certain exceptions, the City and SFPUC’s general approach is to first evaluate self -insurance for the risk of loss to which it is exposed. Based on this analysis, the SFPUC has determined that mitigating risk through a “self -retention” mechanism is more economical as it manages risks internally and administers, adjusts, settles, defends and pays claims from budgeted resources (i.e ., pay-as-you-go). When economically more viable or when required by debt financing covenants, the SFPUC obtains commercial insurance .
At least annually, the City reviews and actuarially determines general liability and workers’ compensation liabilities, which are recorded as “Damages and Claims” and “Accrued Worker’s Compensation” in the financial statements.
The SFPUC does not maintain commercial earthquake coverage, with certain minor exceptions, such as a sub-limit for fire-sprinkler leakage due to earthquake under the Property Insurance program.
The following is a summary of the SFPUC’s coverage approach to risk:
Primary Risks Typical Coverage Approach
General Liability Self-Insured
Property Purchased Insurance & Self-Insured
Electronic Data Processing Purchased Insurance & Self-Insured Workers’ Compensation Self-Insured through City-Wide Pool Other Risks Typical Coverage Approach
Surety Bonds Purchased and Contractually Transferred
Professional Liability Combination of Self-Insured, Purchased Insurance and Contractual Risk Transfer Errors & Omissions Combination of Self-Insured, Purchased Insurance and Contractual Risk Transfer Builders Risk Purchased Insurance & Contractual Risk Transfer Public Officials Liability Purchased Insurance
Employment Practices Liability Purchased Insurance
Crime Purchased Insurance
Cyber Liability Purchased Insurance
74 4151-5403-8838.1
The SFPUC’s property risk management approach varies depending on whether the facility is currently under construction, or if the property is part of revenue -generating operations. The majority of purchased insurance is for revenue-generating facilities, debt- financed facilities and mandated coverage to meet statutory or contractual requirements.
Additionally, the SFPUC acknowledges the importance of aligning strategic planning to the risk management process and has implemented an Enterprise Risk Management (“ERM”) program to meet this need . The framework provides a strategic approach to managing operational risks . The ERM program has been implemented thus far for Information Technology Services , the Power Enterprise and CleanPowerSF and plans are in place to continue implementation across the remainder of the SFPUC as needed.
Capital Project Risk Management . For capital construction projects, the SFPUC has utilized traditional contractual risk transfer, contractor-controlled insurance programs or other alternative insurance programs. Under the latter two approaches, the insurance program usually provides coverage for the entire construction project, along with multiple risk coverages, such as general liability and workers compensation. When a contractual risk transfer is used for capital construction risks, the SFPUC requires each contractor to provide its own insurance, while ensuring that the full scope of work be covered with satisfactory levels to limit the SFPUC’s risk exposure balanced by that which is commercially available.
Performance bonds are required, and Builder’s Risk insurance must be purchased, in most phases of the construction contracting process for such phases, as bid, performance, and payment or maintenance . Additionally, bonds may be required in other contracts where goods or services are provided to ensure compliance with applicable terms and conditions such as warranty.
Professional liability policies are either directly purchased insurance on behalf of the SFPUC, transferred through contract to the contracted professional, or retained through self- insurance on a case by cas e basis depending on the size, complexity or scope of construction or professional service contracts . Professional liability policies are typically purchased for services provided by engineers, architects, design professionals and other licensed or certified professional service providers.
Builder’s Risk policies of insurance are required to be provided either through an owner-controlled insurance program or the contractor on all construction projects for the full value of the construction.
HISTORICAL OPERATING RESULTS
Summary of Historical Operating Results and Debt Service Coverage The historical results of operations reflected in the following table are based on the tables contained in the Financial Statements entitled “Statements of Revenues, Expenses and Changes in Net Position” and “Statements of Cash Flows” for the Fiscal Years listed. This table excludes certain non-operating revenue and expenses included in the “Statements of Revenues, Expenses and Changes in Net Position” table. Consequently, “Operating and Investment Income” presented in this table differs from “Change in net position” in the “Statements of Revenues, Expenses and Changes in Net Position” table. The calculation of debt service coverage includes net operating income and funds not budgeted to be spent in the next twelve months and legally available to pay debt service, as permitted under the Indenture. The audited financial statements of the Wastewater Enterprise for Fiscal Years 2019-20 and 2020-21, prepared by the SFPUC and audited by KPMG LLP, independent certified public accountants, are attached as APPENDIX B to this Official Statement. The following table should be read in conjunction with such financial statements . KPMG LLP has not reviewed the following table . See “APPE NDIX B – SFPUC
WASTEWATER ENTERPRISE FINANCIAL STATEMENTS.”
(Remainder of Page Intentionally Left Blank)
75 4151-5403-8838.1
TABLE 22
HISTORICAL REVENUE, OPERATING & MAINTENANCE EXPENSE
AND DEBT SERVICE COVERAGE FOR FISCAL YEARS ENDED JUNE 30 (IN THOUSANDS)(1)
2017 2018 2019 2020 2021
OPERATING & INVESTMENT REVENUE
Sewer Service Charges(2) $267,601 $303,037 $317,761 $331,721 $316,766 Other Revenues 5,395 6,273 6,443 6,511 5,719
Investing Activities(3) 2,327 2,317 20,701 12,137 (1,187) Capacity Charges(4) 4,345 5,786 6,877 5,896 3,710
Total Revenues $279,668 $317,413 $351,782 $356,265 $325,008
OPERATING & MAINTENANCE EXPENSE
Salary and Fringe Benefits(5) $115,288 $91,977 $80,693 $91,013 $90,449 Contractual Services 13,825 16,061 19,040 19,357 18,861 Materials and Supplies 8,736 9,446 9,853 8,991 9,091
Depreciation(6) 55,441 55,591 60,033 62,967 72,018
Services of Other Departments 36,832 36,374 36,629 37,309 38,313 General and Administrative (7) 406 3,958 6,470 4,969 3,854 Other(8) 13,692 25,499 47,095 37,653 58,151
Total Operating Expenses $244,220 $238,906 $259,813 $262,259 $290,737
OPERATING AND INVESTMENT INCOME $36,448 $78,507 $91,969 $94,006 $34,271
COVERAGE CALCULATION
Operating and Investment Income $36,448 $78,507 $91,969 $94,006 $34,271 + Adjustment to Investing Activities 251 (489) (8,047) 2,950 4,356 + Depreciation & Non-Cash Expenses 57,998 60,072 68,568 68,603 78,368 + Changes in Working Capital 26,292 18,336 (2,125) 523 (8,596) = “Net Revenues” (9)(10) 119,989 156,426 150,365 166,082 108,399 + Other Available Funds(11) 131,554 153,596 103,281 215,722 197,778 Funds Available for Bond Debt Service $251,543 $310,022 $253,646 $381,804 $306,177 Bond and Loan Debt Service(13) $48,769 $47,003 $60,347 $62,797 $82,066 DEBT SERVICE COVERAGE (12)
Indenture Basis (11)(14)(16) 5.16x 6.60x 4.20x 6.08x 3.73x Current Basis (15)(16) 2.46x 3.33x 2.49x 2.64x 1.32x
____________________
(1) Operating and Investment Income presented in this table differs from the Change in Net Assets presented in the Statement of Revenues, Expenses and Changes in Net Assets in the Audited Financial Statements. See “APPENDIX B – SFPUC WASTEWATER ENTERPRISE FINANCIAL STATEMENTS.” This table presents Debt Service Coverage as defined under the Indenture and excludes certain elements of non-operating revenue and expenses included in the Statements of Revenues, Expenses and Changes in Net Assets. Examples of excluded elements are grant revenue, interest expense and gains from sale of assets. Totals may not add due to independent rounding.
(2) Decease in Fiscal Year 2020-21 mainly due to rate increase effective July 1, 2018 offset by a sanitary flow decrease of 10.2% from residential and non-residential customers and increase in allowance for uncollectible accounts. (3) Decrease in Fiscal Year 2020-21 is mainly due to lower pooled and fiscal agent cash balances, and lower annualized interest rates. (4) Decrease in Fiscal Year 2020-21 due to 8% decrease in number of permits issued and 25% decrease in average permit price. (5) Decrease in Fiscal Year 20-21 is mainly due to a decrease in other post-employment benefits obligations offset by increases to pension related expenses and 3% cost of living adjustment (COLA). (6) Increase in Fiscal Year 2020-21 is primarily due to more capitalized assets put in service. (7) Decrease in Fiscal Year 2020-21 is mainly due to decrease in judgment and claims expenses. (8) Increase in Fiscal Year 2020-21 of $20 million is mainly due to higher capital project expenses. (9) The Indenture defines “Net Revenues” on a cash basis. (10) Represents adjustments to show investing activities on a cash basis. (11) Per the Indenture, includes any fund balances of the SFPUC or the Wastewater Enterprise available for payment of debt service and not budgeted to be expended during the 12 months following a calculation date, excluding monies held in any Reserve Account established under the Indenture.
76 4151-5403-8838.1
(12) Coverage does not include debt service on subordinate obligations, including the Wastewater Enterprise’s share of lease payments associated with the 2009 Golden Gate COPs and debt service on Commercial Paper Notes. (13) Bond Debt Service and Debt Service Coverage calculated per Indenture are net of capitalized interest and Federal interest subsidy payments; these differ from amounts presented in previous Annual Reports (as defined herein) and SFPUC Comprehensive Annual Financial Reports.
(14) Calculated as the sum of Net Revenues plus “Other Available Funds,” divided by debt service on Bonds and Parity Loans. The Indenture includes a rate covenant of 1.25x “Debt Service Coverage.” See “SECURITY FOR THE BONDS – Rate Covenants – Debt Service Coverage.”
(15) Calculated as Net Revenues divided by debt service on Bonds and SRF Loans. (16) The Wastewater Enterprise recorded certain immaterial corrections to the Fiscal Year 2017 -18 financial statements to eliminate the recognition of certain capital assets; the impact of the change was to increase Fiscal Year 2017 -18 expenses and decrease beginning net position as of July 2017. As a result of this change, the ratio calculated for Fiscal Year 2017-18 differs from the ratio presented in the Annual Disclosure Report for Fiscal Year 2017-18.
Source: SFPUC, Financial Services.
PROJECTED OPERATING RESULTS
The following table presents projected operating results for the Wastewater Enterprise . These projections are based on an analysis of historic trends, adjusted where appropriate for known or anticipated changes in operations, as well as impacts of the COVID-19 pandemic. The projections are also based on the assumption that all rate increases necessary to finance future expenses, including the SSIP and other capital programs, will be approved and implemented.
THESE PROJECTIONS, ALL OR SOME OF WHICH MAY OR MAY NOT BE REALIZED, ARE BASED ON THE ISSUANCE OF ADDITIONAL BONDS FOR THE CAPITAL PROGRAM, INCLUDING SSIP .
CHANGES IN THE CIRCUMSTANCES THAT FORM THE BASES FOR THE ASSUMPTIONS USED IN
DEVELOPING THESE PROJECTIONS, AS WELL AS UNANTICIPATED EVENTS, MAY OCCUR SUBSEQUENT TO THE DATE OF THE OFFICIAL STATEMENT . THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE PROJECTIONS SHOWN.
77 4151-5403-8838.1
TABLE 23
PROJECTED REVENUE, OPERATING AND MAINTENANCE EXPENSE
AND DEBT SERVICE COVERAGE FOR FISCAL YEAR ENDING JUNE 30 (IN THOUSANDS)(1)
2022 2023 2024 2025 2026
REVENUE
Sewer Service(2) $358,357 $367,252 $411,475 $435,510 $480,404 Capacity Charges 5,178 5,695 5,695 5,695 5,695
Interest Income(3) 3,571 606 508 516 394
Other Miscellaneous Income 3,649 2,812 2,889 2,963 3,037 Total Revenues $370,755 $376,365 $420,567 $444,684 $489,530
OPERATION AND MAINTENANCE
COSTS OF THE WASTEWATER
ENTERPRISE(4) $221,059 $196,213 $202,814 $207,541 $213,678 less FUND BALANCE BUDGETED
AND APPROPRIATED (14,565)
NET REVENUES(5) $164,262 $180,152 $217,753 $237,143 $275,852
plus OTHER AVAILABLE FUNDS(6) 185,702 121,269 101,586 103,255 78,873
FUNDS AVAILABLE FOR DEBT
SERVICE $335,399 $301,422 $319,339 $340,398 $354,726
DEBT SERVICE(7) $91,640 $110,073 $116,433 $132,395 $146,790
DEBT SERVICE COVERAGE(8)
Indenture Basis(9)
3.66 2.74
2.74 2.57 2.42
Current Basis(10)
1.79 1.64
1.87 1.79 1.88
____________________
(1) Amounts set forth in the table are projections. Actual results may differ materially from these projections. See “FORWARD - LOOKING STATEMENTS” and “– Assumptions Used in Projections.” Totals may not add due to independent rounding. Amounts set forth for Fiscal Year 2020-21 in the table have been adjusted in part to reflect actual amounts, (2) Reflects adopted annual rate increases of 8% for Fiscal Year 2021-22, 0% for Fiscal Year 2022-23, 9% for Fiscal Year 2023-24 and 9% for Fiscal Year 2024-25, 8% for Fiscal Year 2025-26, and 9% for Fiscal Year 2026-27. See “– Assumptions Used in Projections.” (3) Assumes a 0.5% earnings rate on invested cash balance over projection period. (4) Operating and Maintenance Expenses net of depreciation and other non-cash items per Indenture. (5) Represents Net Revenues under the Indenture.
(6) Per the Indenture, includes any fund balances of the SFPUC or the Wastewater Enterprise available for payment of debt service and not budgeted to be expended during the 12 months following a calculation date, excluding monies held in any Reserve Account established under the Indenture.
(7) Consists of debt service on Outstanding Bonds and Notes, Additional Bonds and Parity Loans, net of capitalized interest and anticipated BABs Subsidy Payments. BABs Subsidy Payments expected to be received assume the continuation of 5.7% sequestration rate effective October 1, 2020. See “SECURITY FOR THE BONDS AND REPAYMENT OF THE 2022ABCD Bonds – Rate Covenants – Debt Service Coverage.” Future debt issuances to fund renewal and replacement and SSIP capital projects are expected to total approximately $3.4 billion over the projection period. Standard assumptions include 30-year term, 3.75-4% interest rate, and 30 months of capitalized interest. The actual size and timing of issuances will depend on mar ket conditions and other factors as determined by the SFPUC. “Debt Service” is net of Federal interest subsidy payments. In accordance with the Indenture, prin cipal of the 2021AB Notes is excluded from Debt Service.
(8) Coverage does not include debt service on subordinate obligations, including the Wastewater Enterprise’s share of lease payments associated with the 2009 Golden Gate COPs and debt service on Commercial Paper Notes. (9) Calculated as the sum of Net Revenues plus “Other Available Funds,” div ided by debt service on Bonds and Parity Loans. The Indenture includes a rate covenant of 1.25x “Debt Service Coverage.” See “SECURITY FOR THE BONDS AND REPAYMENT OF THE 2022ABCD Bonds – Rate Covenants – Debt Service Coverage.” (10) Calculated as Net Revenues divided by debt service on Bonds and Parity Loans.
Source: SFPUC, Financial Services.
78 4151-5403-8838.1
Assumptions Used in Projections
In the preparation of the projections set forth in the table above, the SFPUC has made certain assumptions with respect to conditions that may occur in the future. While the SFPUC believes these assumptions are reasonable for the purpose of the projections, they are dependent on future events, and actual conditions are likely to differ, perhaps materially, from those assumed . To the extent actual future conditions differ from those assumed by the SFPUC or provided to the SFPUC by others, actual results will vary from those projected. This projected information has not been compiled, reviewed or examined by the SFPUC’s independent au ditors.
The assumptions used in the table above include the following:
Projected Revenue and Rate Increases. Projected revenues are based on projected wastewater service sales and the schedules of rates to be effective in each year. In April 2018, the SFPUC adopted schedules of rates to be effective in Fiscal Years 2018-19 through 2021-22. The adopted schedules provide for rate increases of 8% in Fiscal Year 2020-21 and Fiscal Year 2021-22. Projected revenues assume rate increases of 0% in Fiscal Year 2022-23, 8% in Fiscal Year 2023-24 and 9% in Fiscal Year 2024-25. The 5% drought surcharge effective April 1, 2022 is projected to continue through Fiscal Year 2023-24.
Projected Operation and Maintenance Costs of the Wastewater Enterprise . Operation and Maintenance Costs of the Wastewater Enterprise are projected to grow 20.8% for Fiscal Year 2021- 22, decrease 3.7% for Fiscal Year 2022-23, grow 3.3% for Fiscal Year 2023 -24, grow 2.29% for Fiscal Year 2024- 25, and grow 2.9% for Fiscal 2025-26. Projected decreases in operating expenses in Fiscal Year 2022 -23 reflect continued operation and maintenance cuts to align with changes in operations to reflect COVID-19 impacts (as well as drought impacts) Actual Operation and Maintenance Costs of the Wastewater Enterprise primarily related to personnel costs for Fiscal Year 2020-21 were lower than originally budgeted due to COVID -19 restrictions. The increase s in Fiscal Year 202 3-24 through Fiscal Year 2025-26 reflect an anticipated return closer to historic normal operations.
Projected Debt Service. Projected debt service reflects the scheduled debt service on the 2010 Series B Bonds, the 2013 Series AB Bonds, the 2016 Series AB Bonds (net of capitalized interest and expected Build America Bonds interest subsidy payments relating to 2010 Series B Bonds), the 2018 Series ABC Bonds, the estimated debt service on the 2021AB Notes, the 2021AB Bonds, the 2022ABCD Bonds, Additional Bonds, seven Parity Loans, and the WIFIA Bonds.
Following the issuance of the 2022AB Bonds , the SFPUC anticipates that it will issue Additional Bonds in Fiscal Years 2022-23 and 2024-25 to fund approximately $1.5 billion of SSIP and other Wastewater Enterprise capital program projects. The projected debt service for the 2022ABCD Bonds assumes borrowing rates of 1.25% to 3.75%, no debt service reserve fund and up to 30 months of capitalized interest . The projected debt service for Additional Bonds following the issuance of the 2022ABCD Bonds assumes borrowing rates of 3.75% - 4.00%, no debt service reserve fund, and up to 30 months of capitalized interest . The actual issuance dates, borrowing rates and capitalized interest periods may vary from these assumptions . The SFPUC may also issue refunding bonds from time to time in response to market conditions in order to achieve debt service savings.
RISK FACTORS
This section provides a general overview of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in evaluating an investment in the 2022ABCD Bonds. This section is provided for convenience and is not meant to be a comprehensive or definitive discussion of all of the risks associated with an investment in the 2022AB CD Bonds. The order in which this information is presented does not necessarily reflect the relative importance of various risks or the probability of their occurrence.
Potential investors in the 2022ABCD Bonds are advised to consider the following factors, among others, and to review this entire Official Statement to obtain information essential to the making of an informed inv estment decision. Any one or more of the risk factors discussed below, among others, could lead to a decrease in the market price and/or in the marketability of the 2022ABCD Bonds or adversely affect the ability of the SFPUC to make timely payments of principal of or interest on the 2022AB CD Bonds. There can be no assurance that other risk factors not discussed herein will not become material in the future, and the SFPUC has not undertaken to update investors about the emergence of the risk factors in the future.
79 4151-5403-8838.1
General
The ability of the SFPUC to comply with its covenants under the Indenture and to generate Net Revenues sufficient to pay principal of and interest on the Bonds may be adversely affected by actions and events outside of the control of the SFPUC and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or persons obligated to pay fees and charges. Among other matters, general and local economic conditions and changes in law and government regulations could adversely affect the amount of Net Revenues realized by the SFPUC or significantly raise the cost of operating the Wastewater Enterprise .
In addition, the realization of f uture Net Revenues is subject to, among other things, the capabilities of management of the SFPUC, the ability of the SFPUC to provide service to its customers, the ability of the SFPUC to establish, maintain and collect charges from its customers and the ability of the SFPUC to establish, maintain and collect rates and charges sufficient to pay for Operation and Maintenance Costs of the Wastewater Enterprise, the Bonds and other obligations payable from Net Revenues. See “FINANCIAL OPERATIONS” and “OBLIGATIONS PAYABLE FROM NET REVENUES.”
Limited Obligation
If the SFPUC defaults on its obligations to make debt service payments on the Bonds, the Trustee has the right under the Indenture to accelerate the total unpaid principal amount of the Bonds . However, in the event of a default and such acceleration, there can be no assurance that the SFPUC, and correspondingly the Trustee, will have sufficient moneys available for payment of the Bonds.
The SFPUC is not obligated to pay the principal of, premium, if any, or interest on the Bonds except from Net Revenues . The SFPUC has no taxing power . The General Fund of the City is not liable for the payment of the principal of, premium, if any, or interest on the Bonds , and neither the credit nor the taxing power of the City is pledged to the payment of the principal of, premium, if any, or interest on the Bonds. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the City or of the SFPUC or any of its income or receipts, except Net Revenues.
No Reserve Account
No Reserve Account has been established for the 2022AB CD Bonds. The Reserve Accounts established with respect to other Series of Bonds do not secure the 2022ABCD Bonds.
Access to Capital Markets
The SFPUC expects that the source of repayment of the principal of the 2021AB Notes will be the proceeds of one or more draws under each of the BDFP WIFIA Loan Agreement and the STPI WIFIA Loan Agreement or the proceeds of the Take -Out Obligations to be issued by the SFPUC on or prior to the maturity date s of the 2021AB Notes. Disbursements under the BDFP WIFIA Loan Agreement and the STPI WIFIA Loan Agreement are subject to various conditions. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Water Infrastructure Finance and Innovation Act Loans – Disbursements Under WIFIA Loan Agreements ”. It is possible that the occurrence of an unforeseen circumstance could prevent or delay the SFPUC’s ability to access the capital markets and issue Take-Out Obligations. Such market disruptions may occur in connection with an economic downturn. Discrete and short-term market disruptions are rare, but have occurred in the past as a result of a variety of factors and events, such as the COVID-19 pandemic, terrorist attacks, natural disasters or the failure or dissolution of, or other economic trouble being experienced by, an entity of systemic importance to the financial industry or the economy in general . If the SFPUC is unable to make draws under the BD FP WIFIA Loan Agreement or the STPI WIFIA Loan Agreement to repay the principal of the 2021A Notes or the 2021B Notes, no assurance can be given that the SFPUC will be able to issue Take-Out Obligations or that the SFPUC will have sufficient funds on hand to pay the principal of such notes on their respective maturity dates. A failure to repay the principal of the 2021A Notes or the 2021B Notes on their respective maturity dates would constitute an Event of Default under the Indenture. See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – __________.”
80 4151-5403-8838.1
Interim Funding Program Facilities
Commercial Paper Notes. The bank credit facilities supporting the Commercial Paper Notes are subject to early termination upon the occurrence of certain events, including the failure of the SFPUC to make certain payments, the occurrence of certain bankruptcy or insolvency- related events, the reduction below specified levels or the withdrawal or suspension of ratings on certain obligations of the SFPUC payable from Net Revenues or certain other specified events of default. Upon the occurrence of such termination, one or more of the following would likely occur:
(a) the SFPUC would be prohibited from issuing additional notes supported by such credit faciliti es; (b) any outstanding reimbursement obligation of the SFPUC to the bank providing such facility for draws made for the payment of principal of or interest on Commercial Paper Notes could bear interest at rates higher than the rates borne by the Commercial Paper Notes; and (c) any such outstanding reimbursement obligation of the SFPUC could be accelerated and become immediately due and payable. The Commercial Paper Notes and any reimbursement obligations are payable from Net Revenues on a basis subordinate to the Bonds .
Revolving Notes. The commitment of the bank to make advances under the revolving credit agreement for interim funding (the repayment obligation of the SFPUC for which are evidenced by the Revolving Notes) may be terminated by the bank upon the occurrence of certain events, including the failure of the SFPUC to make certain payments, the occurrence of certain bankruptcy or insolvency- related events, the reduction below specified levels or the withdrawal or suspension of ratings on certain obligations of the SFPUC payable from Net Revenue or certain other specified events of defaults . Upon such an event of default, (a) the outstanding repayment obligation of the SFPUC evidenced by the Revolving Notes would bear interest at substantially increased interest rates and (b) the bank could declare all amounts outstanding under the Revolving Notes to be immediately due and payable. The Revolving Notes and any payment obligations thereunder are payable from Net Revenues on a basis subordinate to the Bonds.
See “OBLIGATIONS PAYABLE FROM NET REVENUES – Subordinate Debt and Interim Funding Program.”
Limitations on Rate-Setting
The generation of Revenues sufficient to satisfy the requirements of the Indenture and to pay the principal of and interest on the Bonds will require the SFPUC to raise wastewater rates payable by its customers. The increase of wastewater rates is subject to various substantive and procedural requirements and limitations . See “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS.”
Initiative, Referendum and Charter Amendments and Future Legislation Under the State Constitution, the voters of the State have the ability to initiate legislation and require a public vote on legislation passed by the State Legislature through the powers of initiative and referendum, respectively. The SFPUC is unable to predict whether any such initiatives might be submitted to or approved by the voters, the nature of such initiatives, or their potential impact on the SFPUC or the Wastewater Enterprise. See “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS.”
Under the Charter, San Francisco voters can restrict or revise the powers of the SFPUC through the approval of a Charter amendment or other initiative . For example, in June 1998 the San Francisco el ectorate approved Proposition H which, subject to certain exceptions, including a limited exception to raise rates to pay debt service on voter-approved debt, froze the SFPUC’s water and sewer rates through July 1, 2006 . The SFPUC can give no assurance that the electorate will not seek in the future to freeze or limit rate increases . See “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS – Charter Limitations.” In addition, the SFPUC is subject to various laws, rules and regulations adopted by the local, State and federal governments and their agencies. The SFPUC is unable to predict the adoption or amendment of any such laws, rules or regulations, or their effect on the operations or financial condition of the SFPUC.
Risks Related to Wastewater Enterprise Facilities and Operation The operation of the Wastewater Enterprise, and the physical condition of the Wastewater Enterprise facilities, are subject to a number of risk factors that could adversely affect the reliability of the SFPUC to provide
81 4151-5403-8838.1
sewage and stormwater collection and treatment services, or increase the operating expenses of the Wastewater Enterprise. Prolonged damage to the Wastewater Enterprise facilities could interrupt the ability of the SFPUC to realize Net Revenues sufficient to pay pr incipal of and interest on the Bonds, or require the SFPUC to increase expenditures for repairs significantly enough to adversely impact the SFPUC’s ability to pay the principal of or interest on the Bonds. These factors could include, among others, the following:
Aging Facilities. Certain Wastewater Enterprise facilities are near the end of their useful life . Aging assets result in decreased reliability due to sewer line breakage and unplanned facility outages and place a greater maintenance burden on Wastewater Enterprise operations. The average useful life of the sewer system’s sewers (i.e., gravity pipes 36 inches or less in diameter) is approximately 110 years, though many conditions, such as pipe material and soil conditions, affect actual pipe lif espan. The recent historical rate of replacement for the Wastewater Enterprise’s sewer pipes has been at a 200 -year replacement cycle. See “THE WASTEWATER ENTERPRISE – Combined Sewage and Stormwater System.” Aging sewers, if left unaddressed, c ould potentially result in increasing system failures, sinkholes in the street, reduced system reliability and possibly risks to public health and safety and the environment.
The SFPUC uses a risk -based approach to sewer replacement and replaces 15 miles per year of aging infrastructure. The capital program, including the SSIP, is intended to help increase system reliability through equipment and facility improvement including, among other things, increasing sewer inspections and condition assessments in order to more effectively prioritize areas of pipeline replacement. In addition to the collection system, other types of facilities, such as treatment plants and pump stations, also face reliability issues due to age and poor condition. The aging system will be further challenged in connection with the SSIP because it must remain operational during project delivery. Specifically, during construction of SSIP capital projects, all work, including any required partial, temporary facility shutdowns, will have to be carefully scheduled so that the plants remain functional and in compliance with all permits and other applicable requirements.
Limited Redundancy. Many critical Wastewater Enterprise facilities must remain constantly operational to collect and treat sewage and stormwater flows in accordance with Regional Water Quality Control Board requirements. See “REGULATORY MATTERS.” Certain of these Wastewater Enterprise facilities and systems are aging and have limited redundancy. See “– Aging Facilities.” In addition, the Oceanside Treatment Plant and the other facilities in the Westside Watersheds are not interconnected with the Southeast Treatment Plant, the North Point Facility or the other facilities in the Bayside Watersheds. See “THE WASTEWATER ENTERPRISE – Wastewater Treatment.” This limited redundancy in facilities and systems, including the absence of an interconnection between the treatment plants and other facilities located in the two separate watersheds, constrains the SFPUC’s ability to take components of the system out of service for maintenance and repairs, or to provide backup treatment and other facilities in the event of an unplanned outage. For example, work at the Southeast Treatment Plant will be done while the plant is operating, requiring coordination of facility and systems shutdowns with construction plans . During dry weather, however, the collection system does have excess storage capacity due to the transport/storage structures which can provide up to 200 million gallons worth of capacity and help facilitate treatment flexibility when needed.
The SFPUC expects the SSIP to address certain redundancy issues, including: power supply redundancy for the three treatment plants, and rehabilitation and addition of redundant pumps as necessary at major pump stations .
Interconnection of the facilities in the Westside Watersheds and Bayside Watersheds is not included in the SSIP, however. See “THE WASTEWATER ENTERPRISE – Wastewater Treatment.” Seismic Hazards. The Bay Area is in a seismically active region . The San Andreas Fault lies immediately west of San Francisco, and the Hayward Fault is approximately 15 miles to the east of San Francisco . A third major fault, the Calaveras Fault, is a branch of the Hayward Fault and lies east of the Hayward Fault.
During the past 150 years, the San Francisco Bay Area has experienced several major and numerous minor earthquakes. The largest was the 1906 San Francisco earthquake along the San Andreas Fault with an estimated magnitude of 8.2 on the Richter scale. The 1868 Hayward earthquake along the Hayward Fault had an estimated magnitude of between 6.8 and 7.0 on the Richter scale. The 1989 Loma Prieta earthquake along the San Andreas Fault had an estimated magnitude of 6.9 on the Richter scale. The most recent significant earthquake was the August 2014 South Napa earthquake on the West Napa Fault, the northern extension of the Calaveras Fault, which had a magnitude of 6.0 on the Richter scale and an epicenter near the city of Napa, approximately 50 miles north of San Francisco.
According to United States Geological Survey findings, a significant earthquake along these or other faults is probable
82 4151-5403-8838.1
during the repayment period of the Bonds. A significant earthquake that impacts San Francisco could adversely affect the ability of Wastewater Enterprise customers to pay for service and the capital and operating expenses of the Wastewater Enterprise.
Older facilities may have an increased risk of failure in the event of an earthquake. S SIP and other portions of the capital program include planned and proposed improvements to such older facilities for the purpose of improving seismic reliability.
With certain minor exceptions, the SFPUC does not maintain commercial earthquake insurance coverage for the facilities. See “FINANCIAL OPERATIONS – Risk Management and Insurance.” Flooding and Other Natural and Man -Made Disasters. Flooding and other natural disasters, including without limitation flooding, landslides, and fire, or man -made dis asters or accidents, including without limitation natural gas pipeline failures or explosions, could interrupt operation of the Wastewater Enterprise, result in liability claims against the Wastewater Enterprise, or otherwise adversely impact the Wastewater Enterprise’s ability to provide services or collect Revenues . See “ – Unanticipated Decreases in Water Sales Volumes” and “ – Potential Impacts of Climatic Change and Sea Level Rise.” For example, major rainstorms in San Francisco which exceed the capacity of the combined storm drainage/sewer system, result in flooding and property damage, especially in some low-lying areas with structures built on or near land which was originally creeks or bays . Severe flood damage occurred in 2004 due to major rainstorms. Property owners in low-lying areas filed claims against the City, many of which were settled. Some claims proceeded to litigation, and the City settled those suits in 2007.
In 2009 and 2012, rainstorms resulted in additional flooding and property damage . In December 2014, two severe rainstorms caused flooding in many of the same low -lying areas that had flooded in 2004, 2009 and 2012. In early 2017, another major rainstorm caused flooding in certain low -lying areas. The City responded to these st orms in each of the affected neighborhoods and helped coordinate and pay for initial clean- up and repair of damage to affected properties. In addition, property owners filed numerous claims for property damage . The City’s aggregate costs incurred for res toration, damage mitigation, and claims settlements exceed $5 million for the two December 2014 storms. The SFPUC continues to conduct technical analysis, explore infrastructure improvements, and document design, operation and maintenance practices necessary to minimize flooding in these areas.
Statutory and Regulatory Compliance . The operation of the Wastewater Enterprise is subject to a variety of federal and State statutory and regulatory requirements concerning matters such as water quality, discharge requirements and biosolids management. Significant fines and penalties could result should the SFPUC fail to comply with applicable laws and regulations . Claims could also be made by private parties . Changes in the scope and standards for publi c agency wastewater systems such as the Wastewater Enterprise may also lead to administrative orders issued by federal or State regulators. Such regulatory actions could also require significant capital expenditures to achieve statutory and regulatory compliance, which may impact the SFPUC’s capital improvement plans, projects and priorities for the Wastewater Enterprise . Future compliance with increased regulatory requirements or enforcement orders could impose substantial additional operating expenses on the Wastewater Enterprise. See “REGULATORY MATTERS.”
Unanticipated Decreases in Water Sales Volumes . Under the SFPUC’s current rate structure, Wastewater Enterprise customer bills are calculated primarily based on metered water volumes (with certain “flow factor” adjustments) and rates are established based upon expected metered water volumes . As a result, water deliveries at less than expected levels would result in lower than expected Revenues . Reduced water deliveries could result from, among other circumstances, changes in the local economy, reduced water supply, conservation measures or damage to storage, transportation, treatment or delivery systems of the SFPUC’s Water Enterprise . See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges” and “Seismic Hazards” and “Other Natural or Man - Made Disasters.”
Increased Operating and Maintenance Expenses . There can be no assurance that the Operating and Maintenance Expenses of the SFPUC, such as wages and salaries, pension and other benefits, and purchased power costs, will not increase, perhaps substantially . See “FINANCIAL OPERATIONS – Operating and Maintenance Expenses.”
83 4151-5403-8838.1
Labor Actions . The Charter prohibits SFPUC and other City employees from engaging in certain labor actions (e.g., strikes). Nonetheless, a work stoppage or other labor action could limit the SFPUC’s ability to operate the Wastewater Facilities and adversely impact Revenues.
Casualty Losses. The SFPUC’s risk management program includes both self-insured and insured coverages; however, the program does not provide coverage for every conceivable risk of loss . Damage attributable to seismic events and environmental pollution are excluded. In situations where the SFPUC has not purchased commercial coverage, the Wastewater Enterprise has a “self-retention” program that it administers and retains budgeted resources internally to provide coverage for loss liabilities . See also “FINANCIAL OPERATIONS – Risk Management and Insurance.” The SFPUC is not required to either insure against or self -insure against every potential risk of loss, and there is a risk that damage or destruction of property and equipment comprising the Wastewater Enterprise could occur for which no insurance or self-insurance funds will be available. There can be no assurance that insurance providers will pay claims under any policies promptly, or at all, should a claim be made under such policies in connection with property loss or damage . It is possible that an insurance provider will refuse to pay a claim, especially if it is substantial, and force the SFPUC to sue to collect on or settle the insurance claim. Further, there can be no assurances that any insurance proceeds will be sufficient to rebuild or replace any damaged property.
Safety and Security. The occurrence of military conflicts and terrorist activities may adversely impact the operations of the Wastewater Enterprise or the finances of the SFPUC . The SFPUC continually plans and prepares for emergency situations and immediately responds to ensure services are maintained . However, there can be no assurance that any existing or additional safety and security measures will prove adequate in the event that military conflicts or terrorist activities are directed against the assets of the Wastewater Enterprise or that costs of security measures will not be greater than presently anticipated.
Cybersecurity
City Measures. The City, like many other large public and private entities, relies on a large and complex technology environment to conduct its operations, and faces multiple cybersecurity threats including, but not limited to, hacking, viruses, malware and other attacks on its computing and other digital networks and systems (collectively, “Systems Technology”). As a recipient and provider of personal, private, or sensitive information, the City has been the subject of cybersecurity incidents that have resulted in or could have resulted in adverse consequences to the City’s Systems Technology and that required a response action to mitigate the consequences.
Cybersecurity incidents could result from unintentional events, or from deliberate attacks by unauthorized entities or individuals attempting to gain access to the City’s Systems Technology for the purposes of misappropriating assets or information or causing operational disruption and damage. To mitigate the risk of business operations impact and/or damage from cybersecurity incidents or cyber -attacks, the City invests in multiple forms of cybersecurity an d operational safeguards. In November 2016, the City adopted a City- wide Cyber Security Policy (the “ City Cyber Policy”) to support, maintain, and secure critical infrastructure and data systems. The objectives of the City Cyber Policy include the protection of critical infrastructure and information, manage risk, improve cyber security event detection and remediation, and facilitate cyber awareness across all City departments. The City’s Department of Technology has established a United Cyber Defense Team to work across all City departments, including the SFPUC, to implement the City Cyber Policy. The City Cyber Policy is reviewed periodically.
The City has also appointed a City Chief Information Security Officer (the “ CCISO”), who is directly responsible for understanding the business and related cybersecurity needs of the City’s 54 departments, including the SFPUC. The CCISO is responsible for identifying, evaluating, responding, and reporting on information security risks in a manner that meets compliance and regulatory requirements, and aligns with and supports the risk posture of the City. Mayor Breed addressed this issue on June 4, 2021 in Executive Directive 21-02, Ensuring Strong and Organized City Defense Against Cybersecurity Attacks (“Executive Directive 21 -02”), which sets forth requirements for City departments to strengthen and improve the City’s cyber functions and programs.
SFPUC Measures. The SFPUC also relies on a large and complex technology environment to conduct its operations. Although the SFPUC maintains its own business and control networks that are separate from the City’s network, the SFPUC faces similar cybersecurity threats as the City, including hacking, viruses, malware and other attacks on its computing and other digital networks and systems. To mitigate the risk of and damage from cybersecurity incidences or cyberattacks, the SFPUC abides by the City Cyber Policy and also maintains its own cybersecurity
84 4151-5403-8838.1
program (the “SFPUC Cybersecurity Program”). The SFPUC Cybersecurity Program is based on National Institute of Standards and Technology cybersecurity guidance and employs industry standard Center for Internet Security critical security controls. In addition, control networks for the Water Enterprise and the Wastewater Enterprise adhere to the American Water Works Association Cyber Security guidance and the control networks for the Power Enterprise adhere to the North American Electric Reliability Corporation critical infrastructure protection controls. The SFPUC Cybersecurity Program includes state of the art information security systems and 14 cybersecurity policies. The information security systems are continuously tested with internal vulnerability assessments that include daily updates on malware threats. The SFPUC’s cybersecu rity policies are prescriptive for hardening servers, network devices and databases, and for addressing system administrator controls, mobile device management, incident response, security patching, antivirus, email, passwords, remote access, secure asset disposal, end user controls, and timely removal of access to systems and facilities for staff that leave employment at the SFPUC. In addition to the SFPUC’s controls and in alignment with Executive Directive 21-02, the SFPUC has deployed the city-wide-real-time threat monitoring and alerting solution. The SFPUC C ybersecurity Program is periodically reviewed for effectiveness by independent consultants, most recently in July 2019 with a schedule independent audit in June 2022. In addition, pursuant to the SFPUC’s policies, the City Services Auditor, independent cybersecurity auditors and the Department of Homeland Security perform extensive penetration and vulnerability testing on the SFPUC’s business and control networks every other year.
The SFPUC has also appointed a Chief Information Security Officer (the “ CISO”). In addition to working with the CCISO on cybersecurity policy development and solution sharing, the CISO is responsible for annual updates to the SFPUC’s policies, is charged with identifying and monitoring threats which are typically addressed by the SFPUC’s information technology services team, educating staff concerning vulnerabilities and constantly improving the SFPUC Cybersecurity Program.
While the SFPUC Cybersecurity Program is periodically reviewed, no assurances can be given by the SFPUC that such measures will ensure against other cybersecurity threats and attacks. Cybersecurity breaches could damage the SFPUC’s information security systems and cause material disruption to the SFPUC’s operations and the provision of SFPUC services. The costs of remedying any such damage or protecting against future attacks could be substantial.
Further, cybersecurity breaches could expose the SFPUC to material litigation and other legal risks, which could cause the SFPUC to incur material costs related to such legal claims or proceedings. The SFPUC currently purchases liability insurance covering cyber -losses and requires its technology vendors to purchase technology errors and omissions insurance coverage
Cost of the SSIP; Timely Completion of the SSIP
The SSIP is the largest component of the Wastewater Enterprise’s capital program . The completion of various SSIP projects could be delayed and the overall cost of such projects could increase for a varie ty of reasons, including, but not limited to, actions by State or federal regulatory agencies, voter initiatives, legal challenges on environmental or other grounds, prolonged contractor disputes, changes in price of commodities or labor, unanticipated geologic or soil conditions, the occurrence of an earthquake or other natural disaster , or the occurrence of a worldwide health concern such as the COVID -19 pandemic . See “SEWER SYSTEM IMPROVEMENT PROGRAM – Potential Changes to SSIP Projects.”
The SFPUC intends to finance the development and implementation of SSIP projects through the issuance of Additional Bonds and Parity Loans. If SSIP projects are completed at the cost and on the schedule presently under consideration by the SFPUC, the cost of such projects will require a significant planned increase in the amount of debt payable from Revenues, which will result in significant planned rate increases . Correspondingly, debt service coverage for the Bonds will also be significantly lower than it is currently. Were SSIP projects delayed or the cost of SSIP projects to increase without an offsetting reduction in the program scope, the SFPUC would be required either to incur more debt payable from Revenues or to cash fund those costs from Revenues . Either option would likely increase rates payable by SFPUC customers to levels higher than presently anticipated by the SFPUC, and could result in lower debt service coverage ratios than presently anticipated by the SFPUC . See “FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM.”
Over the next several years the SFPUC expects to issue Additional Bonds and Parity Loans to fund development and implementation of SSIP projects . The issuance by the SFPUC of such debt is subject to various approval requirements. See “OBLIGATIONS PAYABLE FROM NET REVENUES.”
85 4151-5403-8838.1
The ability of the SFPUC to issue Additional Bonds and Parity Loans to finance the development and implementation of SSIP projects may also be adversely affected by any adverse change in the financial position of the SFPUC or by general market conditions . There can be no assurance that the SFPUC will be able to issue Additional Bonds or Parity Loans in an aggregate amount sufficient to finance all of the costs of completing the SSIP projects.
Construction Related Risks
General. Construction projects in the capital program, including the SSIP, are subject to ordinary construction risks and delays applicable to projects of their kind, including but not limited to (i) inclement weather affecting contractor performance and timeliness of completion, which could affect the costs and availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; (ii) contractor claims or nonperformance; (iii) failure of contractors to execute within contract price; (iv) work stoppages or slowdowns; (v) failure of contractors to meet schedule terms; (vi) supply chain issues; or (vii) unanticipated project site conditions, including the discovery of hazardous materials on the site or other issues regarding compliance with applicable environmental standards, and other natural hazards or seismic events encountered during construction. In addition, given the limited redundancy of certain Wastewater Enterprise facilities and systems, such sys tems must remain operational during construction, which could affect construction schedules or budgets . See “– Risks Related to Wastewater Enterprise Facilities and Operation.”
In addition, the SFPUC expects numerous other large construction projects to be scheduled in the region during the same time period as the SSIP, which could potentially limit contractor resources available to the SFPUC during bidding or construction phases . The SFPUC conducts regular contractor outreach and expects to continue to work closely with potential contractors to attempt to mitigate the impact of such simultaneous scheduling of large projects.
Furthermore, much of the construction work will occur at a single physical location, the Southeast Treatment Plant. The phasing staging, materials and/or equipment laydown areas, parking, truck routes, security, and operating needs are being clearly defined for the plant and each individual project by the SFPUC, with consideration of multiple project interfaces. The Southeast Treatment Plant will remain in operation while these projects are being implemented.
Currently logistics planning is identifying on and off site parking, construction laydown and staging areas, truck routing for regular operations and construction and the overall facility and equipment shut-down schedule required to maintain permit compliance and complete the SSIP.
Increased construction costs or delays for any reason in connection with the SFPUC’s capital program and the SSIP could impact the Wastewater Enterprise’s financial condition in general and the implementation of its capital programs in particular.
Land Acquisition. Certain SSIP projects will require the SFPUC to acquire land in and around its facilities in the City. For example, the Southeast Treatment Plant is located in a densely urban environment with industrial and residential buildings – as such, securing space around the Southeast Treatment Plant will be critical.
A project manager has been hired to manage land issues because many parcels require long lead times to gain site control. Property is challenging to acquire or lease in the Bay Area generally and in San Francisco in particular.
Real estate prices in San Francisco and throughout the Bay Area can be volatile and have in general been increasing during recent years . The SSIP approved project budgets currently include estimated costs related to future land purchases required for the expansion of the Southeast Treatment Plant and potential land leases for construction staging areas. At present, the SFPUC cannot predict the final cost of such acquisitions and leases; but it is possible that such costs will exceed budgeted amounts.
86 4151-5403-8838.1
Climate Change, Risk of Sea Level Rise and Flooding Damage [Review and update as needed]
Impact on San Francisco. Numerous scientific studies on global climate change show that, among other effects on the global ecosystem, sea levels will rise, extreme temperatures, and extreme weather events will become more frequent as a result of increasing global temperatures attributable to atmospheric pollution.
The Fourth National Climate Assessment, published by the U.S. Global Change Research Program in November 2018 (“NCA4”), finds that more frequent and intense extreme weather and climate-related events, as well as changes in average climate conditions, are expected to continue to damage infrastructure, ecosystems and social systems over the next 25 to 100 years. NCA4 states that rising temperatures, sea level rise, and changes in extreme events are expected to increasingly disrupt and damage critical infrastructure and property and regional economies and industries that depend on natural resources and favorable climate conditions. Disruptions could include more frequent and longer -lasting power outages, fuel shortages and service disruptions. NCA4 states that the continued increase in the frequency and extent of high- tide flooding due to sea level rise threatens coastal public infrastructure.
NCA4 also states that expected increases in the severity and frequency of heavy precipitation events will affect inland infrastructure, including access to roads, the viability of bridges and the safety of pipelines.
Sea levels will continue to rise in the future due to the increasing temperature of the oceans causing thermal expansion and growing ocean volume from glaciers and ice caps melting into the ocean. Between 1854 and 2016, sea level rose about nine inches according to the tidal gauge at Fort Point, a location underneath the Golden Gate Bridge.
Weather and tidal patterns, including 100 -year or more storms and king tides, may exacerbate the effects of climate related sea level rise. Coastal areas like the City and the Bay Area are at risk of substantial flood damage over time, affecting private development and public infrastructure, including roads, utilities, emergency services, schools, and parks. As a result, the City could lose considerable tax revenues and many residents, businesses, and governmental operations along the waterfront could be displaced, an d the City could be required to mitigate these effects at a potentially material cost.
Adapting to sea level rise is a key component of the City’s policies. The City and its enterprise departments have been preparing for future sea level rise for many years and have issued a number of public reports. For example, in March 2016, the City released a report entitled “Sea Level Rise Action Plan,” identifying geographic zones at risk of sea level rise, providing a framework for adaptation strategies to confront these risks, and identifying data gaps and next steps. That study shows an upper range of end- of-century projections for permanent sea level rise, including the effects of temporary flooding due to a 100- year storm, of up to 108 inches above the 2015 average high tide. To implement this Plan, the Mayor’s Sea Level Rise Coordinating Committee, co -chaired by the Planning Department and the Port of San Francisco worked together to develop the City’s Guidance for Incorporating Sea Level Rise into Capital Planning, Adopted September 2014, Revised December 2015, and Updated January 2020 and finalize the City’s Sea Level Rise Vulnerability and Risk Assessment, February 2020. The City is now working to fill some of the identified data gaps from the Sea Level Rise Action Plan (e.g., working with Lawrence Berkeley National Laboratory on modeling extreme precipitation for the Bay Area) and transitioning toward efforts that would consolidate and coordinate sea level rise adaptation and overall resilience planning so that the City departments can maximize efficiency and the co-benefits of our investment dollars. The City has developed and enacted the governance structure through the Climate Resilience Integration Program Charter. For the City, climate resilience refers to a range of coordinated actions that eliminate greenhouse gas emissions and adapt our built and natural environment, while achieving a more equitable and sustainable city.
In April 2017, the Working Group of the California Ocean Protection Council Science Advisory Team (in collaboration with several state agencies, including the California Natural Resource Agency, the Governor's Office of Planning and Research, and the California Energy Commission) published a report, that was formally adopted in March 2018, entitled “Rising Seas in California: An Update on Sea Level Rise Science” (the “Sea Level Rise Report”) to provide a new synthesis of the state of science regarding sea level rise. The Sea Level Rise Report provides the basis for State guidance to state and local agencies for incorporating sea level rise into design, planning, permitting, construction, investment and other decisions. Among many findings, the Sea Level Rise Report indicates that the effects of sea level rise are already being felt in coastal California with more extensive coastal flooding during storms, exacerbated tidal flooding, and increased coastal erosion. In addition, the report notes that the rate of ice sheet loss
87 4151-5403-8838.1
from Greenland and Antarctic ice sheets, while highly uncertain as to timing, could pose a particular risk of sea level rise for the California coastline.
The City has already incorporated site-specific adaption plans in the conditions of approval for certain large waterfront development projects, such as the Candlestick/Hunters Point Shipyard, Treasure Island, Pier 70 and Mission Rock projects. Also, the City has started the process of planning to fortify the Port’s seawall from sea level rise, including an initial investment of about $8 million during fiscal year 2017- 18 and consideration of financing options. In November 2018, San Francisco voters approved a bond measure providing $425 million toward study and repair of the City’s sea wall against seismic threats and sea level rise. This Phase 1 funding provides early investment in long-term upgrades expected to cost more than $5 billion.
Portions of the San Francisco Bay Area, including the City, are built on fill that was placed over saturated silty clay known as “Bay Mud.” This Bay Mud is soft and compressible, and the consolidation of the Bay Mud under the weight of the existing fill is ongoing. A report issued in March 2018 by researchers at UC Berkeley and the University of Arizona suggests that flooding risk from climate change could be exacerbated in the San Francisco Bay Area due to the sinking or settling of the ground surface, known as subsidence. The study claims that the risk of subsidence is more significant for certain parts of the City built on fill.
Projections of the effects of global climate change on the City are complex and depend on many factors that are outside the City's control. The various scientific studies that forecast climate change and its adverse effects, including sea level rise and flooding risk, are based on assumptions contained in such studies, but actual events may vary materially. Also, the scientific understanding of climate change and its effects continues to evolve. Accordingly, the City is unable to forecast when sea level rise or other adverse effects of climate change (e.g., the occurrence and frequency of 100 -year storm events and king tides) will occur. In particular, the City cannot predict the timing or precise magnitude of adverse economic effects, including, without limitation, material adverse effects on the business operations or financial condition of the City and the local economy during the term of the 2022ABCD Bonds. While the effects of climate change may be mitigated by the City's past and future investment in adaptation strategies, the City can give no assurance about the net effects of those strategies and whether the City will be required to take additional adaptive mitigation measures. If necessary, such additional measures could require significant capital resources.
In September 2017, the City filed a lawsuit against the five largest investor-owned oil companies seeking to have the companies pay into an equitable abatement fund to help fund investment in sea level rise adaptation infrastructure. In July 2018, the United States District Court, Northern District of California denied the plaintiffs' motion for remand to state court, and then dismissed the lawsuit. The City appealed these decisions to the United States Court of Appeals for the Ninth Circuit, which vacated the dismissal and remanded the case to the District Court.
While the City believes that its claims are meritorious and will prevail, the City can give no assurance regarding whether it will ultimately obtain the requested relief from the courts, or contributions to the abatement fund from the defendant oil companies.
Impact on SFPUC Wastewater Enterprise . The impacts of climate change that would most affect the Wastewater Enterprise relate to changing rainfall patterns, sea level rise and rising tides . Existing climate change models show varied results in terms of projected rainfall patterns making proactive, long -term planning difficult. If they do occur, significant changes in rainfall (intensity, duration or frequency or certain combinations thereof) could substantially alter the sewer system’s stormwa ter and wastewater collection and storage functions . The SFPUC, in partnership with SFO, the Port of San Francisco and the Office of Resilience and Recovery, is working with Lawrence Berkeley National Laboratory in order to continue to refine and help advance their innovative climate change related modeling to study the effects of climate change on extreme precipitation in the San Francisco region.
Projected levels for sea level rise and rising tides could result in a backflow (or inflow) of San Francisco Bay water into the sewer system at the lowest weir elevation and increased infiltration due to higher groundwater in coastal areas. The Wastewater Enterprise has already begun to experience occasional inflows and infiltration from the San Francisco Bay into its sewer system during certain high tides . In response, the Wastewater Enterprise is planning to implement, through the SSIP, a monitoring program and backflow mitigation measures at some points where tides may backflow into the system.
88 4151-5403-8838.1
In 2016, t he SFPUC completed a City -wide flood resilience analysis to characterize the impact of storms, develop a risk -based framework to identify and prioritize its investments in projects to reduce or mitigate flooding risks, and confirm the City’s standard design storm through a benefit-cost analysis. This study served as the foundation for prioritizing capital investments in the coming years . In 2017, SFPUC staff, in conjunction with other City departments and industry experts, developed a suite of programmati c strategies for flood resilience that are intended to reduce flood risk Citywide in storms that exceed the capacity of the SFPUC’s stormwater collection system and before capital projects can be built.
The SFPUC has developed a 100- Year Storm Flood Risk M ap (the “Flood Map ”) that shows areas of San Francisco where significant flooding from storm runoff is highly likely to occur during a 100- year storm. A “100 - year storm” means a storm with a 1% chance of occurring in a given year. The SFPUC used computer modeling that simulates flooding occurring Citywide under a 100- year storm to identify these parcels. The purpose of the Flood Map is to inform existing and future property owners about flood risk on their properties and promote resilience.
Pandemics; COVID-19 Pandemic
A pandemic, epidemic or outbreak of an infectious disease can have significant adverse health and financial impacts on global and local economies. For example, the COVID -19 pandemic has significantly impacted the City and resulted in prolon ged stay-at-home orders that have impacted each of the SFPUC’s enterprises, including the Wastewater Enterprise. See “THE PUBLIC UTILITIES COMMISSION – COVID-19 Pandemic.” Green Bonds
The 2022AC Bonds are being designated by the SFPUC as “Green Bonds” and have been certified by the CBI as “Climate Bonds” based solely on the Climate Bonds Standard. See “GREEN BONDS DESIGNATION AND CLIMATE CERTIFICATION.” The purpose of labeling the 2022AC Bonds as “Green Notes”and “Green Bonds” is to allow owners of such notes and bonds to invest in notes and bonds that have financed environmentally beneficial projects. The SFPUC does not make any representation, however, as to the suitability of the 2022A C Bonds to fulfill the envi ronmental and sustainability criteria of particular investors. The 2022A C Bonds may not be a suitable investment for all investors seeking exposure to green or sustainable assets. There is currently no market consensus on what precise attributes are required for a particular project to be defined as “green” or “sustainable,” and therefore no assurance can be provided to investors that the projects refinanced by proceeds of the 2022AC Bonds will continue to meet investor expectations.
The terms “Green Bonds” and “Green Projects” are neither defined in nor related to provisions in the Indenture or otherwise defined under State or federal laws. The use of such terms herein is for identification purposes only and is not intended to provide or imply that an owner of the 2022AC Bonds is entitled to any additional security other than as provided in the Indenture. The SFPUC assumes no obligation to ensure that these projects comply with the principles of green projects as such principles may hereafter evolve.
Inverse Condemnation
Under the doctrine of inverse condemnation (a legal concept that entitles property owners to just compensation if their private property is damaged by a public use), California courts have imposed liability on public agencies in legal actions brought by private property holders for damages caused by such public agencies’ infrastructure. In City of Oroville v. Superior Court of Butte County , 7 Cal. 5th 1091 (2019), however, the California Supreme Court held that damage to private property must be substantially caused by an inherent risk presented by the deliberate design, construction or maintenance of the public improvement. Thus, if the inherent risks associated with the SFPUC’s facilities, including water storage or transportation facilities or electrical distribution and transmission lines, as deliberately designed, constructed or maintained, are determined to be the substantial cause of damage to private property from flooding, fire or otherwise, and the doctrine of inverse condemnation applies, the SFPUC could be liable for direct and indirect property damage to private parties and such liability, in the aggregate, could be substantial. In addition to such claims for property damage, the SFPUC could also be liable for punitive damages and other damages under other theories of liability, including if the SFPUC were found to have been negligent, which liability, in the aggregate, could be substantial.
89 4151-5403-8838.1
Economic, Political, Social and Environmental Conditions Changes in economic political, social, or environmental conditions on a local, State, federal, and/or international level may adversely affect investment risk generally. Such conditional changes may include (but are not limited to) fluctuations in business production, consumer prices, or financial markets, unemployment rates, availability of skilled labor, technological advancements, shortages or surpluses in natural resources or energy supplies, changes in law, social unrest, fluctuations in the crime rate, political conflict, acts of war or terrorism, environmental damage, and natural disasters.
Bankruptcy
The SFPUC, being an enterprise department of the City, likely cannot itself file for bankruptcy. While an involuntary bankruptcy petition cannot be filed against the City, the City is authorized to file for bankruptcy under certain circumstances. Should the City file for bankruptcy, there could be adverse effects on the holders of the Bonds.
To the extent that Revenues are “special revenues” under the United States Bankruptcy Code (the “Bankruptcy Code”), then Revenues collected after the date of the bankruptcy filing should be subject to the lien of the Indenture . If any or all of the Revenues are determined not to be “special revenues,” then any such amounts collected after the commencement of the bankruptcy case will likely not be subject to the lien of the Indenture . The holders of the Bonds may not be able to assert a claim against any property of the City other than the Net Revenues, and if any or all of the Revenues are no longer subject to the lien of the Indenture, then there may be limited, if any, funds from which the holders of the Bonds are entitled to be paid.
The Bankruptcy Code provides that “special revenues” can be applied to necessary operating expenses of the project or system, before they are applied to other obligations . This rule applies regardless of the provisions of the transaction documents. It is not clear precisely which expenses would constitute necessary operating expenses, and any definition in the transaction documents may not be applicable.
If the City is in bankruptcy, the parties (including the Trustee and the holders of the Bonds) may be prohibited from taking any action to collect any amount from the City or to enforce any obligation of the City, unless the permission of the bankruptcy court is obtained. These restrictions may also prevent the Trustee from making payments to the holders of the Bonds from funds in the Trustee’s possession. The rate covenants (see “SECURITY FOR THE BONDS – Rate Covenants”) may not be enforceable in bankruptcy by the Trustee or the holders of the Bonds .
Revenues are deposited with and held by the Treasurer and may be commingled with other City funds . See “SECURITY FOR THE BONDS – Flow of Funds.” If the City goes into bankruptcy, the City may not be required to turn over to the Trustee any Revenues that are in its possession at the time of the bankruptcy filing. In addition, if the City has possession of Revenues (whether collected before or after commencement of the bankruptcy) and if the City does not voluntarily turn over such Revenues to the Trustee, it is not entirely clear what procedures the Trustee and the holders of the Bonds would have to follow to attempt to obtain possession of such Revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful.
The City may be able to borrow additional money that is secured by a lien on any of its property (including the Revenues), which lien could have priority over the lien of the Indenture, or to cause some of the Revenues to be released to it, free and clear of the lien of the Indenture, in each case as long as the bankruptcy court determines that the rights of the Trustee and the holders of the Bonds will be adequately protected.
If the City is in bankruptcy it may be able, without the consent and over the objection of the Trustee and the holders of the Bonds , to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Indenture and the Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable.
There may be delays in payments on the Bonds while the court considers any of these issues. There may be other possible effects of a bankruptcy of the City that could result in delays or reductions in payments on the Bonds , or result in losses to the holders of the Bonds. Regardless of any specific adverse determinations in a City bankruptcy proceeding, the fact of a City bankruptcy proceeding could have an adverse effect on the liquidity and value of the Bonds.
90 4151-5403-8838.1
The City invests Revenues in the City’s Pooled Investment Fund. See “FINANCIAL OPERATIONS – Investment of SFPUC Funds.” Should those investments suffer losses, Revenues may be lower than expected, and there may be delays or reductions in payments on the Bonds.
Limitations on Remedies
The remedies available to the owners of the Bonds upon the occurrence of an event of default under the Indenture in many respects depend upon judicial actions which are themselves often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the limitations on remedies contained in the Indenture, the rights and obligations under the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against charter cities and counties in the State . The opinions to be delivered by Co-Bond Counsel, concurrently with the issuance of the 2022AB Bonds and the 2022CD Bonds, as applicable, that the 2022AB Bonds and the 2022CD Bonds, as applicable constitute valid and binding, limited obligations of the SFPUC, and the Indenture constitutes a valid and binding obligation of the SFPUC, will also be subject to such limitations. The various other legal opinions to be delivered concurrently with the issuance of the 2022AB Bonds and the 2022CD Bonds, as applicable will be similarly qualified . See “APPENDIX C – PROPOSED FORMS OF OPINION OF CO-BOND COUNSEL.”
If the SFPUC fails to comply with its covenants under the Indenture or to pay principal of or interest on the Bonds, there can be no assurance that the available legal remedies will be adequate to protect the interests of the holders of the Bonds.
Failure to Maintain Credit Ratings
Certain rating agencies have assigned ratings to the 2022ABCD Bonds. The ratings issued reflect only the views of such rating agencies . Any explanation of the significance of these ratings should be obtained from the respective rating agencies. See “RATINGS.” There is no assurance current ratings will continue for any given period or that such ratings will not be revised downward or withdrawn entirely by the rating agencies if, in the respective judgment of such rating agencies, circumstances so warrant . Any such downward revision or withdrawal of such ratings could be expected to have an adverse effect on the market price or the marketing o f the 2022ABCD Bonds.
The SFPUC undertakes no obligation to maintain its current credit ratings on the 2022ABCD Bonds or to oppose any such downward revision, suspension or withdrawal.
Secondary Market
There can be no guarantee that there will be a secondary market for the 2022ABCD Bonds or, if a secondary market exists, that the 2022ABCD Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances . Such prices could be substanti ally different from the original purchase price.
Uncertainties of Projections, Forecasts and Assumptions Certain information contained in this Official Statement is based upon assumptions and projections .
Projections and assumptions are inherently subject to significant uncertainties. Inevitably, some assumptions will not be realized and unanticipated events and circumstances may occur and actual results are likely to differ, perhaps materially, from those projected. Accordingly, such projections are not necessarily indicative of future performance, and the SFPUC assumes no responsibility for the accuracy of such projections . See “FORWARD -LOOKING STATEMENTS.”
Other Risks
The discussion in this section, “RISK FACTORS,” is not meant to be a comprehensive or definitive list of the risks associated with an investment in the 2022AB CD Bonds. There may be other risks inherent in ownership of
91 4151-5403-8838.1
the 2022ABCD Bonds in addition to those described in this section. Investors are advised to read the entire Official Statement in order to obtain information necessary to make an investment in the 2022AB CD Bonds.
REGULATORY MATTERS
The Wastewater Enterprise is in material compliance with the Porter -Cologne and Clean Water Acts (as described below). This section summarizes the regulatory framework governing the Wastewater Enterprise and its operations.
History and Background
In 1969, the State adopted the Porter -Cologne Water Quality Act (the “ Porter-Cologne Act”), creating the State’s current legal framework for the protection of water quality. This adoption was followed at the federal level by the Water Pollution Control Act Amendments of 1972 (the “ Clean Water Act”). The Clean Water Act provided an aggressive timetable for eliminating pollution of the nation’s waters and established the basic secondary treatment requirement that 85% of pollutants, as defined in administrative regulations, be removed from sanitary wastewater .
The Clean Water Act also required the issuance of discharge permits on a nationwide basis and established a federal grant program for construction of publicly owned wastewater facilities, subsequently replaced by the state revolving fund loan program . Although the EPA has ultimate responsibility for administering the Clean Water Act, many functions have been delegated to the State . The administration of the current loan program and enforcement of regulations are a joint undertaking of the State Water Resources Control Board, the Regional Water Quality Control Board, and EPA Region IX.
Federal and State Clean Water Act Permits
Under the Porter- Cologne and Clean Water Acts, the Regional Water Quality Control Board administers water pollution control programs. The Regional Water Quality Control Board issues discharge permits under Section 402 of the Clean Water Act, which establishes the National Pollutant Discharge Elimination System (“ NPDES”) permit system. These permits, issued for a five -year period, are also wastewater discharge requirements for the purposes of the Porter-Cologne Act and apply to discharges from the SFPUC’s treatment plants and combined sewer discharge facilities.
The Wastewater Enterprise’s combined sewer system operates under two wastewater NPDES permits: the 2013 Bayside Permit (NPDES Permit No. CA0037664), covering the Southeast Treatment Plant, the North Point Facility and other bayside facilities that discharge into the San Francisco Bay; and the 2019 Oceanside Permit (NPDES Permit No. CA0037681; issued jointly with EPA Region IX), covering the Oceanside Treatment Plant discharges and other westside facilities that discharge into the Pacific Ocean. The City has appealed two aspects of the 2019 permit regarding generic water quality standards compliance and control plan provisions. The appeal is currently pendi ng before the United States Court of Appeals , Ninth Circuit; a final decision is not expected before the end of 2022. A small portion of the Wastewater Enterprise system within San Francisco consists of separate storm and sanitary sewers.
This portion of the system is regulated under the State General Permit for Small Municipal Separate Storm Sewer Systems (MS4) (NPDES Permit No. CAS000004) and the State Waste Discharge Requirements for Sanitary Sewer Systems (Order No. 2006-0003-DWQ).
In July 2016, the SFPUC entered into a stipulated order to pay an administrative civil liability of $611,100 to resolve an enforcement action brought with regard to alleged permit violations that took place in 2014. Per the terms of the order, the SFPUC has paid the full amount towards a supplemental environmental project. Currently, the SFPUC’s discharges are in material compliance with its permit requirements.
In February 2016, the EPA and the San Francisco Bay Regional Water Control Board (the “ Regional Board”) initiated an investigation of the SFPUC’s operations of the City’s combined sewer system with a particular focus on the SFPUC’s operations during wet weather conditions. On October 2, 2019, the EPA issued a Notice of Violation (“NOV”) to San Francisco, but the NOV did not impose any penalties or require any specific corrective actions. The City Attorney’s Office, the SFPUC, the Regional Board and EPA have continued to discuss the allegations. In November 2021, the SFPUC and the Regional Board entered into a negotiated settlement that resolves the Regional Board’s claims relating to flooding in low -lying areas. Under the settlement the SFPUC is required to construct three flood control capital projects already included in the Wastewater Enterprise capital improvement plan,
92 4151-5403-8838.1
at a cost of approximately $622 million, and the implement specified storm response activities. The settlement authorizes SFPUC to evaluate alternative approaches to two of the flood control capital projects, such as green infrastructure or property acquisition. At this time, the SFPUC cannot determine any further potential costs associated with responding to EPA’s actions or potential penalties, or the extent to which any EPA action will further affect the SFPUC’s current operations or the Wastewater Enterprise’s short-term and long-term capital improvement plans.
Combined Sewer Overflow Control Policy
With the exception of a small portion of the City of Sacramento, the SFPUC is the only wastewater agency in the State that operates a combined sewer system, in which sanitary wastewater and stormwater runoff are conveyed and treated in the same system of pipes and treatment, storage and discharge facilities . To address the unique characteristics of combined sewer systems, the EPA adopted the Combined Sewer Overflow Control Policy (59 FR 18688) in 1994 (the “CSO Policy”). This policy established a consistent national approach for controlling discharges from CSOs to the nation’s water, and has since been incorporated into the Clean Water Act by the Wet Weather Water Quality Act of 2000.
The CSO Policy created a two -phased process for combined sewer systems . During the first phase, the permittee is required to implement “nine minimum controls” specified in the CSO Policy . In addition, the permit tee is required to develop and implement a long -term control plan for the purpose of providing facilities and controls sufficient to comply with water quality standards . The SFPUC has implemented the “nine minimum controls,” and construction of certain transport storage boxes constituted implementation of the long-term control plan.
The SFPUC’s discharge permits require the preparation of reports analyzing the efficacy of the system’s wet weather operations and the attainment of water quality standards.
Stormwater Regulations
In 1987, Congress revised the Clean Water Act to more effectively address pollution caused by stormwater runoff. The regulations require stormwater management plans for municipalities and controls on certain construction sites and other industries. Urban areas with combined sewers, such as most of San Francisco, are exempt from such regulations. Because a small portion of San Francisco is served by separate sewer systems, the implementation of the Municipal Separate Storm Sewer System (“MS4 ”) permit requirements occurred under Phase II of the stormwater program, following the earlier Phase I implementation for cities with a large separate sewer system. The permit for small MS4s (NPDES Permit No. CAS000004) is issued by the State Water Resources Control Board and regulates the stormwater discharge from the SFPUC’s separate sewer systems. The SFPUC operates a stormwater management program that complies with the requirements of the MS4 permit.
Regulatory Trends
Regulatory developments at the State and Federal level, as well as ongoing permit reissuance activities, may increase operations costs and capital needs of the Wastewater Enterprise and may have an effect on the Wastewater Enterprise operations and its revenues. In the future, additional constituents of concern (possibly including pollutants such as ammonia, nutrients, endocrine disrupting chemicals, human -made chemicals/products) will likely be identified, and additional effluent limits may be added for wastewater discharges into the San Francisco Bay and Pacific Ocean, as water quality objectives are developed for new compounds and improved analytical techniques become available. Additional source control measures, public education and outreach, and additional or advanced treatment processes may be necessary to achieve compliance. SFPUC staff is actively engaged with regulatory officials and the public in the development of these regulatory matters.
These topics and their possible effect on the Wastewater Enterprise are briefly described below:
Impaired Water Bodies and Total Maximum Daily Loads . The Clean Water Act requires states to identify all water bodies that do not achieve designated water quality standards or objectives. Such water bodies are designated as “impaired,” and states are required to identify all sources contributing to the impairment under the Total Maximum Daily Load (“ TMDL”) program. States are required to designate wasteload allocations to each contributing point source, such as the SFPUC discharges, in order to promote the recovery of the water body. Central and lower San Francisco Bay are currently listed as “impaired” for a number of organic and inorganic pollutants, as well as invasive
93 4151-5403-8838.1
species and trash. The Regional Water Quality Control Board has completed San Francisco Bay TMDLs for mercury and polychlorinated biphenyl (“ PCBs”) and has issued a fecal indicator bacteria TMDL for San Francisco Bay beaches, which is currently in the implementation process.
The San Francisco Bay mercury and PCBs TMDLs are implemented through a group watershed permit (Order No. R2-2012-0096) (the “ Watershed Permit ”) that applies to all municipal, industrial, and stormwater discharges to San Francisco Bay. The Watershed Permit contains effluent limitations for mercury and PCB discharges from the Southeast Treatment Plant with which the SFPUC currently complies .
Contaminated Bay Sediments . California Water Code, Division 7, Chapter 5.6 established a program to assess sediment contamination of the State’s enclosed bays and estuaries . Known as the Bay Protection and Toxic Cleanup Program, the focus of this effort was to identify contaminated sediments with elevated levels of toxins.
In 1999, the Statewide plan identified Mission Creek and Islais Creek as high priority toxic hot spots . For Mission Creek, the plan included preliminary estimates of investigation and study costs at $1 million, remediation and follow-up monitoring ranging from $0.8 to $1.8 million, and possible sewer system structural changes up to $75 million. The plan included a preliminary estimate of investigation and study costs for Islais Creek at $1 million .
Remediation and monitoring were estimated to range from $0.8 to $5.2 million, and possible sewer system structural changes up to $75 million for Islais Creek. The estimated costs shown above were developed by the Regional Water Quality Control Board and State Water Resources Control Board in 1998 and 1999. The SFPUC provided comments and data studies disputing both the extent of contamination in the creeks and any asserted causal relationship to SFPUC activities. The plan is not self-executing, and requires further regulatory action by the Regional Water Quality Control Board, which has indicated that contaminated sediment issues will be addressed through the TMDL analysis and implementation programs mentioned above . In 2002, both Mission Creek and Islais Creek were added to the Clean Water Act 303(d) list of water quality limited segments (i.e., impaired waterways). A TMDL (or related action) must be completed for the listed waterways.
The 1999 Statewide plan also identified Central Basin (adjacent to the San Francisco Bayside shoreline) as a moderate priority toxic hot spot, but did not identify investigation or remediation costs (costs were only developed for the high priority sites). Central Basin has also been placed on the CWA 303(d) list.
The SFPUC continues to dispute the extent of contamination in the creeks and any causal relationship to SFPUC activities, and will actively participate in the development of any TMDLs for such areas.
EPA Region IX has listed Yosemite Creek as a “superfund” site. Its sediments, adjacent to Hunters Point and the former U.S. Navy Shipyard, must be addressed. The City, along with other potentially responsible parties, is participating in a voluntary nonbinding mediation to allocate any cleanup costs . Because the process is in its early stages, SFPUC cannot reasonably predict whether or to what extent it may be partially responsible for contributing to this contamination remediation project, or whether such cleanup will have any impact on current sewer system operations.
Pursuant to GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, the Wastewater Enterprise reported $7.8 million and $7.8 million in pollution remediation liability as of June 30, 2020, and June 30, 2021, respectively.
Contaminants of Emerging Concern . Contaminants of emerging concern include alkyl phenols, flame retardants, hormones, personal care products, pharmaceuticals, steroids, perfluorinated compounds, microplastics and pesticides, which typically enter municipal wastewater through bathing, cleaning, laundry and the disposal of unused products. Pharmaceuticals typically include prescription and over- the-counter therapeutic drugs for both human and veterinary treatment. Personal care products typically include soaps, fragrances and cosmetics. Secondary treatment facilities remove some of these contaminants, even though they are not specifically designed for this purpose .
Currently no water quality standards exist for most of these compounds, therefore, the SFPUC permits do not contain effluent limitations for them.
Nutrient Control for the Bayside . San Francisco Bay has long been recognized as a nutrient -enriched estuary; however, until recently, it had not experienced negative effects of over -enrichment. Changes recently observed in San Francisco Bay indicat e that its resilience to the effects of nutrient enrichment may be declining. In
94 4151-5403-8838.1
response to these changes, the Regional Water Quality Control Board issued a regional permit (NPDES No.
CA0038873) in 2014 requiring all municipal dischargers to the San Francisco Bay monitor and report nutrient discharges. The Regional Water Quality Control Board re- issued this permit in May 2019 and stated its intent to consider establishing effluent limitations to prevent further increases in nutrient loads from municipal w astewater treatment plants. The Regional Water Quality Control Board has also indicated that it intends to also develop numeric nutrient endpoints after the science is developed enough to provide a scientifically defensible framework for adopting numeric water quality criteria.
More stringent limits on the discharge of nitrogen to San Francisco Bay are expected in the next five to ten years. The details of such limits and how they will affect SFPUC treatment facilities is unclear at this time. The SFPUC and regional groups such as the Bay Area Clean Water Association (of which the SFPUC is a member) are participating in the Regional Water Quality Control Board’s consideration of the need for and potential characteristics of any such future regulation.
Other Regulatory Agencies with Jurisdiction Over the Wastewater Enterprise Other regulatory agencies with approval or oversight responsibilities over the siting, construction or operational impacts of the Wastewater Enterprise on air, water and natural resources include the Bay Area Air Quality Management District, the Bay Conservation and Development Commission, the California Coastal Commission, the State Lands Commission, the California Department of Public Health, the National Marine Fisherie s Service, the United States Fish and Wildlife Service, the California Department of Fish and Wildlife, and the U.S. Army Corps of Engineers.
Other Laws Affecting the Wastewater Enterprise
As a public agency the SFPUC’s actions must be consistent with CEQA and, where federal approvals or funding is involved, NEPA . The federal Clean Air Act and the California Clean Air Act of 1988 also regulate emissions from the treatment facilities . All of the SFPUC’s treatment facilities meet present Bay Area Air Qualit y Management District standards.
CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS
The activities of the SFPUC and the Wastewater Enterprise, including, without limitation, the establishment of rates for sewer service and the issuance of Bonds (which include Parity Loans), are subject to several limitations under both State and local law. Certain of such limitations are summarized below. Additionally, such limitations may be revised, enhanced, expanded or otherwise altered as provided under State and loca l law, including in certain instances by legislation adopted by State, regional or local authorities, including the State Legislature or the Board of Supervisors, or by the voters of the State or the City themselves through the power of initiative or refer endum, by voting in favor of amendments to the Charter or in any other lawful manner.
State Law Limitations
Tax and Spending Limitations . The taxing powers of public agencies in the State are limited by Article XIIIA of the California Constitution, added by an initiative amendment approved by the voters on June 6, 1978, and commonly known as Proposition 13.
Article XIIIA limits the maximum ad valorem tax on real property to 1% of “full cash value,” which is defined as “the County Assessor’s valuation of real property as shown on the Fiscal Year 1975- 76 tax bill under ‘full cash value’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value m ay be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or reduction in the consumer price index or comparable local data, or declining property value caused by damage, destruction, or other factors.
The tax rate limitation referr ed to above does not apply to ad valorem taxes to pay the debt service on any indebtedness approved by the voters before July 1, 1978, or on 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.
95 4151-5403-8838.1
Under the terms of Article XIIIA and pursuant to an allocation system created by implementing legislation, each county is required to levy the maximum ad valorem tax permitted by Article XIIIA and to distribute the proceeds to local agencies.
Assessed valuation growth allowed under Article XIIIA (new construction, change of ownership and up to 2% annual value growth) is allocated among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools share the growth of base revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year. The availability of revenues from tax bases to such entities may be affected by the existence of certain successor agencies to former redevelopment agencies that, under certain circumstances, may be entitled to such revenues resulting from the upgrading of certain property values.
Under State law, any fee that exceeds the reasonable cost of providing the service for which the fee is charged may be considered a “special tax” that must be authorized by a two -thirds vote of the electorate . Accordingly, if a portion of the SFPUC’s wastewater user rates or capacity charges were determined by a court to exceed the reasonable cost of providing service, the SFPUC might not be permitted to continue to collect that portion unless it were authorized to do so by a two- thirds majority of the votes cast in an election to authorize the collection of that portion of the rates or fees . If the SFPUC were unable to obtain such a two- thirds majority vote and were unable to reduce costs, such failure could adversely affect the SFPUC’s ability to pay the debt service on the Bonds .
The United States Supreme Court has upheld Article XIIIA against a challenge alleging violation of equal protection under the Fourteenth Amendment to the United States Constitution.
Proposition 218. Proposition 218, a State ballot initiative known as the “Right to Vote on T axes Act,” was approved by State voters on November 5, 1996. The initiative added Articles XIIIC and XIIID to the California Constitution, creating additional requirements for the imposition by most local governments of “general taxes,” “special taxes,” “assessments,” “fees,” and “charges.” Articles XIIIC and XIIID became effective, pursuant to their terms, as of November 6, 1996, although compliance with some of the provisions was deferred until July 1, 1997, and certain of the provisions purport to apply to any tax imposed for general governmental purposes (i.e., “general taxes”) imposed, extended or increased on or after January 1, 1995 and prior to November 6, 1996.
Article XIIID imposes substantive and procedural requirements on the imposition, extension or increase of any “fee” or “charge” subject to its provisions. A “fee” or “charge” subject to Article XIIID includes any levy, other than an ad valorem tax, special tax or assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership. Article XIIID prohibits, among other things, the imposition of any proposed fee or charge, and, possibly, the increase of any existing fee or charge, in the event written protests against the proposed fee or charge are presented at a required public hearing on the fee or charge by a majority of owners of the parcels upon which the fee or charge is to be imposed. Except for fees and charges for water, sewer and refuse collection services, the approval of a majority of the property owners subject to the fee or charge, or at the option of the agency, by a two -thirds vote of the electorate residing in the affected area, is required not less than 45 days following the public hearing on any such proposed new or increased fee or charge.
The California Supreme Court decisions in Richmond v . Shasta Community Services District, 32 Cal. 4th 409 (2004) (“ Richmond”), and Bighorn- Desert View Water Agency v. Verjil, 39 Cal . 4th 206 (2006) (“ Bighorn”) have clarified uncertainty surrounding the ap plicability of Section 6 of Article XIIID to service fees and charges . In Richmond, the Shasta Community Services District charged a water connection fee, which included a capacity charge for capital improvements to the water system and a fire suppression charge. The Court held that both the capacity charge and the fire suppression charge were not subject to Article XIIID because a water connection fee is not a property-related fee or charge because it results from the property owner’s voluntary decision to apply for the connection. In both Richmond and Bighorn, however, the Court stated that a fee for ongoing water service through an existing connection is imposed “as an incident of property ownership” within the meaning of Article XIIID, rejecting, in Bighorn, the water agency’s argument that consumption- based water charges are not imposed “as an incident of property ownership” but as a result of the voluntary decisions of customers as to how much water to use.
The SFPUC provides public notice of proposed wastewater rate increases in accordance with the requirements of Article XIIID through means that include, among others, holding informational presentations at community group meetings, mailings to residential and commercial customers of public hearings on rate increases, and press releases and media campaigns regarding rate increases, followed by public hearings conducted by the
96 4151-5403-8838.1
SFPUC’s Rate Fairness Board and by the SFPUC itself. The SFPUC also develops and adopts retail utility user rates and fees in accordance with the requirements of Article XIIID(6)(b) that limit property -related fees and charges.
Article XIIIC extends the people’s initiative power to reduce or repeal previously authorized local taxes, assessments, fees and charges . This extension of the initiative power is not limited by the terms of Article XIIIC to fees, taxes, assessment fees and charges imposed after November 6, 1996 and absent other authority could result in retroactive reduction in any existing taxes, assessments, fe es or charges. In Bighorn, the Court concluded that under Article XIIIC local voters by initiative may reduce a public agency’s water rates and delivery charges . The Court noted, however, that it was not holding that the authorized initiative power is free of all limitations, stating that it was not determining whether the electorate’s initiative power is subject to the public agency’s statutory obligation to set water service charges at a level that will “pay the operating expenses of the agency, … provi de for repairs and depreciation of works, provide a reasonable surplus for improvements, extensions, and enlargements, pay the interest on any bonded debt, and provide a sinking or other fund for the payment of the principal of such debt as it may become due.”
Article XIIID imposes the substantive requirement that any wastewater charges may not exceed the proportional cost of the providing service to customers. The Fourth District of the California Court of Appeal decision in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal.App.4th 1493 (2015), clarified that tiered rate structures are compatible with the cost of service limitations of Article XIIID when each tier structure is supported by cost of service calculations. The court held that San Juan Capistrano’s water rates violated Article XIIID because no evidence in the record adequately showed that each tier corresponded to the cost of providing service at a given level of usage.
The courts have not fully interpreted the provisions of Proposition 218. The SFPUC is unable to predict how courts will further interpret Article XIIIC and Article XIIID, and what, if any, further implementing legislation will be enacted. Under the Bighorn case, City voters could adopt an initiative measure that reduces or repeals the SFPUC’s wastewater rates and charges, though it is not clear whether (and courts have not decided whether) any such reduction or repeal by initiative would be enforceable in a situation in which such rates and charges are pledged to the repayment of bonded indebtedness . There can be no assurance that the courts will not further interpret, or the voters will not amend, Article XIIIC and Article XIIID to limit the ability of the SFPUC to impose, levy, charge and collect increased fees and charges for the Wastewater Enterprise, or to call into question wastewater rate increases previously adopted by the SFPUC. No assurance may be given that Articles XIIIC and XIIID will not have a material adverse impact on Net Revenues.
Proposition 26. Proposition 26, which amended Article XIIIA and XIIIC of the California Constitution, was approved by the electorate at the November 2, 2010 election. Proposition 26 imposes a two- thirds voter approval requirement for the imposition of fees and charges by the State. It also imposes a majority voter approval requirement on local governments with respect to fees and charges for general purposes, and a two- thirds voter approval requirement with respect to fees and charges for special purposes . According to its supporters, Proposition 26 was designed to prevent the circumvention of tax limitations imposed by the voters pursuant to Proposition 13, approved in 1978, Proposition 218, and other measures through the use of non- tax fees and charges.
Proposition 26 expressly excludes from its scope “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 cost to the governmental entity of providing the service or product to the payor” and “a ssessments and property-related fees imposed in accordance with the provisions of Article XIIID.” The SFPUC believes that the initiative is not intended to, and would not, apply to fees for wastewater services charged by the SFPUC. The SFPUC, however, is unable to predict how Proposition 26 will be interpreted by the courts to apply to the provision of wastewater services by local governments such as the SFPUC.
Initiative and Referendum
Article XIIIA and Articles XIIIC and XIIID of the California Constitution were adopted pursuant to the State’s constitutional initiative process. From time to time other initiative measures could be adopted by State voters, or by voters of the City, placing additional limitations on the ability of the SFPUC to increase revenues.
97 4151-5403-8838.1
Charter Limitations
The Charter requires that bonds (such as the Bonds) secured by revenues, other than refunding bonds, may be issued only with the assent of a majority of voters. However, under the Charter amendments enacted by the voters in November 2002 (Proposition E) and in June 2018 (Proposition A), the SFPUC may issue revenue bonds, including notes, commercial paper or other forms of indebtedness, when authorized by ordinance approved by a two-thirds vote of the Board of Supervisors, for the purpose of reconstructing, replacing, expanding, repairing or improving water facilities, clean water facilities, power facilities, or combinations of water, clean water and power facilities under the jurisdiction of the SFPUC or for any other lawful purpose of the water, clean water or power utilities of the City in furtherance of the purposes provided in the Charter (and subject to the further conditions contained in Proposition E and Proposition A). See “OBLIGATIONS PAYABLE FROM NET REVENUES – Authority for Issuance of Revenue Bonds and Other Obligations Payable from Net Revenues” and “SECURITY FOR THE BONDS – Additional Series of Bonds,” “– Additional Parity Loans” and “– Refunding Bonds.” Future Charter Amendments
Voters in the City could adopt additional Charter amendments in the future which would limit the ability of the SFPUC to issue debt or to enact rate increases, affect the operation of the Wastewater Enterprise or imp lement other changes affecting the SFPUC and the Wastewater Enterprise. See “RISK FACTORS —Initiative, Referendum and Charter Amendments and Future Legislation.”
LITIGATION
The SFPUC is not aware of any litigation, pending or threatened, questioning the political existence of the City or the SFPUC or contesting the SFPUC’s power to fix wastewater rates and charges, or in any way questioning or affecting:
(i) the proceedings under which the 2022ABCD Bonds are to be issued; (ii) the validity of any provision of the 2022ABCD Bonds or the Indenture; (iii) the pledge of Net Revenues by the SFPUC under the Indenture; or (iv) the titles to office of the present members of the Board of Supervisors and the Commission.
There are several suits and claims pending against the City and the SFPUC impacting the Wastewater Enterprise, which may include personal injury, wrongful death and other suits and claims against which the City may self-insure. The aggregate amount of the self- insured liabilities of the City and the SFPUC which may result from such suits and claims will not, in the opinion of the City Attorney, materially impair the ability of the SFPUC to pay principal of or interest on the Bonds as they become due. There is no litigation pending, with service of process having been accomplished, against the City or the SFPUC which if determined adversely to the City or the SFPUC would, in the opinion of the City Attorney, materially impair the ability of the SFPUC to pay principal of and interest on the 2022ABCD Bonds as they become due.
TAX MATTERS
2022AB Bonds
General Matters . In the opinion of Kutak Rock LLP and Curls Bartling P.C., Co- Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the 2022AB Bonds (including any original issue discount properly allocable to the owner of a 2022AB Bond) is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinion described above assumes the accuracy of certain representations and compliance by the SFPUC with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the 2022AB Bonds.
Failure to comply with such requirements could cause interest on the 2022AB Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2022AB Bonds. The SFPUC has covenanted to comply with such requirements. Co- Bond Counsel have expressed no opinion regarding other federal tax consequences arising with respect to the 2022AB Bonds.
98 4151-5403-8838.1
Co-Bond Counsel are also of the opinion that interest on the 2022AB Bonds is exempt from State of California personal income taxes. Co- Bond Counsel have expressed no opinion regarding other tax consequences arising with respect to the 2022AB Bonds under the laws of the State of California or any other state or jurisdiction.
The accrual or receipt of interest on the 2022AB Bonds may otherwise affect the federal income tax liability of the owners of the 2022AB Bonds. The extent of these other tax consequences will depend on such owners’ particular tax status and other items of income or deduction. Co- Bond Counsel have expressed no opinion regarding any such consequences. Purchasers of the 2022AB Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States of America), property or casualty insurance companies, banks, thrifts or ot her financial institutions, certain recipients of social security or railroad retirement benefits, taxpayers entitled to claim the earned income credit, taxpayers entitled to claim the refundable credit in Section 36B of the Code for coverage under a qualified health plan or taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax -exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the 2022AB Bonds.
Original Issue Discount. The 2022AB Bonds that have an original yield above their respective interest rates, as shown on the inside cover of this Official Statement (collectively, the “Discount Bonds”), are being sold at an original issue discount. The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity (excluding “qualified stated interest” within the meaning of Section 1.1273-1 of the Regulations) constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as described above.
The amount of original issue discount that is treated as having accrued with respect to a Discount Bond is added to the cost basis of the owner of the bond in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received on disposition of such Discount Bond that are attributable to accrued or otherwise recognized original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes.
Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days that are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount that would have been the tax basis of such Discount Bond at the beginning of the particular accrual period if held by the original pu rchaser, less (b) the amount of any interest payable for such Discount Bond during the accrual period. The tax basis for purposes of the preceding sentence is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts that have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount that would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period.
Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Subsequent purchasers of Discount Bonds that purchase such bonds for a price that is higher or lower than the “adjusted issue price” of the bonds at the time of purchase should consult their tax advisors as to the effect on the accrual of original issue discount.
Original Issue Premium . The 2022AB Bonds that have an original yield below their respective interest rates, as shown on the inside cover of this Official Statement (collectively, the “Premium Bonds”), are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. A purchaser of a Premium Bond must amortize any premium over such Premium Bond’s term using constant yield principles, based on the purchaser’s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, generally by amortizing the premium to the call date, based on the purchaser’s yield to the call date and giving effect to any call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period, and the purchaser’s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity.
99 4151-5403-8838.1
Even though the purchaser’s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. 2022CD Bonds (Federally Taxable)
General Matters. Co-Bond Counsel is of the opinion that interest on the 2022CD Bonds is included in gross income for federal income tax purposes. Co -Bond Counsel is also of the opinion that interest on the 2022CD Bonds is exempt from State of California personal income taxes. Co -Bond Counsel have expressed no opinion regarding other tax consequences arising with respect to the 2022CD Bonds under the laws of the State of California or any other state or jurisdiction.
The following is a summary of certain anticipated federal income tax consequences of the purchase, ownership and disposition of the 2022CD Bonds under the Internal Revenue Code of 1986, as amended (the “Code”) and the Regulations, and the judicial and administrative rulings and court decisions now in effect, all of which are subject to change or possible differing interpretations. The summary does not purport to address all aspects of federal income taxation that may affect particular investors in light of their individual circumstances, nor certain types of investors subject to special treatment under the federal income tax laws. Potential purchasers of the 2022CD Bonds should consult their own tax advisors in determining the federal, state or local tax consequences to them of the purchase, holding and disposition of the 2022CD Bonds.
In general, interest paid on the 2022CD Bonds, original issue discount, if any, and market discount, if any, will be treated as ordinary income to the owners of the 2022CD Bonds, and principal payments (excluding the portion, if any, of such payments characterized as original issue discount or accrued market discount) will be treated as a return of capital.
Bond Pre mium. An investor that acquires a 2022CD Bond for a cost greater than its remaining stated redemption price at maturity and holds such instrument as a capital asset will be considered to have purchased such instrument at a premium. Such premium may generally be amortized under the constant yield method upon prior election permitted by Section 171(c) of the Code and, if so amortized, any call options of the SFPUC with respect to the 2022CD Bonds are generally disregarded such that the instruments are amort ized to their maturity date. Except as may be provided by regulation, amortized premium will be allocated among, and treated as an offset to, interest payments. The basis reduction requirements of Section 1016(a)(5) of the Code apply to amortizing bond p remium that reduces interest payments under Section 171 of the Code. Investors of any 2022CD Bond purchased with a bond premium should consult their own tax advisors as to the effect of such bond premium with respect to their own tax situation and as to the treatment of bond premium for state tax purposes.
Market Discount. An investor that acquires a 2022CD Bond for a price less than the adjusted issue price of such instrument may be subject to the market discount rules of Sections 1276 through 1278 of the Code. Under these sections and the principles applied by the Regulations, “market discount” means (a) in the case of a 2022CD Bond originally issued at a discount, the amount by which the issue price of such instrument, increased by all accrued original issue discount (as if held since the issue date), exceeds the initial tax basis of the owner therein, less any prior payments that did not constitute payments of qualified stated interest, and (b) in the case of a 2022CD Bond not originally issued at a discount, the amount by which the stated redemption price of such instrument at maturity exceeds the initial tax basis of the owner therein. Under Section 1276 of the Code, the owner of such a 2022CD Bond will generally be required (i) to allocate each prin cipal payment to accrued market discount not previously included in income and, upon sale or other disposition of the instrument, to recognize the gain on such sale or disposition as ordinary income to the extent of such cumulative amount of accrued market discount as of the date of sale or other disposition of such an instrument or (ii) to elect to include such market discount in income currently as it accrues on all market discount instruments acquired by such owner on or after the first day of the taxabl e year to which such election applies.
The Code authorizes the Treasury Department to issue regulations providing for the method for accruing market discount on debt instruments the principal of which is payable in more than one installment. Until such ti me as regulations are issued by the Treasury Department, certain rules described in the legislative history will apply.
Under those rules, market discount will be included in income either (a) on a constant interest basis or (b) in proportion to the accru al of stated interest or, in the case of a 2022CD Bond with original issue discount, in proportion to the accrual of original issue discount.
100
4151-5403-8838.1
An owner of a 2022CD Bond that acquired such instrument at a market discount also may be required to defer, until the maturity date of such instrument or its earlier disposition in a taxable transaction, the deduction of a portion of the amount of interest that the owner paid or accrued during the taxable year on indebtedness incurred or maintained to purchase or carry such instrument in excess of the aggregate amount of interest (including original issue discount) includable in such owner’s gross income for the taxable year with respect to such instrument. The amount of such net interest expense deferred in a taxable year may not exceed the amount of market discount accrued on the 2022CD Bond for the days during the taxable year on which the owner held such instrument and, in general, would be deductible when such market discount is includable in income. The amount of any remaining deferred deduction is to be taken into account in the taxable year in which the 2022CD Bond matures or is disposed of in a taxable transaction. In the case of a disposition in which gain or loss is not recognized in whole or in part, any r emaining deferred deduction will be allowed to the extent gain is recognized on the disposition. This deferral rule does not apply if the owner elects to include such market discount in income currently as it accrues on all market discount obligations acquired by such owner in that taxable year or thereafter.
Attention is called to the fact that Regulations implementing the market discount rules have not yet been issued. Therefore, investors should consult their own tax advisors regarding the application of these rules as well as the advisability of making any of the elections with respect thereto.
Unearned Income Medicare Contribution Tax. Pursuant to Section 1411 of the Code, as enacted by the Health Care and Education Reconciliation Act of 2010, an additional tax is imposed on individuals earning certain investment income. Holders of the 2022CD Bonds should consult their own tax advisors regarding the application of this tax to interest earned on the 2022CD Bonds and to gain on the sale of a 2022CD Bond.
Sales or Other Dispositions. If an owner of a 2022CD Bond sells the instrument, such person will recognize gain or loss equal to the difference between the amount realized on such sale and such owner’s basis in such instrument. Ordinarily, such gain or loss will be treated as a capital gain or loss.
If the terms of a 2022CD Bond were materially modified, in certain circumstances, a new debt obligation would be deemed created and exchanged for the prior obligation in a taxable transaction. Among the m odifications that may be treated as material are those that relate to redemption provisions and, in the case of a nonrecourse obligation, those which involve the substitution of collateral. Each potential owner of a 2022CD Bond should consult its own tax advisor concerning the circumstances in which such instrument would be deemed reissued and the likely effects, if any, of such reissuance.
Defeasance. The legal defeasance of a 2022CD Bond may result in a deemed sale or exchange of such instrument under certain circumstances. The owner of such a 2022CD Bond should consult its tax advisors as to the federal income tax consequences of such a defeasance.
Foreign Investors. An owner of a 2022CD Bond that is not a “United States person” (as defined below) and is not subject to federal income tax as a result of any direct or indirect connection to the United States of America in addition to its ownership of a 2022CD Bond will generally not be subject to United States income or withholding tax in respect of a payment on a 2022CD Bond, provided that the owner complies to the extent necessary with certain identification requirements (including delivery of a statement, signed by the owner under penalties of perjury, certifying that such owner is not a United States person and providing the name and address of such owner). For this purpose the term “United States person” means a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America or any political subdivision thereof, or an estate or trust whose income from sources within the United States of America is includable in gross income for United States of America income tax purposes regardless of its connection with the conduct of a trade or business within the United States of America.
Except as explained in the preceding paragraph and subject to the provisions of any applicable tax treaty, a United States withholding tax may apply to interest paid and original issue discount accruing on 2022CD Bonds owned by foreign investors. In those instances in which payments of interest on the 2022CD Bonds continue to be subject to withholding, special rules apply with respect to the withholding of tax on payments of i nterest on, or the sale or exchange of 2022CD Bonds having original issue discount and held by foreign investors. Potential investors that are foreign persons should consult their own tax advisors regarding the specific tax consequences to them of owning a 2022CD Bond.
101
4151-5403-8838.1
Tax-Exempt Investors. In general, an entity that is exempt from federal income tax under the provisions of Section 501 of the Code is subject to tax on its unrelated business taxable income. Unrelated business taxable income generally mean s the gross income derived by an organization from any unrelated trade or business as defined in Section 513 of the Code. An unrelated trade or business is any trade or business that is not substantially related to the purpose that forms the basis for such entity’s exemption. However, under the provisions of Section 512 of the Code, interest may be excluded from the calculation of unrelated business taxable income unless the obligation that gave rise to such interest is subject to acquisition indebtedness . Therefore, except to the extent any owner of a 2022CD Bond incurs acquisition indebtedness with respect to such instrument, interest paid or accrued with respect to such owner may be excluded by such tax- exempt owner from the calculation of unrelated business taxable income. Each potential tax-exempt holder of a 2022CD Bond is urged to consult its own tax advisor regarding the application of these provisions.
ERISA Considerations. The Employee Retirement Income Security Act of 1974, as amended (“ERISA” ), imposes certain requirements on “employee benefit plans” (as defined in Section 3(3) of ERISA) subject to ERISA, including entities whose underlying assets are considered to include “plan assets” (within the meaning of 29 C.F.R.
Section 2510.3 (as modified by Section 3(42) of ERISA), such as collective investment funds and separate accounts whose underlying assets include the assets of such plans (collectively, “ERISA Plans,” and together with arrangements that are subject to Section 4975 of the Code or similar provisions under any other federal, state, local, non- United States or other laws or regulations or similar law, as applicable, “Plans”) and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject t o ERISA’s general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing the ERISA Plan. The prudence of any inve stment by an ERISA Plan in the 2022CD Bonds must be determined by the responsible fiduciary of the ERISA Plan by taking into account the ERISA Plan’s particular circumstances and all of the facts and circumstances of the investment.
Government and non-electing church plans are generally not subject to ERISA. However, such plans may be subject to similar or other restrictions under state or local law.
In addition, ERISA and the Code generally prohibit certain transactions between an ERISA Plan or a qualified employee benefit plan under the Code and persons who, with respect to that plan, are fiduciaries or other “parties in interest” within the meaning of ERISA or “disqualified persons” within the meaning of the Code. In the absence of an applicable statutory, class or administrative exemption, transactions between an ERISA Plan and a party in interest with respect to an ERISA Plan, including the acquisition by one from the other of the 2022CD Bonds, could be viewed as violating those prohibitions. In addition, Section 4975 of the Code prohibits transactions between certain tax- favored vehicles such as Individual Retirement Accounts and disqualified persons. Section 503 of the Code includes similar restrictions with respect to governmental and church plans. In this regard, the issuer or conduit borrower, if any, of the 2022CD Bonds or any dealer of the 2022CD Bonds might be considered or might become a “party in interest” within the meaning of ERISA or a “disqualified person” within the meaning of the Code , with respect to an ERISA Plan or a plan or arrangement subject to Sections 4975 or 503 of the Code. Prohibited transactions within the meaning of ERISA and the Code may arise if the 2022CD Bonds are acquired by such plans or arrangements with respect to which the issuer or any conduit borrower of the 2022CD Bonds or any dealer is a party in interest or disqualified person.
In all events, fiduciaries of ERISA Plans and plans or arrangements subject to the above sections of the Code, in consultation with their advisors, should carefully consider the impact of ERISA and the Code on an investment in the 2022CD Bonds. The sale of the 2022CD Bonds to a Plan is in no respect a representation by the issuer or conduit borrower, if any, of the 2022CD Bonds or any dealer that such an investment meets the relevant legal requirements with respect to benefit plans generally or any particular Plan. Any plan proposing to invest in the 2022CD Bonds should consult with its counsel to confirm that such investment is permitted under the plan documents and will not result in a non -exempt prohibited transaction and will satisfy the other requirements of ERISA, the Code and other applicable law.
Neither the issuer or conduit borrower, if any, of the 2022CD Bonds nor the Underwr iter is acting as a fiduciary, or undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, to such purchaser or transferee with respect to the decision to purchase or hold the 2022CD Bonds or an interest in the 2022CD Bonds.
The foregoing discussion is general in nature and is not intended to be all -inclusive. Due to the complexity of these rules and the penalties that may be imposed on persons involved in non- exempt prohibited transactions, it is
102
4151-5403-8838.1
particularly important that fiduciaries, or other persons considering purchasing the 2022CD Bonds on behalf of, or with the assets of, any Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any similar laws to such investment and whether an exemption would be applicable to the purchase and holding of the 2022CD Bonds.
2022ABCD Bonds
Backup Withholding. An owner of a 2022ABCD Bond may be subject to backup withholding at the applicable rate determined by statute with respect to interest paid with respect to the 2022ABCD Bonds if such owner fails to provide to any person required to collect such information pursuant to Section 6049 of the Code with such owner’s taxpayer identification number, furnishes an incorrect taxpayer identification number, fails to report interest, dividends or other “reportable payments” (as defined in the Code) properly, or, under certain circumstances, fails to provide such persons with a certified statement, under penalty of perjury, that such owner is not subject to backup withholding.
Changes in Federal and State Tax Law. From time to time, there are legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to und er this heading “TAX MATTERS” or adversely affect the market value of the 2022ABCD Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In additi on, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value of the 2022ABCD Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the 2022ABCD Bonds or the market value thereof would be impacted thereby. Purchasers of the 2022ABCD Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Co- Bond Counsel are based on existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the 2022ABCD Bonds, and Co- Bond Counsel have expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation.
PROSPECTIVE PURCHASERS OF THE 2022ABCD BONDS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS PRIOR TO ANY PURCHASE OF THE 2022ABCD BONDS AS TO THE IMPACT OF THE CODE UPON THEIR ACQUISITION, HOLDING OR DISPOSITION OF THE 2022ABCD BONDS .
CERTAIN LEGAL MATTERS
Certain legal matters incident to the authorization, sale and delivery of the 2022ABCD Bonds are subject to the approval of Kutak Rock LLP, Denver, Colorado, and Curls Bartling P.C., Oakland, California, Co-Bond Counsel to the SFPUC . Certain legal matters are being passed upon for the SFPUC by the City Attorney and by Orrick, Herrington & Sutcliffe LLP, San Francisco, California (“Disclosure Counsel”). Certain legal matters are being passed upon for the Underwriters by Stradling Yocca Carlson & Rauth, A Professional Corporation, Sacramento, California.
Co-Bond Counsel and Disclosure Counsel will receive compensation that is contingent upon the sale and deli very of the 2022ABCD Bonds.
The forms of approving opinion of Co-Bond Counsel is set forth in Appendix C, and will be available at the time of delivery of the 2022ABCD Bonds. Co-Bond Counsel is not passing upon and undertakes no responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.
Orrick, Herrington & Sutcliffe LLP has served as Disclosure Counsel to the SFPUC and in such capacity has advised the SFPUC with respect to the requirements of applicable securities laws and participated with responsible SFPUC officials and staff in conferences and meeti ngs where information contained in this Official Statement was reviewed for accuracy and completeness . Disclosure Counsel is not responsible for the accuracy or completeness of the information presented in this Official Statement and has not undertaken to independently verify any of such information. Rather, the SFPUC is solely responsible for the accuracy and completeness of the information contained in this Official Statement. Upon the issuance of the 2022ABCD Bonds, Orrick, Herrington & Sutcliffe LLP will deliver a letter to the SFPUC concerning certain matters with respect to the Official Statement. No purchaser or holder of the 2022ABCD Bonds, or other person or party other than the SFPUC, will be entitled to rely on such letter s or on the fact that Orrick, Herrington & Sutcliffe LLP has acted as Disclosure Counsel to the SFPUC.
103
4151-5403-8838.1
RATINGS
Moody’s Investors Service (“ Moody’s”) has assigned a long -term municipal bond rating of “ ___” to the 2022ABCD Bonds, and S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (“S&P”), has assigned a long-term municipal bond rating of “___” to the 2022ABCD Bonds.
The ratings assigned by Moody’ s and S&P express only the views of the respective rating agencies. The explanation of the significance of these ratings, and any outlook associated with these ratings, may be obtained from Moody’s and S&P, respectively. Each rating agency generally bases its rating on its own investigations, studies, and assumptions. The SFPUC has provided certain additional information and materials to the rating agencies (some of which does not appear in this Official Statement).
A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time . There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2022ABCD Bonds. The SFPUC undertakes no responsibility to maintain its current ratings on the 2022ABCD Bonds or to oppose any such downward revision, suspension or withdrawal.
UNDERWRITING
The 2022ABCD Bonds are being purchased by Citigroup Global Markets, Inc, J.P Morgan Securities Inc., BofA Securities Inc., Barclays Capital Inc., and Goldman Sachs & Co LLC (collectively, the “Underwriters ”).
The Underwriters have agreed to purchase from the SFPUC the 2022A Bonds at a purchase price of $____________ (consisting of $ ____________ aggregate principal amount of the 2022A Bonds , [less][plus] an original issue [discount][premium] of $_________, less an underwriter’s discount of $____________), and the 2022B Bonds at a purchase price of $____________ (consisting of $____________ aggregate principal amount of the 2022B Bonds, [less][plus] an original issue [discount][premium] of $_________, less an underwriter’s discount of $____________). Under the bond purchase contract to be entered into in connection with the purchase of the 2022AB Bonds, the Underwriters will be obligated to purchase all of the 2022AB Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions to be satisfied by the SFPUC.
The Underwriters have agreed to purchase from the SFPUC the 2022C Bonds at a purchase price of $____________ (consisting of $____________ aggregate principal amount of the 2022C Bonds, less an underwriter’s discount of $____________), and the 2022D Bonds at a purchase price of $____________ (consisting of $____________ aggregate principal amount of the 2022D Bonds, less an underwriter’s discount of $____________).
Under the bond purchase contract to be entered into in connection with the purchase of the 2022CD Bonds, the Underwriters will be obligated to purchase all of the 2022CD Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions to be satisfied by the SFPUC The Underwriters have certified the reoffering prices or yields set forth on the inside cover pages of this Official Statement for the 2022ABCD Bonds. The SFPUC takes no responsibility for the accuracy of these prices or yields. The Underwriter s may offer and sell the 202 2A Bonds, the 2022B Bonds, the 2022C Bonds and the 2022D Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover pages . The offering prices may be changed from time to time by the Underwriters.
The Underwriters and their respective affiliates are full service financial inst itutions engaged in various activities, which may include securities trading, commercial and investment banking, advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the Underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the SFPUC for which they received or will receive customary fees.
In the ordinary course of their various business activities, the Underwriters and their respective 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
104
4151-5403-8838.1
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 SFPUC.
Citigroup Global Markets, Inc., an underwriter of the 2022ABCD Bonds, has entered into a retail distribution agreement with Fidelity Capital Markets, a division of National Financial Services LLC (together with its affiliates, “Fidelity”). Under this distribution agreement, Citigroup Global Markets Inc. may distribute municipal securities to retain investors at the original issue price though Fidelity. As part of this arrangement, Citigroup Global Markets Inc. will compensate Fidelity for its selling efforts.
J.P. Morgan Securities LLC (“JPMS ”) one of the Underwriters of the 2022ABCD Bonds, has entered into negotiated dealer each agreements (each, a “Dealer Agreement” with each of Charles Schwab & Co., Inc.(“CS&Co”) and LPL Financial LLC (“LPL ”) for the retail distribution of certain securities offerings at the original issue prices.
Pursuant to each Dealer Agreement each of CS&Co. and LPL may purchase 2022ABCD Bonds from JPMS at the original issue price less a negotiated portion of the selling concession applicable to any 2022ABCD Bonds that such firm sells.
FINANCIAL STATEMENTS
Attached as Appendix B are the audited financial statements of the Wastewater Enterprise (the “Financial Statements”) for Fiscal Years 2019-20 and 2020-21, prepared by the SFPUC and audited by KPMG LLP, independent certified public accountants, San Francisco, California (the “ Auditor”). The financial statements are included for convenience.
The audited financial statements of the SFPUC are public documents and the SFPUC has not requested nor did the SFPUC obtain permission from the Auditor to include the audited financial statements as an Appendix to this Official Statement. Accordingly, the Auditor has made no representation in connection with inclusion of the audits herein that there has been no material change in the financial condition of the SFPUC since the most recent audit was concluded. The Auditor has not been engaged to perform and has not performed, since the date of its report included herein, any procedures on the financial statements addressed in that report . The Auditor also has not performed any procedures relating to this Official Statement.
CONTINUING DISCLOSURE
The SFPUC has covenanted for the benefit of the Owners and Beneficial Owners of the 2022AB CD Bonds, under continuing disclosure certificates dated as of the Date of Delivery and the Forward Delivery Date, as applicable, to provide certain financial information and operating data (the “Annual Report”) not later than March 31 following the end of its Fiscal Year (presently June 30), beginning on March 31, 2023, with the report for Fiscal Year 2021-22, and to promptly provide notices of the occurrence of certain enumerated events set forth in each continuing disclosure certificate (“Listed Events”).
The SFPUC will file the Annual Report and any notice of Listed Events as described in each continuing disclosure certificate. The specific nature of the information to be contained in the Annual Report or the notices of Listed Events is set forth in each continuing disclosure certificate. These covenants have been made to assist the underwriters in complying with the Rule . The form s of each continuing disclosure certificate are attached to this Official Statement as APPENDIX D.
CO-MUNICIPAL ADVISORS
Montague DeRose and Associates, LLC, Walnut Creek, California, and Backstrom McCarley Berry & Co., LLC, San Francisco, California (the “Co-Municipal Advisors”), are acting as co -municipal advisors to the SFPUC with respect to the 2022ABCD Bonds. The Co- Municipal Advisors have assisted the SFPUC in the preparation of this Official Statement and in other matters relating to the planning, structuring, execution and delivery of the 2022ABCD Bonds. The Co-Municipal Advisors have not independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the SFPUC to determine the accuracy or completeness of this Official Statement. Because of its limited participation, the Co -Municipal Advisors assume no responsibility for the accuracy or completeness of any of the information contained herein. The Co- Municipal Advisors will not purchase or make a market in any of the 2022ABCD Bonds.
105
4151-5403-8838.1
The compensation to be received by the Co- Municipal Advisors from the SFPUC for services provided in connection with the planning, structuring, execution and delivery of the 2022ABCD Bonds is contingent upon the sale and delivery of the 2022ABCD Bonds.
VERIFICATION OF MATHEMATICAL ACCURACY
Upon delivery of the 2022AB Bonds and the 2022CD Bonds, as applicable, __________ will deliver a report on the mathematical accuracy of certain computations, contained computations, contained in schedules provided to them on behalf of the SFPUC, relating to the sufficiency of the anticipated receipts from the cash deposited in the respective Escrow Funds to prepay the Refunded Bonds in full.
Upon delivery of the 2022AB Bonds and the 2022CD Bonds, as applicable, __________ will deliver a report on the mathematical accuracy of certain computations, contained computations, contained in schedules provided to them on behalf of the SFPUC, relating to (a) the sufficiency of the anticipated receipts from the cash deposited in the respective Escrow Funds to prepay the applicable Refunded Bonds in full, and (b) the “yield” on the investments deposited in the Escrow Funds for the applicable series of Series 2013A Bonds and Series 2013B Bonds and on the 2022AB Bonds considered by the Co- Bond Counsel in connection with the opinion rendered by such firm that the 2022AB Bonds are not “arbitrage bonds” within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended.
CERTAIN FORWARD DELIVERY CONSIDERATIONS, ACKNOWLEDGEMENTS AND RISKS WITH RESPECT TO THE SERIES 2022AB BONDS
The following is a summary description of certain provisions of the Forward Delivery Bond Purchase Contract for the Series 2022AB Bonds which the SFPUC expects to enter into on or a bout ___ ___, 2022 * (the "Sale
Date") with Citigroup Global Markets, Inc. (“Citigroup”), on behalf of itself and the other underwriters named therein, and the conditions therein (the "Forward Purchase Agreement"). Subject to the terms of the Forward Purchase Agreement, the SFPUC expects to issue and deliver the Series 2022AB Bonds on or about _____ ___, 2022* or on such later date as is mutually agreed upon by the SFPUC and Citigroup (the "Forward Delivery Date").
The obligation of the Underwriters to purchase the Series 2022AB Bonds from the SFPUC is subject to the satisfaction of certain conditions on the Sale Date, on ____ __, 2022 * (the "Preliminary Closing Date"), and on the
Forward Delivery Date. The conditions to be satisfied during the period from and including the Sale Date to and including the Preliminary Closing Date are, in general, comparable to those in connection with bond closings that utilize a standard two to three -week period between sale dates and settlement dates. Because of the forward delivery in connection with the sale and settlement of the Series 2022AB Bonds, there are certain additional termination rights and settlement conditions that are not generally present in bond transactions that do not involve a forward delivery, and certain of those additional rights and conditions are summarized below. All of the conditions and termination rights with respect to the sale and settlement of the Series 2022AB Bonds are set forth in the Forward Delivery Contract, the form of which is attached as APPENDIX E hereto (each, a "Forward Delivery Contract"), and all of the discussion under this caption is qualified by reference to such contract.
BY PLACING AN ORDER WITH THE UNDERWRITERS FOR THE PURCHASE OF THE SERIES 2022AB BONDS, THE PURCHASER ACKNOWLEDGES AND AGREES THAT THE SERIES 2022AB BONDS ARE BEING SOLD ON A "FORWARD" BASIS AND THAT THE PURCHASER IS OBLIGATED TO ACCEPT DELIVERY OF AND PAY FOR THE SERIES 2022AB BONDS ON THE FORWARD DELIVERY DATE
SUBJECT TO THE CONDITIONS IN THE FORWARD PURCHASE AGREEMENT, AND THAT EACH
PURCHASER WILL SIGN, AND DELIVER TO CITIGROUP, A FORWARD DELIVERY CONTRACT AS A CONDITION TO ANY SERIES 2022AB BONDS BEING ALLOCATED TO SUCH PURCHASER.
Forward Delivery Date
The Underwriters' obligations under the Forward Purchase Agreement to purchase, accept delivery of and pay for the Series 2022AB Bonds on the Forward Delivery Date are conditioned upon the performance by the City of its obligations thereunder, the delivery of certain certificates and legal opinions, and the satisfaction of other conditions as of the Forward Delivery Date. The Underwriters may terminate the Forward Purchase Agreement without liability
* Preliminary, subject to change.
106
4151-5403-8838.1
at any time after the Preliminary Closing Date and on or prior to the delivery of and payment for the Series 2022A B Bonds (the "Settlement") if any of the following shall occur during such period (the "Delayed Delivery Period"):
(a) any event occurring, or information becoming known which, in the judgment of Citigroup, has the effect that, this Official Statement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and, in either such event , the City refuses to permit this Official Statement to be supplemented to supply such statement or information, or the effect of this Official Statement as so supplemented is to, in the judgment of Citigroup, materially adversely impact the market price o r marketability of the Series 2022AB Bonds or the ability of the Underwriters to enforce contracts for the sale, at the contemplated offering price, of the Series 2022AB Bonds;
(b) as a result of a Change of Law or for any other reason, Co- Bond Counsel do not expect to be able to issue an opinion as of the Forward Delivery Date either (i) substantially in the form and to the effect set forth in Appendix E hereto or (ii) notwithstanding a Change of Law that prevents Tax Counsel or Co- Bond Counsel from issuing an opinion substantially in the form and to the effect set forth in Appendix E hereto, that interest on the Series 2022AB Bonds is not subject to any then currently imposed federal income tax and is not included as a specific preference item for purposes of federal alternative minimum tax; (c) for any other reason, Co-Bond Counsel do not expect to be able to issue an opinion substantially in the form and to the effect set forth in Appendix C hereto; (d) as a result of a Change of Law that involves the enactment of federal legislation that applies only to "state or local bonds" (such as the Series 2022AB Bonds) that are issued and delivered on or after the Preliminary Closing Date, the holder of a Series 2022AB Bond is not able to utilize the full benefit of the exclusion from gross income for federal income tax purposes of interest payable on the Series 2022AB Bonds; (e) for any reason, including a Change of Law, the issuance, offering, or sale of the Series 2022AB Bonds as contemplated by the Forward Delivery Purchase Contract or by the Official Statement, is or would be in violation of any provision of the federal securities laws, including the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or the Trust Indenture Act of 1939, as amended; (f) an event of default has occurred and is continuing, technical or otherwise, under any of the Indenture; or
(g) as of the Forward Delivery Date, the Series 2022AB Bonds are not rated (or any rating is suspended) by either Moody's Investors Service ("Moody's") or S&P Global Ratings, a division of S&P Global Inc. ("S&P").
If the holder of a Series 2022AB Bond is not able to utilize the full benefit of the exclusion from gross income for federal income tax purposes of interest payable on the Series 2022AB Bonds as a result of a change that applies to all "state or local bonds," regardless of when issued, the Underwriters will not have a right to terminate their obligation to purchase the Series 2022AB Bonds under the Forward Purchase Agreement and the purchasers will be required to accept delivery of the Series 2022AB Bonds.
"Change of Law" shall mean any of the following, which occur at any time after the Preliminary Closing Date and on or prior to the Forward Delivery Date: (i) any change in or addition to applicable federal or state law, whether statutory or as interpreted by the courts, including any changes in or new rules, regulations or other pronouncements or interpretations by federal or state agencies, (ii) any legislation enacted by the Congress of the United States or recommended for passage by the President of the United States (whether or not such enacted or recommended legislation has a proposed effective date which is on or before the Forward Delivery Date), (iii) any law, rule or regulation proposed or enacted by any governmental body, department or agency (whether or not such proposed or enacted law, rule or regulation has a proposed effective date which is on or before the Forward Delivery Date) or (iv) any judgment, ruling or order issued by any court or administrative body, which in any such case, would, (A) as to the Underwriters, legally prohibit (or have the retroactive effect of prohibiting, if enacted, adopted, passed or finalized) their purchase of the Series 2022AB Bonds as provided in the Forward Purchase Agreement or their sale of the Series 2022AB Bonds or beneficial ownership interests therein to the public or, (B) as to the Issuer, make illegal the issuance, sale or delivery of the Series 2022AB Bonds (or have t he retroactive effect of making illegal such
107
4151-5403-8838.1
issuance, sale or delivery, if enacted, adopted, passed or finalized); (C) eliminate the exclusion from gross income of interest on the Series 2022AB Bonds (or have the retroactive effect of eliminating such exclusion if enacted, adopted, passed, or finalized); or (D) require the Series 2022AB Bonds to be registered under the Securities Act of 1933, as amended or under the Securities Exchange Act of 1934, as amended, or require the Ordinance to be qualified under the Trust Indenture Act of 1939, as amended (or have the retroactive effect of requiring such registration or qualification if enacted, passed, finalized or adopted).
During the period of time between the date of this Official Statement and the Forward Delivery Date, certain information contained in this Official Statement could change in a material respect. The City has agreed to amend or supplement this Official Statement with an updated Official Statement not more than 25 days or less than 10 days prior to the Forward Delivery Date. Although the City is not aware, as of the date of this Official Statement, of any information that would lead it to believe that it will be unable to satisfy its obligations under the Forward Purchase Agreement on the Forward Delivery Date, no assurances can be made that, as of the Forward Delivery Date: (i) there will have been no Change of Law; (ii) the facts and circumstances that are material to one or more of the required legal opinions will not differ from the facts and circumstances as of the Preliminary Closing Date, or (iii) that all necessary certifications and representations can or will be delivered and made in connection with the proposed issuance and delivery of the Series 2022AB Bonds. As a consequence of any of the foregoing, one or more of the foregoing legal opinions may not be rendered or one or more of the Forward Purchase Agreement conditions in the Forward Delivery Contract may not be met, with the possible result that the Settlement will not occur.
NONE OF THE UNDERWRITERS (NOR, IN TURN, YOU AS PURCHASER OF THE SERIES 2022AB BONDS FROM THE UNDERWRITERS) MAY REFUSE TO PURCHASE THE SERIES 2022AB BONDS BY REASON OF "GENERAL MARKET OR CREDIT CHANGES," INCLUDING, BUT NOT LIMITED TO, (A) CHANGES IN THE RATINGS ASSIGNED TO THE SERIES 2022AB BONDS ON THE
PRELIMINARY CLOSING DATE OR (B) CHANGES IN THE FINANCIAL CONDITION, OPERATIONS,
PERFORMANCE, PROPERTIES OR PROSPECTS OF THE CITY PRIOR TO THE FORWARD DELIVERY DATE.
Additional Risks Related to the Delayed Delivery Period
DURING THE DELAYED DELIVERY PERIOD, CERTAIN INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT COULD CHANGE IN A MATERIAL RESPECT. ANY CHANGES IN
SUCH INFORMATION WILL NOT PERMIT THE UNDERWRITERS TO TERMINATE THE FORWARD
PURCHASE AGREEMENT OR RELEASE THE PURCHASERS FROM THEIR COMMITMENTS TO PURCHASE THE SERIES 2022AB BONDS UNLESS THE CHANGE REFLECTS AN EVENT DESCRIBED UNDER "CERTAIN FORWARD DELIVERY CONSIDERATIONS, ACKNOWLEDGEMENTS AND RISKS WITH RESPECT TO THE SERIES 2022AB BONDS — Forward Delivery Date." IN ADDITION TO THE RISKS SET FORTH ABOVE, PURCHASERS OF THE SERIES 2022AB BONDS ARE SUBJECT TO
CERTAIN ADDITIONAL RISKS, SOME OF WHICH ARE DESCRIBED BELOW, AND WHICH WILL
NOT CONSTITUTE GROUNDS FOR PURCHASERS TO REFUSE TO ACCEPT DELIVERY OF AND PAY FOR THE SERIES 2022AB BONDS.
Ratings Risk. Issuance of the Series 2022AB Bonds and the Underwriters' obligations under the Forward Purchase Agreement are not conditioned upon the assignment of any particular ratings for the Series 2022AB Bonds or the maintenance of the ratings assigned to the Series 2022AB Bonds as of the Preliminary Closing Date. A change in ratings does not entitle the Underwriters to terminate the Forward Purchase Agreement or release the Underwriters from their obligations to purchase Series 2022AB Bonds.
Secondary Market Risk . The Underwriters are not obligated to make a secondary market in the Series 2022AB Bonds and no assurances can be given that a secondary market will exist for the Series 2022AB Bonds during the Delayed Delivery Period. Purchasers of the Series 2022AB Bonds should assume that the Series 2022AB Bonds will be illiquid throughout the Delayed Delivery Period.
Market Value Risk. The market value of the Series 2022AB Bonds as of the Forward Delivery Date may be affected by a variety of factors including, without limitation, general market conditions, the ratings then assigned to the Series 2022AB Bonds, the financial condition and business operations of the City and federal, state and local income tax and other laws. The market value of the Series 2022AB Bonds as of the Forward Delivery Date could therefore be higher or lower than the price to be paid by the initial purchasers of the Series 2022AB Bonds and that
108
4151-5403-8838.1
difference could be substantial. The Underwriters will nevertheless be obligated to take delivery of and pay for the Series 2022AB Bonds if the Forward Delivery Date conditions in the Forward Purchase Agreement are satisfied.
Neither the City nor the Underwriters make any representation as to the expected mark et price of the Series 2022AB Bonds as of the Forward Delivery Date. Further, no assurance can be given that the introduction or enactment of any future legislation will not affect the market price for the Series 2022AB Bonds as of the Forward Delivery Dat e or thereafter or not have a materially adverse impact on any secondary market for the Series 2022AB Bonds.
Tax Law Risk . Subject to the additional conditions of settlement described above, the Forward Purchase Agreement obligates the City to deliver and the Underwriters to purchase and accept delivery of the Series 2022AB Bonds if the City delivers an opinion of Bond Counsel with respect to the Series 2022AB Bonds substantially in the form and to the effect as set forth in "APPENDIX C - PROPOSED FORM OF OPINION OF CO-BOND COUNSEL." During the Delayed Delivery Period, new legislation, new court decisions, new regulations, or new rulings may be enacted, delivered, or promulgated, or existing law, including regulations adopted pursuant thereto, may be interpreted in a manner that might prevent Bond Counsel from rendering its opinion or otherwise affect the substance of such opinion. On the other hand, if any such action only diminishes the value, as opposed to eliminating the exclusion from gross income for federal income tax purposes of interest payable on "state or local bonds" regardless of when issued, the Underwriters would not have the right to terminate their obligations under the Forward Purchase Agreement. In the latter case, the Underwriters (and you, in turn, as a purchaser of the Series 2022AB Bonds from the Underwriters) would be required to accept delivery of the Series 2022AB Bonds. Prospective purchasers are encouraged to consult their tax advisors regarding the likelihood that legislation affecting the treatment of interest on the Series 2022AB Bonds may be enacted and the consequences of such enactment for the purchasers.
MISCELLANEOUS
References made in this Official Statement to certain documents and reports are brief summaries thereof that do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof.
The appendices to this Official Statement are integral parts of this Official Statement. Investo rs must read the entire Official Statement, including the appendices, to obtain information essential to making an informed investment decision.
109
4151-5403-8838.1
APPROVAL AND EXECUTION
This Official Statement has been duly approved, executed and delivered by the SFPUC.
PUBLIC UTILITIES COMMISSION OF THE
CITY AND COUNTY OF SAN FRANCISCO
By:
General Manager
A-1
4151-5403-8838.1
APPENDIX A
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
This Appendix contains summaries of certain provisions of the Indenture, which are in addition and complementary to the summaries found in the Official Statement under the captions “ INTRODUCTION,” “ THE 2022ABCD Bonds” and “SECURITY FOR THE BONDS .” The following summaries are qualified in their entirety by reference to the Indenture, a copy of which can be obtained from the SFPUC.
B-1
4151-5403-8838.1
APPENDIX B
SFPUC WASTEWATER ENTERPRISE FINANCIAL STATEMENTS
C-1
4151-5403-8838.1
APPENDIX C
PROPOSED FORM OF OPINION OF CO-BOND COUNSEL
(2022AB BONDS)
Upon issuance of the 2022AB Bonds, Kutak Rock LLP, and Curls Bartling P.C , Co-Bond Counsel, propose to render their final approving opinions in substantially the following form:
[Forward Delivery Date]
Public Utilities Commission of the City and County of San Francisco 525 Golden Gate Avenue
San Francisco, California 94102
$____________
Public Utilities Commission
of the City and County of San Francisco
Wastewater Revenue Bonds,
2022 Series A
(Refunding) (SSIP)
(Green Bonds)
$____________
Public Utilities Commission
of the City and County of San Francisco
Wastewater Revenue Bonds,
2022 Series B
(Refunding) (Non-SSIP)
Members of the Commission:
We have acted as co-bond counsel to the Public Utilities Commission of the City and County of San Francisco (the “Commission”), a commission duly constituted under the Charter (the “Charter”) of the City and County of San Francisco (the “City”), in connection with the issuance of the Commission's Wastewater Revenue Bonds, 2022 Series A (Refunding) (SSIP) (Green Bonds) (the “2022 Series A Bonds”), in the aggregate principal amount of $_______ and its Wastewater Revenue Bonds, 2022 Series B (Refunding) (Non- SSIP) (the “2022 Series B Bonds”), in the aggregate principal amount of $_______ (the 2022 Series A Bonds and the 2022 Series B Bonds being collectively referred to as the “Bonds”). The Bonds are being issued pursuant to authority granted by the Charter of the City, and an Indenture, dated as of January 1, 2003, by and between the Commission and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank, National Association), as trustee (the “Trustee”), as amended and supplemented (the “Original Indenture”), and as further supplemented by a Fourteenth Supplemental Indenture, dated as of ________ 1, 2022 (the “Fourteenth Supplemental Indenture” and together with the Original Indenture, the “Indenture”) by and between the Commission and the Trustee. The Bonds are also being issued pursuant to Ordinance No. 173-20 passed by the Board of Supervisors of the City on September 29, 2020 and approved by the Mayor of the City on October 1, 2020 (the “Ordinance”) and Resolution No. [____] of the Commission adopted on April 12, 2022 (the “Resolution”).
Capitalized terms not otherwise defined herein shall have the respective meanings ascribed thereto in the Indenture.
In our capacity as co -bond counsel, we have reviewed the Indenture, the Ordinance, the Resolution, certifications of the Commission, the Trustee and others, opinions of counsel to the Commission, the City and the Trustee, the Tax Certificate relating to the Bonds (the “Tax Certificate”), the Escrow Agreement relating to the Refunded 2013A Bonds and the Refunded 2013B Bonds (the “Escrow Agreement”), copies of the Verification Report, dated as of its date, by [_______], as the verification agent, and such other documents, opinions and instruments as we deemed necessary to render the opinions set forth herein. We have assumed, but have not verified, that the signatures on all documents, certificates and opinions that we have reviewed are genuine. In our examination, we have assumed, but have not verified, the legal capacity of all parties, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies or by facsimile or other means of electronic transmission or which we obtained from sites on the internet, and the authenticity of the originals of such latter documents. As to facts and certain other matters and the consequences thereof relevant to the opinions expressed herein and the other statements made herein, we have relied without investigation or verification upon, and assumed the accuracy and completeness of certificates, letters (including
C-2
4151-5403-8838.1
opinion letters), and oral and written statements and r epresentations of public officials, officers and other representatives of the Commission and the City, counsel for the Commission and the City, and others.
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or whether any other matters come to our attention after the date hereof. We call attention to the fact that the obligations of the Commission, the security provided therefor, as contained in the Bonds and the Indenture, may be subject to general principles of equity which permit the exercise of judicial discretion, and are subject to the provisions of applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect, and to the limitations on legal remedies against governmental agencies similar to the Commission in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the Bonds or the Indenture. We have not undertaken any responsibility for the accuracy, completeness or fairness of the Official Statement dated [__________], 2022[ , the Updated Official Statement dated [__________], 2022], or any other offering material relating to the Bonds and express no opinion relating thereto. In addition, the imposition of certain fees and charges by the Commission relating to the Enterprise is subject to the provisions of the Charter and Articles XIIIC and XIIID of the California Constitution.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:
(1) The Bonds have been duly authorized, issued by, and constitute the valid and binding limited obligations of, the Commission.
(2) The Fourteenth Supplemental Indenture has been duly authorized, executed and delivered by the Commission, and the Indenture constitutes the valid and binding obligation of the Commission. The Indenture creates a valid pledge of the Net Revenues of the Enterprise to secure the payment of the principal of and interest on the Bonds, as and to the extent set forth in the Indenture and subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein.
(3) The Bonds are limited obligations of the Commission and are payable exclusively from and are secured by a pledge of the Net Revenues of the Enterprise. The general fund of the City is not liable and the credit or taxing power of the City is not pledged for the payment of the Bonds or the interest thereon. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the City or of the Commission or any of their income or receipts, except the Net Revenues.
(4) Under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for federal income tax purposes. Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax. (5) Under existing laws, interest on the Bonds is exempt from present State of California personal income taxes.
The opinions set forth in numbered paragraph 4 above regarding the exclusion of interest from gross income of the recipient is subject to continuing compliance by the Commission with covenants regarding federal tax law contained in the Indenture and the Tax Certificate. Failure to comply with such covenants could cause interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. Although we are of the opinion that interest on the Bonds is excluded from gross income for federal tax purposes, the accrual or receipt of interest on the Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient’s particular tax status or other items of income or deduction. We express no opinion regarding any such consequences.
C-3
4151-5403-8838.1
Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update, revise or supplement this opinion letter.
Respectfully submitted,
C-4
4151-5403-8838.1
(2022CD BONDS)
Upon issuance of the 2022CD Bonds, Kutak Rock LLP, and Curls Bartling P.C, Co-Bond Counsel, propose to render their final approving opinions in substantially the following form:
[Date of Delivery]
Public Utilities Commission of the City and County of San Francisco 525 Golden Gate Avenue
San Francisco, California 94102
$____________
Public Utilities Commission
of the City and County of San Francisco
Wastewater Revenue Bonds,
2022 Series C
(Refunding – Federally Taxable)
(SSIP) (Green Bonds)
$____________
Public Utilities Commission
of the City and County of San Francisco
Wastewater Revenue Bonds,
2022 Series D
(Refunding – Federally Taxable)
(Non-SSIP)
Members of the Commission:
We have acted as co-bond counsel to the Public Utilities Commission of the City and County of San Francisco (the “Commission”), a commission duly constituted under the Charter (the “Charter”) of the City and County of San Francisco (the “City”), in connection with the issuance of the Commission's Wastewater Revenue Bonds, 2022 Series C (Refunding – Federally Taxable) (SSIP) (Green Bonds) (the “2022 Series C Bonds”), in the aggregate principal amount of $_______ and its Wastewater Revenue Bonds, 2022 Series D (Refunding – Federally Taxable) (Non-SSIP) (the “2022 Series D Bonds”), in the aggregate principal amount of $_______ (the 2022 Series C Bonds and the 2022 Series D Bonds being collectively referred to as the “Bonds”). The Bonds are being issued pursuant to authority granted by the Charter of the City, and an Indenture, dated as of January 1, 2003, by and between the Commission and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank, National Association), as trustee (the “Trustee”), as amended and supplemented (the “Original Indenture”), and as further supplemented by a Fifteenth Supplemental Indenture, dated as of ________ 1, 2022 (the “Fifteenth Supplemental Indenture” and together with the Original Indenture, the “Indenture”) by and between the Commission and the Trustee. The Bonds are also being issued pursuant to Ordinance No. 173-20 passed by the Board of Supervisors of the City on September 29, 2020 and approved by the Mayor of the City on October 1, 2020 (the “Ordinance”) and Resolution No. [____] of the Commission adopted on April 12, 2022 (the “Resolution”). Capitalized terms not otherwise defined herein shall have the respective meanings ascribed thereto in the Indenture.
In our capacity as co -bond counsel, we have reviewed the Indenture, the Ordinance, the Resolution, certifications of the Commission, the Trustee and others, opinions of counsel to the Commission, the City and the Trustee, the Escrow Agreement relating to the Refunded 2016A Bonds and the Refunded 2016B Bonds (the “Escrow Agreement”), copies of the Verification Report, dated as of its date, by [_______], as the verification agent, and such other documents, opinions and instruments as we deemed necessary to render the opinions set forth herein. We have assumed, but have not verified, that the signatures on all documents, certificates and opinions that we have reviewed are genuine. In our examination, we have assumed, but have not verified, the legal capacity of all parties, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies or by facsimile or other means of electronic transmission or which we obtained from sites on the internet, and the authenticity of the originals of such latter document s. As to facts and certain other matters and the consequences thereof relevant to the opinions expressed herein and the other statements made herein, we have relied without investigation or verification upon, and assumed the accuracy and completeness of certificates, letters (including opinion letters), and oral and written statements and representations of public officials, officers and other representatives of the Commission and the City, counsel for the Commission and the City, and others.
C-5
4151-5403-8838.1
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or whether any other matters come to our attention after the date hereof. We call attention to the fact that t he obligations of the Commission, the security provided therefor, as contained in the Bonds and the Indenture, may be subject to general principles of equity which permit the exercise of judicial discretion, and are subject to the provisions of applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect, and to the limitations on legal remedies against governmental agencies similar to the Commission in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the Bonds or the Indenture. We have not undertaken any responsibility for the accuracy, completeness or fairness of the Official Statement dated [__________], 2022, or any other offering material relating to the Bonds and express no opinion relating thereto. In addition, the imposition of certain fees and charges by the Commission relating to the Enterprise is subject to the provisions of the Charter and Articles XIIIC and XIII D of the California Constitution.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:
(1) The Bonds have been duly authorized, issued by, and constitute the valid and binding limited obligations of, the Commission.
(2) The Fifteenth Supplemental Indenture has been duly authorized, executed and delivered by the Commission, and the Indenture constitutes the valid and binding obligation of the Commission. The Indenture creates a valid pledge of the Net Revenues of the Enterprise to secure the payment of the principal of and interest on the Bonds, as and to the extent set forth in the Indenture and subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein.
(3) The Bonds are limited obligations of the Commission and are payable exclusively from and are secured by a pledge of the Net Revenues of the Enterprise. The general fund of the City is not liable and the credit or taxing power of the City is not pledged for the payment of the Bonds or the interest thereon. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the City or of the Commission or any of their income or receipts, except the Net Revenues.
(4) Interest on the Bonds is included in gross income for federal income tax purposes. Except as set forth in (5) below, we express no opinion regarding the tax consequences relating to the ownership of, receipt of interest on or disposition of the Bonds. Taxpayers should seek advis e based on their particular circumstances from an independent tax advisor. (5) Under existing laws, interest on the Bonds is exempt from present State of California personal income taxes.
Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update, revise or supplement this opinion letter.
Respectfully submitted,
D-1
4151-5403-8838.1
APPENDIX D
FORM OF CONTINUING DISCLOSURE CERTIFICATE
D-2
4151-5403-8838.1
FORM OF CONTINUING DISCLOSURE CERTIFICATE
SERIES 2022AB BONDS
$_________
Public Utilities Commission of the
City and County of San Francisco
Wastewater Revenue Bonds
$________
2022 Series A
(Refunding) (SSIP)
(Green Bonds)
$________
2022 Series B
(Refunding) (Non-SSIP)
____________, 2022
This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Public Utilities Commission of the City and County of San Francisco (the “SFPUC”) in connection with the is suance of its Wastewater Revenue Bonds, 2022 Series A (Refunding) (SSIP) (Green Bonds) (Forward Delivery) (the “ 2022A Bonds”), and its Wastewater Revenue Bonds, 2022 Series B (Refunding) (Non-SSIP) (Forward Delivery) (the “2022B Bonds” and, together with the 2022A Bonds , the “2022AB Bonds”). The 2022AB Bonds are being issued pursuant to a Fourteenth Supplemental Indenture, dated as of _______ 1, 2022 (the “Fourteenth Supplemental Indenture”), by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The Fourteenth Supplemental Indenture amends and supplements the Indenture, dated as of January 1, 2003, by and between the SFPUC and the Trustee (as amended and supplemented, including as amended and supplemented by the Fourteenth Supplemental Indenture, the “Indenture”). The SFPUC covenants and agrees as follows:
SECTION 1. P urpose of the Disclosure Certificate . This Disclosure Certificate is being executed and delivered by the SFPUC for the benefit of the Holders and Beneficial Owners of the 2022AB Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission (the “S.E.C.”) Rule 15c2-12(b)(5).
SECTION 2. De finitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate 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 SFPUC pursuant to, and as described in, S
ections 3 and 4 of this Disclosure Certificate.
“Beneficial Owner” shall mean any person that: (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2022AB Bonds (including persons holding 2022AB Bonds through nominees, depositories or other intermediaries) including, but not limited to, the power to vote or consent with respect to any 2022AB Bonds or to dispose of ownership of any 2022AB Bonds; or (b) is treated as the owner of any 2022AB Bonds for federal income tax purposes.
“Dissemination Agent” shall mean the SFPUC, acting in its capacity as Dissemination Agent under this Disclosure Certificate, or any successor Dissemination Agent designated in writing by the SFPUC and which has filed with the SFPUC a written acceptance of such designation. “Financial Obligation” means, for purposes of the Listed Events set out in Section 5(a)(15) and Section (5)(a)(16), a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a
D-3
4151-5403-8838.1
source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term “Financial Obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule. “Holder” shall mean either the registered owners of the 2022AB Bonds , or, if the 2022AB 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(a) of this Disclosure Certificate. “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive continuing disclosure filings pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB currently located at http://emma.msrb.org.
“Official Statement” shall mean the final Official Statement, dated _________, 2022, prepared in connection with the sale and offering of the 2022AB Bonds.
“Participating Underwriters” shall mean any of the original underwriters or purchasers of the 2022AB Bonds required to comply with the Rule in connection with the offering of the 2022AB Bonds . “Rule” shall mean Rule 15c2-12(b)(5) adopted by the S.E.C. under the Securities Exchange Act of 1934, as the same may be amended from time to time.
SECTION 3. P rovision of Annual Reports.
(a) The SFPUC shall, or shall cause the Dissemination Agent to, not later than March 31 of each year, commencing with the report for Fiscal Year 2021-22 (which is due not later than March 31, 2023), provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. If the Dissemination Agent is not the SFPUC, the SFPUC shall provide the Annual Report to the Dissemination Agent not late r than 15 days prior to said date. The Annual Report must be submitted in electronic format and accompanied by such identifying information as is prescribed by the MSRB, and may cross -reference other information as provided in Section 4 of this Disclosure Certificate.
However, if the audited financial statements of the SFPUC are not available by the date required above for the filing of the Annual Report, the SFPUC shall submit unaudited financial statements and submit the audited financial statements as soon as they are available. If the SFPUC’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b). (b) If the SFPUC is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the SFPUC shall send a notice to the MSRB in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall (if the Dissemination Agent is other than the SFPUC) file a report with the SFPUC certifying the date that the Annual Report was provided to the MSRB pursuant to this Disclosure Certificate.
SECTION 4. C
ontent of Annual Reports. The SFPUC’s Annual Report shall contain or incorporate by reference the following information:
(a) A udited financial statements of the Wastewater Enterprise for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles applicable to the SFPUC from time to time. If the SFPUC’s audited financial statements are not available by the date the Annual Report is required to be filed, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available; (b) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 6, SUMMARY OF ACTIVE SEWER ACCOUNTS BY USER TYPE;”
D-4
4151-5403-8838.1
(c) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 12, HISTORICAL SINGLE-FAMILY RESIDENTIAL SEWER RATES”; (d) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 13, HISTORICAL MULTI-FAMILY RESIDENTIAL SEWER RATES”; (e) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 14, ADOPTED SINGLE-FAMILY AND MULTI-FAMILY RESIDENTIAL SEWER RATES”; (f) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 15, HISTORICAL AND ADOPTED NON-RESIDENTIAL DISCHARGE RATES”; (g) An update for the prior Fiscal Year of the tables in the Official Statement in the sections entitled “OBLIGATIONS PAYABLE FROM NET REVENUES – Outstanding Parity Revenue Bonds” and “– Parity Loans” showing all bonds and other obligations of the SFPUC secured by Net Revenues; and (h) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 22, HISTORICAL REVENUE, OPERATING & MAINTENANCE EXPENSE AND DEBT SERVICE COVERAGE FOR FISCAL YEARS ENDED JUNE 30.”
Any or all of the items listed above may be set forth in a document or set of documents, or may be included by specific reference to other documents, including official statements of debt issues of the SFPUC or related public entities, which are available to the public on the MSRB website. If the document included by reference is a final official statement, it must be available from the MSRB. The SFPUC shall clearly identify each such other document so included by reference.
SECTION 5. R
eporting of Significant Events.
(a) The SFPUC shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the 2022AB Bonds:
1. Principal and interest payment delinquencies;
2. Non-payment related defaults, if material;
3. Unscheduled draws on debt service reserves reflecting financial difficulties;
4. Unscheduled draws on credit enhancements reflecting financial difficulties;
5. Substitution of credit or liquidity providers, or their failure to perform;
6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB), other material notices or determinations with respect to the tax status of the 2022AB Bonds, or other material events affecting the tax status of the 2022AB Bonds;
7. Modifications to rights of Holders, if material;
8. Optional, unscheduled or contingent 2022AB Bond calls, if material, and tender offers;
9. Defeasances;
10. Release, substitution, or sale of property securing repayment of the 2022AB Bonds , if material;
11. Rating changes;
12. Bankruptcy, insolvency, receivership or similar event of the SFPUC;
D-5
4151-5403-8838.1
13. The consummation of a merger, consolidation, or acquisition involving the S FPUC or the sale of all or substantially all of the assets of the SFPUC, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material;
14. Appointment of a successor or additional trustee or the change of name of a trustee, if material;
15. Incurrence of a Financial Obligation of the SFPUC, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the SFPUC, any of which affect Holders, if material; and
16. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the SFPUC, any of which reflect financial difficulties.
Note:
for the purposes of the event identified in subparagraph (12), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the SFPUC 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 the SFPUC, 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 the SFPUC. (b) W
henever the SFPUC obtains knowledge of the occurrence of a Listed Event in Section 5(a), the SFPUC shall, or shall cause the Dissemination Agent (if not the SFPUC) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of a Listed Event described in subsection (a)(8) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected 2022AB Bonds under the Indenture.
(c) The SFPUC shall give, or cause to be given, notice of the occurrence of the receipt by the SFPUC of a written statement by the Climate Standards Board to the effect that the 2022A Bonds are no longer “Clima te Bond Certified.” The SFPUC shall, or shall cause the Dissemination Agent (if not the SFPUC) to, file a notice of such occurrence with the MSRB, in electronic format as prescribed by the MSRB, in a timely manner not in excess of 30 days after the receipt by the SFPUC of such written statement. (d) The SFPUC intends to comply with the Listed Events described in Section 5(a)(15) and Section 5(a)(16) and the definition of “Financial Obligation” in Section 2, with reference to the Rule, any other applicable feder al securities laws and the guidance provided by the S.E.C. in Release No. 34- 83885 dated August 20, 2018 (the “2018 Release”), and any further amendments or written guidance provided by the S.E.C. or its staff with respect to the amendments to the Rule effected by the 2018 Release.
SECTION 6. T
ermination of Reporting Obligation . The SFPUC’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2022AB Bonds.
If such termination occurs prior to the final maturity of the 2022AB Bonds , the SFPUC sh all give notice of such termination in the same manner as for a Listed Event under Section 5(b).
SECTION 7. Di ssemination Agent . The SFPUC may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclo sure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate.
D-6
4151-5403-8838.1
SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the SFPUC may amend or waive this Disclosure Certificate or any provision of this Disclosure Certificate, provided that the following conditions are satisfied:
(a) I f the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the 2022AB Bonds or the type of business conducted;
(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of the City Attorney of the City and County of San Francisco or nationally recognized bond counsel, ha ve complied with the requirements of the Rule at the time of the original issuance of the 2022AB Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
(c) The amendment or waiver either (i) is approved by the owners of a majority in aggregate principal amount of the 2022AB Bonds or (ii) does not, in the opinion of the City Attorney or nationally recognized bond counsel, materially impair the interests of the Holders.
In the event of any amendment or waiver of a provision of this Disclosure Certificate, the SFPUC shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the SFPUC. In addition, if the amendment relates to the accounting principles to be followed in preparing financial st atements: (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5; and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quanti tative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.
SECTION 9. A
dditional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the SFPUC from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate 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 Certificate. If the SFPUC 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 Certificate, the SFPUC shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
SECTION 10. Def
ault. In the event of a failure of the SFPUC to comply with any provision of this Disclosure Certificate, any Participating Underwriters, Holder or Beneficial Owner of the 2022AB Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the SFPUC to comply with its obligations under this Disclosure Certificate; provided that any such action may be instituted only in a federal or State court located in the City and County of San Francisco, State of California.
Failure by the SFPUC to comply with any provision of this Disclosure Certificate shall not be deemed an Event of Default under the Indenture and the sole remedy under this Disclosure Certificate in the event of any failure of the SFPUC to comply with this Disclosure Certificate shall be an action to compel performance.
SECTION 11. Ben
eficiaries. This Disclosure Certificate shall inure solely to the benefit of the SFPUC, the Dissemination Agent, the Participating Underwriters and Holders and Beneficial Owners from time to time of the 2022AB Bonds, and shall create no rights in any other person or entity.
D-7
4151-5403-8838.1
Dated as of the date first written above.
PUBLIC UTILITIES COMMISSION OF THE
CITY AND COUNTY OF SAN FRANCISCO
By:
General Manager
Approved as to form:
DAVID CHIU
CITY ATTORNEY
By:
Deputy City Attorney
D-8
4151-5403-8838.1
CONTINUING DISCLOSURE CERTIFICATE
EXHIBIT A
FORM OF NOTICE TO THE
MUNICIPAL SECURITIES RULEMAKING BOARD
OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: Public Utilities Commission of the City and County of San Francisco Name of Issue: Wastewater Revenue Bonds, 2022 Series A (Refunding) (SSIP) (Green Bonds), and Wastewater Revenue Bonds, 2022 Series B (Refunding) (Non- SSIP)
Date of Issuance: ____________, 2022
NOTICE IS HEREBY GIVEN that the SF PUC has not provided an Annual Report with respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Certificate of the Public Utilities Commission of the City and County of San Francisco, dated _________, 2022. The SFPUC anti cipates that the Annual Report will be filed by _______________.
Dated: _______________
PUBLIC UTILITIES COMMISSION OF
THE CITY AND COUNTY OF SAN FRANCISCO
By: [ to be signed only if filed]
Title
D-9
4151-5403-8838.1
FORM OF CONTINUING DISCLOSURE CERTIFICATE
SERIES 2022CD BONDS
$_________
Public Utilities Commission of the
City and County of San Francisco
Wastewater Revenue Bonds
$________
2022 Series C (Refunding
– Federally Taxable)
(SSIP)
(Green Bonds)
$________
2022 Series D (Refunding
– Federally Taxable)
(Non-SSIP)
____________, 2022
This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Public Utilities Commission of the City and County of San Francisco (the “SFPUC”) in connection with the issuance of its Wastewater Revenue Bonds, 2022 S eries C (Refunding – Federally Taxable) (SSIP) (Green Bonds) (the “ 2022C Bonds”), and its Wastewater Revenue Bonds, 2022 Series D (Refunding – Federally Taxable) (Non -SSIP) (the “2022D Bonds” and, together with the 2022C Bonds, the “2022CD Bonds”). The 2022CD Bonds are being issued pursuant to a Fourteen th Supplemental Indenture, dated as of _______ 1, 2022 (the “ Fourteenth Supplemental Indenture”), by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The Fourteenth Supplemental Indenture amends and supplements the Indenture, dated as of January 1, 2003, by and between the SFPUC and the Trustee (as amended and supplemented, including as amended and supplemented by the Fourteenth Supplemental Indenture, the “Indenture”). The SFPUC covenants and agrees as follows:
SECTION 1. P
urpose of the Disclosure Certificate . This Disclosure Certificate is being executed and delivered by the SFPUC for the benefit of the Holders and Beneficial Owners of the 2022CD Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission (the “S.E.C.”) Rule 15c2-12(b)(5).
SECTION 2. De
finitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate 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 SFPUC pursuant to, and as described in, S
ections 3 and 4 of this Disclosure Certificate.
“Beneficial Owner” shall mean any person that: (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2022CD Bonds (including persons holding 2022CD Bonds through nominees, depositories or other intermediaries) including, but not limited to, the power to vote or consent with respect to any 2022CD Bonds or to dispose of ownership of any 2022CD Bonds; or (b) is treated as the owner of any 2022CD Bonds for federal income tax purposes.
“Dissemination Agent” shall mean the SFPUC, acting in its capacity as Dissemination Agent under this Disclosure Certificate, or any successor Dissemination Agent designated in writing by the SFPUC and which has filed with the SFPUC a written acceptance of such designation.